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Energy Access, Security, Key to Reducing Poverty

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May 28, 2006—What would it take for 1.6 billion people to be able to turn on a light in their own homes?

How can hundreds of millions of people stop polluting their own indoor air with cooking and heating fuel that damages lungs and threatens the lives of children?

When will cleaner, more efficient, and renewable energy replace increasingly expensive greenhouse gas-producing fuels that taint our atmosphere and wreak havoc on the earth’s climate?

These are some of the issues underpinning the Annual Bank Conference on Development Economics (ABCDE) May 29 and 30 in Tokyo. 

The conference this year turns its attention to the subject of infrastructure. Many of the discussions will center on energy. In particular, attendees are looking at concerns about the future energy needs of fast-growing populations, the vulnerability of densely populated areas to higher oil prices and climate change, and the lack of access to energy in those same places.

Energy security—a term that means different things to different countries, depending on whether they produce oil or import it—is also at the top of the agenda at the Group of 8 Summit in St. Petersburg, Russia, in mid-July.

The World Bank has moved energy front and center in the fight against poverty, says Jamal Saghir, World Bank Director of Energy and Water.

Higher oil prices are causing many net oil importing Sub-Saharan African countries to lose economic ground—costing them a cumulative loss of over 3 percent of gross domestic product (GDP)—and increasing poverty in those areas by as much as 4 to 6 percent, says Saghir.

At the same time, lack of access to modern energy is "hurting the poor," particularly in Africa and South Asia, where 70 percent and 59 percent of the population, respectively, don’t have access to electric power, and an even greater number use traditional biomass fuels to cook indoors, filling their homes with unhealthy air, Saghir says.

Such indoor pollution kills an estimated 2 million people a year, mostly young children and women.

  • 77 percent of people in Sub-Saharan Africa-526 million people-don't have access to electricity.
  • 800 million (59 percent) lack electric power in South Asia.

Energy Poor

Modern energy services offer a way out of poverty to the 1.6 billion who currently lack access, Saghir says.

Yet many countries, faced with other challenges and the need to serve burgeoning urban populations, have not developed strategies for supplying energy to the poorest people, most of them in rural areas, says Ede Ijjasz, Manager of the Energy Sector Management Assistance Programme.

In addition, billions of dollars worth of energy subsidies aren’t targeted at or benefit the poor, he says.

The International Energy Agency estimates US$8 trillion—US$320 billion a year—will have to be invested over the next 25 years to meet the energy needs of developing and middle income countries.

But only about half of what currently is needed is available—most of it from the countries themselves, as well as from international development institutions like the World Bank and small entrepreneurs. The Bank currently spends about $2 billion annually on energy infrastructure projects.

More financing will be needed to build the kind of energy infrastructure that will enable countries to reduce the number of people living on less than $1 a day by 2015—one of several worldwide Millennium Development Goals that would be aided by energy infrastructure development, argues Ijjasz.

Private Investment Needed

"There’s an important financing gap that is not only a question of more money into the sector, but is also a question of the enabling environment and the policies that would attract investment," Ijjasz says.

Private sector investment in the power sector in developing countries has fallen to US$14 billion, from US$47 billion in 1997, Saghir says.

Ramping Up Renewable Energy

For the past year, the World Bank has been researching what it would take for the world to substantially reduce carbon dioxide emissions in the atmosphere, says World Bank Energy Economist Gary Stuggins.

The research, requested by G-8 leaders after the Gleneagles Summit last July, has focused on the potential for reducing carbon dioxide emissions from coal-fired plants in China, India, and increasing energy efficiency in Russia, as these countries are among the world’s major producers of carbon dioxide emissions.

The analysis is finding that renewable energy technology may be able to take the place of fossil fuels more quickly than previously believed as higher energy prices make these technologies more attractive. Already some renewable technologies, such as wind power, are economically viable, he says.

"We feel that there are enough technologies already available, so that if there’s the political will to do it, we can make substantial differences," says Stuggins.

Stuggins says the Bank is one of the biggest promoters of renewable energy and energy efficiency projects in the world, financing about $9 billion in these projects since 1990.

Hydropower is still the biggest component of Bank’s renewable energy portfolio, he says, but support for other renewable energy projects has accelerated since 2000.

The Bank’s energy portfolio in China includes the China Renewable Energy Development Project, which is intended to "set the tone" for future renewable energy projects in the country, says Stuggins.

The project provides grants to companies that produce solar cells known as photovoltaics (PVs). The companies market, sell, and maintain their product in rural areas that do not have access to an electricity grid. Grants cover an estimated 300,000 to 400,000 PV systems in households and institutions without access to electricity, to power lights, radios and TVs in in isolated communities in Qinghai , Gansu , Inner Mongolia , Xinjiang, Xizang and Sichuan.

Another project in China focuses on increasing the efficiency of coal-fired plants by as much as 50 percent. The Bank is also working with the Chinese government to make a new coal plant ready to employ "carbon capture" technology. Carbon capture is expected to move to broad implementation if the US Department of Energy’s "FutureGen" technology proves to be successful when the plant goes online in the United States in 2012, says Stuggins.

Also, in an effort to revive research and development in renewables, the Bank has proposed a venture capital fund be set up to fund R&D for low carbon energy technologies.

"We need to bring back the international investors," he says. "We need to leverage the local investors and the local banks, and we need to get public money to leverage private money."

He says the Bank can play a key role by working with countries to promote economic policies that avoid market distortions and reward investment, good governance practices, strong institutions, and the rule of law.

"The role of the World Bank is very important to give private sector the reason to invest, and also share the risk and be partners to attract the players, the investors, in some of those difficult areas where, without our involvement, the private sector would not come."

Clean Energy

Investing in energy infrastructure in Africa would increase carbon dioxide emissions in the atmosphere by only about 3 percent—less than the 4 percent currently emitted by airlines, says Saghir.

And it would also reduce indoor pollution caused by burning solid fuel for cooking and heating, he adds.

"Increasing access does not mean necessarily worsening the environment," he says. "That’s an important aspect here. And we should not make Sub-Saharan Africa pay for climate change."

The goal is to leave a "small environmental footprint," and to employ renewable and energy efficient technology when possible, Saghir says. Or, in the words of World Bank President Paul Wolfowitz, "Today, the global community is working to achieve a potential ‘double dividend’ —to meet the energy needs that are essential to fuel growth and to fight poverty on the one hand while preserving the environment on the other. Indeed these are not conflicting goals. It’s very hard to fight poverty if you then, in the process, destroy the environment."

Possible projects include not only the "small is beautiful projects," but a combination of projects that go from the larger electricity generation projects to household-level solutions, adds Ijjasz.

"Clean energy," says Saghir, "could be a way to ensure that we build for future generations an energy world which is more clean, more fair, and less divisive than what we have seen in the last 50 years."

Energy Sharing

In Africa, small scale power development has led in some cases to costly energy, so that "the places that can afford it the least have some of the highest cost power," says Bank Energy Economist Gary Stuggins.

For that reason the Bank is looking at regional power development, such as regional power grids in all parts of Africa, he says. Economies of scale and diversity of supply should help reduce cost and improve reliability.

Some countries are rich in resources, such as oil or hydro power potential, but there is not enough infrastructure to allow trade among countries, thereby establishing secure supplies for importers and stable markets for exporters, Ijjasz says.

"Funding infrastructure projects that first, improve the security of energy supplies for these countries and second, reduce the overall cost for everybody by trading these resources, will in the end, result in improved energy resources for all of Africa."

"This is a new era," says Saghir, "where there is interdependence between energy access, energy development, and energy security."

"The fact that the oil prices have increased so much brings a new reality to net oil importing countries that are seeing a substantial hit in their prices in energy for development and energy for their population.

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