Palau National Energy Policy

1.0 IMPROVED INSTITUTIONAL ARRANGEMENTS FOR ENERGY SECTOR MANAGEMENT 9

2.0 ENERGY EFFICIENCY AND ENERGY CONSERVATION 13

3.0 RENEWABLE ENERGY 15

4.0 IMPORTED FUELS AND HYDROCARBONS 19

5.0 ELECTRIC POWER 21 ACRONYMS 24 3 P A L A U E N E R G Y P O L I C Y Foreword P alau, like the rest of the world, faces two major energy challenges. The first is to deliver clean, secure, affordable energy for all citizens of Palau while treating the environment responsibly. The second is to respond to the risks of climate change Promoting environmentally sustainable energy technologies with the aim to substitute imported fossil fuels Supporting consumers through the transition towards a new energy sector. by adaptation to changes and by mitigation through reducing the greenhouse gases caused by the production and use of energy. In addition Palau faces a Adjustments have to be introduced at multiple policy levels to effectively promote clean, reliable, efficient and challenge that it shares with other small island countries, namely it’s extremely sustainable energy for all citizens of Palau. The National Energy Policy and its Strategic Action Plan will guide the high dependence from imported fuels. public and private sectors of Palau in cooperation and our regional and international development partners to establish a sustainable energy sector. Through implementation of this policy Palau will become an international This National Energy Policy which has been developed in an inclusive and leader in creating a green and renewable energy society. participatory process clearly sets out the government’s policy vision. It forms the basis for a strategic action plan which ensures that the policy vision becomes a reality. This policy should also provide guidance for a unified and integrated H.E. Johnson Toribiong energy sector management and set forth the foundation for Palau’s energy future. President of the Republic of Palau The vision is for a reliable and resilient energy sector delivering Palau sustainable, low emissions energy services, by: Date: H.E. Johnson Toribiong President of the Republic of Palau Providing clear direction on the future of Palau’s energy sector Appropriate regulation to securely deliver energy services at competitive prices Maximizing cost-effective energy efficiency and renewable energy resources and conservation of energy while safeguarding our environment 4 5 P A L A U E N E R G Y P O L I C Y P A L A U E N E R G Y P O L I C Y Introduction T his policy has been developed by a working group with representatives from the Office of the President; the Office of Environmental Response and Coordination of the President. This document has been refined in a series of consensus building workshops. Additionally, consecutive drafts have been circulated amongst the products can have long-term negative effects on the country’s fragile island ecosystems which at the same time provide the basis for economic development and Around the world, there is a growing sense of urgency about the need to address the serious challenges of climate change. For Palau, there are four main climate (OERC); the Ministry of Finance; the Ministry of working group members for review and input. prosperity of Palau’s citizens. change challenges. Palau needs to: Natural Resources, Environment, and Tourism; a member of the Senate and a member of the House An energy sector review that was undertaken as an The development of renewable energy resources and Prepare for, and adapt to, the impacts of changes of the 8th OEK; The Ministry of Public Infrastructure, initial step in this project has shown that energy is a energy efficiency has been limited by the availability in our physical environment, by responding to the Industry and Commerce; Ministry of State; Palau Public vital resource underpinning all aspects of our society of appropriate technology and insufficient institutional risks and taking advantage of the opportunities they Utilities Corporation (PPUC); members of the Oil and and fundamentally influencing Palau’s environmental capacity. In addition there has been a lack of appropriate present Gas Taskforce; The Bureau of Public Works; Palau sustainability. Being almost 100 % dependent on and innovative financing that supports a market driven Chamber of Commerce; the Palau Community Action imported energy, Palau is highly vulnerable to development of local, renewable energy resources. Control and reduce our own greenhouse gas Agency (PCAA); the National Development Bank of international energy market movements and price emissions Palau (NDBP); Shell Palau; the European Union (EU); volatility. Palau’s energy security is not guaranteed and Addressing energy sector issues requires collaborative the United Nations Development Program (UNDP); energy supply interruptions undermine economic growth leadership, adequate institutional arrangements, Support international initiatives on greenhouse gas the Palau Automated Land and Resource Information and social development. Palau is a small country lacking common goals, political will, and a shared national emissions, through implementation of the Kyoto Systems Office (PALARIS); the Japan International significant economies of scale and has dispersed outer vision. This vision has been outlined in the Medium Protocol and other climate change conventions Cooperative Agency (JICA); Palau Community College islands’ populations that are difficult to serve. Term Development Strategy which provides a general (PCC); and the Chamber of Commerce (CoC). economic development framework for the Republic Achieve the objectives above at the lowest possible In addition, environmental vulnerability through climate of Palau. This Energy policy is linked to government long-term cost. This process began in April 2009 and was guided by change is significant. Extreme weather events and sea policies on economic development, sustainability, an executive committee composed of members from level rise pose serious threats, particularly for the low- climate change; infrastructure, transport, resource Another challenge is security of energy supply. Security Palau Energy Office (PEO), PPUC, OERC, the Senate, lying atolls. Environmental damage, habitat loss and management, and education, science and technology. has two key dimensions – reliability and resilience. the House of Delegates of the 8th OEK and the Office pollution resulting from transport and use of petroleum Reliability means users are able to access the energy 6 con’t page 8 7 P A L A U E N E R G Y P O L I C Y P A L A U E N E R G Y P O L I C Y

1.0 Improved institutional arrangements for energy services they require, when they require them. Resilience is the ability of the system to cope with shocks and change. Diversifying energy sources, energy efficiency and demand-side management can help ensure both reliability and resilience. sector management For a small economy such as Palau, some circumstances, however, are too costly to insure against. A trade-off Policy Summary: Provide an Energy Administration for the development of skills and capacity necessary has to be made between different price levels and with the authority and support required for effective to review, update and implement the energy policy different levels of security and reliability. Finding the and transparent implementation of the National Energy framework. right balance is an ongoing task involving government, Policy and the related Strategic Action Plan. producers and users of energy. The government believes The creation of a National Energy Committee (NEC) a combination of competitive markets with backstop Policy Details: will assist in the implementation of the National Energy measures and effective regulation of suppliers is the In order to create an adequate institutional framework Policy. The NEC will convene at least twice a year best means of protecting the security of Palau’s energy an Energy Act to determine functions and authority and issue a progress report on new initiatives and the supplies. The government believes the principles and required for effective Energy Administration will be status of energy projects and the financial status of the initiatives set out in this document for the five key policy developed and enforced. The Act will be based on National Energy Policy at the end of each fiscal year. areas will lead Palau to a sustainable, low emissions the National Energy Policy and determine roles and energy system for generations to come. Making the right responsibilities in the energy sector. The NEC will consist of representatives of appointed by choices today will enable Palau to provide a sustainable The Office of the President energy supply for its future. The Energy Administration will be located at an The Senate appropriate level in Government and be allocated with The House adequate human and financial resources to effectively The Chamber of Commerce address important, practical energy policy matters. A PPUC separate annual budget line will be provided for the Palau Energy Office Energy Administration. This budget allocation will allow Palau Community College. 8 con’t page 10 9 P A L A U E N E R G Y P O L I C Y P A L A U E N E R G Y P O L I C Y The mandate of the Energy Administration will include planning, project development and implementation. but not necessarily be limited to: Actively engage private sector and non-state actors Develop, regularly update and manage national in implementation and management of energy energy database to support effective analysis and projects through dialogue and outsourcing of policy development. activities. Monitor and regulate energy matters such as operators’ licences, grid access codes, equipment Support coordination of donor initiatives in the standards, tariffs and import rules for energy energy sector and ensure compatibility of donor equipment. funded projects with the National Energy Policy and its related Strategic Action Plan. Full participation of the Head of the Energy Administration in oversight of PPUC as ex officio Scrutinize all unsolicited proposals for energy sector member of the PPUC board. projects. Provision of technical expertise to PPUC, the The Energy Administration will also ensure the Government and the general public in accordance continuous and active cooperation of Palau within with the National Energy Policy and in line with the framework of energy initiatives within Micronesia, international best practices. the wider Pacific region and globally. This will include initiatives under the Framework for action on Energy Educate and continue creating public awareness Security in the Pacific, the Green Energy Micronesia about relevant energy issues related to the National (GEM) initiative and various Climate Change initiatives Energy Policy. in the UNFCCC framework including promotion of fast action to mitigate climate change in the near and long Integration of renewable energy and energy term future. efficiency measures into mainstream energy policy, 10 11 P A L A U E N E R G Y P O L I C Y P A L A U E N E R G Y P O L I C Y

2.0 Energy efficiency and energy conservation Policy: Recognizing that improving the efficiency of by purchasing energy efficient equipment. energy use has greater short term value on reducing consumption of fossil energy than any other action, The government expects measurable and substantial taxes and policies will be revised to encourage the improvement of energy efficiency by 2020, in at least import and sale of appliances, vehicles and boats 80% of households, businesses and government having the highest energy efficiency; develop energy buildings. To achieve this, innovative financing efficiency standards for new buildings and renovations mechanisms and incentives through the banking sector including homes, businesses and government premises. for energy efficiency investments by households and The policy target is set at a 30 % reduction in overall businesses will be established and improved. To show national energy consumption by 2020. technical options for energy efficiency measures in the housing sector all new and refurbished government Policy Details: buildings will incorporate energy-efficient designs such Investment should occur in energy efficiency measures as shading and orientation of buildings to reduce where this is cheaper than the long-term costs of building heating of buildings and reflective roof paint and extra generation capacity, including environmental attic heat radiation barriers to reduce the need for air costs. It will therefore be ensured that the stock of conditioning. more energy-efficient equipment within government, businesses, and private homes (e.g. refrigeration, air Ongoing activities such as the Palau Energy conditioning, appliances, lighting) is continuously Conservation Strategy will continue to promote the expanded and improved. The government will take the replacement of inefficient appliances. For example the lead in a nationwide effort to improve energy efficiency replacement of incandescent lights with more efficient 12 con’t page 14 13 P A L A U E N E R G Y P O L I C Y P A L A U E N E R G Y P O L I C Y

3.0 Renewable energy technologies such as CFL and LED lights. These efforts with support for these measures with adequate budget will be supported by the introduction of mandated allocations. energy labels for appliances such fridges, freezers, air conditioners and washing machines. The establishment of energy efficient public transport An import tax scheme will be developed and introduced system for urban and rural areas with particular emphasis that provides incentives for the importation of efficient on reducing energy consumed commuting to the new Policy: Renewable energies have the potential to still be unacceptably high, compared to future benefits. equipment and discourages the import of inefficient Capitol facilities will be promoted and encouraged. reduce dependency on imported fuels and to reduce Therefore, setting targets and regulating prices alone appliances, vehicles and machinery. the countrys vulnerability towards price shocks. will be not sufficient if a green, renewable energy Renewable energies will therefore be promoted so that system is the long term goal. Concessionary finance Oil, and products derived from oil, will remain an such energy will provide a minimum of 20% of electrical and targeted subsidies may therefore be required for important source of transport energy for Palau for many energy generated in Palau the end of 2020. Promotion household investors and independent power producers. years. Palau’s own oil and gas reserves have not been of renewable energy use will continue with the aim to explored and it is unlikely that domestic fuel needs will be completely substitute all fossil fuel use on the long term, Given that renewable electricity technologies have met by our own fossil resources in the foreseeable future. reducing Palaus carbon footprint to a minimum. to compete with electricity tariffs, that are low in Thus, key areas for reducing fossil fuel consumption in the comparison to current generation cost for renewable transport sector include: significantly increasing vehicle Policy Details: energy, funding will be needed. Possible sources, both efficiency, using more efficient modes of transport, and Investment in renewable energy is important to reduce locally and internationally, will be identified. The extent travel demand management through smarter planning. the negative economic, social and environmental to which these are utilised will determine the future mix This requires a fleet of energy-efficient vehicles that are impacts of energy production and consumption of renewable energy in Palau. well-maintained and are constantly improving. In order in Palau. Currently, renewable energy contributes to monitor the energy profile of the transport system a relatively little to the energy sector. All options for In order to prepare a nationwide renewable energy database of all operational vehicles by class, make and promoting renewable energy will be explored including promotion, the national potential for all renewable fuel usage will be mandated. Practical guidelines will net metering programs, feed-in tariffs and portfolio energy sources (biomass, hydro, ocean, solar, waste, be established and enforced for the efficient use and standards such as the 20:20 target. wind, etc.) needs to be fully understood based upon maintenance of the Government vehicle fleet and ships, current and reliable data and information that will be including strict servicing and maintenance procedures Upfront costs for renewable energy technologies may made available to Government, households, businesses 14 15 P A L A U E N E R G Y P O L I C Y P A L A U E N E R G Y P O L I C Y and investors. be promoted and encouraged and eventually mandated in all new buildings when applicable. Capacity within both private and public sectors to analyse, plan, develop, implement and manage In order to streamline administration for renewable energy renewable energy systems will be improved through investments a standard power purchase agreement for education, training and knowledge management. larger independent power producers will be developed. In order to protect the national interest, all unsolicited In order to avoid disappointing performance of renewable energy proposals offered to government technologies it will be required that technologies for use will be scrutinized by the Energy Administration (PEO). in Palau be certified by the Palau Energy Administration. A standardization of renewable energy equipment will To qualify for promotion, technologies need to be be developed. In order to facilitate co-operation a list commercially proven in tropical islands through of priority projects will be developed and presented installations of a similar type and size as those to be to Palau’s development partners in order to maximize deployed in Palau. It will be mandated that proven benefits of renewable energy investments for Palau. renewable energy technologies be integrated in all outer island energy development by 2020. Decentralized, renewable energy generation will be promoted through net metering and grid access legislation backed by the development of a list of eligible equipment and guidance for developers in terms of what types and sizes of projects can be accommodated in Palau’s small electricity system. Net metering will be introduced in such a way that the power utility PPUC is not financially disadvantaged. The inclusion of solar water heating and other energy efficiency measures will 16 17 P A L A U E N E R G Y P O L I C Y P A L A U E N E R G Y P O L I C Y

4.0 Imported fuels and hydrocarbons Policy: Recognizing the cost of total national dependence needs will be established. A hydrocarbon code, model on imported petroleum fuels, international standards will agreements, and related environmental, operational, be developed and enforced for any storage, handling and tax regulations, taking into account any existing or and transport of petroleum products. Opportunities and proposed legislation will also be prepared. mechanisms for obtaining competitive fuel prices will be pursued. Further, the Government will ensure that PPUC has a large tank farm for storage of petroleum there are fair wholesale and retail fuel prices and it will products. This asset is currently only used to a minor require suppliers to regularly provide data on imports extent and some tanks require maintenance and and sales by product. A high priority will be given on repair to become operational again. A strategy will be developing the legal framework and capacity to ensure developed to maximize value of PPUC’s unused storage that Palau’s benefits from hydrocarbon exploration and capacity to lessen cost of maintenance and pass the production are maximized. savings to consumers. Policy Details: Safe and environmentally sound storage and distribution A framework and road map to promote the development of petroleum products including effective spill and of an effective hydrocarbon sector through continuous containment response procedures and required product cooperation with the World Bank will be produced. industry standards and safety measures will be mandated In line with the recommendations of the Oil and Gas and maintained all the time. Task Force the institutional set up for the management and oversight of the sector, including its financing All possibilities to optimize future fuel supply by staffing, technical assistance and capacity building considering issues of Government and private sector 18 con’t page 18 19 P A L A U E N E R G Y P O L I C Y P A L A U E N E R G Y P O L I C Y owned fuel terminal and storage facilities will be explored. Independent expert advice on tendering, negotiating and monitoring of petroleum supply contracts, including

5.0 Electric power likely costs and benefits of participation in the proposed PIFS bulk fuel purchase scheme will be arranged. To Policy: Laws and regulations will be introduced to PPUC will be enabled to move towards standardization obtain competitive fuel prices, the value of other models ensure security, reliability and efficiency of electricity of its generation and distribution equipment and reliably of regional cooperation in joint procurement will be supply. PPUC will be allowed to recover all cost supply electricity at least cost through development considered. associated with the supply of electricity. Private sector and implementation of an integrated power sector participation in electricity supply will be encouraged development plan. This plan will also optimize new In close coordination with the activities aiming to through a transparent enabling framework. investment with respect to cost for energy security and establish an institutional framework for oil and gas benefits of uninterrupted supply. exploration expertise will be developed within the Policy Details: government as appropriate to tender, negotiate and It is in Palau’s longer-term economic and environmental Opportunities for PPUC to diversify its range of services monitor petroleum supply contracts. interests to meet increases in electricity demand through beyond electricity supply will be explored. PPUC could an economic mix of renewable energy sources that will become an energy service company that not only In order to protect consumers of LPG/propane a pricing meet our security objectives. For the foreseeable future, provides electricity but also other energy forms such study will be arranged to determine benefits and costs a secure electricity supply through fossil fuel based as LPG for cooking and other uses. Financing services of a mechanism to establish allowable wholesale and generation and an increased use of new renewable for renewable energy equipment such as solar water retail price margins, and develop clear pricing and sources will be maintained. Some initiatives to improve heaters and decentralized power generation are price monitoring system for Koror, Babeldaob and outer the security of Palau’s electricity system would cost possibilities that are being explored in cooperation with islands. In addition, proper technical regulations shall more, such as paying for additional levels of reserve the National Development Bank of Palau. be implemented to ensure the safe operation of all LPG/ generation to be available for peak demand or for propane distributors. unscheduled outages of generators. These costs will At present, PPUC’s losses are significantly higher than have to be weighed up against the benefits to consumers the average for comparable systems. This requires a and the wider community. continuous reduction of PPUC energy losses by at least 20 con’t page 22 21 P A L A U E N E R G Y P O L I C Y P A L A U E N E R G Y P O L I C Y 5% per year until a level of losses consistent with industry that feed-in programs operate under appropriate and best practice benchmarks is reached. PPUC will also economically sound conditions that cover costs to PPUC develop in cooperation with equipment suppliers the and the private generator. level of skills necessary to effectively operate, maintain and repair its technical equipments. Private sector participation options in electricity supply will be carefully studied and encouraged whenever PPUC will be allowed to recover the total costs of supply appropriate and economically sound. in all island systems by establishing a tariff structure with a lifeline tariff that benefits low-income and outlying state consumers without adversely affecting PPUC income. Alternatives to diesel fuel for power generation with a focus on outer island supply in order to reduce PPUC’s financial losses in these systems will be developed where economically sound. In order to ensure revenue collection in a fair and equitable way all PPUC customers will be converted to pre-paid metering. PPUC will hand over cost savings achieved through the pre-paid metering program to the consumers. In order to promote decentralized renewable energy generation within the PPUC system, appropriate technical standards and regulations for private electricity generation through renewable energy sources and feed-in procedures will be developed. It will be ensured 22 23 P A L A U E N E R G Y P O L I C Y P A L A U E N E R G Y P O L I C Y Acronyms AC Alternating Current EIA Environmental Impact Assessment JICA Japan International Cooperation Agency MOPS Mean of Platts Singapore Published Price ACP African, Caribbean, Pacific countries EIRR Economic Internal Rate of Return kV Kilo-Volts (thousands of volts) MoS Ministry of State (associated with EU) ENSO El Niño/El Niña oceanic climate cycle kVA Kilo-Volt-Amperes (Thousands of Volt Am- MSC Micronesian Shipping Commission ADB Asian Development Bank peres of power) EQPB Environmental Quality Protection Board NEP National Energy Plan ADO Automotive diesel oil kW Kilo-Watt (Thousands of Watts of power) EU European Union NEC National Energy Committee BPW Bureau of Public Works kWh Kilo-Watt-Hour (Thousands of Watt Hours FY Fiscal Year NDBP National Development Bank of Palau of energy) CIF Cost+insurance+freight FSM Federated States of Micronesia NGO Non-Governmental Organization kWp Kilo-Watts peak power (at standard condi- COFA Compact of Free Association GDP Gross Domestic Product tions) from PV panels OEK Olbiil Era Kelulau (legislature) CPI Consumer Price Index GEF Global Environment Facility LPG Liquefied Petroleum Gas OERC Office of Environmental Response and CROP Council of Regional Organisations of the Coordination GHG Greenhouse Gas MNRET Ministry of Natural Resources, Environment Pacific and Tourism O GTF Oil & Gas Taskforce GEM Green Energy Micronesia CTF Compact Trust Fund MPIIC Ministry of Public Infrastructure, Industries GWh Giga watt hours and Commerce OP Office of the President DC Direct Current IFC International Financial Center OPS Office of Planning & Statistics DSM Demand Side Management MDG Millennium Development Goals IPP Independent Power Producer PALARIS Palau Automated Land and Resource EDF European Development Fund MoE Ministry of Education Information Systems Office IUCN International Union for the Conservation of EEZ Exclusive Economic Zone MoF Ministry of Finance Nature PCC Palau Community College 24 con’t page 24 25 P A L A U E N E R G Y P O L I C Y P A L A U E N E R G Y P O L I C Y Contact details PCAA Palau Community Action Agency SPPA Small Power Purchase Agreement PEO Palau Energy Office USDA United States Department of Agriculture Ministry of Public Infrastructure, Palau Energy Office PHA Palau Housing Authority UNDP United Nations Development Programme Industries & Commerce P.O.Box 1471 PIC Pacific Island Country P.O. Box 1471 Koror, Palau PICTA Pacific Island Countries Trade Agreement Melekeok, Palau 96940 PIEPSAP Pacific Islands Energy Policies and Strategic 96940 Tel: (680) 488-1281 Action Planning Tel: (680) 767-2111 Fax: (680) 488-2536 PIFS Pacific Islands Forum Secretariat Fax: (680) 767-3207 PPA Power Purchase Agreement PPUC Palau Public Utilities Corporation Printing & type-setting of this document is funded by North-REP PV Photovoltaic RMI Republic of the Marshall Islands ROP Republic of Palau SEDREA Social and Economic Development through Renewable Energy Applications SGP GEF Small Grants Programme 26 27 P A L A U E N E R G Y P O L I C Y P A L A U E N E R G Y P O L I C Y