Topic: renewable energy, sustainable development

Mobilizing Climate Investment: The Role of International Climate Finance in Creating Readiness for Scaled-Up, Low-Carbon Energy

Sarah Parsons — Fri, 22 Feb 2013 15:20:51 -0500

Executive Summary

Between now and 2050, developing countries need an estimated $531 billion per year of additional investment in energy supply and demand technologies in order to limit global temperature rise to 2° C above pre-industrial levels. To achieve this scale of investment, developing country governments and custodians of international public finance will need to deploy limited public finance in ways that leverage an unprecedented volume of private sector investment. Despite growing global investment in low-carbon energy and falling costs, it will be difficult to achieve the scale and urgency of investments needed without the appropriate policy, institutional, industry, and financial conditions. Governments and their international partners need to undertake “readiness” activities designed to put in place the conditions that attract scaled-up investment and enable a transformation toward low-carbon energy development pathways.

Drawing on six developing country case studies, this report identifies a set of key lessons and insights for readiness. The report develops a framework to identify and prioritize readiness activities that will require public financial support to create the conditions necessary to scale up investments in renewable energy and energy efficiency (collectively referred to as low-carbon energy). The report discusses the implications of the findings for international climate finance and draws a number of recommendations for the Green Climate Fund (GCF). It targets international public funds and institutions looking to accelerate investment in low-carbon energy, as well as developing country governments looking to identify and prioritize activities for funding.

Enabling conditions for scaling up investment

We identify a number of policy and institutional, industry, and financial sector conditions that can attract scaled-up public and private investment in low-carbon energy. Policy and institutional conditions include plans and targets for low-carbon energy, institutional capacity to effectively implement climate change and energy policies, laws supporting investment in low-carbon energy, and regulatory and fiscal instruments to implement laws. Industry conditions include the capacity of developers to prepare bankable projects, information on renewable resource availability or options to conserve energy, engineering capacity, and the presence of a support industry and enabling infrastructure. Financial conditions include a stable financial sector with the capacity and range of financial products needed to support low-carbon energy.

In six case studies, we analyze the role that enabling activities have played in promoting scaled up investment in low-carbon energy, and the role that international public finance has played in supporting such activities. These case studies examine energy efficiency in Thailand, wind power in South Africa, solar water heaters in Tunisia, geothermal power in Indonesia, wind power in Mexico, and energy efficiency in India. Taken together, the case studies suggest two overarching determinants of success in scaling up investment: government leadership and effective responses to pricing distortions. When government leadership is strong, a commitment to policy and institutional reform and implementation of stated goals usually follows. This in turn strengthens the investment climate and increases investor confidence. In cases where market failures severely distort the market in favor of carbon-intensive energy sources, it has been more difficult to create the conditions that attract investment in low-carbon energy.

Lessons learned for the design of readiness activities

The case studies also reveal a number of lessons about the design of readiness activities and the role of international partners in supporting them.

Small amounts of long-term funding for enabling activities can help scale up investment

In each case study, small investments in enabling activities—from several hundred thousand dollars to several million dollars—helped pave the way for scaled up private and public investments by supporting the creation of conducive policies and market conditions. International support has been most effective when sustained over five or more years. Technical support can also be more effective if international advisors are integrated into national institutions and report to national, rather than international, authorities.

International support is likely to be more effective if it identifies and targets a few critical barriers to investment. In countries with comparatively few enabling conditions for investment, attempts to simultaneously surmount all investment barriers may result in resources being spread too thin to achieve a significant impact. Chapter 4 presents a framework that can aid governments and their international partners in identifying activities to support.

Strengthening the enabling environment should not end when investment begins. In each case study, readiness activities and larger investment took place simultaneously. Even in cases where the investment climate was already strong, there was still scope for additional enabling activities to address specific gaps.

Integrated, inclusive planning processes and policy and institutional reform are key to attracting investment

The integration of low-carbon energy into a broader development agenda can enhance coordination and alignment between different sectors of the economy. Civil society and private sector actors can bring valuable expertise and experience to the planning process, and play important roles in ensuring that low-carbon energy policies and plans are realistic, robust, and tailored to the needs of the country. International support should be aligned with national plans and priorities for effective and sustained outcomes, and should be flexible enough to respond in a timely manner to evolving priorities.

Changes to the policy and regulatory environment proved crucial to attracting investment on a significant scale in the case studies. International support for the design of policies is likely to be effective only if it is demand-driven and not seen as infringing on national sovereignty. Countries that have set up their own financial mechanism to support low-carbon energy projects are well positioned to implement their objectives effectively and independently, thereby reducing their reliance on international partners to finance their low-carbon energy needs.

Having the appropriate institutions in place to develop, implement, and regulate policy reforms—and empowering them with the mandate and resources to carry out their functions effectively—helped ensure that policies were coherent and consistent, which increased investor confidence.

In key institutions, strengthening the capacity of staff and management to carry out their functions is an important readiness activity that often requires international funding support. The case studies suggest that capacity-building support is most effective when carefully targeted to address particular skills gaps.

Tackling information barriers and strengthening industry and financial sector capacity can unlock investment

Public support for broad-scale renewable resource assessments or exploration can provide information on resource availability that is key to attracting investor interest. Similarly, measures to familiarize industry and other actors with low-carbon energy options—such as training centers, awareness campaigns, and seminars and workshops that bring together stakeholders—can strengthen industry knowledge of and capacity to implement renewable energy projects, and raise awareness of the potential cost savings from energy efficiency.

International support plays an important role in facilitating learning and demonstrating new financing models for renewable energy, as well as strengthening industry’s capacity to develop and implement low-carbon energy projects. In some cases, international support to strengthen the capacity of small and medium enterprises (SMEs) and improve their access to financing for low-carbon energy projects has helped unlock investment by this sector of the market.

Financial institutions can play a key role in opening the market for low-carbon energy technologies. However, some financial institutions lack knowledge of and experience with these technologies. Strengthening the capacity of financial institutions to support renewable energy and energy efficiency projects, including through pilot financing programs, has been important in scaling up domestic sources of finance for low-carbon energy in several cases. In some cases, the high risk—real or perceived—of investing in low-carbon technologies without a proven track record in the country has deterred domestic financial institutions. Mechanisms that carefully allocate risks to those best placed to manage them can help attract financing from domestic banks and other financial institutions.

A framework for guiding readiness support for low-carbon energy investments

Building on the experiences of the six case studies, we propose a framework to guide governments and their international partners in determining how best to provide readiness support to countries with low-carbon energy sectors in different stages of development. The framework describes some of the activities required to strengthen the enabling policy and institutional environment for investment. In the early stages of development, these include support for assessing energy options, engaging stakeholders in the energy planning process, capacity building for government agencies and civil society, technical support for developing plans and strategies, and outreach activities. In later stages, activities include support for designing and implementing regulations and fiscal instruments, and targeted capacity building for government agencies, including local governments.

The proposed framework also describes some of the activities needed to strengthen the enabling industry and financial conditions for investment. In early stages of development, these include renewable resource assessments and energy conservation awareness campaigns, capacity building for project developers and financial institutions, support for technology transfer and localization, feasibility studies and environmental and social impact assessments, and support for financial sector reform. At later stages, activities include strengthening engineering capacity for low-carbon energy projects, supporting ancillary industries (such as upgrading grid infrastructure), and supporting financial institutions to assess and finance low-carbon energy projects.

Recommendations for the Green Climate Fund

The six case studies illustrate different approaches that various international partners have used to support readiness activities. The lessons learned are intended to inform the recently established GCF as it attempts to identify how best to support a paradigm shift toward low-emission and climate-resilient development pathways. Although the GFC’s detailed operational modalities are not yet defined, it could take a number of approaches to support readiness. These include supporting readiness directly or partnering with existing institutions; establishing distinct channels and allocations for readiness or integrating enabling activities into existing channels and allocations; and supporting readiness through the private sector facility.

ADVISORY: WRI's Stories to Watch 2013

James Anderson — Thu, 20 Dec 2012 14:03:26 -0500

WRI will host its 10th annual Stories to Watch event on Tuesday, January 15, 2013, at the National Press Club in Washington, D.C. Dr. Andrew Steer, WRI’s President & CEO, will present insights into the big environmental and international development trends and events that will affect people and the planet in 2013.

Topics will likely include: What will the Obama Administration do to address climate and energy? How will China’s new leadership advance its goal of “ecological progress”? What countries will emerge on the forefront of sustainability? And, how will financial constraints impact businesses seeking to shift to a more sustainable pathway?

A continental breakfast will be served.

WHAT
World Resources Institute’s Stories to Watch 2013

WHO
Dr. Andrew Steer, President & CEO, World Resources Institute.

Dr. Steer is a leading expert on economic development and environmental issues. He has three decades of experience working on international development and on the front lines in Asia and Africa, and at a senior level in international policy roles.

WHERE
National Press Club
Holeman Lounge
529 14th Street, NW
Washington, D.C. 20045

CALL-IN INFO
USA (Toll Free): (866) 803-2143
International (Toll): + 1 (210) 795-1098

Access code: “WRI”

WHEN
Tuesday, January 15, 2013
9:00 - 10:30 a.m. ET

Use #STW2013 on Twitter.

RSVP required to press@wri.org

COP 18: Doha

Kevin Lustig — Fri, 02 Nov 2012 09:09:59 -0400

WRI Experts at COP 18

WRI Events at COP 18

COP 18 Commentary

From November 26 to December 7, 2012, the United Nations will host the 18th Conference of the Parties (COP) in Qatar.

WRI experts will be in attendance at this latest meeting under the UN Framework Convention on Climate Change (UNFCCC) to help inform the talks. Here, you can find a variety of materials from the World Resources Institute that shed light on key areas of international climate policy.

WRI Resources for COP 18

Open Climate Network Analysis

Kevin Lustig — Thu, 17 May 2012 12:16:37 -0400

Use the list to the right to explore available analysis from the Open Climate Network »

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.

Technology Transfer

Kevin Lustig — Mon, 13 Jun 2011 16:02:40 -0400

Technology transfer refers to the manner in which technologies that reduce greenhouse gas emissions and aid climate adaptation efforts are developed and shared across borders. Developing countries will need more than financial investment to address climate change; they will need new technology for reducing emissions, such as wind and solar power, and adaptation. Technology transfer also requires collaboration and the sharing of knowledge and skills to ensure that emerging economies have the capacity to follow best practices and use the technology to greatest effect.

Technology transfer is key to reaching a global agreement on efforts to fight climate change because it will facilitate emissions reductions and adapting to a changing climate. WRI works with decision makers in both developed and developing countries to ensure that the benefits of innovative clean technology are available around the globe.

Low-Carbon Development in Emerging Economies

Kevin Lustig — Mon, 13 Jun 2011 15:25:58 -0400

Today’s major emerging economies — countries such as Brazil, China, India, Indonesia, and South Africa — face the challenge of increasing economic development while also overcoming serious barriers to energy access and reducing greenhouse gas (GHG) emissions. These countries recognize the need for a shift to low-carbon climate-resilient development, but seek solutions that do not compromise growth.

It is possible to meet this challenge while addressing climate change. WRI’s vision is that these countries make a clear link between low-carbon growth and long-term prosperity, and support policies and incentives that advance national development priorities while significantly reducing GHGs. If successful, these countries would redefine the conventional growth paradigm, and offer innovative solutions that set the world firmly on a low-carbon and climate-resilient path.

Use the links below to explore WRI’s work on emerging economies:

WRI’s work by country:

(Click on a highlighted country for publications and other resources)

Grounding Green Power: Bottom-Up Perspectives on Smart Renewable Energy Policy in Developing Countries

Maggie Barron — Tue, 24 May 2011 12:51:13 -0400

Watch the summary interview with Lead Author Lutz Weischer

This paper was published by the German Marshall Fund of the United States in cooperation with the Heinrich Boell Foundation and the World Resources Institute.

Developing Countries in the Renewable Energy Transformation

In order to meet the intensifying climate challenge, the global energy system must undergo a fundamental transformation, with a rapid increase of renewable energy worldwide. Developing countries are at the forefront of this challenge, since they are expected to add around 80 percent of all new electric generation capacity worldwide in the next two decades.

The deployment of energy from renewable sources is accelerating in developing countries, and already accounts for a higher percentage of electricity generation than in the developed world. In 2008, non-OECD nations generated 21 percent of their electricity from renewable sources including large-scale hydroelectric power (compared with 17 percent in OECD countries), according to International Energy Agency (IEA) statistics. However, this figure must more than double by 2035, to 46 percent, in order to meet the IEA’s “450 scenario,” which outlines a climate friendly pathway for meeting global energy demands.

Transforming the energy system on this scale will require significantly increased support from developed countries, channeled through both bilateral assistance and multilateral institutions, as well as philanthropic initiatives. Our conclusions, derived from a series of case studies and a comprehensive review of existing literature, suggest that donors should deploy financial support more effectively by moving beyond a project-by-project approach to one that creates the right environment for investments in scaled-up, nationwide deployment.

This working paper seeks to assist in this process, by identifying key components of smart renewable energy policy in developing countries, focusing on the power sector. It also provides recommendations for maximizing the effectiveness of international support for deployment of renewable energies, drawn from these on-the-ground experiences in developing countries.

About this Working Paper

Chapter 1 introduces the approach and methodology taken in this paper and describes the key concepts we address. The second chapter discusses what developing countries are already doing to deploy renewable energy sources, and how they can be supported in scaling up such efforts. It also introduces a set of principles of smart renewable energy policy to propel such a transformation, developed by the World Resources Institute. These are based on insights drawn from case studies of existing renewable energy policies in 12 countries in Africa, Asia, and Latin America as well as from existing literature.

The following five chapters each examine one key element of smart renewable energy policy, discuss lessons learned, and identify needs for international support. These cover planning and strategy (Chapter 3), well-designed generation-based incentives (Chapter 4), an enabling policy and regulatory framework (Chapter 5), attractive financing conditions (Chapter 6), and the necessary technical environment (Chapter 7). Our findings and recommendations are summarized in Chapter 8.

Principles of Smart Renewable Energy Policy

We define smart renewable energy policy as the set of rules, regulations, and government actions that lead to an increased share of renewables in total electricity consumption in line with a country’s development objectives. Smart renewable energy policy encourages private investment, achieves its objectives in a cost-effective way, promotes continuous innovation, and is designed through transparent, accountable, and participatory processes.

Presentation

Download Slides (PDF, 839 Kb)

Two Degrees of Innovation

Kevin Lustig — Wed, 06 Apr 2011 12:53:55 -0400

Key Resources

Innovations in the global power sector need to emerge and spread quickly to drive down cost and improve performance to the point that low-carbon development becomes the default choice everywhere in the world. Today, the available low-carbon energy solutions - renewable energy such as wind and solar, energy efficiency and other clean technologies - are often too costly to meet the dual challenges of climate change and economic development.

WRI’s Two Degrees of Innovation project works with practitioners to build a robust global innovation system to catalyze rapid and continuous improvements in the price and performance of low-carbon power sector technologies through innovation beyond the lab.

World Bank Energy Strategy Must Address Energy Poverty and Climate Change

Athena Ballesteros — Thu, 10 Mar 2011 13:37:58 -0500

In consultations, a range of countries and interest groups have called for an energy strategy that supports sustainable development.

The World Bank is in the final stages of drafting a new energy strategy due late April 2011. The strategy has drawn so much attention because of its potential to address two major challenges confronting developing countries – energy poverty and climate change. While the strategy could be an opportunity for the institution to tackle both challenges simultaneously, some stakeholders are concerned that it may sway too much in one direction, addressing one challenge while undermining the other.

To balance these differing opinions, the World Bank embarked on an eight month consultative process with input from client and donor countries, civil society, the private sector, and others (see Box 1). We studied the reports of the consultations carefully to distill important messages emerging from the process. There appears to be some areas of resounding agreement, while in other areas, differing perspectives emerged. The overarching message delivered to the World Bank is a demand for investments in the energy sector that produce sustainable development outcomes.

Box 1: Consultations on World Bank Energy Strategy

From January to August 2010, The World Bank embarked on a consultative process with donors, clients and other stakeholders. The process included:

31 Countries
56 in person meetings
170 written submissions
2100 participants from government, regulatory bodies, academia, civil society, the private sector and other groups for more information visit www.worldbank.org/energyconsultations

Areas of Agreement

Many stakeholders have prompted the World Bank to shift its focus to small-scale, distributed, renewable energy-based generation technologies such as solar home lighting systems or village micro-grids powered by run-of-river mini hydropower systems. Such technologies can directly address the largely unmet energy needs of the 1.5 billion poor without access to electricity, particularly in rural areas. This message was consistently delivered in various parts of the world. For example:

At the meeting in Nairobi, the private sector called for a focus on renewable technologies due to the abundance of resources on the continent, while government participants pointed to its cost-effectiveness in the long-run. Participants from academia and think tanks highlighted the efficacy of decentralized renewable energy systems in meeting the economic and social needs of the poor.
Similarly, in Laos, non-governmental organizations pointed to the impacts of the export-oriented hydropower project (Nam Theun 2) on the resource-dependent poor. Participants from the private sector and the public utilities recommended that future energy investments focus on tapping local renewable resources, including solar and hydropower, to meet the income-generating needs of the poor within the country.
In the Netherlands, the government expressed a preference for the World Bank to avoid commercially viable centralized generation projects, while Dutch private sector and NGO participants pointed out that decentralized generation would have the greatest poverty reduction impacts.

Such consensus also emerged from diverse interest groups and countries on the value of the World Bank investing in energy efficiency, supporting integrated resource planning in the energy sector and across sectors, and modernizing household fuels for cooking and heating.

Areas of Disagreement

The areas where stakeholders diverged have been familiar issues of contention on the World Bank Board. In some cases, differences of opinion between interest groups within the same country came to light. One of the most hotly contested issues was the World Bank’s role in fossil fuel lending. For example:

In Bangladesh, participants from the private sector, public utilities, and some members of parliament argued strongly against any prohibitions on the continued development of their abundant domestic coal resources, as they see it as a constraint on the country’s development goals. In contrast, the Bangladeshi government expressed a preference for developing low carbon energy sources and using coal-based resources only in exceptional cases.
In consultations with African energy ministers, South Africa argued against the World Bank discontinuing lending for fossil fuel-based projects claiming that they have no viable alternatives for baseload power vital to their pursuit of economic growth and industrialization. Instead, they prefer to see the World Bank invest in cleaner coal technologies, while simultaneously investing in renewables.
Among stakeholders in Europe, there remained concerns that continuing World Bank investments in carbon intensive fuel technologies would counteract its efforts to mitigate climate change, leading to demands for a definitive phase out of fossil fuel lending.

Similarly, there were other issues that elicited a spectrum of responses including energy subsidy reform, financing additional costs of lower carbon projects, and large scale hydropower dams.

Our Recommendations for the World Bank

The World Bank’s leadership may find it challenging to balance all the diverse interests in one strategy document. However, what they can do is put in place a set of procedures that will allow them to objectively evaluate trade-offs and make investment decisions that support the sustainable development priorities of their clients. Such procedures, as we have argued earlier, should include:

Undertaking options assessments to investigate and transparently disclose the full range of energy options available to meet a client country’s demand before moving forward with any investment. Such assessments should be based on integrated planning processes at appropriate levels (regional, national or sub-national) that take into account resource availability and use in the energy and other sectors.
Valuing the net costs of shifting to low-carbon alternatives through the use of GHG Accounting tools to calculate the volume of emissions from projects as well as the use of pricing methods, such as market prices or shadow prices, to calculate the value of reducing or avoiding emissions in alternative options. This will help the World Bank assess the additional resources required from climate change funds to buy down the higher costs of lower carbon options. On a broader level, GHG accounting will also help the institution manage and reduce the emissions of its overall investment portfolio.
Engaging stakeholders in inclusive and transparent processes when making investment decisions to ensure equitable, pragmatic and sustainable outcomes.
Adopting robust environmental and social standards for energy investments, particularly large hydropower given its serious ecological and social footprint. Although designed for the private sector, many of the environmental, social, and human rights standards articulated in the draft IFC performance standards would provide a strong basis for safeguards at the World Bank. The energy strategy would also need to articulate standards for providing accessible means for dispute resolution for affected stakeholders.

We believe that the writing on the wall is clear – stakeholders across countries and interest groups would like the World Bank to devise an energy strategy that supports sustainable development in developing countries. It is imperative that World Bank leadership not dismiss the often polarizing debates as unnecessary noise, but instead hear the clarion call for meaningful reform in defining the institution’s role in promoting a sustainable energy future.

Tom Nagle is a research intern for the International Financial Flows and the Environment project at WRI. He is also pursuing a Masters degree in International Relations and Environmental Policy at Boston University focused on the nexus of energy and economic development.

Clean Power to the People

Tue, 01 Mar 2011 10:39:38 -0500

Bringing clean energy to India’s rural poor consumers creates cascading economic and social benefits, in addition to profits.

This piece originally appeared in The Economic Times (India).

The village of Rupahi, home to a small community of sugarcane farmers in Bihar, is too isolated to connect to a traditional electric grid. For cooking and lighting, its residents have traditionally paid — with cash or their time — for whatever was available. The options — kerosene, firewood, dung or diesel generators — left their houses dim and full of smoke. Many of the country’s 114 million poor rural households, comprising nearly 60% of the population, struggle with similar issues. Currently, 45% of the country’s rural poor cannot connect to a reliable source of energy. They spend an estimated $4.86 billion (INR 224 billion) each year on energy, mainly for fuels that are unreliable, harmful to the environment and hazardous to their health.

Yet, new research in a report, Power to the People: Investing in Clean Energy for the Base of the Pyramid in India, shows that demand for energy presents an opportunity for green business. If cleaner energy alternatives were available, there is a market willing to pay for them, even in very poor communities. The Washington-based World Resources Institute and the Centre for Development Finance at the Institute for Financial Management and Research in Chennai estimate the potential market for clean energy products and services among India’s rural poor at $2.11 billion a year (INR 97.28 billion). This conservative assessment of the market potential signals a huge opportunity for consumers and clean energy companies alike. Companies surveyed for the report that supply clean energy products and services to the rural poor have seen annual gross revenue grow by an average of 36% since 2004. As revenues have grown, so have the number of rural villagers with access to clean and reliable energy.

A new perspective that regards the rural poor as a customer base demanding functional energy solutions signals a very different approach to rural development.

Installed at the community level, small hydro and biomass gasification can supply electricity to an area not covered by the grid, and solar lanterns and energy-efficient stoves can replace ‘dirty’ fuels like kerosene and wood. In Rupahi, villagers now get their power from Husk Power Systems (HPS), a company that converts rice husk into electricity via 35-100 kW mini power plants. HPS provides villages in the country’s rice belt, like Rupahi, with cost-effective and environmentally-friendly electricity.

According to Gyanesh Pande, CEO of HPS:

At first, only 10 of the 32 households in Rupahi made the decision to take electricity from HPS. By the time the electric cables were being laid out, all 32 households had applied for HPS’ electricity services.

A new perspective that regards the rural poor as a customer base demanding functional energy solutions signals a very different approach to rural development. But it is an approach that, when combined with a focus on expanding clean energy and attention to business-NGO-government collaboration on creating an enabling policy and infrastructure environment, creates cascading economic and social benefits in addition to profits. Reliable electricity acts as an economic multiplier allowing businesses to stay open later and use refrigeration to keep products fresh.

In one small Indian market, a company rents solar lanterns to street vendors for a few rupees. According to Jigyesh, a vegetable vendor in Karnataka’s Hassan village:

The solar lanterns allow me to keep my stall open past dark and cost only INR 150 a month. The kerosene lantern I used earlier gave poor light and cost almost INR 500 a month. The solar lantern also produces less heat, so the vegetables stay fresh longer.

Clean energy companies have the technologies in place that provide strong potential for growth, but need to first overcome barriers in distribution and pricing of their products to be accessible to the poor.

Investors can assist the market’s growth by providing clean energy companies looking to scale with patient capital that will allow companies to improve distribution and develop innovative financing mechanisms, enabling consumers to purchase their products.

Intermediaries such as WRI’s New Ventures initiative for environmental entrepreneurship and CDF’s Rural Market Insight group, which works with HPS and other clean energy companies in India, can connect investors with promising emerging businesses in the sector. With the help of patient capital, clean energy entrepreneurs will have a significant opportunity to grow their markets and create profits while also providing rural Indians with access to clean, reliable and environmentally-friendly electricity.

Jamshyd Godrej is chairman of the board of Godrej & Boyce Manufacturing Co., and a member of WRI’s Board of Directors. This post was co-authored by Jessica Wallack, former director of the Centre for Development Finance.

A Vision for Clean Energy in Asia

Manish Bapna — Thu, 08 Jul 2010 11:39:28 -0400

This piece is adapted from a speech that was delivered on June 25th at the 5th Asia Clean Energy Forum: Meeting the Technology Transfer Challenge. The forum, hosted by the Asian Development Bank (ADB), the US Agency for International Development (USAID) and the World Resources Institute, is the premiere knowledge sharing platform on best practices in policy, technology, and finance for clean energy in the Asian region.

There once was a legendary industrialist who was notoriously protective of his privacy. So it came as a shock to a young reporter when he granted her request for an interview - on one condition: she could only ask three questions.

When the day of the interview arrived, she sat down and said: “You are one of the most successful people in the world and your business has redefined industry. What has made you so successful?”

He replied: “Good decisions.” She waited and waited but he said nothing else. She reflected a bit and then asked: “Well, how did you make such good decisions?”

He replied: “Experience.” She was beside herself. Two questions and he had answered with only three words!

So she thought long and hard about her last question: “How did you get this experience?”

The man replied, with a wry smile, “Bad decisions.”

This story captures an important message for me from this conference. Bold goals and big success require the ability to take risks and learn from mistakes. This will be especially true for all of us here committed to working towards a virtually zero-carbon economy.
However, the challenge we face is that we don’t have much time.

According to the IPCC, global GHG emissions should peak by 2015 – that is in 5 years—if we want a fighting chance to keep climate change below 2 degrees.
According to the International Energy Agency (IEA), investment in clean energy will need to exceed $2.2 trillion dollars over the next 10 years above the reference scenario.
We must meet these goals while still addressing major development and energy poverty challenges, including the spiraling energy needs of developing countries.

This conference has been a terrific platform to share what works, what doesn’t and what we can learn from each other. I’d like to offer a few lessons and insights that came through for me – and which I believe are essential if we are to succeed in fostering a clean energy revolution.

1. “Loud, Long and Legal”: The Right Policies for Clean Energy

To meet this challenge, we need clear and ambitious policy to promote clean energy, and we need to be able to learn as we go. The message of the Bonn Conference on Renewables about six years ago showed that policy needs to be loud, long and legal if we are to drive investment in clean energy.

We need processes to allow us to adapt and improve policy over time while providing the necessary level of predictability to investors.

This message is consistent with recent research from WRI and the Peterson Institute for International Economics on the wind and solar sectors. We found that new wind and solar investments were tightly correlated to government support policies. When strong and predictable incentives for clean energy were put in place, investments went up. When incentives expired or were canceled, clean energy investments collapsed.

We know that policy is critical for building clean energy markets. But we also know that we won’t always get policy design right from the start. Spain is a stark reminder of this. In 2007, Spain introduced ambitious feed-in tariffs that stimulated solar investment. But the scale of the subsidy was seen by some as too expensive, and there was pressure to remove it. When the government drastically reduced the tariff and set a rigid annual capacity cap to limit the number of eligible projects, solar investment collapsed. That is why we need processes to allow us to adapt and improve policy over time while providing the necessary level of predictability to investors.

In this regard, one thing that the ADB can do is scale up its efforts to help client countries improve the transparency, inclusiveness and accountability in policy and regulatory processes. This was one of the main conclusions reached at the dialogue on clean energy governance earlier this week.

2. Economic Cost-Benefit Analysis is at the Heart of Energy Planning

Even though I am an environmentalist, my next point is about economic cost-benefit analysis. Good economic analysis should be at the heart of energy planning, and at the heart of the ADB’s decisions about which projects and technologies they will support.

The problem is that most governments rarely use cost benefit analysis. Even MDBs don’t take economic analysis seriously. I was an economist at the World Bank for nearly a decade and led several cost-benefit studies for major energy and water projects. The incentive was to show that the project met the 12% hurdle rate, what was considered an acceptable rate of return. We never used economic analysis to internalize the full range of environmental and social costs, or to find ways to include non-monetary benefits such as jobs or energy security, or to assess alternatives or options in a meaningful way.

I would urge governments and the ADB to rigorously apply economic cost-benefit analysis to help inform the energy policy and investment decisions they take. They should do this in a transparent manner inviting public scrutiny to help test assumptions. Better policies and better investments will emerge from such open, inclusive processes. If the ADB seriously commits to this, it could open up new possibilities and investments for meeting the region’s energy needs.

3. Energy Efficiency: The Low-Hanging yet Hard-to-Pick Fruit

My third point is about energy efficiency. At this conference we have heard inspiring stories about how much is happening on renewable energy in Asia. By contrast, for all the talk of energy efficiency as a “low hanging fruit,” progress has been slow. A couple of observations emerged during this conference:

We need to connect energy efficiency projects with the right kind of financing. There are many groups working on this issue, and there is a need to share ideas on successes and failures as models are explored. One promising idea is to convene a workshop at the next ACEF to help find scalable business models to support the deployment of energy efficiency projects.

We need a constituency for energy efficiency at the national and international levels. Right now it does not exist as it does for other industries. This is due in part to the particular characteristics of the energy efficiency sector – it is creating something less (energy savings) rather than something more, which can make it intangible and abstract. The sector is also more fragmented and less visible than other industries. Perhaps we need to help create a coalition of consumers and civil society organizations who have a stake in improving existing energy systems.

As we focus on the clean energy revolution, we must not forget that we are still fighting the battle against energy poverty. More than a billion people in this region alone lack access to clean, modern energy services. This is unacceptable.

4. Energy for All: Financing Small and Medium Enterprises (SMEs)

As we focus on the clean energy revolution, we must not forget that we are still fighting the battle against energy poverty. More than a billion people in this region alone lack access to clean, modern energy services. This is unacceptable.

Over the past days, we heard a call for more emphasis on how to support and scale solutions promoted by small and medium enterprises (SMEs). The problem is that many of these SMEs lack access to the capital that they need to implement and scale their business ideas. Their financing needs are above the reach of microfinance but below those that attract private equity. This is what ADB President Haruhiko Kuroda referred to as the “missing middle” during his opening speech.

The ADB can help lower perceived risks around SMEs and clean energy, through partial loan guarantees to debt funders or patient (long-term) capital to equity funders. This is an important frontier for ADB’s work with its financial intermediary partners throughout the region.

5. Reality Check: Country Ownership for Clean Energy

My final point is about the importance of country ownership. Back in the 1980s and 1990s, Structural Adjustment Lending was popular with the World Bank and the IMF, yet these programs failed in large part because they were never truly owned or supported by the governments on whom conditions were imposed, or their citizens. Though I and many others around the table care deeply about clean energy, we do not want to repeat that same mistake. Clean energy support must be deeply owned within countries. This is the only way we will mobilize the radical and sustained changes needed for a clean energy revolution. Through its work on the Electricity Governance Initiative, WRI has been working with civil society, policymakers and regulators across Asia to improve transparency, inclusiveness and accountability in policy and regulation of the electricity sector.

For its part, the ADB needs to proactively engage in-country stakeholders and tailor its clean energy investments to meet their sustainable development needs. Our interventions to support clean energy must respond to the realities of implementation within Asian countries – and the diversity of circumstances and capacities that exist within this region. There is plenty of room for dirty business in clean energy, and so the ADB should emphasize the importance of good electricity governance when it makes its investments.

Conclusion: The Time for Political Leadership

Asia leads the world in the concept of “frugal innovation”… Imagine what could happen if you unleashed that entrepreneurship to focus on renewable energy technologies.

I remain incredibly impressed by the bold policy leadership demonstrated by Asian countries. China and India get lots of attention, but many other countries, notably our host country the Philippines, are taking action as well.

I believe that Asia will be the source of low-cost clean energy solutions to the world. As we know, many of the technologies already exist. The problem is that they are still too expensive. Asia leads the world in the concept of frugal innovation. Indian companies, for example, have been leading innovators – they have developed the $2,000 car (the Tata Nano), the $70 refrigerator, and the $30 cataract surgery. Engineering skills and big markets but relatively low purchasing power creates incentives to drive down costs in a radical manner and this fuels incredible innovation. Imagine what could happen if you unleashed that entrepreneurship to focus on renewable energy technologies.

When Asian companies see the size of the future market in clean energy, they will, I believe, lead the technological revolution that is needed. This revolution will radically reshape the energy sector in ways that current projections only begin to suggest.

I’d like to close with a story that may help inspire the bold political leadership that will be needed if this clean energy revolution is to succeed.

A few months ago, US Treasury Secretary Tim Geithner called a meeting with the leaders of the U.S. Climate Action Partnership (USCAP) – a coalition of businesses and environmental organizations that have been instrumental in pushing for mandatory climate legislation in the United States.

The meeting, over breakfast, took place in the middle of a severe snowstorm in Washington DC. It was therefore quite small as only a few USCAP members could attend. Secretary Geithner asked Jeff Immelt, the CEO of GE, why he supported mandatory climate legislation and when GE would start seriously investing in the United States again.

Immelt replied: “When I look to invest in energy, I look for 3 things”:

Scale of potential market: both the U.S. and Asia are at the top of my list;
Availability of credit: this is bouncing back in U.S. and already available in Asia;
Clear policy: The U.S. does not have clear policies to encourage clean energy. Asia does. We can do a cost-benefit analysis to assess our return on investment in Asia with confidence. Money will flow where risk-adjusted returns are highest. That is not the United States, it is Asia.

Note: Resources and presentations from the 5th Asia Clean Energy Forum are now available online!