Challenge
Electricity demand and CO2 emissions are expected to double in Latin America and the Caribbean between 2008 and 2030. Although the financial crisis has temporarily slowed economic growth and growth in energy demand, it has also increased the challenge of obtaining infrastructure financing to increase capacity for future growth. Uncertainty in oil markets also has led to deep concerns over energy security. Development of domestic energy resources is deemed critical in oil-importing countries, notably renewable resources, such as hydro, wind and solar power.
Other critical issues in the region include: improved efficiency of energy supply and use; increased access to modern energy, especially in countries with low rates of rural access such as Peru, Bolivia, Nicaragua and Honduras; and mitigation of climate change, including reducing carbon emissions by moving toward low carbon growth scenarios, especially in larger countries such as Mexico and Brazil. An additional challenge is to adapt institutional and regulatory frameworks in the energy sector to meet these new challenges.
Approach
IBRD customizes its investment and technical assistance for each country around four major elements: energy security; clean energy development; energy efficiency; and access to energy. In addition to using its own resources to develop these activities, IBRD leverages considerable amounts of financing from other sources including the Global Environment Facility, Carbon Finance Funds, the Clean Technology Fund and Energy Sector Management Assistance Program (ESMAP) funds for technical assistance.
In Mexico, IBRD combines development policy lending, investment lending and in-depth analytic work to help develop the country’s substantial renewable energy potential. IBRD contributed $650,000 and technical assistance to support regulation the country’s Renewable Energy Law passed in 2008. A $1.5 billion development policy loan, approved in October 2009, underpins the government’s ambitious climate change program, which looks to promote the installation of more than 3,000 MW of clean renewable energy by 2012. IBRD also helps improve electricity sector performance, efficiency and access. In addition, two separate studies have strengthened planning for, and awareness of, lower-carbon development in Brazil and Mexico.
Results
IBRD is helping to provide new electricity access to an estimated 1.2 million people in rural and peri-urban areas of Peru, Bolivia, Argentina, Mexico, Nicaragua and Honduras, mostly by the end of 2011. In Peru, for example, the Rural Electrification Project connected more than 100,000 people to electricity service by the end of 2009 and will provide service to almost 500,000 rural people by the end of 2011.
More than 600 MW of renewable energy capacity (210 MW from wind, 320 MW in small hydropower, and 70 MW through other technologies), are being installed in the region with financing by GEF grants, Carbon Finance, and IBRD loans. Results coming from Bank-assisted activities in Mexico include: the 83 MW and 101 MW La Venta 2 and 3 wind farms; the 12-15 MW solar component of the Agua Prieta solar/thermal generation plant; and provision of electricity service with solar home systems to 250,000 rural people in the poorest regions of the country.
In Brazil, IBRD is preparing a project to help six distribution companies serving 3 million people to reduce losses by 15 percent. In the Dominican Republic, a country plagued by serious problems in the electricity sector, IBRD helped reduce electricity losses by 14 percent from 2005-2008, through conditions met as part of a $150 million Electricity Sector Reform Loan.
Two studies on lower-carbon development in Brazil and Mexico raised awareness using highly participative approaches involving multiple high-level consultations with ministries and public agencies. The studies were presented at the 15th Conference of Parties of the United Nation Framework Convention on Climate Change (UNFCCC) in Copenhagen on December 6-19, 2009.
Toward the Future
The energy sector in Latin America and the Caribbean is expanding investment activities as well as leveraging analytic work such as the Central American Programmatic Energy Study, which presents the main challenges and opportunities faced at the national and regional levels, and the low carbon pathway studies for Brazil and Mexico. Examples of interventions under development include the Mexico Efficient Lighting and Appliances Project ($350 million, IBRD $300 million, CTF $50 million), which aims to enhance the country’s energy security by increasing efficient use of energy and to support its efforts to mitigate climate change; and the Electrobras Distribution Rehabilitation Project ($699 million, IBRD $485 million), which aims to improve the financial and operational performance and the commercial management of six Eletrobrás-managed Distribution Companies (DisCos) in Brazil by reducing electricity losses, increasing bill collection rate, and increasing quality of service.