The Role of Energy in Fostering

Human Development

Jamal SaghirDirector

Energy, Transport, and Water The World Bank

12th International Energy ForumCancun, Mexico

30-31 March 2010

The World Bank Group

Overview

Energy and human development

Key challenges

Main barriers to be tackled

Lessons from past experiences

Opportunities for the future

2

Energy and Human Development

Energy inequalities contribute to regional inequalities

CHALLENGESEnergy and Human Development

3

276.2

160.8146.2

127.2

72.453.3

42.8

15.9

North America

Eurasia Europe Middle East WORLD Central and South

America

Asia and Oceania

Africa

Per Capita Primary Energy Consumption (mBTU)

Source: Energy Information Administration 2006

Consumption in Africa is 4.5 times lower than world average and 18 times lower than that of North America

The world still has 1.5 billion people without access to modern energy services and electricity. Nearly 2.5 billion people use solid fuels for

cooking and heating. Recent high oil prices have forced some

poor households to revert to traditional biomass. Inadequate power supply is a significant

drag on competitiveness and productivity of firms. Serious fuel shortages have also occurred,

often linked to price subsidies.

Continuing energy poverty is a major challenge for the world

Challenges

4

0

2

4

6

8

10

12

14

16

18

Billi

on to

nnes

of o

il eq

uiva

lent

World primary energy demand in 2030

Other renewables

Biomass and wastes

Hydropower

Nuclear

Natural gas

Oil

Coal

IEA World Energy Outlook 2009

99.8% of people without access to electricity live in developing countries

5

North Africa 2m, 98.9%

Sub-Saharan Africa 587m, 28.5%

China and East Asia195m, 90.2%South Asia

614m, 62%

Latin America 34m, 92.7%

Middle East 21m, 89.1%

WORLD WIDE 1456m, 78.2%DEVELOPING WORLD 1453m, 72%

Challenges

Source: www.worldenergyoutlook.org

REGIONS (people without access, rate of electricity)

Africa has exceptionally low electricity access…

Only 24% of Sub-Saharan Africa’s population has access to electricity• Numbers of those without access projected

to rise from 590m in 2008 to 700m in 2030

Installed generation capacity is extremely low • At 39 MW per million population, about 1/10

the level in other low-income regions

• Not including South Africa, the installed capacity in SSA is 30 GW (same as Argentina)

More than 30 countries face regular outages and load shedding• Cost of power outages is equivalent to 2.1% of

regional GDP

• Shocks, such as volatile oil prices and/or conflict, worsen the power crisis

Causes of Africa’s Power Supply Crisis

Main Cause or TriggerNatural Causes (Droughts)Oil Price ShockSystem Disrupted by ConflictHigh Growth, Low

Investment/Structural Issues

Energy and Human DevelopmentChallenges

6

This is a result of inadequate investment…

More than US$165 billion investment needed per year for the electricity sector in the developing world, about one-third for achieving universal access by 2030.

US$42 billion investment required in Africa alone.

The sector faces large financing gaps

7

0

5

10

15

20

25

30

35

40

45

Investment Requirement Current Investments

Annual Financing Gap of $30.9 billion

Africa Power Infrastructure Financing Gap

Challenges

Energy for cooking and heating

Challenges

8

Cheap or free alternatives to clean, modern sources of energy exist in abundance in many areas.

For rural inhabitants, the opportunity cost of time spent collecting biomass is often very small. As a result, some people will not stop using free biomass.

A surprisingly high proportion of middle- and upper-income groups continue to use traditional biomass as their main cooking fuel, even in urban areas in some countries, possibly because of costs of switching (e.g., LPG cylinder and stove)

cultural preference for traditional cooking

biomass being a demerit good (people do not fully recognize the adverse health effects)

Energy generation, processing, and use contribute over 60% of the world’s greenhouse gas emissions

In a ‘business-as-usual’ scenario, energy -related carbon dioxide emissions will nearly double by 2050

Developing countries, and especially poor people, are disproportionately affected by the impact of climate change

Climate change: a critical dimension of energy

Challenges

9

Access to energy and per capita emissions are inversely correlated

Challenges

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0

20

40

60

80

100

0 10,000 20,000 30,000 40,000 50,000

% o

f hou

seho

lds

with

ele

ctric

ity

GDP per capita in 2005 US$ at PPP

Source: World Bank data

Low income and poor countries are likely to suffer the first, and the most, from climate change.

Challenges

11Source: World Bank

Drought Flood Storm Coastal 1m Coastal 5m Agriculture

Malawi Bangladesh Philippines All low-lying Island States

All low-lying Island States Sudan

Ethiopia China Bangladesh Vietnam Netherlands Senegal

Zimbabwe India Madagascar Egypt Japan Zimbabwe

India Cambodia Vietnam Tunisia Bangladesh Mali

Mozambique Mozambique Moldova Indonesia Philippines Zambia

Niger Laos Mongolia Mauritania Egypt Morocco

Mauritania Pakistan Haiti China Brazil Niger

Eritrea Sri Lanka Samoa Mexico Venezuela India

Sudan Thailand Tonga Myanmar Senegal Malawi

Chad Vietnam China Bangladesh Fiji Algeria

Kenya Benin Honduras Senegal Vietnam Ethiopia

Iran Rwanda Fiji Libya Denmark Pakistan

Low Income Middle Income

&

Improve operational and financial performance

Strengthen governance

Improve access and reliability of energy supply

Facilitate shift to more environmentally sustainable energy sector development

The challenge is to balance the twin objectives of greater access and sustainability.

Principal Challenge

Multiple barriers must be overcome to tackle the twin challenges of energy access and sustainability

High financing and investment needs

Weak institutional capacity at national and local levels

Low access to, and high cost of, technologies

Lack of enabling policies and regulations

Low affordability and willingness to pay for energy services

13

Main Barriers

World Bank supported Vietnam’s extraordinary success in expanding energy access

Rural Electrification Program• In 1993, more than 70m people

and 85% rural households lacked access

• Since then, 5% of GDP has been invested in energy infrastructure

• World Bank assistance accounted for 70% of the program cost of $1 billion

• By 2008, an additional 40m people had gained access, with the proportion of rural households with access rising to 94.5%

Reasons for Success• Effective leadership of a strong

utility• Partnership between state and

local utilities• Active participation of local

governments and communes• Clear demarcation of

responsibilities• Enforcement of strict technical

standards• Open and effective

consultation process among stakeholders

14

Example of Best Practice Past Experience

No universal institutional model to tackle the electricity access gap - need customized solutions: Centralized and decentralized Public or private Public-private partnerships

Explore all options: off-grid, cooperatives, pro-poor financing methods, affordable lifeline rates, sharply targeted subsidies

Lessons from past experience offer valuable guidance

Tackling the Challenge

15

Sound operational and financial performance should be ensured through improved capacity and governance

For the very poor, promoting productive applications for energy interventions is most important to improve access and affordability

Power Sector Past Experience

Energy for the Poor Initiative

Tackling the Challenge

16

Energy Scaling Up Access

In June 2008, at Energy Summit in Jeddah, King Abdullah of Saudi Arabia launched the Energy for the Poor Initiative. Cooperation interest has been fostered for co-financing and

parallel financing with World Bank by Arab Fund for Economic Development, the Islamic Development Bank, Kuwait Funds, OFID and Saudi Funds for energy access projects in Africa In addition, cooperation with OFID has been deepened since

2009 projects: Mozambique Energy Development and Access program (project cost - US$

230m)

Rwanda Electricity Access Scale up project (project cost - US$ 310m)

Expand energy supply base in a sustainable way

Promote energy trade and regional integration Invest in energy efficient technologies and processes Phase out distorting subsidies Diversify energy mix Accelerate technology innovation and transfer to ensure access to

developing countries Develop technologies that can reduce the adverse impacts of fossil fuels

(e.g. CCS)Expand energy supply base in a sustainable way Create enabling environment to attract private sector investment Put in place policies, regulations, and institutions that facilitate promotion

of technologies Build a new financial architecture by leveraging new financing sources (e.g.

climate funds, green funds, pension funds, carbon finance) Adopt innovative finance mechanisms that improve affordability for the

poor (e.g. micro credit) Foster institutional models to ensure participation of local communities and

gender integration

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Options and Opportunities

Ensure adequate resources to achieve energy goals

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investing in R&D

Technology Hardware & equipment

Pharmaceuticals & biotechnology

Automobiles & parts

Electronic & electrical equipt

Software & computer services

Chemicals

Leisure goods

Aerospace & Defense

General Industry

Industrial Engr

Health Care

Fixed line telecommunications

Oil & Gas Prod

House-hold goods

Food prod Industrial metals

Electricity

Personal goods

Media ConstructionBanks

Tobacco

Oil equipMobile Tel

g

Pharmaceuticals & biotechnology

Oil & gas producers

Technology Hardware & equipment

Software & computer services

Automobiles & parts

Electronic & electrical equipment

General industrials

Chemicals Fixed Line Telecoms

Banks

Food Prod

Aero-space

IndustrialEngr

Health Care Household goods

Tobacco

Industrial metals

Electricity

Leisure goods

Mobile Tel

Oil equip

Personal goods

Media

Cons-truc-tion

Mining

Research & Development SpendingMarket Capitalization

Oil & GasOil &Gas

IncreasingDecreasing

Source PFC Energy

Conclusion: Chartering a Way ForwardThe world needs a bold approach and collective will to tackle the challenges of access , sustainability and climate change Develop time-bound action plans

Match the intent with concrete commitment of financial resources

Work through partnerships

Make the cost of service fit into poor’s budget: need for some initial capital subsidies for access, electricity and natural gas lifeline rates Ensure sharp targeting identify the truly needy

Explore options other than subsidized energy prices

Help the poor increase consumption efficiency, possibly providing subsidies in the interim

Supply-side and demand-side efficiency improvement and energy conservation are good for the economy and environment For conventional energy, expose all customers other than the poor targeted for

assistance to unsubsidized prices

Diversify energy sources19

http://www.worldbank.org/energy

Thank You