How does the World Bank balance support for expanding energy access with the need to shift to renewable energy?
Recognizing urgent energy challenges and opportunities, the Bank Group has joined the United Nations’ Sustainable Energy for All Initiative, which calls on governments, businesses and civil society to achieve three goals by 2030:
• Universal access to electricity and clean cooking fuels. • Double the share of the world’s energy supplied by renewable sources from 15% to 30%. • Double the rate of improvement in energy efficiency.
To help achieve these goals, the Bank Group is scaling up its already rich and intensive program of support for sustainable energy for poverty reduction. The WBG is already strongly engaged in many of the high impact areas identified in the Sustainable Energy for All Action Agenda, including electrification, grid infrastructure and supply efficiency, distributed electricity solutions, large scale renewable power, cleaner transportation, buildings and appliance standards, gas flaring reduction, modern cooking fuels, and appliances.
The WBG will contribute to the Sustainable Energy for All initiative through its energy sector lending, which commits over $8 billion a year to energy programs across the developing world and leverages a comparable amount of private, donor and public funding, for a total of $16 billion of support annually. Its strategy to drive towards achievement of the SE for All goals:
• The WBG has been committing about $1.6 billion a year during the years 2008-2011 to finance projects directly focused on expanding access in over 60 countries around the world. These include extending the grid and off-grid solutions for remote areas, increasingly through sector wide multi-donor programs.
• The WBG’s renewable energy commitments increased from $1.5 billion in 2008-09 to $3 billion in 2010-11. Two-thirds of this finance supports grid-connected large scale projects – such as hydro, geothermal, and wind – while the remaining third goes to smaller scale off-grid renewable energy.
• The WBG’s financing for energy efficiency has exceeded $1.5 billion every year since 2008. Among others, this helps countries and cities to establish energy efficiency plans, and create incentives for domestic banks to lend to business and industry for energy efficiency investments.
What are the World Bank Group's commitments to the Sustainable Energy for All initiative?
The World Bank Group’s two major financing vehicles, IBRD for middle-income and IDA for low-income country governments, contributed about two-thirds of the Bank Group’s total $41 billion in financing for energy projects and programs between 2007 and 2011. (Most of the remaining third is lending from the International Finance Corporation, which lends to the private sector.)
Of IBRD and IDA lending, about a third was for renewable energy and energy efficiency, while a large share went to transmission, distribution, and policy reform. For many countries’ governments, IBRD and IDA—which provide about $8 billion a year in energy financing—will remain their largest single external source of funding for projects in this sector. Moreover, this finance produces matching volumes of investment—about $8 billion a year—from public and private sectors, as well as multilateral and bilateral donors. The goal is to double the current leveraging of this lending to $16 billion a year.
How will the World Bank Group increase its leveraging?
First, by helping countries sharpen their energy investment plans.
The Bank is working with governments to complete rapid assessments of the energy gaps in Bangladesh, Honduras, Indonesia, Kenya, Laos, and Zambia, and to develop scale-up plans. Some of these scale-up plans will be supported, in part, by Bank Group financing. In addition to financing, the Bank will continue to provide support for capacity building, technical assistance and knowledge services to help countries expand access, and do so sustainably.
Second, by providing technical assistance.
Renewable energy startup costs are often high. The Bank Group will work to reduce these by financing—along with the Energy Sector Management Assistance Program, or ESMAP—a series of technical assistance initiatives to launch new renewable energy investments, including:
• A technical assistance program to scale up energy access in several developing countries, notably through the Africa Renewable Energy Access Program in collaboration with the World Bank’s Africa Energy unit;
• A partnership with Iceland to develop the 14-gigawatt geothermal potential across Africa’s Rift Valley, thereby expanding electricity access in up to 13 countries via an affordable, continuous, clean energy source;
• A scaled-up Energy Efficient Cities Initiative to urban policymakers, to help them implement programs on building standards, transport and traffic regulations, as well as municipal tax incentives that scale-up energy efficiency efforts in cities, where over 70% of the world’s population will live by 2050.
Third, by reducing perceived risks to encourage private investment in renewable energy and energy efficiency.
By helping countries tap international sources of finance, and gain access to risk guarantees and other instruments, the Bank Group enables increased private sector investment in renewable energy and energy efficiency in developing countries. The International Finance Corporation is also working with other parts of the Bank Group to provide world-class guidance, based on country experiences, to design and implement policy incentives such as feed-in tariffs, renewable portfolio standards and reverse electricity auctions to help renewable energy companies gain a foothold and become competitive. At the same time, it encourages countries to abandon costly subsidies to power producers relying on fossil fuels.
The Bank has recently launched the Global Energy Transfer Feed-in Tariff Plus, or GET FiT Plus, an effort to establish a global regime to support feed-in tariffs, a proven policy incentive to stimulate private investment in renewable energy. It is a pilot initiative—aimed at eventual replication— in which the Bank is partnering with Germany’s KfW, other national donors and commercial banks to support renewable energy projects in East Africa by providing partial risk guarantees combined with other financing, if needed, to cover the premium associated with feed-in tariffs.
The Bank will also build on successful efforts to creating off-grid lighting markets. The Bank and IFC are among ten partners in the Global Lighting and Energy Access Partnership, or Global LEAP. This collaboration aims to replicate the success of Lighting Africa by catalyzing markets for off-grid lighting and other energy products and services across Asia. It also extends successful Lighting Africa pilot programs to new markets in Tanzania, Ethiopia, Senegal and Mali, with the goal of reaching 250 million people with off-grid lighting products by 2030.
Can you give some examples of successful renewable energy or energy efficienty projects supported by the World Bank?
Over 1.4 million low-income rural households in Bangladesh now have electricity from solar panels thanks to a World Bank project under way since 2003. The program shows that clean energy via competitively-priced solar PV panels can deliver life-changing electricity to bottom-of-the-pyramid families. It is implemented by a partnership between the Bangladesh Infrastructure Development Corporation (IDCOL) and about 40 non-governmental organizations, including private sector companies and microcredit agencies, which provide loans to families to install the solar home systems.
The World Bank supports geothermal energy at the Rift Valley site of Olkaria, Kenya, with a $330-million IDA credit to expand Olkaria’s capacity by 280 MW, adding to the plant’s existing 198 MW. This reduces drought-prone Kenya’s precarious dependence for about 51% of its electricity on hydropower, and will also help the country meet the needs of businesses and industry for reliable, high-quality power.
The Tool for Rapid Assessment of City Energy (TRACE), developed by the Energy Sector Management Assistance Program (ESMAP) has been deployed in five cities in the Philippines, Indonesia, Turkey and Vietnam, and demand for it has surfaced in Africa. The tool helps city managers identify actions to lower their energy bills. ESMAPs’ Energy Efficient Cities Initiative (EECI), which produced TRACE, has helped urban planners make better-informed decisions to save energy in the key sectors of buildings, water, transport, public lighting, solid waste and heating/power. It has informed or influenced $700 million worth of World Bank financing to improve energy efficiency.