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close this bookRural Energy and Development: Improving Energy Supply for Two Billion People (WB, 1996, 132 p.)
close this folderChapter seven - The role of the world bank group
View the document(introduction...)
View the documentPolicies and operations since the 1970s
View the documentRural electrification
View the documentThe sustainable in a production and use of wood-fuels
View the documentRenewable energy
View the documentProject innovations and advisory services
View the documentThe way forward: a renewed commitment by the world bank group
View the documentBroadening the scope of energy sector reform
View the documentInvestments
View the documentOpportunities for partnerships

Opportunities for partnerships

This report is based on the operational experience of the Bank's staff over the past twenty years and has benefited from the experience and perceptions of numerous other organizations. First and foremost were discussions of the substantial issues of policy toward and investment in rural energy in the course of operations with people from all walks of life in more than 100 countries, both when policies and investments were being defined and when they were being implemented As the report was being prepared. its findings were shared with and critiqued by twenty or so organizations involved in development assistance. nearly fifty nongovernmental organizations from industrial and developing countries. and workshops with private industries investing in renewable energy technologies.

BOX 7.3 THE IFC AND RENEWABLE ENERGY

In July 1992, the IFC created its Infrastructure Department in response to the growing demand for its services in this area. The Power Division handles electric power generation projects, including projects using renewable energy resources such as hydro, geothermal, and biomass and new technologies such as wind energy, as well as conventional thermal generation projects and transmission and distribution projects, including national and international grids and metropolitan and local utilities

The IFC has recently financed hydro projects in Belize (25 MOO), Chile (450 MW and 80 MOO), Costa Rica (11 MOO), and Guatemala (10 MOO), as well as a biomass co-generation plant in Guatemala (70 MOO). Geothermal projects are under review in Guatemala, Indonesia, and Nicaragua Wind power funding proposals have been received for projects in Argentina, Chile, China/Mongolia, Costa Rica, Egypt, Guatemala, Honduras, Mexico, Morocco, Ukraine, and Uruguay. Biomass or PV projects have been considered in Belize, Brazil, Colombia, Costa Rica, India, and Jamaica. The IFC has also invested in PV manufacturing in China.

The IFC has made the environment one of its most urgent priorities and is encouraging private sector involvement in the development of GEF assistance strategies for the private sector. As part of these efforts, as well as in relation to its power investments, the IFC is actively pursuing potential investments in renewable energy (biomass, wind, solar thermal, and PVs). The IFC can provide nonrecourse project finance services, namely:

· Deb/equity investments in commercial technologies in developing countries

· GEF grants or concessional financing to buy down capital cost differences for qualifying technologies alongside conventional IFC project financing.

The IFC can also provide services for manufacturing, investment, and corporate finance as follows:

· Debt/equity investments in the manufacturing and assembly of commercial technologies in developing countries

· GEF grants to support investments in manufacturing and assembly investments for pre commercial technologies.

The IFC is also considering establishing a $100 to $200 million fund for renewable energy and energy efficiency that could provide equity (and possibly debt) financing for smaller on-grid renewable energy projects (5 to 20 MW) and for promising new off grid applications using solar energy and other renewables and for energy efficiency projects. The GEF Council recently approved a $30 million cofinancing facility to supplement the Fund's resources to promote less mature commercial technologies and to reduce risks associated with these types of investments.

Although professional differences often remain on specifics. people working in this area usually agree on three aspects of policies on and investment in rural energy:

· There is no greater challenge facing the energy sector than to provide energy in environmentally sustainable ways to rural (and unsolved urban) populations in developing countries. Good enabling conditions for energy investments will undoubtedly help. but policies and investments focused directly on the various problems to be addressed will also be necessary.

· Such policies and investments are merited not only on social and environmental grounds but also on economic grounds, as measured by the economic rate of return to investment. In other words, there is no reason why solving the social and environmental problems arising from energy use should not bring with it appreciable economic benefits to rural people.

· Opportunities exist for collaborating and sharing experiences and information. In rural energy, as in other fields, no institution has a monopoly of knowledge or insights. Indeed, one of the most important developments in recent years has been the growing (if much belated) realization that the best information and insight come from the intended beneficiaries themselves. This has brought about the growth of interest in the participatory approach to the design of projects and policies and the current efforts to come to grips with the tenurial economic. financial, social. and administrative aspects of local institutional development.

The World Bank Group has the capacity both to bring rural energy into the policy dialogue and to co-finance divestments. Of these, it will probably be the bringing of substantive policy issues to the table and the catalytic effects of its projects that will be most important. In rural energy. as in the energy sector more generally, the developing countries will undertake the bulk of investment: the Bank's financing is unlikely to exceed 5 percent of overall investment. There will therefore be much that the Bank cannot do by itself, and it will be incumbent on all involved to work together it these endeavors are to succeed.

Table 7.2 Broadening Energy Access: A Checklist for Bank Staff

Specific actions and programs

Main


Bank instruments

1. Acknowledge the questions and define the challenge:

SALs SECALs.

· Define the energy supply situation for people without access to modern energy: types of fuels used their costs. anti their health and environmental impacts.

sector loans sector reviews SARs. TA and project identifi canon and preparation (Bank and GEF

Modern fuels. Evaluate past progress in supply expansion to urban and rural areas. and consider how energy sector reforms will affect the future provision of energy supplies to these people. Will the reforms increase investment in distribution of electricity. modern cooking fuels. and renewable energy alternatives? What pricing and tax policies are appropriate? Is sufficient project identification and preparation work under way? More generally. assess adequacy of current policies and investment activities of programs to improve. Traditional fuel Assess efforts to address health and environmental problems caused by use of biofuels: assess adequacy of supporting policies and programs.


· Keep track of progress in extending modern energy services to previously unserved populations and of progress in afforestation and biofuel programs.


2. Price energy to improve access:

SALs. SECALs. Sector loans sector reviews.

· Follow the general principle of pricing energy at economic cost. Fuel taxation and the import tariff regime should not discriminate against individual energy sources.

SARs. GEF

· Avoid subsidies that restrict the market to government programs including general fuel subsidies and targeted subsidies.


· Avoid uniform national pricing that prevents extension of service to rural areas.


· Generally. support incentives for market development and sustainable access such as temporary and transparent incentives to buy down initial capital and transaction costs for electricity connections and basic end-use equipment that allows for fuel switching.


· Within large energy companies (especially providers of LPG and electricity) allow modest cross-subsidization of lifeline rates and costs of basic end-use equipment.


· Implement a resource tax on the urban fuelwood and charcoal trade that is collected by local rural communities who manage these natural resources.


3. Finance and lower the first costs of energy:

Project lending.

· Expand credit to rural consumers for connections and appliances by spreading costs over time.

TA sector review. CAS

· Reduce service connection costs through modifying design standards to meet the needs of low-demand consumers.


· Expand credit for inventory to small energy retailers and sup pliers that serve rural consumers and explore leasing schemes and other such options.


4. Encourage a diversity of investments and investors in rural energy:

Energy rural development. forestry project lending sector

· Ensure regulatory environment does nor discriminate against or obstruct rural energy investment; goal is level playing field for public. local. arid private investments.

loans. TA. SARs GEF

· Include updated and approved energy components as options for use of development funds in rural development projects.


· Provide direct investments for public grid electrification programs that follow financially sound pricing policies.


· Include. as applicable. renewables. modern biomass-using equipment and other alternative energy in public health. Education, and agriculture projects.


· Ensure a liberal trade policy for imported fuels and equipment likely to he used by rural consumers including liquid fuels and renewable energy products/components.


· Provide TA for innovative product development aimed at serving rural areas.


5. Examine the institutional questions to be addressed:

SALs. SECALs. energy rural development forestry project lending, sector loans, TA. GEF

· Restructure government role to support local initiatives and projects. including closer cooperation with rural development agencies and programs.


· Evaluate institutional alternatives for electricity distribution-local franchises. public/private partnerships. cooperatives and other.


· Examine tax anti regulatory incentives to encourage supply companies to service.


· Provide financing and technical support for local/decentralized public or private energy supply initiatives through technical assistance and training.


· Encourage effective. transparent regulations promoting competition among retailers and distributors: discourage monopolistic policies for electricity. liquid fuels. anti renewables.


· Transfer responsibility for managing and exploiting forest resources to local rural populations based on a mutually agreed upon forest management plan.


· Base afforestation and wood stove programs on the participatory approach


Note: The term multilateral includes the World Bank, International Finance Corporation International Monetary I Fund Inter-American Development Bank African Development Bank Asian Development Bank United Nations agencies, and others.

CAS

Country assistance strategy

GEP

Global Environmentally

NGO

Facility nongovernmental organization.

SAL

Structural adjustment lending

SAR

Staff appraisal report.

SCC

Systemic client consultation

SECAL

Sector adjustment lending.

TA

Technical Assistance