Delivering Sustainable Energy Services for Poverty Reduction and Economic Growth

1. 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

2. 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

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

4. Energy rich-Energy Poor? Limited correlation between access to modern energy services and natural endowment of primary energy resources Red 3 - 33% Green 33 - 66% Blue >66%

5. THE WORLD BANK GROUP 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

6. And yet we know that Energy is key for Growth and for Human Development Energy is Key to Human Development: safer health services, Higher quality education, Access to information Energy is important for growth and energy-based innovation is central to productivity growth 10,000 1,000 Commercial Energy/Capita Energy/Capita 100 10 Energy Consumed per Capita Best-Fit Trendline Per Capita Income Human Development Index (HDI)

7. Energy is therefore key for Poverty Eradication: many dimensions Health Education Enterprise Productivity/ Income Gen. Human Productivity Ethiopia Rural India Rural Bangladesh Urban RuralAfrica No access to electricity Emissions Unreliable electricity supply No access to modern fuels No access to modern fuels Women spend an hour per day gathering firewood Lead & Particulates Ingestion Less time to study Firms need to buy back-up generators High indoor air pollution Reduced access to info/education Small enterprises cannot afford cost High rate of Respiratory Illnesses & Lower IQs Low educational achievement & labor particip. High rate of child mortality Low labor participation rate Low growth & low labor demand

8. 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)

9. 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

10. 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

11. THE WORLD BANK GROUP 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.

12. THE FACTORS of CHANGE

13. The energy service evolution Consumptive Uses (Light, Radio, TV) Socially Productive & Community Uses: Health, Education,Water, Transport Economically Productive Uses (Handicrafts, ICT, Industries)

14. TraditionalBiomassUtilization Not a Single Technology

15. Many Technological Options: mini-grids and Hybrid Systems Grid extension & Grid Interface

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

17. It’s also about hydrocarbon products

18. A changing institutional landscape Monolithic Provider of “Public Service” under Social & Environment Constraints From: Decentralized, Customer-oriented Service Business in New Market Niches To:

19. 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

20. …and new clients and partnerships Central Government Regional Governments Municipal Governments Trade Associations/NGOs Financial Intermediaries Local Communities Customers

21. 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 costs • Families that have electricity have 6 times the light at lower cost than kerosene • Cheaper for urban poor to cook with LPG than wood or charcoal, and cleaner too

22. 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?

23. 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

24. 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

25. WHAT DOES THE WORLD BANK GROUP PROPOSE TO DO?

26. The Global Challenge of delivering sustainable energy services to the poor Energy Quality Local Communities Governments Service Enterprises Sustainable Energy Services: production and Use Various Institutions Efficient Markets Financing Mechanisms Electricity and Gas Off -Grid Renewables Hydrocarbon Products (Kerosene) Biomass Time

27. Direct Poverty Alleviation Macro/ Fiscal Stabilization Environmental & Social Sustainability Governance /Private Sector Development The WBG Energy BusinessRenewal Strategy Framework Energy for Poverty Reduction & Econ. Growth

28. Public Sector Management Regulation and Competition Social Protection /Participation Environmental Protection Credit Risk Mitigation Finance Private Transactions Risk Management Political Risk Mitigation Examples Cote d’Ivoire: The Azito Power Project Chad - Cameroon - Petroleum Development and Pipeline The World Bank Group Private Sector Local Communities Bilateral & Other multilateral Programs

29. Direct Poverty Alleviation Macro/ Fiscal Stabilization Environmental Sustainability Governance/ Private Sector Development • 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…) Knowledge transaction Capacity BuildingFinancial IntermediationWork with our clients & Partners to: Energy

30. Direct Poverty Alleviation Environmental Sustainability Macro/ Fiscal Stabilization Governance/ Private Sector Development • 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: Energy

31. Direct Poverty Alleviation Environmental Sustainability Macro/ Fiscal Stabilization Governance/ Private Sector Development • 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 Knowledge transaction Capacity BuildingFinancial IntermediationWork with our clients & Partners to: Energy

32. Direct Poverty Alleviation Macro/ Fiscal Stabilization Environmental Sustainability Governance/ Private Sector Development • 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 Knowledge transaction Capacity BuildingFinancial IntermediationWork with our clients & Partners to: Energy

33. 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

34. 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

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