The Challenge of Low-Carbon Development - World Bank Internet ...

and industrial policy. An increasing number of countries,both developed and developing, have adopted policies thataward premium prices to generators of renewable power,for instance, through feed-in tariffs. By early 2009, 43 developingand transition countries or subnational regionshad adopted feed-in tariffs for renewable (REEEP 2009).However, pricing policies are often unfavorable to renewableenergy. Fossil fuel subsidies and artificially lowelectricity tariffs place renewable energy at a disadvantage.(World Bank responses, in promoting rationalized fueland electricity pricing, were described in Phase I of thisevaluation.)In many countries, small power producers, including hydropowerand biomass plants, face unclear or discriminatoryregulations on access to the grid. Producers may facedaunting years-long negotiations with utilities. In contrast,utilities face difficulties in accommodating intermittent,nondispatchable power sources.Starting in the 1990s, the World Bank assisted a numberof Asian countries in drawing up and implementing smallpower purchase agreements that reduced transaction costsand risks for independent small power producers whileproviding incentives to serve peak loads. Ferry and Cabraal(2006) describe the experience in India, Sri Lanka, andThailand as being generally successful, with less success inIndonesia and Vietnam. IEG’s tally of the timing of smallpower investments (figure A.4) supports a catalytic role inAndhra Pradesh (India), Sri Lanka, and Thailand (wherethe emphasis was on small combined-cycle gas turbineplants); additional factors may be at work in Tamil Nadu,India.Several WBG client countries have drafted or implementedrenewable energy legislation. These legislative and regulatoryinitiatives were complex, country-driven processesoften involving many external counterparts, so attributionof impact is difficult. Nonetheless, it appears that relativelylow-cost analytic assistance and capacity building from theWorld Bank has helped countries craft domestically acceptablepolicies to promote renewable energy. In many cases,receptivity to this advice is heightened by associated investments.However, counterparts view the World Bank as atrustworthy source of advice and analysis.Relatively low-cost analytic assistance andcapacity building have helped countriescraft policies to promote renewable energy.This was true in China, where there is a history of analyticwork dating back to the early 1990s. World Bank-fundedseminars, study tours, and analyses helped lay out the designchoices for renewable energy pricing and funding,contributing to the renewable energy law of 2006. The lawenabled a systemwide levy to fund renewable energy, triggeringgrowth of wind power capacity from 3 GW in 2006to 26 GW at the end of 2009.Dialogue in Mexico, together with demonstration windprojects, contributed to a renewable energy law that overcomesprevious policy biases against renewable power. GEFfunding was used to simulate a feed-in tariff, allowing constructionof the first independent wind power producer.A sequence of dialogue and lending in Morocco culminatedin a 2010 renewable energy law, but implementingregulations are not in place. In Egypt, there has been inputinto a proposed new electricity law.Financing such advisory work can bedifficult within the Bank’s administrativebudget.Financing this high-leverage advisory work can be difficultwithin the Bank’s administrative budget, even thoughthe costs are relatively low. Some clients, such as Brazil,have borrowed for technical assistance. The World Bank’sMexico team has developed a strategy of concentratinglending in a single large Development Policy Loan andusing the (proportional) preparation budget. Elsewhere,teams have relied on donor funding through ASTAE,ESMAP, and GEF. ASTAE provided important inputs inChina.An unusual IFC foray into policy was unsuccessful. AlthoughIFC routinely provides advice to governments onissues related to utility contracting and privatization, aGEF-funded advisory project in the Russian Federationsought to provide broad regulatory advice to complementan IFC wind farm investment. Even under the proposedrules, however, wind prices were not competitive with existing,subsidized fossil-fuel energy prices. The project wasnot implemented, and wind power capacity in Russia stoodat just 16.5 MW at the end of 2009.On-Grid Renewable Energy: HydropowerHydropower is by far the largest source of renewable energyand according to most predictions will retain that positionfor decades to come. Hydropower with storage reservoirs isthe main form of renewable energy that can provide reliablebaseload power.Hydropower has been controversial because of its potentialfor environmental and social damage. These risks are greaterfor storage dams, which have sizable reservoirs, than forrun-of-river facilities, which have little or no reservoir storage.Risks and damages can be mitigated by considerationof siting; for instance, there may be less risk in favoringRenewable Energy | 23