76068 Accelerating the Transition to a Low Carbon Economy: World Bank Group Support for Renewable Energy and Energy Efficiency Climbs to US$1.4 Billion in Fiscal Year 2007 E vidence is mounting that developing countries will be disproportionately affected by the adverse impacts of climate change, putting at risk hard- earned development gains - Sir Nicholas Stern's 2006 economic review of climate change estimated that “business energy efficiency were $683 million and $751 million was committed for hydropower projects greater than 10MW per facility. World Bank Group Commitments for Renewable Energy and Energy Efficiency as usual� emissions of greenhouse gases might lead to in Fiscal Year 2007 (millions of dollars) damages between 5 and 20 percent of GDP over the next 200 Source of Funds New Renewable Hydro>10MW Energy Total years. The poor are most vulnerable and least able to adapt. At Energy Efficiency the same time, increasing energy supply and services are World Bank (IBRD/IDA) 70 430 49 549 critical for economic growth for all developing countries. A GEF (World Bank) 121 0 7 128 World Bank (Carbon Finance) 68 66 10 144 consensus is growing that moderating and managing climate IFC (Own Funds) 154 140 156 450 change is central to every aspect of poverty reduction, IFC (Carbon Finance) 7 0 0 7 economic growth and development. Renewable energy and MIGA 0 115 40 155 Total 421 751 262 1,433 energy efficiency are among the two of the more effective Source: World Bank Group means the World Bank Group - World Bank, IFC, MIGA as well as Global Environment Facility (GEF) co-financing and Carbon Finance - is employing in helping its partner countries At the Bonn International Conference on Renewable Energies in the transition to a low carbon economy. in 2004, the World Bank Group made a commitment to 1 accelerate its support for new renewable energy and energy In fiscal year 2007 (FY07), total World Bank Group financial efficiency. We committed to increase our financial commitments for renewable energy, including hydropower of commitments for new renewable energy and energy efficiency all sizes, and energy efficiency rose to $1.4 billion. This at a growth rate of 20 percent per annum between fiscal years represents a 67% scale up in financing for renewable energy 2005 to 2009, compared to a baseline commitment of $209 and energy efficiency from $860 million in FY06. The GEF million (equal to the average of the previous three years). The has been an important partner contributing $128 million in co- World Bank Group has outperformed its Bonn commitment. financing for World Bank projects. In FY07, we supported 63 renewable energy and energy efficiency projects in 32 1 countries. Commitments for new renewable energy and New renewable energy comprises energy from solar, wind, biomass, and geothermal as well as hydropower from facilities with capacities up to 10MW. From FY05 to FY07, we committed $1.8 billion for new renewable energy and energy efficiency compared to the Bonn commitment goal of $913 million for the same period and thus exceeded our target by almost 100%. As shown in Figure 1, the cumulative World Bank Group financial commitments to renewable energy and energy efficiency from FY90 to FY07 exceeded $11 billion, with a nearly steady increase in commitments from 2002. Figure 1: World Bank Group Renewable Energy and Energy Efficiency Commitments. FY1990-2007 "The World Bank has strengthened its investment support and technical assistance for low carbon energy projects. This is reflected in the progress we made these last few years in expanding support for renewable energy and energy efficiency. Recognizing the economic, environmental and energy security values of clean energy, the World Bank Group's Clean Energy Investment Framework Source: World Bank Group established in 2006 sets the stage for even greater support for clean energy development Box 1. World Bank Group Support for Private Participation in Low Carbon Projects in the coming years." Jamal Saghir, Director, Energy The Bujagali Hydropower Project is a proposed 250 MW hydropower facility on the Victoria Nile that Transport and Water will address the medium- and long-term need for economical, large-scale power generation in Uganda. The project consists of the development, construction, and maintenance of a run-of-the-river power plant on a Department, The World Bank Build-Own-Operate-Transfer basis. The project is structured as a privately-owned Independent Power Producer (IPP) which will sell electricity to the grid. The total project cost is expected to be approximately US$750 million and will be financed by the Government of Uganda as well as a consortium of lenders, including the WBG. IFC is providing financing in the form of long-term loans, and MIGA, equity political risk insurance. IDA is providing a partial risk guarantee. The financial package provided sufficient risk mitigation to enable a consortium of private developers (IPS, the Kenyan subsidiary of the Aga Khan Foundation and Sithe Global) to develop this renewable energy option which will help Uganda increase access to electricity and do so in a climate-friendly manner. The Renewable Energy Market Transformation Project supported by the Bank is designed to establish policy and regulatory frameworks and build institutional capacity for renewable energy development in South Africa. The project has an overall cost of US$17.3 million, and is being funded by a US$6 million grant from GEF, US$2.3 million contribution from the South African government and US$9 million leveraged from the private sector. The project's objective, over a four-year period, is to assist the Government meet its target of 4% of electricity demand to be met by renewable energy by 2013. The project is designed to remove the barriers and reduce implementation costs of renewable energy technologies to help mitigate greenhouse gas (GHG) emissions. There has been a steady rise in the share of financing Figure 2: Share of World Bank Group Financial Commitments the World Bank Group committed for low carbon for Renewable Energy and Energy Efficiency Relative to the renewable energy and energy efficiency since 1990 Total Energy Sector Financial Commitment (Figure 2). In 1990-1994 the share was about 12 30% percent of total energy sector commitments. The 25% share of renewable energy and energy efficiency 20% financing rose to 25 % of total energy commitments in the three years, FY05-07. In FY07 the share of 15% renewable energy and energy efficiency financing 10% reached 40% of total energy commitments. 5% 0% 1990-1994 1995-1999 2000-2004 2005-2007 “IFC has learned a great deal Source: World Bank Group in the process of identifying energy efficiency and renewable energy investment Box 2. Private Sector Small Hydro Development in Sri Lanka opportunities in recent years. Our investment of $450 The WBG is finding innovative ways to more effectively promote smaller hydro projects (less than 10MW), million in 25 projects in FY07 particularly through the use of carbon finance and by bundling financing for several small investments in is already substantial and one project. Two IDA-financed projects in Sri Lanka have accelerated small hydro development by reflects strong market facilitating a favorable regulatory and financial environment. Today about 117 MW of private sector demand for clean energy, but hydropower facilities with capacities up to 10 MW each are operating or under construction (about 5 we expect to grow this part of percent of total power capacity in the country), up from zero in 1997. A new GEF-supported IFC project our business much more in Sri Lanka aims to extend and expand this model by creating more standardized financial terms for a rapidly in coming years with range of distributed generation technologies. benefits for our clients and the environment especially the need to respond to Leveraging Private Investment these activities are an important component in climate change.� Rachel Kyte, the preparation of future lending activities. Director, Environment and Given the huge investments needed to supply the Such activities rose sharply in FY07 reaching 21 Social Development energy needs of developing countries, estimated to products. These figures show increasing Department, International be about $165 billion per year, leveraging our interest in renewable energy and energy Finance Corporation investments with private sector resources is efficiency related activities on the part of client essential. The World Bank Group uses a range of countries and pave the way for strong financial instruments reflecting its different operational and lending activities in the coming institutional strengths and sometimes creative years. A good example is in Sri Lanka, where a responses to market needs. Among these are its favorable regulatory climate has been a key support for the Bujagali Hydropower Project in factor in the growth of investment in small Uganda, and a Renewable Energy Market hydro (Box 2). Transformation Project in South Africa to support the production and sale of agriculturally derived During FY07 IFC made 25 investments valued GHG emissions reductions (Box 1). at $450 million in energy efficiency and renewable energy such as biomass cogeneration Our projects also promote private investment in systems, hydropower and credit lines for energy clean energy through a variety of economic sector efficiency lending. The total value of these work and technical assistance. This work is an clean energy investments exceeded $1.1 billion, integral part of our activities which is valued as an of which about three-fourths or about $763 important source of information and advice for million came from commercial investors, with policy makers and other stakeholders. In addition, every dollar of IFC lending leveraging 2 dollars of private sector investment (Box 3). Box 3. Mainstreaming Clean Energy Finance at the International Finance Corporation Over more than a decade, IFC has developed and refined a highly successful approach to leveraging commercial lending for clean energy investments through training and risk mitigation instruments provided to local financial institutions in emerging markets. This approach allows IFC to deal with the typically smaller transaction size of clean energy investments while also achieving significant financial leverage. The IFC model started in Hungary with a $5 million grant from the GEF and evolved around two primary features, a technical assistance component to provide banks with the knowledge necessary to properly evaluate clean energy investments, and a guarantee facility to provide some initial period of risk coverage to support lending initially perceived to have higher risks. The project was expanded with additional GEF support to cover several countries in Central Europe and was highly successful, with a separate IFC facility spin-off in 2006 to enable $250 million in funding for energy efficiency renovations of schools and municipal buildings with $125 million of IFC risk-sharing. The Hungary model has been adapted to projects in Russia, China, and a new facility in development in the Philippines. Another outcome from the model developed in Hungary has been a transition from GEF and other donor support to a model increasingly funded by IFC resources in mainstream investments. For example, the initial donor supported program in China is being expanded with an additional IFC commitment of $170 million with local bank on-lending expected to total more than $450 million - all based on an initial GEF commitment of $16.5 million. IFC is now planning to grow this business from internal resources with a target of $500 million per annum by FY09. A collaborative project between the World Bank and IFC, World Bank Group carbon finance is proving to be an Lighting Africa, seeks to catalyze a commercial market for increasingly valuable source of financing for clean energy modern lighting services in rural Africa. This market will investments including wind energy and small hydro projects. provide energy efficient, non-polluting lighting mostly For example, a $9 million carbon finance project in the powered by renewable energy sources to areas without Nigerian city of Aba focused on improving efficiency electricity that are largely dependent on kerosene. Kerosene through the development of a gas-fired cogeneration plant lighting is often the largest energy expenditure in rural areas, and reduction of transmission and distribution losses as much as 15 percent of household income, for a low through upgraded transmission lines. quality service. The Lighting Africa challenge is to take advantage of innovations in efficient lighting, such as light For more information about the World Bank Group’s emitting diodes, and make them accessible to consumers in commitment to renewable energy and energy efficiency, unelectrified areas on a very large scale. Lighting Africa in please visit http://www.worldbank.org/re. For information cooperation with the Global Environment Facility and on World Bank Group projects please visit other donors is supporting market research, building ties http://www.worldbank.org/projects, http://www.ifc.org between the lighting industry and potential local and http://www.miga.org. The Renewable Energy Toolkit, distributors, developing standards, aggregating market an interactive web-based tool for renewable energy demand, and stimulating knowledge sharing with the aim of practitioners and policymakers is available at building a sustainable and large scale market for modern http://www.worldbank.org/retoolkit. lighting products (http://www.lightingafrica.org). This document is a product of the staff of the World Bank Group. The interpretations herein do not necessarily reflect the views of the Executive Board of Directors of the World Bank Group or the Governments they represent. This brochure is printed on recycled paper. October 2007.