| Development in practice - Rural energy and development |
In the 1980s the finances of electricity utilities in a number of countries were deteriorating sharply. As a result the Bank turned toward encouraging countries to liberalize their energy markets. introduce transparent forms of regulations, and attract private investment. Two Bank policy papers published in 1993 set out this policy reform agenda. Since then. the Bank hats been learning a great deal about how to improve rural energy development At the same time the economics of renewable energy have also been changing rapidly As a result the Bank is now pursuing a new set of solution.) to supplement the established ones of liberalizing energy markets (box I)
BOX 1 BROADENING THE SCOPE OF ENERGY OPERATIONS
Promotion of clean technologies
• Transparent regulation
• Private involvement
• Importation of services
• Market pricing
• Demand management
Added dimensions - a renewed commitment to
• Extend modern energy supplies to unserved populations
• Promote sustainable supply anti use of biofuels
• Introduce new and renewable energy technologies by
• Promoting commercial pricing and private involvement in distribution
• Providing incentives for extension of service
• Supporting agroforestry and biofuel programs
• Encouraging local initiative and open markets
Some of the Bank's operations in recent years have borne the stamp of this new knowledge. The sustainable management of forest resources has been improved by empowering local populations to gain revenue from supplying wood to nearby fuel markets. Forestry assistance has led the way, followed by natural resource management and energy operations.
Innovative delivery of renewable energy to consumers has been spearheaded by lending operations in India and Indonesia that focus on developing the ability of retailers and other intermediaries to reach rural markets. Technical assistance co-funded by bilateral donors is identifying policies and projects in many countries of Sub-Saharan Africa. Asia. and Latin America that pave the way for using new decentralized technologies to provide affordable energy.
However, this is just a beginning. The emerging strategies that promise to make a real difference for rural populations require a new and powerful commitment by the Bank and its partners. The Bank is committed to devoting significantly more attention and resources to the alleviation of the "energy poverty" of large portions of the developing world's rural populations. An Action Plan to achieve this is in place (table I).
The Bank's Action Plan (see table I) calls for a strong effort to accelerate the opening of rural energy markets, help consumers to have a choice, and put in place better systems to deliver and finance rural energy. The Bank intends to base its efforts to provide better access to energy for rural people on five main principles:
• Provide for consumer choice. A better choice of affordable energy sources should be provided to rural consumers. Informed consumers will choose the most cost-effective solution. according to their preferences.
• Ensure cost-reflective pricing Distortions in prices that are created by subsidies and taxes should be eliminated. They create a disincentive for entrepreneurial solutions to rural energy supply, and give consumers the wrong signals.
• Overcome the high-first-cost barrier. The obstacle of the high initial cost of obtaining energy needs to be removed. Credit mechanisms. lower-cost equipment, and lower service standards can all contribute to achieve this.
• Encourage local participation. Participation of local communities. investors. and consumers in the design and delivery of energy services is essential. Decentralized approaches need to be part of the solution, including systematic local capacity building.
• Implement goad sector policies These are the basis for bringing better energy access to rural populations. Energy sector reform should include the opening up of the rural energy market Macroeconomic policies should not discriminate against rural energy. The role of the government should change from central planning to supporting markets.
The task of improving energy supplies for two billion people remains daunting. What has changed is that we now have solutions more firmly in our grasp.
Table 1 Broadening Energy Access: An Action Plan for the World Bank
1. Develop Regional, Country, and Local Owernship and Commitment to Efforts to Broaden Enegy Access.
• The Bank should continue to conduct regional workshops, road shows. and training seminars in Latin America. Africa. and Asia to initiate and reinforce planning for effective and affordable rural energy supply. For example. Bank activities should sustain and build on the regional dialogues such as the recent Johannesburg power reform symposium, which addressed the requirements of expanding electricity supply and use in Sub-Saharan Africa. The institution should also earmark country-focused assistance as a follow-up to regional work shops. as in the ongoing upstream work in Cameroon, Mali. and other countries. On the local level. an example of productive assistance is reflected in a joint Chinese/ESMAP technical assistance project. which included training of county level staff in economic analysis of energy projects.
• Finance technical assistance and training projects to assist countries in developing policies. institutions, and programs designed to promote rural energy. Most of the Bank's traditional energy clients - notably the power and oil and gas companies - are ill-equipped to pursue programs involving provision of energy in rural and poor areas. Indeed, their current programs and policies often undermine rural energy markets. It is essential. then. that both the energy "establishments" and the new institutions involved in developing rural energy build the necessary capacity.
2. Systematically "Operationalize" Rural Energy in Bank Assistance Programs
• The Bank's energy sector assistance instruments need to make a more consistent and systematic effort to address the problems of people's access to energy services. The course of normal Bank work provides many opportunities to promote energy access for rural and poor people. but at present those openings are not systematically exploited. Bank assistance efforts can help promote wider energy access by helping client countries to "level the playing field" for existing and new energy service providers - for example, by setting import tariff levels on energy products at reasonable levels. limiting distorting taxes and subsidies for house hold fuels, eliminating or regulating monopolies to allow wider entry into the business of rural energy supply, and so on.
In addition. "operationalizing" rural energy development in the Bank's policy dialogues and reviews conducted with client countries will help broaden the base of expertise within the Bank and will help the Bank and its clients develop creative and effective approaches. For example. in India an ESMAP project involving renewable energy led to the development of a new type of renewable energy loan; in Kenya. policy dialogues on the distortionary effects of import tariffs have helped to create a more attractive environment for private photovoltaic (PV) marketers.
• As they do for power sector reform staff appraisal reports for all energy projects should describe the country's and the Bank's strategy for rural energy development even in the operation does not include direct support for rural energy It is not enough to assume that policies to address the problems of large energy industries will indirectly benefit rural anti poor people.
• The Bank should help its clients develop cross-sectoral strategies that take advantage of the well-established finding that energy projects are most effective ``hen coordinated with efforts to promote rural development through agriculture, health, and education projects. The importance of this approach is illustrated by the Brazil rural development project, in which communities are using social development funds to purchase PV and wind systems for lighting and televisions at community centers. Local demand for these systems in rum has encouraged the development in Brazil of commercial distribution networks for renewable energy products. To encourage communities to see energy us part of the menu of rural development choices. energy services and components should be typically included on the Bank's list of approved uses of social development funds along with schools, roads, health clinics. and so on.
• Bank staff should pay more systematic attention to the energy access problems of people in rural areas in country assistance strategies (CAS). In this context, the CAS is important for coordinating energy assistance with other sectors.
3. Promote Best Practices and Innovations in Project Design and implementation
• The Bank can help to develop innovative projects and project components for rural energy. Efforts should he made to include components in energy projects with the goal of incorporating the best practices into the Bank's lending program. Examples are Niger and Chad Fuelwood Resource Management Projects. India Renewable Energy Project and Indonesia Solan Home Systems.
• Micro-finance for rural energy will he an important part of the strategy to ease access. This will involve working with local financial institutions and NGOs to establish rural energy as an eligible item for small-scale financing A link with the CGAP program will he established.
• If access is really to be expanded to rural and poor people. a consistent effort is needed to devise means to case or deter the all-important first costs of energy access (e connections, appliances. and equipment Innovative experiments in financing, leasing. and delivering systems must be designed and piloted.
• The Bank should develop standard analytical tools for project appraisals of innovative rural energy projects as well as for traditional rural electrification projects.
4. Disseminate Innovations and Best Practice
• Make available information on good practice in delivering and financing rural energy - including leasing and credit schemes. grid rural electrification, micro grid systems. renewable energy systems. and natural forest management for fuelwood production. Conduct research on impact of rural energy and energy policies on rural development. Best practices can be seen in the Thailand Rural Electrification Program. which lowers grid electrification costs for rural people by using local donations of land and labor in the construction of electricity net works. and by providing modest utility cross-subsidies that help keep the first costs of connection low.
5. Partnerships with Donors. NGO's. and Other Organizations
• The Bank should expand its work with bilateral donors. NGOs. and foundations in providing technical assistance. This is an area in which the Bank can exert global leadership in direct support of innovative and new projects and learn from best practices.
• One way of broadening the base of involvement and coordinating efforts is to promote joint implementation of projects in collaboration with groups outside the Bank. including bilateral donors NGOs. and foundations. The Bank has already undertaken a successful rural electrification project in Bangladesh with the help of the U.S. National Rural Electrification Cooperative Association (NRECA). New initiatives include the launching of a financing vehicle for solar home systems being conducted in cooperation with a major foundation.
• The Bank can also provide technical assistance to make funds available for on lenddig to NGOs and voluntary and grassroots organizations that can catalyze investments in communities and organize communities to carry out energy-related programs One such program. proposed in the Haiti Forest and Parks Protection Project. involves assistance for implementing an improved charcoal stoves project through CARE.
6. Special Initiative on Africa
• Sub-Saharian Africa has a particular need to address the issues of serving dispersed rural energy demand. The lack of population density in rural areas requires innovative solutions for electricity and cooking fuels.
• An initiative will design a program of assistance to African clients that will aim to reform the power sectors, fin/l solutions for improving energy access for the 80 to 90 percent of the continent's unserved population. and facilitate development of local delivery and financing mechanisms.
• Electricity delivery will be looked at in terms of designing ways to put in place decentralized locally financed solutions (including renewables and solar home systems) and the rebated reforms required in the existing power systems.
• Access to cooking fuels will be enhanced through programs emphasizing fuelwood management, stove efficiency. charcoal efficiency. and transition to modern fuels.
• Assistance in policy reform will include opening of markets, elimination of price/tax/tariff distortions. and facilitating entry of competitors.
7. Improve the Bank's Capacity to Deal with Rural Energy Issues
• Training and retraining of staff to deal with rural energy issues will remain an important nee of the Bank. This can be accomplished through training courses, internal workshops on best practices, and opportunities to work in agencies dealing with rural energy issues.
8. Monitoring of Progress in Achieving Objectives
The following activities will be important:
• Preparing an annual status report that reviews the progress in implementing the action plan This would include reviewing the extent to which rural energy has been included in Bank assistance and the effectiveness of the instruments used, such as promotion of structural reforms designed to open the rural sector to new entrants, grid rural electrification. renewable energy, fuelwood, and so on.
• Monitoring the investments and policy work in the areas identified in the paper as reflected in the CAS.
• Assessing the recruitment and retraining activities for bringing Bank staff skills in line with goal of increasing activity in rural energy project development.
• Assessing the effectiveness of regional and country workshops.
CARE Cooperative for American Relief Everywhere
CAS Country Assistance Strategy
CGAP Consultative Group to Assist the Poorest
ESMAP Energy Sector Management Assistance Programme
NGO Nongovernmental Organization
NRECA National Rural Electrification Cooperative Association