Low Carbon Energy & Developing Countries DFID Perspective & Research Priorities

1. Low Carbon Energy & Developing CountriesDFID Perspective & Research Priorities

2. Scale of the challenge • Lack of reliable power is already a critical constraint to growth in many developing countries • 1.3 billion poor people do not have access to electricity • Over the next decade the world will be forced to reassess its reliance on cheap fossil fuels, with many countries facing increasingly stiff competition • Another 3 billion middle class consumers by 2030 • Increasing interdependence of food production with fossil fuels can rapidly transmit price shocks Scale of the challenge

3. Opportunities and Risks • Reducing emissions is much cheaper than costs of climate impacts • But energy use and GDP growth are highly correlated • Opportunities: annual clean energy investment overtaking fossil fuels • Risks: high carbon lock-in could threaten future growth Opportunities and risks

4. New opportunities: clean energy is now mainstream Opportunities and risks

5. New opportunities: clean energy is now mainstream Opportunities and risks

6. New risks: high carbon lock-in Opportunities and risks

7. Focus on tackling market failures • Private sector investment is crucial • But market failures and perverse incentives act as a barrier • Public funding can be used to unlock opportunities, lever investment, raise awareness and build regulatory capacity Tackling market failures

8. Identifying market failures: low carbon development People without access to electricity: Africa = 587m Asia = 799m People relying on biomass for cooking: Africa = 657m Asia = 1,937m Tackling market failures

9. Investment decisions: private ‘optimum’ is fossil fuels Exploring market and government failures

10. Access to capital: real and perceived risks • Uncertain or restrictive regulatory environment • Business models are novel • Technologies are poorly understood • Servicing and maintenance concerns • Supply chains undeveloped • Lack of a (reliable) carbon price Exploring market and government failures

11. Perverse incentives: Fossil Fuel subsidies create uneven playing field (2010) Fossil Fuel $409bn Renewables $66bn Exploring market and government failures

12. Innovation: valleys of death Source: Sagar A (2011) Exploring market and government failures

13. Case study: Results-Based Financing for Renewables 20 Safaricom sites providing power to street lighting, schools, clinics & businesses Charging station for handsets Tackling market failures

14. Case study: LED lighting AMC Tackling market failures

15. Case study: Green Africa Power (GAP) Tackling market failures

16. Case study: Climate Public-Private Partnership (CP3) Waste management Clean and renewable energy assets Energy efficiency Water treatment Transport Land Use Tackling market failures

17. Case study: Energy Access Incubator Tackling market failures

18. Knowledge: filling the gap Opportunities for UK action

19. Focus on DFID’s energy research pipeline… Opportunities for UK action

20. Research Priorities…?…and how to best to fill the gapsLooking to scale up from annual spend of < £1m to ~ £12m per year by 2013/14. Initial framing of possible energy research priorities…

21. Energy System Map / Energy Chains Use it Transform it Source it

22. 1. (Energy for) Productive Power / Wealth Creation Use it Use by informal sector Business models for market centres Growth impact of releasing energy constraint Barriers to energy efficiency uptake Transform it Low carbon opportunities, jobs, etc. Decentralised power Cost effectiveness cf. coal Spacial analysis Efficient conversion Models to attract PS financing Clean energy lending in MDBs Cleaner coal? Impacts of changing price structure CCS (prob not) Economics of Low Carbon Development Source it Futures - Impact on growth, etc. when hit energy resource limits Alternative Biofuels Rise of China How to increase clean electrification in SSA Implications of Domestic fuel substitution from biofuels Large hydro in SSA? Resource mapping for renewables (esp SSA: wind, geothermal, small hydro, solar)

23. 2. (Energy for) Households / Domestic use Use it Major barriers to increased use of modern energy services? (sysRQ) Understanding demand for off-grid Going to scale Specific clean energy product development (with PS) Willingness to pay Affordable access for poorer people Clean cook stoves initiative? Evidence of development, health, etc. impact Innovation models – what works at scale? Evidence on AMC, challenge funds, etc. Transform it PISCES - Bioenergy Models from other sectors (e.g. mobile phones) Tackling market failures Who gets connected – industry or poor? Service model linked to mobile masts Political economy analysis / drivers of change Source it Cooking Biofuels Charcoal policies – what works? Biobriquettes Linking supply side resource analysis with demand side energy service analysis

24. Priorities Windows of opportunity (getting on with it) Other Strategic/Business Cases: Clean Energy Research

25. Low Carbon Energy Research - Focus 1. Low Carbon Energy for Growth & Wealth Creation • Solid bank of evidence on what works and what doesn’t in driving increased access to clean energy, a critical constraint to growth for industry and households, especially in Africa. A package of research focussed on catalysing increased investments in clean energy for wealth creation, including energy for transport. 2. Scaling Household Access & Private Sector Innovation • Package of research programmes that stimulate innovation (focussing on the upstream ideas/invention end of the innovation chain) and strengthen the evidence base of private sector-led models to deliver sustainable domestic access to low carbon energy, at scale. 3. Future Energy Questions • Stimulate thinking on the future energy for development research agenda - to initiate debate, identify key areas for investigation and prioritise the related research questions. Including our understanding of the impacts and policy/technology options for developing countries in response to energy resource scarcity.

26. Mapping across to RED priorities… Technologies Build Capacity Policies Under. Context Bioenergy/biofuels ESMAP Innovation Access to modern energy services Innovation Access & Innovation……..…..….Growth & Wealth Creation PISCES M2M EBCC

27. Clean Energy Research Low Carbon Energy for Growth & Wealth Creation Bioenergy & Biofuels for Growth & Trade • Biofuels/bioenergy reality check; doing first gen biofuels in a more sustainable way; potential muliti-win (food/fuel/fodder/fertiliser); and bioenergy policy/regulatory environment. Low Carbon Energy for Wealth Creation (Access to Modern Energy Services) • Focussed on research around off-grid, decentralised mini-grids, but also includes flexibility to pick up a few critical other priority energy research questions. Scaling Household Energy Access & Private Sector Innovation Clean cookstoves • Consider building on evidence base after end of 18 months - if Global Alliance research elements have started well, we could support more critical research through this route.. Innovation • Contribution to a low carbon innovation prize (focussing on the upstream ideas/invention end of innovation chain) a package of activities or international collaborative innovation facility. Future Energy Questions Stimulate thinking on future energy questions (including energy resource scarcity)

28. DFID’s energy research pipeline… 1. Bioenergy & Biofuels for Growth & Trade Opportunities for UK action

29. On bioenergy & biofuels… • How to support a substantial package of research on biofuels and bioenergy for growth and trade, which genuinely informs the debate and avoids getting hijacked by either extreme? • Overall balance/specific areas to focus for developing countries: e.g. doing first generation biofuels in a more sustainable way vs. third+ generation/algae/etc.; small-scale growers; local market vs export; choices & trade-offs; potential multi-win (food/fuel/fodder/fertiliser); bioenergy policy and regulatory environment; etc…

30. Bioenergy/Biofuels System Map (for mapping research) Inputs Crops/Seeds Land Fertiliser/Pest./Energy Climate Trad Biomass & Forests Grow it / Sell it Local Livelihoods Small/Large Scale Local Markets Jobs Private Sector Sell it / Use it Transport Fuels Power Heat Other Products Move it / Trade it Direct uses of Biomass    Biofuels for Local/Regional Markets Biofuels for Export/Trade Distribution Infrastructure Process it / Refine it Refining Plant Oils (Biodiesel) Fermenting Sugar & Starch (Bioethanol) Local scale

31. Bioenergy/Biofuels System Map (for mapping research) Inputs Crops/Seeds Land Fertiliser/Pest./Energy Climate Trad Biomass & Forests Grow it / Sell it Local Livelihoods Small/Large Scale Local Markets Jobs Private Sector Sell it / Use it Transport Fuels Power Heat Other Products Move it / Trade it Direct uses of Biomass    Biofuels for Local/Regional Markets Biofuels for Export/Trade Distribution Infrastructure Process it / Refine it Refining Plant Oils (Biodiesel) Fermenting Sugar & Starch (Bioethanol) Local scale Cross Cutting Choices & Trade-offs / Sustainability (social, environmental, economic) & Impacts (incl. food, GHG, jobs, growth, etc ) …  Improving Efficiencies & Yields / Identifying Potential Resources …  Viewpoint? Export Market / Local Market / Energy Security / Future trends …  Institutions / Policies / Capacity / Who benefits … 

32. < Rich country focus Poor country focus > Bioenergy/Biofuels System Map (for mapping research) Inputs Crops/Seeds Land Fertiliser/Pest./Energy Climate Trad Biomass & Forests Grow it / Sell it Local Livelihoods Small/Large Scale Local Markets Jobs Private Sector Sell it / Use it Transport Fuels Power Heat Other Products Move it / Trade it Direct uses of Biomass    Biofuels for Local/Regional Markets Biofuels for Export/Trade Distribution Infrastructure Process it / Refine it Refining Plant Oils (Biodiesel) Fermenting Sugar & Starch (Bioethanol) Local scale Cross cutting Choices & Trade-offs / Sustainability (social, environmental, economic) & Impacts (incl. food, GHG, jobs, growth, etc ) …  Improving Efficiencies & Yields / Identifying Potential Resources …  Viewpoint? Export Market / Local Market / Energy Security / Future trends …  Institutions / Policies / Capacity / Who benefits …  Transport Fuel ~ $ 80 b Power + Heat ~ $ 65 b Chemicals ~ $ 6 b ~ $15 b ~ $ 90 b ~ $ 30 b ~ $ 10 b Value Chain Revenue Potential (WEF 2020)

33. < Rich country focus Poor country focus > Bioenergy/Biofuels System Map (for mapping research) Inputs Crops/Seeds 2nd & 3rd gen Algae, etc.. Food + Fuel crops Best suited local crops Land R LUC + ILUC Map resource potential ‘Marginal’ land? Fertiliser/Pest./Energy GHG balance P Climate R Trends/Resilience/Water Trad Biomass & Forests Forestry wastes Deforestation Firewood & Charcoal Wastes (manure & crop) Grow it / Sell it Local Livelihoods Diversification Livelihood Assets + Livelihood Strategies Small/Large Scale R P P Local Markets R P Jobs R P Private Sector R P Sell it / Use it Transport Fuels Vehicles: Biodiesel Vehicles: Bioethanol Aviation Shipping Blending FF price shocks P Power RR P Heat Industrial heating P Domestic Cooking Biogas Other Products Chemicals, etc. P Move it / Trade it Direct uses of Biomass    Bulky biomass for power generation Biomass for local markets P Biofuels for Local/Regional Markets R P P Biofuels for Export/Trade R Exports P Distribution Infrastructure R P Process it / Refine it Refining Plant Oils (Biodiesel) R P Fermenting Sugar & Starch (Bioethanol) Improving Effic. P Local scale R Local processing cap for bioD/bioE Biogas digester Cross Cutting Choices & Trade-offs / Sustainability (social, environmental, economic) & Impacts (incl. food, GHG, jobs, growth, etc ) …  Improving Efficiencies & Yields / Identifying Potential Resources …  Viewpoint? Export Market / Local Market / Energy Security / Future trends …  Institutions / Policies / Capacity / Who benefits …  Transport Fuel ~ $ 80 b Power + Heat ~ $ 65 b Chemicals ~ $ 6 b ~ $15 b ~ $ 90 b ~ $ 30 b ~ $ 10 b Value Chain Revenue Potential (WEF 2020)

34. DFID’s energy research pipeline… 2. Low Carbon Energy for Wealth Creation ‘Access to Modern Energy Services’ Opportunities for UK action

35. Low Carbon Energy for Wealth Creation ‘Access to Modern Energy Services’ Use it Transform it Source it

36. Systematic Review: Barriers to increased use of modern energy services? • What are the major barriers? • Are interventions to overcome these effective? - Economic - Technical - Political & Institutional - Cultural & Social

37. Low Carbon Energy for Wealth Creation ‘Access to Modern Energy Services’ Households & Communities Urban & National Use it Transform it Source it

38. On Solar… • Major investors’ interest in large scale solar in developing countries - what research is needed to maximise the development impact from these investments? • Implications of the falling cost of PV? How can Africa benefit; and do so quickly and at scale? • What role could UK research play in a major UK ‘solar initiative’ for Africa?

39. DFID’s energy research pipeline… 3. Clean Cookstoves Opportunities for UK action

41. DFID’s energy research pipeline… 4. Stimulating Innovation Opportunities for UK action

42. What is climate technology innovation? • DFID & Innovation (SoS, PSD, Innovation Hub, DPC, etc.) • DPC (Nov 2011): “Successful innovation is the creation and implementation of new or improved processes, products, services, methods of delivery or other aspects of the business model that result in significant improvements in impact, outcomes, efficiency, effectiveness or quality.” • SoS (Beyond Aid, Nov 2011): “…we’re spearheading innovation in clean energy and in developing the technology that will allow poorer countries to adapt to floods, droughts and other climatic events.”

43. What is climate technology innovation (2)? Who is innovating out there? What? • New, breakthrough technologies with global benefits; • Develop and deploy new technologies for developing country needs (with no obvious need in developed countries); • Local capacity to adapt and modify currently available technologies for local markets.

44. What is DFID’s response? • Climate Innovation Centres: • India, Kenya, Ethiopia, Vietnam, South Africa, Ghana • Global, collaborative R&D: • Linking developed and developing country private sector and academics/researchers • Innovation Prizes: • Do they work? VFM? • @ Large scale (e.g. X Prize, Grand Challenges, etc.) • @ Smaller scale: Incremental + local/national competitions

45. Innovation prizes • Upstream R&D, idea generation… • …through to deployment and diffusion of ideas. • Country office experience: DFID-Caribbean

46. Research need: deployment models (social/ financial) RESEARCH CALLS Prizes Prizes Research need: tech R&D Flexible fund: to scale/support local innovation already happening - find and finance Innovation Exploring market and government failures

47. RED Climate Technology & Innovation Support Package a. Innovation prizes – to focus on both upstream idea / technology generation and downstream technology deployment. b. Flexible innovation fund – to ‘find’ innovators (not via competitions/prizes, but through networks, interest groups) and fund interesting, risky ideas. c. Research grants – for various specific research questions on innovation (both the development of new technologies and the deployment models for available technologies) to be addressed. d. Humanitarian Response Technologies: Innovation Challenges – £5m to proactively catalyse innovative technologies for non food items (NFIs) in humanitarian responses (including WASH technologies).