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

Box 2.5On-Grid and Off-Grid Renewable Energy in Sri LankaThe World Bank has helped promote significant growth in renewable energy in Sri Lanka, through two IDA-GEFprojects, beginning in 1997.The largest impact was through catalyzing the growth of grid-connected, independently operated smallhydropower plants. This was done by facilitating finance. A small power purchase agreement eliminatedtime- consuming, asymmetric negotiations between small companies and the electricity board. A market-basedfeed-in tariff, with a floor, ensured a minimum income. IDA funds were on-lent by private banks for durations of7–9 years, as opposed to the usual 4. The government assumed the foreign exchange risk (and has borne the costof a devaluation).As a result, 153 MW of minihydro have been installed, generating 4.4 percent of grid-connected power (2008)and saving a claimed 550,000 tons of CO 2per year. Sri Lanka has gained technical manufacturing expertise in theprocess and is now exporting turbines and engineering services.The projects also supported the rapid growth of solar photovoltaic home systems, from near zero to 125,000systems totaling 5.5 peak MW of capacity. Output-based subsidies (as in China’s REDP) and specialized microfinancewere key. Success was more modest for village hydro systems, supported through grants and loans, whichinstalled 1.3 MW serving 4,696 households. And a wind project, designed to demonstration commercial feasibility,performed below expectations and was not replicated. Recently, a new IFC project, PADGO, has begun to promotedecentralized energy, including combined heat and power fueled by biomass.Challenges for further expansion of renewable electricity include an inadequate grid; decreasing quality ofremaining hydropower sites; wind sites that are remote and can support only small turbines; and an increasinglybureaucratic plant licensing process that now requires two years. Demand-side management and energyefficiency have also been less successful than hoped. However, a 30 percent increase in electricity tariffs in 2009(that preserved lifeline tariffs) should increase the attractiveness of both renewable energy and energy efficiency.Source: IEG background study.of smaller systems (as in the Lighting Africa Project), couldhelp with diffusion.Long loan durations are an important stimulusto project bankability and are featuredin IFC lending and Bank on-lending.Long loan tenors are an important stimulus to projectbankability and are a feature of IFC direct lending andon-lending by the World Bank. At current carbon prices,carbon finance has a very modest leverage on the financialviability of hydropower, wind, or geothermal projects buta profound effect on projects that involve the capture ofmethane.Systems issuesAs renewable energy expands, systems integration issuesbecome critical. There is increasing use of strategicenvironmental assessments to aid in optimizing hydropowersites, taking account of economics, environmental impacts,transmission needs, and integration of intermittent powersources. Spatial planning of this kind will become increasinglyimportant to aid in integration of wind, biomass, solar,and other site-specific resources, especially as climateadaptation needs are factored in.Learning and feedbackSystematic monitoring of output of grid-connected renewableenergy can help explain why new types of projects areunderperforming, so that design and operations of repeaterprojects can be improved.Better monitoring of costs and impacts is needed to guidefuture investment portfolios. Actual long-term impacts ofsolar home systems are poorly measured—including howlong they last.Renewable Energy | 31