delivering sustainable energy services for poverty reduction and economic growth

Delivering Sustainable Energy Services for Poverty Reduction

and Economic Growth

RT6-Sustainability: Living in One World

Dominique Lallement, Manager

Energy Sector Management Assistance Program, World Bank

WEC, Buenos Aires, October 24, 2001

Outline of Presentation

• Background: the linkages on Poverty and Sustainable Energy?

• The changed environment for sustainable energy-services

• The new Energy Business Strategy of the World Bank Group

Energy Rich –Energy Poor? Major Disparities & Inequities: is this sutainable?

Red 3 - 33% Green 33 - 66% Blue >66%

Energy rich-Energy Poor? Limited correlation between access to modern energy services and natural endowment of primary energy resources

Income and other disparities• Between rich and poor, e.g.: In Africa: less than 10% access to Electricity Ivory Coast: 71% richest, 11% poorest Ghana: 43% richest, 7% poorest Vietnam: 76% richest, 27% poorest

• Between urban and rural Areas Ghana: 4% rural, 62% urban Vietnam: 38% rural, 88% urban• Between large and small enterprises

The poor spend 1/3 of their cash income on energy

THE WORLD BANK GROUP

10

100

1,000

10,000

Co

mm

erci

al E

ner

gy/

Cap

ita

Human Development Index (HDI)

Energy Consumed per Capita

Best-Fit Trendline

Energy is important for growth and energy-based innovation is central

to productivity growth

Energy is important for growth and energy-based innovation is central

to productivity growth

Energy is Key to Human Development: safer health services,

Higher quality education,Access to information

Energy is Key to Human Development: safer health services,

Higher quality education,Access to information

En

erg

y/C

apit

a

Per Capita Income

And yet we know that Energy is key for Growth and for Human Development

Unreliable electricity supply

Firms need to buy back-up generators

Small enterprises cannot afford

cost

Ethiopia

Low growth & low labor demand

Rural India

No access to modern fuels

Women spend an hour per day

gathering firewood

Low labor participation

rate

Rural Bangladesh Urban Rural Africa

No access to modern fuels

High indoor air pollution

High rate of child mortality

No access to electricity

Less time to study

Low educational

achievement & labor particip.

Reduced access to

info/education

EducationHealthEnterprise

Productivity/Income Gen.

Energy is therefore key for Poverty Eradication: many dimensions

Human Productivity

Emissions

Lead &Particulates

Ingestion

High rate ofRespiratoryIllnesses &Lower IQs

Indoor Air Pollution

• India: 500,000 annual deaths, mainly among children under 5 and women, or 8 % of all deaths in this group

• World: 2 million excess deaths per year, or 5 % of the global burden of disease

• A leading cause of death and illness: larger than tuberculosis, AIDS, or malaria (WHO, 1996)

The poor are more susceptible to air pollution: Lessons from Bangladesh

• Death of infirm people• PM10 Particles Aggravate Health Problems such as

Asthma, Bronchitis and contribute to premature Mortality and Hospital Admissions

• PM2.5 Particles contribute mainly to premature Mortality and Hospital Admissions

Excess deaths/years due to air pollution • ~6,000 in Dhaka City (approx.)

Health maintenance cost due to air pollution • ~ US$12. Per capita per year (approx.)• WHO has documented the decrease in children’s IQ

due to lead ingestion

International Development Goals

• Poverty reduction - reduce by at least 1/2 by 2015• Education - universal primary education by 2015• Environment - national sustainable strategy by 2005• Infant and child mortality - 2/3 1990 level by 2015• Maternal mortality - reduce by 3/4 by 2015• Reproductive health - access for all of appropriate age

NLT 2015• HIV/AIDS - reduce by 25% globally before 2010• Water - halve people without safe water by 2015• Gender - eliminate disparity in education by 2005• Upgrading slums - improve lives of 100 million by 2020• Building digital bridges - maximize access to new IT• More transparent and accountable governance

LOOKING AHEAD• Growth in demand: over next 20 years, will come

mostly from developing countries• At current rate of ‘connections’ another 450 million

energy poor will be added• To meet minimum needs (WEC: 500kWh/year/person),

100 million people should be connected a year for the next 20 years as compared to 40 million over past 20 years.

• Today Energy Poor are in rural and peri-urban areas. However, increasing shift towards megalopoles: in 2020, 70% of world population will live in cities of more than 1 million; 60% will be below poverty line.

THE WORLD BANK GROUP

THE FACTORS of CHANGE

The energy service evolutionConsumptive Uses (Light, Radio, TV)

Socially Productive &Community Uses:Health, Education,Water,Transport

Economically Productive Uses (Handicrafts,ICT, Industries)

TraditionalBiomassUtilization

Not a Single Technology

Many Technological Options:Many Technological Options: mini-grids and Hybrid Systemsmini-grids and Hybrid Systems

Grid extension & Grid Interface

Opportunities….Cost reductions: e.g. for Renewable energy, but also for micropower

Cost of Electricity

1980 1984 1988 1992 1996 20000

20

40

60

80

BiomassGeothermal

WindSolar Thermal

Photovoltaic

L

ife-c

ycle

¢/k

Wh

in 1

994

¢

It’s also about hydrocarbon products

A changing institutional landscape

From:

To:Decentralized, Customer-oriented Service Business in New Market Niches

Monolithic Provider of “Public Service” underSocial & Environment Constraints

Emergence of New Business Models

• From integrated monopolies and few independent power producers to a multiplicity of service providers

• Divisibilities in Supply of Services• IPPs, large or small• Competition among providers• Many types of concessions• Local manufacturing opportunities and other

income generating activities for the energy industry

…and new clients and partnerships

Customers

Central Government

Regional Governments

Municipal Governments

Trade Associations/NGOs

Financial Intermediaries

Local Communities

New Financing Options: Subsidies?

Because welfare gains in terms of:

– benefits of modern energy services

– reduction of cash expenditures on energy

are often much higher than long-term costsFamilies that have electricity have 6 times

the light at lower cost than keroseneCheaper for urban poor to cook with LPG

than wood or charcoal, and cleaner too

The Poor are Willing to Pay

• The poorest spend 1/3 of their disposable cash income for poor quality energy services

• The poor purchase lighting services at 35-45c/kwhr

• Who are the non-payers?

The Poor are part of the Solution: Energy services can provide sustainable income.

Bangladesh: Women in Renewable Energy Innovative pilot

develops & tests community/NGO/ private sector delivery model

10,000 household potential in project area alone

modern energy + employment for local women

Lessons Learned to Date• Traditional grid or network extensions have failed to

deliver sustainable energy services to the poor• Decentralized, modular services with investment from

private sector work,w/ or w/o government incentives• Complex interactive issues are involved, must not be

technology driven• Policy, regulatory, institutional, and financing issues

must be addressed• Fuel substitution with major health and environmental

benefits still too limited• Programs were the poor have participated in design,

management and result monitoring are more sustainable• Energy must work in tandem with other sectors

WHAT DOES THE WORLD BANK GROUP PROPOSE TO DO?

Efficient Markets

Local Communities

Governments

Service Enterprises

Various Institutions

Financing Mechanisms

Biomass

Off -Grid Renewables

Electricity and Gas

Sustainable Energy Services: production and Use

The Global Challenge of delivering sustainable energy services to the poor

Energy Quality

Hydrocarbon Products (Kerosene)

Time

The WBG Energy BusinessRenewal Strategy Framework

Direct Poverty Alleviation

Governance /Private Sector Development

Macro/Fiscal

Stabilization

Environmental & Social

Sustainability

Energy forPoverty Reduction& Econ. Growth

The World Bank Group

Examples

Cote d’Ivoire: The Azito Power Project

Chad - Cameroon - Petroleum Development and Pipeline

Public Sector Management

Regulation and Competition

Social Protection /Participation

Environmental Protection

Credit Risk Mitigation

Finance

Private Transactions

Risk Management

Political Risk Mitigation

Local Communities

PrivateSector

Bilateral & OthermultilateralPrograms

Energy

Direct Poverty Alleviation

Governance/ Private Sector Development

Macro/Fiscal

Stabilization

Environmental Sustainability

Knowledge transaction Capacity BuildingFinancial IntermediationWork with our clients & Partners to:

1. Help the poor directly by – facilitating access to modern fuels and electricity – reducing the cost and improving the quality of energy supplied to low-

income households– ensuring that energy subsidies are targeted at and reach the poor– promoting energy efficient/less polluting end-use technologies for

traditional fuels– creating energy service enterprises run by the poor– supporting energy needed for social services (education, communication,

health…)

Direct Poverty Alleviation

Governance/ Private Sector Development

Macro/Fiscal

Stabilization

Environmental Sustainability

Knowledge transaction Capacity BuildingFinancial IntermediationWork with our clients & Partners to:

Energy

2. Improve macro/fiscal balances by

– rationalizing energy taxes– Fostering private investments to replace public ones – managing risks associated with contingent public liabilities– Helping close loss-making energy entreprises (e.g.coal mines and

oil refineries) and financing restructuring costs that fall on government budgets

– enhancing effective payment by all energy users to eliminate operating subsidies to state-owned enterprises

– improving procurement and marketing of imported and exported energy products

Knowledge transaction Capacity BuildingFinancial IntermediationWork with our clients & Partners to:

Direct Poverty Alleviation

Governance/ Private Sector Development

Environmental Sustainability Energy Macro/

Fiscal Stabilization

3. Promote Good Governance and PSP by

– creating objective, transparent, non-discriminatory legal frameworks and regulatory mechanisms

– introducing and expanding competition and cross-border trade– divesting assets to strategic investors and regulatory markets in

a socially responsible and corruption-free way– catalyzing private investments by liberalizing entry to energy

markets– strengthening the voice of consumers and communities– strengthening local financial institutions to provide long-term

financing for rural energy business

Direct Poverty Alleviation

Governance/ Private Sector Development

Environmental Sustainability

Knowledge transaction Capacity BuildingFinancial IntermediationWork with our clients & Partners to:

Energy

Macro/Fiscal

Stabilization

4. Protect the Environment by – promoting clean transport fuels & switching from coal to gas– facilitating environmentally sustainable extraction, production,

processing, transport and distribution of oil, gas & coal– strengthening environmental management capacity in the energy sector– removing market and regulatory barriers to renewables and energy

efficiency investments for power and also biomass (e.g. improved cooking stoves for the poor)

– reducing gas flaring and facilitating carbon trading and joint investments to reduce GHG emissions

World Bank Group Instruments

• Use of complementarity between institutions: World Bank/IDA, IFC and MIGA

• Advisory Services• Lending Instruments: programmatic lending (rural energy funds, subsidies)• Equity participation, entreprise development• Guarantees• New Initiatives: The Business Partnership for

Development, The Prototype Carbon Fund (2000), The Solar Development Group, the Village Power Partnership

The Village Power Partnership:Powering People, Productivity,and Poverty Reduction: Expected Outcomes

• 30 countries with national-scale RE-based rural development programs

• 300 million people previously unserved with access to modern energy services

• Over 50,000 new community systems installed (schools, hospitals, clinics)

• Documented improvements in productivity, income, environment, and quality of life

• Trained, operational local entrepreneurial base

But…it’s not just about solar home systems!