Energy for Prosperity - Islamic Development Bank [PDF]

10 downloads 264 Views 470KB Size Report
exploitation of indigenous as well as renewable energy sources. .... (ii) Key Strategic Thrust Two on Alleviate Poverty, where lack of access to modern energy is.
Energy for Prosperity

Policy for the Transition 1434 – 1438H (2013 – 2017G)

Acronyms and Abbreviations AfDB

African Development Bank

MC

Member Country

AGECC

Group on Energy and Climate Change (UN)

MCPS

Member Country Partnership Strategy

AsDB

Asian Development Bank

MDG

Millennium Development Goal

ASTAE

Asia Alternative Energy Program

MENA

Middle East and North Africa

CAAG

Compounded average annual growth rate

OMVG

Organisation pour la Mise en Valeur du fleuve Sénégal

CIS

Commonwealth of Independent States

OMVS

Organisation pour la Mise en Valeur du fleuve Gambie

CO2 CSP

Carbon dioxide

ppm PPP

Parts per million

EBRD

R/P

Resource/production ratio

EC

European Bank for Reconstruction and Development European Community

RE

Renewable energy

EE

Energy efficiency

RTA

Reimbursable technical assistance

EIA

U.S. Energy Information Administration

SSA

Sub-Saharan Africa

EISAR

Environmental impact and social assessment report Environmental social impact study

T&D

Transmission and distribution

TA

Technical assistance

UAE

United Arab Emirates

FS

Energy Sector Management Assistance Program Feasibility study

USSR

Union of Soviet Socialist Republics

GDP IDB

Gross domestic product Islamic Development Bank

WAPP WBG

West Africa Power Pool World Bank Group

IEA

International Energy Agency

WEO

World Energy Outlook

LDMC

Least developed member country

ESIS ESMAP

Concentrated solar power

Public-Private Partnership

Page 2 of 13

Key Messages The Energy Sector Policy aims at providing a firm basis for future IDB interventions in the energy sector, in line with the main thrusts and priorities set by the IDB Vision 1440H. The Policy is dictated by a changing global energy landscape characterized by a growing sense of energy insecurity, increased energy inequality and local and global environmental concerns, but also hopes and promises that technological advances would ease the transition towards a more sustainable energy development. Aligning the IDB’s energy practice with the IDB Vision 1440H will require (a) shifting to a new paradigm with increased focus on energy poverty, sustainable, reliable and affordable energy supply, and knowledge services; and (b) developing more robust and results-oriented operational policies and procedures focused on impact rather than outputs. Building on recognized strengths of the IDB in its energy practice will help to further consolidate the momentous scale up of the Bank’s portfolio experienced in recent years. The IDB’s support for sustainable energy development in its Member Countries will be based on sound economic, social and environmental policies and will focus on the rational use of energy and the exploitation of indigenous as well as renewable energy sources. A key element of the future thrust of the IDB energy policy will be to reduce the rising energy inequality. The Policy will be enabled and the transition shortened by establishing partnerships to develop a strong knowledge base, promoting regional cooperation, especially in the areas of renewables, and facilitating increased private sector involvement given that public financing is often not sufficient to meet the investment required to achieve energy prosperity. The IDB’s contribution in the transformation of its Member Countries’ energy situation hinges on several prerequisites, the most important one being an increased availability of concessional funds. In addition, fostering of partnerships and devising innovative financing schemes, as well as developing sound and well-coordinated internal processes and procedures and optimization of the Bank’s staff resources and skills are some of the key factors that can help the achievement of the Policy objectives.

Page 3 of 13

Introduction Global Context IDB’s energy practice is embarking on a transformational journey in a global energy landscape that is characterized by a growing sense of energy insecurity, increased energy inequality and local and global environmental concerns, but also hopes and promises that technological advances would ease the transition towards a more sustainable development. The world energy scene is going through an unprecedented change. Four major issues are of high relevance to this policy: (a) volatility of prices of primary energy; (b) heightened environmental concerns; (c) energy security and safety issues; and (d) increasing energy inequality. The worries about volatility of energy prices have been a constant for more than three decades and are likely to remain in the near future due to several factors. Persisting geopolitical uncertainties in several energy producing regions as well as accidents and natural disasters that may affect local and regional energy supply can only add to the worries about the global energy security. While major supply disruptions are not very likely, primary energy prices are forecast to remain high due to such factors thus underlining the need for exploiting domestic and renewable energy sources for an enhanced energy security. The more alarming issue is the growing concerns over climate change and associated decision paralysis in the international community that characterized the international conferences of Copenhagen (2010), Durban (2011) and Doha (2012) despite the drastic warnings that efforts deployed to contain carbon emissions are commendable but insufficient to limit the global temperature increase to two degrees centigrade which is necessary for preventing an irreversible damage to the planet. Finally, energy inequality is becoming the most disturbing aspect of the global energy landscape. The lack of access to modern energy is hampering achievement of the Millennium Development Goals (MDGs) in the poorest countries. The situation is alarming and has attracted the attention of the UN Secretary-General who started a global initiative on “Sustainable Energy for All” that targets, among others, universal access to modern energy by 2030. These changes combined with the IDB’s aspiration to align its rapidly growing energy portfolio (see Figure) with the 1440H Vision have led to the review of the Bank’s energy sector participation to assist member countries (MCs) in Page 4 of 13

adapting to the new energy landscape. The IDB’s Energy Policy of transition for the period 1434-38H entitled “Energy for Prosperity”, is a step toward ensuring that the energy sector effectively contributes to the achievement of the IDB Vision 1440H.

The Policy Development Process Policy development process is lengthy and complex. At the first stage, a Technical Paper has been developed, which was a product of extensive fact-finding and technical analysis process and acted as a background document covering in-depth discussion on the underlying principles and priorities of the Policy at the Bank level. At the second stage, the Policy Brief was prepared which contained key policy recommendations supported by the underlying analysis that are extracted from the Technical Paper. Consultations on these policy recommendations ensured that the subject matter has been thoroughly analyzed and the outcomes are coherent, implementable and in line with other IDB policies. This Energy Sector Policy Paper, the final product of the overall process, identifies the IDB’s policy choices in supporting energy sector projects. The Paper is of generic nature that will eventually lead to more detailed project development planning tailor-made to the peculiarities and specific needs of individual MC’s (including, energy sector programming within MCPS) or regional energy initiatives based on a policy implementation program. At every stage of the policy development process, several rounds of internal and external consultations have been conducted in a transparent and inclusive manner to ensure a high quality and consistency of the outcomes.

Energy Scene in the IDB Member Countries Some of the IDB MCs are endowed with indigenous energy resources: About two thirds of global conventional oil and gas reserves are concentrated in few IDB MCs, mainly in the Middle East, Asia-Europe and North Africa, though most MCs have negligible or no oil and gas reserves at all. Limited coal reserves are concentrated mainly in CIS MCs and partly in South East Asia. Hydro and solar energy have high potential, but so far under-exploited. IDB MCs have 14 percent of the world’s hydro potential but they have only 7 percent of the global installed hydropower capacity. RE potential is not fully assessed, but it is recognized that solar energy

Page 5 of 13

potential in the region is among the highest in the world with major concentration in Middle East, North Africa, and some SSA MCs.1 Low sustainable energy development but high level of consumption: Primary energy consumption in IDB MCs grew annually at 4 percent in the last 10 years, which is about twice the world average. The consumption has been heavily dominated by fossil fuels while hydropower, geothermal and other RE technologies all together account for less than 3 percent of the total consumption. Energy consumption per capita in 2010 was above the world average only in the Middle East and CIS regions. IDB MCs’ primary energy consumption to 2030 is expected to grow 1.6 times faster than global growth rate (highest in Asia-Europe and the Middle East). IDB MCs face energy scarcity on the one hand and wasteful use of energy on the other: Access to modern energy is highly differentiated by region in IDB MCs with an average rate of 63 percent2, 11 percent points lower than the global average while SSA MCs had an even lower access rate – less than 40 percent. In SSA, there are countries with rural access rate as low as 1 percent.

Energy intensities of IDB MCs were on average more than twice the global numbers, largely driven by wasteful use of energy where, in many instances, low-price policy is not much helpful to effectively manage ever-growing domestic energy demand. While per capita carbon emissions by IDB MCs are nearly half the global average, they have been growing at a higher rate than the global average3.

1

Based mainly on two authoritative data sources: the International Energy Agency (IEA) and the US Energy Information Administration (EIA), which were revised to ensure consistency and complemented by other sources, when data required for the analyses were missing from both. 2 in 2009 3 2008 data Page 6 of 13

Rationale: A Transitional Policy Aligned with the IDB Vision The IDB Vision 1440H stipulates that: “By the Year 1440H (2019G) IDB shall have become a world-class development bank, inspired by Islamic principles, that has helped significantly transform the landscape of comprehensive human development in the Muslim world and helped restore its dignity.” Aligning the IDB’s energy practice with the 1440H Vision and global energy trends will require: (a) shifting to a New Paradigm with increased focus on energy poverty (people centric and development focus); sustainable, reliable and affordable energy supply (inclusive and sustainable development); and knowledge enhancement and innovation; and (b) developing more robust and results-oriented operational policies and procedures that are focused on outcomes rather than merely outputs. Four of the nine Key Strategic Thrusts of the Vision are directly relevant to the objectives of the subject policy: Key Strategic Thrust One on Reform IDB, which advocates IDB’s transformation into a knowledge institution. (ii) Key Strategic Thrust Two on Alleviate Poverty, where lack of access to modern energy is considered one of the major obstacles to achievement of the MDGs. (iii) Key Strategic Thrust Five on Prosper the People that encourages sustainable socioeconomic development of MCs. (iv) Key Strategic Thrust Eight on Regional Integration, which promotes regional integration to take advantage of synergies among MCs and share successful experiences to disseminate knowledge. (i)

Page 7 of 13

The Policy for Transition The Energy Sector Policy 1434-38H is envisaged to provide necessary transition for the alignment of energy projects portfolio with the priorities of the IDB Vision 1440H:  IDB’s efforts to “Alleviate Poverty” will get a boost if energy sector interventions are further scaled-up through mobilization of innovative and affordable financing options.  Supporting greater integration of sustainable energy options into MCs’ energy sector development in line with the objective of “Prosper the People” is essential for socioeconomic development of MCs in a sustainable manner (from economic, environmental and social perspectives).  An enhanced "Regional Integration” in energy is achievable through identification of and participation in more regional projects, with co-financing partners, for sharing of resources and their benefits among participating countries.  In line with the principle of “Reforming IDB”, the transformation into a knowledge institution at a more rapid pace, particularly through deeper engagements with external knowledge-based institutions, will enable further widening of the scope of Bank’s activities to impart sector knowledge in its constituency. The Policy aims to make a gradual transition in the energy sector portfolio of the Bank so that it is eventually synchronized with the overall goal of poverty reduction and (sector) knowledge enhancement. In parallel, efforts will be launched to strengthen the financial, human and knowledge resources of the Bank which is a prerequisite for bringing about any transformation in the energy sectors of MCs. Accordingly, IDB will initiate fundamental policy changes and operational actions, in line with the fundamental, four pillars and enablers of the IDB’s Energy Policy (see Figure), as further described below.

Page 8 of 13

Build on Recognized Strengths… With Improved Selectivity Building on recognized strengths in energy practice, particularly in the areas of power generation and transmission/distribution, is a must to consolidate the momentous scale up of the portfolio experienced in recent years. This will help to avoid any major disruption in the on-going operations at the same time strengthen the projects portfolio, a prerequisite for a deeper engagement and policy dialog with MCs. At the same time, IDB’s interventions will be more selective to bring about a balanced allocation of resources among the different areas viz.: Conventional Power Generation: Conventional power projects are necessary inasmuch as they contribute to improved energy security and provide a wide segment of population with greater access to modern energy. All efforts will be made to use cleanest commercially available technology options for increased technical and environmental performance and optimized utilization of overall energy sources. Hydropower Generation: As several countries have significant untapped potentials, hydropower will continue to receive attention during the transition period to further green the portfolio. Project selection will take into account the potential of cross-border trade of electricity within sound regional cooperation frameworks. Multi-purpose schemes that offer simultaneous benefits for agriculture, irrigation and disaster protection will receive good attention. The untapped potential for small-scale hydropower capacity will be further exploited by replication/adaptation of innovative models to promote off-grid as well as on-grid rural electrification. Nuclear Power Generation: While the public concerns relating to nuclear safety, nuclear proliferation, and management of nuclear waste were heightened in the aftermath of the recent nuclear incident in Japan, several MCs are exploring nuclear options for electricity generation. As IDB has neither the skills nor the financial depth to be involved in such projects, it will not pursue nuclear energy projects in the near term. Power Transmission and Distribution: Support for the development of new grid infrastructure and rehabilitation/extension of existing one will remain indispensable to avoid bottlenecks and high losses and for bringing modern energy to new areas. Extending support to new operational areas, such as, improvement of operational efficiency of grids and financial performance of power utilities, will be given special consideration in project selection. Cross-border interconnections at both transmission and distribution levels will be promoted. Natural Gas and Oil Transportation and Distribution: Natural gas is the cleanest form of fossil energy. Promoting safety, sustainability and operational efficiency of natural gas grids is essential to exploit the huge potential for increasing gas penetration in MCs. Efforts will also be made to promote regional trade and cooperation based on shared benefits within sound cooperation frameworks.

Page 9 of 13

Extractive Industries: Development of new oil, natural gas and coal production facilities may be exceptionally supported under PPP scheme (excluding areas involving high financial risk, such as, oil and gas field exploration).

Embark on New Activities to Reflect the Four Pillars of the Transition Policy For the purpose of this Policy, energy sustainability is defined as access to adequate and reliable supplies of sustainable energy at competitive prices while giving regard to the energy needs of future generations. Sustainable energy development of MCs requires sound economic, social and environmental policies, where rational use of energy and exploitation of indigenous renewable resources offer a large untapped potential across the IDB constituency to reduce the rising energy inequality. Increase Access to Modern Energy Services: In line with the UN efforts to provide universal access to modern energy services by 2030, IDB can scale up its support to provide access to electricity, especially, in LDMCs through (a) adding systematically an access component to conventional power projects; (b) developing new business models to provide energy access through distributed generation, decentralized grids or consumer based solutions; and (c) gradually promoting modern form of energy services for basic needs of lighting, cooking, heating, etc. Although such interventions are often small in size and require novel approaches and higher budgets to develop and implement, the affordability argument often advanced to not develop such projects is not backed by the results of numerous surveys, which indicate that development of off-grid RE systems would offer economically viable solutions in rural and remote areas, where isolated and small systems rely mostly on very inefficient, expensive diesel units for their power supply. Closer cooperation between IDB’s energy practice and poverty alleviation units will be a hallmark of future energy intervention that will aim at reducing energy poverty. Reign in Energy Consumption: Maintaining growth rate of energy consumption at a level compatible with sustainable development is essential, though more difficult than simply adding supply. It is important for IDB to assist MCs in (a) evaluating best practices in energy management; (b) tailoring these practices to MCs’ unique characteristics; and (c) adapting policy frameworks and planning / management procedures for adoption of new energy related technologies. IDB, through well designed and targeted Energy Efficiency (EE) improvement projects, will assist all MCs in putting their energy sectors along a less energy intensive path. Scale Up Renewable Energy: Most MCs, especially in North Africa and, more recently, in the Gulf Region, have outlined ambitious plans for the development of renewable energy (RE), especially solar, on very large scales: (a) Photovoltaic solar energy has become an economically viable option to supply electricity for remotely located rural communities; and (b) Concentrated Solar Power (with thermal storage) is also expanding as its cost is decreasing. Renewable energy development is now being seen by the energy intensive and export oriented economies as a Page 10 of 13

means to free up their oil and gas resources for export to earn greater revenues. Most MCs are developing renewable energy based power generation not only to meet the increasing local and regional demand for energy but also to develop local equipment manufacturing. Job creation and increased revenues are considered as critical priority to resume growth. IDB could play a catalytic role in promoting renewables, in particular, solar energy as a part of its goal of sustainable energy development and as an alternative to fossil fuels. Improve Knowledge Services: The 1440H Vision identifies creation and dissemination of knowledge as essential to fighting poverty and leading MCs towards prosperity. However, the transformation is a long term objective that would require budget and human resources to first develop an institutional knowledge base, and then improve knowledge exchanges among MCs. Sector work and technical assistance, stand alone or linked to financing activities, are instrumental for engaging MCs to focus on: (a) achieving the MDGs in low income countries; (b) improving sustainability of energy supply and rationalizing energy consumption; (c) reducing energy waste and leapfrogging to environment friendly technologies to meet demand and prepare the transition to sustainable energy development; and (d) developing reliable and upto-date energy sector data and information management systems. The transition period will focus on few and carefully selected activities to establish IDB as a recognized partner and provider of high quality knowledge to MCs.

Key Enablers to Stimulate the Transition Regional Energy Integration: IDB as a south-south institution intends to assess past experience and be involved more intensively in regional initiatives. IDB can take the lead in promoting and facilitating regional integration of energy systems. In some areas, especially solar energy, because of the geographic location of large part of its constituency in the high solar irradiation zone, IDB has a clear advantage and is in a unique position to extend regional cooperation to areas that other institutions cannot access. One of the best opportunities to establish IDB’s leadership and role as a facilitator and honest broker to promote increased regional cooperation and better integration is the development of RE in general and solar energy in particular. IDB’s regional collaboration focus would promote synergies and efficiencies that could stem from economies of scale and scope of major RE programs of individual MCs, which have been often developed in isolation. Private Sector Development: Greater involvement of private sector in the energy sector development will be encouraged as: (a) majority of public sector energy entities lack the financial means to develop the infrastructure and often the management skills to operate existing projects; and (b) government budgets lack even the resources to focus on basic needs of the poor and social sectors, such as, education and health. Priority shall be given to public-private partnership (PPP) schemes in countries, where private sector is actively engaged in the development of energy infrastructure, in particular, in the area of power generation and Page 11 of 13

distribution. IDB will mobilize technical support to MCs to assist creation of enabling environment for PPP investments.

Transformation Process Resources, Skills and Processes: The objectives of the Vision 1440H cannot be achieved without large-scale development of the energy sectors of MCs. This, in turn, requires: (i) a considerable increase in grants and concessional funds to meet especially the LDMCs’ energy needs; (ii) further expansion and diversification of the Bank’s energy team to develop more complex projects and formulate innovative approaches of providing energy access at the grassroots level; and (iii) deeper engagement with MCs to develop and disseminate knowledge services, particularly relating to efficiency improvements and renewable energy technologies. Innovative Financing for Energy Efficiency and Renewable Energy Projects: Scaling-up of IDB’s interventions in the focus areas, including, the need for or access to soft funds, would require innovative financing solutions. The focus on poverty and EE/RE will require a major increase in concessional or soft term financing, even in middle-income countries. The Bank will identify opportunities for developing effective cooperation models with partner development institutions, such as, through regional, thematic programs (e.g. for energy poverty, sustainability, etc.) IDB will engage with its high and middle income MCs to devise ways and means to significantly develop energy access projects in low income countries and RE/climate change friendly projects in MCs. In addition, the MCs will be approached for (a) establishing specific energy trust funds to support preparation of access and RE/climate change projects; (b) establishing climate change/green growth trust funds to provide concessional loans and/or assist low income countries in financing the incremental costs of RE and green energy projects; and (c) new ideas to promote sustainable energy projects in line with Islamic finance principles. Internal Capacity Development and Skill Enhancement: An essential pre-requisite for devising innovative energy solutions is a strong energy sector team of the Bank. Given the need to focus on several sub-areas – viz. conventional power generation, high, medium and low voltage grids and distribution systems, renewable energy (wind, solar, biogas, etc.), efficiency improvements, oil and gas, etc. – requires a large number and diversity of skilled personnel. If the energy sector interventions are to make a transition to knowledge activities as laid down in the Vision, a high level of expertise in energy policy and regulation and energy sector reform and organization is essential. The number and skill-mix of staff will be carefully evaluated during the preparation of the policy implementation program following the adoption of this energy policy to ensure adequate skills and capacity to implement and achieve the Policy goals.

Page 12 of 13

Closer Inter-departmental Coordination: There is an urgent need to “break the silos”, as crosscutting areas require coordinated approach at inter-departmental level:  Coordination among the different sectors, such as, energy efficiency with sustainable development of transport and urban infrastructure sectors; multi-purpose dams with agriculture sector; energy poverty with human development and agriculture sectors; etc.;  Coordination with the funds and capacity development units of the Bank intervening in the energy sector to tap synergies, make better use of human resources, and coordinate actions to achieve the objectives of the 1440H Vision; and  Where relevant and feasible, coordination of interventions or development of joint interventions involving one or more entities of the Group (i.e. ICD, ITFC and ICIEC) for the purpose of complementing each other and/or improving project viability. Sound and Coordinated Processes and Procedure: Environmental and social considerations are essential components of sustainable energy development. IDB’s energy portfolio will fully respect and be aligned to the Bank’s forthcoming policies and strategies in relation to environment and climate change, including, environmental and social safeguards. IDB will engage MCs to ensure that new policies will be based, as much as possible, on MC systems. The procurement procedures will be given special attention to ensure meeting the legitimate aspirations of MCs vis-à-vis national development objectives. Most of the countries consider the value of CSP in their goal of creating employment through increased local manufacturing and local content. IDB, as a south-south institution, will strive to develop procurement and RE deployment policies in MCs that would create jobs and promote green growth and are consistent with global trade rules. Building Partnerships: IDB supports building stronger partnerships with other multilateral and bilateral development institutions during the implementation of the policy while preserving the IDB’s comparative advantage as one of the major south-south financing institutions. The Bank will further build on its partnerships with international institutions specialized in the energy field to benefit from their experience and guidance in areas where the Bank is in the process of developing stronger competence (such as, renewables, energy efficiency, off-grid electrification, energy poverty, sector policy work, etc.) Well designed partnerships could significantly shorten the transition to a “knowledge bank”, one of the major goals of the 1440H Vision. Policy Implementation Program: The portfolio alignment will be achieved through a Policy Implementation Program that will provide the operational guidance with respect to sub-sectoral and region specific refinement of energy interventions within the confines of the Policy principles.

Page 13 of 13