Energy:
The Engine of LatAm Growth
By Veerendra Bhargava
Energy
is a key factor in economic, social,
and environmental development
worldwide, especially in fast
developing regions such as Latin
America. Energy is essential to
achieving the Millennium Development
Goals, including removal of poverty
from the face of the earth. The
World Bank's goal of poverty alleviation
is dependent on improvements in
quality, quantity, and efficiency
of energy supplies in addition
to increased investments in renewable
energy sources. The World Bank's
past financing of energy projects
has clearly improved the living
conditions in Latin America and
the Caribbean Region. It has helped
enhance service quality, extend
coverage, and institute structural
and management reforms to improve
efficiency. More importantly,
it has helped to mobilize the
funds needed to meet the region's
growing demand for energy.
In
Latin America, about three quarters
of energy consumption comes from
oil, gas and coal, the rest coming
from nuclear, biomass, hydro and
other new renewable energy sources.
Today, more than 65 million people
from both the rural and semi-urban
areas in Latin America do not
have access to electricity. Those
that have access in the semi-urban
regions often experience erratic
electricity supply. Nearly 100
million people (about 20 percent
of the total population) still
rely on traditional biomass for
cooking and heating. This is a
significant problem as biomass
requires tremendous collection
time and, when used in open cook-stoves,
produces a significant amount
of smoke that can lead to respiratory
illnesses in young children and
the women who spend much of their
day cooking.
The World Bank has been involved
in different energy sub-sectors
in LAC, developing and applying
methods to address energy sector
reforms, rural electrification,
renewable energy, and energy efficiency.
The Bank's activities include
promoting efficient and environmentally
sustainable energy services through
analytical work, projects, the
Global Environment Facility (GEF)
and Carbon Finance, in which the
Latin America and the Caribbean
Region is a world leader. In 2005,
the Bank provided more than US$223
million of support in the LAC
energy sector, US$31 million of
which was invested in energy efficient
and renewable energy technologies.
In the first three quarters of
FY06, the approved project funding
exceeded US$230 million. Currently,
the Bank is financing over 20
energy projects in LAC, with more
to come. The funding sources include
IBRD/IDA loans and credits, GEF
grants, carbon finance and a number
of technical assistance and capacity
building activities.
The Latin America and the Caribbean
Region has been particularly successful
with Carbon Financing. In 2005,
LCR became the first region worldwide
to track carbon finance deliverables
in the same manner as for Bank
lending. Since then, the region
delivered six Emission Reduction
Purchase Agreements (ERPAs) in
Ecuador, Honduras, Mexico, and
Peru, causing carbon trading to
now account for a significant
share of the LCR energy portfolio.
The region prepared three additional
projects and laid the groundwork
for expansion in Brazil and Venezuela.
Greenhouse Gas Emissions
Greenhouse gas emissions in Latin
America account for 12 percent
of the world total. Between 1990
and 2000, the total emissions
in the region increased by more
than 40 percent, Mexico and Brazil
being the 14th and 17th largest
greenhouse gas emitters in the
world. Because of increasing emissions
in the region, investments in
renewable and efficient energy
sources are extremely important.
Latin America has tremendous hydropower
potential, accounting for over
half of installed generation capacity.
Renewable energy and energy efficiency
in LAC has focused on:
• Strengthening the enabling
framework
• Provision of market-based
incentives (for example, carbon
finance)
• Off-grid electrification
projects for non-electrified households
where grid extension is not economically
feasible.
The World Bank's assistance to
the LAC energy sector identifies
the following key elements as
central to its goals for the region.
Energy Security
This area works to enhance the
countries' abilities to meet their
growing demand for energy in an
efficient manner through securing
access to capital and financing
in resource development, supporting
the efficient operation and financial
sustainability of the power sector,
and promoting energy efficiency
initiatives. Energy security requires
also improving macroeconomic &
fiscal balances by explicitly
linking the energy sector and
macroeconomic objectives. It involves
planning for expansion of the
energy sector, including developing
a strategy to meet future demand,
integrating multiple sources of
energy as well as demand and supply
side possibilities. The Programmatic
Power Sector Reform Loan in the
Dominican Republic aims at establishing
the conditions that would permit
the financial sustainability of
the sector, thereby reducing subsidy
requirements and improving the
fiscal situation.
Renewable Energy and Environment
Renewable Energy and Environment
aims to protect the environment
by building client capacity to
participate in the growing global
markets for energy-related environmental
services and mobilizing additional
resources, assisting in the structuring
of transactions, and promoting
learning-by-doing. Projects seek
to reduce barriers that currently
hinder renewable energy technologies
(RET) by providing technical assistance
to facilitate project investment,
supporting dissemination and market
development, and by providing
financial incentives.
Some projects also identify, develop,
and pilot productive uses of energy
to establish understanding of
how to maximize already available
resources. Projects in Ecuador
and Uruguay support environmental
regulation, energy sector management
and energy efficiency. Additionally,
there are carbon finance (the
Prototype Carbon Fund and successor
funds) projects in over 10 countries
(Argentina, Brazil, Chile, Colombia,
Costa Rica, Dominican Republic,
Guatemala, Guyana, Honduras, Mexico,
Nicaragua and Peru) prepared with
Bank assistance that contribute
to the development of the market
for emission reduction transactions
by supporting development of the
legal, regulatory, and institutional
frameworks for carbon emission
reduction and support market penetration
of renewable energy technologies.
Energy Access
As already mentioned, over 65
million people in Latin America
do not have access to electricity.
Energy access aims to provide
direct assistance to the poor
by expanding rural and semi- energy
access and targeting poverty reduction
through multi-sectoral interventions
that emphasize economic and socially
productive uses. The World Bank
is undertaking investment projects
that promote electricity access
in Argentina, Bolivia, Brazil,
Ecuador, Honduras, Nicaragua and
Peru. Such projects promote infrastructure
development, renewable energy
resources, and capacity building
programs to provide technical
assistance.
Programs also support expansion
of private sector participation
while simultaneously strengthening
government capacity to regulate
that participation. They often
examine policy that currently
inhibits effective delivery of
electricity and ITC services,
working to suggest modifications
appropriate for the country's
energy needs. With Bank assistance,
there are Community Development
Carbon Fund (CDCF) projects under
development in a dozen countries
that aim to provide improved energy
services and increased water,
education, and health services
at the local community level.
The Bank also supports advisory
activities to Governments on rural
electrification in Bolivia and
Peru.
Market Efficiency and
Governance
This area promotes good governance
& private sector development
by assisting the energy sector
reform process through supporting
both second stage reforms and
ministerial and regulatory capacity
building. Market Efficiency and
Governance focuses on institutional
strengthening by enhancing the
government's capability for policy
making, implementing reform measures,
coordinating multiple initiatives,
and monitoring progress. In some
cases, this involves re-thinking
reform architectures based on
acknowledged difficulties in attracting
private sector participation.
The Bank has investment projects
in Brazil and the Dominican Republic
that support these processes.
Energy projects in Latin America
& the Caribbean
The Nicaragua Off-grid Rural Electrification
Project provides electricity to
remote villages and dispersed
users in Nicaragua. It finances
village mini-grids (mostly mini
hydro) and solar home systems
via output-based aid schemes with
payment tied to actual delivery
of specific service level and
quality. The innovative nature
of this project is that it moves
beyond traditional lending schemes
toward results-based frameworks.
The Bolivia Decentralized Infrastructure
for Rural Transformation Project
also uses the output-based aid
scheme to provide electricity
to over 15,000 users with solar
home systems. Moreover, it develops
synergies with its telecommunications
component, which finances the
extension of cell phone, radio,
and TV services to the same rural
areas.
The Colombia Jepirachi Carbon
Offset Project contributes to
the reduction of greenhouse gas
emissions from the power sector
in Colombia through the promotion
of a 19.5 MW wind-based electricity
generation facility. The project
is expected to displace an estimated
1.168 million metric tons of carbon
dioxide equivalent over a period
of 21 years and generate revenue
from emission reduction credits
of US$3.2 million. Part of the
carbon revenue will be dedicated
to co-finance a social program
that will contribute to improvements
in the welfare of the local indigenous
community.
Active projects covered under
energy security
Argentina
Energy Efficiency Project: In
addition to reducing greenhouse
gas emissions, this project aims
to increase energy use efficiency,
both reducing energy costs to
consumers and contributing to
the long-term sustainability of
the energy sector. The project
entails developing the Energy
Efficiency (EE) market through
various strategies, including
tax and financial policy to promote
the market, education, training
and promotional programs, and
a standardization, testing, certification,
and labeling program for home
appliances, industrial equipment
and buildings.
Brazil
Energy Sector Technical Assistance
Project: This project helps to
ensure sustainable implementation
of the Government's ongoing energy
sector reform program, through
technical assistance in specific
areas, and by providing a mechanism
for continuing dialogue with policy-makers
about longer-term sector reform.
This operation focuses on the
power and gas sector, where there
are more urgent reform needs.
Dominican Republic
Power Sector Program Second Generation
Reforms: The Power Sector Program
seeks to support the Government's
strategy for the recovery of the
power sector, specifically by
helping to improve the quality
of service, establish conditions
that would permit the financial
sustainability of all efficiently-operated
companies in the sector, and increase
the percentage of the population
with access to electricity.
Dominican Republic
Power Sector Technical Assistance
Project: This project supports
the local government in overcoming
challenges in realizing its original
vision for reforms in the electricity
sector. The project supports an
increase the quantity and quality
of electricity for the poor and
will help to design a transmission
grid and the wholesale power market,
improve policy formation and implementation
related to the power sector, strengthen
the Government's regulatory and
consumer protection performance
related to power, and protect
the environment.
Uruguay
Energy Efficiency Project: The
Energy Efficiency Project for
Uruguay works to increase the
demand for and competitive supply
of energy efficient goods and
services by strengthening the
market for energy efficient goods
and services, developing new business
activities for utility based energy
efficiency services unit, and
working on project management.
ACTIVE Power Projects
Argentina - Renewable Energy in
the Rural Market Project
This project is establishing solar
home systems in approximately
65,500 rural households, providing
small, off-grid electricity generating
units based on renewable energy
systems to supply an additional
3,500 households, and providing
about 1,100 renewable energy systems
to provide electricity to public
institutions. The project also
includes the installation of pilot
wind home systems in two communities
and a capacity building program
to provide technical assistance.
Bolivia - Decentralized Infrastructure
for Rural Transformation
The purpose of the program is
to assist the government of Bolivia
in expanding and improving the
delivery of electricity and ITC
services as a catalyst for the
development of rural areas in
Bolivia. It works to resolve any
policy that is currently inhibiting
effective delivery of electricity
and ITC services to rural areas
and also works to expand rural
infrastructure coverage through
solar energy technologies and
cellular phone coverage.
Mexico - Large Scale Renewable
Energy Development Project
The objective of the Large Scale
Renewable Energy Development Project
is to reduce greenhouse gas emissions
by assisting Mexico in stimulating
and accelerating the commercialization
of renewable energy applications.
The project works to address key
policy and tariff issues currently
hindering renewable energy development,
and facilitate an initial investment
in a grid-connected 101 MW IPP
wind farm. Based on the outcome
of initial efforts, funding may
continue project replication in
the area with both wind and additional
renewable energy technologies.
Honduras - Rural Electrification
Project
The Rural Infrastructure Project
for Honduras aims to improve access,
quality and sustainability of
infrastructure services (roads,
water and sanitation, and electricity)
for the rural poor in Honduras
and to develop the capacity and
the environment to improve local
services and planning.
Active projects covered under
energy access
Argentina
Renewable Energy in the Rural
Market Project:
This project is establishing solar
home systems in approximate 65,500
rural households, providing small,
off-grid electricity generating
units based on renewable energy
systems to supply an additional
3,500 households, and providing
about 1,100 renewable energy systems
to provide electricity to public
institutions.
The project also includes the
installation of pilot wind home
systems in two communities and
a capacity building program to
provide technical assistance.
Bolivia
Decentralized Infrastructure for
Rural Transformation: he purpose
of the program is to assist the
government of Bolivia in expanding
and improving the delivery of
electricity and ITC services as
a catalyst for the development
of rural areas in Bolivia. It
works to resolve any policy that
is currently inhibiting effective
delivery of electricity and ITC
services to rural areas and also
works to expand rural infrastructure
coverage through solar energy
technologies and cellular phone
coverage.
Ecuador
Power and Communications Sectors
Modernization and Rural Services
Project (PROMEC)
This project supports the Government's
effort to deepen reforms in telecommunications
and electricity sectors. It is
extending telecommunication and
electricity services to rural
areas, supporting more efficient
regulation of services and the
introduction of competition to
lower costs and improve quality
of services, and improving environmental
management of resources.
Honduras
Rural Electrification Project
The Rural Infrastructure Project
for Honduras aims to improve access,
quality and sustainability of
infrastructure services (roads,
water and sanitation, and electricity)
for the rural poor in Honduras
and to develop the capacity and
the environment to improve local
services and planning.
Nicaragua
Off Grid Rural Electrification
(PERZA)
The Nicaragua Off Grid Rural Electrification
Project supports the sustainable
provision of electricity services
and associated social and economic
benefits in selected rural sites
in Nicaragua and strengthens the
Government's institutional capacity
to implement its national rural
electrification strategy.
Peru
Rural Electrification
The Rural Electrification project
works to increase access to efficient
and sustainable electricity services
in rural areas of Peru. The project
is providing electricity to about
800,000 people, using both conventional
grid extension and renewable energy
sources, providing technical assistance
to promote renewable energy, new
energy approaches, and private
sector participation, developing
a pilot program to promote productive
uses, and building a small hydrogenation
facility to help finance projects.
Active Projects covering market
efficiency and governance
Brazil
Energy Sector Technical Assistance
Project: This project helps to
ensure sustainable implementation
of the Government's ongoing energy
sector reform program, through
technical assistance in specific
areas, and by providing a mechanism
for continuing dialogue with policy-makers
about longer-term sector reform.
This operation focuses on the
power and gas sector, where there
are more urgent reform needs.
Dominican Republic
Power Sector Technical Assistance
Project: This project supports
the local government in overcoming
challenges in realizing its original
vision for reforms in the electricity
sector. The project supports an
increase the quantity and quality
of electricity for the poor and
will help to design a transmission
grid and the wholesale power market,
improve policy formation and implementation
related to the power sector, strengthen
the Government's regulatory and
consumer protection performance
related to power, and protect
the environment.
Nicaragua
Off Grid Rural Electrification
(PERZA): The Nicaragua Off Grid
Rural Electrification Project
supports the sustainable provision
of electricity services and associated
social and economic benefits in
selected rural sites in Nicaragua
and strengthens the Government's
institutional capacity to implement
its national rural electrification
strategy.
