National Energy Efficiency Action Plan 2010

REPUBLIC OF ARMENIA

Version submitted by 13 September 2010

Executive Summary

Energy Efficiency – a Government Priority

The Government of Armenia prioritizes energy efficiency as a means of increasing the country’s energy security, increasing economic competitiveness and reducing the negative impact on the environment. The Government’s commitment and principles to promotion of energy efficiency are given in the Law on Renewable Energy and Energy Efficiency (2005) and the National Program on Energy Saving and Renewable Energy (2007).

Armenia has significant potential for energy efficiency and can recoup sizable  economic benefits through utilization of this potential. Although its economic activity is less energy intensive than compared to other economies in the region, large potential remains for further efficiency improvements (up to 5% of the country’s GDP, as was estimated in a World Bank study in 2008).

The highest economic effectiveness is envisaged through energy efficiency  investments in the public sector. Other dominant sectors to be considered are the residential sector (buildings), industry, energy production, transport and agricultural sector.

Creating an Enabling Environment for Energy Efficiency

The main issue to realise the significant energy saving potential in the country’s economy is the creation of an enabling environment for energy efficiency and financing of energy efficiency investments. This is mainly linked to a strong policy and to regulatory measures that need to be implemented and enforced. Beside that, there is great unawareness and lack of information in all sectors (from private households to industrial enterprises) what to do in regard to reducing energy intensity and specific demand. The country is looking for the introduction of appropriate market-based incentives for energy efficiency that are a necessary condition to diversify Armenia’s energy supply and thus improve economic competitiveness.

This National Energy Efficiency Action Plan (NEEAP) is another attempt following different programmatic activities in the past years to making energy efficiency happen. Although the country does have a Law on Energy Efficiency and Renewable Energy since 2005 and a National Program on Energy Saving and Renewable Energy since 2007, basic measures formulated in these two documents have not been implemented so far. The NEEAP is therefore consolidating a set of measures for all relevant economic sectors in the country and specifying the need for action, especially on the political level. It shall provide the Government of Armenia with a bundle of activities to be realised with different priorities in the considered period 2010 to 2020.

The NEEAP focuses on five main economic sectors

The NEEAP is proposing a set of relevant measures to the Government of Armenia for improving  the  current  legal  status  and  enforcement  of  legislation  put  in  place, for

capacity-building (mainly in the public sector) and institutional setting, for creating awareness across all sectors and a general environment that is more in favour of energy efficiency improvement in the following sectors:

• residential buildings
• public and private service sector
• industry & energy production
• transport
• agriculture

All in all, 31 relevant measures have been proposed within the NEEAP, all of them described in chapters 4 (horizontal and cross-sectoral measures and 5 (sectoral measures)

The overall time frame for implementation of the action plan is considered to  be a period of ten years, from 2010 until 2020. This is also in line with action plans of other countries.

Indication of Potential EE Targets

For the purpose of the first NEEAP presented here, intermediate national energy savings targets have been proposed. These intermediate targets shall provide an indication of realistic savings as a percentage of the baseline demand to be achieved in the relevant target year, consistent with the overall national indicative energy savings target. However, a more detailed analysis of potentials and corresponding energy savings requires in all sectors is necessary, to provide a better data base and solidify the assumptions made regarding the EE potentials.

Lack of Basic Statistical Data

One important deficiency is the missing of a detailed annual energy supply and  demand survey for all main sectors of economy that provides data on the annual final inland energy consumption of all energy users for the most recent years, including data on:

• energy supply (import, production, inventory changes)
• energy transformation (primary and secondary transformation processes)
• final energy demand of all relevant sectors
• useful energy demand according user categories (residential heating, industrial  heat demand, stationary engines, lighting, air-conditioning, etc.)

Due to the missing basic data and with the information made available from different sources, it is at the moment not possible to draw a realistic baseline scenario that will provide a sound base to estimate absolute savings to be achieved in the target year.

Therefore, this first NEEAP provides only an indication of annual savings in relative terms (% p.a.) compared to the energy demand of the relevant sector (to be defined)

where the proposed measures is part of.

They are shown in the following table and further explained in the chapters 4 and 5.

Table 1: Estimated energy savings cumulated for each sector until 2020

Source: own calculation

As soon as detailed energy balances will become available, i.e. final energy demand per sector (in absolute terms), the second NEEAP (2014) will have to update this information and provide relevant data on the calculation of the national energy saving target for the year 2020 as well as intermediate targets for the years 2013 and 2017, as proposed in the template provided in Annex 1.

Evaluation and Monitoring of Progress Made

One important issue is to address regular monitoring and evaluation of measures in  line with the proposed time frame, to assess if the intermediate energy savings targets are being achieved or if increased efforts are to be made to get back on the implementation path.

It is therefore foreseen that the Ministry of Energy and Natural Resources shall submit to the Government updated NEEAPs:

• a second NEEAP not later than 30 June 2014 (considering implementation status until end 2013),
• a third NEEAP not later than 30 June 2018 (considering implementation status until end 2017),
• and a fourth NEEAP not later than 30 June 2021 (considering implementation status until end 2020).

The 1st NEEAP – High Priority Measures until 2013

The measures proposed in the National Energy Efficiency Action Plan have been categorised into “high”, “medium” and “low” priority. Main criterion for the high prioritisation is the available energy saving potential with possible low funding implications (“low-hanging fruits”) or eventually already secured donor funding. These measures are to be implemented within the first implementation period until 2013. A summary of all high-priority measures proposed in the first NEEAP is given in the following table.

Table of contents

Executive Summary                                                                                                            I

1     Introduction                                                                                                                 1

programmes, energy services, and other measures to improve energy efficiency        25

5.1 Energy efficiency improvement measures in the residential building sector                                25

5.1.1                      General introduction on the building sector............................................................ 25

5.1.2                      Overview of sector-specific measures.................................................................... 27

5.2                           Energy efficiency improvement measures in the public and private service sector                35

5.2.1                      General introduction on the public and private service sector..................................... 35

5.2.2                      Overview of sector-specific measures.................................................................... 36

5.3 Energy efficiency improvement measures in industry sectors (including energy production) 41 5.3.1        General introduction on the industry & energy sectors..................................................................... 41

5.3.2      Overview of sector-specific measures.................................................................... 42

5.4                           Energy efficiency improvement measures in the transport sector                                      48

5.4.1                      General introduction on the transport sector........................................................... 48

5.4.2                      Overview of sector-specific measures.................................................................... 48

5.5                           Energy efficiency improvement measures in the water sector                                          53

5.5.1                      General introduction on the water sector................................................................ 53

5.5.2                      Overview of sector-specific measures.................................................................... 54

6        References                                                                                                               57

Annex 1: Template for the calculation of the national energy saving target                     58

Annex 2: Projections of greenhouse gas emissions for Armenia from 2005 to 2020      59

Annex 3: List of relevant donor projects and programs ongoing and of past                  60

List of charts and tables

Chart 1: Electricity demand of main sectors 2005-2009 (prelim.).................................. 12

Chart 2: Natural gas demand of main sectors 2005-2009 (prelim.)............................... 12

Chart 3: Total electricity and gas demand 2005-2009 (prelim.)...................................... 13

Chart 4: MCA-Armenia Irrigated Agriculture Project....................................................... 54

Chart 5: Projections of greenhouse gas emissions (Gg CO2  equivalent, excl.  LULUCF)

...................................................................................................................................   59

Table 1: Estimated energy savings cumulated for each sector until 2020...................... III

Table 2: Estimated annual savings per measures in % (2011-2020) compared to final energy consumption baseline...................................................................................................... 15

Table 3: Estimated energy savings cumulated for each sector until 2020..................... 17

Table 4: List of horizontal and cross-sectoral measures under the Armenian NEEAP. 20

Table 5: Estimated savings per measure in the residential building sector from 2011- 2020     29

Table 6: List of measures in the residential building sector specified under the  Armenian NEEAP       30

Table 7: Estimated savings per measure in the public and private service sector from 2011-2020      38

Table 8: List of measures in the public and private service sector specified under the Armenian NEEAP......................................................................................................................................... 39

Table 9: Estimated savings per measure in the industrial sector from 2011-2020......... 44

Table 10: List of measures in the industrial sector specified under the  Armenian NEEAP 45

Table 11: Estimated savings per measure in the transport sector from 2011-2020...... 50

Table 12: List of measures in the industrial sector specified under the  Armenian NEEAP 51

Table 13: Estimated savings per measure in the agricultural sector from 2011-2020 .. 55

Table 14: List of measures in the agricultural sector specified under the Armenian NEEAP      56

List of Abbreviations

AEAI                              Advanced Engineering Associates International

AMD                              Armenian Dram

ArmSEFF                      Armenian Sustainable Energy Financing Facility BAU    business as usual

CEE                              Central & Eastern Europe

CEEP                            Commercialization of Energy Efficiency Project

CO2                                              Carbon dioxide

EBRD                            European Bank for Reconstruction and Development

EE                                 Energy Efficiency

ENP                              European Neighbourhood Policy

ESCOs                         Energy Service Companies

ESMAP                         Energy  Sector  Management  Assistance  Programme   (of  the World Bank)

EU                                 European Union

GDP                              Gross Domestic Product

GEF                              Global Environment Fund

Gg                                 Greenhouse gas

GHG                             Greenhouse gas

IBRD                             International Bank for Reconstruction and Development

IDA                                International Development Agency

IEA                                International Energy Agency

IFI                                 International Financing Institution

IMF                               International Monetary Fund

KfW                               „Kreditanstalt   für   Wiederaufbau“   Bankengruppe   (group   of banks)

Kg                                 kilograms

kWh                              kilo Watt hours

LULUCF                       Land Use, Land-Use Change and Forestry

MCA                              Millennium Challenge Account

mto                                million tonnes

mtoe                              million tonnes equivalent

NEEAP                          National Energy Efficiency Action Plan

NGO                             Non-Governmental Organization

NOx                              Nitrogen oxide

PSRC                            Public Services Regulatory Commission

QA/QC                          quality assurance / quality control

R2E2                             Armenian Renewable Resources and Energy Efficiency Fund

SEFF                            Sustainable Energy Financing Facility

SEI                                Sustainable Energy Initiative

SMEs                            small and medium enterprises

TJ                                 Terra Joule

TRACECA                    TRAnsport Corridor Europe-Caucasus-Asia TWh                                      Terra Watt hours

UN                                United Nations

UNDP                           United Nations Development Programme

UNFCCC                      United Nations Framework Convention on Climate Change USAID                                      United States Agency for International Development

USD                              United States Dollar

WB                                World Bank

1                   Introduction

1.1                  Trends in Promoting Energy Efficiency

In 2008 the World Energy Council published a paper about “Energy Efficiency Policies around the World: Review and Evaluation”. In this study it is shown that in most world regions the amount of energy used per unit GDP is decreasing steadily: 1.6% p.a. on average at the world level between 1990 and 2006. Since 2000, this trend has however slowed down significantly, to slightly less than 1% p.a.

Industry is the main sector driving energy intensity reduction in industrialized countries. In developing countries and economies of transition, on the other hand, households are very often the main drivers. In China and the CIS, energy productivity improvements were almost equally driven by industry, energy conversion and households.

There are a few significant questions to consider when planning about EE improvement: What is the importance of energy efficiency measures? What are the priorities? What are the trends? How to introduce an adequate policy level to foster implementation of EE measures? And how to stimulate energy efficiency innovation cost effectively?

The main factors for stimulating energy efficiency measures observed are:

• Institutional background: Almost all countries have set up specific institutions dealing with energy efficiency, such as energy efficiency agencies, either at the national level, or at regional levels or both, and more recently at local level. Although the legal status of these agencies is different from one country to another, their establishment almost everywhere clearly indicates that there is a need for having a driving institution taking the lead on EE activity.
• A proper regulatory framework, with a specific bundle of energy efficiency legislation and/or national programmes taking into consideration quantitative, measurable, targets for energy efficiency improvements, can provide a long lasting context for energy efficiency policies and avoid the negative effect of “stop and start” actions: many countries have already set up quantitative  targets, with annual monitoring requirements.
• Electrical appliances and buildings continue to be the main target for  regulations and are spreading to a larger number of countries. In Europe, regulations represent about 40% of the measures implemented in the  residential sector.

All European countries and most other OECD countries have energy efficiency standards for all new buildings. Some non-OECD countries outside Europe have recently established standards for service buildings. Altogether, about  60% of the countries surveyed had mandatory or voluntary standards for new non-residential buildings.

The few evaluations studies of the savings achieved with building codes show that the actual savings for new buildings are lower than the potential theoretical savings. This can be attributed to non-compliance with standards and changes in behaviour.

A more recent trend is to extend regulations to existing buildings (mainly stricter codes referring to thermal quality standards and introduction of  energy efficiency certification of existing buildings).

• Labelling and standards apply to a growing number of electrical appliances. Labelling programmes and efficiency standards are an effective method of transforming the market and slowing the electricity demand growth. Labelling programmes introduced in developing countries are based on the experience of OECD countries and use models that have already been proven: the European label has been used as a model in Brazil, Tunisia, China and Iran, while labels introduced in Thailand and the Korean Republic are based on some Australian model.

Energy labels and standards are complementary tools. Labelling acts as an incentive for manufacturers to differentiate themselves from their competitors and stimulates the introduction of new, more efficient models. Standards  remove from the market the less efficient appliances. To be effective, labelling programmes and performance standards must be regularly updated.

• Energy pricing is an important component of EE policies. Adequate pricing is a necessary condition for promoting energy efficiency. One of the first steps of any energy efficiency policy should be to adjust energy prices to more “real” market levels in order to give correct signals to consumers, whilst maintaining incentives for behaviour changes or to acquire energy efficient equipment and technologies.

Energy producing countries often maintain low domestic prices, which lead to intensive energy uses, as was seen previously by the high and increasing energy intensities in these countries. A reduction in the subsidies could lead to energy savings that could be sold at a much higher price on the international market and bring benefits to these economies.

Adequate pricing means establishing consumer energy prices that reflect the cost of energy supply, i.e. the long-term marginal cost for electricity, the long- term price of oil products on international markets for fossil fuels. Although most energy planners agree with such objectives, they often face reluctance and opposition from decision-makers outside the energy sector, who fear public resistance and the impact of energy price corrections on the consumer price index. Also, energy is a basic good for which a low price is a condition for low- income households access. This makes actual price adjustments slow or impossible in many developing countries, especially in the household sector.

• Financial  incentives  rely  more  and  more  on  tax  incentives  than  on   direct

subsidies. Nevertheless direct subsidies on energy efficiency investments remain popular. As they have often been considered as costly and  questionable, they are now better targeted. Subsidies are viewed as a temporary measure to mobilise consumers, to prepare for new regulations, or to promote energy efficient technologies by creating a larger market than would exist otherwise, with the objective of a cost reduction for the subsidised energy efficient technologies.

• Fiscal incentives, such as tax credits, tax reductions and accelerated depreciation, are usually considered cheaper than direct subsidies, especially to households, as they have lower transaction costs. They can work well if the tax collection rate is sufficiently high: such measures usually perform poorly in an economy in recession or in transition. They are more adapted to well-developed countries: so far, mainly OECD countries have implemented such fiscal measures. Tax reductions on energy efficient equipment or investments have been introduced in many countries and almost equally in all regions: they are used in about 30% of the countries surveyed.
• One of the main barriers to energy efficiency is the lack of information to consumers about what they can do. To address this issue, a large range  of tools has to be designed: e.g. general information campaigns, labelling of appliances and even dwellings rating their energy performance, audits, local information centres, education campaigns in schools and universities, case studies, and comparative information.
• Audit schemes are a practical way of informing consumers about the possible actions to improve energy efficiency. They have been mainly developed in industry and in non-residential buildings and are increasingly made mandatory. Energy audits usually are partially funded by public agencies or by utilities in European countries and are more often free for consumers in the other regions to encourage participation.

Mandatory audits – like voluntary audits - assume a certain quality of the auditors as well as of the staff responsible for energy management in the companies (energy managers). This can be assured by the certification of the auditors and by the training of energy managers.

• ESCOs (Energy Service Companies) and EPC (Energy Performance Contracting) are a very attractive mechanism to capture cost-effective energy- efficiency potentials worldwide, mainly because they do not involve either public expenditure or market intervention. EPC can probably be considered among the most effective mechanisms for promoting energy efficiency in the public sector and, especially in developing countries, in the industrial sector.
• Several countries are introducing green taxes either on purchase tax or annual tax dependent on the CO2 emissions or energy efficiency of the cars. Fuel taxation plays a key role in promoting more efficient vehicles and more sensible

driving habits. Tax increases are not always motivated by energy efficiency  only. In some countries, specific CO2/environmental taxes have been set up for motor fuels (e.g. Scandinavia and Germany). Green taxes are better accepted by the population, especially if part of the revenue is used to support energy/CO2 efficiency measures. Road pricing indicates an efficient way to enhance the energy efficiency in transport, such as; the congestion charge in London.

• Energy efficiency obligations have been a success in the EU Member States. They have been shown to work in both monopoly and fully liberalised environment, both for supply and distribution companies.

Energy efficiency obligations are attractive also to governments, as they do not have to support the cost of these obligations. Energy efficiency obligations  could be an important policy option for developing countries to save electricity, as they offer a way for governments to tackle energy efficiency at a modest increase on electricity customers’ bills. Energy efficiency obligations for utilities are a promising market-based instrument.

• Quality labels and technical standards are effective tools for maintaining or improving quality, provided they are successfully enforced (e.g. the Keymark certification scheme in Europe). The existence of independent certification centres is a key element to ensure that imported products comply with national standards. The existence of skilled installers and of appropriate network of after sales services is also essential for stimulating further dissemination of solar water heating.

As a summary, the introduction and/or strengthening of energy efficiency policies are becoming increasingly important and a sustained effort will be required over the long term. To be successful, energy efficiency programmes need to be based on appropriate strategies, including for example:

• The public sector needs to commit itself to EE and lead by example.
• Need for a favorable and stable institutional framework.
• Energy efficiency policies should address all areas with energy savings potentials.
• To be efficient and cost-effective, regulations need to be well planned, regularly strengthened and properly enforced.
• Adequate pricing: a condition for successful energy efficiency policies’ implementation to reflect more near-market conditions.
• Public/private partnerships to reinforce the effect of public policies.
• Quality of energy efficiency services and equipment should be strengthened through certification and testing facilities.

• Innovative measures should be promoted based on suitable experiences elsewhere.
• Regular monitoring and evaluation of implemented measures using indicators should be ensured.

1.2                                 Energy Efficiency – the issue for Armenia

The Government of Armenia prioritizes energy efficiency as a means of increasing the country’s energy security, increasing economic competitiveness and reducing the negative impact on the environment. The Government’s commitment to promotion of energy efficiency is mainly reflected in the Law on Renewable Energy and Energy Efficiency (2005) and the National Program on Energy Saving and Renewable Energy (2007). The Law lays out the principles of the government’s policy and governance structure supporting energy efficiency, and provides for energy efficiency standards, audits and awareness raising. The National Program on Renewable Energy and  Energy Efficiency identifies the sectors with the largest energy efficiency potential and provides an outline of technical measures/solutions to be taken to realize the identified technically viable potential.

Armenia has significant potential for energy efficiency and can recoup sizable economic benefits through utilization of this potential. While Armenia is one of the less energy intensive economies in the region, largely due to the structural changes of the economy, large potential remains for further efficiency improvements.

Based on the National Program on Renewable Energy and Energy Efficiency, the  World Bank performed a study in 20081 which identified significant economically and financially viable energy efficiency potential.

The study found that Armenia could save about 132 billion Armenian Drams (more than US$360 million) annually, equivalent to almost 5 percent of its GDP, through energy efficiency investments. The above study also identified a number of informational,  legal, regulatory and financial barriers impeding energy efficiency investments. There is an estimation that the economic and financial returns of energy efficiency investments in public buildings have the highest return with paybacks of two to eight years. Investments in energy efficiency of public buildings cannot only free up the fiscal space, but also prime the market, by creating demand for energy efficient equipment and services and send a strong signal to the private sector and general public about the Government’s commitment to energy efficiency.

1 “The Other Renewable Resource: The Potential for Improving Energy Efficiency in Armenia”. July, 2008.

To aid the implementation of the National Program, the Government of Armenia requested the World Bank to support with creation of an enabling environment for energy efficiency and financing of energy efficiency investments of public buildings.  The proposed lending and TA project will contribute to achieving the Government’s national priorities as it will help generate awareness of the benefits of energy efficiency investments, address other information and data gaps related to energy efficiency, remove institutional and regulatory barriers, address capacity weaknesses hindering the implementation of energy efficiency measures, and provide financing for energy efficiency investments in the public sector, drawing on the recommendations of the National Program.

Moreover, energy efficiency is a key reform area for the development policy lending operations of the World Bank in Armenia. Under the development policy operation, the Government committed to adopt a time-bound Energy Efficiency Action Plan (NEEAP).

For the development of the action plan, an international consultant was hired by the Ministry of Energy and Natural Resources in summer 2010, and the elaboration of measures proposed in the following report conducted in a process of involving stakeholders from different ministries (Ministry of Energy and Natural Resources, Ministry of Economy, Ministry of Urban Development, Ministry of Natural Protection), the Public Services Regulatory Commission, Armenian Renewable Resources and Energy Efficiency Fund, the Energy Institute, utilities, the World Bank, UNDP/GEF Armenia office, and gas and electricity companies.

1.3                                 Scope and Objectives of the NEEAP

The main objective of the action plan is to contribute to the formulation of the future energy policy of Armenia and to define concrete steps for its implementation. One of the main aims of the national policy in the energy sector is defined to improve energy efficiency and to further develop the use of renewable energy sources.

The mentioned Law on Renewable Energy and Energy Efficiency and the National Program on Renewable Energy Efficiency and Renewable Energy provide general policy measures and an assessment of energy saving potentials, however they have not been implemented so far.

The National Energy Efficiency Action Plan is based on generalised past trends in energy consumption and presumes a further rise in energy demand up to 2020. It takes into consideration earlier potential assessments made for energy savings in different sectors of the economy and refers to past and current projects/programmes dealing with energy efficiency issues and the main barriers to energy conservation. However, it was not the task during the NEEAP preparation to investigate into the sectoral potentials or even verify existing data, neither regarding energy efficiency nor economic potentials. The action plan is rather to be  understood     a     policy        implementation

programme to help overcoming institutional, regulatory and information barriers, to help the government to focusing on the most relevant actions to be taken in a short, medium and longer term perspective.

The diverse projects referred to in the previous paragraph are an important inflow of funds and financial sources into the country, especially in regard to technical assistance, rehabilitation and new infrastructure investments and as well awareness and capacity-building measures. The NEEAP is building upon these programmes/projects and proposes concrete measures per sector as well as horizontal and cross-sectoral measures together with quantitative targets (in %) that can be achieved by 2020. These targets need to be compared to a baseline energy demand that considers the average demand for the 3-years period 2008-2010.

However, the first stage of the Action Plan presented here is not able to take into consideration actual figures regarding final energy demand across all relevant sectors of Armenian economy. The problem lies mainly in the unavailability of reliable up to date statistical information on final energy demand in considered sectors. It is therefore been proposed to the Ministry of Energy and Natural Resources to define the baseline energy demand during the first NEEAP implementation period (until 2014, see 2.1) and provide the necessary data background together with a second NEEAP to be submitted by 2014, while ensuring this crucial measure, the elaboration of national energy  statistic will be implemented as soon as possible.

1.4                                 Relevant Activities and Programmes related to Energy Efficiency in Armenia

To encourage energy efficiency, Armenia has so far taken several steps on the political and programmatic level:

• Started to create a legal framework for energy efficiency. In 2005, the Government passed a Law on Energy Savings and Renewable Energy, and has since signed the Intergovernmental standard draft building codes (for new buildings) which mandate energy efficiency but has not adopted it yet.
• Developed a National  Program  on  Energy  Savings  and  Renewable  Energy  with solid data on energy use and energy efficiency in Armenia.
• Has taken steps to improve the economic efficiency of energy use through improved regulation of energy utilities. Several barriers to economic efficiency which also affect the efficiency of energy resource use—for example, highly subsidized energy tariffs, or the absence of electricity and gas metering—have been largely removed in Armenia.
• Continued to work actively with development partners like the World Bank, the UN Development Programme, the EBRD, USAID and other donors on energy efficiency programs to improve the energy supply infrastructure (electricity and heat production facilities, transmission and distribution networks) and heat energy use in public  and

residential buildings.

Relevant projects and programs ongoing and of past were mostly financed with support of the above mentioned IFIs that contribute to the implementation of an institutional and policy environment in favor of energy efficiency in Armenia:

GEF Program:

• Armenia – Improving the Energy Efficiency  of  the  Urban  Heating  and  Hot  Water Supply (UNDP)
• Armenia Energy Efficiency Project (IBRD)
• LGGE Improving Energy Efficiency in Buildings (UNDP) World Bank:
  • Urban Heating Project – Armenia
  • Electricity Supply Reliability and Energy Efficiency Project INOGATE Programme:
    • Harmonization of gas and oil technical standards and practices (E. Europe and Caucasus)
    • Capacity-building for Energy Regulators in Eastern Europe and Central Asia
    • Capacity building for Sustainable Energy Regulation in Eastern Europe and Central Asia
    • Harmonization of electricity standards EBRD:
    • Armenian Sustainable Energy Financing Facility (ArmSEFF) USAID:
    • Commercialization of Energy Efficiency Project (CEEP) International Finance Corporation:
      • Armenia Energy Efficiency Survey Project

Millennium Challenge Account–Armenia (MCA–Armenia):

• Irrigated Agriculture Project

A more detailed list with a short description of the mentioned projects is provided in the Annex 3: List of relevant donor projects and programs ongoing and of past of this document.

2                   Defining Targets for the Implementation of the NEEAP

Armenia can save greatly by investing in energy efficiency. As mentioned above, previous studies made by the World Bank estimate the realizable saving potential to some 5 percent of its GDP. This is equal to energy savings of approximately 1.21 mtoe

annually,  or  1  TWh of  electricity and  600  million  m3  of  natural gas (based  on 2008

demand).

Apart from the generated energy and cost savings, energy efficiency is one necessary condition to diversify Armenia’s energy supply and thus improve economic competitiveness. And this can be achieved at less cost than investing into new production capacities or energy imports. Energy efficiency investments are in general economically and financially viable, especially the public sector investments provide the highest return on investment overall.

2.1                                 Setting the path for Energy Efficiency in Armenia until 2020

The action plan is proposing a set of relevant measures to the Government of Armenia for improving the current legal status and enforcement of legislation put in place, for capacity-building (mainly in the public sector) and institutional setting, for creating awareness across all sectors and a general environment that is more in favour of energy efficiency improvement in the following sectors:

• residential buildings
• public and private service sector
• industry and energy sector
• transport
• water sector

The overall time frame for implementation of the action plan is considered to be a period of ten years, from 2010 until 2020. This is also in line with action plans of other countries. Due to the fact that several measures have a longer duration, e.g. considering enforcement periods or reaction time until market actors are ‘ready’ to implement energy saving measures in the mentioned sectors, the action plan needs to distinguish short term, medium and long term planning:

• Short term measures: referring to an implementation path during a first implementation period of the action plan from 2011-2013. They refer to immediate action required in regard to policy making, institutional setting and awareness and communication. These are typical measures with significant energy saving potential with low funding implications (“low-hanging fruits”) and eventually  already  secured  donor  funding,  which  are  classified  with  a high

priority in the action plan.

• Medium term measures: the medium priority measures are expected to be implemented within a 4 to 7 years period equalling the second implementation period of the action plan from 2014-2017.
• Long term measures: the timeframe is considered to cover a period of more than 7 years. The implementation is more complex and thus less easily to be adopted, or depending on the existence of an institutional and policy setting.  For the consideration in the action plan, they are assigned a low priority and thus are considered to be implemented not before the third implementation period of the action plan between 2018 and 2020.

For the purpose of the first NEEAP presented here, apart from the list of measures, intermediate national energy savings targets for the following periods of implementation have been proposed. These intermediate targets shall define realistic savings as a percentage of the baseline demand to be achieved in the relevant target year, consistent with the overall national indicative energy savings target referred to in chapter 2.2.

The targets set for this first action plan implementation period provide an indication only and have been determined based on experiences made (and published) in other countries. A more detailed analysis of potentials and corresponding energy savings requires an in-depth national review of economic sectors, to provide a better data base and solidify the assumptions made regarding the EE potentials.

Regular monitoring and evaluation of measures shall provide the Government and involved stakeholders with a clear view if the implementation is in line with the  proposed time frame, if the intermediate energy savings targets are being achieved or  if increased efforts are to be made to get back on the implementation path.

It is therefore foreseen that the Ministry of Energy and Natural Resources shall submit to the Government the following updated NEEAPs:

• a second NEEAP not later than 30 June 2014 (considering implementation status until end 2013),
• a third NEEAP not later than 30 June 2018 (considering implementation status until end 2017),
• and a fourth NEEAP not later than 30 June 2021 (considering implementation status until end 2020).

All NEEAPs shall describe the energy efficiency improvement measures planned and realised to reach the targets set out in chapter 2.2.

The following NEEAPs shall as well:

• include a thorough analysis and evaluation of the preceding NEEAP;

• include the final results with regard to the fulfilment of the energy savings targets set out in chapter 2.2;
• include plans for – and information on the anticipated effects of – additional measures which address any existing or expected shortfall vis-à-vis the target;
• use and gradually increase the use of efficiency indicators and benchmarks, both for the evaluation of past measures and estimated effects of planned future measures;
• be based on latest available data, supplemented with estimates.

2.2                                 Baseline energy consumption and calculation of the national EE target

Armenia can meet only roughly one-third of its total demand of fuels, mainly natural gas and oil, through own resources, thus the country is highly dependant on imported energy sources. On the other hand it currently benefits from an electricity surplus produced from own hydro power plants, one nuclear power plant and several thermal power plants. From 2001 until 2008, the amount of electricity consumed grew steadily at about 6% p.a, which is less than the annual GDP growth average of 9-10% p.a. Other fuels used for residential heating, process heat, transportation and as fuel source

for power plants have also steadily increased, in total about 7% p.a. between 2001 and 20082. The main fuel type is natural gas. In 2009, the preliminary figures  show a decline due to general economic crisis of electricity demand by about 8% and of gas

demand by almost 22%, compared to 2008.

The following charts provide an overview of the electricity consumption and gas consumption in the last 5 years (2005-2008, 2009 preliminary figures) that account for estimated 75% of the total energy demand3. For the other sources, no suitable data   is

available.

2 source: National Program on Energy Saving and Renewable Energy, Armenian Energy Institute

3 source: 2005 data provided in National Program on Energy Efficiency and Renewable Energy

Chart 1: Electricity demand of main sectors 2005-2009 (prelim.)

6.000

5.000

4.000

3.000

2.000

1.000

-

2005                                          2006                                          2007                                          2008                                        (2009)

Source: Armenian Scientific Energy Institute

Chart 2: Natural gas demand of main sectors 2005-2009 (prelim.)

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

-

2005                     2006                     2007                     2008                    (2009)

Source: Armenian Scientific Energy Institute

Chart 3: Total electricity and gas demand 2005-2009 (prelim.)

30,000

25,000

20,000

15,000

10,000

5,000

-

2005                      2006                      2007                      2008                     (2009)

Source: Armenian Scientific Energy Institute

In the National Program on Energy Efficiency from 2007, the Armenian  Scientific Energy Institute and the Energy Design Insitute (Damare CJSC) provided an assessment of sectoral consumption data for the main user sectors (for 2001-2005).

However, what is missing since 1989, the last year when the energy balance was prepared, is a detailed annual energy supply and demand survey for all main sectors of economy that provides data on the annual final inland energy consumption of all  energy users for the most recent years, including data on:

• energy supply (import, production, inventory changes)
• energy transformation (primary and secondary transformation processes)
• final energy demand of all relevant sectors
• useful energy demand according user categories (residential heating, industrial  heat demand, stationary engines, lighting, air-conditioning, etc.)

Due to the missing basic data and with the information made available from different sources, it is at the moment not possible to draw a realistic baseline scenario that will provide a sound base to estimate absolute savings to be achieved in the target year.

Therefore, this first NEEAP provides only an indication of annual savings in relative terms (% p.a.) compared to the energy demand of the relevant sector (to be defined) where the proposed measures is part of.

As soon as detailed energy balances will become available, i.e. final energy demand per sector (in absolute terms), the second NEEAP (2014) will have to update this

information and provide relevant data on the calculation of the national energy saving target for the year 2020 as well as intermediate targets for the years 2013 and 2017, as proposed in the template provided in Annex 1.

The table below provides a summary of estimated energy efficiency savings that shall be reached by the implementation of measures proposed in the chapters 4 and 5.

As mentioned above, the savings reached by each year are indicative targets that are based on saving estimations in the National Program for Renewable Energy  and Energy Savings for Armenia (mainly for industry and energy sector, transportation, water  sector)  and  supported  by  reference  to  international  studies  and  experience

(mainly for building and service sectors4).

4 As for building refurbishment and corresponding energy saving potentials compare e.g. with the World Bank Study “Status of Energy Efficiency in Western Balkans” (2010). The study estimates the saving potential in residential buildings to be between 10 and 35% and in service sector 10 to 30%, and this for economies in transition similar to Armenia (e.g. Albania, Kosovo, Montenegro). Average quantitative savings have been regarded as a technical potential to be possibly realised in Armenia as well.

Table 2: Estimated annual savings per measures in % (2011-2020) compared to final energy consumption baseline

The proposed sectoral energy savings are based on potential assessments referred to by the author and have been adjusted to the target year. The summary effects to be possibly realised by the target year 2020 are shown in Table 3 and further explained in the following chapters 4 and 5.

Table 3: Estimated energy savings cumulated for each sector until 2020

Source: own calculation

The report on the “National Program on Energy Saving and Renewable Energy of Republic of Armenia” just comes up with potential energy savings of the main fuel sources, around 1,036 GWh for electricity (ca. 23 % of 2008 demand) and 573,000,000 m³ for natural gas (ca. 25% of 2008 demand). These savings are mainly dedicated to the industry and energy sectors, as well as transportation and water sector. References to the building sector (residential and public/private services) are not found to be too specific there.

3                   Addressing Barriers for Energy Efficiency in Armenia

Armenia has taken important steps to encourage more efficient use of energy, but many more steps must still be taken. However, the potential is mainly untackled due to a number of reasons that can be summarized in a list of barriers to addressing energy efficiency:

• The legal framework needs to be implemented and enforced. Especially in the building sector the existing building code needs binding provisions regarding thermal quality of new and existing buildings and enforced standards and methodologies to assess energy performance in buildings.
• Creating awareness about energy efficiency needs a lot of information and know-how provided to all energy consumers (private, business, service sector, etc.). Yet, there is a weak institutional setting in Armenia of communicating energy efficiency with profound capacity, e.g. through a National Agency or NGOs.
• Private consumers (i.e. households) miss general and simple information on what can be done to reduce energy demand in the daily life, such as in housing, use of electric appliances, transportation etc.
• Many political decision-makers and private businesses still fail to see the value in energy efficiency investments, despite the successes of donor-sponsored pilot projects and programs, because of missing awareness, sufficient current energy supply and to a certain extent because they simply lack information on energy consumption for and energy potentials in the main sectors.
• The natural gas tariff encourages wasteful use by some smaller customers. There tariff structure does not provide an incentive for consumers to use less energy. Furthermore, there are no other financial incentives available that would encourage saving energy.

The action plan presented in the next chapters of this document will address these main barriers and provide a set of selected instruments and action to overcome the main legal, institutional, decision-making and information barriers.

4                   Horizontal and cross-sectoral measures

4.1                                 Overview of horizontal and cross-sectoral EEI measures

Energy efficiency is not merely a matter of a single sector. Many measures are intertwined and mutually supportive. Energy efficiency measures affecting several or all energy consumption sectors are reflected within the horizontal activities. The main objective is to build up the necessary institutional capacities that will ensure an established structure for the implementation of the action plan.

The measures proposed are to focus on cross-sectoral issues for a wide range of user target groups:

• Legal aspects: integration of the NEEAP into existing energy policies (e.g. amending the Law on Energy Efficiency and Renewable Energy by taking the action plan as one main instrument for implementation into consideration); and the necessary reinforcement of the national energy statistic. The issue of public procurement of energy efficient equipment is mainly to provide public purchasers with technical specifications and the necessary “good will” to consider the acquisition of energy efficient products and services by spending public money.
• Institutional setting: installation of a National Energy Agency. The main responsibility for taking political action will stay with the Ministry of Energy and Natural Resources (legislation and policy making), while the new Agency will implement, co-ordinate implementation, evaluate and regularly report NEEAP and give also technical expertise to government in developing policies. The institutional building will also require additional personnel capacities within the responsible unit of the Ministry of Energy and Natural Resources (Division of energy efficiency) and special training should be provided for new employees in international energy efficiency practices and strategies (training financed by R2E2 and UNDP/GEF, employees salaries from state budget).
• Awareness, information campaigns and technical assistance/training on energy topics shall be enforced. It is a measures which is very long-lasting and needs to be reinforced all the time (through specific campaigns and built-up of proper material and media)

The described horizontal and cross-sectoral measures will factually not create any energy saving per se, but will be the main driver for achieving savings under the following sectoral measures described in chapter 5. However, relevant indicators for monitoring the outcome are being defined with the measures presented in Table 4.

Table 4: List of horizontal and cross-sectoral measures under the Armenian NEEAP

5                   Sectoral presentation and assessment of energy efficiency improvement programmes, energy services, and other measures to improve energy efficiency

5.1                                 Energy efficiency improvement measures in the residential building sector5

5.1.1           General introduction on the building sector

Almost all the Armenian housing stock has been constructed during Soviet period  some 35-60 years ago without any regard to energy efficiency. Many of these buildings are now in obsolete condition and do not provide for minimum hygienic and comfort living conditions. Specific energy use per square meter is almost 3-5 times higher than in EU and varies between 320 and 690 kWh/m² per year. Nevertheless, in many households, the amount of space heated is limited to one or two rooms, as tenants have limited available household budget to cover the high energy costs.

Also, construction works in Armenia are presently performed more or less according to former Soviet practices and norms that almost do not involve buildings’ energy performance and improvement issues. Such designs and construction works result in excessive energy consumption and growing amount of GHG emissions.

Currently, residential (and also public) buildings in the country are of low thermal- technical performance resulting in growing demand for and consumption of thermal energy. Buildings’ low thermal technical performance reflects insufficient heat conduction resistance of building envelope and unnecessary expansion of glass cover. Besides, state supervision of mandatory implementation of current norms is absent. Armenia has voted for Intergovernmental construction norm MSN 2.04-02-2004 “Thermal Insulation of the Buildings,” developed by Intergovernmental Normative- Technical Commission on Standards and Certification in Building Sector of CIS, however it has not been adopted and applied in Armenia.

5 80% of the total building stock in Armenia is for residential purposes. So there is a specific focus to be given to the housing sector, nevertheless several measures presented here also reflect the need to be covered in other building types, mainly from the public and private service sector

According to preliminary research, via efficient thermal insulation of residential and public buildings, it is possible to reduce energy consumption for heating at least by 20- 40%6, taking into consideration the low heating level in residential buildings. Of course,

the technical potential for improving the building sector is much higher, and able to reach a minimum of 70% (and up to 90%).

New housing stock is largely privately owned and often built with limited financial means, leading to the use of inadequate building materials. It is therefore recommended to put an emphasis on low- and no-costs energy efficiency measures to overcome the lack of finance, while strengthening enforcement of the new building regulations.

Used building materials are rarely certified or labelled for thermal quality, while  imported materials and components lack labels or are labelled in an inconsistent manner. There is some potential for developing domestic materials, and a domestic production of quality construction materials could be developed through the use of licenses for foreign components. However, this would require substantial investments  in plants capacity, technology adaptation, training and marketing that seem to be premature at this stage, given limited market size. Such investments would only be viable when the standards enforcement capacities are in place, and when a real demand is effective on the market.

Since 2004, Armenia is involved in the European Neighbourhood Policy (ENP). The implementation of ENP action plan was approved in 2006 and is to contribute to harmonization of Armenian legislation, norms and standards with EU criteria. In this regard, improvement of energy efficiency of buildings and constructions also needs paying attention to EU directives.

According to EU Directive on “Energy Performance of Buildings”, cap values of energy consumption in buildings, buildings’ efficiency rankings, specific consumption of  thermal energy for heating etc. Should be identified upon discretion of each country based on climatic conditions, technical and demographic data.

At the same time, improvement of buildings’ energy efficiency level is reflected in certain provisions of the Armenian “Law on Energy Saving and Renewable Energy”  and of the “National Program on Energy Saving and Renewable Energy”. In this context, the Ministry of Energy and Natural Resources and Ministry of Urban Development in cooperation with the “Armenia – Improving the Energy Efficiency of Municipal Heating and Hot Water Supply” UNDP/GEF project, initiated a harmonization process of standards relevant to the sector. The Project’s work plan for 2009-2010 includes harmonization issues to international and European standards.

6 Sources: Towards Energy Efficiency Buildings in Europe (2004)

5.1.2           Overview of sector-specific measures

Summarizing one can say that apart from climate, the energy consumption in the building sector is significantly affected by the thermal-technical properties of buildings, the efficiency of heating and cooling systems, their regular inspection, maintenance  and the behaviour of residents. This fact not only refers to residential buildings, but the same is true for public and private service buildings.

The main barriers in the building sector can be therefore defined as follows:

• lack of available energy statistics and qualitative data on energy demand in the sector,
• appropriate legislation (codes, standards, norms) and its enforcement to induce energy efficient (re)construction,
• coherent strategy for building sector development and plans for new constructions and renovation of existing buildings,
• availability of funds to support EE investments (e.g. availability of a financing scheme to support reconstruction and/or refurbishment of residential buildings),
• as well as knowledge and willingness of house owners, planners, architects and operators of buildings to improve the quality of buildings and support residents in adopting energy efficiency user practices;

Therefore, the main target for the developing measures in the residential building sector can be specified as follows:

• upgrading existing legislation and all by-laws (standards, norms) to reflect the necessary efforts to be made in increasing the energy of buildings,
• setting up educational programmes (tertiary education, on-the-job-training) to train students and employees of companies in the planning/design and construction sector to comply with new integrated design and building standards,
• establish necessary capacities on the enforcement level,
  • develop pilot projects to demonstrate building best-practice (for rehabilitation and new buildings) and
  • provide further incentives to promote energy efficient construction at all levels, such as introduction of energy passports or building operational costs to be used for advertising those flats and houses for sale/rent adhering to high energy efficiency standards (provide incentives for construction companies to enforce EE construction practices).

A broad range of measures proposed for existing and new buildings will account for approx. 23% of total energy savings of the building sector projected under the Armenian NEEAP by 2020.

The % savings attributed to each kind of measures is being demonstrated in Table 5. Marked red are the relevant intermediate energy saving target years, according to

which the following energy savings are foreseen:

o  2013: 1.3%

o  2017: 9.9%

o  2020: 23.0%

Table 6 provides a more detailed description of the measures of the building sector.

Table 5: Estimated savings per measure in the residential building sector from 2011-2020

Table 6: List of measures in the residential building sector specified under the Armenian NEEAP

5.2               Energy efficiency improvement measures in the public and private service sector

5.2.1           General introduction on the public and private service sector

The Armenian economy is agricultural-industrial oriented, with a developing service sector. The structure of 2004 GDP in Armenia is: 40% in industrial sector, 35% in service sector (including construction and transportation), and 25% in agriculture. The share of service sector is 1.5-2 times lower than in developed countries (50-70%).

The energy intensity index in the service sector of Armenia, 90.4 kg oe/$1,000 USD is close to that of many developed and developing countries: Estonia, 91 kg oe/$1,000 USD, Latvia, 99.7 kg oe/$1,000 USD, Czech Republic, 114.8 kg oe/$1,000 USD (see Figure 1). According to the “National Program on Energy Saving and  Renewable Energy of Republic of Armenia” paper (2007), the service sector in Armenia is experiencing the same issues of energy efficiency as in developed countries and in general does not represent a high absolute energy saving potential.

Figure 1: Energy intensity of economy in a number of countries in 2003, kg oe/thous.USD

Source: Scientific Research Institute of Energy for the Alliance to Save Energy/USAID: “National Program on Energy Saving and Renewable Energy of Republic of Armenia”; Yerevan 2007 as by Key World Energy Statistics from IEA: htpp:/www.iea.org/dbtw-wpd/Textbase/stats/nmcbalancetable.asp

Nevertheless, the role of the public administration in providing good practice and thus being a shining example for the other sectors is evident. Public spending is a significant contributor to the countries’ GDP. The state administration, all regional and local authorities and other public institutions (e.g. health sector, schools) regularly purchase energy consuming devices, such as office equipment, lighting, diverse household appliances (fridges, dishwashers, washing-machines, etc.) and other equipment used for air-conditioning, ventilation, etc.

It is therefore of importance to provide the public sector with a clear strategy, i.e. to demand energy efficient applications and equipment and directing public spending towards higher-quality products. Energy efficient public procurement will provide cost- effective means to improve the energy intensity of the sector as slightly higher purchasing costs will pay back within a couple of years. On the other hand the availability of energy efficient products on the market will steadily increase, if the demand is rising.

Pretty the same issues are to be addressed to the private service sector, although it is generally a very inhomogeneous market segment which usually is not subject to direct influence by the government. The issue for this sector is therefore to increase the awareness of the protagonists in this area – business owners, service companies, operators of office space and commercial trading, etc. – and provide them with a scope of measures that would foster concrete action towards energy efficiency. Although  most of the energy used in service buildings is spent for heating and hot water (measures already covered in chapter 5.1), the growing demand for ventilation and cooling in these buildings is a serious issue to be addressed in the countries energy policy.

5.2.2           Overview of sector-specific measures

The operation of public buildings is a relevant cost factor in the public sector due to the share of energy costs in the total budget. Apart from lighting, heating and cooling of buildings and use of various equipment (ICT, office equipment, household appliances used in offices etc.) are the most significant consumers in service buildings. Together with the improvement of the energy efficiency of mentioned equipment, efficient user behaviour constitutes for a large saving potential (from 20% to 60%, depending on the baseline consumption) in this area. The general energy efficiency measures covering the building envelope are already specified in chapter 5.1 (also valid for service buildings).

In addition to the energy consumption in public buildings, operation of lighting in public buildings and public street-lighting in towns and municipalities make a relevant contribution to the final energy consumption in the public sector. Street-lighting projects are usually financed out of municipal budgets. The current practice is that in case of efficiency measures implemented (leading to savings in operational costs covered by the municipal budget) the local authority is   not  able  to  dispose  of  the  energy   cost

savings, as operational budgets in this case will be usually cut by the central government. So there is no real incentive to realise efficiency measures. Finding ways to change this situation (e.g. financing schemes, such as energy performance contracting) will definitely increase the interest in becoming more energy conscious.

As for street-lighting, the largest consumer in this area is the City of Yerevan, in other towns and municipalities the issue of street-lighting is of less importance, mainly due to absence of fully operated lighting-systems. Lighting is, to a large extend, being consumed inefficiently, which results from the use of obsolete light sources, unreliable regulation (switching, declining power supply voltage) and wrong positioning and location of light sources. Upgrading of public lighting will focus on the installation of modern highly efficient light sources for public lighting as well and reliable and efficient regulation and management of operation.

The three measures proposed for the service sector can save up to approx. 15% of total energy savings of sector by 2020. However, as shown below, the effects are  low in the short-term and will grow steadily with increasing the penetration of efficiency measures in the service sector.

The % savings attributed to each kind of measures is being demonstrated in Table 7. The relevant intermediate energy saving target years, according to which the following energy savings are foreseen, are:

o  2013: 0.6%

o  2017: 6.1%

o  2020: 14.6%

Table 8 provides a more detailed description of the measures of the building sector.

Table 7: Estimated savings per measure in the public and private service sector from 2011-2020