Energy+ CountryPartnership Strategy

Prepared bythe Energy + Technical Working Group

June 2012

Table of Contents

A Note from Minister Heikki Holmås 2

I. Introduction 3Context 3Overarching Objectives 3Seeking energy sector transformation 4Purpose of this document 4

II. Scaling-up through Commercial Investment 5Policies, coordination, information and regulation 5Early stage project development support 6The challenge of energy efficiency 6Distinct needs of off-grid renewables 7

III. Key Features of a National Implementation Strategy 7Three-phase approach 8Figure 1: Indicative results chain illustrating relationship

with the three-phase approach 8Figure 2: The Three-phase Energy+ Country Partnership

“At-a-glance” 9Results-based financing 11National energy registry 12MRV and the link to future carbon finance 13

IV. Implementing a Country Partnership 14

Endnotes 14

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Cover image By Kalle Pihlajasaari (Ownwork) [CC-BY-SA-3.0 (www.cre-ativecommons.org/licenses/by-sa/3.0)],via Wikimedia Commons

Layout/Graphics:Brent Nordstrom

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A Note from Minister Heikki Holmås

At the Oslo Conference on Energy Access for All, October 2011, co-organ-ized with the International Energy Agency, Norway launched an interna-tional energy and climate initiative, the Energy+ Partnership. We aredeveloping a sectoral approach to energy access and reduction of green-house gas emissions in developing countries through the use of paymentby results, cash on delivery, and phased interventions.

First, we shall assist governments in developing comprehensive energysector and low emission plans and work to strengthen their technical andinstitutional capacity to support commercial investment in the sector.

Second, Energy+ shall work out measurement, monitoring and reporting systems, ensure transparentand efficient regulatory regimes, and enable the functioning of incentive mechanisms for business andinvestments.

Third, Energy+ shall implement and demonstrate payment by results systems based on increasedaccess to sustainable energy and reduced emissions of greenhouse gases relative to agreed base-lines.

There are considerable market opportunities for those who come forward with promising projects. Justconsider the figures of energy poverty: There are 1.3 billion people without access to electricity in theworld, 600 million in Africa alone, and 2.7 billion who depend on unhealthy and ineffective cook stoves.

On behalf of the Energy+ Partnership, the Technical Working Group has produced the present report.My main messages to the reader are:

Energy access, climate mitigation and adaptation do not need to undermine each other. In fact, theycan be mutually supportive. To that end, Energy+ is developing a payment by results model to supporta wide continuum of innovative business opportunities for emerging public-private-community partner-ships.

Using public money to leverage private investment is the key to unlocking green growth potential.Official development assistance must be used strategically to leverage the needed large-scale com-mercial investment. Norway is disbursing Energy+ development assistance to support those innovativebusiness opportunities.

I appreciate the efforts by the members of the Technical Working Group in developing this report. TheTechnical Working Group is comprised of experts from Energy+ Partners and through their hard workand dedication this report has delivered in a timely manner. I also wish to acknowledge the key role ofthe Group’s convenor, Dr. David Reed, in these efforts.

Minister Heikki HolmåsMinister of International DevelopmentNorway

I. Introduction

Addressing energy poverty, climate change, andenergy security challenges, while also promot-ing broad-based economic growth, requiresspeeding the global transformation to the cleanenergy economy of the future. The Energy+Partnership is a collaborative initiative amongcountry partners and other stakeholders tospeed that global transformation. It will promoteuniversal access to modern energy services,and lower the global growth in greenhouse gasemissions by catalyzing widespread commercialinvestments in secure, safe, clean energy andenergy efficiency solutions.

Over the long-term, Energy+ aims to lay thefoundation for a sustainable, competitive globalmarket, principally through the use of Paymentby Results agreements and by preparing devel-oping country partners for participation in newforms of climate finance.

Context

Tackling climate change requires significantreductions of global human-generated GHGemissions. The production and use of energy isthe biggest contributor to emissions and is theprimary cause of climate change. The neces-sary d growth of energy production and use indeveloping economies therefore presents oneof the greatest challenges to meeting our globalclimate objectives.

Across the developing world, however, the ener-gy infrastructure of the future has yet to be built.The International Energy Agency (IEA) esti-mates that investment in energy infrastructure innon-OECD countries will total over $20 trillionover the next twenty-five years - nearly twice asmuch as in developed countries. This presentsan enormous and urgent opportunity to redirectfuture emissions trajectories today by creatingthe conditions conducive to commercial

investment in low-emissions energy solutionsand for mobilizing resources to scale-up suchinvestments.

By working with developing country partnersnow to decrease their reliance on carbon inten-sive energy systems or avoid them all together,Energy+ seeks to shape a very different out-come for the future.

There is a parallel and equally pressing energychallenge facing developing countries: endemicenergy poverty. Currently more than 1.3 billionpeople lack access to electricity, and at least2.7 billion people are without clean cookingfacilities. More than 95% of these people areeither in sub-Saharan Africa or developing Asia.Energy poverty has long been recognized asone of the most serious global developmentchallenges and solving it is a prerequisite forpoverty eradication and economic growth.

Only recently, however, has energy accessmoved to the center of the global developmentaction agenda. Today, many countries acrossthe developing world have energy access andenergy efficiency targets that did not exist just afew years ago and half of developing countrieshave established specific targets for expandingaccess to electricity. By working with partnersto achieve these targets through commercialinvestments, Energy+ can help ensure lastingchange for billions of people.

Overarching objectives

When launched by the Government of Norway(GoN) and the UN Secretary General in Oslo inOctober 2011, the Energy+ Partnership empha-sized that the challenges of climate change andenergy poverty needed to be addressed in tan-dem, and thereby established two complemen-tary objectives: Promote access to modernenergy services and reduce greenhouse gasemissions by scaling-up renewable energy andincreasing energy efficiency in developing coun-tries.

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Those two objectives parallel the stated goals ofthe Secretary General’s Sustainable Energy forAll (SE4All) initiative that seeks by 2030 to:

Ensure universal access to modern energy servicesDouble the rate of improvement in energy efficiencyDouble the share of renewable energy in the global energy mix

Meeting the shared goals of Energy+ andSE4ALL will require a dramatic shift andincrease in national and international financialflows and investments in the energy sector.Underlying the access, efficiency and renewableenergy goals is a shared commitment to active-ly support the internationally-agreed below-2º Cand 450 parts per million targets.

Seeking energy sector transformation

Meeting the challenges of climate change, ener-gy poverty and green growth will require virtual-ly all countries to fundamentally reorganize theway they generate, distribute and use energy.Such broad-based transformational actionnecessitates a sector-wide approach with sup-port focused on achieving change at that level.To this end: the key characteristic of Energy+ isthat the bulk of funding from the developedcountry partners will be used to pay the devel-oping country partners for the results theyachieve at the “outcome” or sector-wide level.This approach is intended to produce a clearfocus on and provide positive incentives for theachievement of sectoral impacts.

Under Energy+, country-level funding arrange-ments will only be established after a develop-ing country partner has articulated a crediblepathway for energy sector transformation. Thestrategy will need to offer a plan for developingfunctional, well-regulated, competitive commer-cial markets for sustainable energy and for pro-viding, where necessary, effective incentives forcommercial investments. Typically, this path-way will be laid-out in a long-term Low

Emissions Development Strategy (LEDS) whichis further refined and implemented through aseries of 3-5 year national energy plans. Thisstrategic vision and implementation plan is thefoundation on which all country-level Energy+resource flows, activities and investments arepredicated. Supplementing the country-levelfunding arrangements, Energy+ will sponsor abroad range of partnerships and financingapproaches with multilateral financial institu-tions, phalanthropic organizations, civil societygroups and private companies.

Purpose of this document

Framed by this transformational objective, thisdocument is directed to current and potentialPartners of the Energy+ Partnership. Its pur-pose is to highlight the innovative features ofthe country-level implementation strategy beingpursued with a number of developing govern-ments committed to transforming their respec-tive energy sectors. The strategy is fully cog-nizant of and embraces the risks of promotinginnovative approaches to energy sector trans-formation.

This brief document is divided into three mainsections. First, it identifies many of the chal-lenges that must be addressed to transformenergy sectors in which commercial enterprisemust play the dominant role in the long-term.These challenges emerge from backgroundanalysis and recent Energy+ consultations withcommercial investors and entrepreneurs whohave identified principal barriers that impedeand further discourage commercial investmentin energy access and renewable energy invest-ments in developing countries. Second, we dis-cuss the principal instruments proposed fornational-level implementation strategies underthe aegis of Energy+. Those instrumentsinclude the three-phase approach, results-based financing, and the national energy reg-istry which includes a system for measurement,reporting and verification (MRV). To close, thedocument offers a guidance note relating tocountry partnerships.

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II. Scaling-up through Commercial Investment

Ultimately, commercial enterprise is the enginethat will drive energy sector transformation. Thecurrent level of commercial investment inrenewable energy in developing countries isgrowing, but still falls far short of the total vol-ume needed. The capital required for transfor-mation – now and in the future – makes it clearthat success in meeting this challenge will hingein large part on the capacity of Energy+ tounleash commercial sector capital throughongoing engagements and coordinated actionamong the public sector, civil society and thecommercial sector.

Doubling the annual rate of improvement inenergy efficiency, that is, bringing it to 2.4% peryear by 2030 and doubling the share of renew-able to 30% of the global energy mix, also by2030, would require significantly larger invest-ments above those anticipated with currenttrend lines. Estimates of resources required tomeet these goals run in the order of US$300billion per year worldwide, half of which wouldbe required in non-OECD countries. The IEAestimates that investment of US $48 billion peryear will be needed to provide universal accessto basic modern energy by 2030 – more thanfive times the level of investment in 2009.Clearly such levels of investment cannot beattained through national treasuries or throughofficial development assistance (ODA).

There are additional reasons why commercialenterprise will need to be the engine that drivesenergy sector transformation. The commercialsector brings essential expertise and capacitythat will be critical for accelerating the pace atwhich energy access is provided. Competitivecommercial markets tend to reduce the costs togovernment and the public by achievingeconomies of scale, and developing new tech-nologies and improving commercial servicesneeded to increase the affordability, access and

overall reliability of the energy system. Finally,commercial sector activity provides local capaci-ty building, and knowledge and skills transferthat are critical to improving local know-howwhile establishing networks between local firmsand small and medium enterprises (SMEs).These networks enable companies to sourceinputs and connect with customers more easily.

In recognition of the importance of the commer-cial sector, the Energy+ Partnership has alreadylaunched a series of global private sector con-sultations, starting in Washington, DC inNovember 2011, replicated in Nairobi, Kenya inMarch 2012, and to continue to other keyregions and markets in the course of the nexttwo years. These consultations with leadingSMEs, development firms and financial servicesproviders have identified some of the principleobstacles to and opportunities for scaling up theuse of renewables and increasing energyaccess and energy efficiency through Energy+country-level programs and multilateral interven-tions. The following sections highlight the chal-lenges and identify operational changes that,among many others, will have to be addressedby country governments in partnership withlocal commercial actors to acquire the transfor-mation impacts sought through Energy+ pro-grams.

Policies, coordination, information and regulation

Early engagement with the commercial sector todevelop a national energy plan to facilitateinvestment and to disseminate information onresources and market demand can set thestage for achieving a country’s low emissionsdevelopment goals. Investors have consistentlyidentified maintenance of a stable and pre-dictable policy environment, including a clearstrategy and plan for the development of theenergy sector based on broad-based support,as critical precondition to investment.

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The lack of coordination between the govern-ment, both at national and local levels, and thecommercial sector has been identified as amajor barrier to developing an energy plan thattakes into consideration the interests of bothparties. Comprehensive national and local-levelresource assessments can help the private sec-tor evaluate the revenue generation and energyproduction potential of renewable resources andprojects, and baseline information can be usedto evaluate market demand. Access to a cen-tral portal containing this sort of informationwould prevent a duplication of efforts andexpense, enabling investors to allocate capitalmore efficiently and lowering entry costs acrossthe board.

Finally, private sector investors provided multi-ple examples of how their investment planswere impeded by regulatory obstacles includinginefficient project approval, permits, licensingand land leasing procedures and uncompetitiveelectricity markets dominated by vertically inte-grated national energy companies. These prob-lems are often the result of a complex web ofcauses, including immature institutions, inexpe-rienced bureaucrats, and corruption. Resolvingthem requires targeted interventions, increasedtransparency and institutional capacity building.

Early stage project development support

Investors underscored how early stage financialand technical support has the potential to bringa reliable pipeline of bankable projects to mar-ket. Funding for relatively high-risk feasibilitystudies is difficult to obtain. In terms of projectimplementation, enabling infrastructure is oftenlacking, as well as the local technical and man-agement capacity to support more complexrenewables technologies.

Consultations consistently identified the gapbetween the risk/return expectations of most pri-vate sector investors and the risk/return profileof renewable energy investments in developingcountries, making it difficult to obtain financing.Real and perceived risks that are keeping

investors out and driving interest rates up willneed to be targeted, both with new financingmodels that pool risk more effectively and arange of public and private mechanisms thatcreate a de-risked investment environment.

Due to the nascent stage of the renewablesmarket in many developing countries, localfinancial institutions may also lack the technicalcapacity to understand and appraise projectsand may therefore be unwilling to shoulder therisks. Empowering local lenders to evaluateproject risk, conduct due diligence, and offerloans in local currency will, in particular, benefitsmaller renewables projects that currently strug-gle to access financing.

The challenge of energy efficiency

Energy efficiency ultimately allows us to accom-plish the same activities while using less energy– ultimately freeing up more energy for useelsewhere while reducing GHG emissions rela-tive to business as usual. However, there are anumber of barriers that investors have identifiedwhich continue to limit the widespread theuptake of such measures.

One of the key barriers is lack of awarenessand limited availability of information aboutenergy use and energy savings opportunitiesand technologies. This challenge is felt acrossthe spectrum of energy market participants,from households, to commercial enterprises, tofinancial institutions. A second key hurdles isthe lack of sector-specific technical expertiseand training. Finally, there is a range of financ-ing and economic barriers. These include: highupfront investment costs with rapid paybackrequirements from lenders, or related, highupfront costs with benefits accrued over alonger term than allowed for under standardcommercial investment terms; the unpre-dictability of energy prices, and revenue lossresulting from shut-down while energy efficiencyimprovements are made.

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Distinct needs of off-grid renewables

Off-grid renewables projects face a set of dis-tinct challenges including but not limited to: get-ting dispersed and remote rural projects toscale, attracting a good management team andsecuring carbon credit investments for smalldistributed projects. Rural communities areoften unable to afford the sizable upfront costsof renewables projects. High levels of povertypresent the challenge to develop models thatbuild on users’ ability to pay smaller amountsover longer repayment period than other cus-tomers.

On the payment side, rental and pay-as-you gobilling approaches help reduce the up-frontcosts for consumers. Successful partnershipsand pilot projects that address these issues ofmanagement, financing, distribution and con-sumer payback, should be replicated andscaled up to reduce the costs and risks tradi-tionally associated with developing off-grid proj-ects.

While the barriers listed above are recognizedas generic problems besetting virtually all coun-tries, consultation participants emphasized theimportance of using the Energy+ consultationprocess as a vehicle for identifying specificproblems particular to each country. Moreover,the Energy+ consultation approach enablespublic and private partners to identify and imple-ment practical ways of overcoming thoseimpediments and thereby lead to acceleratedprivate investment. Removing more complexinstitutional and policy barriers are longer-termobjectives that become embedded in the out-puts and outcomes to be addressed throughEnergy+ country programs.

III. Key Features of a NationalImplementation Strategy

Developed country partners are under increas-ing domestic pressure to show on-the-groundresults and to demonstrate the value of publicresources directed to developing country pro-grams. The transformational ambition ofEnergy+ country partnerships places additionalburden of proof on partners to deliver resultsduring the lifetime of a country program. Aresults chain can be used to specify key resultsmilestones, initially in the form of outputs, andthen illustrate how a country program will moveto achieve agreed, higher-level outcomes as theprogram progresses.

In addition, results-based payments, and theircorresponding metrics, need to be agreedamong all parties as a prerequisite for opera-tional effectiveness that will enable the develop-ing country partner to manage internal resourceallocation issues effectively and create the polit-ical commitment needed to put in place theenabling investment environment.

The need to demonstrate measurable resultsfrom international financial support has kindleda strong interest in applying Payment byResults (PBR) to international development pro-grams in a number of different sectors. PBRinstruments have three common characteristics:

Payments are made against pre-agreed results;Recipients have discretion over how the results are achieved;Independent verification of results is required for payments to be triggered.

The centrality of the energy sector in all climatechange scenarios further suggests that the useof PBR in the energy sector is likely to growdespite the fact that there has been very limitedapplication in the sector to date.

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A central feature of the Energy+ country-levelstrategy will therefore be the use of Payment byResults across the full range of activities at thecountry and international levels, as follows:

Energy+ country partnerships will be structured according to a three-phase approach that will steadily raise the level of deliverables from specific outputs to higher-level outcomes associated with sector transformation;

Results-based financing (RBF) will be promoted as the primary mechanism by which programs and activities are implemented at the country level by both developing country governments and their development partners. Underpinning RBF is the need to develop a system for measuring increased access to energy and reduced GHG emissions;

A national energy registry will be established by each developing country partner to not only ensure transparent verification and communication of the results through a system for monitoring, reporting and verification (MRV), but also to facilitate financing from diverse international and

domestic financing sources. The development of an MRV function within the national registry through Energy+ will also have important implication for the use of carbon financing looking forward.

Each of these features, including MRV, will nowbe described in turn, with an emphasis on howthey could be implemented as a central pillar ofEnergy+ country implementation strategy.

Three-phase approach

The first central feature of the Energy+ countryimplementation strategy is use of the three-phase approach that will match developedcountry contributions with achievement ofagreed deliverables by developing country part-ner over an established time frame. Initiallyprogress will be measured in the form of activi-ties and outputs but, as the program matures,deliverables take the form of higher-level out-comes associated with changing the energysector. Figure 1 shows how the three-phaseapproach fits alongside an indicative resultschain. This figure also provides some headlineobjectives and indicators that match the threefocus areas of Energy+: energy access, renew-able energy, and energy efficiency.

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Figure 1: Indicative results chain illustrating relationship with the three-phase approach

Figure courtesy of Energy Sector Management Assistance Program (ESMAP)

Phase 1: ReadinessPublic Sector Commercial Sector Funding Mechanisms

Activities: (i) confirm/prepare sector-wide Energy Plan(EP) as part of Low Emissions Development Strategy(LEDS); (ii) establish National Energy Registry, includingMRV arrangements, and commercial sector engagementmechanisms; (iii) resource, data mapping and marketanalysis; (iii) stakeholder engagement to assess gover-nance and institutional capacity and policy and regulatoryframework; (iv) establish baseline reference levels; (v)design implementation and scale-up programs, agreeinstitutional framework for financing, develop methodolo-gies and proxy indicators for emissions and access

Results: (i) LEDS and national EP; (ii) priorities of workfor enhancing governance and institutional capacity andpolicy and regulatory framework; (iii) National EnergyRegistry; (iv) business-as-usual reference level/baseline;(IV) Energy+ Program incl. financing and results meas-urement agreements

Activities: (i) dialogue with governmentand other stakeholders; (ii) sharing ofknowledge, best practices

Results: (i) LEDS and national EP; (ii)priorities of work for enhancing gover-nance and institutional capacity and policyand regulatory framework; (iii) NationalEnergy Registry

Traditional: (i)Grants; (ii) technicalassistance;

Innovative-Paymentby Results (PBR)

Phase I Objectives: Agreement of Energy+ program; Establish foundations for energy sector transformation

Phase 2: Implementation

Public Sector Commercial Sector Funding Mechanisms

Activities: (i) governance and institutional capacity, andpolicy and regulatory framework technical assistance (ii)energy infrastructure investments required to facilitatecommercial investment; (iii) provide incentives for com-mercial investment through Energy+ RBF programs. (v)implement MRV system

Results: (i) energy policy reform; (ii) training and capacitybuilding; (iii) infrastructure to access renewable energy isin place; (iv) demonstration/market catalyzing projects

Activities: (i) technical training, capacitybuilding activities, including businessmodel development building and thedevelopment of a pipeline of bankableprojects (ii) energy infrastructure invest-ments required to facilitate commercialinvestment; (iii) investments supported byEnergy+ RBF

Results: (i) demonstration/market catalyz-ing projects; (ii) increased capacity in thecommercial and financial sectors toundertake renewable energy; (iii) expand-ed portfolio of investment grade projects

Traditional: (i)Grants; (ii) technicalassistance; (iii) loans

Innovative-PBR:results-based financ-ing

Phase II Objectives: Achieve Partnership Outputs, such as: (i) Kwh delivered, (ii) cookstoves supplied, and (iii) energysaved; Create conditions conducive to commercial deployment of clean energy

Phase 3: Scaling-up

Public Sector Commercial Sector Funding Mechanisms

Activities: Continue to provide incentives for commercialinvestment, principally through national RBF programs (ii)Maintain stable legal, regulatory and incentive frame-works; (iii) Continue implementation of LEDS and EP.

Results: (i) stable legal, regulatory and incentive frame-work; (ii) investments and other activities in accordancewith LEDS and national EP.

Activities: Investments in sustainableenergy and energy efficiency, incl thosesupported by national RBF programs

Outputs: (i) New energy capacity, (ii)new connections, (iii) units of non-gridequipment sold; (iv) savings in fossil ener-gy

Innovative-PBR

Phase III Objectives: Achieve Partnership Outcomes, such as: (i) Increased energy access; (ii) Increased output of renew-able energy; and (iii) improved energy efficiency; Scaled-up commercial energy investments and activities

Country Partnership Impacts: (i) Reduced energy poverty; (ii) Avoided greenhouse gas emissions

Figure 2: The Three-phase Energy+ Country Partnership “At-a-glance”

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The three phases of Energy+ can be summa-rized in the following terms:

Phase 1: Readiness

The purpose of this phase is to implement activ-ities that are required for the successful deliveryof the higher-level agreed outcomes in followingyears. Activities undertaken during this phaseinclude strategy development, capacity building,program design, establishment of necessaryinstitutions (e.g. MRV and registry), and stake-holder engagement. Donor support might take

the form of technical assistance coupled withinitial payments to ensure creation of theenabling policy environment and institutionalscaffolding.

In many cases developing country partners willalready have in place credible strategies foraddressing climate change and sustainableenergy sector growth and active systems forcommunicating and working effectively withcommercial partners. Where these supportingsystems do not exist, Energy+ funding can beused to ensure their development.

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Three-phase approach in practice: Ethiopia

At the time of writing this strategy document, the Governments of Ethiopia and Norway areactively developing what will be the first country partnership agreement under Energy+.

Ethiopia’s Climate Resilient Green Economy (CRGE) Strategy outlines how to protect Ethiopiafrom the adverse effects of climate change and to build a sustainable economy. Under this, 150initiatives have been identified and 60 prioritized for implementation.

The Government of Ethiopia is already developing a Fuel-Efficient Stoves Implementation Plan toexpand the adoption and use of improved/advanced cookstoves. This plan, combined with theCRGE (which is Ethiopia’s version of a LEDS), provides a solid foundation on which to build apartnership based on verified results at the outcome level.

The country partnership agreement between Ethiopia and Norway represents a true partnership,with jointly agreed results milestones and corresponding financial contributions. This includesreference to a three-phase approach whereby Norway will initially support further strategic plan-ning (Phase 1). This initial step is closely followed by support for the implementation of theplans, policies, and regulatory and incentive measures that are needed to “stimulate markets,build capacity, encourage innovation, and catalyze investments” (Phase 2).

Results-based financing is envisaged as a key implementation mechanism to simulate privateand public investment. However, the ultimate goal is to move to the “provision of results-basedpayments according to the outcomes delivered by way of access to sustainable energy andavoided or reduced emissions of greenhouse gases relative to a business as usual baseline”(Phase 3).

The ambition is to implement the first two phases from 2012 to 2015 and to start the implementa-tion of Phase 3 in 2016, depending on progress made. Initial payment milestones will take theform of process outputs (e.g. development of results-based financing options and channellingmodalities by the end of 2013), moving to a series of proxy indicators, and eventually to actualoutcome indicators in the medium term.

Phase 2: Implementation

This phase involves the completion and deliveryof outputs such as effective policy frameworks,operational institutional arrangements, trainingcompetent professional staff and also deliveryof outputs on the ground, including infrastruc-ture, demonstration projects and MRV systems.The expectation is that results-based financinginstruments will be designed and implementedby the recipient country government (and itsdevelopment partners) during this phase tobegin the process of building or expanding mar-kets, stimulating private sector delivery of goodsand services, and encouraging innovation.

Results-based payments by developed countrypartners may be linked to process or activitymilestones, or could be provided directly toresults-based financing programs. Initiallyproxy indicators for measuring access to energyand reduced GHG emissions, as well as for pol-icy measures, will be used.

Phase 3: Scaling-up

Reaching this phase is the ultimate goal ofEnergy+. The objective is for results-basedpayments to be linked to creating conditions fortransformational change. This means that pre-agreed outcomes should be ambitious andachievable only through catalytic activities thatcreate the right enabling environment, leveragecommercial investment, and support innovativenew business models and technologies. Thereshould be a correspondingly large reward in theform of results-based payments over a numberof years for successful delivery at scale.

Results-based financing

The second major operational feature of theEnergy+ country implementation strategy isresults-based financing. Energy+ proposes amajor focus on expanding the use of results-based financing1 for the implementation of pro-grams and activities at the country level.

RBF is often used as a broad term to describeprograms, projects or policies that link publicfunding disbursements to the delivery of pre-defined outputs, and could be used to incen-tivize the provision of goods or services, createor expand markets, or stimulate innovation.Taken together, such interventions would bedesigned to deliver catalytic outcomes, such asnumber of households with improved energyaccess or increased share/diversity of renew-able energy in the energy mix, but disburse-ments would be made against outputs – suchas the number of mini-grid connectionsinstalled, or the number of kWhs supplied by aparticular form of renewable energy .

RBF could be implemented as a domestic poli-cy mechanism with a partner country govern-ment as the ‘principal’ (with or without externalsupport), or as a standalone instrument with a multilateralor bilateral development agency taking on thisrole. The beneficiaries, or ‘agents’, might beprivate sector companies, state or local govern-ments, public utilities or individuals. While thereis no direct link to the results-based paymentsthat would be made under Phase 3 of Energy+,RBF fits well within an overall PBR approachwhen the funding received from results-basedpayments from donors is used by the develop-ing country partner to cover the implementationcosts of the former, and when there is a clearresults chain between the two.

Although there is significant experience of usingRBF in sectors such as health, energy sectorexperience is primarily limited to around 50 proj-ects targeting pro-poor service delivery, such asthe installation of solar home systems.Recognizing that RBF has not been widelyapplied in the energy sector, a key near-termobjective is to expand the range of RBF modali-ties to assess their effectiveness and then scaleup successful approaches. An area of particu-lar interest would be market-focused instru-ments that aim to catalyze private sector deliv-ery and self-sustaining business models, asopposed to capital support for public service

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delivery. This suggests an initial focus on oppor-tunities related to energy access, distributedrenewable energy, and energy efficiency; large-scale electricity generation is perhaps bettersupported through instruments such as feed-intariffs2 and regulation.

Finally, it should be noted that MRV is usuallyan in-built and automatic feature of RBF instru-ments, in that it is required to trigger disburse-ments. This means that RBF instruments are apotentially rich source of data, much of whichwill be generated close to, or in, real time.

National energy registry

The third feature of the Energy+ country-levelstrategy is establishing a national energy reg-istry. Fulfilling the transformational aspiration ofEnergy+ will require close coordination withmany national and international stakeholders –public, private and civil society – already activein the energy arena. Additionally, the success-ful implementation of the PBR program will alsorequire a transparent system for tracking andmonitoring activities, results and payments andfor the independent verification of the same.

The need for more effective communication andimproved harmonization and for tracking andverifying results and payments makes establish-ing a National Energy Registry (NER) an imper-ative component of energy sector transforma-tion. With a modest investment, a NER can belaunched as a central portal for informationexchange and developed into a clearinghouseto coordinate programs, facilitate matchmakingof energy financing, and importantly trackingand monitoring results. NER needs to be com-patible with the climate registry being developedunder the UNFCCC.

The Energy+ Partnership calls for the creationof national-level registries in partner countries tosupport the scaling up and delivery of energyaccess and climate change investments. Thenational registry is a proactive mechanism thatprovides real-time information on projects, ten-

ders and investment opportunities in the energysector, on the one hand, and tracks results andpayments on the other. It will serve as a centralportal to provide information on national energy-policy, sector development and investmentplans, infrastructure and grid expansion plans,among others.

At the early stage of developing the registry, itshould focus on two principal functions, theinformation and matching functions asexplained below. Subsequently, the registry willbe developed in to the system for implementingand monitoring the PBR program.

Information and knowledge management func-tions: In this function the E+ registry collects,posts and disseminates information from con-cerned parties regarding:

The country’s energy sector national development strategies including the RE/EE sector development plans;The demand for financing in the form of specific programs plans and projects that would extend energy access and reduce GHG emissions through renewable energy and energy efficiency; The supply of financing, in the form of funding opportunities available to the country from national and international sources, both public and private; andUpdates tracking disbursement of results-based financing and aid along with data on outputs and benefits associated with those financial flows.

Matching functions: Through the matching func-tion the registry proactively helps to alignfinancing and technical needs presented innational and sector development strategies withresources offered through public and privatefinancing mechanisms. For example the E+Registry may use its information and knowledgemanagement functions to support periodicnational investment roundtables with the privateand public investors. Likewise this function canbring information to the country dialogue with

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international multilateral funds, such as theGCF, or other bilateral sources, signaling tothem when country level E+ needs and opportu-nities arise.

MRV and the link to future carbon finance

The need to use public climate finance moreeffectively and catalytically and to scale up car-bon market operations is central to the on-goingclimate negotiation and is critical for the suc-cess of Green Climate Fund (GCF). However,at present no clear framework exists throughwhich to understand what is required to beready to use international climate finance in atransformational way and how result-basedfinancing approaches can be applied to getthere. Neither have the synergies and comple-mentarily between carbon market and public cli-mate finance been effectively explored underthe existing programs, such as CleanDevelopment Mechanism (CDM), the GlobalEnvironment Facility (GEF) or the ClimateInvestment Funds (CIF).

The Energy+ result-based financing approachfor sectoral market transformation can help tospearhead the development of sectoral creditingmechanisms in developing countries. Energy+,while addressing the key challenge of shiftingaway from project-based funding to those withmore potential for rapid scale-up, will generateimportant hands-on knowledge and lessons toinform the negotiation on international climatefinance and operations of the GCF. Most impor-tantly, Energy+ will be pioneering systemswhich can be applied to future MRV regimes,such as building capacities to track and validatefinancial flows and energy-sector outcomes,such as GHG emission reductions.

Through a learning-by-doing approach Energy+will help countries to develop MRV systems toenable measurement, reporting and verificationof results, outputs, outcomes and impact. TheMRV system for emissions reductions shouldpreferably be based on the 2006 IPPCGuidelines and where, relevant, take into

account methodologies developed under theCDM. Energy+ may work on the developmentof sector-specific methodologies to establishbaselines and track the progress.

Energy+ will demonstrate the feasibility of sec-toral, results-based financing approaches, thusfacilitating its subsequent application by theGCF and providing a prototype for sectoral car-bon crediting schemes and new carbon marketarchitecture. Furthermore, Energy+ will preparedeveloping country partners for the next genera-tion of climate finance.

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IV. Implementing Country Partnerships

The driving force for success of Energy+ will bethe development of strong country partnerships.Energy+ seeks to transcend the traditionaldonor/recipient construct by fostering inclusivepartnerships that focus on the needs of all ener-gy market participants – households, compa-nies, communities, and investors.

A country partnership will be an agreement or aset of complementary agreements negotiated bythe contributing and receiving governments andother Energy+ partners that are parties to theagreements. The agreements will detail theactions that each specific partnership will under-take to promote energy access, renewableenergy and energy efficiency contributing to thetransformation of the energy sector.

Clear energy sector targets embedded in anoverall national strategy have been identified bycommercial energy market participants as themost important incentive for renewable energydeployment in developing countries. A LEDS,the long-term roadmap for addressing climatechange, identifies strategic, cost-effectiveapproaches to achieving transformational cleanenergy solutions as part of the broader nationaldevelopment strategy.

National energy plans reflect more near-termcommitments, typically setting out national tar-gets on a three-to five-year horizon while put-ting in place the public instruments and institu-tions necessary to achieve those targets.Ultimately, these country-owned plans form thebasis of the Energy+ country partnership agree-ments.

Developing country partner governments willlead the development of the country partnershipagreement. The government will be the princi-pal responsible party for coordinating theactions planned therein, and will ultimately man-age the flow of resources that are provided

through the PBR agreement. Partners will linkfunding and other commitments to a simple,measurable set of indicators that facilitate astrong MRV. Country partnerships will be devel-oped and implemented in accordance with theEnergy+ principles and the Paris Declaration onAid Effectiveness and the Accra Agenda forAction.

Partnerships may include: developing countriesgovernments; contributing countries; contribut-ing development partners, such as UN agenciesand multilateral and national developmentbanks; participating CSOs, contributing philan-thropic organizations; and in certain cases,commercial organizations (such as industrygroups) and individual firms. In all cases,strong engagement and consultations by part-ners with the commercial energy sectors willinform the development of the partnershipframework.

Endnotes

1 A more detailed description of results-basedfinancing will be made available through theEnergy+ website.2 Feed-in tariffs are likely to be difficult to sup-port through Energy+, as the commitment peri-ods are much longer than typical budgetarytimelines in donor countries.

Energy + Technical Working GroupDavid Reed, Convenordavid.reed@wwfus.org

The thoughts and opinions expressed in this docu-ment are those of the individuals participating in theEnergy+ Technical Working Group alone. They donot represent the positions of either the fundinginstitutions or the institutions employing the participants.

This work was produced by the Energy+ Technical Working Group in support of:

Energy + PartnershipHans Olav IbrekkHans.Olav.Ibrekk@mfa.no

Energy+ Technical Working Group

David Reed, Convenor

Athena BallesterosClaire Casey

David RothkopfEric Usher

Filippo VeglioPablo Gutman

Hans Olav IbrekkJiwan Acharya

Joerg HaasLuis Gomez-Echeverri

Matthew LynchMorgan Bazilian

Wim van NesOliver Knight

Richard BaronRichenda Van Leeuwen

Daniel RileyYannick Glemarec

Marina OlshanskayaAmbassador Ole Andreas Lindeman