66
••.• II! Illlllllnil It y RETHINKING DEVELOPMENT ASSISTANCE FOR RENEWABLE ELECTRICITY Keith Kozloff Olatokumbo Shobowale W O R L D R E S O U R C E S I N S T I T U T
• • . •
II!
Illlllllnil It y
RETHINKING DEVELOPMENTASSISTANCE FORRENEWABLE ELECTRICITY
Keith KozloffOlatokumbo Shobowale
W O R L D R E S O U R C E S I N S T I T U T
RETHINKING DEVELOPMENTASSISTANCE FOR RENEWABLEELECTRICITY
Keith KozloffOlatokumbo Shobowale
n
W O R L D R E S O U R C E S I N S T I T U T E
November 1994
Kathleen CourrierPublications Director
Brooks BelfordMarketing Manager
Hyacinth BillingsProduction Manager
National Renewable Energy Laboratories/American Sugar Alliance/American Wind Energy AssociationCover Photos
Each World Resources Institute Report represents a timely, scholarly treatment of a subject of public concern. WRI takes re-sponsibility for choosing the study topics and guaranteeing its authors and researchers freedom of inquiry. It also solicits andresponds to the guidance of advisory panels and expert reviewers. Unless otherwise stated, however, all the interpretationand findings set forth in WRI publications are those of the authors.
Copyright © 1994 World Resources Institute, Washington, D.C.. All rights reserved.ISBN 1-56973-006-7Library of Congress Catalog Card No. 94-61934Printed on recycled paper
CONTENTS
ACKNOWLEDGMENTS vFOREWORD vii
ADVISORY PANEL ix
I. BACKGROUND 1
BENEFITS OF RENEWABLE POWER GENERATION IN DEVELOPING COUNTRIES 1Economic Development 2
Environmental Protection 4
BARRIERS TO GREATER RELIANCE ON RENEWABLES FOR POWER GENERATION 6Unequal Access to Investment Capital 6Energy Market Distortions 7
Weak Institutions for Commercializing Renewable Electric Technologies 9
REMOVAL OF BARRIERS NEEDED TO ACHIEVE BENEFITS 9II. TRENDS IN DEVELOPMENT ASSISTANCE FOR RENEWABLES AND POWER SECTORS 11
MULTILATERAL AND BILATERAL ASSISTANCE FOR RENEWABLE POWER SOURCES 11Recent Multilateral Initiatives 12Trends in Bilateral Assistance 17
OVERALL POWER SECTOR ASSISTANCE 21
Donor Responses to Managerial and Capital Problems 23III. DEVELOPMENT ASSISTANCE PROJECTS AND PROGRAMS FOR RENEWABLE ELECTRIC GENERATION 29
PHOTOVOLTAICS FOR RURAL ELECTRIFICATION 29Brazil 29Dominican Republic 30
GEOTHERMAL POWER GENERATION 31Philippines 32China 33Kenya 33
WIND 34
India 34
Morocco 35
SMALL HYDROPOWER 36Nepal 36
Philippines 37BIOMASS 38
Brazil 38
Mauritius 39
IV. LESSONS AND RECOMMENDATIONS 41Lessons Learned 41
Recommendations for Future Assistance 44NOTES 49REFERENCES 51
ACKNOWLEDGMENTS
Many people contributed to this research effortwith their time and expertise. We especially thankthe members of the Advisory Panel for their guid-ance. We also thank Ramesh Bhatia for his thoughtfulbackground paper on World Bank lending, as well asseveral others for providing information about theprograms reviewed in Chapter 3.
Douglas Barnes, Sandeep Chawla, Mac Cosgrove-Davies, Cinnamon Dornsife, Charles Feinstein, Fran-cisco Guitterez, Nancy Katz, Steve Klein, MikePhillips, Richard Stern and Robert van der Plas, allprovided valuable feedback on earlier drafts of thereport. Our gratitude is extended to those fromwithin WRI—Alan Brewster, Janet Brown, Roger
Dower, Tom Fox, Jonathan Lash, Jim MacKenzie,Walt Reid and William Visser—who also reviewedthe report. Of course, we alone bear responsibilityfor the accuracy and completeness of the informationpresented as well as the report's recommendations.
Special thanks go to Kathleen Courrier for herskillful editing, to Robbie Nichols for her writing as-sistance, to Hyacinth Billings for managing the pro-duction, and to Sue Terry for her help in obtainingnumerous reports and references. Last but not least,we thank Eva Vasiliades and Erin Seper for their con-tinued support throughout the project.
K.K.OS.
FOREWORD
Technologies that tap sunlight, wind, runningwater, the Earth's heat, and vegetation for electricitycan supply an increasing share of developing coun-tries' demand, while delivering environmental andeconomic boons—to the countries themselves and tothe world at large. Besides curbing greenhouse gasemissions, renewably-generated electricity would re-duce the air pollution that is damaging human healthand the crops, forests, rivers, and lakes downwindfrom power plants.
On the bottom-line question of costs, some ap-plications are already competitive with their fossil-fuel counterparts if one calculates life-cycle costs, notmerely up-front outlays. Countries that harness re-newables to meet electric capacity requirements—which are growing faster than 5 percent a year inmuch of the developing world—can solve severaleconomic problems simultaneously. For one thing,renewables' modularity makes it possible to tailorthem to the particular needs and circumstances ofany setting. What's more, a widespread shift from im-ported fuels to renewably-generated electricity wouldstem existing hard currency outlays, while insulatingnations from any future price shocks.
When renewably-generated electricity offers somany benefits, why hasn't it gained more of afoothold in developing countries? One reason is thatrenewables have long gotten short shrift in develop-ment assistance—whether from individual nations orfrom the World Bank and other multilateral banks—even though all these players have invested a greatdeal in boosting the developing world's energy sup-plies. As recently as 1991, renewables garnered only5 percent of the $4.5 billion in official developmentassistance funds earmarked for energy projects.
Worse yet, what little money has gone to renew-ables has failed to stimulate sustainable markets forthem. The "parachute" approach that prevailed fromthe 1970s to the mid-1980s provided one-time fund-ing for renewable energy installations that hadn't aprayer of being commercialized because donors thenmoved on to other projects, neglecting follow-up. In
addition, many renewable projects were too small togenerate a critical mass of interest and supportamong the host nation's policy-makers. By the timethe most egregious mistakes were acknowledged, re-newables' prospects in developing countries lookeddim, as disillusionment set in among donors andworld oil prices plummeted.
Now that environmental concerns are rising—along with the recognition that billions of people areunlikely to be hooked up to a conventional powergrid anytime soon—the development assistance com-munity is once again interested in renewables. Howcan lenders and donors avoid repeating the mistakesof the past? Answering this question is crucial since,as Keith Kozloff and Olatokumbo Shobowale stressin Rethinking Development Assistance for RenewableElectricity, the direct leverage the assistance commu-nity can wield is waning, thanks to shrinking budgetsand growing needs in other sectors besides energy.
Of course, a transition to renewable energy willdepend at least as much on private-sector actions—and actions taken by developing-country govern-ments—as it does on international donors andlenders. Kozloff and Shobowale note that electricityservices in developing countries will increasingly beprivately financed and managed, a trend that devel-opment assistance agencies are encouraging to makeup for their own funding short-falls and for the inad-equacies of government utilities. Drawing from adozen case studies of diverse renewable electricityprojects, as well as from their research on overalltrends in development assistance, the authors de-scribe lessons that lenders and donors can learn fromthe successes and failures of the past and present:
• Assistance that is part of a comprehensive com-mercial development strategy is likelier to leadto technology diffusion than "one-shot" projectsare. To encourage widespread adoption of aparticular renewable power application, assis-tance agencies must not just demonstrate that itworks, but also address the institutional and fi-nancial factors that sap its market potential.
• The growing private-sector role in financingand managing the electric power industry putsa premium on stepping up demand for renew-ables since multilateral loans will be dwarfed bythe private capital flowing into developing-country power sectors—capital that renewablesmust attract if they are to gain significant marketshare.
• Involving local people in commercializing re-newable technologies is critical to stimulatingsustainable markets. Wherever possible, localentrepreneurs should be involved in adaptingtechnologies to suit conditions, meet serviceneeds, or reduce system costs—activities thatnot only produce local income and employmentbut also raise the odds of technology diffusion.
• Decisions about which local partners to workwith in disseminating a given technologyshould be made on a case-by-case basis: noone institution—whether a utility, cooperative,government agency, nongovernmental organi-zation, or private developer—is universally thebest choice.
Kozloff and Shobowale's research into how de-velopment assistance interacts with the private sectorand with public policy has led them to recommendprinciples that can help the development assistancecommunity leverage its limited funds to the besteffect:
• International lenders should "mainstream" re-newable technology applications that are al-ready cost-competitive with their conventionalcounterparts by ensuring that renewable op-tions are thoroughly evaluated in project pre-feasibility studies and that planning processesand investment criteria fully account for Fenew-ables' potential benefits.
• Multilateral agencies, bilateral donors, and de-veloping countries should develop cooperative
strategies for technology commercialization.OECD countries should take the lead in craftingand implementing such strategies. Where cost isa barrier, all three groups should work togetherto design and carry out coordinated programsto expand market volume, standardize design,or provide more experience in manufacturingand installation.
• Multilateral and bilateral assistance agenciesshould target countries whose policies allow re-newables to compete fairly with other technolo-gies. Even if renewable energy projects arewell-designed to breach other barriers, projectfunds may be squandered in countries with se-vere energy price distortions.
Rethinking Development Assistance for RenewableElectricity extends the policy recommendations setforth in such previous WRI studies on energy in theindustrializing world as Growing Power- BioenergyforDevelopment and Industry, Money to Burn? The HighCosts of Energy Subsidies, and Energy for Develop-ment. Future reports will map out the public policyshifts needed to spur use of renewables in develop-ing countries, just as WRI's 1993 book, A New PowerBase: Renewable Energy Policies for the Nineties andBeyond, did for the United States.
We owe a debt of gratitude to the Netherlands'Ministry of Foreign Affairs for its generous funding ofthe policy research on which this report is based. Wealso want to thank The Joyce Foundation and the W.Alton Jones Foundation for their overall support forpolicy research carried out by WRI's Climate, Energy,and Pollution program. To all three, we express ourdeep appreciation.
Jonathan LashPresidentWorld Resources Institute
ADVISORY PANEL
Dr. Robert AnnanU.S. Department of Energy
UNITED STATES
Dr. R.K. PachauriTata Energy Research Institute
INDIA
Dr. Andrew BarnettUniversity of SussexUNITED KINGDOM
Mr. Mike BergeyBergey WindpowerUNITED STATES
Dr. Adolfo Eduardo Carpentieri
Companhia Hidro Electrica do Sao Francisco (CHESF)BRAZIL
Dr. Zhou Dadi
State Planning Commission
PEOPLE'S REPUBLIC OF CHINA
Mr. Stephen Karekezi
African Energy Policy Research NetworkKENYA
Dr. Derek Lovejoy
formerly of the United NationsUNITED STATES
Mr. Glen PrickettU.S. Agency for International Developmentformerly of Natural Resources Defense CouncilUNITED STATES
Mr. Ross PumfreyU.S. Agency for International Development
UNITED STATES
Ms. Loretta SchaefferThe World BankUNITED STATES
Mr. Gabriel Sanchez-SierraEmpresa de Energia de Bogotaformerly of Latin American Energy Organization
(OLADE)
COLOMBIA
Mr. Franklin TugwellHeinz Endowmentformerly of Winrock International
UNITED STATES
Professor Joseph George Momodu Massaquoi
United Nations Educational, Scientific and CulturalOrganizationKENYA
formerly of the University of Sierra Leone
Dr. Matthew MendisAlternative Energy Development, Inc.UNITED STATES
Dr. Alvaro Umana
Center for Environmental Study
COSTA RICA
Mr. Carl WeinbergWeinberg Associatesformerly of Pacific Gas and Electric
UNITED STATES
His Excellency Heraldo Munoz
Chilean Ambassador to Brazilformerly of the Organization of American StatesCHILE
I. BACKGROUND
Electricity is a vital ingredient in economic devel-opment. Between now and 2010, the developingworld's electricity requirements will grow more than5 percent a year (ElA, 1993). Much of this escalatingdemand could be served by power from renewableenergy resources: the sun, wind, running water, un-derground hot water and steam, and biomass (energycrops and organic waste from farming and forestry).(See Box 1-1.) These renewable resources offer a farmore environmentally and economically sustainablesupply of energy for electricity generation than ex-panded reliance on fossil fuels does.1 But the shift to-ward renewable resources has yet to occur becauseof capital constraints, institutional inadequacies, andprice distortions.
The hundreds of millions of dollars spent by theinternational development assistance community pro-moting renewable energy resources over two decades(OECD, 1993) have accomplished little (Foley, 1992).In many early projects the technologies were imma-ture. {See, for example, Waddle et al, 1989.) But re-cent technological improvements make it easier toseparate this factor from other determinants of success.
Making this critical distinction, this report drawslessons from past development assistance experienceand offers recommendations for overcoming marketand policy barriers to the greater use of renewables.The lessons are extracted from a general review ofmultilateral and bilateral assistance for renewablesand the power sector in developing countries. Sev-eral assistance projects are also examined to see howmuch they have stimulated markets for renewabletechnologies. Although the diversity of renewabletechnologies and applications—as well as develop-ing-country needs—make broad generalizations diffi-cult, changes in development assistance priorities canbe identified.
Because of several emerging opportunities andconstraints, now is an especially good time to seethat donor programs are designed and implementedeffectively. The local, regional, and global impacts ofdevelopment assistance policy on sustainability are a
growing concern—witness rising pressure on devel-opment assistance agencies to get environmentallysound technologies adapted and dispersed. Offeringto deploy renewables can help Northern donors meettheir national obligations under the Climate Conven-tion to reduce carbon emissions through so-called"joint implementation" schemes (U.S. State Depart-ment, 1994). Then too, using development assistanceto leverage private resources to build sustainablemarkets has never been more important. Financial re-sources for multilateral lending are being stretched asthe gap widens between the capital needed forpower sector infrastructure and the amount that inter-national donors can mobilize. The power-sector lend-ing policies of multilateral development banks(MDBs) are also changing, but not necessarily inways that will stimulate deployment of renewablepower sources. Bilateral aid programs in the post-cold war era are shrinking as domestic economicconcerns grow.
By itself, development assistance will not deter-mine the market share of renewable power technolo-gies in developing countries. National and local pub-lic policies as well as domestic and internationalprivate interests play more important roles—whichwill be the subject of subsequent research at WRI.But findings to date show where and how develop-ment assistance interacts with the private sector andnational policy to shape markets for renewables.
BENEFITS OF RENEWABLE POWERGENERATION IN DEVELOPING
COUNTRIES
Two recently prepared electricity-supply scenar-ios show the difference that a shift toward renew-ables could make in the developing world. Under a"business as usual" scenario, competition amongwell-established technologies results in a net de-crease in the market share of renewables (includinghydropower).2 (See Figure I-1.) But with supportivepublic policies, strategic private investment, intensive
Box 1-1. Renewable Resources for Power Generation
The diversity of renewable electric technolo-gies makes them suitable for providing bulk powerto existing electric grids; electrifying isolated vil-lages, households, and islands: or supporting util-ity transmission and distribution systems;1 Some re-nevvables can be used by themselves; wheredispatchable power is required, intermittent re-newable technologies are usually combined withstorage or back-up generation.
Hydropower. Micro- (<100 KW). mini- (.up to 5MW), and small hydro (about 5-30 MW) tur-bines are among the most mature renewabletechnologies and have been used for manyyears to power rural areas. Only about 10 per-cent of the developing worlds potential smallhydro capacity has been exploited. Unused ca-pacity is greatest in China and Latin America(World Knergy Council, 1993V'
Biomass. Direct combustion of agricultural andforestry residues for combustion in turbines isgrowing rapidly. The processing of sugarcane,rice, coconut, and other tropical foods createsorganic waste that can be burned directly orgasified. Bagasse, the residue from sugarcane
processing, can be burned in cogeneration fa-cilities whose surplus electric power outputcan be sold to the grid. While such resourcesare available throughout Asia, Latin America,and Africa where agricultural and forest prod-ucts are processed, growing crops for energyproduction would greatly expand potential ca-pacity. Aeroderivative turbines, when coupledwith gasifiers, are expected to make biomassgeneration more efficient.
Wind. Wind has long been used for pumpingwater and other mechanical uses. Now windturbines are springing up in many countries togenerate either grid-connected or "indepen-dent" power. Wind resources (though generally-stronger in temperate regions) are sufficient toproduce thousands of megawatts of power inAsia and Latin America, and are especiallystrong along coasts, western China, parts ofIndia, northeast and south Brazil, the Andes,and North Africa. India alone is estimated tohave 20,000 MW of potential wind capacity.
Geothermal. Untapped geothermal resourcescan be found on both sides of the Pacific Rim
development, and commercial deployment, renew-ables' share of the power generation market risesdramatically.3 (See Figure 1-2.) While the first scenariocovers a shorter time period, it would entrench fossilfuels' market share since the physical infrastructure ofpower generation turns over so slowly. Moving to-ward the second scenario would offer several eco-nomic and environmental benefits.
Economic DevelopmentTo confer development benefits, any power-gen-
eration technology must provide comparable energyservices at lower lifecycle costs than existing energysources. The cost of generating power from renew-able resources has dropped significantly over the past
decade to where several technologies are now costcompetitive not just for off-grid applications (enor-mous markets in developing countries) but for grid-connected power as well (Ahmed, 1994; Larson et al.,1992). Whether any particular renewable technologyapplication is attractive depends on the costs of com-peting energy sources in the same area. (See, for ex-ample, Table 1-1). Of course, potential users mustalso be willing to pay the price. For instance, even ifthe unit cost of irrigation water is less with photo-voltaics (PVs) than with diesel pumps, the marketprice of the crop output will still determine whetherthe expense is justified.
A significant economic advantage of renewableresources is their broad geographic distribution.
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(Swisher, 1993; WEC, 1993; Johanssen et al., 1993;Dessus et al., 1992.). All developing regions conse-quently have access to electricity generation from re-newables at stable cost for the long-term future. Fos-sil fuels are another story. In 1993, eight countriesheld 81 percent of all world crude oil reserves, sixcountries had 70 percent of all natural gas reserves,and eight countries had 89 percent of coal reserves(EIA, 1994b). In 1991, more than half of all LatinAmerican, Asian, and African countries had to importover half of all the commercial energy they used(WRI, 1994). Aside from other macroeconomic risks,the drain on foreign exchange earnings from import-ing energy is particularly painful for some countriesbecause their traditional exports (i.e., crops) fetch
low prices in international markets. If power genera-tion expansion increases import dependence, thisproblem will worsen.
Constructing and operating many small powergenerators offers economic benefits over relying onmore monolithic conventional generation facilities.Renewable generating equipment ranges in size fromhousehold to utility scale, but is on average smallerthan fossil fuel facilities. The financial risks associatedwith mismatches between project construction sched-ules and power demand are lower with modularunits since central station plants take longer to build.Whether on or off the grid, modular generationsources can also be located closer to customer loads,thus reducing the need to invest in transmission and
Figure 1-1. Business-as-Usual Projected Fuel Shares inDeveloping Countries for Electricity Generation(Percent)
50
CoaL
01971 1980 1990 2000 2010
Source: International Energy Agency, 1993-
Figure 1-2. Renewables-lntensive Projected FuelShares in Developing Countries for ElectricityGeneration (Percent)
50
10
Renewables
o-1985 2000 2025 2050
Source: Johansson et al, 1993-
distribution systems. (See Box 1-2 and Figure 1-3.)Pioneered in the United States, this so-called "distrib-uted utility" model holds even greater promise forcountries with far-flung rural populations and lowper-customer demand (Khatib, 1993)- In addition, be-cause the physical infrastructure of many developing-country power systems is far from complete, distrib-uted generation units can be planned and added onmore easily than in the U.S. system. In some regions,off-grid renewable or renewable/nonrenewable hy-brid systems might make it possible to defer trans-mission and distribution investments until rising de-mand levels justify investment in a central grid.
Adding renewables to a utility's generation port-folio can also promote financial stability since renew-ables aren't vulnerable to some of the risks—such asfuel price spikes—faced by other generation types. Insome cases risk reduction may be worth sacrificingsome economies of scale. Whether any particular di-
versification strategy is worthwhile, however, dependson its incremental costs (Crousillat and Merrill, 1992).
Environmental ProtectionShifting developing countries' reliance from fossil
fuels to renewables would confer major environmen-tal and health benefits. If, as projected for LatinAmerica, the market share of coal-fired generation in-creases (at the expense of hydropower's currentdominance), air emissions per KWh will also in-crease, despite improved pollution controls (Suarez,1993). Much greater use of coal for power productionis also projected for India and China. In southernAfrica, where little coal is now used, it could edgeout hydro as the dominant source of electric power(Hall and Mao, 1994). With increased coal use in de-veloping countries since the 1970s, urban ambientpaniculate and SO2 levels have risen even as air qual-ity in higher-income cities has improved (World
Table 1-1. Estimated Cost Competitiveness of Representative Renewable Power Technologies in California3
Levelized Cost Ranges (1989 cents/KWh)
Baseload (60-75% Capacity Factor)Hydroelectric (New Sites)Biomass Gasifier w/EngineGeothermal Binary Cycle
Intermediate Load (20-35% Capacity Factor)Solar Parabolic Trough/Gas Hybrid
Intermittent (Capacity Factor and Cost of Fossil Alternative Vary)Utility-Scale WindUtility-Scale Photovoltaic Flat Plate
RenewableTechnology
0.7-28.56.0-8.26.6-12.0
Fossil FuelAlternative
4.0-7.44.0-7.44.0-7.4
9.0-12.1
4.1-1715.7-21.8
5.3-11.9
5.3-9.87.0-11.9
a. Fossil fuel generation costs are based on gas-fired combined cycle plants at the stated capacity factors. Level-ized cost ranges are based on projects owned by private utilities in California. Comparable data for governmentutility ownership show improved competitiveness of some renewable technologies, which are favored by lowercosts of capital. The relative cost of fossil fuel alternatives would be much higher in off-grid than in these grid-connected applications.
Source: California Energy Commission, 1992.
Bank, 1992a). Indeed, while total emissions of SO2
and NOx are projected to decline in North Americaand Europe between 1990 and 2020, these emissionsare expected to more than double in the rest of theworld over the same period and increase by as muchas eight fold by 2030, even if major efficiency im-provements are made (Anderson, 1993; World EnergyCouncil, 1993a; World Bank, 1993a). Controlling suchemissions using "end-of-stack" strategies would stressscarce financial, organizational, and other develop-ment resources. Air pollution control investmentscould increase developing countries' capital require-ments for capacity expansion by as much as 16%(Fernando et al, 1994). Deploying inherently cleangeneration technologies in the first place is far prefer-able if power consumption is to rise exponentiallywithout increasing air pollution. Even indoor air qual-ity improves when soot-spewing kerosene lamps arereplaced by PV powered electric lights. Although noelectric generation fuel cycle is completely benign,
renewables' impacts also pale beside those associatedwith extracting and transporting coal.
A shift to renewables would also curb CO2 levels.Under current trends, by 2010 increased fossil fuelcombustion will cause total CO2 emissions from de-veloping countries (not including the former SovietUnion and Central and Eastern Europe) to exceedthose from all countries in the Organization for Eco-nomic Cooperation and Development (OECD) (IEA,1994). Indeed, the balance has already shifted for en-ergy-related CO2 emissions (EIA, 1994a). BecauseCO2 emissions usually grow rapidly in expandingeconomies, holding developing-country emissions atcurrent levels through greater efficiency alone wouldbe very costly (Grubb et al., 1993). Even with effi-ciency improvements in electricity generation, trans-mission, distribution, and end use, replacement ofmost fossil fuels with renewables in both OECD anddeveloping countries is necessary to stabilize globalatmospheric CO2 concentrations.
Figure 1-3. Comparison of Central Station and Distributed Utility
OToday's Central Utility Tomorrow's Distributed Utility?
Wind
DO
Source: Pacific Gas and Electric, 1992
BARRIERS TO GREATER RELIANCE ONRENEWABLES FOR POWER
GENERATION
If the future of renewables is left to energy mar-kets as they are currently constructed, their benefitswill never be fully realized. Unequal access to invest-ment capital, distorted energy markets, and inade-quate institutional capacity to commercialize immaturetechnologies all prevent renewable power applica-tions from achieving their potential market shares.4
Unequal Access to Investment CapitalSome characteristics of renewable power tech-
nologies deter investors. First, renewables usually
cost more per kilowatt than fossil fuel power sourcesto install—even when low operating costs makethem cost competitive on a lifecycle basis. Because ofhigher first costs, renewable power sources providefewer energy services (whether pumps installed orvillages electrified) per dollar of initial investment. Allelse equal, developing-country planning ministershave an incentive to choose a fossil fuel option overa renewable one that will require additional conces-sional financing (Bergey, 1993). Private power devel-opers, whose discount rates are generally higher thanthose used by the public sector, also try to minimizethe up-front investment to be financed.
Second, per unit of capacity, the smaller the pro-ject, the higher the transaction costs (those for plan-
D
Box 1-2. Benefits of the Distributed Utility Model
By strategically locating small generationunits at critical points within the grid (oftenclose to customer loads), less central station ca-pacity, less fuel, and less investment in trans-mission and distribution systems are needed(Shugar, 1992b). '['he costs of upgrading trans-mission and distribution system capacity areparticularly high in places within a utility's gridwhere local peak demands are much sharperthan those experienced across the system as awhole. Installing "distributed" generation unitsallows transformers, substations, feeder lines,and related assets to be sized for more efficientuse or investments in such assets to be delayed.Where their output is closely matched to localload curves, PV, wind, and other renewablegenerators fit well into distributed applications.The application and economics of renewablesto distributed generation is only beginning tobe studied in the United States, where a largeutility (Pacific Gas and Electric) is currently fieldtesting a 500-KW PV project (Lamarre, 1993),and in developing countries (Shugar, 1992a).
ning and developing project proposals, assembling fi-nance packages, contracting with the utility) (Bhatia,1993)- Renewable power projects will probably getbigger as countries move beyond the pilot phasewith new technologies, but they are unlikely to evergrow as large as conventional power facilities andsystems (which, as noted earlier, is an advantage inother respects).
Third, capital markets for conventional centralstation projects are better established than those foroff-grid power equipment. Many countries set loanconditions, repayment schedules, limits on access toforeign exchange and concessional rates, and equip-ment requirements for their banking systems, all ofwhich may favor finance of conventional electrifica-tion projects in lieu of small off-grid systems (Mendisand Gowan, 1992). In addition, some renewabletechnologies are classified as consumer goods, whichmakes them subject to up to twice the interest rates
utilities pay for capital. In some countries, financingfor renewable power applications for households,businesses, or villages in unelectrified rural areas isn'teven available.
Energy Market DistortionsEnergy price distortions pose well-recognized
barriers to renewable power development (Bates,1993). Production and consumption subsidies lowerthe price of competing fossil fuels relative to renew-able electric generators connected to a grid. Similarly,they bias decisions away from off-grid applications ofrenewables that compete with diesel fuel, kerosene,or power-line extensions. Besides skewing energy-supply choices, subsidized electricity prices also en-courage wasteful consumption and discourage de-mand for efficient electric appliances. Since shortagesof capital can limit renewable electric capacity, ineffi-cient use patterns make it less likely that renewablesalone can fully meet power demands.
In many developing countries, the prevailingelectricity tariffs are not based on the often highlong-run marginal costs of providing electric services.Between 1979 and 1984, average electricity tariffsamong 60 developing countries recovered only about75 percent of the costs of providing service(Schramm, 1993). 1990-91 electricity sales revenuesin four Indian states covered only an estimated 40percent of long-run marginal costs (RCG/Hagler-Bailly, 1991). At the same time, electricity prices indeveloping countries averaged less than 60 percentof those in OECD countries from 1979 to 1991—eventhough providing service to the dispersed loadsfound in developing countries generally costs rela-tively more. (See Figure 1-4.) Among 40 rural electrifi-cation projects, the sum of capital costs of distribu-tion, the long-run marginal cost of energy supplied,and operating and maintenance (O&M) costs aver-aged $0.20 per KWh and ranged from $0,084 to $0.35per KWh. (All dollar amounts in this report refer toU.S. dollars.) Not even these high costs always reflectlow load factors or high losses (Schramm, 199D.
Subsidized rural tariffs can make renewablepower sources (typically priced at full marginal cost)uncompetitive when a household, business, or villageis choosing between a grid extension or an off-gridrenewable power source. And the same country that
Figure 1-4. Trends in Electricity Tariffs of OECD andDeveloping Countries for 1979-91(cents per KWh 1986 Dollars)
10
4-
2-A OECD
A Developing Countries
01979 1981 1983 1985 1987 1989 1991
OECD = Organization for Economic Cooperation andDevelopmentSource: Heidarian and Wu, 1994.
subsidizes conventional electrification may imposehigh import duties on renewable power equipment—a double whammy (van der Plas, 1994).
Some countries also subsidize fossil fuel con-sumption in markets where renewables compete. De-fined as the difference between consumer prices (in-cluding those paid by utilities) and world prices,estimated 1991 world fossil fuel subsidies exceeded$210 billion—20 to 25 percent of the value of fossilfuel consumption at world prices. Of this total, coaland natural gas subsidies for power productionamounted to about $38 billion. In eight countries,fuel subsidies totalled as much as 5 percent of GDP.(Granted, some oil-importing countries do tax suchpetroleum products as kerosene, which may competewith PV for household lighting.) Eastern Europe andthe former USSR are responsible for the bulk of totalfossil fuel subsidies, as well as just those for power
production. Nonetheless, as of 1991, India, China, In-donesia, and other developing countries maintainedsignificant fuel subsidies (Larsen, 1994).
Finally, because fuel prices do not fully reflecttheir relative environmental costs, and renewables inmost cases entail far lower costs of this sort, conven-tional energy options look deceptively good com-pared to renewables. Indeed, environmental costsfrom conventional coal-fired power plants in theUnited States have been estimated at $0,006 to $0.10per KWh (Chupka and Howarth, 1992).
The relative stability of world energy prices sincethe mid-1980s has afforded the chance to set realisticelectricity prices with low political fallout, but mostcountries have instead maintained the status quo(Kosmo, 1989). Although pressure from multilateraldonors or desire to attract private capital has recentlyprompted some countries (notably in Latin America)to reduce their subsidies, others are reluctant to act.India and a few other countries have taken a moreexpensive approach: in lieu of removing entrenchedsubsidies for other energy sources, they have subsi-dized renewables.
Distorted price signals aren't the only miscues inenergy decision-making. Utility planning processesand power-project acquisition procedures may over-state the costs and understate the benefits of alterna-tive technologies. In the United States, power sectorplanning and analysis co-evolved with centralizedpower generation, so new technologies that don't fitthe mold are hard to assess by old rules. Renewables'environmental benefits, modularity, lack of fuel de-pendence, and supply-diversification aren't on thecredit side of the ledger, even though the intermit-tency of some sources is on the debit side. Some ofrenewables' selling points become apparent onlywhen decision-makers compare the degrees andtypes of financial risk associated with various electricgeneration technologies (Awerbuch, 1993). Fre-quently, for instance, utilities overemphasize the risksof uncertain power output per hour or over lifetime5
(a problem with some renewables) and underempha-size the risk of future fuel cost increases (a problemwith most conventional fuel sources).
Finally, subsidies to other sectors can influencethe competitiveness of alternative generating options.In India, for example, the heavily subsidized rail sys-
tern devotes 24 percent of its freight capacity to mov-ing coal to power plants (Monga, 1994). China alsosubsidizes coal transport.
Weak Institutions for CommercializingRenewable Electric Technologies
In many smaller developing countries, scientific,engineering, manufacturing, and marketing capabili-ties are weak. The private sector—the most likelysource of technological innovation and transfer—mayin these nations be dominated by multinational com-panies that conduct little R&D through local sub-sidiaries. Even in countries with a strong R&D estab-lishment, connections among researchers, local firmsthat manufacture or market equipment, and con-sumers can be tenuous (Butera and Farinelli, 1991;Davidson, 1991), and poor communication may slowword of new technologies and applications.
Trade policies can also hamper the flow of tech-nology. In some countries, indigenous manufacturersof renewable energy equipment (as in Brazil andIndia) are protected from foreign competitionthrough import tariffs. Trade protection for infant in-dustries, common throughout the world, can commitdeveloping countries to older, less efficient designs ifit extends beyond the early stages. This danger is es-pecially great if a technology is rapidly evolving andcapital to upgrade manufacturing plants is tight.
Utilities often have more technical capability fordelivering off-grid electric services than other existingorganizations, however, few utilities view this as partof their mission. Many who might be interested lackstrong internal R&D capabilities or run up costs bybeing inflexible on engineering design standards.Moreover, utilities' agendas are filled with more ur-gent operational or financial problems than develop-ing, acquiring, or maintaining unfamiliar generatingequipment.
Commitment to service is an equally importantissue. Regardless of whether the utility or another en-tity installs the renewable equipment, it will fall intodisuse unless someone is there to maintain, repair,and replace it. Local people without specialized train-ing rarely have the necessary skills to carry out evenroutine maintenance, much less to diagnose prob-
lems and carry out repairs (Eskenazi et al., 1986). Forexample, a recent audit of public PV systems in eightIndian states revealed equipment failure rates rangingfrom 33 percent to 100 percent for street lighting, 25percent to 94 percent for domestic lighting, and 41percent to 100 percent for domestic water pumping(Maycock, 1993). High failure rates typify some pub-lic PV systems in Africa as well (Essandoh-Yeddu andAkorli, 1993).
REMOVAL OF BARRIERS NEEDED TOACHIEVE BENEFITS
The above barriers can cast long shadows on anyrenewable power technology's competitiveness, butinadequate capital and institutional capacity for com-mercialization are especially problematic for tech-nologies whose costs could be cut the most. Recentestimates for various technologies suggest that sub-stantial cost-reduction opportunities remain—for ex-ample, 20 to 60 percent for wind and 20 to 40 per-cent for solar thermal troughs (Pertz, 1993; Aitkin,1992). PV's are thought to offer the greatest poten-tial—from about $0.25 per KWh to $0.06 per KWh(Williams and Terzian, 1993.) Cost cutting of thismagnitude will require sustained movement alonglearning curves in manufacture and operation, greaterproduction economies, and technical innovations. Forsome technologies, the problem is one of chickensand eggs: producers are reluctant to invest the capitalneeded to reduce costs when demand is low and un-certain, but demand stays low because at currentcosts the technology isn't competitive in large mar-kets. Here, institutional capacity is lacking not somuch within developing countries but internationally,in the coordination of supply-push and demand-pullactivities. Some technologies—notably, PVs—canprogress from small, high-value applications to suc-cessively larger markets, but this path is rocky wheninitial markets are thin and geographically frag-mented. Other technologies depend for marketgrowth on their attributes being fully valued by po-tential users. In any case, renewables must gain mar-ket share if their large potential benefits are to berealized.
II. TRENDS IN DEVELOPMENT ASSISTANCE FOR RENEWABLESAND POWER SECTORS
Financial and technical assistance has been usedsince the 1970s to adapt and adopt renewable energytechnologies in developing countries. At the sametime, donors have promoted initiatives and reforms indeveloping countries' power sectors that affect re-newables' prospects. Both experiences are reviewedin this chapter.
MULTILATERAL AND BILATERALASSISTANCE FOR RENEWABLE POWER
SOURCES
Development assistance for renewables was firstrecognized as an international priority at the 1981United Nations Nairobi Conference on New and Re-newable Sources of Energy.6 The conference pro-duced an action plan for five broad areas: energy as-sessment and planning; research, development, anddemonstration (RD&D); transfer, adaptation, and ap-plication of mature technologies; information flows;and education and training. The Nairobi programcalled for $5 billion (1982 dollars) for nonhydro-power renewables just for feasibility studies, RD&D,and other pre-investment activities (Committee on theDevelopment and Utilization of New and RenewableSources of Energy, 199D. Unfortunately, falling en-ergy prices and oil gluts—already the subject of spec-ulation when the conference opened—subsequentlyweakened the political resolve to implement theplan. As a result, funding levels, projects completed,increases in the share of renewables in global energyconsumption, and institutional coordination all fellwell below early expectations.
From 1980 to 1987, investments in renewable elec-tricity projects in developing countries (other than large-scale hydropower) totaled an estimated $5 billion. Ap-proximately equal contributions were made by UnitedNations (UN), bilateral, and intergovernmental sources.Developing countries followed through on financial andinstitutional commitments more consistently than did in-dustrial countries (Committee on the Development andUtilization of New and Renewable Sources of Energy,
1992; Miller, 1992). These financial commitments wereinadequate, and they were more often focused on hard-ware than on capacity-building. Between 1979 and1991, most official development assistance for renew-able energy funded fixed capital assets. Much smalleramounts were used to meet such recurrent costs asmaintenance, and less than 10 percent was spent im-parting the technical and managerial skills needed tobuild national capacity (Organization for Economic Co-operation and Development, 1993).7 Although capitalgoods, services, design specifications, and operatingand maintenance skills are all needed to build a devel-oping country's electricity-generation capacity, the ne-glected need to develop human and organizational ca-pacities for generating and managing technical change(a long term and complex process) is just as vital.
Donors lack incentives to fundcapacity-building.
Donors lack incentives to fund such capacity-building. It doesn't immediately benefit a hardware-oriented project, and capacity-building poses signifi-cant managerial challenges. Moreover, becauseassociated manpower requirements are often toolarge to be absorbed into overall project costs, ex-plicit financing must be found—an uphill strugglewhen the resulting assets are both intangible and mo-bile (Bell, 1990). Even when there is a willingness topay, the timing and duration of investment projectsfocused primarily on equipment and engineering ser-vices often don't mesh with those of the learningcomponents. Training is often tagged on as a low-priority effort, limited to what equipment supplierscan provide.
Also lacking in most hardware-oriented projectsis a comprehensive approach to technology commer-cialization, one that encompasses research, develop-
-0
ment, demonstrations, and market diffusion and thatcan require over a decade to complete (Jhirad et al.,1993)- (Piecemeal efforts also typified the early do-mestic renewable energy programs of donor and de-veloping-country governments.) Too often, immaturetechnologies have been promoted and too little atten-tion has been given to developing the indigenous in-stitutional capacity to commercialize and deploythem. One observer characterized such projects as"little more than technical research exercises mas-querading as energy assistance" (Foley, 1992). Ruralprojects often focused on a single technology, withno attempt made to match energy end-use needswith local energy resources and institutions.
Often, even efforts to build local technologicalcapacity have not been tied to commercial develop-ment plans. In many countries, renewable energyresearch centers without any connection to the coun-try's private sector have been established. Not sur-prisingly, few commercial technologies have emergedfrom solar research centers in several West Africancountries, despite years of operating experience(Bassey, 1992).
By the late 1980s, many donors had become dis-illusioned and many aid recipients had come to viewrenewables as second-class technologies that industri-alized countries were unwilling to adopt themselves.High capital costs also made them inappropriate fortheir development status. Nonetheless, the 1980s sawmajor improvements in reliability, efficiency, and costin several renewable technologies that were commer-cialized and deployed in industrialized countries.
Under the rubric of sustainable development, the1992 United Nations Conference on Environment andDevelopment breathed new political life into assis-tance for renewables, even though energy issueswere not specifically addressed. Once again, renew-able energy technologies are being recognized as ap-propriate components of development assistance andcooperation (Committee on New and RenewableSources of Energy, 1994).
Recent Multilateral InitiativesIn their official policy statements, the World
Bank, the regional development banks, and numer-ous U.N. agencies advocate a place for renewables in(primarily rural) power generation. {See, for example,
Asian Development Bank, 1994.) Within the U.N. sys-tem alone, about 25 agencies have promoted renew-able energy. The United Nations Development Pro-gramme (UNDP) has been among the most active,spending about $50 million in grants from 1990-93-But rarely has multilateral agency rhetoric beenmatched by resource commitments, nor are fundedactivities well-coordinated.
The World BankDuring the 1980s and early 1990s, the World
Bank financed large hydro and geothermal projects,but provided little financing for other renewables.(See Figure II-1.) The Bank is on record stating that"renewable energy is an abundant resource that canbe increasingly harnessed" in response to environ-mental concerns, but until recently, it had not elabo-rated a clear role for itself in promoting renewables(Saunders, 1993; World Bank, 1993a and 1992a). In1994, Bank staff developed an initiative for financingnear commercial technologies whose implementationshould clarify the Bank's role (World Bank, 1994a).
Still, the Bank's traditionally low emphasis ontechnical assistance puts renewable projects at a dis-advantage. Small and unfamiliar, these projects re-quire comparatively more pre-project data and analy-sis, given pressure on project managers to minimizeloan-related costs. Moreover, the Bank's loan-fi-nanced technical assessments (which could providesuch data and analysis) are expensive for recipientsrelative to U.N. grant-supported technical assistance.In addition, incentives to ensure that projects areproperly implemented are weak among the Bank'sloan officers compared to incentives to get projectdesigns approved by the Board of Directors (Fein-stein, 1994; Williams and Petesch, 1993).
In 1991, the Bank created the Asia AlternativeEnergy Unit (ASTAE) in its Asia Technical Depart-ment to help to prepare renewable energy and en-ergy-efficiency components for Bank operations inthe region. ASTAE identifies and prepares alternativeenergy components for Bank projects; designs andimplements training in energy efficiency and renew-able energy options (for both Bank and developing-country staff); helps formulate alternative energy pol-icy and strengthen institutional capabilities withindeveloping countries; collaborates with donor agen-
D
Errata Sheet for Page 13
(This corrects Figure II-1, in which the distinction betweenNon-hydro Renewables and Oil/Gas Thermal is unclear.)
Figure 11-1. World Bank Financing for Power Generation Projects (U.S. $Millions)
3000
2 5 0 0 -
2 0 0 0 -
1500-
1000-
5 0 0 -
ifM«-• "'5
T1980 1982 1984 1986
i r1988 1990 1992 1994
Non-hydro Renewables
Oil/Gas Thermal
Coal Thermal
Hydro
Other than in 1993, virtually all non-hydro renewables financing has been for geothermal projects.Sources: World Bank, 1989; World Bank Annual Reports, 1994b, 1993b, 1992b, 1991a; Hemphill, 1993.
Figure 11-1. World Bank Financing for Power Generation Projects (U.S. $Millions)
3000
2500-
2000-
1500-
1000-
500-
0-
I
I I Ir—n
1980 1982 1984 1986 1988 1990 1992 1994
Non-hydro Renewables
Oil/Gas Thermal
Coal Thermal
Hydro
Other than in 1993, virtually all non-hydro renewables financing has been for geothermal projects.Sources: World Bank, 1989; World Bank Annual Reports, 1994b, 1993b, 1992b, 1991a; Hemphill, 1993.
cies, and mobilizes technical assistance funds in sup-port of these activities.8 During its first two years ofoperation, ASTAE identified, appraised, prepared, orevaluated household photovoltaics (PV), grid-con-
nected micro-hydropower, and other renewable com-ponents of projects in India, Sri Lanka, Indonesia,and China. Working with the India country depart-ment manager, ASTAE was instrumental in obtaining
approval for the Bank's first major renewables pro-ject. ASTAE also conducted several training seminarsand workshops, provided technical assistance to bothBank staff and developing-country utilities, and pro-moted various energy-efficiency investments (Schaef-fer, 1993; ASTAE, 1992). It has also promoted renew-able private power sales to public grids by draftingpower-purchase agreements and establishing guide-lines and standards for project bids (Messenger,1994). With two years left in its pilot phase, ASTAEhas not yet been formally evaluated. The ultimatesuccess of this modestly funded group depends onwhether both project preparation and financing activ-ities for renewable projects fully enter the mainstreamof the Bank's Asian operations.
Initially, bilateral donors funded ASTAE with littlefinancial or in-kind staff support from the Bank. Re-cently, the Bank has begun to pay for ASTAE's pro-ject-related services, but financing for renewables willnot be fully "mainstreamed" within the Bank as longas the Global Environment Facility (GEF) or otherdonors are involved in the Bank's renewable pro-jects—the case in two out of ASTAE's five ongoingand proposed projects. In the meantime, ASTAE'slimited resources will constrain its influence. Thisgroup's 2-person renewable energy staff contrastswith the Bank's total Asia energy staff of 35, and theunit has low visibility. Operations staff aren't requiredto either involve ASTAE in sector work or solicitASTAE support in preparing investment projects(Bhatia, 1993). The World Bank has no plans to repli-cate ASTAE in other regional divisions, though theInter-American Development Bank is implementing asimilar program with bilateral funding.
Global Environment FacilityCreated in 1991 to help developing countries ad-
dress climate change and other global environmentalthreats, the GEF funds mitigation projects, technicalassistance, and, to a lesser extent, related research.UNDP, the United Nations Environment Programme(UNEP), and the World Bank jointly administer theGEF. Individual donor countries may add grants orhighly concessional loans to GEF grants. Project suc-cess is measured in part by subsequent willingness ofconventional sources to finance the commercial de-velopment of targeted technologies.
During its pilot phase (which ended in 1993), theGEF approved $281 million for greenhouse gas reduc-tion, divided among renewable energy projects, im-provements in conventional energy supply efficiency,and demand-side efficiency. GEF seeks to increase themenu of technologies available for reducing green-house gas emissions by promoting technology com-mercialization through demonstrations, economies ofscale, marketing demonstrations, and institutional de-velopment. GEF project criteria are based on the no-tion of "incremental cost" embodied in the climateconvention: potential projects might be supported ifeconomically attractive from the global perspective ofreducing greenhouse gas emissions, even thoughfrom the recipient country's perspective they makesense only with GEF funding (Ahuja, 1993). Some ob-servers argue that, because many energy-efficiencyprojects should be attractive to developing countrieswithout GEF support, renewables should dominateGEF projects in the global warming arena (Andersonand Williams, 1993). In early 1994, the GEF was re-structured and its core budget replenished at $2 bil-lion for three years. If early projections hold, about 50percent of this budget will be allocated to addressglobal warming. Even leveraged at five to one, how-ever, this budget will be swamped by the incrementalcosts of imposing climate constraints on electric ca-pacity expansion plans. Indeed, for just one smallcountry (Colombia), electric capacity expansionthrough 2009 would cost an estimated $400 millionmore than without carbon contraints (Ahuja, 1994).
In GEF's pilot phase, the cost effectiveness ofvarious CO2 -reducing options did not drive projectselection (UNEP et al, 1993).9 In some of GEF's re-newable energy projects summarized in Table II-l—mainly those based on wind, hydropower, andbagasse cogeneration—only relatively modest cost re-ductions are needed to make them competitive formany power applications that currently emit largevolumes of carbon emissions. Others, including pho-tovoltaic projects, can't achieve the economies ofscale needed to become competitive with grid-con-nected power. Moreover, solar thermal troughs werenot included in the GEF's pilot phase, even thoughtheir current cost is closer to competitiveness thanPV's cost. Cost effectiveness in reducing carbon emis-sions also depends on whether a project can be repli-
m
Table 11-1. Global Environment Facility Renewable Electricity Projects (2nd Quarter, 1994)
Country
Brazil
Project Name
BiomassIntegratedGasification/GasTurbine(BIG/GT)
ImplementingAgency
ApprovalDate
9/92
Duration
2.5 years
Total Cost($millions)
$7.7
GEF Shareof Cost
($millions)
$7.7
Status
Subcontracts issued to implementthe required modifications to thegas turbines, feedstock tested forsuitability. Terms of Reference forboth short-term and long-termenvironmental assessmentsfinalized.
Costa Rica
Cote d'lvoire
India
India
India
Grid-IntegratedAdvancedWindpower
Crop WastePower
OptimizingDevelopment ofSmall HydelResources in theHilly Regions
Bio-energy fromIndustrial, Muni-cipal and Agri-cultural Waste
RenewableResourceManagement
12/93
11/94
1/94
1/94
12/92
5.5 years
5 years
3 years
7 years
$38.9
$40.0
$7.5
$5.5
$430.0
$3-3 Signed by Costa Rican govern-ment. Under implementation.
$5.0 Project Document in preparation.
$7.5 UNDP approval in January 1994.Awaiting signature by government.
$5.5 UNDP approval in January 1994.Awaiting signature by government.
$26.0 Grant effective 4/93. Wind energycomponent fully subscribed.
continued on next page
Table 11-1.
CountryMauritania
Mauritius
Pakistan
Philippines
Tanzania
Zimbabwe
(continued)
Project NameWind ElectricPower for Socialand EconomicDevelopment
Sugar Bio-EnergyTechnology
IntegratedCommunityWaste-to-EnergySystems
GeothermalEnergyDevelopment
Electricity, Fueland Fertilizerfrom MunicipalWaste in Tan-zania: A Dem-onstration Bio-gas Plant forAfrica
Photovoltaicsfor Householdand CommunityUse
ImplementingAgency
ApprovalDate
6/94
11/94
5/95
5/94
12/93
2/92
Duration
5 years
5 years
5 years
5 years
3 years
5 years
Total Cost($millions)
$4.0
$10.5
$14.0
$1,334.0
$3.9
$7.0
GEF Shareof Cost
($millions)
$2.0
$3.3
$11.0
$30.0
$2.5
$7.0
StatusProject approved by UNDPreview committee 6/94.
Grant effective 12/93- Imple-mentation underway.
Project appraisal scheduled for1/95.
Associated Bank loans approvedby Board 6/94.
Project beginning implementation.
Project under implementation.
IDB = Inter-American Development Bank; UNDP = United Nations Development Programme.Source: GEF, 1994.
cated or can catalyze other initiatives. For example, ifthe GEF's bagasse projects ultimately lead to "closed-loop" biomass feedstock systems, much larger scalegreenhouse gas reduction benefits are possible. Thepotential for replicating GEF's wind project in Mauri-tania depends on upgrading in-country capability toassemble and fabricate wind generator components.
Trends in Bilateral AssistanceAs with multilateral assistance, bilateral assistance
for renewables has been modest. (See Figure II-2.)Over 1979-91, renewable projects totaled about $1.3billion—only about 3 percent of total reported bilat-
eral energy assistance. Geothermal received the mostfunding, followed by small hydropower. Solar, wind,and other renewable technologies have each re-ceived no more than a tenth of the resources allo-cated to small hydro, even though their ultimate mar-ket potential is probably larger. (See Figure II-3JFunding for renewables reported by donors has beenerratic (See Figure II-4), paralleling the rapid increasein the 1970s and subsequent decline in the 1980s ofdomestic spending for renewables in several donorcountries. In some years, spending spikes werecaused by large individual projects. Bilateral donorstend to focus assistance on certain countries. Al-
Figure 11-2. Individual Donor's Official Development Assistance for Renewable Energy, 1979-91(1991 US$ Million)
United States
United Kingdom
Switzerland
Sweden
Norway
New Zealand
Netherlands
Japan
Italy
International Dev. Assoc.
Germany
France
Finland
European Union
Denmark
Canada
Austria
Australia
Asian Dev. Bank Fund
African Dev. Fund
0 200 400 600
Source: OECD, 1993- Some multilateral assistance sources are included in this database.
800
Figure 11-3. Official Development Assistance for Renewable Energy by Technology 1979-91 (1991 US$)
Solar52,284(3.2%)
•1
Geothermal906,404(56.3%)
Wind36,859(2.3%)
Source: OECD, 1993.
though details of Japan's aid program are not readilyavailable, most of its support has gone for hydro pro-jects in the Philippines and India (OECD, 1993). Al-though Japan's program is largest in absolute terms,small donors (New Zealand, Switzerland, and theNetherlands) rank highest in terms of the percentageof total energy assistance allocated to renewablesfrom 1979 to 1991 (OECD, 1993).
An important objective of many bilateral (andless explicitly, multilateral) aid programs is to pro-mote donor country exports of goods and services.10
Although the distinction between development assis-
tance and export promotion is frequently blurred, itis no accident that bilateral donors often directassistance to technologies and products in whichthey have a comparative advantage in domestic orworld markets. (For example, the Danes have fo-cused on wind turbines and the Italians on geother-mal equipment.)
Tied aid credits ensure that aid recipients will usea donor's goods or services. These credits may begiven either as a pure grant or provided in conjunc-tion with a loan in order to enable more exports perdollar of aid expended.11 Because competition is
Figure 11-4. Percent of Total Energy Official Development Assistance Devoted to Renewables
1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991
Source: OECD, 1993.
keen among OECD donors for shares of the burgeon-ing developing-country markets for power and envi-ronmental technologies, pressure is high to use tiedaid for energy projects (U.S. Office of Technology As-sessment, 1993).
Each donor's experience in providing assistancefor renewables reflects its overall assistance and ex-port-promotion policy. Because comparable evalua-tions of the 18 OECD bilateral assistance programs forrenewables are not available, a comprehensive reviewis not feasible. But the conclusions reached by theUnited States and Germany about their experience ap-
pear broadly consistent with reviews of other bilateral
energy assistance (Barnett and Bharier, 1988).
United States
The U.S. Agency for International Development(USAID) helped fund over 200 renewable energy pro-jects between 1975 and 1988. USAID assistance did notresult in wide-scale diffusion of renewables becausetechnology R&D was emphasized at the expense ofdissemination. Institutional weaknesses in recipientcountries and policy barriers also posed problems. Ac-cording to an internal review of this experience:
• Only commercially mature renewable technolo-gies should be used in projects not explicitly de-signed to promote technology development.
• Only commercially competitive renewable tech-nologies—those that are affordable, easy to ser-vice, and reliable—will succeed, and user in-volvement/market testing should be required aspart of project design, implementation, andevaluation.
• USAID should address fuel subsidies and otherunfavorable policies that hamper the diffusion ofrenewables.
• Applications should be fitted to local social, eco-nomic, physical, and institutional conditions.
• "After-sales" service must be adequate or renew-able energy promotion will fail.
• Local private sector production, marketing, sales,and service are needed to sustainably dissemi-nate renewables and make a significant impacton a developing country's energy sector.
• Improved documentation of past experiencecould increase the rate of future success(U.S. Agency for International Development,1990b).Partly as a result of these findings, USAID now
emphasizes private sector programs to stimulate mar-ket-driven applications of renewable energy sourcesin developing countries (U.S. Agency for Interna-tional Development, 1990a). For example, USAIDfunds the Export Council for Renewable Energy(US/ECRE), a consortium of renewable energy tradeassociations that works with the inter-governmentalCommittee on Renewable Energy Commerce andTrade (CORECT)12 to coordinate governmental re-newable energy export activities. Together, CORECTand US/ECRE identify market opportunities aroundthe world for U.S. renewable energy products andservices and facilitate their cost-effective use (NREL,1992). CORECT encourages member agencies to fundrenewable energy projects, reverse trade missions (inwhich foreign officials visit U.S. renewable energy in-stallations), pre-investment studies, technical assis-tance, workshops, and other informational activitiesfor foreign officials. Coordination of bilateral supporthas helped leverage multilateral initiatives, as evi-denced by the creation of FINESSE and, subse-quently, ASTAE.
Another U.S. bilateral effort to help open foreignmarkets to domestic firms is the private nonprofit In-ternational Fund for Renewable Energy and EnergyEfficiency (IFREE), created to "catalyze U.S. publicand private financial resources" to leverage interna-tional lending for U.S. renewable energy,13 energyconservation and efficiency, and natural gas productsand services. IFREE shares costs for project pre-feasi-bility studies and provides technical assistance tolending officers in multilateral development banksand their clients in developing countries.
Finally, USAID provides technical assistance toseveral countries for specific technologies. It alsosupports the creation of renewable energy supportoffices in several developing countries so as to helpU.S. firms enter local markets.
GermanyThe German assistance agency Deutsche Gesell-
schaft fur Technische Zusammenarbeit (GTZ) haspromoted renewable energy since the late 1970s. Acurrent program seeks to "improve the energy supplysituation in developing countries through the devel-opment and use of renewable energy sources.. .incombination with the exploitation of all possiblemeans of energy conservation" (Wagner, 1988). Overthe years, GTZ efforts have shifted from a supply-dri-ven emphasis on technologies to a demand-drivenemphasis on strengthening local institutions andplanning capabilities and, most recently, to bringingtogether the necessary players for market-based de-velopment (Suding, 1994). Accordingly, GTZ nowemphasizes advisory and extension services and"leans much more heavily toward the provision oftechnical assistance than of financial assistance (5-to-1 ratio)." Based upon experience during 1982-88,GTZ concluded that purely technical solutions failwithout a commercial infrastructure, access to capital,and regional planning. Future projects will focus onproven technologies and on promotion of local insti-tutional capacity.
Looking back at ten years of assistance for thedissemination of small-scale photovoltaic systems,GTZ has recently framed other objectives pertinent torenewable energy assistance too:• Facilitating large-scale dissemination by establish-
ing long-term marketing and distribution systems
B-
that are sustainable without continuing externalassistance.
• Designing finance mechanisms for poor people.• Designing commercially viable, nongovernmental
dissemination processes that make maximum useof private entrepreneurs acting in self-interest.
• Promoting only systems that offer economic andsocial benefits.
• Maintaining strict quality control of well-testedsystems (Bierman et al., 1992).Schooled by experience, both GTZ and USAID
now profess to focus support on technical assistance,more mature technologies, and coordination with theprivate sector. German assistance is still more likelyto finance physical infrastructure (Perret, 1993),though several USAID activities are linked to the U.S.renewable energy industry.
OVERALL POWER SECTOR ASSISTANCE
To understand more fully why renewable energyassistance has had only mixed success, the chal-lenges facing developing-country power sectors andthe response by aid agencies must also be examined.In many cases, donors have provided assistance forfinancing and management of power production, ra-tionalizing electric tariffs, and reforming nationalpower laws and planning procedures but failed toadequately address the implications of this aid on thechoice of generating technology.
Multilateral donors have historically suppliedsubstantial capital for developing-country power sec-tors, and public utilities have invested the lion's sharepartly because electric generation projects are solarge and risky that only governments are willing toinvest in them. Private financial markets have re-mained small in this capital-intensive industry(Khatib, 1993). Indeed, one reason for creating theWorld Bank fifty years ago was to compensate forthe commercial financial markets' failures to providesuch infrastructural lending. Future expansion ofpower sector infrastructures depends on developingcountries' ability to mobilize sufficient capital. Needsare projected to total about $100 billion a year for thenext 10 years, of which 40 percent will need to beexternally financed. In light of growing assistanceneeds in other sectors, however, only about $10 bil-
In many cases, donors have providedassistance for financing and manage-ment of power production, rationaliz-ing electric tariffs, and reforming na-tional power laws and planningprocedures but failed to adequately ad-dress the implications of this aid on thechoice of generating technology.
lion a year is expected to be available for power sec-tor projects from concessional sources (Saunders,1993).
On top of the financial pressures they face in ex-panding capacity, utility managers are forced to ad-dress the poor operating performance of the existingsystem. In most countries, electricity services havebeen provided by state-controlled utilities untram-meled by competition or public oversight. Lack ofautonomy from government surfaced in a recentstudy of 60 diesel power plants in 36 developingcountries as one of nine factors that adversely affectplant performance independent of technology.14 Theother eight are conflicts between economic efficiencyand social objectives (e.g., providing electricity toall), lack of management accountability for plant fi-nancial performance, insufficient training for plantoperation, poor management quality, lack of financial"transparency" in procurement processes, insufficientrevenues to cover costs, lack of timely access to for-eign exchange (especially for maintenance), anddonor policies and procedures that do not promoteefficient operation (Central Project Team, 1991).
Other problems arise when utility managers areinterested only in the centralized utility structures andgenerating technologies common in donor countries,but not well suited to their countries. Partly for politi-cal reasons, utilities have extended their grids intolow-density, high-cost rural areas.15 Many developing-country utilities are plagued by capacity factors ofonly 40% or less, poor power reliability, and large
Figure 11-5. Distribution of Power System Losses in Developing Countries(Number of countries and percentage losses)
1% 21-<23% 23-<25% 25-<30% 30-<35% >35%
Source: Heidarian and Wu, 1994.Note: Ninety-four countries made up the sample.
transmission and distribution (T&D) system losses.(See Figures 11-5 and 11-6.) While some energy lossesresult from theft, others are caused by underinvest-ment in T&D systems relative to generation(Schramm, 1991). T&D system components cause a15 percent energy loss in Kenya, compared to a tar-get of 8 percent (USOTA, 1992). In addition, if a fewlarge central generation units are relied on to servethe grid, investments in new generation can be
poorly matched to demand increases. While manydeveloping countries have capacity shortfalls, totalexcess capacity among others is estimated to be43,000 MW—even with an assumed 30 percent re-serve margin. Thanks partly to a commitment tolong-gestation, large hydropower projects, excess ca-pacity in Colombia reached 24 percent in 1989 andover the period 1986-92 cost the Colombian econ-omy 3-5 times more than the losses incurred from
H -
Figure 11-6. Transmission and Distribution Losses inSeveral Countries (Average percentage losses for1981-85)
0% 5% 10% 15% 20% 25% 30%
Source: Jhirad, 1990.
earlier power outages (World Bank, 1991b). Theshortcomings of the centralized utility model aremore apparent in countries where power loads aregeographically dispersed and load factors are low, orwhere demand for power isn't great enough to fullyexploit the economies of central station generation.
Donor Responses to Managerial and CapitalProblems
In response to the problems just noted, donorshave promoted various sectoral reforms. Power tariffreform has met with some success. Some 19 struc-tural adjustment loans were provided by the WorldBank for this purpose from 1988 to 1992 (Warford etal., 1994). The World Bank also strongly favors intro-ducing competition to developing-country power sec-tors and "vertically unbundling" generation, transmis-sion, and distribution services (World Bank, 1994c).Both bilateral and multilateral agencies have encour-aged power-planning reforms.
Private PowerThe gap between the foreign exchange needs of
developing-country power sectors and aid flows fromabroad implies that total investment will have to bereduced, foreign aid increased, domestic finance in-creased, or private foreign investment increased. Allthese options may play a role in power sector expan-sion, but the last is the most likely to dominate (Bar-nett, 1992). Currently, the status of private powermarkets ranges widely among developing countries.(See Box II-1.) As of 1992, privately financed powerprojects under development totaled over 100 GW(Meade and Poirier, 1992), which will increase in-stalled capacity in developing countries by about 10percent.
The ultimate effects of private involvement on re-newables' market share of developing countries'power output remain to be seen. But some advantagesare already clear. If private investors are to earn ac-ceptable returns, utility revenues will have to be col-lected more carefully from customers, and tariff struc-tures will have to be based more closely on costs.Renewables become more competitive in off-grid ap-plications when utilities charge customers the full costsof serving rural areas with grid extension. Greater en-ergy efficiency resulting from cost-based rates will alsohelp developers match local power demand to avail-able renewable resources. Opening the grid-connectedgeneration market would allow those nonutility re-newable developers offering dispatchable electricpower and agro-industries that produce excess elec-tricity to compete for market share most readily.
Private involvement and competition in powergeneration also poses some disadvantages for renew-ables. Given the high capital and low operating costsof renewables and the market discount rates availableto the private sector, renewables are less likely to becost competitive in private generation markets thanin publicly-developed projects. If the U.S. experiencewith nonutility power generation is any indication,renewables' competitiveness also depends on na-tional and state policy. (See Box IJ-2.) In the UnitedStates, public utility commissions exercise oversightover resource acquisition, but few developing coun-tries have independent public bodies to address mar-ket distortions while opening up generation to pri-vate developers.
Box 11-1. Private Power in Developing Countries
Developing countries are at various stages inallowing private investment in power production.Brazil, Chile, Costa Rica, the Dominican Republic,India, Jamaica, Mauritius, Mexico, Pakistan, Philip-pines, Tanzania, Thailand, and Turkey all havelegislation governing the private production ofpower either pending or in force. Depending onthe specific legislation in each country, industriesmay be allowed to generate their own power andsell the excess to the grid. Elsewhere, independentpower producers may compete with utility projectsto provide new generating capacity or may sellpower to privatized distribution utilities. Fewcountries require their utilities to provide whole-sale power wheeling. Relative to Asia and LatinAmerica, private power lags in many African coun-tries, where venture capitalists are reluctant to in-vest in projects because little beyond verbal com-mitments protects their investment.
Laws allowing private power sales are noguarantee that generation markets will develop. Insome countries, monopsony power by utilities re-main barriers, along with high investment risksand transaction costs. For example, though Brazilallows the sale of private power, the generationutility Electrobras will buy power from cogenera-tors only at the weighted average long-term cost ofpower from its current generation portfolio—not at
the higher marginal cost of new capacity. India'ssugar industry is similarly disappointed with lowpurchase tariffs recently offered by one major stateutility (Mathur, 1994), though another state has of-fered attractive rates (D'Monte, 1994b). The charterof the Indonesian utility PLN was amended in 1979to allow the Ministry of Mines and Energy to li-cense private utilities and cooperatives, but themove produced no immediate results. In CostaRica, where private power legislation has been onthe books since 1990, contracts to bring proposedindependent renewable capacity on line were notsigned until 1993- Most developing countries thatallow private power transactions don't require util-ities to consider project characteristics other thanlowest near-term cost—and only Thailand and theDominican Republic explicitly mention renewablesin enabling legislation.11
a. Tn 1989. Thailand issued regulations definingqualifying facilities for power sales as those that are lessthan 60 MW and derive at least a third of their annualenergy input from agricultural residues. The regulationslist requirements for responding to the utility's powersolicitations and propose a standard contract with en-ergy payments for peak and off-peak periods. In 1990,the Dominican Republic authorized contracts betweenprivate generators and the state utility with priority tononconventional generating technologies (USAID PrivatePower Database, undated).
As part of broad macroeconomic reform pack-ages, multilateral donors sometimes require such sec-toral reforms as greater private involvement in financ-ing or managing power generation projects. TheInternational Finance Corporation (IFC, the WorldBank's private sector lending division) has made di-rect loans to private power developers totaling about$2 billion. Yet, only about $200 million for small hy-dropower projects and no nonhydro renewable pro-jects have been approved (Wishart, 1994; Glen, 1992).
Bilateral assistance promoting private power gen-eration has covered project prefeasibility studies, con-
ferences, and other activities. USAID has sponsoredprograms to encourage nonutility generation in India,Pakistan, the Philippines, the Dominican Republic,and Costa Rica. A primary goal of the Indian privatepower assistance program is to improve local utilityofficials' ability to evaluate proposals by private de-velopers. The U.S. Export-Import Bank, which nowhas a project finance group, authorized in FY1994about $1.5 billion in power generation loans andguarantees. Two geothermal projects constituted 23percent of this total and a biomass project receivedanother 3 percent.
Box 11-2. Competition and Renewables' U.S. Market Share
'Ilk- li;~s I'uhlii I liliiii-s Kcgulaiorv I'olicics
Ai l (IMKI'Ai required I .S. utilities lo purchase
power In mi qualifying renewable power ;IIKI <•<>-
gencralion facilities <ol;s) ;n pikes based on their
avoided costs. Uencwables fared well in ilk- k-n
slates lhal had favorable huyhack policies ami
loniraciual inientivvs anil tin1-*1 Males now ac-
inuni for ~.-i percent i l l ' i lk- nations (.)]' capacity
(ll. imrin and Kader. I'W.S).
liy 1WI. concerns about cost effectiveness
and m e n apacity prompted M> stales lo implement
competitive bidding among all power MIUI'U'S.
Sunk" utilities began purchasing pnwi-i1 lo a\uii l in-
vesting in new caparily themselves. HIM. given the
near obsession in i.oin|X-liti\e hidding mi Inwi-si
iosi \IUY KW'h. only 1 perceni of all i;i|iaciiy ac-
quired under Mich Mliemes was renewable durinf>
I'W.-i. Tu improve- ihe percenlajie. si-\eral stales re-
(|iiire ulililie.s ID consider i li.ir.uleiisiic.-, oilier lli.m
cost when developers siihmil liids tor power pur-
chases or. alternaiivi-K. lo limil some compelilively
hid capacity to renewal>k*s (Ko/liilV .iiul Dower.
I'W.^i. National k-.uishnion in ll)l)2 fun her boosted
competition tor power generation b\ relaxing
ownership iei|iiiremenls for nonuliliiv generators
.mil rei|iiiring utilities to provide independenl de-
vclopiM-s with access to transmission lines, further
restnicluiing ol ihe povvvr >v.vior lo j l low reiail
competition is being proposed in several stales.
Increased wholesale and reiail tompelil ion in
ihe I'.S. power seclor i.s likelv to have .several el-
let ts on renewables. (v)l: sums siill lonlers benefits
lo developers of renewable power, but because ol
heightened competition Irom natural gas project
developers, is unlikely to result in the high level ol
renewable capai iiy added during the IW(K. To re-
lain customers, utilities strive lo keep rales clown
bv reducing investments- in new generating capac-
ity parlkularly il it's unfamiliar or capital-intensive,
regardless of whether such investments might im-
prove their position in the long run. Also io cut
costs. | { \ | ) .staffs in some utilities have been
downsized, parliculaily in power generation. II
generation, transmission, and distribution services
are unbundled, distributed generation opportuni-
ties that provide grid support may not be readily
evaluated because generation will be organization-
allv. analytically, and I'inaniially separated from
transmission and distribution functions. Also, re-
newable power developers, whose projects must
be sited where ihe resource is located, may not be
able io find buyers lor iheir power as e.isilv as
nonrenewable competitors, finally, private projects
using intermittent renewable resources are nol
considered In uiiliiie.sih.il impose dispali liability
requirements, even when the project's power oul-
pul has some capaiitv value. In some cases, en-
hancing ihe capaciiv value ol a projetl based on
an iniermillent resource mav only require evaluat-
ing the project's output in combination with lhal of
other inlermillent generators or the uiil i lvs own
general ing porl folio ( Ko/lol'l and Dower.
.1. Kii.iil itimpeiilimi is .iliv.uk allowed in NewA-.il.uitl. Virvv.iy. .mil ihe I niu-il l\in.i>dtiin i ri.ivin .mil
Several avenues are possible for private financ-ing, depending on project size (capital requirementsand generating capacity) and other characteristics. Aprominent mechanism is the build-own-operate-trans-fer (BOOT) scheme whereby at the end of a speci-fied period, say 10-15 years, project ownership istransferred to the government. In other financing
models, no transfer occurs at the end of a specifiedterm, a government utility constructs a plant that itthen sells to a private owner-operator, or a govern-ment utility leases a privately constructed and ownedplant. In every case, investors must be confident ofgetting hard currency returns from their investments.That said, their typically high capital and low operat-
ing costs mean that renewable generating technolo-gies may require different payment terms than nonre-newable projects.
What has been the net effect of increased privateparticipation in power projects on market penetrationby renewables? The preponderance of independentpower projects and aggregate capacity proposed fordeveloping countries between 1987 and 1991 hasbeen nonrenewable. (SeeFigure 11-7.) The sameholds true for India in 1993. (See Figure 11-8.) Lessthan 1% of the overseas capacity proposed by U.S.developers was renewable in 1993 (Hyman, 1993).
To their credit, donors have initiated programsintended to direct at least a small portion of privatecapital flows to renewable power options. A U.S.Government-backed private equity fund identifies re-newable power projects as eligible, though it is lim-ited to investments of $5 million to $10 million (Inter-national Solar Energy Intelligence Report, 1994). In1994, the U.S. Export-Import Bank began to offer fi-nancing enhancements for renewable energy andother environmentally benign projects. Renewableswould also be eligible for funding by a World Bankprogram proposed to attract venture capital to green-house gas mitigation projects (World Bank, 1993c).
The effectiveness of these efforts in garnering ashare of private capital flows for renewables will de-pend on the extent to which developing countries'procurement policies stimulate renewable capacityproposals. So far, however, donors have not ade-quately recognized the connections among such poli-cies, private power markets, and technology choices.For example, a World Bank/USAID manual for devel-oping countries on evaluating private power propos-als contains virtually nothing on this issue (WorldBank and USAID, 1994), nor does a USAID reportthat discusses power sector restructuring as a re-sponse to the risk of climate change (USAID, 1994).
Power PlanningThe choice of generating technologies for capac-
ity expansion is deeply influenced by the planningtools that utilities have at their disposal. The WorldBank's primary power sector planning tool was origi-nally developed to cover large central station genera-tion (specifically, nuclear power) and cannot readilybe used to evaluate such modular or intermittent
The choice of generating technologiesfor capacity expansion is deeply influ-enced by the planning tools that utilitieshave at their disposal
generation options as wind turbines. Yet, the Bank'splanning processes and analytic tools for power in-frastructure investments are often adopted by devel-oping countries (Meier, 1990).
In addition, few planning processes adequatelyaddress load-forecast uncertainties, biasing the out-comes of these processes in favor of large incrementsof generating capacity.
Power system expansion planning is subject to aconsiderable degree of uncertainty with respect toload forecast, time and cost-to-completion of newplant, fuel costs, and technological innovation.Many power system planners continue to useforecasts of these planning parameters as cer-tainty-equivalent characterizations of the future,despite the generally poor concurrence betweenthese ex-ante forecasts and actual ex-post situa-tions. Such disregard of uncertainty greatly en-hances the prospects of future imbalances be-tween the demand for power and the systemsupply capability, as well as erroneously biasingthe selection of plant types to meet demand atleast cost (Sanghvi et al., 1989, abstract).
A review of some 200 electricity-sales forecasts madefor 45 countries for 1960-85 reveals a strong bias to-ward overestimation, and accuracy deteriorates asforecast horizons lengthen. Even with the best analyt-ical tools, the scope for reducing uncertainty in loadforecasting appears limited (Sanghvi et al., 1989).
Partly in response to the poor or deterioratingperformance of developing-country utilities, donorshave offered technical assistance to improve planningcapability. A primary multilateral vehicle for this aidis the Energy Sector Management Assistance Program(ESMAP), jointly sponsored by the World Bank andUNDP. While ESMAP is supposed to provide more
Figure 11-7. Generating Technologies' Market Share in Megawatts of Proposed Private Power Projects, 1987-91
Note: Status as of 1992 ranges from inactive to operating.Source: USAID Private Power Database, 1992. This database is representative but does not include all privatepower projects.
technical assistance for environmentally friendly en-ergy options in the wake of the Earth Summit (WorldBank, 1993a), power sector restructuring has domi-nated its recent activities (UNDP and the WorldBank, 1993).
An example of bilateral assistance is the USAID-sponsored Utility Partnership Program, which hasbrought together U.S. and Eastern European utilitypersonnel to address basic managerial and opera-tional issues (USEA, 1994). In addition, under UNDPauspices a group of large electric utilities from indus-trialized countries has agreed to share their expertisewith developing country utilities in integrating envi-ronmental considerations into planning. Even theseassistance efforts, however, may not connect a util-ity's choice of generating technology to its environ-mental and financial performance.
One approach developed in the U.S. to improveutility planning is integrated resource planning (IRP)which analyzes the full range of supply- and de-mand-side resource options for providing electric ser-vices in a "least cost" context, and assesses the envi-ronmental and financial risks of these options. Someform of IRP has been adopted by most U.S. states(though the advent of competition-driven restructur-ing has clouded the further diffusion of IRP). In thelast few years, bilateral and multilateral agencies, aswell as NGOs, have begun to promote modified IRPin a few developing countries. Brazil, Costa Rica, Ja-maica, Mexico, Sri Lanka, and Thailand have takensome steps already while China is considering adopt-ing IRP for certain regions.
The primary purpose of international assistancein transferring IRP concepts and methodologies has
Figure II-8. Generating Technologies' Market Share in Megawatts of Proposed Indian Private Power Projects, 1993
Source: Payne, 1993.
been improved consideration of demand-side man-agement (Phillips, 1993). This emphasis helps renew-ables because they complement improved energy effi-ciency and because improved end-use data andanalysis can also identify potential renewable applica-tions. However, adopting IRP as commonly practicedin the U.S. does not necessarily ensure that the distin-guishing characteristics of renewables will be fairlyconsidered when utilities decide what type of genera-tion to add. Moreover, planning for generation, trans-mission, and distribution investments is not well inte-grated. For example, high transmission- anddistribution-system costs imply substantial savingsfrom end-use efficiency improvements, but may notlead utilities or donors to evaluate distributed genera-
tion options. And while tools exist for analyzing howmodular generation projects with short lead times af-fect financial risk (Hirst, 1992), few utilities use them,even in the United States (Cadogan et al., 1992).
Whether IRP or otherwise, planning reforms haverecently been overshadowed by privatization as thefocus of technical assistance to developing-countrypower sectors, mirroring the ongoing power sectorrestructuring within some donor countries, notablythe U.S and U.K. {See, for example, Elliott, 1993).Technical assistance that promotes competition andvertical unbundling may be premature, given thatdonors have only limited experience in resolvingconflicts in their own power sectors between suchrestructuring and resource planning reforms.
III. DEVELOPMENT ASSISTANCE PROJECTS AND PROGRAMS FORRENEWABLE ELECTRIC GENERATION
Only part of the story is told by trends in finan-cial and technical assistance for renewables and de-veloping-country power sectors. To highlight more ofthe determinants of development assistance's effec-tiveness, 11 projects are examined in this chapter.They span a wide range of country settings, tech-nologies, time periods, and types and levels of assis-tance. Technology-independent aspects of project de-sign and implementation are pinpointed by drawingexamples of photovoltaic (PV), wind, geothermal,mini-hydro, and biomass from at least two coun-tries.16 Unlike many early efforts in which installedequipment did not work, these projects all met withsome measure of technical success and are assessedhere in terms of their prospects for replication. For afew newer projects, replicability had to be inferredfrom their design rather than experience.
To the extent allowed by available data, projectsare compared according to how well they address in-adequate access to capital and insufficient local ca-pacity for commercial development and deployment.Renewable energy assistance projects cannot bythemselves overcome the third barrier discussed inChapter I, energy market distortions, but can be lo-cated where market conditions are likely to allowproject replication. In fact, only 5 of the 11 projectswere implemented in countries where electricity rev-enues appear based on marginal costs. (See Table III-
1.) When a utility's revenues do not recover its costsof service, attracting capital to finance capacity ex-pansion (of any type) becomes more difficult. More-over, replicating off-grid renewable projects is harderwhen potential recipients are promised subsidizedgrid extension.
PHOTOVOLTAICS FOR RURALELECTRIFICATION
Off-grid PV systems for household lighting,water-pumping, and other uses are proliferating inmany countries. In Colombia, the Dominican Repub-lic, Mexico, Sri Lanka, Zimbabwe, and Kenya, private
Table 111-1. Recent Electricity Rates and IncrementalCosts in Case Study Countries
Brazil
China
Dominican RepublicIndia
KenyaMauritius
Morocco
NepalPhilippines
AverageElectricityRevenueUS centsper KWha
6.00 (1994)
1987 AverageIncremental
Cost of SystemExpansion(US centsper KWh)b
7.34
1.62-3.29 (199D 6.0211.0 (1992) 8.50
3.14-8.80 (1990) 8.04
6.25 (1987)12.46 (199D
8.30 (1991)
370 (1991)5.20 (199D
5.63n.a.8.21
10.536.29
n.a. Not available
a. Ranges for China and India reflect tariff classes for
one utility rather than average revenues.
b. Presumably, incremental costs increased between
1987 and when average revenues were calculated.
Sources: Heidarian and Wu, 1994; World Bank, 1990.
Brazil revenue figure from Luis Vaca-Soto, World
Bank. Dominican revenue figures from Hankins,
1993.
sales of PVs are significant. In fact, more rural house-holds in Kenya receive electricity from PVs than fromthe grid (van der Plas, 1994). In most projects, theamount of power supplied is sufficient only for light-ing and other modest domestic uses.
BrazilThe availability of off-grid electricity in Brazil has
been constrained by the lack of institutions capableof financing and delivering it. To address this barrier,
the U.S. Department of Energy (USDOE) developed ajoint project with the state governments of Pernam-buco and Ceara in northeast Brazil to install 750 homelighting and 14 larger PV systems and to train localpersonnel. USDOE is also providing technical assis-tance for program planning, implementation, andmonitoring. Local utilities—which own, install, andmaintain the systems—collect small tariffs from systemusers. The immediate project objective is to "establishand assess the efficiency, operability, and reliability ofsolar energy-based rural electrification in a pilot pro-ject" (Taylor, 1993). The ultimate goal is to attractmultilateral finance for substantial project expansion.
The cooperative agreement between USDOE andthe two states was announced during the 1992United Nations Conference on Environment and De-velopment in part to demonstrate U.S. commitmentto sustainable development. USDOE subsequentlycontracted its National Renewable Energy Laboratory(NREL) to oversee the four-year implementation. Inturn, NREL arranged for joint implementation, opera-tion and maintenance (O&M), and evaluation withthe Companhia Energetica de Pernambuco (CELPE),Companhia Energetica de Ceara (COELCE), and Cen-tro de Pesquisas de Energia Eletrica (CEPEL), the re-search branch of the Brazilian utility holding com-pany, Eletrobras (Taylor, 1993).
USDOE has committed some $855,000 to the pro-ject, including $677,000 for equipment and services(to be provided by Siemens Solar International) and$100,000 for a service subcontract with CEPEL. Brazil-ian parties have committed approximately $2,067,000for balance-of-system equipment, installation, O&M,oversight, evaluation, and reporting. This sum in-cludes $1,100,000 from Eletrobras (financing CEPEL'sinvolvement), $150,000 from FINEP (the Brazilian fi-nance ministry), $362,000 from CELPE, and $455,000from COELCE.
Monitoring and evaluation is intended to providethe information needed to refine the project and in-form utilities, policy-makers, and the public about theviability and characteristics of PV rural electrification.In addition, involving two state utilities, the nationalutility research organization and the national utilityholding company, should develop these institutions'capacity to implement additional PV projects.COELCE has subsequently begun working with GTZ
to deploy PV-driven pumps. Since 20 million ruralBrazilians (23 percent of the population) have noelectricity, PV's potential market is huge. In a secondproject phase now under way that includes windpower too, six additional states have expressed inter-est in similar pilot programs. USDOE will finance upto $250,000 in each state that meets several condi-tions. These include 50 percent state-utility cost shar-ing and a commitment to request large-scale financ-ing if demonstrations succeed (NREL, 1993). CEPELhas established a PV working group to help other in-terested states learn about PV applications.
The project has enhanced capacity on the de-mand side of the market (Brazil's power sector) butnot on the supply side. Siemens Solar is the soleequipment supplier—ostensibly because its modulesare cheaper than those produced by Heliodinamica, aBrazilian PV manufacturer whose goods are pro-tected by an import tariff. Nonetheless, bypassing anindigenous manufacturer already serving local mar-kets caused a stir {Energy, Economics and ClimateChange, 1992; International Solar Energy IntelligenceReport, 1992)17.
In addition, the project's design may not promotesustainable PV diffusion. Because end users make nodown payment and pay for little more than O&Mcosts, participating utilities do not fully recover costs,which makes it hard to internally finance large-scalereplication. Given the need for large amounts of for-eign capital and a shortage of utility revenue to repaydebt on previous power projects, international lendersare not eager to finance additional electrification inBrazil. Thanks to a recent law, Brazilian utilities maynow charge cost-based tariffs, but the law's imple-mentation has been suspended to help curb inflation.
Dominican RepublicQuite different from the public sector approach
used by USDOE in Brazil is one used in the Domini-can Republic to address capital and institutional barri-ers to PV deployment. Since 1984, Enersol AssociatesInc., a U.S.-based nongovernmental organization(NGO), has supported the development of indige-nous Dominican supply, service, and financing mech-anisms and a market-driven demand for householdPV systems. Enersol has used donor grants to train anetwork of local entrepreneurs to assemble, market,
install and service the systems; develop a community-based solar NGO to manage revolving loan funds forindividual end-users; and help local community-de-velopment and financial NGOs develop full cost-re-covery finance of the systems. Enersol is also usingdonor grants to replicate the Dominican entrepre-neur/professional training and NGO loan model inHonduras and Guatemala. Enersol's immediate objec-tive is to develop an "open-ended self-sustainable"program for solar-based rural electrification and,eventually, to integrate solar technologies with ruralsocieties in Latin America.
Because a standard home PV system costs morethan half the average annual per capita income in theDominican Republic, credit is essential if PV is topenetrate its rural energy market. Accordingly, a keycomponent of the Enersol model is a network of lo-cally managed NGO credit programs to finance sys-tems using revolving loan funds capitalized by exter-nal donors. Recipients must repay full capital,installation, and market interest costs with monthlypayments over two to five years. The default rate forthese credit programs is less than 1 percent, thoughlate payments are not uncommon (Doernberg, 1993).Other rural Dominicans have purchased systems withcash or informal three- to six-month loans providedby system suppliers.18 In addition to building capacityfor household systems, Enersol created a program tohelp communities finance and implement PV water-pumping and community-lighting projects.
This program began in 1985 with 6 systems,grew to 100 in 1987, more than 1,000 in 1989, and2,000 in 1993 (Hankins, 1993; Hansen and Martin,1988). More capital for local revolving loan programsis needed for further expansion, but even so the totalnumber of Enersol-associated systems is expected tosurpass 2,400 in 1994, with the help of a $50,000Global Environment Facility (GEF) grant. In addition,a $55,000 Rockefeller Foundation-sponsored "bridgefund" is being used to provide loan guarantees toDominican banks, which in turn provide commercialloans for local NGOs to finance additional PV homesystems. Since bridge fund monies remain in an inter-est-bearing U.S. account, the capital becomes avail-able to leverage financing of new PV systems aftercurrent guarantees expire (unless the NGOs default).Including private sales outside the Enersol network,
the total number of systems exceeded 4,000 in1993—1 percent of all unelectrified rural householdsnationwide (Hankins, 1993).
Growth of the Dominican PV-home-system mar-ket has led to several related developments. First, fif-teen commercial installation businesses, four equip-ment importers, and two balance-of-system (chargecontrollers) manufacturers now supply this market.Second, the infrastructure developed to support smallsystems has provided the basis for development oflarger community lighting and water pumping sys-tems. Third, building upon its Dominican experience,Enersol in 1992 opened a Honduran field office,through which it has conducted PV technician andprofessional training and established an additional$40,000 "bridge fund" that provides access to creditthrough local NGOs.
Enersol founder Richard Hansen attributes theprogram's success to several factors: simple, econom-ical, stand-alone systems; emphasis on training anddevelopment of local human resources; village-levelfocus and control; local capital generation to ensurecommunity responsibility and support for the pro-jects; and parallel development of credit programs,service enterprises, and technical and organizationalhuman resources.
The program has also benefited from demand forlimited electrical services that was previously met bydry cells to power radio/tape recorders and car bat-teries to power televisions. The domestic supply ofcar batteries can now be used for PV systems.19
Use of locally fabricated PV panels is not an op-tion in the Dominican Republic. Indeed, India andBrazil are the only two developing countries that cur-rently manufacture PV cells. Most batteries andcharge controllers are manufactured in the Domini-can Republic, so, if installation is included, the localvalue added constitutes approximately 50 percent ofthe total value of the systems.
GEOTHERMAL POWER GENERATION
Few enterprises in developing countries are largeand diversified enough to assume the investmentrisks associated with geothermal exploration. More-over, returns from the up-front investment in devel-oping a geothermal field are more gradual than from
mineral extraction. Financial and technical assistancehave thus been critical to enable developing coun-tries to exploit their geothermal potential.
PhilippinesUse of geothermal resources for power produc-
tion is well established in the Philippines, which de-rived 21 percent of its national power supply fromsuch resources in 1992 and which has targeted 1,675MW of geothermal capacity over the next decade.National agencies have gained experience in geother-mal development through past projects and bilateraltraining agreements with Iceland, Italy, Japan, NewZealand, and the United States. Access to capital,however, remains a constraint.
To increase Philippine geothermal capacity, pro-vide a demonstration for private investors, and in-duce additional private geothermal development, theWorld Bank, GEF, Japanese Export—Import Bank, andthe Swedish Agency for International Technical andEconomic Cooperation are jointly financing a large-scale geothermal power project on the Philippine is-land of Leyte. Based on previous exploration, a 440-MW project was approved.20 At this capacity, theproject cost an estimated $90 million more than acomparably-sized coal-fired plant proposed for the is-land of Luzon. (The cost difference stemmed fromthe need to build a 480-km EHV transmission linefrom the project site to the load center on Luzon.)The GEF grant and bilateral cofinancing reduce thecost difference between geothermal and coal-firedpower development, thus leveraging much greateramounts of multilateral and private investment forplant construction. (See Table III-2). By providing anational interconnection, the project should over-come the high cost of transmitting power from re-mote geothermal fields to load centers. If ultimateproject capacity is at least 880 MW, geothermal devel-opment would become the "least cost" alternative—even without concessionary funding. (Estimated geot-hermal resources in the region would supportgenerating capacity of 800 MW to 1200 MW.)
Private capital for the power plant itself was en-gaged through a "Build-Operate-Transfer" (BOT)arrangement. To attract private sector financing, thehigh geothermal resource royalties otherwise paid tothe government were reduced by statute. Procure-
Table 111-2. Leyte-Luzon Geothermal Cost andFinancing Sources (US$ million)
Project CostsGenerationTransmissionResource Development
Interest During Construction
FinancingGlobal Environment Facility grant
Swedish grantWorld Bank loan
Japanese loan
620
33131568
30
39240
170
Foreign private loan guaranteed by World Bank 100
BOT financing 620
Internal cash generationa 134
a. Philippine National Oil Company and National
Power Corporation.
Sources: Harris, 1994.
ment was facilitated by establishing a project directorwithin the government and selecting a turnkey con-tractor based on international competitive bidding.No local vendors were deemed capable of imple-menting the project.
Despite this project's likely technical success andthe inclusion of a resource assessment for future geo-thermal development (GEF, 1991), future develop-ment of nearby geothermal resources is not assured.The lead government agency (the Philippine NationalOil Company) has not been able to change the per-ception (based partly on the previous Mt. Apo geo-thermal project) that geothermal development carrieslocal ecological risks. Moreover, people on Leyte rec-ognize that they will bear the brunt of whatever eco-logical and cultural costs are incurred while most ofthe power will be shipped elsewhere. Leyte's dis-persed population might be better served by off-gridpower sources, but providing such services was notpart of the project package.
ChinaThe United Nations Department of Economic
and Social Development (UN-DESD) has recentlycompleted a Tibetan geothermal demonstration plantbegun in early 1991- This United Nations Develop-ment Programme (UNDP)-supported initiative alsoincluded technical and managerial training, informa-tion gathering, and energy planning. To address in-stitutional capacity and capital barriers, the projectwas intended to strengthen Chinese technical andmanagerial expertise related to exploiting geother-mal reserves; provide the hard currency needed toobtain advanced geothermal utilization technologiesand equipment; and provide resource availability in-formation. The Chinese government is seeking addi-tional electricity generation in Tibet due to large ex-pected demand increases, reduced hydropowergeneration during the winter, limited traditional fuelresources, and irregular supplies of imported oil(UNDP, 1988).
The principal project output is the 1-MW demon-stration plant. Before it was built, the only power inthe area (Nagchu) came from a diesel generator thatoperated at only about half its rated 1.6 MW capacityand for only about 5 hours a day—due to high fuelcosts and maintenance problems. Output from thedemonstration plant alone is expected to meet about40 percent of the area's current annual power needs.Industrial development planned by the Chinese gov-ernment would, however, boost annual power re-quirements by about 50 percent. Most people in thisarea are Tibetan; data were not available on the ex-tent to which they were involved in planning and im-plementing the project relative to immigrant ethnicChinese.
The plant employs a binary-cycle technology thatcan exploit geothermal resources at lower tempera-tures than conventional technologies can. While cost-effectively used in several industrial countries, thistechnology had not been used before in China whichlacked the hard currency needed for equipment andtechnical training (Cuellar, 1993)-21 Project staff alsoassessed the viability of using the binary-cycle gener-ation technology to exploit other local low-tempera-ture reserves. (UNDP provided local institutions withthe exploration and monitoring equipment needed tocollect resource information.)
Chinese staff were extensively trained throughcooperative work with foreign geothermal expertsduring both the resource assessment and constructionstages, as well as through extensive internationaltraining. This instruction for planning and managerialofficials, engineers, and technicians helped local insti-tutions plan, manage, operate, and maintain geother-mal resources and associated generation equipment.
UNDP has provided roughly $5.3 million in hardcurrency, including $100,000 for expatriate consul-tants and advisors, $875,000 for a geoscientific ser-vices subcontract, $200,000 for international trainingof the Chinese staff, and $4.2 million for equipment(including $2.5 million for the binary-cycle plant and$1.7 million for equipment for drilling six explorationwells). The Chinese Government provided RMB Yuan66 million (at that time, $1.00 = RMB Yuan 5.21) to fi-nance a core staff of about 40 persons (mainly geo-logical scientists and engineers) and an additional un-specified number of support personnel, an on-sitetraining program at the Beijing and Tianjin Universi-ties, and support services and equipment.
KenyaOf the several East African countries with signifi-
cant geothermal resources, only Kenya has capacityon line—40 MW or 6 percent of the country's gener-ating capacity. External assistance has been used tobuild institutional capacity and hurdle capital barriers.As in China, initial assistance was provided by aUNDP grant for exploration; Kenya's governmentcontributed only local currency. Interest in the pro-ject was first expressed by a private British companythat was providing electric power in Kenya. Thecompany was nationalized about the time the projectwas implemented.
The first exploratory holes were drilled at Olkariain 1958, but because the nationalized utility didn't ex-plore as diligently as its predecessor, significant re-sources were not discovered until 1972. Differentministries then vied for control of the project, delay-ing implementation another five years. The WorldBank (which rarely lends for resource exploration) fi-nanced project construction, though only after theKenyan government transferred to a two-party politi-cal system. The plant finally went on line in 1982. Bycurrent estimates, the Olkaria field contains 500 MW
of capacity, and the Kenyan government is now so-liciting private equity investment to exploit it.
This project has stimulated local scientific andengineering training in geothermal development. In-deed, Kenyans now serve as geothermal consultantsto other African countries. However, because the util-ity has largely relinquished control of project activi-ties to foreign contractors and because procurementcontracts are linked to conditional finance agree-ments, the use of this expertise in progressive stagesof the project has actually declined (Khalil, 1992).22
WIND
Long-term familiarity with wind pumps and millsin many countries has undoubtedly helped pave theway for modern wind turbines. For example, Ar-gentina has had a thriving windpump manufacturingindustry for almost a hundred years, and as of 1992,well over 20 windpump manufacturers operated inAsia, Latin America, and Africa (Stockholm Environ-ment Institute, 1993; Hurst, 1990).
IndiaTo address Indian utilities' lack of capacity to in-
tegrate wind power projects into their grids, the Dan-ish International Development Assistance Agency(DANIDA) helped the Indian Department of Non-Conventional Energy Sources (DNES, now a min-istry), the Tamil Nadu Electricity Board (TNEB), andthe Gujarat Energy Development Agency (GEDA) de-velop three demonstration wind farms with a total of20 MW capacity.23 Assistance also supported techni-cal cooperation to develop indigenous wind-farmplanning, implementation, and operating and mainte-nance (O&M) capabilities (T. Bak-Jensen/PA Consult-ing Group, 1992). The project was initiated by DNES,which requested a DANIDA appraisal mission thatwas conducted in December 1986. A year later,DANIDA retained an experienced Danish wind en-ergy consulting firm to plan, design, and oversee im-plementation of the project, and the agency con-tracted two well-established Danish manufacturers tosupply and install equipment.
The project emphasized local participation andshared responsibility. All three Danish firms were re-quired to work closely with local partners to develop
indigenous technical capacity. In addition, the state-level implementing agencies, the TNEB and GEDA,were responsible for preparing their respective sitesand constructing access roads, foundations, transmis-sion lines, and substations. Danish contractors manu-factured and delivered the turbines and 90 percent ofthe towers, which were then installed at the preparedsites. (Ten percent of the towers were manufacturedlocally.) On-site training in planning, implementation,and O&M was supplemented by off-site training inthese topics, as well as in constructing and replacingwind-turbines and central monitoring systems.
During the first year of operation, the two TamilNadu wind farms produced 23,548 MWh (92 percentof estimated production). The wind farm in Gujaratproduced only 8,810 MWh (47 percent of estimatedproduction) due to initial operational difficulties. Ex-perience was gained in wind farm planning, imple-mentation, and management by DNES and the stateelectricity board staff members. Local staff are nowtrained enough to operate and maintain the farms.
After its wind farms proved themselves, theTNEB asked the local consulting firm that partici-pated in the project to prepare a wind-power devel-opment Master Plan for the state, announced plans toinstall 100 MW of wind capacity, and identified thesites of future substations for connection to privatewind farms to encourage private investment. Al-though the GEDA has understandably been less en-thusiastic, it has nonetheless established an internalwind farm unit, conducted a DANIDA-funded studyfor future wind development for its grid, and said itwould finance two substations to be connected toprivate wind farms. Private investors have financedthe installation of 1.5 MW of wind capacity near oneof the Tamil Nadu wind farms and private ordershave been placed for an additional 4.25 MW ofcapacity.
Assistance has also afforded local contractors ex-perience in civil and electrical works. Indian firmsthat constructed some of the towers subsequently ob-tained approval to manufacture 100 KW to 300 KWgrid-connected turbines. Their phased productionplans call for a gradual increase of indigenous con-tent from 40 percent (towers only) the first year to"full" production (towers, generators, controllers, andblades—about 90 percent of the equipment) the
fourth year. DNES hopes to create enough demandunder the Eighth Plan to sustain local production byat least five public and private manufacturers.
At the national level, DNES has established a500-MW construction target (300 MW publicly fi-nanced and 200 MW privately financed) within itsEighth Plan (1991-95) and offered tax incentives forprivate wind projects. Up to 70 MW of the private ca-pacity may be financed through the Indian Renew-able Energy Development Agency, sponsored by theIBRD, International Development Association, andGEF. An apparent outgrowth of the earlier experi-ence, much of the new wind capacity is being sitedin Tamil Nadu (100 MW by 1994's end), andDANIDA, along with other donors, will likely providemixed credit financing. The 500-MW national targetwill be exceeded if several states complete approvedprojects totaling 500 MW, along with another 180MW under consideration (D'Monte, 1994a). Still, costsmay have to drop before wind power can compete,without substantial subsidies, with conventional ca-pacity (ESMAP, 1992).24
The experience of seeing small applicationsprove themselves appears to have caused wind tech-nology in India to move from initial demonstration toa stream of equipment orders by Indian utilities aswell as to private investment in windfarms. Twoother keys to success were project size (large enoughto interest both public and private stakeholders) andthe decision to use progressively more locally manu-factured equipment in each year of the project. Thisexperience offers success factors that apply to othergrid-connected renewable projects. (See Box III-l).
MoroccoThe Centre de Developpement des Energies Re-
nouvelables (CDER) is a USAID-sponsored agency re-sponsible for helping to commercialize renewableenergy in Morocco. In 1988, CDER contracted BergeyWindpower Co. (BWC) to implement a water-pump-ing project in a small Moroccan village (Bergey,1991). The proposed wind-electric pumping systemwas expected to be more efficient and less expensiveto operate and maintain than conventional diesel ormechanical wind pumps. Major project objectiveswere to provide technical and economic performancedata, finance a first-of-a-kind field demonstration, and
Box 111-1. Wind Project Success Factors
\ddiiional l.klois haw conirihuird lo D.WlD.Ys
siinvss with wind proji-i I.N in India .nxl else-
win.-iv: I i lominiitiu-iil .nul active involvi-menl b\
national poliiv planners .mil utility officials- who
haw tin- ability in implement large projects; 1)
i k-ar ili-liniiinii of projei! objf i lives (lor evimple.
separation ot KXD I mm demonstrations): -i) allo
cation ol sullicient resources lor planning and ap-
praisal: i) s^paialinn ot implementation from ap-
praisal activities b\ using dillereni contractors: S)
inti'jiialion ol projects with national powiT si-rinr
planning: (') provision ol lei Imicai assjstanic lor
planning, implement.uion. training, and si-rviiv:
~i UN.11 ol' multiple local contractors |or infrastruc-
ture i onsiruction. linanced where possible by iv-
i ipient: S) loi us on a single lei hnology and ap-
plit alii in. and ')> locus on larger (.outlines lo
ma\imi/e economies ol Male in developing phys-
ical inlrasirucliire and returns in insiitutional in-
vesimi-nis ( I1. kik-|cn.si.-n. I 'Wh.
provide a visible application to stimulate demand andencourage political support for the technology. Inother words, the principal barrier addressed was in-sufficient national capacity to commercialize a newtechnology.
A USAID grant of $120,000 financed the project.The funds came as part of a larger grant for improv-ing the technical capability of the CDER that alsocovered U.S. consultants and local staff. Research andtesting were funded by the U.S. Solar Energy Re-search Institute.
Implementation involved several steps. In mid-1988, before the wind turbines and pumping systemswere installed, they were laboratory and field testedand a CDER technician was trained—both in theUnited States. Next, BWC surveyed the project site,which was located in the home province of the Mo-roccan Minister of Energy and Mines (a bid for politi-cal support that proved ineffective). The DelegationProvinciale d'Agriculture (DPA) then constructed theturbine tower's foundations and water tank accordingto BWC's specifications. BWC subsequently installed
the pumping equipment and turbines and conductedfive hours of operational and service training for localoperators.
The project has had to overcome several chal-lenges. The systems can supply 220 percent morewater than previous diesel pumps, but just after theproject was completed in 1989, they operated onlyintermittently. Operation has since improved after alocal entrepreneur began servicing them. Early prob-lems were attributed to the immaturity of the technol-ogy, CDER's weak technical support staff and lack ofcommitment to the project, and inadequate local pro-ject management. CDER's lack of support in turn wasdue to previous negative experience with a "costlyand unsuccessful" wind project, unexpectedly highproject costs, "different interpretations...[of] the na-ture and level of support" expected from CDER, theproject's distance from CDER headquarters, timingproblems (the project was installed during themonth-long Ramadan holiday), and low staff morale(Bergey, 1991)- Local commercialization was also in-hibited because the two-machine project was toosmall to stimulate interest in Morocco (in contrast towindpower development in India), local technicalpersonnel were insufficiently trained to maintain anunfamiliar technology, and a mechanism for over-coming high upfront costs was lacking.
In assessing the effectiveness of the bilateral as-sistance, neither private entrepreneurs in Morocconor the Moroccan government have shown much in-terest in disseminating the technology since the initialdemonstration, despite recent improvements inCDER's overall capability. On the other hand, theUSAID grant gave BWC an incentive to design a newwind-electric pumping system that is more reliableand has lower lifecycle cost than diesel pumps formedium-scale pumping needs. Similar BWC systemshave now been demonstrated or marketed else-where, including Indonesia.
SMALL HYDROPOWER
Traditional use of running water in developingcountries for mechanical work has provided a basisfor more recent technology transfer. Small-hydro tur-bine technology is now well established in severalcountries, including Brazil, China, India, and Nepal.
NepalA private nonprofit agency called United Mission
to Nepal (UMN) has worked since 1963 in Butwaland other parts of Nepal to develop local small andmicro-hydropower using indigenous industrial ca-pacity. UMN's objectives are to make daily life easierfor the Nepalese people, serve local needs for waterresources, develop alternative energy sources toprevent forest degradation and dependence onimported fossil fuels, create rural employment tostem migration and poverty, reduce the cost and dif-ficulty of rural lighting and heating, and encourageother end uses of electricity (Upadhayaya, 1992;Upadhayaya, 1991)- To meet these objectives, UMNhas dismantled some of the capital, energy-pricing,and institutional barriers to renewable energydeployment.
UMN formed the Butwal Technical Institute (BTI)in 1963 to train young people to work in hydropowerand other industries. The four-year program includessix months of workshop instruction followed by anapprenticeship in both affiliated industries created byUMN and unaffiliated workshops (Leane, 1994;Durston, 1988). The first of these industries, the But-wal Power Company (BPC), was created to design,construct, and operate the 1-MW Tinau hydropowerproject to supply power to UMN's industrial andtraining center in Butwal. The plant—a demonstra-tion project and a training exercise—was completedin 1978. BPC turned it over to His Majesty's Govern-ment of Nepal (HMGN) in 1980 (Durston, 1988).Meanwhile, in 1978 Himal Hydro and General Con-struction Pvt. Ltd. (HH)25 was formed from the work-force that built the Tinau plant. The aim was to insti-tutionalize the design and construction expertisedeveloped during the project. In 1982, HH com-menced work on the civil construction componentsof the 5-MW Andhikhola hydropower project. Likethe Tinau plant, this Norwegian-financed run-of-riverproject was built using labor-intensive constructionmethods and local materials. Experience with thisproject encouraged the Norwegian government to fi-nance construction of a 12-MW project, which com-menced in late 1990. HH and BPC have also imple-mented projects for HMGN, UMN, and other NGOs(Himal Hydro, undated). From 1980 to 1990, staff sizeand project activity grew rapidly.
Butwal Engineering Works Pvt. Ltd. (BEW), anoutgrowth of the BTI mechanical training unit, wasalso formed in 1978 to produce 10-KW to 40-KWmicro turbines and other hydro- and irrigation-relatedsteel products. Other firms were created on thismodel. While developing firms to implement projectsand supply equipment for them, UMN also promoteddevelopment and dissemination of micro-hydro tech-nologies. In recent years, UMN has shifted its focusto the 50-500 KW range as industrial capacity has be-come established in smaller plants. By the end of1993, the Nepalese hydro industry that UMN andother donors had nurtured had produced over 680(mostly 8 KW to 12 KW but up to 60 MW) turbines(McConkey, 1993).
UMN's electrification efforts have been aided bythe government. In 1984, HMGN sanctioned "private"micro-hydro projects under 100 KW, eliminated li-censing requirements for such schemes, and grantedapproval for charging unrestricted tariffs. In 1985, an-nouncement of a 50-percent subsidy of the cost ofelectrical equipment for private rural electrificationproduced a rush of orders, but subsidies were dis-continued the following year when the governmentexperienced difficulties in dispersing them. Sincethen, the subsidy has been available only erratically(Mackay, 1992; Jantzen and Koirala, 1989). Govern-ment deregulation of micro-hydro projects of up to 1MW in 1993 has stimulated private proposals for suchprojects (Leane, 1994).
Resources for small hydro development havecome from diverse sources. UMN's major contributionhas been the time commitment by expatriate engi-neers and other professionals for research and devel-opment, training, and technical assistance. HMGN,the Norwegian government, other donors, and theprivate sector provided capital to finance individualprojects. HMGN and UMN provided NRs. 8 millionfor the Tinau project, for example; and the Norwe-gian government provided NRs. 60 million for theTinau project and NRs. 250 million for later projects.26
Early successes and diverse funding notwith-standing, several factors still constrain small hy-dropower expansion by rural Nepalese. Knowledgeabout and access to existing markets is lacking, asare transportation and communication facilities for re-mote rural systems. More income-generating applica-
tions to finance systems are needed along with entre-preneurs to fully use such applications (Jantzen andKoirala, 1989). The GEF is currently considering agrant to establish a revolving fund for continued mar-ket expansion (Lovejoy, 1994). Otherwise, largeschemes continue to dominate MDB-financed hydrodevelopment in Nepal—notably, a 402-MW projectthat is much too large to allow local industry partici-pation any time soon and that may crowd out futureprivate hydropower development (Pandey, 1994).
PhilippinesTo improve access to capital and create local ca-
pacity, Germany's GTZ helped the Philippines Na-tional Electrification Administration (NEA) and thelocal Cebu I Electric Co-operative (CEBECO I) imple-ment the 720-KW Matutinao Mini-Hydropower Pro-ject, which was completed in mid-1990. GTZ gave agrant to finance design and construction and estab-lish a revolving fund to finance similar mini-hydroprojects. It also provided technical assistance to trans-fer mini-hydro design technologies and train local en-gineers in project design and construction.
The project was designed to maximize the use oflocal labor and materials so as to increase local eco-nomic benefits and minimize adverse environmentalimpacts. Ten Philippine engineers were trainedthrough work on individual project componentsunder the supervision of an expatriate GTZ hy-dropower specialist. To offer training opportunitiesfor the engineers in project planning and site man-agement, CEBECO I did all the construction work it-self, instead of soliciting bids and negotiating and ad-ministering contracts with private firms and thenmobilizing labor—a move that also saved time andmoney. Granted, the use of an inexperienced locallabor force lengthened construction time but it devel-oped human resources and provided local income. Inaddition, direct control over project implementationpermitted engineers to substitute local labor and ma-terials for mechanical and imported inputs in buildingthe earthworks and other civil works. Similarly, localhaulers were used instead of motor vehicles whenthe weir was constructed, obviating the need to buildan expensive and environmentally intrusive accessroad. Indeed, overall design and operation supportlocal tourism initiatives (PGSEP, 1992).
The project has resulted in a mini-hydro plant ca-pable of generating 34.8 percent of the peak loadand 43-8 percent of the annual energy requirementsof the local electric cooperative, with apparently min-imal negative environmental impacts. The plant pro-duces electricity at a cost of 1.75 cents per KWh, andGTZ has calculated the project's internal rate of re-turn at 21.9 percent. NEA has replicated this designand construction method in another mini-hydro pro-ject, and CEBECO I has independently decided to al-locate a portion of plant revenues to finance localwatershed protection (Scholz and Nation, 1992).However, NEA has not, as GTZ proposed, recycledplant revenues up to the amount of the GTZ contri-bution into a revolving fund to finance similar pro-jects; the extent to which this project will be repli-cated is still unclear.
BIOMASS
Agricultural or forestry residues, already used forcogeneration in several developing countries, are alsothe largest renewable power source produced pri-vately. Use of residues could be expanded in mostcountries. For example, simply upgrading cogenera-tion equipment in the Indian sugar industry couldadd 2,000 MW to national capacity (Biologue, 1993).
Growing dedicated biomass feedstocks and gen-erating power with them poses more complex techni-cal, economic, and institutional issues. Such systemsmight, for example, involve feedstock producers whosell their output directly or through an intermediaryto an independent power generator, who then sellsthe power to the grid.
BrazilCHESF, a federally owned utility in northeast
Brazil, is interested in pursuing alternatives to hydro-electricity because its low-cost hydro resources willbe fully exploited by the end of the century. A GEFgrant is being used to mobilize local institutions topush biomass integrated gasification-gas turbine(BIG-GT) technology along a learning curve to costcompetitiveness. Once the technology is successfullydemonstrated, fuelwood plantations might be estab-lished to supply dedicated feedstocks, and bagasseand other agricultural residues used more efficiently
(Elliot and Booth, 1993).21 Potential annual genera-tion from sugarcane processing facilities ranges from6.1 TWh to 41 TWh, depending on assumptions,compared to the region's total 1990 electricity supplyof about 31 TWh. Estimated costs range from 4.4 to8.1 cents per KWh. The potential from stand-alonepower plants fed by biomass plantations ranges from735 TWh a year to 1,400 TWh a year. CHESF's parentcompany, ELECTROBRAS, has approved the sale ofelectricity from the demonstration plant (Carpentieriet al., 1992). While much of the initial equipment willbe imported, the project addresses institutional ca-pacity barriers at the early stages of technology de-velopment.
GEF grant support consists of $7.7 million al-ready approved for UNDP-administered projectpreparation and $23 million to leverage private in-vestment for a pilot plant. The initial project proposalwas funded by Winrock International, RockefellerFoundation, USEPA, and USAID.
Because the project's developers do not knowthe optimal configuration of BIG-GT technology, twodistinct (high-and-low pressure) options are beingkept open: two independent project teams are devel-oping technology packages. After demonstrations arecompleted, a technology choice will be made basedon gasification test results, thermal efficiency, simplic-ity of design, ease of operation, and potential for fur-ther cost and efficiency improvements.
The goal of halving the cost of a "first-of-a-kind"25-MW to 30-MW plant requires optimizing capitaland operating costs and reliability, replicating stan-dard designs five to ten times, and arranging for pre-assembly with little on-site fabrication. To achievethese cost reductions will require surmounting bothendogenous (technological and commercial) and ex-ogenous (political and environmental) risks. Even ifcost goals can be met in subsequent demonstrations,private equity will be needed for market diffusion.Equity participants might include utilities, portfolioinvestors, biomass producers, equipment manufactur-ers, or CO2 producers in industrialized countries. Pri-vate investors are likely to require that industrial co-generators be allowed to sell their excess power toutilities at the marginal cost of new generation28 andthat utilities and feedstock suppliers form partner-ships. Potential damage to water quality, biodiversity,
and soil quality must also be addressed before largeland areas are converted to feedstock production.While already degraded lands are currently targeted,monoculture eucalyptus plantations developed else-where could damage biodiversity and other ecologi-cal functions (Bowles and Prickett, 1994).
MauritiusAs in Brazil, utilities in Africa have little experi-
ence acquiring power from agricultural processing in-dustries. Mauritius has many such industries and itdepends heavily on diesel generation, so averageelectricity tariffs were 11.4 cents per KWh in 1988.Against this backdrop, the World Bank and the GEFare financing a multi-faceted strategy to increasebagasse-generated electricity production in the islandnation.29 A World Bank loan is financing market dif-fusion of bagasse cogeneration equipment to im-prove sugar mill efficiency. A GEF-administered grantfunds research on bagasse transport and cane residuecogeneration techniques, training Mauritian staff tooperate this equipment and do R&D, and establishinginternational R&D collaborative arrangements. Theproject grant also supports development of a man-agement committee for the Mauritian Bagasse EnergyDevelopment Program (BEDP), to be responsible inpart for intra-governmental and government-industrymarket coordination. The project objectives are to ex-pand bagasse-generated electricity production, en-courage use of waste bagasse and mill improvementsto increase bagasse availability for power production,promote biomass fuels through research and testing,and strengthen BEDP through technical and institu-tional support (World Bank, 1992c).
The demonstration component involves con-structing a bagasse-cum-coal power plant at theUnion St. Aubin Sugar Factory (USASF), connectingthe plant to the Central Electricity Board (CEB) grid,and improving the steam generating units and pro-cessing equipment at approximately 12 other mills inorder to free additional bagasse for power productionat the USASF plant. The resulting 30-MW USASF plantis expected to produce 180 GWh per year, 170 GWhof which would be available to the national grid—thus eliminating the need to construct a new dieselplant. Annually, the USASF plant would burn 103,000tons of bagasse (nearly half of it imported from other
mills) and 81,000 tons of coal. Even with coal com-bustion during the sugar cane off-season, annual SO2,NOx and particulate emissions are projected to besubstantially lower than those from a comparablediesel plant (Trapman, 1994).
Technical training consists of 32 person-monthsof technical skills-building for the Mauritian USASFpower plant operators, as well as training for theMauritian Bagasse Energy Technology Study Team inhow to evaluate the supply of cane residue availablefor additional power generation. An internationalworkshop planned at the end of the study is in-tended to facilitate international coordination and col-laboration in bagasse energy R&D and commercialapplications. A parallel study of bagasse compactingand transport operations is designed to minimizeboth capital costs and the use of rural roads duringpeak periods. In addition, the project is designed tosupport development of a BEDP Coordination Unitby providing consultant and administrative services,training, and logistical support (for example, vehiclesand office equipment). The Coordination Unit is toserve under the BEDP Management Committee (com-posed of representatives from relevant governmentministries, parastatal agencies, and the private sector),which will integrate government policies affecting thesugar and energy sectors, and "ensure that the Gov-ernment's policy directives related to BEDP are fol-lowed" (World Bank, 1992c).
Foreign investors are financing $23.1 million ofthe USASF power plant construction costs; the WorldBank is providing $15 million for mill improvements;and local financing institutions, industry, and govern-ment are financing the remaining $13.7 million ofpower plant and mill-efficiency costs. The GEF grantis providing $1.6 million for the two technology stud-ies, $0.6 million for the USASF and CEB staff-devel-opment programs, and $1.1 million for institutionalsupport of the BEDP Coordination Unit and the envi-ronmental monitoring program.
This project could encourage diffusion of bio-mass cogeneration by providing industry with experi-ence in sugar-mill cogeneration and a visible exam-ple of a privately owned plant, conducting broadlyuseful research on using biomass feedstocks, and es-tablishing an institutional and policy framework inwhich cogenerated power can be profitably sold. To
displace diesel capacity, the project must interest pri- acceptable return, as well as on financial incentivesvate financiers in the power plant, train operational for using bagasse in season and coal out of season,staff, and develop government-industry agreements Now that the terms of the first joint venture contractfor selling the power produced. Lengthy negotiations have been settled (in late 1993), other sugar compa-were required between the CEB and the private part- nies are more likely to plan their own cogenerationner to agree on power purchase rates (averaging 7 plants,cents a KWh) that would allow private investors an
IV. LESSONS AND RECOMMENDATIONS
What does the assessment of overall trends in de-velopment assistance for renewables and of experi-ence from individual projects teach? Some of thelessons summarized below are new; others werelearned years ago by field practitioners but have yetto pervade development-assistance bureaucracies. Allfeed into the recommendations presented here onhow assistance funds should be spent to best pro-mote replication. Where it makes sense, the roles thatvarious types of agencies should play are differenti-ated according to their comparative advantages whilethe importance of cooperation is stressed.
LESSONS LEARNED
1. Development assistance that is part of acomprehensive strategy for commercial develop-ment is more likely to result in technology diffu-sion than "one-off projects. Most early projectsfell prey to one or more of these mistakes: a focus onimmature or otherwise inappropriate technologies,insufficient duration and scope, or lack of a plan todevelop commercial markets. Assistance agencieshave more recently recognized that simply demon-strating a technology isn't enough to spur its wide-spread adoption. But though project design has im-proved, the other barriers inhibiting development ofmarkets for specific renewable power applicationshave not been adequately addressed by donors.
Any technology's commercial development is acomplex process, one that invariably involves invest-ment in R&D, demonstrations, and market diffusion.Several technologies have been shown to generatepower reliably from renewable resources in full-scalefield tests, but they won't be widely diffused withoutimproved marketing infrastructures (such as financ-ing, service, parts), or cost reductions, or both. Mar-kets are more likely to emerge and last when publicprograms focus on dismantling the barriers that pre-vent a technology from moving to the next stage ofcommercial development. Public or private effortsthat ultimately result in sustained markets for renew-
ables have been based on A-to-Z models of commer-cial development. In hydropower development inNepal, for example, an incremental approach to man-ufacturing capability, access to credit, stakeholderpartnerships, and attention to institutional capacitywere an essential combination.
Forging linkages between electricity producersand consumers makes it more likely that productsand services are designed, priced, and financed tomeet local demands. Most rural initiatives in photo-voltaics (PVs), for example, require some initial influxof capital to finance up-front equipment costs. Underthe Enersol full-cost recovery model being imple-mented in the Dominican Republic and elsewhere,the number of systems installed continues to increaseas the initial capital is recovered through loan orlease payments from end users. The U.S. Departmentof Energy (USDOE) PV project in Brazil relies insteadon external capital inputs for additional installations.And while the GTZ hydropower project in the Philip-pines is similar in some respects to Nepal's hydro de-velopment, the lack of an ongoing financing mecha-nism makes large-scale replication less certain.
A related success factor is a donor commitmentthat is sustained long enough in a given location tocatalyze commercial development and market diffu-sion. Implementing a commercialization strategy mayrequire institution-building, training, or market-de-velopment activities, all of which take longer thantraditional assistance projects that are limited tophysical construction. PV programs in the Domini-can Republic and elsewhere have now been operat-ing for at least 10 years and their market penetrationis still increasing. The private hydro program inNepal has been operating for several decades. Indiahas logged over a decade of experience in wind de-velopment. Only over several years can programs bebuilt up incrementally and respond to feedback fromstakeholders.
Finally, experience with wind and other renew-able power projects suggests that economies of scalecan be important in institution building. A single
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small project may not justify investments in trainingand technical assistance. Because some minimum in-vestment in institution-building is needed regardlessof a project's power capacity, (especially given likelypersonnel turnover), projects that are replicated canbetter amortize this investment (T. Bak Jensen/PAConsulting Group, 1991)-
Finally, even if individual projects are designedand implemented to incorporate the above successfactors, the targeted technology's competitivenessmay not improve much. At current costs, the marketdemand for declining cost technologies (like PV) in asingle host country is often too small to overcometheir "chicken-egg" problem.
2. Growing private participation in powersector finance and management, though benefi-cial in several respects, is unlikely to boost themarket share of renewable electric generation.Even if renewables enter the mainstream of multilat-eral lending, concessional capital can influence onlya minority of power sector investments. To make sig-nificant inroads in market share, renewable poweroptions will need to attract a big part of the swellingprivate capital now flowing into developing-countrypower sectors.
Unless development assistance agencies more ac-tively promote oversight mechanisms as part ofpower sector privatization, decisions over generationtechnologies will be biased toward fossil fuels. Whendonors encourage private over public financing, fossilfuel generation technologies, with their relatively lowcapital costs, are favored. In addition, the technicalassistance offered to guide the development of na-tional private power laws and regulations typicallydoes not consider how these laws—and resultingpower markets—can affect a country's choice of gen-erating technology. For example, power-purchasepolicies are biased if they do not fully credit thevalue of renewably produced power when periods ofhigh utility costs coincide with periods of peak out-put from a wind farm, solar plant, or sugar cogenera-tion facility. Decisions based simply on lowest perkilowatt hour cost can similarly be misguided if, forinstance, environmental costs and fuel price and con-struction risks are ignored. Contract terms betweenutilities and private power developers (i.e., paymentschedule, dispatchability requirements, and terms of
transmission access) may also affect generationchoices.
3. Improving local capacity for commercial-izing renewable technologies is critical for stim-ulating sustainable markets. The most successfulof the diverse projects reviewed in Chapter III di-rectly involve key in-country stakeholders in projectimplementation. In many cases, equipment is mar-keted and serviced by local entrepreneurs, while im-ported system components must be used becausetheir technical complexity or market entry cost pro-hibits local manufacture. In fewer cases, in-countryproducers have also adapted the technology to per-form better under local resource conditions, meetlocal energy service needs, or reduce system costs.For example, hydro turbines are fabricated in Nepaland wind turbine towers manufactured in India. Incontrast, the Moroccan wind project was character-ized by little local stakeholder training, involvement,and accountability.
The extent of local involvement (and, corre-spondingly, the amount of a project's total valuethat is created locally) varies considerably amongcountries. PV modules are imported to the Domini-can Republic and Kenya, for example, while in Zim-babwe and Sri Lanka, modules are manufactured in-country using imported cells (Hankins, 1993). Localvalue-added may increase as a country's scientific,engineering, manufacturing, and marketing capabili-ties grow, or as market size increases. For example,national PV markets must grow beyond about 5 MWper year before it makes sense to establish indige-nous cell-manufacturing facilities, though smallermarkets may justify module assembly or componentmanufacturing (Maycock, 1993). Nonetheless, whenassistance projects maximize the potential for usinglocal inputs for design, construction or manufactur-ing, marketing, and maintenance, the employmentand income gains are likely to prompt stakeholdersto organize. Such constituencies in India, Costa Rica,and elsewhere have lobbied successfully for na-tional policy reforms that improve the market for re-newables (D'Monte, 1993; ACOPE, 1992). By thesame token, local communities are more apt to ac-cept adverse land-use impacts from a utility-scale re-newable project if they also reap some of its eco-nomic benefits.
In this era of shrinking development assistancebudgets and increased global competition, politicalpressure to promote donor country exports is grow-ing. Not surprisingly, though markets for PVs are ex-panding most rapidly in developing countries, PVmanufacturers in these nations have been losingground in world market share since 1987 (Maycock,1994). When project aid is tied, goods or services inwhich the donor country has a comparative advan-tage are likely to be used. However cost effective atfirst blush, their use may not serve the recipientcountry's development priorities optimally. For exam-ple, in Tanzania's donor-driven PV "market," post-project maintenance of equipment is complicated bycompeting bilateral programs.
Scandinavian development workers buy equip-ment from Scandinavian countries, Italian mission-aries buy from Italian companies, American Peace
• Corps buy from American companies and theBritish buy from the British...Getting a contract ismore important than developing the local indus-try. There are so many different types of controls,lamps, modules, wiring systems, pumps, and in-verters that the local technician has little chanceof making sense of the situation (Hankins, 1994).
If mostly imported equipment is used, technical ca-pacity-building can go by the way too (as in theBrazilian PV and the Philippine and Kenyan geother-mal projects). In addition, the potential foreign ex-change savings of renewables (particularly importantwhenever fossil fuels would have to be imported) be-come increasingly diluted as post-project componentimports increase. For example, an import-intensivewind project whose returns are less than internationallending rates may not reduce a country's foreign ex-change requirements (T. Bak-Jensen/PA ConsultingGroup, 1991). Moreover, local importers may not beable to mobilize enough foreign currency to makebulk purchases to keep unit prices and duties down.If importing components is inhibited by foreign cur-rency shortages, devaluation of local currency, or, forthat matter, customs bottlenecks, local prices increaseand diffusion is hampered.
4. Local conditions determine what institu-tion is most appropriate to deliver renewably-generated electricity services. Experiences withvarious technologies defy easy generalizations about
whether local utilities, communities, cooperatives,government agencies, nongovernmental organiza-tions (NGOs), or private developers would be bestsuited as the primary local partner for transferring agiven technology in a given country. In several pro-jects reviewed in Chapter III, utilities have been part-ners in renewable power generation (Brazil, India,Kenya, Philippine geothermal development, andMauritius), whereas in Nepal and the Dominican Re-public alternative institutions were deemed more ap-propriate. The Philippine hydro project was imple-mented largely by a local electric cooperative, whilethe Nepal hydro industry has developed privately. Incontrast to the success of Nepal's private hydro de-velopment, small hydro schemes implemented by theNepalese government have not been based on com-mercial viability, did not adapt imported technologysufficiently, and relied on centralized management—all of which led to revenue shortfall, operationalproblems, overstaffing, and lack of local accountabil-ity (Cromwell, 1992).
What about off-grid electricity services? Conven-tional wisdom—borne out by Enersol's experience—is that local nonutility organizations are most appro-priate. In the Enersol model, which has beenadopted in some form by NGOs working in China,Sri Lanka, and other countries, either new institutionsfor financing and marketing are created, or localNGOs and small businesses are helped to take on thefinancing and marketing of PV systems. The Domini-can utility, the Corporacion Dominicana de Electrici-dad (CDE)—a natural partner for Enersol—was al-most completely inactive in rural electrificationduring the late 1980s and early 1990s due to its biastoward other activities as well as to the large-scaledeterioration of generation and management capacity(Doernberg, 1993)- Collaboration was also hamperedby heavy mid-level administrative turnover withinCDE.30
Utility participation, or at least coordination withother organizations, should not be overlooked either.DOE has found Brazilian utilities stable, independent,and technically expert enough to implement the PVproject and, building on technical success, to expandproject activity. Out of six institutional models forproviding power to the Pacific Islands (characterizedby low population density and skill level), a utility-of-
fered fee-for-service model is thought most likely tosucceed (Liebenthal et al., 1994). An off-grid PV pro-ject in Indonesia also depends on utility involvement.The advantages of utility participation include theiraccess to comparatively cheap capital (which reducesthe cost of financing off-grid projects), and an in-house pool of engineering expertise. Participation inoff-grid electricity services also confers an advantageto utilities. Because utilities that subsidize rural powertariffs are increasingly hard-pressed to make up rev-enue shortfalls, they stand to gain financially whenextending rural service with an off-grid renewablepower system costs less than extending the grid. Re-covering the costs of off-grid systems may also beeasier for the utility than collecting tariffs for powerfrom the grid since electricity theft and the need formetering may be obviated. Moreover, because manynominally grid-connected villages receive only inter-mittent power and many homes in such villages re-main unconnected, developing even a nondispatch-able renewable power system may be more costeffective than investing in grid extension. Finally, re-newable projects may offer a unique niche for publicutilities left with under-used human resources as con-ventional power development shifts to the privatesector.
5. Even if renewable energy assistance pro-jects are well-designed to address other barriers,project funds may be squandered in countrieswith severe power-sector distortions. Fuel andelectricity subsidies can adversely affect the competi-tiveness of renewables. Rate structures that do notmake customers pay more for power during peak de-mands or at remote locations may also bias end-userdecisions against off-grid renewables. Similarly, re-newable power options are unlikely to figure easilyinto capacity expansion plans when commonly usedpower sector planning models and analytic tools donot take account of characteristics that distinguish re-newables from conventional power options.
Multilateral development banks (MDBs) have his-torically set the standard for capacity-expansion plan-ning. Local power sector policy-makers, therefore,can hardly be expected to adopt improved ap-proaches until lenders get their own house in order.For example, a continuing focus on isolated genera-tion, transmission, or distribution projects will be at
the expense of opportunities for renewables (such asgrid-connected distributed applications) that requiremore comprehensive analyses of entire power sys-tems and demand patterns. In addition, planningmethodologies that do not quantify the financial risks(such as construction time and cost overruns) associ-ated with various generating technologies shortshriftthe flexibility that renewables afford in system expan-sion. It has taken a Latin American energy researchgroup (OLADE) to modify the World Bank's planningtool to better account for uncertainty, irreversibility,and small-scale power supply options.
RECOMMENDATIONS FORFUTURE ASSISTANCE
As in other areas of international assistance, re-newable energy projects should be designed to bemore consistent with clearly stated objectives, projectevaluation must be accorded higher priority, and var-ious assistance organizations should make better useof their respective comparative advantages. Beyondthese truisms, the lessons underscore the importanceof more specific changes in how international assis-tance for renewables is provided.
1. International donors and lenders need to"mainstream" applications of renewable tech-nologies that are already often cost competitive.While making some progress (by, for instance, lower-ing financing threshholds), multilateral developmentbanks, as well as agencies that lend to the privatesector, have not yet "mainstreamed" renewables intheir lending portfolios. Averaging only a few percentof MDBs' power-sector lending portfolios, renew-ables do not yet command attention commensuratewith their potential market shares in—and benefitsto—developing countries. Such initiatives as theWorld Bank's Asia Alternative Energy Unit, the FI-NESSE (Financing Energy Services for Small-Scale En-ergy Users) program, and the International Fund forRenewable Energy and Efficiency were designed tohelp, but they need more resources and support atall levels within the institutions they seek to influ-ence. For example, senior MDB managers shouldsupplement positive policy statements on renewableswith explicit operational directives requiring projectmanagers to use state-of-the-art planning processes
•
and investment criteria that fully account for renew-ables' potential benefits in project prefeasibility stud-ies. In the face of top-down pressure to minimizeloan preparation costs, project managers must begiven positive incentives to fully evaluate small-scaleor unfamiliar technologies. At the same time, techni-cal assistance should strengthen capacity within de-veloping countries for both preparing their own pro-ject proposals and evaluating those from privatedevelopers. Furthermore, to help" private developersget over the hurdle of renewables' high capital-inten-sity, agencies such as the IFC and bilateral export-im-port banks might extend favorable financing terms torenewable power generation projects.
Creating a level playing field within which fi-nancing institutions consider proposed generationprojects is not enough, however. The need for devel-opment assistance to shift from supply-push to de-mand-pull approaches for renewables will grow asthe private sector role in electric generation financingand management increases. If development assis-tance for renewables continues to focus on individualprojects, private developers will constantly be con-strained by a country's power sector policies. Assis-tance agencies should better coordinate their privati-zation and renewable energy activities. Technicalassistance should be used to help ensure that na-tional private power policies are crafted to treat allsources of generation fairly.
2. Multilateral and bilateral agencies and de-veloping countries should implement coopera-tive strategies for technology commercialization.Aside from the globally-shared risk of climatechange, why should commercialization strategies beinternationally coordinated? First, OECD countries asa group have greater financial and technical re-sources, while developing countries generally havegreater potential for renewables to gain market share:resource quality is high, power demand is growingrapidly, power from conventional sources is costly,and high value niche (such as off-grid) applicationsare numerous. Second, the investments necessary tofully commercialize a single technology (as much as$12 billion for PVs) appear beyond the reach of indi-vidual OECD governments or firms.31 If, however,many countries pooled and jointly administered theirresources, specific cost and scale-up targets would be
easier to achieve. Third, an internationally coordi-nated program could more effectively exploit the po-tential synergism between technology-push (i.e. sub-sidized R&D and demonstrations) and market-pull(i.e. market entry subsidies, guaranteed markets) ac-tivities than individual efforts could.
In its own efforts to create a market-pull, theUnited States has accumulated experience with tech-nology-specific models of cooperation between utili-ties and equipment suppliers. (Depending on tech-nology, costs can be reduced by expanding marketvolume, standardizing design, or gaining experiencein manufacturing and installation.) One such model isa utility consortium that issues requests for competi-tive bids for an aggregate quantity of a particulartechnology with certain specifications. By pooling in-dividual utility needs, the consortium could generatethreshhold annual sales to interest manufacturers ininvesting in new production capacity. In one version,early utility participants would get rewarded for tak-ing risks: if commercialization is successful, they getroyalty payments on future sales of equipment(Kozloff and Dower, 1993).
Expanding such models of utility-supplier coop-eration internationally offers scale advantages sincesimilar renewable resource and electricity demandcharacteristics are found in many (not necessarilycontiguous) regions. Technologies that exhibitsteeply declining costs with increased output and ex-perience are excellent candidates for a coordinatedmultilateral program that could:
• match the technology with renewable energyresource characteristics in both OECD and non-OECD countries;
• help utilities and other would-be developersidentify appropriate applications for the tech-nology;
• structure individual countries' needs into an ag-gregate stream of orders;
• issue a competitive notice for bids from poten-tial suppliers in any country; and
• award contracts based on a maximum allow-able price that would decline over time.
For close-to-competitive technologies, programcosts would be limited largely to the transactionscosts associated with market aggregation. For lessmature technologies, the program would also bridge
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the temporary gap between a low bid and the maxi-mum price per KWh that purchasers are willing topay. Since U.S. initiatives have been helped by the"herd instinct" among domestic utilities, an interna-tional program would need to address the relativeheterogeneity and lack of communication amongutilities in different countries. Another challenge,which the GEF already faces, is to avoid creatingincentives for utilities to exaggerate incrementalcosts.
No existing multilateral institution is ready toplay such a catalytic role in commercial development:While the UN Commission on Sustainable Develop-ment was created in part to coordinate UN programs,it has yet to do so and non-UN players also need tobe involved. Despite its recent solar initiative, theWorld Bank remains unsure of its role in technologycommercialization. The FINESSE program, whichbundles many small projects into a single package forMDB funding, is still too small to achieve majoreconomies of scale in equipment production. TheGEF's activities come the closest to the mark, but itscurrent resources and mandate (limited to projects indeveloping countries) are not, by themselves, up toit. Instead of a new agency, a program with ear-marked capital should be added to the GEF, the In-ternational Energy Agency, or the United Nations.According to some proposals for coordinating com-mercialization of renewable energy technologies, theConsultative Group for International Agricultural Re-search (CGIAR) should be considered as an institu-tional model.
3- Donors should give higher priority tolong-term strategies for building markets for re-newables than to competing for exports. As longas demand for renewable power from utilities andother electricity service providers in developingcountries remains weak, export markets will be con-strained. In bilateral assistance programs, the empha-sis on near-term market share should give way to thepromotion of long-term demand for renewables. Todetermine which exports are most compatible withsustainable development, donors should first assessthe capacity of in-country institutions and stakehold-ers in delivering renewable energy services. Depend-ing on the stage of market development, software orhardware exports may be needed for resource assess-
ment, siting, economic and environmental analysis,grid integration, or organizational development.
Multilateral agencies (such as the Energy SectorManagement Assistance Program) and bilateral agen-cies already help developing-country utilities improvetheir financial performance, operations, and manage-ment by giving technical assistance and by facilitatingcollaborative linkages with OECD utility experts. Butlittle attention has been paid to how the choice ofgenerating technology affects environmental or finan-cial performance. Technical cooperation effortsshould adapt state-of-the-art planning and evaluativetools developed in the United States and elsewhereto help developing-country utilities compare distrib-uted vs. central station, grid vs. off-grid, capital vs.fuel intensive, and intermittent vs. dispatchable gen-eration options. Utilities, independent power produc-ers, and state utility regulators in the United Stateshave accumulated substantial experience in designingand implementing renewable power pilot programs,analytic tools, and economic incentives.32 Severalsuch utilities have independent power subsidiariesoperating in developing countries that could shareexpertise accumulated with renewable technologies.
In countries with enough market demand to sup-port indigenous production, assistance should "moveupstream" to promote the development of productioncapability, perhaps by exporting production licenses.One model for technology cooperation is the jointventure, with its long-term commitment to businessdevelopment, training, and continued technologicaladaptation and improvement (Khatib, 1993). As earlyas 1982 workshops on renewable energy in develop-ing countries, participants recommended that "inter-national development assistance agencies establishprograms to encourage joint ventures between North-ern firms offering energy management, [and] renew-able technology integration with conventional energysystems, and...developing-country engineering andconsulting firms" (Bartlem, 1984).
Joint ventures may be initiated by firms in theNorth or South. One U.S. firm, Integrated Power Sys-tems, solicited a local partner for a joint venture todevelop village power systems among Indonesia'seastern islands. The Brazilian PV producer Heliodi-namica has also sought such a partner. Northernfirms can greatly benefit from such ventures, espe-
daily when the technology must be adapted to localconditions and close coordination with local stake-holders is needed.
Help for exporting firms that want to enter for-eign markets may be appropriate if their products al-ready have a clear comparative advantage, but bilat-eral donors should recognize that close integration ofdevelopment assistance with export-promotion func-tions can threaten the adaptation and diffusion oftechnology. Donor incentives to implement short-term projects must be countered at the policy levelby senior management.33 Donors should shift thefocus of project evaluation from short-term outcomesto indicators of local capacity for market diffusion.For example, instead of equipment performance andnumber of households served, better indicators ofsuccess would be the number of firms involved inproducing or marketing goods and services and thepresence of local financing. Such reforms are unlikelyin the absence of international coordination to pre-vent a donor country from taking unfair advantage ofanother's policy.
4. Multilateral and bilateral assistance agen-cies should target programs for renewable en-ergy preferentially to countries whose policiesallow renewables to compete fairly with othertechnologies. No country should receive assistancefor renewable energy development unless electricityrate structures and fossil fuel prices reflect marginalcosts of production or, at least, national commitmentsto completing such reforms appear irreversible. (Insti-tuting countervailing subsidies for renewables is nosubstitute for energy price reform.) Similarly, assis-tance programs for renewables should target coun-
tries that have implemented sectoral reforms that pro-mote fair competition, including requirements to pur-chase electricity from nonutility sources (industry co-generators, private power producers, cooperatives,and individuals) at true avoided costs. Required re-forms should also include an analysis of how off-gridoptions can be integrated with conventional ruralelectrification. Finally, utilities or other implementingorganizations should be required to involve localpeople in project planning and mitigating siteimpacts.
In addition to unbiased power sector policies,donors should target countries with trade policiesthat allow renewable technology markets to develop.Policy reforms may be needed in import licensing,foreign exchange controls, duties, and nontariff tradebarriers that adversely affect imports of renewablegenerating equipment. Moreover, donors will be re-luctant to expand exports of intellectual property todeveloping countries if legal protection against piracyis weak.
Targeting development assistance to certain coun-tries requires multilateral coordination. Without it, bi-lateral donors might undermine other donors' reformefforts by offering similar assistance without attachingconditions (Foley, 1991). The World Bank and OECDshould establish standards for sectoral reforms andencourage cooperation among bilateral and multilat-eral donors working in developing countries. Assis-tance programs that work with the private sector(such as the International Finance Corporation and bi-lateral export-import banks) should use the samestandards as those working with public agencies.
Keith Kozloff is a Senior Associate in the Climate, Energy and Pollution Program at the World Resources Insti-tute. The lead author of another recent publication, A New Power Base: Renewable Energy Policies for the 90sand Beyond, Dr. Kozloff is examining developing-country policies for renewable energy as well as studying sus-tainability in the U.S. electricity sector. Prior to coming to WRI, Dr. Kozloff worked for six years for the state ofMinnesota's energy office. Olatokumbo Shobowale is currently helping to develop renewable energy projectsin Central America. Prior to serving as a research assistant at WRI, he was a summer fellow at the World Bank.He received a B.A. from Stanford University in political science and economics.
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NOTES
1. This report's focus on electric generation tech-nologies is not intended to detract from the im-portance of nonelectric renewable and energy ef-ficiency technologies to sustainable development.
2. This scenario is representative of other "businessas usual" projections.
3. The use of geothermal resources, while not basedon solar energy, would further boost the marketshare of "renewable" power in this scenario. Onthe other hand, this scenario is even more opti-mistic than accelerated supply scenarios by otheranalysts (World Energy Council, 1993b; Swisher,1993).
4. While their severity and causes may differ, thesebarriers are not unique to developing countries.(.See, for example, Kozloff and Dower, 1993-)
5. For an Indian utility, intermittent renewablescould comprise 25%-3O% of total system capacitywithout jeopardizing reliability (Hossain, 1993).
6. The Conference considered hydropower, draft an-imal power, solar, wind, biomass, fuelwood, geo-thermal, ocean energy, peat, tar sands, and oilshale.
7. In contrast to investments in fixed capital, donorsare not required to report technical cooperationexpenditures. These data are thus approximate.
8. ASTAE implements the Asia portion of FINESSE(Financing Energy Services for Small-Scale Energy-Users), a project initiated in 1989 by the WorldBank Energy Sector Management Assistance Pro-gram (ESMAP) with funding from the U.S. Depart-ment of Energy (USDOE) and the NetherlandsMinistry of Development Cooperation (DGIS). FI-NESSE is intended to promote affordable alterna-tive energy services with an initial focus on In-donesia, Malaysia, the Philippines and Thailand.
9. Here, cost effectiveness is a function of a renew-able generation technology's incremental cost andlifecycle carbon reductions relative to some base-line power source.
10. U.S. Treasury Department officials calculate that,for every dollar the United States contributes to
MDBs, U.S. exporters win back more than $2 inprocurement contracts (Chandler, 1994).
11. The United States, which has used tied-aid creditsless than several other major donors, has success-fully sought stricter OECD rules to lessen com-mercial advantage from their use (Baldwin et al.,1992).
12. Member agencies include US AID, the Export-Im-port Bank (Eximbank), the Office of the U.S. TradeRepresentative, the Overseas Private InvestmentCorporation, the Small Business Administration,the U.S. Information Agency (USIA), the Environ-mental Protection Agency, the Trade and Develop-ment Program, and the departments of Energy,Commerce, Interior, State, Treasury, and Defense.
13. Biomass, geothermal, small hydropower, photo-voltaic, solar thermal, and wind energy technolo-gies are eligible for support.
14. Diesel technology may be particularly unforgivingif proper operating procedures and maintenanceare neglected.
15. Rural electrification benefits tend to be overstatedand skewed toward higher-income classes. (See,for example, Del Bruno, 1993; Schramm, 1991;Foley, 1990; Mason, 1990; and Pearce and Webb,1987.)
16. Although these 11 cases cannot be formally gen-eralized, the factors contributing to their successor failure are broadly consistent with studies ofother energy projects. (See, for example, Foley,1994; and Barnett, 1990.)
17. Heliodinamica has made cells and marketed mod-ules since 1982 and has installed over 20,000 sys-tems, with 1993 shipments totaling 0.5 MW (May-cock, 1994; Hankins, 1993). It has begun a homelighting campaign by distributing display lightingkits to farm stores across the country and is ar-ranging for financing and distribution through autility. The company is seeking an infusion of pri-vate capital to expand its output and becomemore competitive. Brazil has reduced PV importtariffs from 40 to 20 percent.
18. Due to initial limited capitalization, revolvingfund credit has been used for only approximately20 percent of the systems purchased from Ener-sol-associated installers. Most customers havebeen small entrepreneurs, individuals receivingremittances from relatives in the United States, orothers with enough savings to pay cash.
19- Domestic car batteries are of lower quality thanimported deep-discharge batteries, on which thegovernment imposes 100 percent duties. Country-wide power shortages in mid-1988, in conjunc-tion with political factors, prompted import-dutyexemptions for electrical generators (includingbatteries and PV equipment). Duties were rein-stated several years later, however, after the ex-oneration legislation expired.
20. Had its capacity rating been higher, the project'spresent value would have been greater, but thethermal resource would become exhausted morequickly. The 440 MW project is the second phaseof geothermal development on Leyte; the firstwas a 200 MW project.
21. The technology is in use in Italy, Iceland, NewZealand, and the United States. Except for a smallplant in Thailand and the Leyte-Philippines pro-ject, the technology had not been used in Asia.
22. This is measured by a declining ratio of locallyproduced value to total project value.
23. A 10-MW farm in Gujarat and 4 MW and 6 MWfarms in Tamil Nadu.
24. Besides concessional financing from the IndianRenewable Energy Development Agency, windand other renewable projects are eligible for a100-percent depreciation allowance, tax holidays,and low import duties.
25. Owned 25 percent by HMGN and 75 percent byUMN.
26. As of September 8, 1994, 1 NR = $0.02.
27. Potential exists for 2,700 MW of capacity fromsugar industry cogeneration in Brazil.
28. Even though national legislation now opens upgeneration to private developers, utility paymentsfor power are the subject of continuing disagree-ment (Moreira, 1994.)
29- Both projects use agricultural residue feedstocks,but the gasification technology being developedin Brazil is more advanced than the cogenerationtechnology used in Mauritius.
30. In fact, Enersol faces a four-year business cyclesince politicians promise grid extension just be-fore national elections, dampening local interestin purchasing systems until after elections areheld. A for-profit Enersol spin-off now leases PVsystems mounted on poles, which reduces thesunk cost risk facing users if the grid is actuallyextended to their village.
31. According to one estimate (based on relationshipsbetween the cost and cumulative global output ofPVs), a present worth investment of $12 billionwould reduce to seven years the time for PVs tobecome competitive with grid power (Williamsand Terzian, 1993).
32. For example, a barrier to greater use of renew-able technologies is the high cost of identifyingand evaluating distributed generation. Screeningtools being developed for U.S. utilities are de-signed to seek standard information available toutilities, remain valid for several years, use stan-dard techniques where possible, and focus evalu-ation at the planning level in which large invest-ment decisions are actually made (Heffner, 1994,Shugar, Wenger, and Ball, 1993). Such screeningtools are likely to require modification, given theanalytic abilities and data constraints of develop-ing-country utilities.
33- These incentives can include political pressure topromote exports of goods and services fromdonor country firms and the pressure on programmanagers to show immediate results. Resistingthem may be a bigger problem for bilateraldonors than for NGOs.
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World Resources Institute1709 New York Avenue, N.W.Washington, D.C. 20006, U.S.A.
WRI's Board of Directors:Maurice StrongChairmanRoger W. SantVice Chairman
John H. AdamsKazuo AichiManuel ArangoRobert O. BlakeDerek BokRobert N. BurtWard B. ChamberlinEdwin C. CohenSylvia A. EarleAlice F. EmersonJohn FirorShinji FukukawaCynthia R. HelmsMaria Tereza Jorge PaduaCalestous JumaJonathan LashJeffrey T. LeedsThomas E. LovejoyJane LubchencoC. Payne LucasAlan R. McFarland, Jr.Robert S. McNamaraScott McVayMatthew NimetzPaulo Nogueira-NetoRonald L. OlsonRuth PatrickAlfred M. Rankin, Jr.Florence T. RobinsonStephan SchmidheinyBruce SmartJames Gustave SpethM.S. SwaminathanMostafa K. TolbaAlvaro UmariaVictor L. UrquidiPieter WinsemiusGeorge M. Woodwell
Jonathan LashPresidentJ. Alan BrewsterSenior Vice PresidentWalter V. ReidVice President for ProgramDonna W. WiseVice President for Policy AffairsRobert RepettoVice President and Senior EconomistMarjorie BeaneSecretary-Treasurer
The World Resources Institute (WRI) is a policyresearch center created in late 1982 to help governments,international organizations, and private business address afundamental question: How can societies meet basichuman needs and nurture economic growth withoutundermining the natural resources and environmentalintegrity on which life, economic vitality, and internationalsecurity depend?
Two dominant concerns influence WRI's choice ofprojects and other activities:
The destructive effects of poor resource managementon economic development and the alleviation ofpoverty in developing countries; and
The new generation of globally importantenvironmental and resource problems that threaten theeconomic and environmental interests of the UnitedStates and other industrial countries and that have notbeen addressed with authority in their laws.
The Institute's current areas of policy research includetropical forests, biological diversity, sustainable agriculture,energy, climate change, atmospheric pollution, economicincentives for sustainable development, and resource andenvironmental information.
WRI's research is aimed at providing accurateinformation about global resources and population,identifying emerging issues, and developing politically andeconomically workable proposals.
In developing countries, WRI provides field servicesand technical program support for governments and non-governmental organizations trying to manage naturalresources sustainably.
WRI's work is carried out by an interdisciplinary staff ofscientists and experts augmented by a network of formaladvisors, collaborators, and cooperating institutions in 50countries.
WRI is funded by private foundations, United Nationsand governmental agencies, corporations, and concernedindividuals.
