A Socio-Economic Analysis of Renewable Energy Usage in Palestine

Solar panels

Supported by the Palestinian American Research Center (PARC) and hbs, Sameerah Awawdeh and Dr. Yousef Daoud are carrying out a project investigating the economic and social impact of the use of solar energy instead of fossil fuels to generate electricity in Palestine. The study particularly looks at the impact on public finance, external trade and labor market. Solar energy is very feasible in Palestine because of a high average of number of sunny days. The Palestinian Authority is in the process of implementing a project which aims to encourage households to use photovoltaic systems for their homes. According to the ‘General Renewable Energy Strategy’ published by the Palestinian Energy Authority (PEA) in 2012, about 10% of total domestic electricity production and 5% of the total expected consumption will be generated using renewable sources by 2020. Half of these 10% renewables is expected to be generated using solar energy.

The electricity sector in Palestine has been deemed as both inefficient and costly[1]. Nevertheless, the percentage of Palestinian households connected to public electricity networks has increased from 97.2% in 1999 to 100% in 2013 (Palestinian Central Bureau of Statistics, PCBS, 2014). Palestine suffers from a scarcity of traditional energy sources such as natural gas and fossil fuels, which are used to generate electricity. The only domestic producer of electricity is a power plant in Gaza[2] which has a very low production capacity, creating an imbalance between domestic supply of electricity and demand. In 2012 it produced only 8.5% of the total electricity demand (PCBS, 2014). To exacerbate the situation, Gaza’s power plant was largely destroyed when it was hit by Israeli shelling on 29. July 2014.

The remaining electricity is imported from Israel which thus controls the value and volume of imported energy, deciding when and how to supply, and when to block the supply, often for political considerations. Israel furthermore has the control over electricity prices. This has a negative effect on the electricity sector in Palestine and the Palestinian economy, further motivating the move towards starting to depend on solar energy to generate electrical power.

Between 2004 and 2012, GDP per capita in Israel was on average tenfold the Palestinian GDP per capita. Over time the GDP gap has been increasing. Therefore based on the affordability principle, the price of electricity should be lower in Palestine, which is not the case. The figure below shows prices and consumption in both regions.

The players involved in the renewable energy sector in Palestine are: Palestinian electricity companies, Palestinian Energy Authority (PEA), Government of Israel (GoI), Israeli electricity company (IEC), Palestinian consumers and Palestinian firms (especially large scale firms). Their interests are diverse and hence their attitudes may be in conflict. The most influential actors are the Palestinian Authority (represented by the PEA), and the GoI. One of the biggest issues governing this relationship is net lending (overdue payments to the Israeli Electricity Company, IEC, which are often deducted from customs clearances transfers to the PA). Both net lending and current account deficit increased between 2013 and 2014 from NIS 300 million to NIS 600 million, and from NIS 3885 million to NIS 4605 million respectively. Since 2002, the IEC has deducted NIS 7 billion from Palestinian customs revenues, which could have been used to build a Palestinian-owned electricity generation plant or any alternative energy program. Palestinian consumers are in favor of installing PV arrays because of net gains while private sector companies also support a switch to solar energy because of increased business opportunities. The Palestinian electric companies may potentially lose from households' usage of PV arrays for two reasons: they charge a markup on imported electricity which would not be the case with domestic energy generation; and additionally, the Palestinian solar energy legislation allows consumers to re-sell surplus renewable energy at a premium to the electric companies. In principle, however, this is refundable from the government.

Sameerah Awawdeh and Dr. Yousef Daoud use a Computable General Equilibrium model (CGE) for their analysis which was initiated by the Ministry of the National Economy (MoNE). The CGE model is an important tool for policy simulations particularly in less developed countries where data is a limited commodity. The model being used for the analysis has its drawbacks, but it can show the effect of reducing electric imports from Israel. One of the main conclusions is the study is expected to draw is that while a reduction in electric imports can be achieved through increasing domestic production, dependence on Israel for electricity will not be eliminated altogether. The PA therefore will likely have to focus on more production via commercial plants rather than household production in order to generate sufficient amounts of electricity to meet demands and become (more) energy independent.

The research will be finalized and published within the next months.

Article authored by Dr. Yousef Daoud.

[1] Frequent interruptions of supply especially during winter, energy loss during transmission, and inefficient revenue collection are but a few of the sector’s problems. In 2010 and 2011, the Jerusalem District Electricity Company (JDECO) has suffered net losses.

[2] The fuel needed for this plant to operate needs to be imported from Israel, which has rendered the plant largely ineffective during periods in which Israel did not allow the necessary amounts to reach the plant. This was often done as a result of delayed payments and build-up of arrears (Alarab Alyawm, 2014).