91822 the world bank Energy Matters Achieving Secure and Clean Energy in Latin America and the Caribbean IBRD Results Synopsis Successful economic and social development in Latin America and the Caribbean, as in other regions, hinges upon the availability of reliable and affordable energy supplies. IBRD is working with governments and the private sector throughout Latin America and the Caribbean to help connect more people and businesses to modern energy supplies that are supplied and consumed efficiently and are increasingly environmentally-friendly. Challenge of energy supply and use, including reduction of losses in energy supply as well as reducing demand; increased access to modern energy, especially to electricity in countries with Economic growth requires adequate provision of modern low rates of rural access such as Peru, Bolivia, Nicaragua, energy for homes, businesses and transport. High and and Honduras; and mitigation of climate change and es- volatile oil prices coupled with increasing demand and a tablishment of sustainable future energy supply, including decline in private sector energy investments have led to reducing carbon emissions by moving toward low carbon greater concern over energy security in Latin America growth scenarios, especially in larger countries such as Mex- and the Caribbean and to new urgency in energy invest- ico and Brazil. An additional challenge is to adapt institu- ments in the region by the International Bank for Recon- tional and regulatory frameworks in the energy sector to struction and Development (IBRD). A recent forecast of meet these new challenges. electricity demand in the region shows a doubling in elec- tricity demand between 2008 and 2030, and a similar dou- bling in CO2 emissions. Although the financial crisis has temporarily slowed economic growth and growth in energy Results demand, it has also increased the challenge of obtaining in- IBRD projects are contributing to achievement of the fol- frastructure financing. Insufficient investments today can lowing results: result in insufficient capacity to meet the energy demand of tomorrow for Latin American and Caribbean economies [1] Four hundred MegaWatts (MW) of clean energy in- and hamper their recovery from the financial crisis. In ad- vestments installed and operating by end 2009, with dition, growing uncertainty in oil markets has led to deep an additional 200 MW by end 2013 and introduction concerns over energy security. of renewable energy promotion policies in Mexico and Peru; Critical energy issues in the Latin American and Caribbean [2] Provision of electricity service to an additional 1.2 region include: development of domestic energy resources million poor rural people in Latin America and the in oil importing countries, notably renewable resources, Caribbean, most by the end of 2011; such as hydro, wind and solar power; improved efficiency March 2010 2 ENERGY MATTERS [3] Reduction of electricity losses of public sector distri- 300,000 rural families living in isolated areas that cannot be bution companies by more than 15 percent in Brazil reached by grid extension. and the Dominican Republic; and [4] Identification of low carbon pathways for economic The Peru Project has also assisted more than 1,400 fami- development in Mexico and Brazil, to mitigate cli- lies in rural areas near Cuzco to improve their incomes by mate change. adopting electricity using equipment to process cereals, cof- fee, cocoa, baked goods, meat products, milk, wood and Details are provided on these results below. metal products and handicrafts. It aims to broaden its reach to benefit a total of 10,000 families and further increase the Clean Energy Promotion. More than 600 MW of renew- number of beneficiaries with funds from the National Ru- able energy capacity (210 MW from wind, 320 MW in ral Electrification Fund. Similarly, IBRD is financing the ex- small hydropower, and 70 MW through other technolo- pansion of electricity access in Bolivia, Argentina, Mexico, gies), are being installed with financing by Global Energy Nicaragua and Honduras, in great part through the use of Fund (GEF) grants, Carbon Finance, and IBRD loans off-grid renewable technologies, but also through grid ex- (see Annex 1). In addition, IBRD Development Policy tension. Lending in Mexico is supporting a government initia- tive to install over 3,000 MW of renewable energy. IBRD IBRD also helps improve electricity sector performance support in Mexico combines development policy lending, and efficiency. In Brazil, IBRD is preparing a project to help investment lending and in-depth analytic work to help de- six distribution companies serving three million people to velop the country’s substantial renewable energy potential. reduce losses by 15 percent. In the Dominican Republic, a Results coming from Bank-assisted activities in Mexico in- country plagued by serious problems in the electricity sec- clude: the 83 MW and 101 MW La Venta 2 and 3 wind tor, IBRD helped reduce electricity losses by 14 percent farms; the 12–15 MW solar component of the Agua Prieta from 2005–2008, through conditions met as part of a solar/thermal generation plant; provision of electricity ser- US$150 million Electricity Sector Reform Loan. A Distri- vice with solar home systems to 250,000 rural people in the bution Rehabilitation Investment Loan of US$42.5 million poorest regions of the country; regulations to implement in the same country now targets further loss reduction of the Renewable Energy Law passed in 2008; and the devel- six percent by 2010 and by four percent more by 2011. The opment of data on small hydropower development sites in recently-approved Public Finance and Social Sector Devel- two river basins. opment Policy Loan of US$150 million also supports im- proved targeting of electricity subsidies to the poor. With New electricity access is being provided to an estimated the same budget resources, the new subsidy program will 1.2 million people in rural and peri-urban areas of Peru, reach 829,000 poor families, more than four times the num- Bolivia, Argentina, Mexico, Nicaragua, and Honduras. ber of poor families covered under the old subsidy scheme, In Peru, the Rural Electrification Project had connected increasing the likelihood of payment and therefore improv- more than 100,000 people to electricity service by end 2009 ing sector performance. Additionally, the IBRD team, in and will provide electricity service to almost 500,000 rural coordination with the Inter-American Development Bank people by end 2011. Subprojects are under construction to (IADB), is helping to improve the governance of the energy serve another 250,000 people and subprojects for 150,000 sector in the Dominican Republic through regular meet- more are being evaluated. Solar Photo Voltaic (PV) systems ings with Government leaders to support electricity reform will be used to serve approximately 39,000 people through including tariffs, subsidies, institutional issues, governance, distribution companies to provide sustainable and regulat- and transparency. ed electricity service under this project. It is also assisting in the introduction of a regulated tariff for PV service togeth- Two separate studies have strengthened planning for, and er with ensuring access to existing cross-subsidies that will awareness of, lower-carbon development in Brazil and help the Government expand PV service to the estimated Mexico. Both studies raised awareness using highly partici- IBRD RESULTS 3 pative approaches involving multiple high level consulta- [1] Enhancement of energy security through investment tions with ministries and public agencies. The studies were in energy efficiency and energy supply as well as con- presented at the 15th Conference of Parties of the United sideration of regional energy integration; Nation Framework Convention on Climate Change [2] Support for the development of clean energy, espe- (UNFCCC) in Copenhagen on December 6–19, 2009. cially renewable energy; [3] Increased efficiency of energy utilities and support Both studies developed tools to identify and assess high- for a sound mix of public and private activities in the priority and low-cost interventions to reduce greenhouse energy sector; and, gas emissions while continuing to achieve growth objec- [4] Improvement of access to electricity and modern en- tives. High-priority areas for action found in both countries ergy services for the poor, especially in rural areas. include energy efficiency, sustainable transport, and low- cost renewable energy technologies (such as hydro, solar In addition to using its own resources to develop these hot water, and biomass energy). Both studies also found activities, IBRD leverages considerable amounts of fi- potential for reducing emissions from land-use change, es- nancing from other sources including the Global Envi- pecially in the case of Brazil where reduction of such emis- ronmental Facility, Carbon Finance Funds, the Clean sions could dramatically reduce the overall emissions profile Technology Fund and Energy Sector Management Assis- of the country. Under low-carbon scenarios, both countries tance Program (ESMAP) funds for Technical Assistance. could keep emissions trajectories flat or declining without affecting economic growth. The methodology, applicable to The clean energy promotion program in Mexico high- many other countries, will support the development of the lights IBRD efforts to support renewable energy and Nationally Appropriate Mitigation Activities (NAMAs) energy efficiency through multiple financing instru- that developing countries have committed to voluntarily ments. World Bank support began with two GEF-assisted implement under the “Copenhagen Accord”. Large Scale Renewable Energy Projects (La Venta 3 wind farm) and the MW Hybrid Solar Thermal Project, as well The Mexican study is being used as the basis for making in- as carbon finance support to the Wind Umbrella project vestments in sustainable transport and energy efficiency. The (La Venta 2 wind farm). ESMAP technical assistance of study provides the key analytical underpinning for the 2008 US$650,000 was provided to assist Mexico to develop the Climate Change development policy loan of US$500 mil- regulations necessary to implement the Renewable Energy lion and the 2009 Green Growth DPL of US$1.5 billion. Law passed in 2008 and to develop information on small In Brazil, the study is complemented by a US$900,000 hydropower resources. The IBRD-financed Mexico Inte- Japan Policy and Human Resources Development grated Energy Services Project will provide solar home sys- (PHRD)-funded project aimed at identifying hundreds tems to 50,000 remote households in the poorest regions of concrete low-carbon energy projects and at supporting of the country. Finally, the US$1.5 billion Green Growth the development of a regulatory framework for the carbon DPL, approved in October 2009, underpins the Govern- market in Brazil in partnership with the Brazilian Stock Ex- ment’s ambitious climate change program, which looks to change. promote the installation of over 3,000 MW of clean renew- able energy by 2012. Approach Sectoral work, carried out with IBRD internal resources and ESMAP, has funded studies on topics of importance A customized program of investment and technical as- to the region. For instance, the Central America Energy sistance activities has been developed to meet the ener- Sector Programmatic Study analyzed prospects to develop gy challenges of each country. IBRD’s strategy in Latin regional projects in electricity generation, especially in hy- America and the Caribbean has been focused around dropower that could help countries become less dependent four major elements: on oil imports, to encourage a more integrated Central 4 ENERGY MATTERS American Electricity Market, and to respond more effi- Honduras and is being replicated in projects of other do- ciently to electricity demand growth. nors in Nicaragua. GEF, carbon finance projects (which purchase emission reduction certificates), and most recently the Clean Tech- IBRD Contribution nology Fund provide significant opportunities for syner- gies with IBRD financing in the energy sector. With 18 Costs of various projects, including analytical and advisory projects under implementation for US$56 million and five activities (AAA), and size/nature of IBRD contribution are projects under preparation for US$58 million, the Latin summarized in the table below. America and Caribbean region has developed more carbon finance projects than any other region, mainly for invest- ment in renewable energy. The Mexico Clean Technology Partners Fund Investment Plan was the first to be approved by this facility in December 2009. IBRD works closely with other partners, including the Inter-American Development Bank (IADB), Interna- For innovative projects such as electricity provision us- tional Energy Agency (IEA), GTZ and Kf W of Germany ing off-grid renewable energy, energy efficiency and loss and other bilateral donors, in a number of countries. In reduction in electricity distribution, incorporation of les- the Dominican Republic, Haiti and Honduras, IBRD/ sons learned in previous IBRD projects has helped design IDA is working closely with IADB to assure coordina- and implementation of later projects. For example, the tion and synergy of efforts to support the energy sector. In Argentina renewable-based electrification project, started Honduras, support for development of the National Rural in 1999, was the Latin America and Caribbean region’s pio- Electrification strategy is coordinated with IADB, the Eu- neer in using distribution companies to provide sustainable ropean Investment Bank, Japan International Cooperation off-grid services. It served as a model for key aspects of the Agency ( JICA) and Norway. Coordination with GTZ in Peru project that began in 2006. Similarly, the Nicaragua Bolivia, Honduras and Mexico aims at maximizing efforts project employing a model that involves sale of solar PV sys- to encourage development of renewable energy applications tems to individual users by private companies with micro- such as wind in Mexico, small hydro in Honduras and solar credits from local financing institutions was replicated in PV systems and more efficient cooking stoves in Bolivia. IBRD/IDA/GEF financed projects, in Number of Projects and IBRD, IDA, GEF, CTF Financing implementation and under preparation Countries Amounts Projects under implementation 15 projects in 10 countries US$ 1.5 billion in DPLs US$410 million in 14 investment projects Projects under preparation for FY10 4 projects in 3 countries and US$485 million IBRD one regional Projects under preparation for FY11 6 projects in 5 countries and US$375 million IBRD one thematic study US$20 million IDA US$50 million CTF US$7 million GEF Analytical Work and Technical Assistance (TA) to 17 tasks in 7 countries and 10 US$4.2 million various sources be delivered in FY10 under IBRD BB financing regional or thematic pieces 7 AAA and 10 TAs See attached tables for details on GEF and Carbon Finance Programs. IBRD RESULTS 5 IBRD regularly participates in workshops and high-level The promotion of income-generating activities based on meetings with regional energy sector organizations such electrical equipment in Peru is beginning to show suc- as the OLADE Energy Ministers’ Inter-ministerial Con- cessful results based on Government commitment, strong ference, the Regional Energy Integration Commission Non-Governmental Organization partners, a good rural (CIER), and Central American Electrification Council credit availability, and the willingness of distribution (CEAC), to exchange ideas and coordinate agendas. In companies to participate by upgrading electricity connec- the last two years, the energy sector has made presentations tions where necessary and even offering attractive tariffs at three OLADE/CIER conferences (including on the po- for off-peak hours. The availability of a small percentage tential for regional energy integration in Latin America), at of funds from the Rural Electrification Fund established in an energy fair in Guatemala (on the challenges facing the the 2006 Rural Electrification Law provides the opportu- Central American sub-region), at the Wind Energy Con- nity for repeating and expanding efforts within Peru. The ference in Panama (on wind power development), and at approach could be replicated in areas of Latin American the Global Renewable Energy Forum in Mexico (on using and the Caribbean with similar conditions. Dissemination renewable energy to provide access to electricity). of results is planned through publications and workshops. The low-carbon studies in Brazil and Mexico are examples The low carbon studies in Mexico and Brazil will be use- of studies undertaken by the Bank that have involved a ful to other countries by providing concrete examples broad coalition of stakeholders, including domestic and of alternative low-carbon development pathways, along international experts and academics across multiple sec- with methodologies and tools for carrying out subse- tors. Both studies have worked closely with the Govern- quent analyses. The studies in Mexico and Brazil are among ments to achieve buy-in of the process and to provide an six studies that are being completed by the Bank with cli- objective and technically-sound analysis of low-carbon op- ent countries—other country studies are being undertaken tions available in Mexico and Brazil, complementing domes- in India, South Africa, Indonesia, and China. The results tic actions to formulate climate change mitigation plans. of the Mexico and Brazil studies are being disseminated in the respective countries as well as in regional and interna- tional forums where low-carbon development will take on Good Practices Developed/ increasing importance as countries seek to establish their own nationally appropriate action plans, or NAMAs, in Replicated response to global climate mitigation challenges and com- mitments. Results have already been used to design energy There is significant replication potential of the IBRD- efficiency and transport projects in Mexico with IBRD and supported approach to off-grid electrification in Nica- CTF financing. Tools developed in the Mexico and Brazil ragua through the Off Grid Rural Electrification Project studies have been provided to governments and shared with (PERZA) Project. The PERZA models have been ad- Bank staff working on other countries and regions through opted by the Government in implementing other donor- training sessions. User-friendly software is being developed supported electrification activities, and will be improved to also make them available on the web. and incorporated into the design of the proposed National Electrification Program, which involves multiple donors A new report—“Greening the Wind: Addressing En- and a total cost of US$290 million. Upon the completion vironmental and Social Challenges in Wind Power De- of the National Program, the national electricity coverage is velopment”—discusses the main environmental and social expected to increase to 84 percent in 2014 from 67 percent aspects involved in wind power development, and will be today. To go beyond 84 percent will likely involve mainly useful to both public and private wind power plant develop- “off-grid” solutions given the prohibitive cost of expanding ers and policy makers. The report draws upon international the traditional electricity grid network to remote and dis- experiences in both developed and developing countries, persed population areas. with a particular emphasis on Latin America-specific wind 6 ENERGY MATTERS power development examples. The report is divided into expand energy efficiency investments into other areas two volumes. Volume one is designed to be a stand-alone such as municipal street lighting and water pumping. report that presents a concise overview of the key social ÔÔ The Electrobras Distribution Rehabilitation Project and environmental dimensions of wind power, and offers (US$699 million, IBRD US$485 million), under project advice. The second volume is a more comprehen- preparation, aims to improve the financial and opera- sive document that provides the detailed analysis and sup- tional performance and the commercial management porting information, and presents several case studies from of six Eletrobrás-managed Distribution Companies World Bank project experience. (DisCos) by reducing electricity losses, increasing bill collection rate, and increasing quality of service. It also aims to: (i) build capacity in Eletrobrás and the DisCos Next Steps to move towards a common performance-based man- agement approach; (ii) strengthen the DisCos man- The energy sector in Latin America and the Caribbean is agement of environmental and social processes and expanding investment activities as well as leveraging off ana- impacts; and (iii) provide support to community out- lytic work as the Central American Programmatic Energy reach through the implementation of social action pro- Study and the low carbon pathway studies for Brazil and grams and communication campaigns. Mexico. ÔÔ In Central America, a Programmatic Study on the Central America Energy Sector presents the main Examples of interventions under development include: challenges and opportunities faced at the national and regional level. The aim is to provide support based ÔÔ The Mexico Efficient Lighting and Appliances Proj- upon five pillars: (i) Energy Security (with emphasis on ect (US$350 million, IBRD US$300 million, CTF renewable sources), (ii) Energy Efficiency, (iii) Integra- US$50 million), under preparation, aims to enhance tion, (iv) Institutional and Regulatory Strengthening, the country’s energy security by increasing efficient and (v) Access. Based on this approach, IBRD is ex- use of energy and to support its efforts to mitigate cli- ploring how to support Central America in tapping its mate change. The project, one of the first to use Clean renewable resources, improving energy efficiency and Technology Fund financing, will finance the acquisi- energy savings; the power integration agenda, in par- tion and distribution of Compact Fluorescent Lamps ticular financing the construction of the first regional for low-income urban and rural households and the power plant, whether a large hydro or liquefied natural replacement of old refrigerators and air conditioners, gas (LNG) plant; strengthening the power regulation building on the government’s recently launched pilot framework, and providing modern electricity services appliance replacement program, with the potential to to poor communities. learn more Links to key related sites: Mexico low carbon study http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/LACEXT/0,,contentMDK:22365603~pageP K:146736~piPK:146830~theSitePK:258554,00.html Wind Atlas in Peru http://dger.minem.gob.pe/atlaseolico/PeruViento.html