Philippe Benoit Manager, Energy Unit Latin America and Caribbean Region The World Bank

1. EnergyEfficiency and Sustainable Development: A World Bank Perspective Philippe Benoit Manager, Energy Unit Latin America and Caribbean Region The World Bank October 27, 2009

2. Outline • The Context: Key Energy challenges B. Energy Efficiency to meet the challenges C. What is the WB doing on Energy Efficiency D. What is the WB doing on EE in LAC Region

3. Outline • The Context: Key Energy challenges B. Energy Efficiency to meet the challenges C. What is the WB doing on Energy Efficiency D. What is the WB doing on EE in LAC Region

4. 5 Key Energy Challenges in LAC: • Energy Security • Volatile oil price environment • Inefficient sector enterprises • Climate Change • Access and Affordability and changing economic global situation

5. 1. Energy Security: Supply/Demand Balance • Electricity demand expected to grow . . . but at a slower pace • Concern over availability and cost of financing for investments in electricity • Annual investment of about US$5-10 billion required for related • generation, transmission and distribution -- possibly 50,000 MW needed in next ten years (current capacity: 250,000 MW) • Investment requirements still large under lower demand scenarios

6. 2. Coping with the impact of high and volatile oil prices • Changes in oil prices affect electricity costs (in some cases over US cents 3/kWh per US$10/bbl increase – table below is for $50) • Varying impacts of higher electricity costs on GDP; US$10/bbl increase: • High impact: Jamaica (2.3%), Grenada (1.5%), Nicaragua (1%) • Low impact: Paraguay, Trinidad and Tobago (0%)

7. 3. Inefficient sector enterprises • Poor efficiency of sector enterprises, characterized by: • Lack of technical, operational capacity • Restricted access to funding • Issues re: operation of many public sector enterprises • Concerns re: Regulation of private sector enterprises • Weak regulation and poor institutional capacity

8. Sources of GHGs in LAC Total emissions of CO2 about 1.9 billion tons per annum Sector Total Emissions (bill. Tons) Transport 0.38 Power & Heat 0.30 Industry 0.25 All other sectors 0.37 Other gases 0.60 Total 1.90 Deforestation ~2.0 billion tons per annum 550 million inhabitants, 8.5% of world population, 12% of emissions 4. Climate Change: Emissions

9. 4. Climate change: 10-15 year window of opportunity is closing fast • The world is committed to 2oC warming above the pre-industrial level. Adaptation efforts must be intensified to cope with unavoidable changes. • IPCC estimates that exceeding 2oCwill undermine development prospects. • “Business-as-Usual” is forecast to lead to 6-7oC of warming, at an unprecedented rapid pace. Temperature change during the last ice-age was 8oC over millenniums. • Delaying action reduces development options for mitigation and adaptation and raises their costs. ) Year 9

10. 47 million people without electricity in LAC in Peru in Brazil in Colombia in Haiti in Mexico, and . . . 5. Providing affordable access to electricity However, more people without access in Brazil and Mexico combined than in Haiti, a low income country, given large total populations in these larger MIC countries. 10

11. 6. Implications of economic slowdown for power sector in LAC • Concerns of slowdown on supply side (financing for investments) • Increased stress on utilities and other sector enterprises • But also slowdown on demand for power and other energy sources

12. Outline • The Context: Key Energy challenges B. Energy Efficiency to meet the challenges C. What is the WB doing on Energy Efficiency D. What is the WB doing on EE in LAC Region

13. Rationale for EE Economic growth Poverty reduction Better use of limited resources Energy efficiency Environmental sustainability Energy security

14. What does EE touch? • EE is more than just bulbs . . .

15. What does EE touch? • Focus of EE is often on electricity, but involves other forms of energy. . . • Particularly relevant for industrial uses of energy for heating/combustion • But also in residential areas (notably in colder climates and use of biomass) … • And for cars focus of this discussion will be primarily on electricity

16. EE is a multi-pronged effort… Supply-side EE Demand-side EE Energy Conservation Power generation: plant rehabilitation, IGCC, supercritical boilers, fuel switching, improved O&M, CHP Power T&D: improved transformers, HV lines, insulated conductors, capacitors, improved metering, substation rehabilitation, system optimization District heating: boiler rehabilitation, pre-insulated piping, compensators, pumps, heat exchangers Transport: alternative fuel buses, mass transport systems Residential: consumer awareness programs (e.g., turn-off unused appliances, adjust thermostat) Transport: car pooling, modal shifts in transport Demand-side Management Load Management End-use EE Industrial: energy audits, EE financing, ESCOs, CHP, fuel switching, waste heat recovery, industrial motors/drive systems Buildings: building codes, building retrofits, envelop measures (insulation, windows), lighting, pumping, space/water heating/cooling Residential: building codes, appliance standards, lighting, labeling/consumer education, improved cook stoves Public: street lighting, water pumping Agriculture: irrigation pumping/drip irrigation, EE agricultural processing equipment Transport: Fuel-efficiency standards Time-of-use metering, demand charges, direct load control, demand response programs Energy Efficiency

17. What can EE achieve…. Energy Efficiency ENERGY EFFICIENCY • Resource savings • Reduction of fuel imports • Improvement of affordability • Reduction of GHG emissions • Reduction of other pollutants • Business activity in the area of energy efficiency • Avoided operating costs • Avoided/ delayed capital investments • Avoided tariff subsidy payments EE particularly key in constrained financial/economic context since requires relatively few financial resources

18. EE interventions address LAC’s 5 challenges • Manage demand and increase supply per inputs • Insulate electricity sector from high and volatile fuel (oil) prices • Loss reduction and supply efficiency improvements • Avoided emissions • Improve affordability (more lumens at a lower cost) Energy security Oil price volatility Enterprise Efficiency Climate Change Affordable Access

19. EE supports GHG Mitigation Baseline Emissions 62 Gt BLUE Map Emissions 14 Gt Source: IEA Energy Technology Perspectives 2008

20. EE Supports GHG Mitigation Sources: IEA, McKinsey

21. EE requires relatively less capital than greenfield operations (‘cheapest kWh is the one you don’t produce’) Key in time of limited liquidity EE generates employment benefits But hesitancy to invest limited liquidity in EE operations EE well adapted to challenging Economic Contexts

22. EE key to sustainable development Multiple benefits – financial, economic, climate change Recent increase in EE activities – also repositioning of old activities under EE umbrella But scale-up has arguably been modest compared to potential . . . The Prospects for EE

23. Complexities (e.g., multiplicity of actors) Transaction cost Policy cost Institutions & Market structure Size – lumpiness Tariff effect Accessible finance Technology availability Rebound effects Information gap Obstacles in delivering EE

24. Cheaper Technology alone does not ensure sustained changes in behavior Not just an issue of enough funding: need right size, at right time, and right kind of “accessibility” to finance In addition to enabling policies, need to monitor impacts and adapt program to ensure effectiveness Implementation systems have to be in place (and not just legislation) Need strong supporting institutions/agencies The right “value” of EE should be captured in prices (positive externalities) Tariff subsidies can encourage consumption which undermines or limits positive impacts of EE efforts Challenges moving from Promise to Reality

25. Is EE “boring”? • EE is less appealing than building new power plant • Lacks visibility/appeal • Intangible (e.g., changing management) • Diffuse impact

26. Keys to scaling-up EE • Expanding and implementing regulations • Enhancing information access • Establishing enabling institutions • Creative financing mechanisms • Changing the perception/recognizing benefits • More on energy conservation

27. The next generation of EE projects • Mainstreaming Cogeneration • Improved technologies (LEDs, etc.) • Smart grids • . . .

28. Outline • The Context: Key Energy challenges B. Energy Efficiency to meet the challenges C. What is the WB doing on Energy Efficiency D. What is the WB doing on EE in LAC Region

29. New WBG Energy Strategy and EE • Twin objectives: • improving access and reliability of energy supply, and • facilitating a shift to a more environmentally sustainable energy development path • Tailored approaches to different country circumstances • Effective use of climate finance, with complementary roles of public and private sectors, and innovative blending of various financial products • Renewed attention to incentives for EE, RE, and subsidy/price issues

30. WB Approach to foster EE • POLICY & MARKETS Interventions INVESTMENTS • Rational tariffs/TOU • Subsidies’ removal • Life cycle costing/procurement • EE standards and labels • Building EE codes • Mandatory EE audits • ESCO development • Utility DSM • Credit enhancement (financial mechanisms, EE funds, guarantees, financial intermediation/bundling, etc CTF Incentives IDA/IBRD (investments, financial intermediation, policy lending, AAA/TAP Leveraging Private sector capital GEF Incentives Carbon market (including CPF) Incentives

31. Increased WB Financing for EE World Bank lending on EE has increased from US$ 92 m in FY04 to US$ 1.7 billion in FY09. Over last five years, WBG invested over $4.2 billion in EE.

32. More EE across all WB Regions FY2005-FY2009 (FY2009 inset)

33. Climate Invest. Funds: Working with Other Donors The CIF are a new source of funding through which the MDBs will provide additional grants and concessional financing to developing countries to address urgent climate change challenges. Donors have pledged over US$6.1 billion Clean Technology Fund ~ $5.2 bill. Strategic Climate Fund ~ $1 bill. • Finance scale-up demonstrations, deployment, and transfer of low carbon technologies • Grants, IDA-like concessional loans, guarantees • Supports programs involving: • Power Sector (Renewable Energy and highly efficient technologies to reduce carbon intensity) • Transport Sector (Efficiency and modal shifts) • Energy Efficiency (Buildings, industry, and agriculture) • Targeted programs with dedicated funds to provide financing to pilot new approaches for climate change challenges with potential for scale up • First program for Pilot Program for Climate Resilience • Other potential programs include Forest Investment Program • And a Program for Scaling Up Renewable Energy in Low Income Countries

34. EE Finance in Clean Technology Fund Three investmentplans endorsed with a total envelope of US$1.05 billion, leveraging on average ten times CTF funds Energy Efficiency - Replacing inefficient lighting and appliances; expected emissions reductions of 2 million tons of CO2 per year Mexico Renewable Energy and Energy Efficiency - Promoting private sector development through credit lines to local development banks Proposed CTF » $250 million leverages » 2.1 billion Turkey

35. EE Financing through Carbon Markets • Kyoto Funds under implementation with 10 funds and facilities worth $2.5 billion in capital can be tapped to complement EE investments and make projects more attractive financially • Partnership of sellers and buyers of emission reductions to support implementation of market mechanisms post 2012 • Carbon Asset Development Fund (CADF) operational at €7 million (Spain, Norway and European Commission) • Carbon Fund currently at €100 million (operational target at €200 million) • Programs under preparation in Brazil, China, Indonesia, Mexico, Morocco, and Vietnam; more under development • New technology to be explored, e.g. carbon capture and storage Carbon Partnership Facility (CPF)

36. Outline • The Context: Key Energy challenges B. Energy Efficiency to meet the challenges C. What is the WB doing on Energy Efficiency D. What is the WB doing on EE in LAC Region

37. EE: a core part of WB work in LAC through… Four forms of WB Support to EE: • Investment projects: supply and demand-side • Technical assistance • Policy Support Financing • Analytic work (studies, etc.) 37

38. WB Support: Investment Projects • Dominican Republic Electricity Rehabilitation Project(US$ 40 IBRD) – to reduce losses in the distribution network and to improve reliability and quality of service • Supply-side intervention • Working closely with IDB

39. WB Support: Investment Projects • Mexico Efficient Lighting & Appliances Project(US$ 135 IBRD, US$ 50 CTF, US$ 7 GEF, US$ 12 CF, US$ 7 GoM, US$ 25 NAFIN) for transformational replacement of IBs by CFLs, appliances replacement program and municipal street lighting. • Demand-side (end-user) intervention • To include Carbon Finance and CTF, and possibly GEF

40. WB Support: Investment Projects • Brazil Utility Rehabilitation Project ($500 M IBRD loan) aims to improve the efficiency of 5 distribution companies by reducing technical and other losses • Large-scale operation • Supply-side intervention 40

41. WB Support: Investment/TA Projects • Honduras Power Sector Efficiency Enhancement Project(US$ 30 IDA – ‘09) seeks tostrengthen the distribution network, reduce losses, and increase collected revenue of the Government-owned Honduran electricity company Empresa Nacional de Energía Eléctrica (ENEE). • Supply-side intervention

42. WB Support: Investment/TA Projects • Argentina Energy Efficiency Project(US$ 15 GEF grant) to promote the increased use of CFLs and the expansion of energy services companies to advise on EE interventions • Demand-side intervention 42

43. WB Support: Investment/TA Projects • Haiti Electricity Project (US$ 9 grant) that seeks to reduce losses in the national electricity utility. • Combined with technical assistance to strengthen the management of the utility 43

44. WB Support: Investment/TA Projects • Uruguay Energy Efficiency Project (US$ 6.7 m GEF grant) to increase the demand for and competitive supply of energy efficient goods and services. • Includes significant effort to promote energy conservation • Targets all consumers, including the young • Targets changing behaviors

45. WB Policy Support Financing • Mexico Green Growth Development Policy Loan (US$ 1.5 billion) supports Mexico’s regulatory and institutional efforts to promote cleaner growth, including through its new Energy Efficiency Law and related regulations

46. WB Support: Analytic/Studies • Mexico Low – carbon study identifies key sectors and measures where themanagement of the growth of electricity demand through EE measures in the end-use sectors will be critical to the countries’ GHG emissions mitigation strategy, as well as greater use of cogeneration opportunities 46

47. WB Support: Analytic/Studies • Brazil Low – carbon study identifies key sectors and measures where themanagement of the growth of energy demand through EE measures in the end-use sectors will be critical to the countries’ GHG emissions mitigation strategy. 47

48. WB Support: Analytic/Studies • Brazil EE Study (BREES) to assist the Government of Brazil to evaluate and prioritize energy efficiency policies and interventions in Brazil, including in public buildings • Brazil has important EE program 48

49. WB Support: Analytic/Studies • Central America Energy Study proposes a menu of short-term options, including demand-side and supply side EE in the face of electricity shortages • EE important for Central America and Caribbean regions given heavy reliance on oil imports 49

50. WB EE Projects in other regions:China & India • China Energy Efficiency Financing Project (IBRD-$200 million and GEF- $13.5 million) in FY2008 and $12.9 million in Carbon Finance to help switchover to more EE coke dry quenching process in Baotou Iron and Steel Industry. • India Chiller Energy Efficiency Project (CEEP): accelerate replacement of centrifugal chillers with efficient non- CFC based centrifugal chillers to promote wide-scale deployment of EE & contribute to India’s commitment under the Montreal Protocol to completely phase out the new demand for ozone-depleting CFCs by 2010, and reduce the demand for recycled or reclaimed CFCs. Includes GEF, MLF and carbon finance/CDM of $5.85 million,