WRI Stories Feed: Electricity Governance Initiative

Kyrgyzstan Makes Progress on Electricity Sector Reform

Davida Wood — Wed, 21 Dec 2011 06:09:30 -0500

This post was written with Sarah Lupberger, Project Coordinator with WRI’s Electricity Governance Initiative.

A year and a half has…

Between Populism and Price Increases: Who Will Pay for the Cost of Renewable Energy?

Davida Wood — Tue, 21 Jun 2011 16:38:46 -0400

As feed-in tariffs gain traction as a policy mechanism of choice, we must keep in mind the bigger picture of the financial health of developing country electricity sectors.

It was not too long ago that the World Bank and other international financial institutions were drawing attention to the soaring debt levels of developing country utilities. In order for feed-in tariffs or other electricity policies to be effective, a comprehensive approach must address the financial and governance challenges that continue to trouble utilities. Most importantly, there must be transparent tariff setting processes that provide space for public scrutiny and input.

What are feed-in tariffs?

A feed-in tariff is a guarantee that renewable energy producers will be able to sell the electricity they generate at a price set in advance by the government. As of December 2010, 78 countries, states, and provinces have passed feed-in-tariffs for renewable energy, including a rising number of developing countries. Read more >>>

Tariff setting is a central issue that links both the financial and governance aspects of utility performance. In the past 10-15 years, reform efforts have pressed for tariffs to be raised in order to cover the full costs of providing electricity. The transition to cost-recovery principles has been a rocky policy path, which has alternated between social unrest directed at rate increases, and populist solutions which reinstated subsidies and incurred further debt. Missing in all of this has been a formal process in which consumers can engage in rate setting and decision-making about how to structure subsidies and price impacts.

A Lack of Public Input

In developing countries there are few institutions structured to allow for stakeholder engagement in a way that can accommodate a range of analyses and approaches. Unlike in the United States, where independent regulatory institutions came into being as a result of consumer protest against market manipulation by monopolies, developing country regulators were established to create an enabling environment for private investors. As a result, institutional processes for disclosing information and incorporating public input tend to be underdeveloped.

If independent agencies exist at all, they often lack sufficient mandate, authority and capacity to implement these tasks. When a lack of open, transparent processes combine with an absence of visible regulatory actions to curb inefficiencies, consumer confidence is lost. The lack of formal channels for integrating consumer perspectives has had adverse effects. With the lack of institutional space in which to explore a range of solutions, consumers have typically taken to the streets or threatened political stability in response to tariff increases that have been viewed as inequitable.

Consumers and Price Increases

In Indonesia, for example, the government was unable to sustain significant tariff increases even in spite of World Bank and Asian Development Bank loan conditionalities. Yet a closer look at the positions of consumer and public interest organizations show that they do not necessarily reject price increases per se.

A forthcoming Asian Development Bank (ADB) study notes that leading public interest organizations support Indonesia’s April 2010 decision to remove the electricity subsidy for consumers who use more than 6600W per month. This position is not new. What consumer groups have been protesting since the beginning of the sector reform program is the lack of transparency around tariff setting and subsidy processes. They argue that the lack of an independent regulatory process has meant that short term political interests have dominated subsidy determinations, resulting in poorly targeted subsidies and other inefficiencies. In all that time, prices have barely risen. One cannot help but wonder whether earlier openness to alternative perspectives – and formal process for considering them – may have hastened the path to financial recovery. Even now, public interest groups in Indonesia are calling attention to the lack of a clear tariff methodology and involvement of a body that could represent the public.

A Role for Civil Society

Civil society perspectives are particularly valuable in the context of the impending impacts of renewable energy. In the Indian state of Tamil Nadu, for example, the utility’s massive debt must be attributed to multiple types of subsidy payments that the state government has not transferred. As in Indonesia, tariffs have not been raised even as the costs of providing electricity have risen. As a state with one of the highest deployments of renewable energy in India, exceeding the national target of 10%, part of the deficit is linked to renewable energy subsidies. When tariffs are inevitably revised, the voices of consumers will be ever more important in the dialogue about how the costs are covered.

In Thailand, consumer groups advocate that renewable energy policy should be bundled with energy efficiency and demand-side management, rather than deployed in isolation. Attention to energy efficiency would not only bring the costs renewable energy down, but would curb the tendency of Thai utilities to overinvest, an inefficiency which has had an even bigger impact on tariffs.

In Indonesia, civil society organizations argue that subsidies for renewable energy, as for any other policy, should not come as a “blank check”, but should be linked to public interest objectives and regulatory oversight. Already, several corruption investigations are underway in connection with alleged price mark ups and manipulated tender processes. At one solar PV project, the cost of installation was increased by nearly 20% as a result.

In the Philippines, analysts note that there is a serious tendency to keep marginalized sectors, especially those who are non-industry players, out of energy decisionmaking processes. For example, the voices of indigenous peoples and local communities are ignored in the development of power and fuel projects. This lack of transparency and public participation in energy planning and development has led to compromised environmental principles and standards as well as social conflict resulting in escalating costs for the country. This should be avoided as the Philippines implements its recently enacted Renewable Energy Act; otherwise support for renewable energy would diminish.

Consumers have an important role to play in the rate setting process, providing analytic expertise, helping to reduce information asymmetry, and demanding better corporate governance and performance standards from utilities. They can also provide important input into the setting of investment priorities and the distributional impacts of tariff design.

Building Capacity and Participation

Yet the potential of civil society to participate in decision-making processes about the price and impact of renewable energy is far from realized. Prayas’ recent study “Clean Energy Regulation and Civil Society in India” documents the poor public response to the renewable energy tariff orders issued by Indian state regulatory commissions. The study, which reviewed regulatory proceedings and conducted stakeholder interviews in five Indian states, concluded that the lack of reliable data about renewable energy, including resource availability, costs, and performance means that only a handful of technically sophisticated CSOs are able to properly analyze regulatory decisions and the data that underpin them, and this work depends on the availability of adequate resources.

It also corroborates a global survey by the U.S. National Association of Regulatory Utility Commissioners (NARUC) which concluded that regulatory bodies tend to focus on investor issues and do not recognize the role of civil society participation, creating the perception of regulatory capture. For most CSO’s, the focus on investor issues has meant that the regulatory process is of little value to them.

Breaking the Cycle of Non-Engagement

Thus begins a cycle of non-engagement, for when CSOs stay away from regulatory proceedings, the perception that the process has been captured by project developers is reinforced, and has the potential to build popular suspicion of renewable energy generation rather than a constituency that demands more ambition.

To break this cycle, countries must build stronger regulatory institutions and transparent and accountable decision-making processes. There must also be investments in capacity building for the effective participation of civil society organizations. The political and economic sustainability of feed-in tariffs cannot be separated from the larger governance context of tariff-making processes and utility struggles with financial liquidity.

The authors are partners in the Electricity Governance Initiative, a global network of civil society organizations dedicated to promoting transparent, inclusive, and accountable decision making in the electricity sector. WRI and Prayas serve as the Secretariat for the initiative.

Will Clean Energy Lead to the Next Generation of Asian Tigers?

Jennifer Morgan — Mon, 20 Jun 2011 10:05:34 -0400

Renewable energy has the potential to transform Asian society, but only if its leaders can take it to the next level.

This piece originally appeared in the Jakarta Globe.

The West created the automobile, led the space race, and invented the Internet. Each of these innovations transformed society, powering rapid economic growth and enabling people to reach new frontiers in ways that had never been imagined before.

Now, however, it is Asia that is poised to lead the next revolution: the clean energy revolution.

A few weeks ago, the Intergovernmental Panel on Climate Change released a report showing that the world can shift to 80% renewable energy by mid-century. Much of this potential rests in Asia— which has been rapidly advancing its renewable energy production and is becoming the top destination for clean energy investment.

The financial firm Ernst & Young recently named China as the number one country for clean energy investment, with India at number three, and the United States sandwiched in at number two. A recent report from the Pew Climate Charitable Trust found that in 2010 clean energy finance and investment grew globally to $243 billion (USD). Of that, Asia was the fastest growing region, as investment in clean energy climbed to $82.8 billion, a 33 percent increase from 2009. In China, clean energy investment reached $54.4 billion in solar, wind and other clean energy technologies. By comparison the United States saw $34 billion in investments.

Why have Asian countries surged forward in the transition to clean energy investment and production?

The first reason is economic growth. Many Asian countries are looking for new ways to power their economies while meeting their development goals, and they understand that investing in innovation can make them leaders in the global clean energy market. For example, China is already the world’s largest producer of wind turbines and solar modules. The Philippines declared a goal of becoming the world’s top geothermal electricity producer by 2030. Meanwhile, in India, the company Suzlon was launched in 1995 and is now is the third largest wind turbine manufacturer in the world.

The second reason is energy security. Many Asian countries depend heavily on fossil fuels, especially gas and oil, meaning that their security is tied to international markets and foreign countries. China, India, Japan and South Korea are all among the world’s leading oil importers (along with the United States and Germany). But none of the Asian countries are top oil exporters.

Several countries in Asia, especially China, are also heavily dependent on coal, a limited resource that carries additional concerns, especially around greenhouse gas emissions. In addition, the recent disaster in Japan reminded the world of the low-probability, but high-impact risks of nuclear power. As a result, many countries are now turning to renewable energy sources, like wind, solar and geothermal, which can be produced at home, carry lower risks, and have a virtually limitless supply.

The shift to renewable energy has a third driver: climate change. Nearly all Asian countries have experience recent impacts of extreme weather events, whether it’s deadly typhoons in the Philippines, drought in China, or flooding in Pakistan. These are the type of events that are expected to increase in frequency and intensity if climate change continues unchecked. Unfortunately, the International Energy Agency announced that global carbon dioxide emissions—the leading cause of climate change— reached a record high in 2010. In order to slow climate change, the world needs to significantly increase its production of renewable energy.

While Asia’s leadership on clean energy is commendable, it is still not on pace to keep up with the population growth and demand for more energy. Asian countries need to consider how to increase their renewable energy production while meeting the energy needs of their people. According to the International Energy Agency, nearly 800 million people Asia lacked access to electricity in 2009. This inequality prevents many people from having access to basic energy services, including modern appliances for cooking, computers, or even lights for reading.

What will it take to for Asia to truly transform its energy production from fossil fuels to renewable energy? And, can they do it in a way that is affordable, sustainable and safe?

Top minds in business, policy and NGOs are gathering this week in Manila for the Asia Clean Energy Forum, hosted by the Asian Development Bank, U.S. Agency for International Development, and the World Resources Institute, where leaders will explore what is needed to build a clean energy economy.

One thing is clear: in order to drive investment, governments need to put the right policies in place. The World Resources Institute recently convened a workshop with representatives from 12 developing countries, and the consensus is that the right policies are the key to making renewable energy more competitive.

This week’s energy forum will inform an ongoing dialogue among government officials, business leaders, investors, and policy makers that will help shape the direction of Asia’s energy future. With the right investments and policy decisions, Asia’s tigers will lead the clean energy race.

IPCC Study: Renewable Energy Could Provide Majority of World’s Energy by 2050

Lutz Weischer — Mon, 23 May 2011 09:09:17 -0400

Recently, the Intergovernmental Panel on Climate Change (IPCC) released a comprehensive study on renewable energy, entitled Special Report on Renewable Energy Sources and Climate Change Mitigation. The report finds that by 2050, nearly 80 percent of the world’s energy supply could be provided by renewable energy sources. WRI Analyst Lutz Weischer, who works on renewable energy policies, sat down to talk about the report’s implications.

Why is this report significant?

IPCC reports have a credibility and legitimacy that few other sources can match. Because this report draws upon the analysis of preeminent scientists, economists and engineers engaged in climate and energy research, the conclusions have considerable weight. This particular report looks at 164 peer-reviewed energy scenarios to find common themes about what the world’s energy supply will look like in 2050. They also assessed the literature on the technical potential of renewable energy sources, the benefits they can bring beyond reducing greenhouse gas emissions and the barriers that stand in the way of broader deployment. The report will be the go-to place for anyone who wants to get a credible and comprehensive view on the global potential of renewable energy.

What are the report’s primary findings?

The report predicts renewable energy, excluding traditional biomass¹, to grow three to ten times by 2050. Not all of the 164 scenarios analyzed in the report predict significant greenhouse gas emissions reductions; but those that do show a massive expansion of renewables. In other words, you can’t solve the climate crisis without renewable energy. Depending on how ambitious countries are, nearly 80 percent of the world’s energy supply could be provided by renewables in 2050. The best news is the report finds that we would have enough wind, water, sun and biomass resources available to meet all of the world’s energy needs with today’s technologies. However, it highlights several political and financial challenges to reaching those numbers.

Many fear that cost is the biggest barrier to large scale deployment of renewable energy. What’s your take on that?

People shouldn’t have to chose between affordable and clean energy - but in most cases fossil fuels are still cheaper than renewables. One reason is that most countries heavily subsidize fossil fuels. The IPCC report suggests that if fossil fuels were not subsidized and reflected their true costs – taking into account externalities like their impact on health and the environment – renewables would be much more cost-competitive.

The world needs cleaner energy, but we also need to find ways to increase energy access for the hundreds of millions of people who currently go without. At WRI, we try to reconcile these two goals. We’re studying ways to drive down the cost renewable energy and also improve its performance, so that it can become available to more people.

One strategy is for countries to phase out fossil fuel subsidies while adding incentives and subsidies for renewable energy that are designed to encourage innovation. In the long run, this would allow renewable energy to be competitive with traditional sources of power, and countries could phase out those incentives as well.

It’s important to note that in some regions of the world, such as rural regions in Africa, renewable energy is already a cost-competitive source of power.

What other policies are needed to tap into our renewable energy potential?

WRI’s research shows that it’s not enough to just create financial support for renewable energy. Smart renewable energy policy should also include targets (such as a renewable energy standard that sets a renewable generation requirement), improvements to a country’s regulatory structure (to ensure that rules are in place to integrate renewables into a country’s energy system), and incentives to encourage community participation in energy decisions. To accelerate the transition to clean energy, you also need companies that are willing to invest in renewable energy projects, and banks willing to back those projects. In developing countries, that support may need to come from bi- and multilateral development banks.

What does the IPCC report say about how renewable energy can meet development goals?

The report suggests that renewable energy may be a good way to increase energy access. In many areas of the world that lack advanced grid systems, electricity is best produced locally. Rather than importing and transporting diesel fuel to a rural area, for instance, a village could create a micro-grid based on the solar resources they have and save money in the process. In many remote areas, decentralized projects can be cheaper and cleaner than grid expansion, as well as providing energy security.

Much of the growth in renewable energy is predicted to come from developing countries. Why?

The report highlights that 53 percent of current renewable electricity generation capacity is in developing countries, and that the majority of future renewable growth will also be in developing countries.

Developing countries are interested in renewable energy for several reasons: energy access, energy security, economic development opportunities, and even the health benefits that renewable energy have over fossil fuels. These countries are acting in their national interests.

How does the IPCC report relate to WRI’s work?

WRI examines how to realize the full potential of renewable energies that is presented in the IPCC report. For example tomorrowk we will release a paper titled Grounding Green Power, that draws lessons learned from developing countries on smart renewable energy policy and provides guidance to donors who are looking for the most efficient ways to support the clean energy transition. In a recent report, High Wire Act, we looked at one of the key barriers identified in the IPCC report, integrating renewables into the power grid, with detailed case studies of the United States, China and the EU. We also conduct research on issues related to governance and finance and how they influence renewable energy deployment. At the upcoming Asia Clean Energy Forum in Manila, we will present the full spectrum of our renewable energy analysis.

The report looks at six renewable energy sources: Direct solar, geothermal energy, hydropower, ocean energy, wind energy and bioenergy. ”Traditional biomass” is a form of bioenergy and mainly refers to burning wood for cooking and heating purposes in many parts of the developing world. In most scenarios, a decrease in the use of traditional biomass is predicted, as people switch to more modern energy sources. To get an accurate idea of the growth in all other renewable energy sources, traditional biomass was excluded when calculating these growth rates. ↩

Clean Energy, Corruption, and Case Studies on Electricity Governance

Davida Wood — Thu, 23 Dec 2010 11:35:49 -0500

Developing countries are expecting billions of dollars to fund a clean energy transformation. How can they ensure this money is spent in the public interest?

At a moment in which countries seek billions of dollars of financing to transition to low-carbon economies, there has been little focus on how decisions about these expenditures are actually made.

But with new technologies and new sources of financing emerging as potential drivers of an energy transformation, it is critical to understand the institutional structures and governance practices that shape sector choices.

The Electricity Governance Initiative explored these issues on a panel at 14th International Anti-Corruption Conference in November 2010. Titled “Clean Energy: Conflicts of Interest and Corruption in the Electricity Sector,” the panel presented case-studies of the institutional backdrop for electricity sector planning and procurement. The panel examined how public funds for both conventional and renewable energy may serve vested interests. It also explored ways in which electricity sector institutions in developing countries may be improved to protect public interests in this capital-intensive sector.

Governance challenges persist even as the fuel is changed from conventional to renewable resources.

Case studies from Thailand, South Africa, Indonesia and India demonstrate large governance gaps, and multiple avenues for corruption:

Thailand’s power development planning process is premised on perpetuating gains for vested interests and designed to continue providing perverse incentives to extractive and nuclear industries, though various alternatives exist.
South African anti-corruption agencies are unable to take action even where conflicts of interests are visible in decision-making and seek higher levels of “evidence” of corruption or undue influence.
Indonesia’s government continue to sign private contracts with independent power plants (IPPs) outside of the public domain, committing to buy electricity at higher costs with virtually no public or regulatory oversight.
Clean energy development and deployment in India has shown how information asymmetry, limited regulatory and public oversight and the calculation and rolling out of incentives and subsidies can cloud decision-making in the sector.

The presentations demonstrated how institutional biases and lack of transparency can combine to slow transformation and distort pricing. Even in the “clean energy” sector, lack of transparency underscores the fact that governance challenges persist even as the fuel is changed from conventional to renewable resources.

A common theme in the session was the challenge of identifying and combating corruption, given the technical nature and complexities in the electricity sector, and a call for greater civil society coordination to combat corruption in the sector. Panelists focused on looking at corruption within a larger “good governance” paradigm: the creation of processes aimed at improving transparency to reduce corruption and lead to decisions in the electricity sector that better serve the public interest. The four presenters are partners of the Electricity Governance Initiative (EGI), a global network of civil society organizations dedicated to promoting transparent, accountable, and inclusive decision-making in the Electricity Sector. The World Resources Institute and Prayas Energy Group serve as the Secretariat.

Read these case studies here:

Governance and Power Development Planning in Thailand
Corruption and Procurement in South Africa: A Case-Study from Eskom
Independent Power Plants and Corruption in Indonesia
Clean Energy and Regulation: India’s Challenges of Information Asymmetry and Weak Oversight

Q&A: Policies for Renewable Energy in Developing Countries

Kevin Lustig — Mon, 13 Dec 2010 11:42:18 -0500

Last month, WRI convened a group of international experts to discuss policies and incentives for increasing the use of renewable energy in the developing world. WRI’s Davida Wood and Lutz Weischer discuss the key lessons learned at the workshop and their work on helping developing countries make the transition to renewable energy.

What are some of the key renewable energy success stories in developing countries?

Lutz: There are many success stories, as many developing countries have scaled up renewable power in recent years. Of course, China gets a lot of attention, but the trend is much broader than that. The Renewables 2010 Global Status Report counts 45 developing countries with renewable energy targets and 42 with some sort of promotion policy.

One approach that has worked well in many countries is the so-called “feed-in-tariff,” which is a guarantee that renewable energy producers will be able to sell the electricity they generate at a price set in advance by the government. To date, there are 78 countries, states, and provinces that have passed feed-in-tariffs for renewable energy, including a rising number of developing countries. These include major emerging economies such as China and India, as well as smaller countries such as Tanzania and Thailand. In all of them, the feed-in-tariffs have led to more investment in renewable energy generation and an increased share of renewables in the electricity mix.

Davida: In India, electricity regulators at the state level have a mandate to set feed-in tariffs for a range of renewable energy technologies. Some of these state regulators have been very active and have succeeded in attracting considerable investment. For example, in the state of Gujarat, the regulatory commission set a tariff in January 2010 for photovoltaic solar power. Power purchase agreements for 500 megawatts (MW) were signed in just six months, backed up by financial guarantees.

But there are other approaches. In Brazil, after experimenting with various incentive schemes for increasing investments in renewable energy, the National Agency for Electrical Energy held the country’s first wind-only power auction in December 2009. More than 1800 MW of wind power was contracted for.

Lutz: One thing I’d like to add on India is that this has also been a success story for industry development and employment. India’s use of policies to create stable demand for wind power has led to development of a successful manufacturing base, making India the fifth largest wind power market in the world. An Indian company, Suzlon, which began in 1995 with just 25 people, is now the third largest wind turbine manufacturer in the world, employing over 16,000 people globally.

What are the barriers to increased development of renewable energy in the developing world?

Lutz: The number one barrier to renewable energy scale-up in the developing world is cost. Access to modern forms of electricity is crucial for both basic improvements in quality of life and for being able to develop a robust, modern economy. But most people in developing countries simply cannot afford the cost of electricity with increased renewables. They need policies that drive down the costs and increase the deployment of these technologies. Until clean power technologies reach full price parity with fossil fuels, even the best policies will come at an additional cost that can’t be borne by poor ratepayers in developing countries. That’s why international support is needed. For an international donor like the World Bank that’s committed to increasing energy access, you will get more renewable energy if instead of investing in individual wind farms, you invest in the policy environment that makes people want to build wind farms.

You will get more renewable energy if instead of investing in individual wind farms, you invest in the policy environment that makes people want to build wind farms.

Davida: An important element for this approach is access to data and methodologies. While feed-in-tariffs are widely adopted, regulators do not have sufficient access to information about the costs of renewable energy, and are dependent on project developers to provide these figures. At a forum convened by WRI and Prayas Energy Group, a commissioner from the Indian state of Gujarat I mentioned previously described the process by which his state’s tariff had arrived: a combination of technical inputs, public consultations, and artful guesswork. Participants at the renewable energy policy workshop we recently held at WRI also stressed that access to methodologies, benchmarking data and performance metrics, and techniques of competitive bidding are badly needed to support development of renewable energy resources. Independent oversight from civil society is a key ingredient here.

Lutz: That’s right; feed-in-tariffs can be quite successful, but they’re only successful if you’re doing a good job in setting your rates. If you set rates too low, you get no deployment, but if you only rely on information from developers, you end up setting your rate too high and providing windfall profits. Even if there’s good policy in place, developing countries often don’t have the domestic investment capital for these projects. So, you need an international mechanism that mobilizes finance and investment for these projects at affordable interest rates.

Davida: Furthermore, from a planning perspective, much more could be done to design off-grid renewable energy systems–in rural areas for example–that take advantage of the synergies between different forms of renewable energy. For energy on the grid, building capacity on integrated resource planning is key to integrating renewable and conventional energy sources.

Lutz: Yes, that’s true; the challenge of managing a national grid with multiple intermittent sources of energy is greatest in developing countries. You need engineers who are able to install renewable energy technologies, maintain them, and manage the grid.

Finally, some countries simply have not been able to replicate these success stories because they don’t know about them, or don’t know how to implement them in their own countries. So, one priority is facilitating the exchange between countries that have policies and those that don’t.

What is WRI doing to help overcome these barriers?

Lutz: We’re working with the World Bank on reforming their energy strategy, so that in the future, renewables will play a larger role in the Bank’s portfolio. We are also helping to disseminate information on successful policies, for example by convening a renewable energy policy workshop together with the Heinrich Boell Foundation North America. The workshop brought together 20 experts from developing countries that have implemented these policies or are currently considering them.

In the context of the United Nations climate change negotiations, we are advocating for a technology mechanism that will support capacity building and knowledge sharing on regulatory and policy incentives for renewables. We’re also working with negotiators in parallel processes such as the Clean Energy Ministerial and bilateral initiatives. In the coming months, we’ll also be working closely with major emerging economies to develop low-carbon development strategies for their power sector.

Davida: WRI’s Electricity Governance Initiative [EGI] is a joint project of WRI and Prayas Energy Group that works with civil society organizations in developing countries to analyze policy and regulatory decision-making processes. We are increasingly turning our attention to renewable energy. We have convened three forums that have brought regulators and civil society together to share experiences. Prayas has written a seminal paper on attempts to promote clean energy in five Indian states that holds lessons relevant to other countries. And our partners in South Africa and Thailand have used EGI methodology to intervene in national planning processes.

What’s next for this issue? What signs of progress should we look for in the near future?

Lutz: One thing we should look for is an increase in the number of countries that use these policies. There are also international moves in the works. Deutsche Bank has proposed a global feed-in-tariff mechanism. It will be interesting to see how that develops. The revised World Bank energy strategy will come out in 2011, and will hopefully give more weight to renewable energy. We should also look towards the technology mechanism that came out of the climate conference in Cancun, which will create a network of experts and clean technology centers that will help share experiences and build capacity. I’m also optimistic that the Clean Energy Ministerial next year in the United Arab Emirates will produce some more ambitious initiatives on renewable energy.

Davida: There are a lot of promising signs to look for: countries developing a better understanding of best practices in clean energy regulation. These include standardized power purchase agreements; increased transparency of the methodologies used to assess resource capacity, costs, and performance (which will benefit both governments and civil society organizations); harmonization of renewable and conventional energy policy and planning. Most of all, though, the way you’ll know that these policies are working is when you see falling prices and improved reliability for electricity from renewable sources. Ultimately, that’s the real test of these policies.

A Climate of Corruption? Transparency Challenges for Cancun and Beyond

Manish Bapna — Mon, 29 Nov 2010 16:29:27 -0500

An update from the International Anti-Corruption Conference.

At the start of the international climate conference in Cancun, the international anti-corruption movement is weighing into the debate on how to shape a new global treaty and deliver effective climate financing to developing countries.

Issues of transparency and accountability have long been a source of contention, and a barrier to progress, in the UN-led climate negotiations. Disagreement between developed and developing countries over how to make actions and policies taken by countries robust and comparable has undermined the trust essential for effective global cooperation to halt rising temperatures. More recently, the issue of climate financing has become a bone of contention, with developing countries questioning whether the money pledged by industrialized countries is new, or simply diverted development aid.

Last month in Bangkok, Transparency International organized the 14th International Anti-Corruption Conference (IACC), which focused in part on the the transparency and corruption challenges associated with climate policy, climate finance for mitigation and adaptation, and carbon markets. WRI prepared the IACC background document on climate change and corruption and has been advising Transparency International on the 2010 Global Corruption Report, which also take climate change and corruption as its theme.

WRI Resources on Climate Finance

In a plenary presentation, WRI’s executive vice-president, Manish Bapna, focused on transparency in adaptation. He highlighted the “significant corruption and governance risks at each stage of funding for climate adaptation – how it is generated, how it is managed, and how it is spent.” Bapna highlighted the following specific questions and issues for policymakers to grapple with:

Transparency and accountability in the generation of adaptation finance.

With $30 billion pledged for climate finance for 2010-2012 and about $100 billion annually by 2020 (a figure comparable to total Official Development Assistance (ODA) today), making sure that these flows are corruption-free will be a massive challenge. Greater transparency on whether these funds are “new and additional” and a “balanced” amount is being allocated to adaptation will be crucial to creating trust between rich and poor countries.

Corruption and governance risks related to who should manage adaptation finance

Should adaptation financing be entrusted to multilateral and bilateral aid agencies such as the World Bank (what rich countries want) or should national institutions in developing countries have direct access to these funds? Rich countries argue that many of the new institutions created in developing countries lack the fiduciary controls and safeguards that, however flawed, have been tried and tested in the multilateral banks. Poor countries argue that adaptation finance is fundamentally different from development aid and should not be channeled in the same way.

New corruption risks related to how adaptation funding is spent

Sectors that will receive significant adaptation money include water, infrastructure and disaster relief. Yet all these have typically been characterized by high levels of corruption.
Corruption pressures are likely to pull funding to projects that are large and concrete-heavy (such as new infrastructure). This is the opposite of the small, local and flexible solutions often needed to deal with climate impacts.

Bapna concluded by calling for collaboration between the anti-corruption and environmental communities to help make emerging adaptation funds in developing countries more robust and corruption-proof. Efforts should include working with adaptation institutions in developing countries to make their governance and operations more transparent and inclusive as well as with civil society organizations to build their capacity to hold these institutions to account.

In a related IACC conference workshop, WRI’s electricity governance (EGI) team focused on how to address pervasive corruption in the capital-intensive electricity sector. Kickbacks to government officials to secure contracts for building new power plants or providing fuel or equipment are common, and clean energy technology markets are also not immune to fraud or corruption. These conflicts of interests can affect power development plans that shape a country’s energy choices. The workshop showcased innovative strategies to fight corruption in a sector that has historically received little attention from civil society, yet is at the center of sustainable development and climate change efforts. Speakers from EGI civil society partner organizations shared experiences from four different countries: Thailand, India, Indonesia, and South Africa.

EGI will soon compile a compendium of these examples and other emerging strategies and challenges that will be available on its website: http://electricitygovernance.wri.org

NEWS RELEASE: Development Banks Must Embrace a Sustainable Future

Jessica Forres — Fri, 23 Apr 2010 11:30:30 -0400

Despite the increase in sustainable energy initiatives by Multilateral Development Banks (MDBs), a limited number of loans financed by the World Bank, Inter-American Development Bank (IDB) and Asian Development Bank (ADB) consistently support sustainable energy investments in developing countries.

Investing in Sustainable Energy Futures: Multilateral Development Banks’ Investments in Energy Policy, a report released today by the World Resources Institute (WRI), analyzes energy-related loan programs at the World Bank, ADB and IDB in addition to the newly created Clean Technology Fund (CTF). The report is being launched this week at the annual spring meetings of the World Bank Group and the International Monetary Fund.

“Over the last five years, MDBs have engaged countries on critical elements of sustainable energy and have launched several specialized initiatives to promote clean energy and low carbon technologies,” said Athena Ballesteros, manager of WRI’s International Financial Flows and the Environment Project. “However, if the development banks are going to finance climate change solutions in the future, they need to help developing countries put in place new, and more effective forms of oversight, pricing, and investment incentives that promote long-term investments in sustainable energy.”

Ballesteros added, “In most countries, policies and regulations currently tend to emphasize short-term costs and supply rather than the long-term benefits of clean technologies.”

The report finds that despite increased support for low carbon energy technologies, many loan programs do not address aspects of electricity policy, regulation, institutional capacity and governance that would enable investments in sustainable energy over the long-term. The findings are based on a framework developed by WRI that builds on the Electricity Governance Indicator Toolkit—a set of indicators benchmarking best practice and promoting accountability in the electricity sector.

The report makes the case for systematic attention to the following issues:

Long-term Integrated Electricity Planning
Policies and Regulations Encouraging Energy Efficiency
Policies and Regulations Promoting Renewable Energy
Pricing Structures Encouraging Efficiency and Reducing consumption
Subsidy Reform to Reveal the True Costs of Fossil Fuesls and Promote the Viability of Sustainable Energy Options
Executive Agencies’ Capacity for Sustainable Electricity
Regulators’ Capacity to Oversee Implementation of Sustainable Electricity Policy
Utilities’ Capacity to Promote Energy Efficiency and Renewables
Transparency of Policy, Planning, and Regulatory Processes for Electricity
Stakeholders’ Engagement in Policy, Planning, and Regulatory Processes

A relatively small number of MDB projects address the elements of sustainable energy listed above. Of the 31 World Bank loans reviewed, only 10 consider 5 of the 11 elements. The IDB considers at least 5 of the elements in 10 of 19 loans and the ADB considers more than 5 elements in 10 of 29 projects.

The report also reviews the investments made by the MDB administered Climate Investment Funds (CIFs), particularly the $4.73 billion Clean Technology Fund. While the Funds address some of these elements, the research concludes attention to them has been uneven. The CIFs represent more public finance than has ever before been dedicated to climate change.

Smita Nakhooda, a senior associate at WRI, said “A greater focus on institutional capacity and governance will be key to supporting developing countries to pursue low carbon energy options that effectively meet development needs without compromising the poor.”

For more information, visit the International Financial Flow and the Environment page and the Electricity Governance Initiative website.

Electricity Plays Key Role in Kyrgyzstan Uprising

Davida Wood — Mon, 19 Apr 2010 15:39:13 -0400

WRI’s Davida Wood answers questions on the current situation in Kyrgyzstan and its link to electricity governance.

The recent political upheaval and violent protests that rocked Kyrgyzstan – sparked in part by sharp hikes in tariffs for electricity and heat – serve as a reminder of the importance of the electric power sector in Central Asia.

In 2009, WRI’s Electricity Governance Initiative (EGI) supported local partners in Kyrgyzstan and Tajikistan to conduct the first comprehensive Electricity Governance Assessments in their countries. These assessments allow civil society to gather data on the transparency, accountability, and inclusivity of a country’s electricity sector.

What has led up to the current tensions in Kyrgyzstan?

Since President Bakiyev was elected in the wake of the Tulip Revolution in 2005, Kyrgyz citizens have been increasingly disappointed by the failure of the new government to improve economic opportunity and deliver on vital services. At the same time, there has been an erosion of civil liberties and a rising perception of increased corruption.

These trends were manifested in the electricity sector, where mismanagement of the privatization process resulted in poor sector performance. In 2008 Kyrygzstan entered an energy crisis and rolling blackouts were imposed throughout the country. One of the key issues that triggered this latest revolt was rising electricity tariffs. The price of electricity was set to increase 100% starting on January 1, 2010, with plans for further increases.

As electricity companies are writing off debt and electricity rations are being imposed, there are no mechanisms for holding the government accountable.

Why have electricity costs increased so much?

In the former Soviet Union, there was universal access to electricity, and the service was virtually free of charge to citizens. A challenge for the former Soviet republics has been to develop a tariff system where the prices for electricity gradually increase to the point where the revenues cover the costs of electricity. The problem is exacerbated because the Soviet-era equipment is badly in need of upgrading, and also because trading patterns have been disrupted. Fuel – which Kyrgyzstan used to have easy access to from neighboring Soviet republics in exchange for hydropower – is now a globally traded commodity. So Kyrgyzstan has to either find ways to pay near market prices, or become energy independent by increasing its capacity to generate hydropower. Both of these are expensive options. Hence the need to increase tariffs.

Why are people so upset about the tariffs?

There is strong suspicion that tariff revenues are not being put to good use. Electricity companies continue to run at a loss, and services have deteriorated. Fundamental to the expectation that people pay for services is public confidence in the institutions which set prices, plan for improvements, and oversee sector performance. But basic good governance procedures have been withdrawn. Annual reports from the Ministry for Industry, Energy and Fuel Resources – once posted on the ministry website – are no longer publically available. The regulatory department has been weakened and the practice of public hearings for tariff increases has been suspended. So at the same time as electricity companies are writing off debt and electricity rations are being imposed, there are no mechanisms for holding the government accountable. People do not believe that the increased prices will help improve sector performance until financial oversight is improved and corruption is addressed.

Will privatization of electricity companies help with corruption?

It is possible. But the government will still have to play a role in issuing licenses, approving tariff revisions, and monitoring service quality. Kyrgyzstan’s privatization process is not off to a good start. SeverElectro, the first of the four state-owned distribution companies to be privatized, is said to have been sold for $3 million, well below what the public believes to be its true value, given investment in this company and the value of its assets. The problem is that there has been no transparency around asset valuation, nor around the criteria for selecting a buyer. This is another key issue that has fueled public anger. The basic ingredients of a credible market-based democracy are still lacking. Under these circumstances, privatization is not the answer.

Is there any optimism that the situation would improve under a new government?

Roza Otunbaeva, the interim President, has been at the forefront of the critique of mismanagement of the electricity sector. She has made statements that reflect a grasp of the governance issues that need to be addressed, and has been supportive of civil society working on these issues, including WRI’s Electricity Governance Initiative (EGI) partners in Kyrgyzstan. In her remarks at the launch of EGI’s governance assessment report (which she attended in her capacity as Deputy of Parliament), she stated that:

Transparent, reasonable, competent governance of the energy sector is a public issue, and it is necessary to discuss it, not only by means of barricades, posters and slogans, but also by means of governance principles. I was very glad to hear there are some approaches and initiatives that exist and are practiced in the energy sector, which will lead us to competent public participation.

The interim government, which Otunbaeva heads, needs to ensure that the necessary framework to enable informed public participation in electric power sector decision making is created. Without such participation, building a more transparent, accountable and efficient sector is impossible in Kyrgyzstan. EGI’s tools are designed to foster precisely these improvements.

Additional Information

EGI’s lead partner in Kyrgyzstan, Civic Environmental Foundation UNISON, continues to publish monthly updates and analysis on electricity issues (available in English here), as well as a detailed chronology of events.

EGI’s Kyrgyz and Tajik partners will be speaking at a policy forum on this topic sponsored by the Open Society Institute on April 28 in Washington, DC.

The World Bank Eskom Support Program

Smita Nakhooda — Mon, 08 Mar 2010 10:11:24 -0500

South Africa’s plans for a new coal power plant bring up difficult decisions for the World Bank.

Please contact Smita Nakhooda (snakhooda@wri.org) or Davida Wood (dwood@wri.org) for further information.

The prospect of a $3.75 billion World Bank loan to support the Medupi Supercritical coal plant in South Africa has raised questions about the future of development assistance in a warming world. The coal plant, part of the national South African utility Eskom’s program to expand generation capacity, is expected to provide 4,800 MW of electricity. Construction of the plant has already begun, and contracts for key components have been signed. Yet Eskom’s longer-term electricity expansion program may have problematic implications for environmentally and socially sustainable development in South Africa. There are trade-offs between increasing South Africa’s electricity generation capacity and reducing its greenhouse gas emissions (as laid out in the country’s national Long-Term Mitigation Scenarios) that must be reconciled. Electricity planning processes to date, however, have been neither transparent nor inclusive.¹ The assumptions that coal is the most viable long-term option for South Africa need to be revisited through open, fact based debate on all available energy options.

An Urgent Need for Energy

South Africa has been in the middle of an electricity crisis since 2008: demand significantly exceeds supply, in a marked turn of events for a country that was once awash in cheap electricity. Major investments in new electricity generation have not been made since the 1980s.

The Medupi coal plant for which World Bank funding is sought was originally just one of more than five large scale coal plants that Eskom proposed to build as part of a large capacity expansion program to stop the gap. Eskom and the Department of Energy (DoE) proposed the core elements of this build program in a draft 20-year Integrated Resource Plan (IRP) for the electricity sector in September 2009. At the end of last year, the government approved an interim five year IRP plan, pending consultations on a longer term plan for the sector, recognizing the need to address the longer term implications of electricity development.²

Questioning Conventional Assumptions

The full costs and benefits of the options for meeting near and long term energy needs must be considered more carefully than in the past. Eskom’s projections of 80,000 MW of future demand for electricity by 2028 are debatable. Historically, electricity planners –and Eskom in particular– have been overly optimistic about these projections to justify new investments in infrastructure.³ Financing a massive capital expansion program is certainly not cheap in the immediate term: after Eskom originally requested a 45% per year increase in the price of electricity over three years, the National Energy Regulator of South Africa allowed it an increase of approximately 25% per year between 2010 and 2013.⁴

All base-load electricity options pose risks, and may have hidden costs. The draft IRP emphasized these risks for low carbon options such as renewable energy, without acknowledging the risks of continued dependence on coal fired power.⁵ There is limited transparency about the terms on which Eskom contracts coal, and the costs of coal have been escalating.⁶ Interruptions in coal supply caused by transport failures and weather events have shown that coal plants are also not always reliable.⁷

In addition, the operation of large coal fired power plants is enormously water intensive in a country where water scarcity is a pressing environmental challenge. Acid drainage from mining already poisons many of the country’s water systems, and restoring water ecosystems is costly.⁸ When the implications of climate change are also factored in, the viability of conventional coal in the long term looks far less certain.

While the importance of reliable electricity supplies to support economic development and reduce poverty has been central to the rationale for the Eskom program, there has been little emphasis to date on how to meet the enduring challenge of extending access to electricity to the 30% of South Africans who still lack it.

Difficult Decisions for the World Bank

A broad based coalition of local civil society groups within South Africa, and global NGOs are voicing their opposition to the World Bank’s support for the Medupi power plant. They have called in particular on the US government, the largest shareholder of the World Bank, to withhold support for the project, referencing the government’s new policies which suggest that coal should only be supported as an option of last resort.

The role of the World Bank in the energy sector has been complex and controversial. It has a history of financing mega-infrastructure projects that raise significant environmental and social risks, and supporting private sector oriented reforms that have delivered limited social or environmental benefits.⁹ Attention to environmental considerations in its energy sector lending, particularly climate change, has been uneven.

At the same time, the Bank is interested in financing climate change activities in developing countries, and positioning itself as a lead low carbon growth support agency. The US $6.3billion Climate Investment Funds (CIFs) that it administers on behalf of the Multilateral Development Banks (MDBs) represent a pilot effort to explore this space.

Last year, the Clean Technology Fund (CTF) of the CIFs committed US$500 million to support renewable energy and energy efficiency in South Africa. The concentrating solar thermal plant and the wind farm included in the 2009 electricity IRP will be largely financed by the MDBs. These will be the first large-scale renewable energy facilities to come onto South Africa’s grid.

The World Bank also has supported ongoing technical assistance efforts to support renewable energy and energy efficiency programs, and is presently financing the South Africa’s DoE to develop a white paper that will shape future policy on renewable energy.

A Need for Transparency and Debate

The underlying problem is that there has been little transparency or public debate of the assumptions that underpin long term plans for how to meet energy needs within South Africa. While the draft IRP developed by Eskom and DoE is referenced extensively in the report of the World Bank expert panel, it has never been officially publicly disclosed in South Africa, though it was leaked to the media earlier this year.¹⁰

A bigger problem is that the electricity IRP should be informed by an Integrated Energy Plan that sets a macro framework for the entire energy sector in South Africa. Public participation in the development of the Energy Plan is required in the 2008 National Energy Act. So far, no Integrated Energy Plan has been developed. Transparency and public participation are especially crucial when such long term investments that affect public interests are being made, and consumers and taxpayers pay the bills.

The realities of climate change require the World Bank to support countries to seriously consider every possible alternative to carbon intensive coal power as they make decide how to meet their energy needs. In the context of the Eskom Support Program, the World Bank must recognize the limitations of the decision-making processes to date, and support improvements in governance.

Policy and regulatory frameworks that better manage the environmental and social externalities of conventional energy technologies are needed. The capacity of institutions to weigh the options, and implement effective low carbon programs must be supported. Creative approaches to enhance technical capacity as well as accountability for impact are also necessary.

If the World Bank is to support developing countries to transition to a sustainable energy future, and to be a credible actor in channeling climate finance, what role can and should it play in supporting conventional technologies? These are difficult decisions that all its shareholders will need to weigh carefully.

This article builds on the research findings of the Electricity Governance Initiative South Africa Assessment, coordinated by Idasa, in collaboration with a wide cross section of civil society and research institutions in South Africa including WWF-South Africa, the International Labour Research Group, Earthlife Africa, the Energy Research Center at the University of Cape Town, the Democratic Governance and Rights Unit of the Faculty of Law of the University of Cape Town, Sustainable Energy Africa, and the Green Connection. The assessment considered transparency, public participation, accountability and capacity in policy and regulation of the electricity sector in South Africa and is available online at http://electricitygovernance.wri.org

The Electricity Governance Initiative is a global effort to bring civil society, government, and other sector stakeholders together to improve transparency, inclusiveness and accountability in decision-making to support sustainable energy choices. WRI (USA) and Prayas Energy Group (India) coordinate the Initiative which is active in India, Indonesia, Thailand, the Philippines, Central Asia, Brazil, and South Africa.

The Electricity Governance Initiative in South Africa: Shedding a Light on the Power Sector, Idasa, February 2010. ↩
Department of Energy Notice No. 1243, Electricity Regulation Act 2006: Determination regarding the Integrated Resource Plan and new Generation Capacity. 31 December 2009. See also unpublished Draft Integrated Resource Plan for Electricity in South Africa, 23 September 2009 available at http://www.mg.co.za/article/2010-01-08-eskoms-secret-tariff-plan-revealed ↩
For example, Eskom capacity expansions in the 1970s and 1980s were premised on projected electricity growth demand rates of more than 7%, whereas the actual growth that ensued was on the order of 2% - 4%, resulting in a significant electricity surplus. See Andrew Marquard, The Origins and Development of South African Energy Policy, University of Cape Town, Jan 2006. p168. Also echoed in the comments of former Chairman of the Eskom Board Bobby Godsell to the National Press Club of Cape Town on 26 Feb 2010. ↩
Eskom later scaled its request back to 35% in November 2009. Eskom was previously allowed an interim price increase of 31% in June 2009.While the tariff increases have been unpopular and their economic impact remains to be seen, they may represent a move towards more cost reflective tariffs, and may create an additional incentive for greater efficiency. ↩
Draft Integrated Resource Plan for Electricity in South Africa, 23 September 2009: See table 7. ↩
Eskom, Proposed Revenue Application Multi-Year Price Determination 2010/11 to 2012/13, September 2009 http://www.nersa.org.za/documents/electricity/TransnetPriceI... ; Eskom Revised Eskom Revenue Application Multi-Year Price Determination 2010/11 to 2012/13, November 2009. http://www.nersa.org.za/documents/Home/WelcomeNote/EskomMultiYearPriceDetermination.aspx ↩
For example, ‘Anglo Closes 3 South African Coal Mines due to Rain’, Reuters, March 2008. ↩
Mariette Liefferink “The true cost of coal: Price escalations, land grabs and water shortages” in The New Nexus of Power and Accountability in Energy, Institute for Security Studies, November 2009. ↩
Navroz Dubash, ed. Power Politics – Equity and Environment in Electricity Reform, WRI, 2002. See also internal evaluations such as World Bank, Private Sector Development in the Electric Power Sector: A Joint OED/OEG/OEU Review of the World Bank Group’s Assistance in the 1990s, July 2003. Available at http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2003/08/19/000090341_20030819104810/Rendered/PDF/264270UG0PGD.pdf ↩
Eskom’s Secret Tariff Plan Revealed. 8 Jan 2010, Mail and Guardian. http://www.mg.co.za/article/2010-01-08-eskoms-secret-tariff-plan-revealed ↩