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Energy and the World Bank

Context

Access to environmentally and socially sustainable energy is essential to reduce poverty. Over 1.3 billion people are still without access to electricity worldwide, almost all of whom live in developing countries. About 2.7 billion use solid fuels - wood, charcoal, dung, other biomass, and coal - for cooking and heating. Every year fumes and smoke from open cooking fires kill about 1.6 million people, mostly women and children, from respiratory diseases.

Africa faces acute energy challenges, with the lowest electrification rate of all the regions at 26% of households. About 550 million people do not have access to electricity. Without access to energy services, the poor are deprived of the most basic economic opportunities needed to improve their standards of living.

To make the leap to universal access to modern energy services by 2030, new capital investment of about $48 billion will be needed every year. This is in addition to worldwide annual investments of about $450 billion just to sustain energy services at current levels.

Climate change remains a critical concern. At present, more than 80% of energy consumed comes from burning fossil fuels, which produces greenhouse gases that cause climate change.

Population, technological and economic growth are expected to drive up overall energy demand by a third from now to 2030, with 90% of new demand in developing countries. These trends threaten to push global temperature above two degrees.

Strategy

World Bank Group focuses on Sustainable Energy for All

Our challenge is to build a sustainable energy future by acting on three fronts. First, expand access to energy that is affordable to low-income consumers. Second,  promote energy efficiency practices to moderate consumption patterns in energy-intensive economies. Third, facilitate a shift to cleaner energy sources where feasible. The Bank Group is contributing to this worldwide effort, through lending, analytical support, technical assistance and capacity-building.

The WBG has formally engaged in active support for the Sustainable Energy for All (SEFA) initiative, with Bank Group President Jim Yong Kim assuming co-chairmanship of the initiative’s multi-stakeholder advisory board. The initiative, launched by the UN Secretary General Ban Ki-moon in September 2011, calls on governments, businesses and civil society to achieve three objectives by 2030:  universal access to energy, including electricity and modern cooking and heating fuels; double the renewable share of power produced and consumed from 15% to 30%; and double the energy efficiency improvement rate.

The Sustainable Energy for All objectives will be achieved through collective action. There is a need for leadership in all countries. Countries with low access must expand that access. High-intensity consumers of energy need to scale-up efforts on energy efficiency. Countries with renewable energy potential need to find ways to tap that potential.

Disseminating knowledge through communities of practice

The Bank Group has launched Communities of Practice for Hydro-Power and Energy Efficiency, which bring together practitioners for knowledge exchange and dissemination of best practices. We will also launch communities of practice on Energy Access and Renewable Energy in 2013. These communities provide fertile ground for North-South and South-South exchange activities.

Tracking progress towards the goals

The Sustainable Energy for All initiative needs data tracking and analytical support. The Bank Group and ESMAP are leading a knowledge consortium in partnership with the International Energy Agency, and other international organizations to produce regular tracking reports on progress towards the goals. This will start with a Baseline Report in January 2013.

Reaching the poor

Millions of people worldwide have benefited from Bank Group energy financing. Women can earn an income by keeping a corner store or village eatery open at night. Mothers in childbirth after dusk and their newborns have a better chance at survival. Medicines and perishable food can be kept cool in a refrigerator. Children can read and study at night. Factories that otherwise would be closed, can stay open, providing jobs and a path out of poverty.

The WBG is providing  more than $1 billion a year to over 60 countries that is directly focused on expanding access, both by extending the grid and through off-grid solutions for remote areas. The Bank Group’s financial instruments, such as partial risk guarantees, reduce risk associated with energy projects to leverage private investment for access, while its policy and strategic guidance help governments create conditions that attract companies who bring new business models, innovative finance or new energy and energy efficiency technologies.

Since the Rio+20 Summit, 61 countries have opted in to the Sustainable Energy for All initiative, while businesses, investors and donors have committed $50 billion to it. The 61 countries, 25 of them in Africa, account for about 80% of global population without access to electricity. The Energy Sector Management Assistance Program (ESMAP), administered by the World Bank, has completed six of a total of 40 “rapid assessment” country studies undertaken by all SEFA partners (others supporting these assessments are the African Development Bank, Asian Development Bank, InterAmerican Development Bank, European Commission and the United Nations Development Programme). Each of these reviews a specific country’s electricity and household fuels’ access gaps, as well as status on renewable energy development and energy efficiency practice. ESMAP will deliver a technical assistance program for energy access in five developing countries.

Moving towards clean energy

The Bank Group supports development of energy systems based on least-cost options with an emphasis on renewable sources such as hydropower, wind, solar and geothermal, while also promoting energy efficiency. Projects support achievement of universal access to electricity and modern household fuels, as well as improved utility performance and sector governance. The Bank Group also provides financing and advice to countries on oil and natural gas extraction, production, processing, transmission and distribution.

The Bank Group committed $8.2 billion to support energy finance in 2012; of which $3 billion from IBRD, $1.9 billion from IDA, $2 billion from IFC, and $489 million from MIGA. The Bank Group approved a total of $3.6 billion in financing for renewable energy projects in fiscal year 2012, a record 44% share of its annual energy lending in 2012. Looking only at power generation projects approved in 2012, renewables accounted for an even larger share — 84%.

Since 2007, the Bank Group has provided $12.5 billion for renewable energy projects and programs,  just over one-quarter of all energy financing over the same period, which totaled $49.2 billion. “The renewable energy lending figure for 2012 is a remarkable spike, but also part of a consistent trend of increases over several years,” said Rachel Kyte, Vice President of Sustainable Development at the World Bank. “It shows the determination of many countries to seek lower-carbon energy solutions.

Finance for energy access was close to 20% of 2012 commitments, while coal projects accounted for $690 million, less than 10% of energy project approvals for the year. The Climate Investment Funds have committed over $5 billion to date into clean energy projects.

Hydropower leads

About $5.4 billion (43%) of the Bank Group’s renewable energy lending since 2007 has been for hydropower, with $1.1 billion (8.5%) each for geothermal and solar PV, and $875 million (7%) for wind, and smaller amounts for biomass and solar thermal. Another $3 billion went to projects in which the specific clean energy technology supported was not identified beforehand; these include renewable energy funds, credit lines and community-driven development projects which typically support a mix of micro-hydro, solar and wind power.

Within the World Bank Group, the International Finance Corporation (IFC) was the largest sponsor of renewables at $4.5 billion (35%) over the six year period since 2007, followed by IBRD ($3.7 billion, or 30%), IDA ($2.4 billion, 19%) and MIGA ($533 million, 4%).

Climate financing instruments housed at the World Bank, including the Carbon Finance Unit, the Global Environment Facility, and the Climate Investment Funds accounted for $1.2 billion (10%) of the Bank Group’s commitment to renewables. Other instruments such as IBRD/IDA guarantees, trust funds whose grants are implemented by the beneficiaries, and special financing tools made up the remainder.

South Asia led the way with $3.2 billion (26%) in renewable energy financing since 2007, followed by East Asia ($2.7 billion, 22%). Lending was $2.1 billion (17%) each for Sub-Saharan Africa and Europe-Central Asia, $1.7 billion (14%) for Latin America and the Caribbean, and $445 million (4%) in the Middle East and North Africa. About one percent of the total renewable energy financing went to multi-regional funds.

Finance for energy access was close to 20% of 2012 energy commitments, while coal power projects accounted for less than 10%.

World Bank Group Financing for Energy by Type, FY 2007-12 (Revised US$ Millions) *

Project Type200720082009201020112012Total
Energy Efficiency7531,5211,6851,8021,5511,3538,666
Renewable Energy18401,4711,6781,9052,9773,61512,487
New Thermal Generation3641,0879874,2872906907,705
Other Energy7171,0151,7022,0191,7831,3698,605
Transmission & Distribution4581,6051,2042,2081,3972707,142
Upstream Oil, Gas, Coal7299721,0767251828804,564
WBG Energy Total3,8627,6708,33212,9478,1818,17749,168
of which:       
Low Carbon21,7613,3383,3635,5845,9375,48025,463
Access29051,784220110201,0311,4998,439

1: This category includes hydropower.
2: These categories are not mutually exclusive; some projects are classified as “Blended Low Carbon and Access”.
* The numbers in this table were drawn from a review of WBG energy financing undertaken in 2011

The World Bank Group and Coal

The Bank supports coal projects where it is the only option for the poor.

Coal power projects accounted for less than 10% of the Bank’s energy financing approved in 2012. Given its parallel focus on climate change, the Bank Group seeks opportunities to help developing countries expand access to energy by using renewable energy sources. However, the WBG does support coal power generation if it is the only way to get electricity to people who don’t have it. The Bank Group’s policy is to support countries in such, but under strict criteria, which are:

  1. There is a demonstrated developmental impact (e.g. improving overall energy security, reducing power shortage, or access for the poor)

  2. There is assistance to identify and prepare low carbon projects

  3. There has been optimization of energy sources by considering the possibility of meeting the country’s needs through energy efficiency and conservation

  4. There has been full consideration of viable alternatives to the least-cost options (including environmental externalities), and when additional financing from donors for their incremental cost is not available

  5. The project uses the best appropriate available technology, to allow for high efficiency and, therefore, lower GHG emissions intensity

In regions such as sub-Saharan Africa and countries such as India, where hundreds of millions of people have no electricity, getting access to energy is the predominant issue for them and for their governments.

About 72% of South Africa’s and 70% of India’s electricity comes from coal-fired power stations, as does over 40% of the electricity generated in the US. But burning coal and other fossil fuels produces about 70% of the planet’s greenhouse gas emissions. Here is the challenge: given these numbers, experts agree that the world cannot, at present, provide affordable access to electricity to 1.3 billion people without relying to some extent on coal.

But investing in coal alone for electricity - when considered in light of population growth projections - would push human-caused climate change deeply into a catastrophic zone. That’s why we have strict criteria for financing of coal projects, limiting our financing to cases in which a country has no other options to respond to urgent demands for electricity, and providing several other conditions have been met and the process reviewed by an external advisory committee.

Results

 Wind Power

China

China leads the world in windpower with 62 gigawatts (GW), of which over 50 GW is connected to the nation’s electricity grid as of this year. Grid-linked wind capacity will rise to 100 GW by 2015 and 200 GW by 2020. The World Bank played a role in China’s wind power development with its its support for a China Renewable Energy Scale –Up Program, to which the World Bank has committed approximately $230 million.

Egypt

The World Bank has expanded its engagement in wind energy development in several countries. In June 2010, the Bank approved a $220 million loan for Egypt to support the Wind Power Development Project, out of which $150 million is financed from the Clean Technology Fund, a first for the region.

Colombia

A World Bank study, Wind Energy in Colombia concluded that wind is a realistic renewable energy alternative in Colombia, prompting the country’s government to consider several projects, including a 200 MW project to tap wind power. The study has been complemented by a Prototype Carbon Fund grant for a wind farm in Jeripachi, in northern Colombia.

Turkey

In May 2009, the Bank approved a $600 million loan for Turkey to develop its renewable energy — including wind. This project includes construction of 966 MW of renewable energy generation (hydro, geothermal, wind, landfill gas) capable of producing 3810 Gwh of electricity per year, thereby reducing GHG emissions by about 1.7 million tons per year.

Africa

Sub-Saharan Africa is looking to harness wind energy, with the assistance of the World Bank. According to a recent Bank report, The Economics of Energy Expansion in Rural Sub-Saharan Africa, great potential exists for cost-effective renewable power, including wind, in large regions of rural Sub-Saharan Africa.


 

Solar Power

Mongolia

About 100,000 herder families in Mongolia have gained access to solar power through a program launched by the Mongolian government with support from the World Bank and the Government of the Netherlands. Thanks to the National 100,000 Solar Ger Electrification Program, 70 percent of Mongolia’s herders now have access to modern electricity

Mali

The Bank has provided—through the International Development Association—two zero-interest loans for Mali in 2003 and 2008 respectively, for a total of $70.6 million, to support a household energy and rural access project, which includes installation of solar photo-voltaic electricity systems in some 40 rural communities.

China

A renewable energy project in which the World Bank and the Global Environment Facility (GEF) provided $13 million and $27 million respectively, as well as technical assistance, supported an initiative led by China to build a market for solar photovoltaic and wind energy technologies almost from scratch. The Bank-supported renewable energy development program has enabled sales of over 402,000 PV solar-home systems (SHS) to rural families in remote areas of West and North-West China. About 1.6 million nomadic people now have access to solar power as a result.

Morocco

The World Bank is implementing a $750-million grant by the Clean Technology Fund to the Middle East and North Africa Concentrated Solar Power Scale Up Program, part of which is financing the world’s largest concentrated solar power plant in Ouarzazate, in eastern Morocco. The plant produces low-carbon solar electricity, and is at once creating jobs and helping to expand the skill base in Morocco to construct and operate such facilities. It will pave the way for the deployment of multiple solar energy projects across North Africa.


 

Geothermal

Indonesia

A $175-million IBRD loan, accompanied by $125 million from the Clean Technology Fund, to support a subsidiary of Indonesia’s state-owned company Pertamina in boosting the country’s geothermal power generation capacity in fields in South Sumatra and North Sulawesi. When the project is completed in 2015, it will add 150 megawatts to the grid, displacing an equivalent capacity of coal-based power generation, thereby reducing local and global environmental pollution.

Africa

The Bank Group, through ESMAP, is developing a Global Geothermal Development Program to deploy geothermal energy for electricity. This will mobilize expertise from Iceland and offer tools to mitigate investor risk, so as to increase private investment in this sector, starting in the 13 countries of the Rift Valley in East Africa.


 

Energy Efficiency

Tajikistan

Tajikistan has faced severe energy shortages in winter, which culminated in a crisis in 2007. The Bank responded to this emergency by ensuring that critical facilities, such as hospitals, had standby power year-round, and also by working to ensure that the improvements were sustainable. Energy efficiency measures financed by IDA included the installation of 105,000 new meters that reduced power consumption and increased bill collection, increased water reserves at Tajikistan’s major hydropower plant, and provided 250,000 people in northern Tajikistan with basic modern energy services for the first time.

Mexico

Mexico entered the Guinness Book of Records after distributing almost 23 million energy-saving light bulbs for free. The national program, partially financed by the World Bank, established over 1,100 exchange points at which customers replaced their incandescent bulbs with CFLs.  The energy saving from the program so far is estimated at 1,400 gigawatt hours.

Energy Efficiency in Cities

Energy efficient measures can help cities save money on energy, cut investments in new infrastructure, and make them more competitive. But it is difficult for city managers to learn about what measures, options, and practices would be best for their cities. The Bank’s Energy Sector Management Assistance Program has launched a database of case studies to showcase best practices by cities implementing energy efficiency policies and programs. This platform helps policymakers learn about diverse initiatives, and draw from a menu of policies and programs. The database is drawn from 15 case studies—in the buildings, transport, solid waste, water, public lighting, and heating/power sectors—of China, Colombia, Egypt, India, Mexico, Pakistan, South Africa, Ukraine, and Portland, Oregon (USA), as well as Eco2 cities case studies from Australia, Brazil, Japan, New Zealand, Singapore, and Sweden. Additional studies will double the database source countries to 30 in fiscal 2011.


 

Looking ahead

Providing risk mitigation for clean energy

Reducing high startup costs is essential to encourage renewable energy investments. To address this, the Bank Group is collaborating with Deutsche Bank and Germany’s KfW agency to establish a global regime to support feed-in tariffs. Feed-in tariffs are a proven policy incentive to stimulate private investment in renewable energy. We are launching a pilot initiative—aimed at eventual replication—called Global Energy Transfer – Feed-in Tariffs Plus, or GET-FiT Plus. It will support renewable energy projects in East Africa by providing partial risk guarantees combined with other financing to cover the premium associated with feed-in tariffs.

Supporting clean energy in small island developing states

Most small island states depend on expensive fossil fuels for power generation. They are also vulnerable to climate change. The Bank and ESMAP, in collaboration with UNDP and the Alliance of Small Island States, will support expansion of the program, SIDS-DOCK, to co-finance clean energy investment and technical assistance activities in the Caribbean, Pacific and Africa regions.  In addition, the Scaling Up Renewable Energy Program for Low-Income States (SREP), one of the Climate Investment Funds, will support clean energy initiatives in Maldives and Pacific Islands.

Developing renewable energy resource maps

A more precise understanding of renewable energy potential is a key starting point for power sector planning in the developing world. ESMAP will launch a program on meso-scale mapping of renewable energy resources—including biomass, small hydro, solar and wind— in developing countries.  These maps will guide governments and developers in exploiting renewable energy sources. 

Expanding the Global Gas Flaring Reduction Partnership

Flaring of gas associated with oil production has dropped by 20% worldwide, from 172 billion cubic meters (bcm) in 2005 to 140 bcm in 2011. This has reduced CO2 emissions by 85 million tons, roughly the equivalent of emissions from 16 million cars. The Bank and its 33 partners—including governments and oil companies— in the Global Gas Flaring Reduction Partnership (GGFR) will step up flaring reduction efforts over the next four years through activities to develop gas infrastructure and markets. A new target has been set, to reduce flaring by another 30% by 2017, or from 140 bcm of gas flared in 2011 to 100 bcm by end of 2017. This is a reduction in CO2 emissions equivalent to taking 60 million cars off the road. In this new phase of flaring reduction, we will also increase use of previously flared gas to expand access to electricity and cleaner household fuels. We will seek to transform the  natural gas value chain to expand access to electricity and cooking fuels in countries where gas is flared, such as Nigeria, Iraq, Indonesia, Gabon, Republic of Congo and Angola.

Scaling up urban energy efficiency

Buildings account for almost 40% of energy consumption. We will scale up ESMAP’s Energy Efficient Cities Initiative with cities and mayors to promote energy efficiency and renewable energy solutions in the buildings, power/heating, public lighting, solid waste, transport, and water/waste water sectors.

 




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