The World Bank and energy

2 July 2007 | Inside the institutions

versión en español

The World Bank Group’s energy work is managed under the sustainable development network which promotes “environmentally responsible and socially acceptable” growth strategies, affirms Katherine Sierra, vice president of sustainable development. The Bank’s energy objectives are to “improve access to clean, modern and affordable energy services for the poor” and “achieve sustainability in the environmental, financial, and fiscal aspects of the energy sectors”.

The Bank’s strategy to achieve these objectives is founded on: an effective regulatory system based on investor and consumer confidence in transparency and regulation; support for sustainable, rural energy solutions based on low-cost and efficient energy technologies; and access to modern energy services via low cost distribution methods, subsidies and incentives for local participation in the provision of these services.

The Bank combines financing for its energy work with advice via four main instruments: loans, grants and equity investments; investment guarantees; policy advice and dialogue; and partnerships with external development agencies to generate policy-alignment. The Bank’s regional units are responsible for implementing individual energy projects through loans and grants to recipient country governments, supported by the sustainable development network. Equity investments emanate from the Bank group’s private sector arm, the International Finance Corporation (IFC), while investment guarantees are issued by another arm of the Bank group, the Multilateral Investment Guarantee Agency (MIGA).

International Bank for Reconstruction and Development and International Development Association (IBRD/IDA) lending portfolio: In fiscal year ’05 total IBRD and IDA public sector lending for energy and mining projects was $1.9 billion, compared to $1.1 billion the year before. Over the past nine years, more than half of lending was directed to the European and Central Asian and East Asian and Pacific regions. The sectoral distribution of this lending was heavily focused on the power sector.

Since 2004, IBRD/IDA lending for renewable energy has been greater than for oil and gas. However, oil and gas continues to account for most energy funding from the Bank’s private sector arm, the IFC. During 2004 the IFC made $340 million in commitments to 7 oil and gas projects, and in 2006 claims commitments of $430 million for similar projects. However, neither aggregate figures nor sectoral details comparable across the IBRD, IDA and IFC are available.

The World Bank states that it is the largest lender for Renewable Energy and Energy Efficiency (RE&EE) projects in developing countries since 1990, investing more than $6 billion in Bank-managed resources and mobilising more than $10 billion from other public and private sources. In 2004 the Bank committed to increase its RE&EE financing by 20 per cent per year over the following five years. There have been questions raised over the low baseline from which this target was set, the Bank’s definition of renewable energy which includes large hydropower and the exclusion of the IFC from the target. The Bank states that much of its RE&EE lending includes money from the Global Environment Facility and carbon finance funds, such as the Clean Development Mechanism and Prototype Carbon Fund (see Updates 53, 47). In 2005 the World Bank launched its Investment framework for clean energy and development to address developing country energy needs; control greenhouse gas emissions; and support climate change adaptation (see Update 55, 52).

The Bank works in partnership with numerous private and public stakeholders within a variety of different initiatives and programmes. These include: the Asia Alternative Energy Program, the Carbon Finance Unit and the IFC’s Carbon Finance Facility; the Climate Change Group; Environmental Management for Power Development; Energy Sector Management Assistance Programme (ESMAP); the Global Environment Facility, the Global Gas Flaring Reduction Initiative ; and the Global Village Energy Partnership.

The Bank’s energy and mining sector board guides its strategy and policy in these areas. Chaired by Jamal Saghir – also director of energy, transport and water at the Bank – it has approximately 15 members representing all regions and a variety of Bank departments, including the energy sector management assistance programme, the IFC, the oil, gas, mining and chemicals department, and the Independent Evaluation Group. The board believes that “access to energy services for the poor needs to based on markets that function on sound commercial principles and on the preservation of the environment. Key policy papers include: The infrastructure action plan, the World Bank’s role in the electric power sector; Renewable energy for development; Public and private sector roles in the supply of gas services in developing countries; and Rural energy and development: Improving energy supplies for two billion people.

Lighting Africa

Lighting Africa is an IFC-World Bank initiative “aimed at providing up to 250 million people in Sub-Saharan Africa with access to non-fossil fuel based, low cost, safe, and reliable lighting products with associated basic energy services by the year 2030”. The programme addresses the lighting needs of mainly low-income households and businesses in rural, urban, and peri-urban areas and advocates for a mixture of on-grid and off-grid solutions. Lighting Africa claims to offer an alternative to current costly, inefficient and often hazardous lighting options such as kerosene lamps and candles. It aims to catalyse the private sector by treating low-income people as consumers rather than “passive recipients of aid”, who can hopefully develop local, small business solutions to energy deficiencies. The initiative is central to the World Bank’s Investment framework for clean energy and development and the Africa energy access scale-up plan.