The WBG should place greater emphasis on large-scale energy efficiency scale-up, as measured by energy saved and generating capacity avoided. This includes support for efficient lighting and exploring the scope for accelerating the global phase-out of incandescent light bulbs. It includes continued and expanded support for reductions in transmission and distribution losses. And it includes proactive search by IFC for large-scale, catalytic investments in energy efficiency. There is scope to coordinate World Bank support for demand-side energy efficiency policies with IFC support for more efficient manufacturing and more efficient products.
Original Response: Partially Agree WBG agrees with the general emphasis proposed, but does not agree with the specific action areas proposed. WBG does focus on large-scale or bundled EE projects to avoid high transaction costs associated with small-scale investments. Estimates of energy saved are computed as part of the appraisal of projects with EE components. However, World Bank finds the recommendations on efficient lighting and TD to be rather prescriptive and limited in terms of scope and impacts. They do not account for a variety of untapped EE scale up opportunities and available long-term EE potential in other sectors, on both the supply and demand sides, which could have much larger impacts, such as in district heating, industry, and municipalities. IFC intends to increase its climate-related lending from 10 percent of annual commitments in FY09 to 20-25 percent in FY13, and will undertake a proactive search for suitable investments. EE is expected to be a significant contributor to meeting this target. IFC will define an approach to estimating avoided emissions associated with its climate-related activity. IFC agrees with the potential for investments in manufacturing of more efficient products and is actively seeking such opportunities, having made several such investments in FY10.
The Climate Change Phase II evaluation recommended that the WBG refocus on high impact investments, emphasizing in particular energy efficiency as an area for intervention. However, the World Bank has not placed significantly greater emphasis on large-scale energy efficiency scale-up as envisioned in the recommendation. (The performance of IFC is discussed under a separate recommendation.)
It is expected that annual commitments will fluctuate from year to year, but the trend over time in World Bank energy efficiency commitments since the time of the evaluation has been flat or declining, even as overall attention on and financing for climate change mitigation has been rising. As in the 2014 update, the 2015 Management update does not address the specific issues raised in the recommendation. Inputs are a poor way of measuring impact, but no data is provided on trends in energy saved or generation capacity avoided, and no examples of approved large scale transformative activities are provided. The update also does not provide evidence of improved coordination between World Bank and IFC.
IEG notes the substantial challenges faced by energy efficiency including falling fossil fuel prices and softening demand in China.
It is too soon to tell whether the institutional restructuring and establishment of a Clean Energy Solutions Group will make a difference in supporting greater emphasis on energy efficiency.
It has been four years since the evaluation, so the recommendation will be deactivated from the MAR system.
Overall progress in implementing this MAR remained moderate in FY15, but the groundwork was laid for substantially better results in FY16.
WBG commitments to energy efficiency (EE) were $850 million in FY15, up slightly from $751 million in FY14. The definition of the proportion of financing attributable to EE remain somewhat different across WBG units, however, it is important to break these figures down. IFC lending rose substantially in FY15, to $632 million from over $500 million in FY14. World Bank (IBRD and IDA) commitments to EE, on the other hand, were down from $563 million in FY14 to $218 million in FY15, reflecting in part delays stemming from external factors on projects in the pipeline, notably a $500 million loan to Russia for onlending to industrial and public EE sector projects. Falling prices for fossil fuels have also reduced the willingness to take on debt for pursuing EE in many countries. National circumstances have been at play as well; China, which has been a very large borrower for industrial EE, is struggling with overcapacity and softening demand for industrial products. Factors internal to the Bank have also been at play, as disincentives to pursue EE projects remain, e.g. transactions costs and relatively small sizes. (WB commitments for renewable energy (RE) projects also fell significantly in FY15 compared to the previous year, whereas IFC's RE investments rose, in tandem with the substantial increase in private sector funding for renewables worldwide.) It is also important to note that significant year-to-year fluctuation has been the norm in the Bank Group's EE lending portfolio in past years.
At the same time, the past year has seen preparation of a number of projects that may result in a surge of lending for EE. There are more than three dozen EE projects in the World Bank's FY16 pipeline, including investment projects in ten countries totaling nearly $1.2 billion. Among them are a $500 million program-for-results project for clean energy in China, a $187 million loan and credit package for district heating in Uzbekistan, a $100 million loan to Mexico for municipal EE, a $108 million program-for-results loan to Bulgaria to renovate multifamily apartment buildings, and a $200 million loan to Vietnam for industrial EE projects. In the MENA region, where there has been less uptake of EE compared to ECA, EAP and SAR, there is growing interest, especially as energy price and subsidy reforms begin to take hold in more countries. The pipeline for EE projects thus includes a fund for EE and RE in Egypt, not to mention a growing program of RAS work with GCC countries that would pave the way for projects with other countries in the region. Even given the likelihood that a number of projects in the FY16 pipeline will be delayed, this FY may see the Bank's largest lending volume for EE since 2011, when the portfolio was dominated by the $1.1 billion EE development policy loan to Poland.
FY15 was a year of transformation for the Bank's energy practice, with the establishment of the new EnergyExtractives Global Practice, as well as the Clean Energy Global Solutions Group (GSG), one of six such thematic units, and the primary means for fostering and tracking more-vigorous pursuit of EE and RE operations. The new structure is intended to provide managers and TTLs in regions and country offices with the resources needed to take advantage of opportunities to meet clients' needs for clean energy. An inventory of skills and experience has been undertaken, and will be used by the GSG to deploy staff where and when they will be most effective. There were a number of other developments that are also anticipated to support long-term growth in EE operations:
- A portfolio review is nearing completion that will inter alia help identify the instruments, business models and other factors behind successful delivery of EE.
The Mexican project exemplifies the kind of high-return energy efficiency investment advocated by the Evaluation. And the expression of goals and progress in terms of people served (Lighting for Africa) and appliances replaced (Mexico) is in line with the recommendation that progress be measured in outcomes rather than expenditure an approach that IEG would like to see applied to the entire portfolio. There is still tremendous scope for expanding these lines of actions, as outlined in a Bank study which found that efficient lighting could free up a quarter of Sub-Saharan Africa's generating capacity, and in the Bank-supported Low Carbon study for India, which advocates reducing transmission and distribution losses from 29% to 15%.
The Bank continues to expand its non-lending (policy, institutional, and advisory) and lending portfolio in the areas of supply-side and demand-side energy efficiency, supported by efforts to improve knowledge management, cross-sectoral collaboration and sharing of best practices across the energy and other practices. The share of total WBG energy financing for low carbon projects rose from 42 percent to 51 percent over this period. FY11 marked an all-time record in WBG low carbon financing, with $5.9 billion in new commitments. Compared to a target average annual increase of 30 percent in financing for new renewable energy (new RE) and energy efficiency (EE) to FY11, amounting to total financing of about $6 billion over FY09-11, the WBG's financing for new RE and EE actually increased by about 48 percent per annum, and totaled some $9.2 billion.
Energy efficiency intervention has seen large scale energy efficiency projects launched in middle-income countries, such as China and Mexico. In the case of China, highlights of projects include Shandong Energy Efficiency Projecta $150 million IBRD loan to support Energy Service Companies for energy efficiency investments. The Bank introduced market-based mechanisms of delivery and financing mechanisms to help the government achieve its ambitious energy intensity reduction targets. Lighting Africa, a joint IFC and World Bank program, is helping develop commercial off-grid lighting markets in Sub-Saharan Africa as part of the World Bank Group's wider efforts to improve access to energy. In the case of Mexico, the Mexico Efficient Lighting and Appliances Project is a catalyst for the transformation of the residential lighting and refrigeration subsectors, by supporting the replacement of 45 million inefficient incandescent light bulbs and 1.7 million old and inefficient refrigerators and air conditioners with more efficient models across a range of beneficiaries, mostly lower income groups. In the context of low income countries, innovative solutions have also been implemented. Lighting Africa is mobilizing the private sector to build sustainable markets to provide safe, affordable, and modern off-grid lighting to 2.5 million people in Africa by 2012 and to 250 million people by 2030. Since 2007, over 190,000 solar portable lamps which had passed Lighting Africa quality tests were sold in Africa, providing more than 950,000 people with cleaner, safer, better lighting and improved energy access.
The Bank is providing technical and financial support to electricity distribution companies in several countries in the design and implementation of projects aimed at improvement of commercial performance, particularly reduction of non-technical losses increase in collection rates. Several projects involving ICT are either under implementation or under preparation in electricity utilities in Brazil, Dominican Republic, Ghana, Haiti, Honduras, India, Malawi, Mozambique, Uzbekistan and Vietnam. In the Dominican Republic, an AMI-based revenue protection project designed and implemented by the three distribution companies in the country with technical assistance provided by the Bank resulted in the reduction of total losses by 4 percentage points in less than one year. Project investments (meters, communication devices and software package to remotely collect and analyze metering data) were paid back in 7 months. More importantly, the design of the project assures sustainability of the improvements achieved through its implementation.
IEG's recommendation reflects the cited IEA finding that energy efficiency can account for the bulk of greenhouse gas emissions reductions and can do so in a way that is cost-effective. IEG notes that energy efficiency commitments are reported to have held steady, but not grown. . No examples have been offered on coordination of WB support for energy efficiency policies with IFC investments. The Mexico efficient light/appliance project is a good example of the type of project that IEG advocates, with a combination of high expected returns and built-in impact evaluation. IEG looks forward to the results of the impact evaluation. IEG notes with approval that effective July 2013, energy efficiency indicators are part of the core indicator set an addition which may give energy efficiency a higher profile in the future.
2013
The International Energy Agency (IEA) estimates that between now and 2020, 72% of the reduction in CO2 emissions needed to keep global temperature rise below 2 degrees Celsius can be achieved by improvements in energy efficiency. So energy efficiency (EE) is a critical tool to stop climate change and build a sustainable energy future. It is also a critical tool to help countries and business cut their costs. The WBG has continued to support scaling up of EE, through a combination of a robust lending and advice on both supply and demand-sides of the efficiency challenge.
Energy efficiency accounted for about $1.4 billion in new commitments in the last fiscal year, and about $7.9 billion in the five years to fiscal year 2012. The EE share of annual commitments has remained steady over the past five years at about 15-20%. This 2012 financingfrom IBRD, IDA, IFC, the Carbon Finance Unit and the Global Environment Facilityreached 27 countries in all six regions, with the largest shares going to East Asia-Pacific and Eastern Europe-Central Asia.
Low-income countries received about $120 million in energy efficiency financing, while EE projects in middle-income countries received $912 million. The remaining $289 million went to multi-country, regional projects, including the largest single efficiency interventionthe $202 million Southern Africa Power Pool project to increase efficiency and reliability of high voltage transmission lines. The level of lending is consistent with greater opportunities for Energy Efficiency in Middle Income and fast growing economies
Projects have supported both demand-side and supply-side efficiency interventions, with slightly more on supply-side interventions.
In many developing countries, challenge is to find ways to finance scaling up EE. Both Bank operational staff and the Bank's Energy Sector Management Assistance Program (ESMAP) are working with countries and cities to establish EE plans and provide guidance on energy efficient procurement. The Bank Group is also working to help create incentives, through risk guarantees, for local, domestic banks to lend to commercial and industrial companies for investments in EE. In Uzbekistan, for example, the Bank supports the EE Facility for Industrial Enterprises project, which covers investments in energy systems, including upgrading, fuel-switching, process technology, waste heat and waste use. We are making progress in raising awareness of the benefits of energy savings, and enabling domestic banks in implementing a line of credit for EE investments. Also in Uzbekistan, a major demand-side intervention is the Uzbekistan Advanced Metering project, in which a $180 million commitment supports deployment of metering systems that enable two-way communication between the consumer and the utility to help balance demand and supply for power.
Similarly, an existing financing facility for demand-side EE improvements, including efficient light bulbs and motors, and renewables to private firms in Turkey was scaled up with a $125 million from IBRD, with private lenders in Turkey matching between four and five dollars to one IBRD dollar.
IBRD support has helped Mexico achieve anenergy efficiency milestoneby distributing almost 23 million energy-saving light bulbs for free. The national program, partially financed by$185 million from the Global Environment Fund, established over 1,100 exchange points in 2011-12 at which customers replaced their incandescent bulbs with compact fluorescent lamps (CFLs). In total, more than 5.5 million Mexican families now use energy-saving lamps that consume only 20 percent of the energy and last 10 times longer than a traditional light bulb. The first stage of the program, partially financed by the World Bank, resulted in savings of 1,400 gigawatt hours (Gwh). The program also enables families to save up to 18 percent of their electric bill. When the second stage ends in 2014, it is estimated that the saving will be of 2,800 Gwh per year, preventing about 1.4 million tons of CO2 emissions.
On the non-lending side, the WBG is one of the leading partners in the UN's Sustainable Energy for All Initiative, which seeks to achieve universal access, double the share of renewable energy and double the rate of improvement in EE by 2030. The past year has seen the development of a global baseline for current rate of efficiency increase across both developing and OECD countries, and the creation of The SE4ALL Global Tracking Framework that enables identification of high-impact opportunities for major gains on energy efficiency, and a methodology to monitor progress on achieving it.
The 2014 management update does not contain sufficient evidence on which to make a judgment on the specific issues raised in the recommendation. No data is provided on trends in energy saved or capacity avoided, and no examples of large scale transformative programs are given.
The recommendation envisioned that the Bank would place greater emphasis on energy efficiency, and that it would focus on large scale operations that could have national level development impact (e.g. by demonstrating scalable financing models or by catalyzing sectorwide improvements in building or appliance energy efficiency)). Data on EE commitments in the Bank do not appear to demonstrate a sustained increase in the share of the energy portfolio.
General approaches to and prioritization of energy efficiency in the Bank do not appear to be significantly different from what they were at the time the recommendation was issued. After increases in attention to energy efficiency in the Bank in the mid 2000s (prior to the IEG evaluation), the proportion of energy lending related to energy efficiency in the Bank has not increased significantly further. Declining numbers of energy efficiency staff within the Bank make it difficult to expand the subsector. The Bank has made an effort to increase efficiency in buildings (which represents a large portion of potential efficiency improvements) but financing programs for improving efficiency in specific buildings using grants is not likely to be scalable and so has modest development impact. New lighting operations have not been forthcoming.
Absent additional information, the level of achievement is rated Medium.
WBG commitments to energy efficiency (EE) reached $1.25 billion in FY13 and $751 million in FY14. The share of EE annual commitments in total WBG commitments in the energy sector has varied over the last few years, from 5 percent in FY12 to 18 percent in FY13, and 8 percent in FY14. In the last five years (FY10-FY14) the WBG delivered a cumulative amount of $6 Billion in support of EE projects.
Within the World Bank, Europe and Central Asia region (Ukraine and Turkey) was the main driver for Energy Efficiency lending in FY 2013 and FY 2014 with commitments of $320m and $414m respectively. East-Asia and Pacific region (Vietnam) also contributed $351m towards Energy Efficiency lending in FY 2013.
The five year average for Energy Efficiency lending for the WBG was $1.2 billion.
The challenges described in management's update of 2013 remained through FY13 and FY14.