78267 Toward a Low-Carbon Economy: Renewable Energy and Energy Efficiency Portfolio Review A number of factors are influencing the trend in million for new renewable energy, US$751 mil- World Bank Group support for renewable energy lion for hydropower greater than 10 MW, and and energy efficiency. The steadily rising support US$262 million for energy efficiency (Table 5). for such energy options are due to the WBG’s increased commitment towards such energy op- Thus, with combined commitments of US$683 tions coupled with external factors such as high oil for new renewable energy and energy efficiency, prices, commercial maturation of the technologies, the WBG outperformed its Bonn Commitment greater awareness, and climate change concerns. by a wide margin, as in previous years. Cumu- latively, between fiscal 2005 and fiscal 2007, the Financial Commitments WBG has exceeded its Bonn Commitment target by almost 100 percent—committing US$1,812 Renewable energy and energy efficiency proj- million against the cumulative target of US$913 ects continue to perform strongly in the WBG million over the same timeframe (Table 6). energy portfolio and are increasingly being mainstreamed in the WBG’s energy lending. In Since 1990, the WBG has committed about fiscal 2007 a total of US$1,433 million supported US$11.4 billion toward renewable energy and en- 63 renewable energy and energy efficiency proj- ergy efficiency (see Figure 8). Details are provid- ects in 32 countries. This represents a 67 percent ed in Annexes 1, 2, and 3. Of this amount, US$3.1 scale-up in commitments from fiscal 2006. The billion each were for new renewable energy and WBG’s support can be broken down into US$421 energy efficiency. Another US$5.2 billion went Table 5: World Bank Group Commitments for Renewable Energy and Energy Efficiency, FY07 (millions of U.S. dollars) Source of funds New renewable energy Hydro greater than 10 MW Energy efficiency Total World Bank (IBRD/IDA) 70 430 49 549 GEF (World Bank) 121 0 7 128 World Bank (Carbon Finance) 68 66 10 144 IFC (own funds) 154 140 156 450 IFC (Carbon Finance) 7 0 0 7 MIGA 0 115 40 155 Total 421 751 262 1,433 Note: Some columns may not add up exactly because of rounding. Source: WBG databases, 2007. 37 Table 6: Measuring Progress in New Renewable Energy and Energy Efficiency Lending against the Bonn Commitment (millions of U.S. dollars) New RE and EE FY02–04 Total commit­ments FY02 FY03 FY04 average FY05 FY06 FY07 FY05–07 Actual 204 178 245 209* 461 668 683 1,812 Bonn commit­ment target n.a. n.a. n.a. n.a. 251 301 361 913 n.a. Not applicable. * The baseline of US$209 million was set as the average annual lending commitment for new renewable energy (RE) and energy efficiency (EE) made by the IBRD and IDA, the World Bank’s Carbon Finance Business (CFB-IBRD), and the GEF (IBRD and IDA) in fiscal 2002, 2003, and 2004. The baseline comprises exclusively of new RE and EE. Note: This includes the additional US$168 million in IFC fiscal 2005 commitments that were not reported in the fiscal 2005 RE and EE progress report (World Bank Group Progress on Renewable Energy and Energy Efficiency: Fiscal Year 2005, December 2005). Commitment amounts for two IFC projects included in last year’s RE and EE progress report have also been revised (Dominican Republic Basic Energy was US$12 million and is now US$6.34 million, and India Allain Duhangan Hydropower was US$49 million and is now US$47 million). The additional IFC fiscal 05 commitments were principally EE and RE investment com- ponents of IFC projects in agriculture, industry, transport, and other nonenergy sectors. to hydropower projects with capacities greater Commitments for large hydropower projects than 10 MW per facility. During the same period, increased substantially over previous years, the share of total WBG energy lending devoted most prominently in Sub-Saharan Africa. The to renewable energy and energy efficiency has continent’s vast underexploited hydropower been steadily increasing. The average share of resources offer large potential for further ex- renewable energy and energy efficiency of total pansions as a low-carbon solution to increasing energy commitments has doubled since 1990–94 energy access. The WBG has renewed its efforts to 25 percent in 2005–07 and reached 40 percent to support countries’ benefit from this resource in fiscal 2007 (Figure 9).16 while at the same time continuing to maintain and refine its stringent and comprehensive envi- 16 IBRD-IDA energy sector investments include oil, gas, Figure 8: World Bank Group Commitments for Renewable Energy and coal (including coal mine closing or rehabilitation; and Energy E ciency, FY90–07 transmission and distribution of oil, gas, and electricity; 1,600 14,000 power generation and associated environmental controls and Energy e ciency plant rehabilitation; district heating and plant rehabilitation; 1,400 New renewable energy renewable energy; and energy efficiency and conservation). Hydro > 10 MW 12,000 IFC investments in the energy sector include investments Cumulative commitment 1,200 from the IFC’s own account; MIGA investments refer to 10,000 Annual US$ millions Cumulative US$ millions gross liability exposure. IFC and MIGA investments in en- 1,000 ergy sector consist of investments in the power sector, oil, 8,000 gas, and coal mining, as well as electricity and gas services. 800 Previous IFC assessments referenced only “stand-alone� 6,000 projects whose sole focus was energy efficiency or renew- 600 able energy, thus missing the full scope of investment in 4,000 sustainable energy undertaken as a component of larger 400 investments in various sectors. Subsequently, the IFC has identified additional renewable energy and energy effi- 200 2,000 ciency investments in commitments IFC had made in other sectors, such as agriculture, water supply, industry and in 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 corporate loans to financial intermediaries. For more details, see Choices Matter: 2005 Sustainability Report at www.ifc. org/SustainabilityReport. Source: WBG databases. 38 Figure 9: Share of World Bank Group Commitments for Renewable efficiency commitments (Figure 10). The major- Energy and Energy E ciency Relative to Total Energy Commitments, ity of these commitments were devoted to large FY90–07 0.5 hydropower projects, followed by investments in energy efficiency improvements. Eleven 40% 0.4 projects were developed in South Asia, which ac- counted for US$183 million in funding devoted Total WBG Energy Commitments Share of RE+EE Relative to 0.3 mostly to new renewable energy. Also in East 25% 21% Asia and Pacific, Latin America and Caribbean, 0.2 18% and Middle East North Africa regions, WBG 13% activities were focused mainly on new renew- 0.1 able energy. In contrast, activities in Europe and Central Asia were focused predominantly on 0 1990–1994 1995–1999 2000–2004 2005–2007 2007 energy efficiency improvements, which attracted US$97 million in commitments. Fiscal Year Source: WBG databases. A total of 32 projects with new renewable energy ronmental and social safeguard policies. The Bu- projects or components of projects were ap- jagali Hydropower Project in Uganda (see Case proved in fiscal 2007. For example, solar thermal Five) and the Regional and Domestic Power power generation received two large commit- Markets Development Project in the Democratic ments from GEF in Mexico and Morocco, with a Republic of Congo accounted for the majority of combined value of US$93.6 million. Geothermal large hydropower commitments last year. power generation received about US$72 million in commitments with projects in Kenya, Philip- With US$549 million of combined commitments, pines, and Europe and Central Asia. Wind power the IBRD and IDA provided the largest funding was supported with almost US$70 million (see for renewable energy and energy efficiency of Box 8)—mostly through Carbon Finance and all the WBG institutions. These commitments the IFC—and biomass energy received US$51 focused predominantly on large hydropower million in commitments. In addition, several projects, which received US$430 million in fund- projects supported a portfolio of different new ing, followed by US$70 million for new renewable energy and US$49 million for energy efficiency. In Figure 10: World Bank Group Renewable Energy and Energy addition, the GEF has been an important partner E ciency Commitments by Region, FY07 800 by contributing US$128 million in co-financing for World Bank projects. IFC committed a total 700 New RE Hydro > 10 MW of US$450 million, with US$154 million going to 600 EE Annual US$ millions new renewable energy, US$156 million to energy 500 efficiency, and US$140 million to large hydropow- er projects. World Bank Carbon Finance activities 400 contributed an additional US$144 million and 300 MIGA contributed US$155 million. 200 Sub-Saharan Africa received US$735 million in 100 renewable energy and energy efficiency com- 0 mitments for 12 projects, which accounted for AFR EAP ECA LCR MNA SAR 51 percent of total renewable energy and energy Source: WBG databases. 39 renewable energy technologies. Such projects Technical Assistance and Sector Studies include a US$40 million IDA commitment to Sri Lanka supporting small hydropower, solar In addition to operational activities, the WBG home systems, and bioenergy, and a US$9.5 engages in a variety of economic sector work million GEF project in the Pacific Islands sup- and technical assistance focused on renewable porting solar PV, picohydro, and biodiesel energy and energy efficiency. This work is an technologies. integral part of the WBG activities, which is val- ued as an important source of information and See Table 7 and Figure 11 for breakdown of the advice for policy makers and other stakeholders. number of projects by region and sector. Figure In addition, these activities are an important 12 shows the funds committed for new renew- component in the preparation of future lending able energy, energy efficiency, and hydropower activities. As shown in Figure 13, Analytical and greater than 10 MW, by region. Advisory Activities in renewable energy and energy efficiency have sharply risen in fiscal Energy efficiency improvements were supported 2007, with 21 activities completed. Activities per- in 21 projects worldwide. On the electricity sup- formed in the past year include studies, reports, ply side, for example, these include a US$39.6 and policy notes on renewable energy policy million MIGA guarantee on investments into im- in Colombia and Morocco, energy security in proving energy efficiency in power transmission Uruguay and rural electrification in Mexico, and distribution in Uganda. Similarly, a US$9 Peru, and Timor-Leste. Energy efficiency also million carbon finance project in the Nigerian city received considerable attention, for example, of Aba focused on improving efficiency through building energy efficiency in China and energy the development of a gas-fired cogeneration efficiency policy formulation in Morocco. These plant and reduction of transmission and distribu- figures show increasing interest in activities re- tion losses through upgraded transmission lines. lated to renewable energy and energy efficiency On the demand side, examples include a US$27 on the part of client countries and pave the way million IBRD commitment to a residential energy for strong operational and lending activities in efficiency project in Serbia (see Box 9). the coming years. Table 7: Number of Projects by Region, FY07 Region Energy efficiency Hydro > 10 MW New renewable energy Total AFR 5 3 4 12 EAP 3 3 8 14 ECA 5.5 1 2.5 9 LCR 4 1 9 14 MNA 0.5 1 1.5 3 SAR 3 1 7 11 Grand total 21 10 32 63 Note: Projects that contain both a new RE and an EE component have been divided and counted as 0.5 to avoid double count- ing. These projects include LCR’s Bertin Ltd., FYR Macedonia Sustainable Energy, Peru BBVA Banco Continental, and Morocco’s Energy Sector Development Policy Loan. Source: WBG databases. 40 Energy Sector Management ports both regional activities that provide better Assistance Program service to individual developing countries, and cutting-edge research and global projects. The Energy Sector Management Assis- tance Program (ES- MAP), is a multidonor trust-funded global tech- Box 8: Wind Umbrella Project, nical assistance program that has reached its 25th Mexico anniversary. This program provides policy advice This Carbon Finance project aims at promot- on sustainable energy development to govern- ing investments in wind energy to reduce ments of developing countries and economies in greenhouse gas emissions, to contribute to transition. ESMAP promotes the role of energy the further development of the international carbon market in Mexico through the supply in poverty reduction and economic growth in an of Emissions Reductions under the Clean De- environmentally responsible manner to achieve velopment Mechanism and to improve energy the Millennium Development Goals. security. The project is the first large-scale investment in wind energy in the country and is expected to reduce about 4 million tCO2e ESMAP helps build consensus on energy poli- over a 20-year operating period and produce cies, develops innovative energy solutions, and an equivalent amount of emissions reduc- tions for sale. At the same time, the project facilitates the leveraging of incremental financ- is expected to facilitate the development of ing among both public and private development other wind projects in Mexico through its partners. ESMAP offers support to the WBG in demonstration effect and by building capacity, knowledge, and experience in the develop- four thematic areas, Energy Security and Energy ment, operation, and maintenance of wind Efficiency, Renewable Energy, Energy Poverty, energy generation facilities. and Market Efficiency and Governance. It sup- Figure 11: World Map with Distribution of Renewable Energy and Energy Efficiency Projects 41 analysis of different existing green electricity Box 9: Improving Residential schemes worldwide, and Considering Trade Poli- Energy Efficiency in Serbia cies for Liquid Biofuels, an international analysis of the interaction between national biofuels poli- The principal aim of the project is to provide cies, agricultural policies, and trade policies and additional financing to expand an existing their effect on international markets of biofuels demand-side energy efficiency project in the Republic of Serbia that aims at reducing the and other agricultural products. Moreover, Risk rate of electricity use in buildings. Especially Assessment Methods for Power Utility Planning for heating, electricity consumption in the analyzes the methods currently used for plan- Serbian residential sector is very large, which leads to high heating costs, unsustainable ning power generation technology portfolios. It electricity demand, and avoidable greenhouse concludes that most current planning methods gas emissions. To alleviate these problems, the project aims at improving energy ef- are inadequate for comparing fuel-intensive ficiency in three social care buildings, eight thermal generation technologies with free-fuel schools, and six hospitals that were left out of capital intensive renewables, such as hydro, the original project because of a cost overrun. Moreover, it expands the scope of the original wind, and geothermal because of difficulties project to include the rehabilitation of the heat in handling fuel price risk systematically. ES- supply system of the Nis Clinical Center, other MAP and the World Bank are now working on demand-side efficiency improvements at the University of Kragujevac, 20 schools, 7 social incorporating these lessons into new activities care buildings (such as orphanages), and 11 and developing more appropriate planning hospitals across Serbia. methods. ESMAP supports collaboration across the energy Box 10: Shanghai: Developing a sector and shares ideas, good practices, and Green Electricity Scheme project experiences across regions. ESMAP has established an Energy Efficiency Thematic Group Upon the request of the City of Shanghai, (EETG) and a Renewable Energy Thematic Group China, in 2003, the World Bank—supported (RETG) within the World Bank. In July 2007, the by grants from ESMAP and ASTAE—launched a project to help the city in designing and in- EETG sponsored a joint roundtable in Tokyo with troducing a practical green electricity scheme. the World Bank and the Government of Japan on The scheme allows consumers to purchase, on market opportunities and best practices in the a voluntary basis, part or all of their electric- ity from renewable energy resources, such as area of energy efficiency policies and investments. wind and solar, thereby contributing to making The RETG held its first meeting in June 2007, fo- the city’s electricity portfolio more sustainable and reducing local air pollution. At its launch cusing discussions on “deep green� RE scenarios in 2005, the project enlisted 14 large electric- and the global wind power outlook. ity-consuming companies to commit to buying a total of 6.54 GWh of renewable electricity branded as “Jade Electricity� annually. With this In 2006, ESMAP’s energy efficiency portfolio critical mass of demand ensured, the scheme comprised 23 projects for a total commitment was subsequently able to attract additional cus- of US$3.8 million while renewable energy tomers, including businesses of varying sizes and households. It is believed that the success comprised 15 projects and US$2.2 million of of this project can be replicated in other cities commitments. in developing countries. A more detailed de- scription of the scheme and the lessons derived from it can be found in the report Shanghai: In fiscal 2007, ESMAP supported a variety of Developing a Green Electricity Scheme (ESMAP studies, including Shanghai: Developing a Green technical paper 105/06). Electricity Scheme (see Box 10), a survey and 42 Figure 12: Sectoral Commitments by Region, FY07 Energy E ciency: US$262 Million AFR US$79 million EAP US$24 million As in FY06, the ECA region continued to ECA receive the highest energy e ciency US$97 million commitments in FY07—US$97 million. AFR performed similarly well with US$79 LCR million. The majority of projects improved US$24 million energy e ciency in the power transmis- sion and distribution sector, followed by MNA US$16 million industry and demand-side approaches in the residential and commercial sectors. SAR US$21 million Renewable Energy—Hydropower> 10 MW: 751 Million Large hydropower projects were AFR supported with US$751 million in FY07. US$636 million The majority of these projects, valued at US$636 million, were in AFR. Both EAP IBRD/IDA and IFC only classify projects as US$26 million large hydropower if the installed capacity ECA at a single facility exceeds 10 MW. US$7 million Pumped storage, run-of-river hydropower, and hydropower projects with dams are LCR included here as well, as long as the US$10 million capacity exceeds 10 MW. Hydropower rehabilitation projects, which do not result MNA in a greater increase of capacity installed US$40 million (that is, MW), are classi ed as energy e ciency projects. SAR US$32 million Renewable Energy—New Renewables: US$421 Million AFR US$20 million EAP US$93 million SAR made the largest contribution to the new renewable energy portfolio, ECA accounting for US$131 in commitments. US$12 million LCR and EAP followed with commitments of US$100 million and US$93 million, LCR respectively. Solar thermal, geothermal, US$100 million wind, and biomass power projects received the bulk of these commitments. MNA US$65 million SAR US$131 million 41 43 Asia Alternative Energy Program • Scale up impact of renewable energy and energy efficiency through programmatic approaches. The Asia Alternative Energy To make a measurable impact on reducing Program (ASTAE) grew out of greenhouse gas emissions and providing the Financing Energy Services increased access to modern energy, more and for Small-Scale Energy Users larger projects are required. This will require (FINESSE) project initiated by a shift from working on stand-alone projects ESMAP and bilateral donors in to working strategically on multiple projects 1989. Following a joint request on a programmatic basis. The projects will from Asian borrowers and donor partners, the not be ends in themselves, as in the past, Bank acted to implement the FINESSE recom- but will be seen as vehicles to build capacity mendations by creating ASTAE in January 1992. and provide the momentum for policy and The original objective of ASTAE—to mainstream institutional change and the creation of an energy efficiency and renewable energy in World enabling environment for scale-up. Bank operations—was achieved. The initial target • Strengthen the enabling environment. Large- of a 10 percent share of renewable energy and scale renewable energy and energy effi- energy efficiency lending in the Asia energy sector ciency development requires that countries was surpassed during FY97–00. With the support establish an institutional, policy, financial of ASTAE, more than US$1 billion of renewable and regulatory framework that helps at- energy and energy efficiency projects or project tract capital from international financial components were developed, including about institutions, export credit agencies and, most US$500 million in World Bank loans and GEF importantly, the domestic and international grants. The projects supported by ASTAE and ap- private sector. ASTAE will use its cross-coun- proved between FY93 and FY02 provided access try experiences to share best practices. to 660,000 households, installed 570 MW of renew- • Develop project pipeline. ASTAE will continue able electricity-generating capacity, and avoided to support new project development us- 720 MW of conventional electricity-generating ing the programmatic approach. The new capacity as a result of efficiency improvements. projects will include both grid-connected and off-grid renewable energy applications, Since then, ASTAE has embarked on a more as well as market-based energy efficiency ambitious strategy to scale up renewable en- projects. ASTAE will continue its work in ergy and energy efficiency to make a direct and meeting energy needs in the agriculture, immediate impact on the World Bank’s overall health, rural, and urban sectors. mission of poverty alleviation and growing em- phasis on environmental protection in the two The ASTAE work is supported by the World regions—South Asia, and East Asia and Pacific. Bank, Government of the Netherlands, Canadian ASTAE’s work plan focuses on the following International Development Agency, United Na- key components: tions Development Programme, and U.K. De- partment for International Development. Other • Support successful implementation. ASTAE will sponsors have included the U.S. Department of continue to provide support for the projects Energy, U.S. Agency for International Develop- currently under implementation. In the past, ment, Government of Finland, Government of ASTAE assistance has been extremely valu- the Swiss Confederation, European Community, able in helping to redesign projects to adapt U.S. Export Council for Renewable Energy (US/ to shifting conditions. ECRE), German Federal Ministry for Economic 44 Figure 13: Number of AAA Products with Renewable Energy and of climate change has led to calls from govern- Energy E ciency Focus, FY00–07 ments, the private sector, and the public for the 25 WBG to adopt a more comprehensive approach Technical Assistance beyond the CEIF. This approach would address Economic and sector 20 work climate change not only as a risk to development, but also as an opportunity for Bank clients to 15 accelerate their economic transformation and take advantage of new technologies. The WBG 10 would expand its role in supporting meaningful, country-specific, and country-driven climate ac- tions, focusing on the highest development and 5 climate impacts. Broadening the WBG strategy would mean including the following elements: 0 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 (a) a comprehensive approach to climate change, Source: WBG databases. extending beyond clean energy and addressing sectors such as transport, agriculture, forests, Cooperation, and the Royal Danish Ministry of and urban development; (b) a stepped-up pro- Foreign Affairs. gram in policy research and knowledge sharing; (c) an enhanced role in the acceleration of new The Way Forward technology; and (d) an increased engagement in climate risk management.17 Renewable energy Broad consensus is now emerging that the and energy efficiency will contribute signifi- world needs to address the dual challenges of cantly to this enhanced strategy. increasing energy supply and services that are critical for economic growth for all developing countries and moderating and managing climate 17 World Bank Sustainable Development Network, “Clean Energy for Development Investment Framework: Progress change. The World Bank Group launched the Report on the World Bank Group Action Plan.� Report to the CEIF in 2006 to address these challenges. The Development Committee, World Bank, Washington, D.C., growing recognition of the enormous challenge September 27, 2007, p. 5. 45 Case Six Creating a Framework for Renewable Energy and Energy Efficiency in Morocco Morocco is 95 percent dependent on imported This process helped the government prepare a fossil fuels. This has focused the attention of the comprehensive legal framework for energy man- government on the need to ensure energy supply agement. The framework eventually took the form security and absorb energy price shocks. Morocco of a single law on energy efficiency and renewable is well endowed with renewable energy resources, energy that will be used to prepare additional nec- and has a substantial potential for energy efficiency essary regulations to promote investments. The law improvements. Since 2005 the government has sets up goals, such as 1,000 MW of additional wind- been actively engaged in an energy sector dialogue electricity generation capacity by 2012, mandatory with the World Bank in order to prepare an energy energy efficiency audits, and the preparation of im- sector development policy loan. ESMAP, the trust- proved sectoral energy efficiency standards. The law funded World Bank Energy Sector Management also establishes an energy management agency. Assistance Program, provided support to this dia- The agency will be charged with promoting energy logue. ESMAP is now catalyzing activities for energy efficiency and supporting small renewable energy efficiency and renewable energy in Morocco by technologies for households and businesses. giving assistance to formulate policies and regula- tions. The projects have provided a legal framework The law also launches two special funds. One fund for energy efficiency and renewable energy in will pool donor financing to support private sector Morocco, including special financing mechanisms. investment in large wind and power generation ca- They have also created a new energy management pacity. Another fund will support energy efficiency agency focused on the following: investments. In 2007 ESMAP supports additional work to prepare the business plans and to design • Increasing the role of renewable energy in the organization of the new energy management Morocco with the objective of generating 20 agency and the funds. percent of electricity from domestic renewable energy sources by 2015. • Promoting more efficient utilization of energy in industry and public buildings and for residential use. • Reducing greenhouse gas emissions by 10 per- cent by 2015. In 2006, ESMAP-supported projects focused on building consensus among stakeholders on goals and measures that will promote wind electricity and energy efficiency. These projects supported working groups within the government that were able to draw on lessons learned from previous ef- forts in Morocco and best practices from elsewhere. 46