Beijing International Renewable Energy Conference Background ReportIncreasing Global Renewable Energy Market Share Recent Trends and Perspectives Prepared by: Expert Group on Renewable Energy Convened by: United Nations Department of Economic and Social Affairs With the Support of:
PAGE i RENEWABLES 2005 BACKGROUND REPORT Disclaimer This report was prepared as an account of work sponsored by various governmental agencies, international institutions, and non-governmental organizations. None of these agencies makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favoring by such agencies thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of these governmental agencies, international institutions, or non- governmental organizations, either individually or collectively.
RENEWABLES 2005 BACKGROUND REPORT PAGE iiContentsAcknowledgements ...................................... v 5 Capacity Strengthening for Market Development ................................................45List of Acronyms ........................................ vi Capacity Building for Renewable Energy.....45Letter from the President of the People’s Identification of Needs and Requirements ....45Republic of China ..................................... viii Capacity Building: Progress since Bonn .......48Message to the Beijing International 6 International Collaboration........................50Energy Conference from the SecretaryGeneral ....................................................... xv Introduction...................................................50 Collaborative Support for PolicyExecutive Summary...................................... 1 Development..........................................51 Capacity Building .........................................531 Introduction .......................................... 4 Technology Transfer, Diffusion, and Industrial Development..........................542 Renewable Energy Technology Status Research, Development, and Demonstration 56 and Prospects ...................................... 11 Finance and Trade.........................................56 Overview .............................................. 11 7 Options for Enhanced Information Bioenergy ............................................. 15 Gathering, Sharing, Review, and Geothermal Energy .............................. 17 Assessment ...................................................60 Hydropower .......................................... 18 Solar – Concentrating Solar Power ...... 20 Background ...................................................60 Solar – Photovoltaics ............................ 21 Importance of Information Gathering, Solar – Hot Water ................................. 23 Sharing, Review, and Assessment .........60 Wind ..................................................... 24 Principles for Information Gathering, Sharing, Review, and Assessment .........613 Policy .................................................... 26 Information and Assessment Needs ..............61 Mechanisms for Information Collection, Removal of Market Distorting Policies . 27 Reporting, and Review...........................63 Targets and Timetables for Renewable Process for Information Reporting Energy ............................................ 29 and Review ............................................63 Grid-Connected Policies ....................... 29 Synergy and Feedback to CSD .....................65 Technology-Specific Policies................ 30 Green Power Purchasing and Pricing .... 31 8 Conclusions and Next Steps........................68 Local Government Policies ................... 30 Rural Electrification Policies................. 32 Appendix: Beijing Declaration on Renewable Cross Sector Policies ............................. 32 Energy for Sustainable Development ........714 Finance ................................................. 35 References ...........................................................74 Finance Industry Overview and Trends. 35 Financing Large-Scale Renewable Energy Projects in Developing Countries ........................................ 36 Existing and New Sources of Financing for Renewable Energy.................... 40 Global Partnerships and Foundations .... 43
PAGE iii RENEWABLES 2005 BACKGROUND REPORTFigures and Tables 2.8 Projected Decreases in Costs from Ethanol Production…………………….161.1 Renewable Energy Scale-Up: The Road from WSSD to CSD ………...4 2.9 Geothermal Power Cost Curve………...181.2 Key Market Drivers for Renewable 2.10 Concentrating Solar Power Cost Energy……………………………...8 Curve…………………………………..212.1 World Energy 2.11 Solar Photovoltaic Cost Curve………...21 Consumption (Mtoe)……………...11 2.12 Wind Technology Cost Curve…………242.2 Renewable Energy Growth Rates...11 4.1 Percentage of CO2 Tons That Can Be2.3 Renewable Energy Electricity Avoided Yearly by Renewable Energy..38 Generation Costs as Percentage of 5.1 Distribution of Bonn International Actions 1980 Levels: Historical and by Issue Area…………………………..49 Projected…………………………..12 6.1 Illustrative Areas for International2.4 Brazilian Ethanol Learning Curve Cooperation……………………………52 (Brazil)……………………………122.5 Global Renewable Energy Applications………………………132.6 World Electricity Generation from Non-Hydro Renewable Energy Sources……………………………132.7 Populations without Electricity Access…………………………….14Textboxes Country Examples………………………………331.1 No Energy, No MDGs……………..6 4.1 Creation of Energy Enterprises through1.2 Renewable Energy and Climate Innovative Finance in Africa…………..39 Change……………………………..7 4.2 GVEP Microfinance and Energy………403.1 Impacts of Rising Fossil Ruel Prices 5.1 Mechanical Power for Productive Uses in in Developing Countries………….27 Mali……………………………………463.2 The Aggregate Renewable Energy 6.1 Themes of the Renewables 2004 Supply Curve for China…………..28 Conference…………………………….513.3 Improving Energy Access in Rural 6.2 South-South Policy Collaboration: Argentina with Renewable African Microhydro Knowledge Energy…………………………….30 Network………………………………..533.4 Increasing Agricultural Productivity 6.3 Excerpts from G8 Summit Climate and Reducing Oil Imports: The Case Change Action Plan 2005……………...54 of Ethanol in Brazil……………….31 6.4 Vision Statement of Australia, China,3.5 Integrating Renewable Energy into India, Japan, the Republic of Korea, and Broader Electrification and the United States of America for a New Development Programs: Some
RENEWABLES 2005 BACKGROUND REPORT PAGE iv Asia-Pacific Partnership on Clean 7.1 International Reporting on Renewable Development and Climate………...55 Energy…………………………………626.5 From Renewable Energy and 7.2 Selected Examples for International International Law Project…………58 Policy Review………………………... 666.6 Enhancing International Collaboration on Renewable Energy………………………….....59
PAGE v RENEWABLES 2005 BACKGROUND REPORTAcknowledgementsThis report has been prepared by an Expert Renewable Energy and Energy EfficiencyGroup of leaders active in the renewable energy Partnership (REEEP) International Secretariat.field worldwide. It reflects their personal Mr. Mike Enskat from GTZ also contributed toopinions and does not necessarily reflect the Chapter 5.shared views of the organizations they represent. Chapter 6 was developed by Mr. Alex BeckittThe preparation of the report was facilitated by (Hydro Tasmania), Renewable Energythe United Nations Department of Economic and Generators of Australia; Mr. Lachlan Tait andSocial Affairs (UNDESA), New York, with Mr. Mark Fogarty, University of Sydney; Mr.funding support provided by the UN Foundation Phil Clark, Consultant, Hydro Tasmania; and Mr.(UNF), and the Federal German Ministry for Peter Rae, Convenor, International RenewableEnvironment, Natural Conservation and Nuclear Energy Alliance who served as lead reviewer.Safety (BMU). Also contributing to Chapter 6 were Ms. Leslie Parker and Mr. Martijn Wilder of the RenewablePlaying a key role in scoping of the document Energy and International Law Project (REILP),were Mr. Shi Lishan, Director, Rural Mr. Peter Tulej of the International EnergyElectrification and Renewable Energy Division, Agency, and Mr. Rick Sellers, President,Energy Bureau, Chinese National Development Renewable Energy Investment Opportunities.and Reform Commission (NDRC); Mr. Norbert Mr. Duncan Marsh, Senior Program Officer forGorissen and Ms. Ellen von Zitzewitz, BMU; Mr. Energy and Climate Change, UNF, served asLi Junfeng, Chinese Renewable Energy Lead Reviewer for Chapter 6.Industries Association (CREIA); and Mr. WangZhongying, Chinese Center for Renewable Chapter 7 was prepared under the lead of Mr.Energy Development (CRED). The Renewable Sebastian Oberthur, University of Bamberg,Energy Network 21 (REN21) also contributed to Germany. Dr. J. Gururaja, Senior Advisor onthe development of the document. Renewable Energy in India and former senior official with UNDESA, served as lead reviewer.Expert contributions were as follows: Mr. Aldo Fabris, Consultant, and Ms. SuaniMs. Judy Siegel, President of Energy Security Coelho, Professor, University of Sao Paulo andGroup, prepared Chapters 1 and 8, with lead Head of the Brazilian Reference Center onresponsibility for organizing and editing the full Biomass (CENBIO) provided inputs on thedocument. report and contributed case studies.Chapter 2 was prepared by the National Other members of the expert group and keyRenewable Energy Laboratory, with lead author, contributors to the report included: Mr.Dr. Dan Arvizu, NREL Director. Key NREL Mohamed El Ashry, Senior Fellow to the UNF;contributors were Mr. Ron Benioff, Ms. Jean Ku, Mr. Abeeku Brew-Hammond, Program ManagerMr. Jorn Aabakken, Ms. Lynnae Boyd, for the Global Village Energy PartnershipMs.Wendy Clark, Mr. Bruce Green, Mr. Chuck (GVEP) Technical Secretariat; and Ms. LiangKutscher, Ms. Debra Lew, Mr. Robert Dan, UNF Board of Director and PTC/IPTMcMormick, Mr. Mark Mehos, Mr. Tim United Nations Industrial DevelopmentMerrigan, Ms. Kathleen O’Dell, Mr. Ralph Organization (UNIDO).Overend, Mr. Tom Surek, and Mr. MartinVorum. We would also like to note the contributions of Mr. Kui-Nang (Peter) Mak, Chief of the EnergyChapter 3 was prepared by Mr. Eric Martinot, and Transport Branch, UNDESA; Mr. JamalVisiting Professor, Tsinghua University. Dr. Saghir, Director Energy and Water, The WorldMartinot was also a contributor to Chapter 2. Mr. Bank; Ms. Susan McDade, Sustainable EnergyAnil Cabraal, Senior Energy Advisor, The World Programme Manager, Energy and EnvironmentBank, served as Lead Reviewer for Chapter 3. Group, United Nations Development ProgrammeChapter 4 was developed by Mr. Eric Usher, (UNDP); and Mr. Mark Radka, EnergyUnited Nations Environment Programme Programme Coordinator, UNEP.(UNEP). Finally, we would like to acknowledge theChapter 5 was prepared by Mr. Binu Parthan, guidance and support of Mr. Li Shaoyi and Mr.Deputy Director, Program Coordination, Ralph Wahnschafft, Energy and Transport
RENEWABLES 2005 BACKGROUND REPORT PAGE viBranch, UNDESA, who organized the expertgroup and facilitated the process that lead to thisreport.List of AcronymsAC Alternating Current DFID UK Department for InternationalACORE American Council on Renewable Development Energy DGIS Netherlands Directorate General ofADB Asian Development Bank International CooperationADEME French Agency for the Environment DME Dimethylether and Energy Management E+Co Energy through EnterpriseAfDB African Development Bank EAP Environmental Action ProgramAMKN African Microhydro Knowledge EBRD European Bank for Reconstruction Network and DevelopmentAPEC Asia Pacific Economic Cooperation ECAs Export Credit AgenciesAREED African Rural Energy Enterprise EEA European Environment Agency Development EGNRET Expert Group on New and RenewableAPPCDC Asia-Pacific Partnership on Clean Energy Technologies Development and Climate EGS Enhanced Geothermal SystemsAPRM African Peer Review Mechanism EJEDSA Empresa Jujeña de SistemasASTAE Asia Alternative Energy Unit Energeticos DispersosBAU Business as Usual EPA Environmental Protection AgencyBIREC Beijing International Renewable ESMAP Energy Sector Management Energy Conference 2005 Assistance ProgramBMF Blue Moon Fund EU European UnionBMU Federal German Ministry for EUEI European Union Energy Initiative Environment, Natural Conservation EWEA European Wind Energy Association and Nuclear Safety EWG Energy Working GroupCDM Clean Development Mechanism FDI Foreign Direct InvestmentCERs Certificates of Emission Reductions GDP Gross Domestic ProductCHP Combined Heat and Power GEF Global Environment FacilityCO2 Carbon Dioxide GHG Greenhouse GasesCPV Concentrating Photovoltaics GIS Geographic Information SystemsCRED Chinese Center for Renewable GMI Global Market Initiative Energy Development GNESD Global Network on Energy forCREIA Chinese Renewable Energy Industries Sustainable Development Association GREFF Global Renewable Energy Fund ofCRESP China Renewable Energy Scale-Up Funds Program GTZ Deutsche Gesellschaft für TechnischeCSD Commission on Sustainable Zuammenarbeit Development GVEP Global Village Energy PartnershipCSP Concentrating Solar Power Plants GW GigawattsCTI Climate Technology Initiative HDI Human Development IndexCYTED Science and Technology Development Program IAP International Action ProgramDC Direct Current IBRD International Bank for Reconstruction and DevelopmentDFCC Development Finance Corporation of Ceylon
PAGE vii RENEWABLES 2005 BACKGROUND REPORTIDA International Development RD&D Research, Development and Association DemonstrationIDB Inter-American Development Bank REEEP Renewable Energy and EnergyIEA International Energy Agency Efficiency PartnershipIIA International Investment Agreements REIA Renewable Energy in the AmericasIPO Initial Public Offering REILP Renewable Energy and International Law ProjectIPP Independent Power Purchase REN21 Renewable Energy Network 21IREDA Indian Renewable Energy Development Authority Renewables 2004 Bonn International Renewable Energies Conference 2004IRR Internal Rates of Return REPIN Regulatory Environmental ProgramJI Joint Implementation Implementation NetworkJPoI Johannesburg Plan of Implementation RETs Renewable Energy TechnologiesJREC Johannesburg Renewable Energy REPSOs Renewable Energy Program Support Coalition OfficesKaR Knowledge and Research RPS Renewable Portfolio StandardKfW Kreditanstant Für Wiederaufbau SEEDs Sarvodaya Economic EnterpriseskW Kilowatt Development ServiceskWh Kilowatt hours SHS Solar Home SystemsLDC Less Developed Countries SMMEs Small, Medium, and Micro-LPG Liquefied Petroleum Gas EnterprisesMDGs Millennium Development Goals SWERA Solar Wind Energy ResourceMFI Micro Finance Institution AssessmentMFP Multi Function Platform SWH Solar Water HeatingMIGA Multilateral Investment Guarantee UN United Nations Agency UNDESA United Nations Department ofMNES Indian Ministry of Non-Conventional Economic and Social Affairs Sources UNDP United Nations DevelopmentMtoe Million tons of oil equivalent ProgrammeMW Megawatt UNEP United Nations Environment ProgrammeNDRC China National Development and Reform Commission UNF United Nations FoundationNEPAD New Partnership for Africa’s UNFCCC United Nations Framework Development Convention on Climate ChangeNGO Non Government Organization UNSO United Nations Statistical OfficeNREL National Renewable Energy UNIDO United Nations Industrial Laboratory Development OrganizationOAS Organization of American States USAID US Agency for International DevelopmentODA Official Development Assistance USDOE United States Department of EnergyOECD Organization for Economic Cooperation and Development VAT Value Added TaxO&M Operation and Maintenance WBG World Bank GroupPPA Power Purchase Agreements WEO World Energy OutlookPTC Production Tax Credit Wp Watts-peakPV Photovoltaics WSSD World Summit on Sustainable DevelopmentRBF Rockefeller Brothers Fund WTO World Trade OrganizationR&D Research and Development
RENEWABLES 2005 BACKGROUND REPORT PAGE viii Letter from the President of the People’s Republic of China On the Beijing Renewable Energy Conference 2005 On this occasion of opening of the Beijing International Renewable Energy Conference 2005, on behalf of the government and the people of China, I would like to extend my sincere congratulations! I also express my warmest welcome to all the participants! It is a global wish and common responsibility to take right action to cope with challenges posed by environment and energy as well as to achieve sustainable development through strengthening international co-operation. Along with the global economic growth, energy shortage and environmental pollution have become an increasingly big problem. If it is not solved in a good and efficient manner, not only will human society not achieve the goal of sustainable development, but it will also make a serious impact on the living environment and quality of human society. In this regard, renewable energy resource is rich, clean and sustainable. Therefore, it is an indispensable measure to deal with the increasingly serious issues of energy and environment as well as ensure sustainable development of human society by accelerating the use and development of renewable energy. China attaches great importance to the utilization and development of renewable energy and considers it as one of the most important instruments to promote socio-economic development. Chinas Renewable Energy Law will take effect on January 1, 2006. We will continue to pursue economic and social development under the concept of scientific development, accelerate economic restructuring and the transformation of the mode of economic growth, take further steps to enhance innovative ability, develop recycling economy, protect the environment, expand renewable energy development, promote the co-ordinated development of economy with population, resources and environment, and build a resources-conservation and environmental friendly society. It is very important to seek international co-operation in order to accelerate the development and use of renewable energy. The international community should enhance co-operation in areas such as research & development (R&D), technology transfer, and financial assistance, etc. which will increase the contribution of renewable energy to the socio-economic development of man, and benefit people all around the world. I sincerely hope that the conference can play an important role in promoting the development and use of renewable energy worldwide as well as strengthening international co- operation in this field. Finally, I wish the conference a great success! President of the Peoples Republic of China Hu Jintao, November 6, 2005
PAGE ix RENEWABLES 2005 BACKGROUND REPORT UNITED NATIONS NATIONS UNIES THE SECRETARY-GENERAL Message to the Beijing International Renewable Energy Conference from the Secretary General Beijing, 7-8 November 2005 Delivered by Ms. JoAnne DiSano, Director of the Division for Sustainable Development, UN Department of Economic and Social Affairs I am pleased to send my greetings to the Beijing International Renewable Energy Conference. This event, attracting thousands of stakeholders from around the world, is an important contribution to implementing the renewable energy commitments made at the World Summit on Sustainable Development. I congratulate the Chinese Government on this initiative. Three years ago in Johannesburg, Governments agreed to substantially increase the global share of renewable energy. At the 2005 World Summit this past September, world leaders reaffirmed that commitment. Despite this political momentum, this is also a time of growing volatility and uncertainty in world energy markets. Oil price increases, which hit oil-importing developing countries especially hard, highlight the need for alternative energy supplies. Thanks to its multiple benefits and advantages, renewable energy has an important role to play. It can help combat climate change by contributing to reductions in greenhouse gas emissions. It can reduce indoor pollution, a significant source of morbidity and mortality in many developing countries. It can also empower the many millions of poor and vulnerable people who lack access to reliable, affordable and clean modern energy services. This “energy divide” entrenches poverty. Renewable energy can instead buttress livelihoods and provide opportunities for healthier lives and more productive activities. Some forms of renewable energy require large up-front capital costs, which could pose a financial barrier for many developing countries. Innovative financing schemes involving public-private partnerships, South-South cooperation and assistance from developed countries can help overcome this obstacle. Yet even these measures will not be enough. We need to step up research and development, and broadly disseminate technological breakthroughs. For that to happen, Governments must create supportive policy and regulatory frameworks, and strengthen institutional and human capacity. In May 2006, the United Nations Commission on Sustainable Development will address energy and related issues. Your conference is well placed to contribute to those proceedings. Working in partnership -- public-private, North-South, South-South -- we can make a difference. In that spirit, please accept my best wishes for a successful conference.
RENEWABLES 2005 BACKGROUND REPORT PAGE 1Executive SummaryBackgroundGlobally, energy consumption is growing at a BIREC 2005 was supported by the Federalrapid rate. The World Energy Outlook predicts Ministry for Environment, Natural Conservationthat in the next 25 years, energy consumption and Nuclear Safety (BMU), Germany; thewill increase by 60 percent with the bulk of this Federal Ministry for Economic Cooperation andgrowth to occur in developing countries. Under Development, Germany; the United Nationsa business as usual scenario, fossil fuels will Department of Economic and Social Affairscontinue to dominate the energy mix, with (UNDESA); and the European Commission.enormous environmental, health, economic, and The Conference builds upon the groundwork ofenergy security consequences. The share of renewable energy for development begun at therenewable energy, though growing in absolute World Summit on Sustainable Developmentterms, will remain largely unchanged (14 percent, (WSSD) in the Johannesburg Plan ofof which the bulk today is traditional biomass Implementation (JPoI). This plan calls for anand hydropower). Further, despite these growth increase in the global market share for renewablerates, 1.4 billion people will be without energy–with a sense of urgency. This work waselectricity in 2030 and a comparable amount will furthered at the landmark Bonn Internationalcontinue to rely on traditional biomass for Renewable Energies Conference in June 2004heating and cooking needs. Clearly, this is an (Renewables 2004) that brought togetherunsustainable path for the world to follow, participants from across the world to focus onparticularly given rising fossil fuels prices that renewable energy scale up, with an emphasis onare projected to remain high into this decade and the industrialized world. Outcomes of the Bonnbeyond. Conference included a Political Declaration, a set of Policy Recommendations, and anOn November 7-8, 2005, the National International Action Program (IAP) that includedDevelopment and Reform Commission (NDRC) 200 voluntary commitments on renewableof the People’s Republic of China organized the energy from a range of stakeholders. BIRECBeijing International Renewable Energy 2005 also reviewed progress on commitmentsConference 2005 (BIREC 2005). This meeting made at WSSD and in Bonn.brought together the international communityaround the shared goal of global renewable BIREC 2005 provided a unique and timelyenergy development, with a particular emphasis platform for building consensus on issues,on developing countries. BIREC 2005 reviewed actions, and accomplishments for increasing thethe status of renewable energy and its global market for renewable energy.contribution to economic development and Conclusions of the meeting will providepoverty reduction; shared success stories and important inputs to the upcoming 14th session oflessons learned from renewable energy the Commission on Sustainable Developmentdeployment; and explored approaches and trends (CSD) to be held in New York City, May 1-12,in renewable energy policy, finance, and 2006. CSD 14 will have energy as one of itscapacity building. principle themes.
PAGE 2 RENEWABLES 2005 BACKGROUND REPORTWhy Renewable Energy? BIREC 2005 ReportRenewable energy—including biomass, This report addresses issues and approaches forgeothermal, hydropower, solar, wind, tidal, and tackling the barriers and increasing marketwave— offers tremendous benefits for meeting penetration of renewable energy. It has beenglobal energy needs. Building on a foundation prepared by a group of experts in the renewableof hydropower, biomass combustion, and energy field representing developing andgeothermal power pioneered during the industrial developed countries across the globe. The reportrevolution in the late 1800s, new forms of has been organized and convened under therenewable energy began to be developed and guidance of UNDESA, with technical inputs andcommercialized, including solar, wind, and financial support provided by the United Nationsseveral forms of advanced bioenergy. Today, Foundation (UNF) and BMU.these renewable energy technologies are thefastest growing energy technologies (particularly This report outlines a number of priorities for thewind and solar) and are cost competitive in a international community in accelerating thevariety of grid, off-grid, and remote applications scale-up of renewable energy, particularly in theworldwide. They utilize locally available developing world. It also identifies the potentialresources, off setting the need for costly fuel role that BIREC 2005 can play in moving theseimports; are environmentally beneficial, without priorities forward. Proposed actions include:the harmful emissions of conventional energies;provide diversification to a country’s energy • Technology Research, Development andmix; and create local job and income Demonstration. Continue and accelerateopportunities. investments in technology research, development, and demonstration in order toNonetheless despite their advantages, the bulk of drive down costs for the technologies; enhancerenewable energy development to date has product and system performance, reliability,occurred in industrialized countries (with the and efficiency; and expand the base of costlimited exception of a few emerging economies competitive end use applications. Thislike China). The countries most in need of the includes renewable energy research andpositive attributes of these technologies are not development for electricity, thermal,yet beneficiaries. This is due in large part to a mechanical, and refined fuel needs. It alsonumber of barriers that hinder renewable energy involves further research and development onadvancement. Most notably, renewable energy "low tech" applications in the field (watercontinues to be comparatively expensive for a pumping, water purification, etc.), andvariety of developing country needs. Further, productive use applications, in order to expandmany of these countries have not yet put in place the benefits of renewable energy, including tothe policy and regulatory frameworks needed to the rural poor.induce investment in renewable energy, or • Improve Policy and Regulatory Frameworks.eliminated subsidies for conventional fuels that Securing political commitment and putting inmake it difficult for the technologies to compete. place effective policy and regulatoryMoreover, many developing countries have frameworks are crucial elements to improveimperfect capital markets and insufficient access the investment climate for renewable energy.to affordable financing for developers and Governments have a role to play at all levels—consumers, as well as inadequate institutional national, state, and local—and there are acapacity to support the technologies. range of policy options that have been applied and from which lessons are being learned.Rapid scale up of renewable energy, as • Financing Facilitation. Finance andenvisioned at WSSD and in Bonn, will require investment are essential ingredients in theaddressing these barriers. It will also necessitate growth and development of renewable energyexpanding the base of countries committed to for industrialized and developing countriesenhancing the global market share of these alike. As the industry matures it will betechnologies. increasingly important to expand the scope and breadth of financing sources and instruments, both locally and internationally. More creative
RENEWABLES 2005 BACKGROUND REPORT PAGE 3 leveraging of public and private sector • Mechanisms for Reviewing Progress on resources will be needed to meet the financing Increased Use of Renewable Energy. There requirements of the renewable energy industry, exist a range of options for reviewing and including official development assistance, the reporting progress on renewable energy, Global Environment Facility, and carbon including achievements towards the WSSD financing. JPoI and the Bonn Renewables 2004 IAP.• Capacity Strengthening. For renewable These options are outlined in the report and energy markets to grow, capacity provided the basis for discussion at BIREC strengthening is needed in all aspects of 2005, where participants invited CSD 14 to project and program design, development, consider an effective arrangement for implementation, and operation. Capacity reviewing and assessing progress towards development is a prerequisite for governments, increase the global share of renewable energy. private firms and entrepreneurs, financiers, The review would also be useful in addressing developers, and academia, for both the link between energy and the Commission’s industrialized and developing countries. Areas biannual thematic cluster, and voluntary where capacity strengthening is most needed reporting could be enhanced through inputs include technology research, development, from relevant organizations, partnerships, and deployment, marketing, financing, operation, networks. and maintenance; policy formulation, implementation, and regulation; business In summary, opportunities for renewable planning and development; and consumer energies are limitless and countries around the outreach and awareness world have committed to work together on• International Collaboration. Though each increasing their global market share. BIREC country has the main responsibility for 2005 provided a unique and timely forum to developing its own domestic renewable energy exchange experiences on renewable energy market and fulfilling commitments made at development, share views on policies and WSSD towards increasing the global market approaches, explore financing mechanisms, share for these technologies, international promote international cooperation, and determine collaboration can enhance a country’s how to measure success. BIREC 2005 provided capabilities to succeed in building markets, a platform to build consensus and secure and accelerating cost and technology commitments on moving forward towards a improvements. Support in the areas of cleaner energy future, from which all can benefit. technical assistance, joint research and This report served as a background report for development, technology transfer, reduction of BIREC 2005, provided input to the dialogue and trade barriers, investment and partnership, and discussion, and contributed to the primary opportunities for North-South, South-South, outcome of the meeting – the Beijing Declaration. and South-North exchange, can all contribute towards these distinct goals.
PAGE 4 RENEWABLES 2005 BACKGROUND REPORT1 IntroductionPurpose and Objectives that brought together over 3,600 participants from across the world to chart the globalThis document was prepared as a background expansion of renewable energy. Bonnreport for the Beijing International Renewable Conference outcomes included a PoliticalEnergy Conference held November 7-8, 2005, in Declaration outlining shared goals for increasingBeijing, China. The Beijing Conference the role of renewable energies and a joint visionprovided a unique forum for continuing the of a sustainable energy future; an Internationalmomentum for advancing renewable energy at Action Program including 200 actions andthe global level (see Exhibit 1.1). commitments to accelerate the use of renewable energy; and Policy Recommendations for renewable energies to support the developmentThis was begun at the World Summit on of new approaches, strategies, and partnershipsSustainable Development, with the launching of in scaling up these technologies.the Johannesburg Plan of Implementation bymember states, international organizations, and Looking forward, BIREC 2005 offered a uniqueExhibit 1.1 Renewable Energy Scale-Up: The Road from WSSD to CSDother stakeholders. The JPoI called for a platform for the international community tosubstantial increase in the contribution of advance consensus on issues, actions, andrenewable energy to total energy supply “with a accomplishments for increasing the globalsense of urgency.” market share for renewable energy, to be reported at the upcoming Commission onIt continued with the landmark Bonn Sustainable Development Meetings 14 and 15.International Conference on Renewable Energies CSD 14, which will be held May 1-12, 2006 in New York City, will have a focus on energy.
RENEWABLES 2005 BACKGROUND REPORT PAGE 5BIREC 2005 assembled the international • The commitment of the World Bank to thecommunity around the shared goal of global energy sector after a five year retrenchment,renewable energy development, with a particular including a pledge to achieve 20 percentfocus on developing countries. The objectives average annual growth in renewable energywere to: and energy efficiency in the next five years; • Similar support for renewable energy,• Review and assess the status of renewable including for poverty reduction, by regional energy technologies and their contribution to development banks and organizations development, including jobs, income including the Inter-American Development generation, and energy security; Bank (IDB), the Asian Development Bank• Determine the role of renewable energy for (ADB), the African Development Bank poverty eradication and the prospects of (AfDB), the European Bank for North-South, South-South, and South-North Reconstruction and Development (EBRD), collaboration; the Organization of American States (OAS),• Share success stories on renewable energy the Asia Pacific Economic Cooperation deployment worldwide; (APEC), etc;• Explore policy and financing mechanisms • Implementation of partnerships launched at for mainstreaming renewable energy in the WSSD that include emphasis on developing and industrialized country renewable energy, such as the Renewable markets; Energy and Energy Efficiency Partnership• Examine opportunities for domestic and (REEEP), the Global Village Energy international collaboration in renewable Partnership (GVEP), the Global Network on energy; and Energy for Sustainable Development• Review progress on renewable energy (GNESD), and the European Union Energy commitments made at WSSD and the Initiative (EUEI); and Renewables 2004 Conference, and to plan • Emergence of a range of new players to the for the upcoming CSD Meetings 14 and 15. sector including Fortune 500 firms, large international banks, investment houses, venture capital firms, public bankingIn preparation for BIREC 2005, this report institutions, development banks, andprovided a forward looking perspective on foundations investing in renewable energyrenewable energy technology development, projects and programs.policy needs, capacity building, and financingconditions necessary for developing countries to This document builds upon the extensive base oftake greater advantage of renewable energy. materials prepared for the Bonn Conference.1 ItReport objectives include: (1) review trends in also serves to complement reports by therenewable energy development worldwide; (2) Chinese and German Governments, theassess the challenges and barriers to further Renewable Energy Network 21 (REN21), thedevelopment and expansion; and (3) develop World Bank, the United Nations (UN),recommendations on how to move forward in participating countries, and others developed foraccelerating the use of renewable energy, BIREC 2005.including a mechanism to monitor and appraisefuture progress for renewable energydevelopment.This document is particularly timely as there area number of initiatives, activities, and playersthat have emerged or gotten traction sinceRenewables 2004 and it is important that they bemade aware of the latest perspectives onrenewable energy. Among these are the:• G8 Gleneagles Commitment that focused on climate change, clean energy, and sustainable development; 1 Available at http://www.renewables2004.de/en/cd/default.asp.
PAGE 6 RENEWABLES 2005 BACKGROUND REPORTBackground2 rapidly, primarily in developed countries and a few developing countries.Globally, demand for energy services is strong,and growing. The World Energy Outlook 2004 The pursuit of this BAU path brings with itpredicts that under a business as usual (BAU) enormous consequences. Environmentally,scenario, energy needs through the year 2030 carbon dioxide (CO2) emissions are expected towill increase by 60 percent. Developing grow by 60 percent, primarily from coal-firedcountries, led by China and India, will account power stations and the projected boom in car andfor two thirds of the growth in energy demand. truck use in developing countries. From anBy the year 2030, developing countries will energy security perspective, the bulk of theequal and begin to exceed the demand levels of petroleum to be consumed is sourced from only athe industrialized world. Fossil fuels will handful of countries. Regarding energy poverty,continue to dominate energy use—accounting for despite growth in energy use, developing85 percent of world primary demand—with countries will consume only one-quarter of thatrenewable energy as a percentage of total energy of the industrialized world, with 1.4 billionconsumption remaining largely unchanged at people projected to lack electricity access inapproximately 14 percent. 2030 and the associated social and economic benefits it can provide. From a stabilityYet the composition of renewable energy perspective, countries are expected to experienceconsumption is expected to shift in this even greater energy supply uncertainties andtimeframe. In 2002, renewable energy use price increases from fossil fuels. Recent trendsconsisted primarily of traditional biomass (7 in the world energy industry, especially apercent), including dung, fuel wood, and crop doubling of oil prices in less than two years, haswastes, and hydropower (6 percent). Other increased the economic risk of relying primarilyrenewables—modern biomass, solar, geothermal, on imported energy and the volatile world energywind, tidal, and wave—accounted for 1 percent market.of total energy consumption. Through the year2030, renewable energy consumption is expected The challenge is how to meet these growingTextbox 1.1 No Energy, No MDGs The Millennium Development Goals (MDGs) commit the international community to an expanded vision of development, one that vigorously promotes human development as the key to sustaining social and economic progress in all countries, and highlights the importance of creating a global partnership for development. The goals have been commonly accepted as a framework for measuring development progress. Although energy does not have a dedicated MDG, it was widely recognized and officially endorsed at WSSD, that the MDGs could not be achieved without adequate and affordable energy services. The MDGs include: 1. Eradicate extreme poverty and hunger 5. Improve maternal health 2. Achieve universal primary education 6. Combat HIV/AIDS, malaria, other diseases 3. Promote gender equality and empower women 7. Ensure environmental sustainability 4. Reduce child mortality 8. Establish global partnership for developmentto increase from about 1,400 Mtoe in 2002 to energy needs in a more sustainable and2,200 Mtoe in 2030 (a rise of 60 percent). environmentally sound manner, as the businessTraditional biomass is expected to decline as it is as usual model is clearly unsustainable.used more efficiently or displaced with modernenergy sources and large hydropower willremain relatively constant. The growth willoccur in other renewables, which are expanding2 Unless otherwise noted, statistics and supporting explanation are drawn from the International Energy Agency (IEA), World Energy Outlook (WEO) 2004, Organization for Economic Cooperation and Development (OECD), Paris, France.
RENEWABLES 2005 BACKGROUND REPORT PAGE 7Why Renewable Energy? Why Now? kerosene, provides better quality light while avoiding fumes, carbon monoxide emissions,Renewable energy technologies have made and the serious fire hazards of kerosene use.tremendous advances in 25 years. Today, they • Contribute to rural and peri-urban social andoffer significant advantages over conventional economic development through thefuels for meeting energy needs worldwide. provision of modern energy services,Benefits of renewable energy technologies including lighting, heating, cooking, cooling,include: water pumping, transportation, and communications that enhance people’s lives• Utilize locally available resources—the sun, and livelihoods. Renewable energy can also wind, biomass, geothermal, and hydropower. contribute to achievement of the Millennium• Reduce the need for fossil imports and their Development Goals (see Textbox 1.1). attendant foreign trade impacts. • Are environmentally beneficial, lacking the• Enhance energy security by diversifying the nitrogen and sulfur oxides that are harmful energy portfolio, improving price stability in to humans, animals, and plants, and carbon times of rising fossil fuel costs, and reducing dioxide and methane emissions which risks associated with future energy cost contribute to climate change (see Textbox uncertainties. 1.2).• Create local job, revenue, and income opportunities. In the last few years, renewable energy• Are modular in nature which means that technologies have experienced substantial systems can be sited close to the load improvements in cost, performance, and requirement—offsetting the need for costly reliability, making them competitive today in a grid extension, complementing consumers’ range of applications. Led by wind and ability to pay, and expanding as demand photovoltaic (PV) technologies, they represent warrants. the fastest growing of all energy industries• Match well to a variety of grid, off-grid, (though starting from a relatively low base). The remote, and distributed applications; in momentum for renewable energy worldwide is many instances, renewable energy will be strong, and the prospects for these technologies the least cost energy solution. virtually untapped.• Conserve a country’s natural resource base.• Provide health benefits, particularly to A number of drivers are spurring market growth women and children through the transition in renewable energy. Most notably, investments to improved cookstoves and cleaner in technology research, development, and combustion of cooking fuels. Additionally, demonstration (RD&D), primarily by electric lighting, as an alternative to industrialized nations; supportive policy and Textbox 1.2 Renewable Energy and Climate Change Over the last few decades, climate change has evolved into an issue of global concern. The link between anthropogenic emissions, concentrations of greenhouse gases (GHG) in the atmosphere, and climatic changes is well documented. There is broad consensus in both the scientific and political communities that significant reductions in carbon emissions are going to be necessary to limit the changes to manageable levels. It is clear that the major contribution to GHG emissions comes from fossil fuel based energy related activities. Industrialised countries are responsible for the majority of current and historic emissions, but developing countries are significantly increasing their share of emissions, especially driven by rapid growth in some of the major emerging economies like China and India. Renewable energy can make a major contribution to reducing GHG emissions, and this has already begun on a modest scale. Large global companies have entered the markets for wind, solar, and biomass technologies, and the traditional finance community is gradually mainstreaming renewable energy into its’ lending portfolios. The REN21 "Global Status Report" notes that about US$30 billion was invested in renewable energy in 2004, contributing 160 gigawatts (GW) of global power capacity. Most long-term projections predict that these technologies will play a major role in the global energy supply in the second half of the century, but in the first decades the increase in renewable energy will be more modest.
PAGE 8 RENEWABLES 2005 BACKGROUND REPORTregulatory frameworks; energy security issues; growth, have a significant impact on theenvironmental and climate change concerns; and environment, displace/supplement fossil fuellocal and regional development opportunities resources, and reduce the energy-poverty gap,that these technologies offer. Price spikes and renewable energy technologies must play a muchsupply concerns over fossil based technologies larger role in meeting the growing energy needsare further increasing interest in and demand for of developing country markets.3the technologies. As Exhibit 1.2 shows, marketdrivers will vary across countries. For example,Exhibit 1.2 Key Market Drivers for Renewable Energy Source: Navigatin Europe, environment, climate change, and Addressing the Barriersenergy security are the key market drivers. Inthe US and Japan, energy security is the greatest That renewable energy potential is far fromdriver for renewable energy followed by maximized is due in large part to a number ofenvironmental, climate change, and consumer outstanding barriers which put renewable energydemand considerations. In developing countries, at an economic, regulatory, or institutionalthe prospects for energy access and economic disadvantage relative to other forms of energy4.development are the prime market movers. Barriers include:Nonetheless, despite their advancements, the key • The higher relative costs of the technologiesmarkets for renewable energy today are in the (despite cost reductions) in a number ofindustrialized countries (with limited exception applications; renewable energy systems haveof emerging economies such as China and India).For example in 2003, a clear geographical 3 Use of renewable energy should be done in conjunctionimbalance was evident, with industrialized with energy efficiency as the two are highly complementary. Renewables increase the “supply” ofcountries accounting for 92 percent of the wind energy services, and efficiency reduces the “demand”.power installed capacity, and 88 percent of the Working in tandem they can enhance sustainability for aPV cell production. country. This was the finding of a paper prepared by GTZ for the Bonn Conference entitled “Towards Sustainable Energy Systems: Integrating RenewableDeveloping countries, where energy services are Energy and Energy Efficiency is Key”.critically lacking, have not meaningfully 4 E. Martinot, Renewable Energy Policies and Barriers,benefited from renewable energy services. Encyclopedia of Energy, Academic Press/ElsevierClearly, if we are to increase current rates of Science, 2004.
RENEWABLES 2005 BACKGROUND REPORT PAGE 9 higher upfront capital costs than stoves; maximizing use of hydro resources (large, conventional alternatives, though lower small, and micro) in an environmentally operation and maintenance (O&M) sustainable manner; more efficient use of costs.Lack of mature markets and favorable biomass residues for power generation and policy, regulatory, and legal frameworks to transport, including growth of dedicated crops; encourage the development of and and increasing deployment and reducing costs of investment in renewable energy. solar, wind, geothermal, wave, tidal, and other renewable energy sources.5 The good news is• Subsidies for fossil-based fuels, which make that these issues have been tackled successfully it difficult for renewable energy to compete; in several countries around the world and models and lack of fuel-price risk assessment. exist for replication elsewhere.• Inadequate institutional capacity for all aspects of renewable energy project/program With the increasing costs and risks associated design, development, and implementation, with the International Energy Agency (IEA) including lack of skills and knowledge. BAU scenario, the question is no longer can we afford renewables, but can we afford fossil• Imperfect capital markets; insufficient energy. Portfolio theory has shown that adding access to affordable financing for project renewable energy to a fossil-dominated energy developers, entrepreneurs, and consumers; portfolio will reduce generating cost and enhance and financing risks and uncertainties. energy security.6 The challenge then becomes• Lack of awareness and understanding of the how to provide renewable energy services in an benefits, costs, and applications of affordable and accessible manner. renewable energy among policymakers, the local private sector, finance institutions, and prospective customers. Organization of Report• Inadequate information on the renewable This report addresses activities that can be energy resource potential. undertaken and/or enhanced to address many of the barriers outlined above. In particular:• Restrictions on siting and construction, transmission access, and utility • Chapter 2 provides an overview of the interconnection. current status and future prospects of renewable energy, including cost and• The small scale nature of the technologies, performance trends. often coupled with the geographic • Chapter 3 outlines policy approaches for dispersion and low population densities of scaling up renewable energy worldwide and rural customers, contributes to high documents the impact that effective policies transaction costs for renewable energy can play in driving renewable energy projects and insufficient cost recovery. markets.• Inadequate demonstrated models for scale- • Chapter 4 describes financing options and up. sources for renewable energy. • Chapter 5 presents opportunities for capacity• Insufficient mechanisms for international building and strengthening in various cooperation, including technology transfer, aspects of renewable energy deployment and trade, and financial flows. use, including specific requirements ofRapid increase of renewable energy in developed country, newly industrializeddeveloping countries will require addressing country, economies-in-transition, andthese barriers, including development of developing country markets.supportive policy and regulatory frameworks,securing public sector commitment,strengthening local capacities and 5entrepreneurship, transferring technologies, and J. Saghir, The Global Investment Climate: Financing theincreasing access to affordable financing and Growth of Renewable Energy in Developing Countries, Renewable Energy World, July-August 2005consumer credit. It will require transitioning 6from traditional biomass to modern use of S. Awerbuch, Portfolio-Based Electricity Generation Planning: Policy Implications for Renewables andbiomass, cleaner fuels, and improved cook Energy Security.
PAGE 10 RENEWABLES 2005 BACKGROUND REPORT• Chapter 6 describes the role of and potential for international cooperation in promoting renewable energy.• Chapter 7 provides perspectives and options for monitoring progress on the WSSD JPoI, the Renewables 2004 Conference IAP, and other commitments to renewable energy made by various stakeholders.• Chapter 8 provides conclusions and next steps.This report served as background information forBIREC 2005. It also contributed to the primaryoutcome of the meeting, the Beijing Declaration,in which Ministers and governmentrepresentatives participating from 78 countriesreaffirmed their commitment to implementingthe outcomes of the Earth Summit, WSSD, andthe UN 2005 Millennium Review Summit, andto substantially increasing – with a sense ofurgency – the global share of renewable energyin the total energy supply as called for in theJohannesburg Plan of Action. The fullDeclaration is provided in the Appendix.
RENEWABLES 2005 BACKGROUND REPORT PAGE 112 Renewable Energy Technology Status and ProspectsOverview Exhibit 2.1 World Energy ConsumptionGlobal Status and Prospects Million tons of oil equivalent (Mtoe)Renewable energy has a vital role to play inmeeting the world’s energy needs andsupporting sustainable development objectives.As noted in Chapter 1, renewable energy met14 percent of global primary demand in 2002and this share is projected to remain relativelyconstant through 2030 (Exhibit 2.1), as globalenergy demand increases by 60 percent.However, there will be significant changes inthe renewable energy mix as the use of wind,solar, and geothermal energy, and biofuels fortransportation continue to see rapid increasesand traditional use of biomass for cooking andheating is stable or declines. It is important tonote that traditional forms of biomass use areoften not sustainable.Recent growth rates for renewable energy haveoutpaced all other fuels. Exhibit 2.2 illustratesthat the fastest growing energy technology inthe world has been grid-connected solar PV,followed by wind power, biodiesel, solar hot to those of fossil fuels.water/heating, off-grid solar PV, geothermal heatcapacity, and ethanol. Other renewable energy Renewable energy costs have declined at rapidpower generation technologies, including rates across the board over the past severalbiomass, geothermal, and small hydro, are more decades and are all projected to continue tomature and growing more slowly at rates similar decrease (see Exhibit 2.3). These cost reductions are resulting from improvements in technologyExhibit 2.2 Renewable Energy Growth Rates performance and increasing scales of production and use. Coupled with increasing prices for conventional energy sources and other market and policy drivers, these cost reductions have allowed mature renewable energy technologies, such as wind power, bioenergy, solar hot water and PV systems, geothermal energy, and hydropower to achieve significant market penetration around the world. Also, since 1975, ethanol from sugarcane in Brazil has presented strong reductions in production costs (see Exhibit 2.4). Projected future declines in renewable energy costs will accelerate this growth in renewable energy use.
PAGE 12 RENEWABLES 2005 BACKGROUND REPORT Exhibit 2.3 Renewable Energy Electricity Generation Costs growth tripling in developing as Percentage of 1980 Levels: Historical and Projected countries by 2030. Renewable energy (excluding large hydro) accounted for 4 percent of total global electricity capacity, or 160 GW, in 2004 and is projected to increase rapidly over the next several decades. Developing countries accounted for 44 percent of the 160 GW in 2004, with 2/3 of this capacity from small hydropower and wind energy (REN21 2005). There are large opportunities for increased use of all major sources of renewable energy electricity generation in the future (see Exhibit 2.6). Onshore and offshore wind energy is expected to make the Exhibit 2.4 Brazilian Ethanol Learning Curve (Brazil) 35 1980 30 25(2004) US$ / GJ 20 1986 15 1990 1999 2002 2004 10 1995 5 0 0 50000 100000 150000 200000 250000 300000 3 Ethanol Cumulative Production (thousand m ) Ethanol prices in Brazil Rotterdam regular gasoline price long-term trend (Rotterdam gasoline prices) long-term trend (Ethanol prices) Renewable Energy Markets largest contribution across the renewable energy technologies, expanding both in developed The primary markets for renewable energy countries and in developing countries that have technology are: 1) Power generation (grid-scale); made major commitments to wind development. 2) Rural energy (off-grid); 3) Hot water and PV markets are currently booming in Germany, space heating; and 4) Transportation fuels. Japan, and some US states, with expectations Exhibit 2.5 summarizes the major renewable that growth will continue in these markets and in energy applications for each of these markets. other countries. Biomass electricity and heat production is slowly expanding in Europe, while Power Generation (grid-scale) small-scale power and heat production from World electricity demand is projected to double agricultural waste should see ongoing growth in between 2000 and 2030, with electricity demand
RENEWABLES 2005 BACKGROUND REPORT PAGE 13 Exhibit 2.5 Global Renewable Energy Applications increases in geothermal capacity are expected in both developed and developing countries. Finally, the concentrating solar thermal power market is seeing a resurgence of investment, with new projects under development. Rural Energy (Off- Grid) According to the IEA 2004 World Energy Outlook, there are currently 1.6 billion people without access to electricity and there will be 1.4 billion people without electricity access indeveloping countries with large agricultural 2030. As depicted in Exhibit 2.7 from the Worldindustries. Starting with the Brazilian experience Bank, most of these people live in developingon ethanol from sugarcane, liquid fuels are now countries, with especially poor electricity accessbeing seen as providing good opportunities for in South Asia and Sub-Saharan Africa.developed countries aiming to reduce GHGemissions and their external dependence on More than 2 million households in developingfossil fuels, and for developing countries seeking countries receive electricity from solar home systems Exhibit 2.6 World Electricity Generation from Non-Hydro (SHS). Most of these systems, Renewable Energy Sources (IEA 2004) as well as the recent growth in solar home use, are occurring in a few specific Asian countries (India, Sri Lanka, Nepal, Bangladesh, Thailand, and China), where the affordability problem has been overcome either with micro- credit or by selling small systems for cash, and where government and international donor programs have supported markets and capacity building for local technicians. Small-scale biomass gasification is also a growing commercial technology in some developingto increase job creation, particularly in rural countries, most notably Chinaareas and to reduce fossil fuel import and India. More than half of the world’s smalldependency. Also, there are at least 24 countries hydropower capacity exists in China, where anwith geothermal electricity and significant ongoing boom in small hydro construction added
PAGE 14 RENEWABLES 2005 BACKGROUND REPORTnearly 4 GW of capacity in 2004. Other residues) produced in biodigestors in countriescountries with active efforts include Australia, such as China, India, and Nepal. HeatingCanada, India, Nepal, and New Zealand. technologies such as geothermal heat pumps and direct heat utilization Exhibit 2.7 Populations without Electricity Access (World Bank and solar water and 2001) heating technologies are used across the world. There are significant opportunities for increased use of efficient biomass stoves, which can save 10–50 percent of biomass consumption and can dramatically improve indoor air quality. Improved stoves have been produced and commercialized to theVillage-scale mini-grids serving tens or hundreds largest extent in China and India, whereof households have traditionally been powered governments have promoted their use, and inby diesel generators or small hydro. Generation Kenya, where a large commercial market hasfrom solar PV, wind, or biomass, often in hybrid developed. There are 220 million improvedcombinations including batteries and diesel stoves now in use around the world. Anothergenerators, is providing an alternative model. promising option is use of biogas for lighting andFor example, tens of thousands of mini-grids cooking. An estimated 16 million householdsexist in China, primarily based on small hydro, worldwide, including 12 million in China,while hundreds or thousands exist in India, receive energy for lighting and cooking fromNepal, Viet Nam, and Sri Lanka. Biomass biogas produced in household-scale plantsresidues are also useful for village-scale (anaerobic digesters).applications. Solar hot water/heating technologies contributeThere are several other important renewable significantly to the hot water/heating markets inenergy off-grid applications including PV and China, Europe, Israel, Turkey, and Japan.wind- powered water pumping, solar crop drying, Dozens of other countries have smaller markets.and solar water purification. Productive uses of There is significant potential for expanded use ofelectricity and mechanical energy produced from solar hot water/heating technologies in bothrenewable energy are especially important in developed and developing countries, especiallypromoting community-based economic for residential applications. There also aredevelopment. Such productive uses can support significant opportunities for expanded use ofsmall-scale industry, agriculture, geothermal direct heat utilization.telecommunications, health, education, and waterservices in rural areas. Transportation Fuels Demand for renewable biofuels is increasingCooking, Heating, and Lighting rapidly around the world in response to high oilThe number of people relying on traditional prices, desire to reduce reliance on importedbiomass for cooking and heating is projected to petroleum, and concern about the environmentalgrow from 2.4 billion in 2002 to 2.6 billion in impacts of oil production and consumption.2030, with especially large reliance on traditional There is much room for growth in biofuels use;biomass in developing countries in Africa and biofuels only accounted for around 3 percent (orAsia (IEA 2004). There are a variety of 33 billion liters) of worldwide gasolinerenewable energy-based cooking and lighting consumption in 2004 (REN21 2005) and demandtechnologies that are used primarily in for transportation fuels is expected to continue todeveloping countries, especially in rural or semi- grow. The total vehicle stock in developing andrural areas. These include biogas (from rural transition countries is expected to triple between
RENEWABLES 2005 BACKGROUND REPORT PAGE 152002 and 2030, to 550 million vehicles, reaching with heat and pressure to produce biofuels such75 percent of the vehicle stock in developed as ethanol, biodiesel, or hydrogen.countries, although per capita oil use indeveloping countries is expected to stay wellbelow that of developed countries (IEA 2004).These market forces are projected to stimulaterapid growth in production of biofuels fortransportation use, especially ethanol andbiodiesel. Ethanol is used both as a low-levelblend with gasoline and as pure ethanol or high-level ethanol blends (for flexible fuel vehicles orpure-ethanol vehicles). Over 15 countriescurrently produce fuel ethanol, with the largestof these in Brazil and the United States.Biodiesel is also used both as a blend with dieseloil and as a pure fuel for both light and heavyduty vehicles that have been adapted. Germany,France, and Italy are the largest biodieselproducers, with several developing countriesstarting to invest in biodiesel plants. Manydeveloping countries have the potential forsignificant biodiesel development and arestarting to invest in this sector, including Photo courtesy of NRELArgentina, Brazil, and India among others. Biomass is stored energy that can be used when needed, which is beneficial for utility dispatchers or remote applications where storage (or localBioenergy access) may be limited. Many of the biomass resources used for fuel and bioenergy are eitherTechnology Applications the products of farming and forestry or by- products in the production of farm and forestryBiomass (organic matter such as vegetable oils; derived products. At times this leads towood; and agro-industrial, urban, or rural synergies such as the use of bagasse for CHP inresidues) is the most widely used renewable sugar and ethanol mills, while at other times,energy source, as well as the largest renewable there may be a market competition between thecontributor to global primary energy supply. production of foodstuffs such as sugar or ethanolMost biomass today is directly combusted to from the same mills. In other circumstances, theproduce: (1) heat, such as cooking over a wood beneficial use of biomass for energy and fuelsstove; (2) electricity, such as combustion or co- offsets and mitigates environmental problemsfiring with coal in utility-scale thermal power such as the use of landfill gas in powerplants; or (3) a combination of both through generation instead of its emissions as methane, acombined heat and power (CHP) for industrial potent greenhouse gas, or the use of forestuse. Biomass can also be gasified and the gas thinning to improve forest health and avoid largecan either be used in gas turbines to generate scale forest fires. Finally, use of biomass canelectricity or reformed to produce hydrogen that help alleviate environmental problems such ascan be used in fuel cells. Straight vegetable oils the waste effluent from animal farms or clearingcan be used in adapted engines to replace diesel underbrush to mitigate against forest fires.in remote areas, like in Malaysia, India, andBrazil. Biomass, typically in the form of animal Status and Trendsdung or other organic residues, is also commonlyused in anaerobic digesters to produce methane, The IEA estimates the current bioenergy supplywhich can be used for heating, lighting, or to be about 11 percent of the total primaryelectricity generation. Finally, biomass can be energy demand of 50 EJ/year (IEA 2004) offermented, thermally converted, or hydrolyzed which 7–10 EJ/year is used in industrial countries and 40–45 EJ/year is used in developing countries. Around two-thirds of
PAGE 16 RENEWABLES 2005 BACKGROUND REPORT Exhibit 2.8 Projected Decreases in Costs Biodiesel production is currently around 2 billion from Ethanol Production (NREL 2005) liters a year, with most of this production concentrated in Germany, France, and Italy. In 2004, biodiesel production in the United States was approximately 0.1 billion liters. Several developing countries are making investments in biodiesel. For example, Malaysia is building its first biodiesel plant to convert palm oil to biodiesel (REN21 2005). In Brazil, the first plants are being built to produce biodiesel from palm and castor oils. Biodiesel can be produced from methanol (methyl alcohol), as in European Union (EU) countries, or from ethanol (ethyl alcohol) as in Brazil and other developing countries. In Brazil, ethanol production costs are lower than the cost of petroleum fuel production (IEA 2004), while in the United States, ethanol is commercially produced from corn at a cost ofcurrent biomass use is for traditional cooking US$.90-$1.10/gallon (US$1.46-$1.80/gge).and heating and much of this biomass use is Exhibit 2.8 shows the projected decreases inconsidered to be unsustainable. China and India costs from ethanol production from all sources,are the largest biomass energy producers including corn, straw, and woody biomass inworldwide. While most biomass electricity gallons of gasoline equivalents (gges). Thisproduction occurs in OECD countries, several accounts for the fact that ethanol has two-thirdsdeveloping countries, especially India, Brazil, of the gasoline energy equivalents in use. Theother Latin American/Caribbean, and African cost of ethanol from these biomass sources iscountries (e.g., Mauritius Islands), generate large expected to go as low as US$1.20 in gges byamounts of electricity from combustion of 2025. The production cost of biodiesel frombagasse from sugar alcohol production. Global soybean oil is in the range of US$2.50 toinstalled biomass electricity capacity is expected $2.75/gallon.to reach 60 GW in 2013 (Navigant 2003) and totriple from current levels by 2030 (IEA 2004). Direct biomass combustion is a mature technology but plants are small with lowLiquid biofuels have tremendous potential to efficiencies (20 percent). Costs of biopowerdisplace petroleum fuels around the world and generally range from US$0.08 to US$0.12/many countries are in the process of establishing kilowatt hour (kWh) and are predicted to drop topolicies to promote biofuel use. The two US$0.06-0.07/kWh by 2020. The mostprimary biofuels are ethanol and biodiesel, both promising near-term option for large-scaleof which can be used either as a blend or as a biopower generation is co-firing. Co-firingpure fuel. The largest production of biofuels is biomass with coal in large power plants is morefrom corn in the United States and from efficient (33 percent) and less costly (currentlysugarcane in Brazil, where nearly 2 percent of US$0.02-$0.04/kWh, and predicted to drop tothe United States and 30 percent of the Brazil US$0.01-0.02/kWh by 2020) than existingtransport fuel demand is met by ethanol (IEA biomass power plants.2004). Brazil’s ethanol production was around15 billion liters and the United States’ around 14 Combined heat and power (CHP) applicationsbillion liters in 2004 (REN21 2005). Since 1975, using a waste fuel are generally the most costBrazil has invested around US$12 billion in effective of the biomass technologies withproduction of ethanol, but has saved over US$29 investment costs of US$1,400-2,100 per kilowattbillion in oil imports (GNESD 2005) and now (kW) and electricity generation costs ofethanol represents almost half of the automotive US$0.04-0.08/kWh. CHP can have totalfuel sales in Brazil. Ethanol production and use efficiencies nearing 90 percent.is expected to see dramatic increases around theworld. Biomass gasification combined cycle plants can reach efficiencies of greater than 40 percent, but this technology is only starting to be
RENEWABLES 2005 BACKGROUND REPORT PAGE 17commercialized. Costs are currently estimated to paying attention to the life cycle balance ofbe in the US$0.06-0.07/kWh range, decreasing carbon, water, key nutrients, and biodiversity.to US$0.04-0.06/kWh by 2020 (BiopowerTechnical Assessment: State of the Industry and OpportunitiesTechnology 2003). There is a significant growth potential for biomass use in the transportation sector. About aTechnical Issues tenth of world gasoline use could be displacedWhile combustion and co-firing technologies are with Brazilian style ethanol production by 2020.mature, a wide array of gasifiers are being tested Even more could be displaced as lignocellulosicand optimized to produce power from biomass. conversion costs decline (IEA/2004). BiodieselFurther commercialization and demonstration of could potentially displace 5-10 percent of dieselthese systems is needed to prove the technology use worldwide. Existing biofuels use is drivenand decrease costs. Small biopower systems by government policies and subsidies which inhave been used extensively in developing turn, are generally agriculture-driven.countries but gas cleanup and reliability havestifled further dissemination of these The commercialization of gasificationtechnologies. Research is underway to address technologies is very promising for generation ofthese issues and demonstrate the technology for fuels and power at a relatively low cost, even atuse in rural and off-grid applications. Extensive smaller scales. The production of dimethyletherresearch and development (R&D) into improved (DME) from biomass could be used tocook stoves has gained, at best, a factor of 2 in manufacture a substitute for liquefied petroleumefficiency (Kammen 1995) resulting in a gas (LPG) and modernize the use of renewablereduction of fuel input, but progress in reducing biomass in cook stoves instead of fuel wood andtoxic air pollutant emissions has been very charcoal. Gasification can also be used as alimited (Ludwig, Marufu et al. 2003). These platform for biorefineries, which co-produceemissions have been linked to acute respiratory energy as well as higher value products (USinfections, which are a leading cause of Department of Energy, USDOE, 2003).childhood illness and death.Anaerobic digestion is widely used in both Geothermal Energydeveloping and developed countries. A growingtrend is the installation of anaerobic digesters to Technology Applicationsmanage the effluents from animal farms. While Geothermal energy is a major contributor tothese systems can be capital intensive, there are electricity production in at least 24 countries.several small, easy-to-operate, simple systems in There is also an increasing widespread use ofIndia and Nepal. The benefits in terms of the direct application of geothermal heat, forenvironment, as well as the energy income, example, for space heat and domestic watercombine to make them viable solutions. heating. Geothermal energy recovered as heat takes two general forms: steam or hot water isThe relative share of biofuels in the piped into facilities where it provides ambienttransportation sector is low, except for Brazil, heating for comfort. Alternatively, heat pumpdue to the higher costs of ethanol and biodiesel technology is used to recover earth heat byproduction with respect to petroleum fuels. pumping a confined heat-transfer fluid through aResearch is underway to use inexpensive heat exchanger embedded in a warm body of soil.lignocellulosic feedstocks such as waste Geothermal heat is used to generate electricalmaterials or fast-growing energy crops instead of power primarily through direct steam productionthe high-value sugar and starch parts of plants. or by flashing produced hot brine to releaseResearch on gasification and thermo-chemical steam, which drives a turbine/generator set topathways is also being undertaken to produce make electrical power. An evolving technologyother fuels including hydrogen for fuel cells and expected to see major application in the future issynthetic diesel. “binary” electrical generation, in which a produced geothermal fluid heats a drive fluidWith increasing biomass use, it is necessary to (e.g., volatile organic fluid or ammonia) in aensure the sustainability of this resource by closed-loop power generation unit.
PAGE 18 RENEWABLES 2005 BACKGROUND REPORTStatus and Trends rock strata that geothermal wells must penetrate areWorldwide geothermal controlling determinants inenergy recovery the net cost of producingcurrently contributes geothermal power.around 13,000 Research in the field ofmegawatts (MW) of geothermal energy is aimedelectrical power (a at several key goals, inlittle over 8 percent of order of priority:total electricity expanding the volume andcapacity). There is hydraulic productivity ofsignificant potential geothermal resources, andfor expanded improving technologies forgeothermal electricity exploration, drilling, andgeneration, up to 73 Photo courtesy of NREL energy conversion. TheseGW with current goals fall under EGS development.technology, and up to 138 GW with enhancedgeothermal systems (EGS) technology (Gawell Opportunities2004).There also are opportunities for expanded use of There are significant opportunities for increasedgeothermal direct heat utilization, with capacity geothermal development in many countriesnearly doubling from 2000 to 2005, and with at around the world, especially France, Iceland,least 13 new countries using geothermal heat for Indonesia, Kenya, Mexico, the Philippines,the first time. About half of the existing Russia, and the United States. Worldwide, theregeothermal heat capacity exists as geothermal are resources that are under-utilized orheat pumps for building heating and cooling, undeveloped, which could provide cost-effectivewith 2 million pumps used in over 30 countries. energy in the near to mid-term using existingExhibit 2.9 displays past and projected future technology. In the longer term, it is projectedtrends in the cost of geothermal power. that very large bodies of warm and hot geologic formations could develop into competitive commercial power markets via permeabilityExhibit 2.9 Geothermal Power Cost Curve(NREL 2005) enhancements. Hydropower Technology Applications Hydropower schemes can be developed over a range of scales and type, according to various conditions, including: hydrological and topographical conditions, local and regional needs, and electricity markets. Both continuous ‘base’ load operation and peaking (following demand fluctuations) output can be provided. The volume of water stored, relative to the schemes generating capacity, will determine the flexibility of operation. Hydropower with significant storage can compliment other lessTechnical Issues flexible, intermittent technologies like wind power.Technical issues for increasing the production ofgeothermal power hinge mainly on thetemperature and location of resources. Mostimportantly, the depth of a geothermal reservoirbelow the earths surface, the reservoirtemperature and productivity, and the nature of
RENEWABLES 2005 BACKGROUND REPORT PAGE 19Status and Trends would need to benefit from secure (long-term) premium prices of renewables incentiveHydropower currently produces some 3,000 programs. A hydro plant is quite flexible; it canTWh per year from an installed capacity of 800 stop, start, and vary output in short periods ofGW. Europe has developed some 75 percent of time, moving from standstill to full output in tensits technical and economic potential, while of seconds. InAfrica uses only 7 more developedpercent now. The markets, muchgreatest undeveloped higher pricespotential remains in are paid for theAsia, Latin America short periods ofand Africa: China peak electricityalone plans to demand. Hydrocommission 190 GW schemes thatof new hydro capacity are equippedby 2020 (NDRC 2005). with units that can be availableThe costs of for peakingdeveloping operationhydropower vary Photo courtesy of NREL capitalize onaccording to the this. Also,remoteness of the site, the demand at the site, the hydro schemes are often used to provide qualitydomestic component (materials, equipment and enhancement roles through ancillary serviceslabor), and the financing conditions. Costs of such as voltage regulation and frequency control.installation range from US $500/kW to Hydropower and pumped storage schemes areUS$4,500/kW. In most cases, economies of increasingly used in this way, but further returnsscale result in larger schemes having lower unit from electricity markets will be required forcosts. In terms of efficiency, hydro generating these ancillary services to foster continued R&D.equipment has seen a 5 percent improvement Much work has been conducted onover the last three decades. Turbine efficiencies benchmarking and identification of good practice.of more than 95 percent are now achievable. Voluntary sustainability guidelines for planning,Generating plants have also become more implementation, and operation have beencompact and can operate at higher speeds than developed and indicators of compliance arepreviously. This can also bring about savings in being researched (see www.hydropower.org).the costs of civil works. Furthermore, turbineshave been designed to work under a broader Opportunitiesrange of flow conditions, which enables greaterflexibility in the management of headwaters for Hydropower offers significant potential forother purposes such as flood control. increasing the global market share from renewable energy sources. This was a keyTechnical Issues finding of global leaders that met in Beijing in October 2004 at the UN Symposium onSignificant R&D has been conducted in the Hydropower for Sustainable Development.pursuit of turbine designs that minimize fishmortality and promote water quality. Increasing Hydropower, combined with enhanced energyefforts are being applied to recover energy efficiency, can contribute to sustainableeconomically from smaller flow volumes and development, to providing access to energy,lower heads (differential between upstream and especially for the poor, and to mitigatingdownstream water levels). Retrofitting greenhouse gas emissions. Hydropowerhydropower units at existing water infrastructure represents an important source of energy,built for other purposes carries significant accounting for some 20% of world electricitypotential; for example, only 25 percent of the supply.world’s reservoirs have any associatedhydropower applications. Similar potential To date, hydropower has made a contribution toexists at many thousands of ship locks and weirs. development, as shown in the experience ofSuch applications are typically marginal developed countries where the majority ofeconomic projects; to attract investment, they
PAGE 20 RENEWABLES 2005 BACKGROUND REPORTtechnically and economically feasible operating period, to fit better with the typicallyhydropower potential has been exploited, and in high up-front construction costs (but lowsome developing countries, where hydropower operating costs) of renewable technologies suchhas contributed to poverty reduction and as hydropower.economic growth through regional developmentand expansion of industry. However, two thirdsof economically viable hydropower potential is Solar – Concentrating Solar Poweryet to be tapped, and 90% of this potential is indeveloping countries. In Africa, less than 5% has Technology Applicationsbeen developed. Significant potential exists in Concentrating solar power (CSP) plants producedeveloping countries, as well as in countries with power by first converting the sun’s energy intoeconomies in transition, for harnessing heat, next into mechanical power, and, tohydropower potential, and bringing benefits to electricity in a conventional generator. The threethese countries. Opportunities exist for types ofgreenfield projects, as well as for rehabilitation technologyof existing facilities and the addition of involved are 1)hydropower to present and future water parabolicmanagement systems. trough-electric, 2) dish-Stirling,Development of hydropower resources should be and 3) powersustainable from a range of social, economic, and tower systems.environmental perspectives. This includes The market fortaking an integrated approach to dam parabolicconstruction, bearing in mind that other than trough systemsgenerating electricity, dams often perform and powermultiple functions, including supplying water for tower systemsirrigation, industrial production, and residential is dispatchable,use, as well as flood prevention and habitat Photo courtesy of NREL intermediate-maintenance. load, wholesale generation.Small-scale, robust hydro equipment offers rural The markets for dish-Stirling systems are non-communities an opportunity to enjoy reliable dispatchable, intermediate-load, wholesale powerpower supplies (wherever the relevant hydro generation and, due to their modularity, nicheresources are available). Community assisted markets such as utility grid support, remote, anddevelopment ensures that a strong stimulus for village power.economic development is created at the leastsocial and environmental cost. As development Status and Trends – Current Use andcontinues, larger schemes can be interconnected Projectionsto enhance security of supply and greatereconomic returns, increasingly through public- All of the fully operational CSP plants areprivate partnerships. Linkages that improve the currently located in the United States, howeverreliability of supply of other renewable several CSP projects are in developmenttechnologies and optimize the performance of throughout the world. Recently, thethermal schemes remain major opportunities for announcement of commercial plants in Spain andhydropower. the United States has led to a resurgence of interest, technology evolution, and potentialContinued dialogue is required with investment. Some developing countries,environmental experts on minimizing negative including Algeria, Morocco, India, Egypt, andimpacts and optimizing positive outcomes of Mexico have planned projects with multilateralhydro development. Greater community assistance, although the status of some of theseinvolvement in the implementation of new projects remains uncertain.schemes needs to be nurtured. Financing modelsmust be promoted that minimize foreign- Cost and Performance Trendscurrency debt and maximize the local component Combined cost projections for parabolic troughof development projects. The term of lendingneeds to be extended as far as possible into the and dish Stirling systems are provided in Exhibit
RENEWABLES 2005 BACKGROUND REPORT PAGE 212.10. The projected cost reductions are based on trough plants. The United States has state-leda combination of deployment (cost reductions policies and initiatives and a new 30 percentdue to learning), R&D, and plant scale-up. A solar investment tax credit which will help drive100 MW parabolic trough reference system with CSP markets. Success in these markets couldsix hours of thermal storage, projected annual generate future interest in the technology. Insolar-to-electric efficiency of 11.9 percent, and addition, international activities such as the Global Market Initiative (GMI) for the market Exhibit 2.10 Concentrating Solar Power introduction of CSP systems could help to break Cost Curve (NREL 2005) barriers for the deployment of solar thermal electricity generating technologies worldwide. Solar – Photovoltaics Technology Applications Photovoltaic panels produce direct-current (DC) electricity from absorbed photons from sunlight. Power PV panels typically come in one of two forms: 1) flat-plate PV panels, which use sunlight directly to produce electricity, and 2) concentrating PV (CPV) panels, which usean indirect, two-tank, molten-salt storage system concentrated sunlight to produce electricity.has a levelized cost of energy of approximately Flat-plate PV panels are typically manufacturedUS$0.12/kWh in solar resource regions of 7.65 in units (modules) that range from 5 to 300kWh/m2-day. A 1MW field of prototype 25-kW watts-peak (Wp) of output. Concentrating PVdish/Stirling units, with a projected net annual modules are larger and range from 500 Wp to 40solar-to-electric generation efficiency of 22 kWp. Although a number of applications usepercent has high O&M costs (US$0.10/kWh),current annual availability of about 80 percent, Exhibit 2.11 Solar Photovoltaic Cost Curveand current installed system costs of about (NREL 2005)US$8600/kW, yielding a levelized cost of energyof US$0.49/kWh.Technical IssuesThe key technical challenges for parabolictrough technology relate to improving theefficiency and reducing the installed capital costof the solar field, including the concentrator andsolar receiver. An additional technical challengeis to develop a low-cost and thermally efficientenergy storage system that can dispatch power tomeet system peak load. Because dish-Stirlingsystems and tower systems are still prototype innature, the key technical challenges are toimprove and demonstrate system reliability andreduce the system cost in order to attractinvestment necessary for large-scale deployment. direct current (DC) from the modules, the fastest-growing markets for PV use panels thatOpportunities are integrated into systems with power- conditioning equipment that converts the DCAt an international level, the Royal Decree in electricity from the panels to alternating currentSpain is providing incentives for 500 MW of (AC). These systems are then interconnected toCSP trough and tower technologies. Israel is the utility grid and are referred to as grid-tiedsupporting the development of 500 MW of systems. The modularity of PV has opened a
PAGE 22 RENEWABLES 2005 BACKGROUND REPORTwide variety of markets worldwide for this Technical Issuestechnology, with residential grid-tied, The major metrics for accelerating the market-commercial grid-tied, and central power acceptance of PV systems relate to improving thegeneration being the main markets in the performance, cost, and reliability of all systemindustrialized countries. The primary components. One of the most significant trendsapplications in developing countries are small, over the past 30 years—one that is undeniablyoff-grid systems, usually with battery storage. one of the best measures of the success of PV research—is the continuous improvement ofStatus and Trends solar cell efficiencies for all technologies overThe worldwide PV industry has been expanding the years. Laboratory cell efficiencies forvery rapidly over the past decade. Global PV concentrator cells and thin films have more thanproduction increased from about 60 megawatts doubled during the past 25 years, to more than(MW) in 1994 to just over 1 GW in 2004, with a 39 percent and 19 percent, respectively.growth rate of nearly 60 percent from 2003 to Crystalline silicon cells are nearly 25 percent2004. The PV industry is expected to continue efficient now compared to around 15 percentits rapid expansion over the next decade, with a efficiency 25 years ago. However, thecontinuing shift toward grid-connected markets, efficiencies of commercial (or even the bestdriven by PV-targeted subsidies in Germany, prototype) modules are only 50–65 percent ofJapan, and a number of US these “champion” solar cells. Closingstates (e.g., California, these gaps is the focus and challenge ofArizona, New Jersey). ongoing and future research efforts worldwide.The trend in PV moduleprices has generally Opportunitiesreflected an “80 percent Until the cost of PV is competitive withlearning curve” through other forms of generation in urban areas,2003, that is, the module the largest markets will continue to beprice decreased by 20 created by subsidies. However, inpercent for every doubling many places, PV electricity is alreadyof cumulative production. competing with the peaking, day-timeIn 2003, the module price electricity prices. PV use for ruralwas approximately electrification, where it can be moreUS$3.00/Wp at a cumulative economical than extending the grid,production of 3,000 MW. A will also continue, but may constitute ashortage of silicon feedstock, smaller share of world PV use becausecoupled with continuing Photo courtesy of NREL of the smaller scale. Also, as balance ofstrong market demand, has system equipment improves andresulted in module price increases in 2004 and workforce development for installation and2005. One of the key questions, in terms of O&M technicians continues, the PV market willfuture projections, is what will it take in terms of become even more robust.R&D effort and market stimulation to maintainor accelerate the price-reduction trend in the Which of the many technology paths is likely tofuture and how long can such price-reductions be emerge as the winner? The most likely scenariocontinued? Exhibit 2.11 provides estimates from is that crystalline silicon technologies willNREL of projected future cost reductions for the 7 continue to dominate the market place for thecost of energy from photovoltaics. next decade (and possibly longer), with module prices probably leveling off in the US$1.10– $1.40/Wp range. This would result in very large,7 sustainable markets for PV. The second most For many developing countries PV systems are still likely scenario is that through continued research expensive technology solutions, only affordable when no other solutions are available, such as in remote villages and development successes in next-generation in the Brazilian Amazon, or to increase energy access for PV technologies, namely thin-films (and basic needs. concentrators), these technologies will move rapidly into the market place. Finally, it is possible that third generation PV technologies
RENEWABLES 2005 BACKGROUND REPORT PAGE 23(e.g., dye cells, organic cells, and some yet to bediscovered) could have an even greater potential Technical Issuesimpact on the learning curve, however, this is not Solar water heaters are a mature technology, butexpected to occur until 2020 or later. focused R&D can continue to contribute significant advances in materials, design, and manufacturability. These innovations can lowerSolar–Hot Water the cost of solar water heaters, enhance performance, and simplify installation. TheTechnology Applications main R&D issues that remain are theSolar hot water systems use thermal energy from shortcomings in freeze protection and the highthe sun to heat water for use in homes, cost compared to conventional water heatingcommercial buildings, systems. Polymer solarswimming pools, and other water heaters offer theapplications. Solar water promise to eventuallyheating can provide energy bring downsupply in most climate manufacturing andregions, but with current installation costs further.technology, the cost of solar Other market barrierswater heating in freezing not related to technologyclimates is high. include building codes, Photo courtesy of NRELStatus and Trends covenants, or restrictionsSolar hot water/heating that may limit use oftechnologies contribute solar systems; lack ofsignificantly to the hot qualified and licensedwater/heating markets in installers andChina, Europe, Israel, Turkey, and Japan. maintainers; and limited information aboutDozens of other countries have smaller markets. performance, cost, and benefits of solar waterChina accounts for 60 percent of total installed heaters.capacity worldwide. Total sales volume in 2004in China was 13.5 million square meters, a 26 Opportunitiespercent increase in existing capacity. The 110million square meters of installed collector area Solar water heaters are a proven reliable andworldwide translates into almost 40 million relatively low-cost technology with steadyhouseholds worldwide now using solar hot water. growth and great market potential in “sunbelt” climate zones, especially if the market barriersCurrently in freezing climates, solar water mentioned above are addressed. Increasedheating costs US$0.11–0.12/kWh, while in mild deployment in other areas will depend onor “sunbelt” climates, solar water heating costs reducing cost of technologies that tolerateabout US$0.08–0.10/kWh. In some countries freezing temperatures. The passivesuch as China, solar water heating systems are thermosiphon system is the most common typealready competitive with conventional systems of solar water heating system worldwide.in certain climates. Future technology goals will Simple flat plate collectors made of copperbe to reduce material costs while maintaining absorbers, aluminum enclosures, and glass coverenergy performance. In addition, innovations in plates were the predominant technology for thislower cost materials may allow passive solar system for the last few decades. However,water heaters to be used in wider geographic evacuated tube collectors have recentlyranges, including areas that experience regular dominated the world market because of thefreezes. It is anticipated that by 2011, the cost of development of water-in-glass evacuated tubesolar water heating systems in freezing climates systems in China.will be in the range of US$0.05-0.06/kWh. Inthe long term, the cost of solar water heatingsystems in mild climates will be cost-competitivewith conventional technologies, at approximatelyUS$0.04–0.06/kWh.
PAGE 24 RENEWABLES 2005 BACKGROUND REPORTWind and Germany. Other fast-growing markets include India, the United States, Italy, Portugal,Technology Applications the United Kingdom, Japan, the Netherlands, and China. By 2013, it has been estimated thatThe power of the wind can be captured by installed capacity will top 150 GW, with 14turbine blades which convert the GW/year installed (Navigantkinetic energy in the wind to 2003), mostly in Europe, Northmechanical energy that can be America and Asia/Pacific. Theused to do mechanical work, such small wind industry has alsoas pumping or grinding, or can be experienced remarkable growthused to drive a generator to over the last 15 years. Forproduce electricity. Utility-scale example, the United States had 30wind turbine technology has MW of capacity by the end ofdeveloped rapidly over the last 20 2004, with 14 MW predicted to beyears, from a few hundred sold worldwide in 2005.kilowatts to multimegawattmachines capable of producing The cost of wind power continuesenough electricity to power to fall steadily, driven byhundreds of homes. These technology development,turbines are used singly for increased production levels, anddistributed generation or in wind Photo courtesy of NREL larger machines. According tofarms that may be hundreds of the IEA, installed wind farmmegawatts in size. Small-scale wind turbines of costs average US$1,250/kW and range from100 kW or less can be used to displace diesel US$1,000 to 1,400/kW, depending on location,fuel in villages and as stand-alone, hybrid, and project size, and other factors. The cost ofgrid-connected systems to power homes, energy has decreased dramatically over the pastbusinesses, and farms/ranches. Smaller wind two decades—from US$0.8 per kWh to about US$0.04 to 0.06/kWh or utility-scale turbinesExhibit 2.12 Wind Technology Cost Curve located in excellent wind resource areas. United(NREL 2005) States researchers believe that further improvements to the technology will reduce the cost of electricity from wind an additional 30 percent. Exhibit 2.12 provides estimates from NREL of projected future cost reductions. Technical Issues As the wind power industry grows, the number of premium wind sites with easy access to transmission lines and demand centers will dwindle. To ensure the industry’s future growth, researchers are designing turbines for lower wind speed areas with taller towers, lighter-weight materials, larger rotors, more efficient airfoils and generators, and improved control strategies.applications include water pumping, ice making, They are also exploring innovative applicationspowering boats, and telecommunications. such as offshore wind farm development. Over 600 MW of offshore capacity is operating inStatus and Trends Europe, and some are planning for majorIn the past 10 years, utility-scale global wind expansion of offshore wind power. In additionenergy capacity has increased tenfold—from 3.5 to solving the technical issues involved withGW in 1994 to more than 47 GW by the end of designing low wind speed turbines and2004. In some countries, wind generation has developing innovative applications to increasereached 20 percent of domestic generation. In wind energy deployment, industry researchers2004, new wind installations totaled more than are working to remove technology barriers that8,000 MW, half of which was installed by Spain include transmission constraints, operational
RENEWABLES 2005 BACKGROUND REPORT PAGE 25policies, and a lack of understanding of the Implications for BIREC 2005impacts of wind energy on utility grids. BIREC 2005 provided an excellent avenue toOpportunities focus attention on the need for and importance of continued and accelerated investment in allUtility-scale wind power has tremendous aspects of renewable energy research,potential to meet some of the rapidly increasing development, and demonstration. RD&D isglobal demand. Costs are competitive with necessary to drive down costs, increaseconventional power generation, the industry has performance and reliability, and improvematured, and the technology is reliable. For efficiencies in all aspects of renewable energySpain, Germany, parts of the United States, and manufacturing and production. RD&D is neededother areas that are rapidly developing their best in the development of new and/or improvedsites, new turbine technologies for low wind materials, processes, components, subsystems,speeds and increased development of offshore and systems and these individual aspects need towind will provide additional opportunities. For be integrated in order to meet market and endmany other countries, including China, India, user needs. Further, RD&D is required not onlyBrazil, and Argentina, many excellent sites for renewable energy electricity end uses (gridremain to be developed and a great deal of and off grid) but also for thermal, mechanical,experience is available for their policymakers, and refined fuel applications (including charcoalutilities, and industry. There also is significant and pellets used in improved cook stoves).potential for increased use of small wind turbines BIREC 2005 helped to raise visibility on theto meet rural energy needs around the world. need for more effective leveraging of public andThe establishment of policies that level the private sector RD&D funds; the importance ofplaying field and allow wind to compete with expanding product and service offerings toconventional power is a critical factor that could match the needs and income streams ofdramatically increase the future prospects of this developing country customers (particularly ruraltechnology. poor); the need for ongoing dissemination of information on technology performance, costs, and market potential; and joint opportunities for RD&D between and among industrialized and developing countries.
PAGE 26 RENEWABLES 2005 BACKGROUND REPORT3 PolicyThe evolution of renewable energy policies clearly produced significant results. Examplesshows a discernable pattern over the past three include feed-in tariffs in Germany, Spain, anddecades. Starting with RD&D in the early 1970s, Denmark; subsidies for grid-connected solar PVgovernment investments moved toward market in Japan and the United States; the productiondeployment support. In the late 1970s, tax credit in the United States; vehicle ethanolgovernments began to employ guaranteed prices, policies in Brazil; and programs for biogas,investment incentives, voluntary programs, and biomass, and small hydro in developingtax measures. By the mid 1980s, most countries such as China, India, and many others.developed countries had RD&D policies. By the Solar hot water promotion policies at municipalearly 1990s, new market-based policies were and national levels have been very effective inbeing introduced, and by the late 1990s and early supporting the integration of solar hot water and2000s, a clear acceleration in renewable energy heating into buildings. Electricity restructuringpolicy making was taking place at national, allowing retail power competition has clearlystate/provincial, and municipal levels. Some fostered voluntary green power purchasing,policies set targets for future shares or amounts which along with utility green power pricingof renewable energy. Other policies promote and/or renewables certificates systems, haspower generation, solar hot water, biofuels, fostered the growth of green power markets inand/or purchases of green power. Europe, the United States, Australia, and Japan.The IEA8 (2004) has offered a number of Lessons from developed countries drawn by thepreliminary lessons from the policy history of IEA show that:developed countries, although it notes that it istoo soon to fully assess the impacts of the most • Significant market growth has always resultedrecent policies. Years of implementation from combinations of policies, rather thanexperience will provide better clarity about the single policies. Those countries that havenewer policies, particularly renewable energy experienced strong growth have done soportfolio standards and other obligation systems, through a combination of financial incentivesand tradable renewable energy certificate and guaranteed prices, underpinned by strongsystems. Nevertheless, the IEA says that RD&D.“experience with investment incentives, taxmeasures and incentive tariffs suggest that all • Longevity and predictability of policy supportthese policies can be made effective. It is the are important to overall market success. Indesign of the support mechanism rather than the most cases, feed-in tariffs typically span 8-20type that determines the success of policies. years. Conversely, “stop and go” incentives,Over time, the array of policy choices has such as the US production tax credits, canbecome broader and the market learning undermine investment.experience richer. Strong market growth in thelate 1990s indicates that the support schemes in • National policies are strengthened when local,place may have been effective. On the other state, or provincial governments have authorityhand, it also must be stated that without to act independently of the nationalgovernment support, new renewables would government. For example, in Spain, the bulkshow low or no increase in market growth rates.” of wind power growth is occurring in areas where regional government has supportedAnalysts may argue about the details and relative development via administrative change andeffectiveness of different renewable energy funding.policies, but nonetheless many policies have • Policies for rural electrification in developing8 IEA 2004, Renewable Energy: Market and Policy countries have begun to incorporate Trends in IEA Countries. Organization for Economic renewables into a least-cost strategy for Cooperation and Development, Paris, France.
RENEWABLES 2005 BACKGROUND REPORT PAGE 27 reaching areas too expensive to serve via and sustainability; (b) power-sector regulatory power line extension. In addition to policies for renewable energy should support development assistance programs, national Independent Power Producers and Power policies for supporting rural village-and Purchase Agreements (IPP/PPA) frameworks household-scale renewable energy have been that provide incentives and long-term stable effective in many developing countries, such tariffs for private power producers; (c) as Argentina, Brazil, China, India, Philippines, regulators need skills to understand the Sri Lanka, and Thailand. Lessons related to complex array of policy, regulatory, technical, rural electrification policy9 are: (a) historically, financing, and organizational factors that affordability of rural energy has been influence whether renewable energy producers addressed through government subsidies, are viable; and (d) financing is crucial but donor programs, and private cash sales of elusive. small systems; (b) new approaches to affordability are emerging, including vendor- This remainder of this chapter outlines existing supplied credit, micro credit, and rental models, policies for increasing renewable energy use Textbox 3.1 Impacts of Rising Fossil Fuel Prices in Developing Countries Subsidies of fossil fuel prices in countries around the world have lead to market distortions and sent market signals that have perpetuated the use of these options. As fossil fuel prices rise, this has resulted in sharp and negative impacts, particularly for developing countries. For example, many countries have had to reduce funding for other sector activities (health, education, development, etc) to pay for higher fuel prices. Governments, in some cases, have also rapidly reduced or eliminated the fossil subsidies with little lead time, requiring households, commercial players, and businesses to pay a higher portion of their budgets on energy and to make critical trade-offs regarding how they will spend their money. In Indonesia, for example, the government raised fossil fuel prices by 125 percent overnight, which has lead to business closures, unemployment, decreased economic growth, reduced purchasing power, and reduced quality of life. Inclusion of renewable energy in a country’s energy portfolio can help to reduce fossil fuel volatility and enhance economic development but are still untested; (c) credit risk is a serious worldwide. This material is summarized, for the concern of financiers and dealers and makes most part, from the REN21 “Renewables 2005 credit sales challenging; (d) lower income Global Status Report, “ which contains further rural households need long-term credit or information and references. rental options; and (e) even with credit/rentals, lower income groups will only benefit with targeted policies, including subsidies, justified Removal of Market Distorting Policies by development goals. Also, energy access must be linked to income generating activities Removal of market distortion policies can be the in these regions. most effective policy instrument to promote investment in economically viable renewable• Policies to promote renewable power energy technologies. These are not promotional generation have been proven effective in policies for renewables, rather they are removing several developing countries. Examples market barriers. include India for wind power, Thailand for small power producers using biomass and Examples include: small hydro, Sri Lanka for small hydro and other renewables, and Brazil for wind, biomass, • Thailand and Sri Lanka have put in place and small hydro. Lessons suggested by regulations and rules to adopt avoided cost Martinot et al (2002) are that: (a) policies that principles for the purchase of renewable promote production-based incentives rather electricity as a means of leveling the playing than investment-based incentives are more field for renewables as compared to fossil likely to spur the best industry performance based solutions. These countries also put in place other mechanisms to advance the use of renewables such as regulatory frameworks for9 Martinot, E., Chaurey, A., Lew, D., Moreira, J., and independent power producers to operate, Wamukonya, N., 2002. Renewable Energy Markets in standardized power purchase agreements, and Developing Countries. Annual Review of Energy and the Environment 27: 309-48. tariffs and incentives for developers (e.g.,
PAGE 28 RENEWABLES 2005 BACKGROUND REPORT Textbox 3.2 The Aggregate Renewable Energy Supply Curve for China 60 SUPPLY CURVE, S Q(ECON)=79TWh 50 Q(BAU)=36TWh Q(ENV)=89TWh 40 price fen/kWh P[coal+env]=36 f/kWh P[coal]=32 f/kWh 30 20 10 0 20 40 60 80 100 120 Quantity(TWh)Figure 1 depicts the renewable energy supply curve, S, which shows the amount of renewable energy that can begenerated at a given price, compared to the production cost of electricity generation from coal, in economic prices(PCOAL, assumed here for illustrative purposes to be 32 fen/kWh).Not all renewable energy is more expensive than coal; there are many projects (e.g., small hydro), whose costs areless than coal and which would be built even in the absence of a RE policy–as evidenced by the 22GW of smallhydro already in place. The quantity of renewables that has a price less than or equal to that of coal is shown inFigure 1 as QECON —about 79TWh, corresponding to 15,300MW of added installed capacity. The projects to the leftof QECON are often called “win-win”–as they cost less than coal and have no (or only very small) environmentalimpacts.However, not all of the renewable energy projects with costs lower than that of coal would in fact be built in theabsence of an express RE promotion policy due to institutional, technical, and market barriers. Therefore whatactually gets built in the absence of a renewable energy policy is not QECON, but QBAU, which is estimated atabout 36TWh (about 7,000MW).If local externalities are taken into consideration, then the true (social) cost of coal rises from 32 to 36 fen/kWh; asshown, the optimum quantity of RE increases from 79 to 89TWh (17,400MW)*.Source: P. Meier, “Economic & Financial Analysis of the China RE Scale up Program (CRESP),” Volume I: TheEconomically Optimal Quantity of Grid-connected Renewable Energy, World Bank, 2003. *As discussed in detail in the body of the report above, the cost of coal, and the damage costs, varies from province to province. The quantities shown in Figure 1 represent the sum of the results for all of the provinces of China (and 32 fen/kWh and 4 fen/kWh are approximate all-China averages for the economic costs of coal, and the externality values) for the World Bank, February 2003.
RENEWABLES 2005 BACKGROUND REPORT PAGE 29 import duty waivers, income tax concessions, Dominican Republic, Egypt, India, Malaysia, etc.). Mali, the Philippines, South Africa, and Thailand. Latin America and Caribbean countries have• Several countries have begun to established a renewable energy target during the reduce/eliminate fossil fuel subsidies, Ministerial Level Meeting in Sao Paulo in estimated at $200 billion per year. These 2002.10 A few other developing countries are subsidies lead to artificially low prices for likely to announce targets in the near future. fossil fuels, encourage their use and China’s target of 10 percent of total power dependency, and make it difficult for capacity by 2010 (excluding large hydropower) renewable energy options to compete. implies 60 GW of renewables capacity given Removal of energy price supports makes projected electric-power growth, a large increase renewable energy more financially attractive. from today’s 37 GW. India is expecting 10 The recent surge in petroleum prices is percent of added electric power capacity, or at accelerating reductions in fossil fuel subsidies least 10 GW of renewables, by 2012. as countries are forced to make tough decisions as to whether to pay fuel bills or cut social and other programs (see Textbox 3.1). Grid-Connected Policies• Energy sector reform can serve to reduce At least 48 countries—34 developed and market distortions and increase deployment of transition countries and 14 developing renewables, as has been experienced in China countries—have some type of policy to promote (Textbox 3.2) and South Africa. In these cases, renewable power generation. The most common power sector reform is opening up competition existing policy is the feed-in law. By 2005, at in rural markets and expanding opportunities least 32 countries and 5 states/provinces had for rural energy-service providers and adopted such policies, more than half enacted entrepreneurs that had not existed under prior just since 2002. Among developing countries, government-owned and -operated utilities. India was the first to establish feed-in tariffs, followed by Sri Lanka, Thailand (for small power producers), Brazil, Indonesia, andTargets and Timetables for Renewable Nicaragua. Three states in India adopted newEnergy feed-in policies in 2004, driven by a 2003 national law requiring new state-level policies.By mid-2005, at least 43 countries had set a In 2005, new feed-in policies were enacted innational target for renewable energy supply, China, Ireland, Turkey, and the US state ofincluding all 25 EU countries. The EU has Washington. China’s feed-in policy was part ofEurope-wide targets as well—21 percent of a comprehensive renewable energy promotionelectricity and 12 percent of total energy by 2010. law enacted in February 2005.In addition to these 43 countries, 18 US states(and the District of Columbia), and three Renewables portfolio standard (RPS) policies areCanadian provinces have targets based on expanding at the state/provincial level in therenewables portfolio standards. An additional United States, Canada, and India. At least 32seven Canadian provinces have planning targets. states or provinces in these countries haveMost national targets are for shares of electricity enacted RPS policies, half of these since 2003.production, typically 5–30 percent. EU country Most RPS policies require renewable powertargets (by 2010) range from 3.6 percent in shares in the range of 5–20 percent, typically byHungary to 78 percent in Austria, with most of 2010 or 2012. There are also six countries withthese targets providing a 5–10 percent increase in national RPS policies, all enacted since 2001—the share from renewables compared to 1997. Australia, United Kingdom, Japan, Sweden,Other targets around the world are for shares of Poland, and Thailand.total primary energy supply, specific installedcapacity, or total amounts of energy from Energy production payments or tax credits existrenewables. Most targets aim for the 2010–2012 in several countries. The United States federaltimeframe. production tax credit (PTC) has applied to moreAmong the 43 countries with national targets 10 10 Available at:are developing countries: Brazil, China, the http://www.pnuma.org/foroalc/esp/index.htm.
PAGE 30 RENEWABLES 2005 BACKGROUND REPORTthan 5400 MW of wind power installed between of wind power in 2003–2004 and plans another1995 and 2004. Starting at 1.5 cents/kWh in 450 MW of bidding in 2005. The PROINFA1994, the credit increased through several Program in Brazil (Brazil Renewable Energyexpirations and renewals to 1.9 cents/kWh by Incentive Program) called recently for 3,3002005, with expiration now extended until 2007. MW of renewable energy generation capacity forOther countries with production incentives dispatch to the national grid (1,100 MW each ofinclude Finland, the Netherlands, and Sweden. wind, biomass, and small hydropower). Textbox 3.3 Improving Energy Access in Rural Argentina with Renewable Energy Jujuy is one of 24 provinces of Argentina, located in the northwest part of the country with many rural, poor communities. Prior to 1996, all electric services in the area were provided by the Provincial Energy Direction, an arm of the provincial government, and either were not reliable, or did not reach many rural areas. With the passage by Parliament of two laws in 1995/6, the electricity sector was reformed; privatizing the distribution of electricity. However, the government then mandated that small or remote villages and sparsely populated areas that could not be feasibly connected to the national grid must be given electricity access (which the Argentinean Government would subsidize). If the company failed to provide the rural market with the quantity and quality of services specified, it could be penalized by losing the concession for the grid-connected market—clearly the more lucrative investment. To accomplish the rural access challenge, the newly privatized company, Empresa Jujeña de Sistemas Energeticos Dispersos (EJEDSA), provided small-hydro systems, diesel-powered systems (gensets), hybrid PV- wind mini-grid systems, and small solar home systems (SHS) to the area. After almost nine years of continuous work including progressing through an economic crisis, EJEDSA increased the number of rural customers served in Jujuy Province by 3,400—benefiting close to 14,000 inhabitants in the region. The majority of these were provided access with renewable energy (mainly SHS), and the electricity supplied was of sufficient quantity and quality to provide basic illumination and social communications. The results obtained to date indicate that the privatization of public utilities can, under some circumstances, serve as the most efficient model for development of a renewable energy-based electricity supply in remote areas.Policies to promote rooftop grid-connected solar Many other policies in dozens of countriesPV utilize either capital subsidies or feed-in support renewable power generation, includingtariffs, or both (along with net metering). direct capital investment subsidies or rebates, taxJapan’s rooftop solar PV policies that are set to incentives and credits, sales tax and value addedend in 2005 provided capital subsidies that tax (VAT) exemptions, and direct publicstarted at 50 percent in 1994, but had declined to investment or financing.around 10 percent by 2003. Germany provides aguaranteed feed-in tariff, and until 2003 alsoprovided low-interest consumer loans. Recent Technology-Specific Policiesand continuing policies in France, Greece,Hungary, Italy, Republic of Korea, Luxembourg, Solar Hot Water or Heating Promotionthe Netherlands, Portugal, Spain, and Thailand Policiestypically provide capital subsidies of 30–50 The Chinese market for solar hot water has beenpercent and/or favorable power purchase tariffs. driven by unmet demand for hot water along with favorable economics and systems that sellNet metering laws exist in at least seven for a fraction of prices found in developedcountries, 39 US states, and several Canadian countries. Although there are no explicit policiesprovinces, and are being enacted regularly, with for promoting solar hot water in multi-storysix new US states passing such laws in 2004. urban buildings, building design andMost recently, a 2005 US federal law requires all construction by developers has begun toUS electric utilities to provide net metering incorporate solar hot water, and there arewithin three years. government programs for technology standards, building codes, and testing and certificationPolicies for competitive bidding of specified centers.quantities of renewable generation, originallyused in the United Kingdom in the 1990s, now Beyond China, at least 17 countries, andexist in at least seven other countries—Canada, probably several more, provide capital grants,China, France, India, Ireland, Poland, and the rebates, or investment tax credits for solar hotUnited States. China bid and awarded 850 MW water/heating investments, including Australia,
RENEWABLES 2005 BACKGROUND REPORT PAGE 31Austria, Belgium, some Canadian provinces, begun to target increased use of biodiesel with aCyprus, Finland, France, Germany, Greece, January 2005 law allowing blending of 2 percentHungary, Japan, the Netherlands, New Zealand, biodiesel.Portugal, Spain, Sweden, the United Kingdom,many US states, and the US federal government. In addition to Brazil, mandates for blendingCapital grants are typically for 20–40 percent of biofuels into vehicle fuels have been appearingsystem cost. in several other countries in recent years. At least 18 states/provinces in Canada, China, India,Dozens of municipal governments in Spain and and the United States now have mandates forsome cities in other countries are introducing blending ethanol and/or biodiesel with all vehiclelocal mandates for solar hot water in new fuels sold. In India, the government mandatedconstruction, led by Barcelona’s 2000 Solar 10 percent ethanol blending (E10) in nine statesThermal Ordinance, which applies to buildings starting in 2003. In China, four provincesabove a specific size. Israel appears to be the mandate E10 blending, and five additionalonly country with a national-level policy provinces were slated for a similar mandate inmandating solar hot water in new construction; 2005. In the United States, three states mandatesince 1980, most buildings have been required to E10 blending and one state mandates 2 percenthave solar hot water collectors. blending of biodiesel (B2). In Canada, one province mandates E5 (average) blending byBiofuels Promotion Policies 2007. National blending mandates have appeared in Colombia and the DominicanBrazil has been the world leader in promoting Republic. Thailand has a target for biofuels as aTextbox 3.4 Increasing Agricultural Productivity and Reducing Oil Imports:The Case of Ethanol in Brazil Brazil’s Alcohol Program (PROALCOOL), the largest commercial biomass-to-energy initiative in the world, was established in 1975 following the oil crisis. Its goal was to displace gasoline imports and enhance the country’s foreign trade balance. In the beginning, the Federal Government required a mandatory blend of anhydrous ethanol (used as a fuel additive) with gasoline, a mix known as gasohol, for all cars in a proportion of 20-25 percent. In addition, “ethanol” cars were introduced into the market, that ran on pure hydrous ethanol (used unmixed as fuel in modified engines). At inception, subsidies were paid to alcohol producers, however these were eliminated in 1999. Today, ethanol is competitive with gasoline without subsidies. All energy needs are supplied by sugarcane bagasse (by product from sugarcane crushing). Also, existing legislation to incentivize renewable energy production in the country means that industries can generate electricity surplus for sale to the grid. This legislation, combined with increases in agro-industrial productivity, was responsible for significant cost reductions in alcohol production. Ethanol production has gone from .6 to 14.8 million cubic meters from 1975 to 2005 and is expected to increase further, continuing to bring with it positive economic and social aspects, low environmental impacts, and decreased pollutant emissions. Other countries interested in launching a biofuels program can learn from the Brazilian experience. Countries already producing sugarcane, with an interest in producing ethanol for local consumption and reducing imports can launch a program using part of the existing sugarcane base for alcohol production. Utilizing ethanol as an additive appears to be the best option; it costs around 10-20 percent more than ethanol used alone, but requires no change to the vehicle’s engine. Small blends of 2-10 percent can be accepted by existing vehicles. With government mandates, an ethanol market can be created virtually overnight and investors will have the confidence to finance.biofuels for 25 years (see Textbox 3.4). Since share of total energy by 2011, for which it is1975, Brazil has mandated that ethanol be considering E10 and B2 blending mandates.blended with gasoline, typically in the range of20–25 percent. All filling stations are required Green Power Purchasing and Pricingto sell gasohol (E25) and pure ethanol (E100).Ethanol production was subsidized in the past There were more than 4.5 million green powerbut today these subsidies have been eliminated consumers in Europe, the United States, Canada,as ethanol is competitive with gasoline. Tax Australia, and Japan in 2004. Green powerpreferences have been given to vehicles that run purchasing and utility green pricing programs areon pure ethanol and most recently to “flexible- growing, aided by a combination of supportingfuel” vehicles as well. Brazil has more recently policies, private initiative, renewables
PAGE 32 RENEWABLES 2005 BACKGROUND REPORTcertificates trading systems, and government purchasing 10–20 percent of municipalpurchases. In Europe, green power purchasing government power are Chicago, Los Angeles,and utility green pricing have existed in some Minneapolis, and San Diego. Cities are alsocountries since the late 1990s. By 2004, there enacting policies to support solar hot waterwere almost 3 million green power consumers in and/or rooftop solar PV, modifying their urbanthe Netherlands, supported by a tax exemption planning to incorporate future energyon green electricity purchases. Other countries consumption, constructing demonstrations, andin Europe with retail green power markets enacting other measures.include Finland, Germany, Switzerland, and theUnited Kingdom. Germany’s green power Additionally, over 185 cities, including moremarket has grown steadily since 1998, with more than 40 million United States’ citizens, havethan 600,000 consumers in 2004. agreed to carbon dioxide emission reduction targets, which are similar to the Kyoto ProtocolThe United States has an estimated half-million (-7 percent until 2012, reference 1990).11green power consumers purchasing 4500 GWhof power annually. Green power purchasingbegan in earnest around 1999. By 2004, at least Rural Electrification Policies2 GW of additional renewable energy capacitywas built in the United States to accommodate Policies to promote renewable energy in ruralthis market. By 2004, more than 600 utilities in areas are typically tied to a government’s rural34 states had begun to offer green-pricing electrification program, and should not beprograms. Most of these offerings were considered in isolation. These programs arevoluntary, but regulations were enacted in five aimed at reaching rural populations that lackstates between 2001 and 2003 that require access to the centralized power grid, oftenutilities to offer green power to their customers. because the costs for grid extension to rural areasJapan has an estimated 60,000 consumers are prohibitive due to geographic remoteness,voluntarily contributing to green power through access issues, dispersed nature of populations,co-operatives, community organizations, and difficult terrain, etc.utility programs. Australia has over 100,000green power consumers. Options for rural electrification include grid extension, diesel generators linked to mini grids, renewable energy connected in mini-grids (solar,Local Government Policies wind, and/or biomass, sometimes combined with diesel), and household-scale renewable energyMany local governments around the world are (solar home systems and small wind).enacting their own renewable energy policies. Applications of renewable energy for ruralFor example, many cities are adopting future electrification have been growing over the lasttargets of typically 10–20 percent of electricity few years as their costs have declined andfrom renewables for all consumers in the city. awareness of local economic, social, andExamples are Adelaide, Australia; Cape Town, environmental benefits become more apparent.South Africa; Freiburg, Germany; and In most cases, renewable energy services areSacramento (California) in the United States. provided by local businesses and entrepreneursSome cities have also proposed or adopted CO2 who operate in the rural areas. However, it hasemissions-reduction goals, typically a 10–20 been recognized in many countries that privatepercent reduction over a baseline level, investment alone is not sufficient to meet theconsistent with the form of Kyoto Protocol rural energy needs and government subsidies andtargets. Examples are Freiburg, Germany; policies are required, justified by developmentGwangju, Republic of Korea; Sapporo, Japan; goals (e.g., social equity, poverty alleviation, etc)Toronto, Canada; and Vancouver BC, Canada. and public mandate for universal electricity access.A number of cities have decided to purchasegreen power for municipal government buildings A range of subsidy approaches have been triedand operations. Examples are Portland (Oregon) including capital subsidies (Ireland), output-and Santa Monica (California) in the United based subsidies (Chile), bulk power subsidiesStates, which purchase 100 percent of theirpower needs as green power. Other US cities 11 Available at: www.ci.seattle.wa.us/mayor/climate.
RENEWABLES 2005 BACKGROUND REPORT PAGE 33(Thailand), and lifeline rates. Each offers renewable energy mandates for ruralstrengths, however the cornerstone to effective electrification.subsidies is that they be easy to administer, reachthe desired population, and access the poor.12 Cross Sector PoliciesRural electrification programs specifically In addition to energy specific policy initiatives, itincorporating large-scale renewable energy is important to explore opportunities for tyingcomponents are occurring in the largest of the renewable energy into policies and legislation ofemerging countries, including China, Brazil, other key sectors. This could include agriculture,India, Mexico, and South Africa, and targeting transport, finance, health, water, etc wheremillions of people with energy access. Countries renewable energy can play a major role insuch as Bolivia, Chile, Guatemala, Nicaragua, delivering the objectives of these sectors. ForTextbox 3.5 Integrating Renewable Energy into Broader Electrification and DevelopmentPrograms: Some Country Examples A number of countries are integrating renewable energy into their comprehensive rural electrification and development programs. Examples include: • The Chinese Government has made renewable energy a high priority in its national sustainable development strategy, targeting 10 percent contribution to the total energy mix by 2010. The China Township Electrification Program, which was essentially completed in 2004, supplied electricity to 1 million people in rural areas, using renewable energy technologies. • The Brazil Luz para Todos Program (Lights for All) is planning to electrify 2.5 million households by the year 2008; 10 percent of these households, 250,000 will be powered by renewable energy. • India, with 80,000 MW of renewable energy potential, has targeted 10 percent of new power generation by 2012 to come from renewables and put in place a range of credits, incentives, IPPs and tariffs to make this happen. The Government’s Remote Village Electrification Program will electrify 18,000 villages and will include renewable energy, such as biomass gasifiers. • Central America has 160-300 MW in annual renewable energy investments and has regional interconnection planned by 2007. Guatemala has put in place a dedicated renewable energy law, including a fund for project development; Honduras has put in place tax exemptions and incentives for renewable energy as well as a 10 percent price premium; El Salvador is developing a rural electrification program including renewable energy; Nicaragua has a Presidential decree calling for 5 percent renewable energy (hydro and wind); and Costa Rica is one of the world leaders in renewable energy development. • Mexico has a number of programs in place to promote renewable energy for rural electrification, including linkages to productive uses and distance based education. • Philippines is committed to electrify all its districts (baranguays) by 2006, and all households by 2017; renewable energy is playing a key role in meeting these needs. • In the Mediterranean, countries such as Egypt, Morocco and Turkey are putting in place policies and programs for renewable energy. • In Africa, South Africa has programs in place for solar and biomass development; East Africa is promoting geothermal and solar technologies for electrification. • Several small island nations, including Dominica, Grenada, St. Lucia, Fiji and others have developed sustainable energy plans and policies to promote the use of clean energy, including renewable energy.and Peru are mainstreaming renewable energy example, in the United States, the US Farm Billinto their new or revamped rural electrification directs the Secretary of Agriculture to makeprograms and putting in place associated legal loans, loan guarantees, and grants for renewableand regulatory frameworks. Similarly in Asia, energy systems and energy efficiencyBangladesh, Nepal, the Philippines, Sri Lanka, improvements. This allows for farmers to reduceThailand, and Vietnam have put in place their energy costs and consumption, as well as promotes new streams of income, new job12 development, and uses for materials otherwise D. Barnes, Transformative Power: Meeting the Challenge of Rural Electrification. No 2., ESMAP Knowledge considered waste. Farmers in the United States Exchange Series, The World Bank, Washington, DC, see these technologies as the “new crop” for the August 2005. decade.
PAGE 34 RENEWABLES 2005 BACKGROUND REPORTImplications for BIREC 2005 lessons are being learned. As many of these policies are still relatively new in theirSecuring political commitment and putting in application, and field results limited, BIRECplace effective policy and regulatory frameworks 2005 provided an opportunity to shareare crucial elements to improve the investment experiences on policy approaches, tools, andclimate for renewable energy. Governments techniques; discuss pros and cons of varioushave a role to play at all levels—national, state, options; and further the body of knowledge onand local—and there are a range of policy best practices.options that have been applied and from which
RENEWABLES 2005 BACKGROUND REPORT PAGE 354 FinanceClearly, finance and investment are critical Emerging markets have improved access tocomponents in the growth and development of foreign direct investment, but face problems ofrenewable energy markets in all countries. This volatility in their own and in internationalchapter provides an overview of financing financial markets. Some emerging economiesindustry trends in industrialized and developing (e.g., Chile, Malaysia, and Mexico) havecountries, reviews the types and conditions of domestic markets that provide long-term, fixed-available financing mechanisms for large- and rate local currency financing for infrastructure.small-scale projects, and reviews existing and Others (e.g., India, Peru, and Brazil) havenew sources of financing in the global emerging long-term debt markets, wheremarketplace. interventions can be made to extend the terms available or to enable infrastructure projects access long-term debt markets from which theyFinance Industry Overview and Trends may otherwise have been excluded.Though finance sector engagement in renewable A World Bank assessment has shown that theenergy is still nascent, it has been accelerating in commitments made by developing countriesmany countries and a number of signs indicate toward the Bonn International Action Planthat this trend will continue. In OECD member translate into capacity additions of more than 80countries, there is currently a large buoyant GW of renewables (other than large-scalemarket for investment in large-scale renewable hydropower) by 2015, requiring US$90-120energy projects. Transactions are becoming billion, or about US$10 billion per year. Due tolarger and more complex, and developers and the capital cost intensity of renewable energies,manufacturers are increasingly gaining access to the incremental investment required compared tothe capital markets, with some significant initial fossil fuel generation is likely to be about US$3-public offerings (IPOs) carried out over 2004- 5 billion per year, depending on technology2005, and the bond markets also starting to choice.engage. The challenges involved in attracting this neededIn non-OECD countries the trends are also capital are significant, and will only be met if thesomewhat positive, although they stem from a appropriate enabling regulatory frameworks aremuch more modest base and overall, the climate in place, and financial instruments are developedfor investment in renewable energy is still or adapted to respond to the specific needs ofdifficult. In many less developed countries renewable energy projects. Since policies are(LDCs), the private sector often faces significant addressed in Chapter 3 of this document, the restbarriers in accessing the credit markets, which of this chapter will focus instead on the financialdue to limited liquidity and market instabilities, instruments that today are needed to enablevery seldom offer the sort of medium- and long- renewable energy market growth, and what canterm financing needed for infrastructure be done by governments and the donorinvestments. community to further accelerate this capital formation process.For renewable energy, weak capital marketscreate not only a problem of access to financebut also a bias toward investment in fossil fuel- Financing Large-Scale Renewablebased technologies. Because renewable energy Energy Projects in Developing Countriesprojects are more capital cost-intensive, highinterest rates, short maturities, and low debt-to- Financing sources for large scale renewableequity gearing requirements shift the price per energy projects in developing countries arekWh upward relative to conventional power. outlined below.
PAGE 36 RENEWABLES 2005 BACKGROUND REPORTProject Equity enjoy greater success, but this has yet to be determined.Equity capital for realizing renewable energyprojects is normally sourced from corporate Project Debttreasuries, strategic investors and joint ventures,private equity funds, or the capital markets (i.e. The bulk of the financing provided to a project ispublic equities or bonds), and in some cases usually in the form of senior debt, which can begovernment funds. For example, joint ventures structured as on–balance-sheet corporate financeare one of the main sources of project equity in or off–balance-sheet project finance. Alarger markets such as India and China. Each of significant amount of innovation in debtthese investor types has seen its ups and downs financing instruments is currently in progress insince the late 1990s, influenced by Enron and developing countries to address some of theother corporate scandals, the technology barriers to financing renewable energyboom/bust and more recently, a stabilization of infrastructure projects. For instance, a variety oftrends and healthy investor re-engagement in instruments are being used by the World Bank,some specific markets. The one major investor Kreditanstant Für Wiederaufbau (KfW), andtype that has not recovered is the major utilities, other development finance institutions towhich continue to divest of their emerging improve access to long-term financing. Thesemarket assets and consolidate efforts on markets include currency swaps to reduce foreigncloser to home. exchange risk,15 two-step bridging mechanisms to allow project refinancing,16 lease-financingThe number of new renewable energy private arrangements to reduce off-take risk, and variousequity funds and investors has been increasing, other approaches.17although many have shifted away from usingpure equity and now employ quasi-equity New types of mezzanine finance instruments areinstruments that allow for easier exits, as also now available in various regions. Typically,described below. However, lack of exit options mezzanine finance comes in the form of quasi-remains a problem for private equity. equity, which can combine some form of preferred shares with subordinated debt and theOn the public equities side, some progress is option to later be bought out, either progressivelybeing made—a number of high profile IPOs or in one bullet payment (called ‘put options’).were carried out over 2004-5 by renewable Quasi-equity is most useful in illiquid markets,energy companies with a focus on developing where a lack of exit options makes pure-equitycountries.13 Another recent development with investments less attractive. Mezzanine finance ispublic equities has been a perceptible ‘Kyoto an appealing option for public sectoreffect,’ whereby renewable energy stocks quoted participation. Public funds can buy down thein countries that ratified the Kyoto Protocol are risks for commercial investors and/or lenders and,outperforming those quoted in countries that did by helping close the debt-equity gap, buy upnot sign.14 The potential for a secondary Kyoto returns for project developers. The potential toeffect also exists, whereby renewable energy leverage private capital is also significant.stocks quoted in the more active CleanDevelopment Mechanism (CDM) host countries The Global Renewable Energy Fund of Funds (GREFF), a mezzanine finance instrument, is13 A few examples in 2004-2005 include: Suzlon, a wind 15 company (US$310 million IPO) listed on the Bombay For example, DEG, the private sector arm of KfW, has Stock Exchange; D1 Oils, a biofuel company (US$23 put in place a cross-currency swap to finance a wind million IPO), and AgCert, a carbon company (US$110 farm in China. 16 million IPO), both listed on the Alternative Investment The World Bank has offered a liquidity stand-by Market of the London Stock Exchange (AIM); Ormat, a guarantee to banks providing term loans to mini-hydro geothermal company (US$94 million IPO) listed on the plants in Uganda. Although banking regulations limit Nasdaq. loan maturities to eight, this form of ‘put option’ (the14 The 20 constituent companies of the Global Energy banks can sell the loan to the World Bank after eight Innovation Index (GEIX), which are quoted in countries years) allows banks to stitch together two loans into a that signed the Kyoto Protocol, were up by an average of 15-year financing package, a term more appropriate for 21.9 percent in the first quarter of 2005. By contrast, the renewables infrastructure financing. 17 30 GEIX constituents quoted in the US and Australia An in-depth review of these mechanisms can be found in were down by an average of 13.3 percent (source: New Lindlein P and Mostert W, Financing Instruments for Energy Finance). Renewable Energy, KfW (2005).
RENEWABLES 2005 BACKGROUND REPORT PAGE 37being developed by the European Commission Credits. Approved initially for a two-year period,and will provide subordinated non-commercial this agreement principally involves extending thecapital to a number of investor-financed funds. minimum allowable repayment terms to 15 yearsEach fund would invest some form of patient (from currently 10 or 12 years, depending onequity or quasi-equity into renewable energy project type). This change will allow exportbusinesses and/or projects in developing credit financing to be more closely aligned withcountries and economies in transition. The the duration of power off-take agreements andcapitalization target is €75 million of can thus lower a project’s overall capital cost.19public/donor funding, which could potentiallyleverage €300 million of investor capital in the Carbon Financeindividual funds. The CDM and the emerging carbon market in general offer the potential for a new revenueRisk Management stream to boost the financial viability ofAn integral element of a project’s financial renewable energy projects. The World Bank hasstructuring is risk management. This entails noted that at a price of US$4 per ton of CO2, “theassessing the risks, mitigating them where impact on project financial IRRs (internal ratespossible through contracts and warranties, and of return) for a range of CDM projectsshifting those remaining risks to insurers and undertaken by the World Bank is 0.5 to 2.5other parties better able to underwrite or manage percent for hydro, wind and geothermal, 3 to 7risk exposure. There are many barriers to the percent for forest and crop residue, and 5 to 15development of new insurance and alternative percent for municipal waste (landfill biogasrisk transfer instruments, which create gaps that projects)”.20 Naturally, as the price of carboneither prevent projects from going forward or goes up—the current trend—the impacts becomeincrease the costs of those that do proceed. more significant.Many risks are non-traditional and henceuninsurable. Like bankers, insurance In 2004, the largest share of CDM transactionsunderwriters have a limited understanding of went to projects that reduced industrial gases,renewable energy and its associated risks, and and gases with high global warming potentialtherefore encounter difficulty in aligning such as HFC23 (a by-product of the productionstrategies for dealing with the risks. In this of HFC22, a hydro fluorocarbon), nitrous oxide,regard, public/private partnerships could play an and methane. However, a recent analysis21important role. Some innovation has been seen shows that the CDM trend may be shiftingin this area in developing countries,18 but much gradually toward renewable energy, which as ofremains to be done. October 2005 accounted for 60 percent of projects and 20 percent of total carbon reductionsOne important area of risk management for in the CDM pipeline. The attached graphrenewables projects is addressing cross-border (Exhibit 4.1) shows the amount of CO2risks that can be covered by Export Credit emissions that can be avoided by renewableAgencies (ECAs). Although the level of export energy CDM projects in the pipeline for eachcredit support to mainly non-OECD countries in technology. Considering a value of US$4 per2001 was US$455 billion, only a very small ton of CO2, and that the registered renewableshare of this financing went toward renewable energy projects totaled 12 million tons ofenergy projects. However, it is expected that this avoided emissions per year, the annual potentialshare will increase. In April 2005, a special annual cash flow to the projects from this sourceSector Understanding was negotiated for the should be around US$50 million/year.renewable energy sector within the OECDArrangement on Officially Supported Export CDM projects and related credits can be organized both at the government level and,18 For example, S&S General Insurance Professionals Ltd. 19 For a project financial structure with all other terms and of India has developed some new wind farm insurance conditions held constant, this extended financing can products including “Minimum Generation Guarantee translate into a 5 to 10 percent decrease in the cost of Insurance” and “Extended Warranty Insurance.” A new delivered energy. risk instrument called CarbonRe has recently been launched to provide specialty insurance and reinsurance Veronique Bishop, World Bank, 2005. 21 and structured finance risk solutions to the carbon See J. Fenhann, UNEP RISOE Centre, May 2005 market. (www.cd4cdm.org).
PAGE 38 RENEWABLES 2005 BACKGROUND REPORT Exhibit 4.1 those generated from CDM and/or joint implementation (JI) projects. One of the existing barriers for the development of CDM projects (Non-Annex I countries, NAI) is the high risk of the investments associated with the very initial phases of project development (pre-feasibility, feasibility and initial project development). Key barriers are the inexperience of entrepreneurs in CDM financing and the fact that many of the rules and conditions are not completely and clearly fixed at this initial phase. Several issues strongly related with the business cash- flow are a matter of negotiation or approval on a case-by-case basis. The overall result is that many private entrepreneurs are waitingsubject to government approval, at the private for a more secure investmententerprise level. Large multinationals may scenario in order to make the additionaltherefore choose to organize their own CDM investment necessary to add Certificates ofprojects, but much of the carbon investment is Emission Reductions (CERs) to currentexpected to flow through so-called carbon funds operations. To overcome this barrier, thethat are set up with the objective of procuring Argentina Government recently establishedproject-based emissions reductions for Annex-I (September, 2005) the Argentinean Carbon Fundcountries and companies. The World Bank’s for the purpose of providing venture capital toCarbon Finance Business manages the largest finance the first phase of CDM projectnumber of carbon funds. However, many development.national carbon funds have been established toprocure carbon for Annex I countries22 and mostrecently, a number of 100 percent private funds SMME Financeare approaching financial closure.23 Small, medium, and micro-enterprises (SMMEs) play an important role in developing countries byAn additional source of carbon investment is providing technologies and services to nicheexpected to come from the EU Emissions energy markets that are either poorly served by,Trading Scheme, which imposes a cap on or complement, the centralized utility approach.emissions of CO2 being generated by large Conventional bank financing is seldom availableemitters in the power and heat generation to renewable energy SMMEs, especially those inindustry and other selected energy-intensive the early innovation stages that need seed andindustrial sectors—accounting for more than risk capital to develop a new product or service12,000 installations in the 25 Member States and offering. In these contexts, new financeabout 45 percent of the EU’s total CO2 emissions. intermediaries are needed that can provideIn order to achieve compliance, the target appropriate forms of capital and the managementinstallations have various options including support that entrepreneurs need to develop andreducing on-site emissions, purchasing grow a new business activity.24 There has beenallowances from the market, and/or purchasing increasing interest in this early stage risk/seedproject-based emissions reductions, specifically 2422 It is this enterprise development area that the African Examples include the Japan Carbon Fund, the German Rural Energy Enterprise Development (AREED) KfW Carbon Fund, and the Austrian Carbon Fund. Programme (see the case study at the end of this chapter)23 Examples include Natsource, GGCAP, ECF, and has been addressing, along with some other similar ICECAP. initiatives.
RENEWABLES 2005 BACKGROUND REPORT PAGE 39capital sub-sector, with a number of post-Bonn end-user transactions is generally an inefficientcommitments25 which, although not significant use of a retailer’s working capital, given the highin absolute terms, are catalytic given the follow- cost of this capital. Similarly, the fee-for-serviceon leverage potential this form of investment has and third-party/leasing models are also costlywith the mainstream energy investment from a working capital perspective and will onlycommunity. Nevertheless, there exist in many usually work for companies that have access tocountries, specific funds for technological some form of low-cost financing.innovation that can be used to develop orintroduce new renewable energy products in the With few exceptions, most large-scale end-usermarket. financing programs have occurred through banks and micro-credit institutions. The barriers that hinder bank financing of consumer-orientedEnd-User Finance renewable energy systems include an increased real and/or perceived risk of customer default,Since most sustainable energy technologies are which leads to higher-cost financing; and thehighly capital-cost–intensive, their successful small initial demand for renewable energyscale-up is largely dependent upon the customer financing that fails to capture the attention of theor end-user’s ability to access financing for the banks, and therefore is not mainstreamed in theirpurchase. For smaller household- or operations.community-scale renewable energy technologies,end-user finance comes in various forms, ranging Textbox 4.1 Creation of Energy Enterprises through Innovative Finance in Africa Many rural communities in Africa lack access to clean energy technologies and services and often rely on low quality biomass fuels such as wood and dung—both of which have negative health and environmental effects. One barrier to increasing access to clean energy has been the ability of the communities to utilize appropriate finance for these technologies and services. Since mid-2000, The African Rural Energy Enterprise Development (AREED) initiative has operated in Ghana, Mali, Tanzania, Senegal, and Zambia focusing on the creation of small- and medium-size energy enterprises using a combination of business development services and seed finance. Initially funded by the United Nations Foundation, AREED is now a US$5 million program of collaboration with seven partner organizations—including UNEP and E+Co (Energy Through Enterprise), which introduced the enterprise development model. To date, AREED has provided business development and seed finance support for 32 enterprises ranging from $24,000–$200,000, for solar crop drying, charcoal briquetting, PV-powered milling, wind- powered pumping, LPG, solar thermal, solar PV, and a range of other clean energy enterprises. The success of the AREED experience has resulted in replication efforts in Brazil and China—titled B-REED and C-REED, respectively.from retailer financing (i.e. the customer pays the For renewable energy sectors that are alreadyvendor in monthly installments), to commercial commercialized on a cash-sales basis, but wherebank loans, micro-credit, and third-party growth is constrained by a lack of end-userfinancing such as leasing or fee-for-service. finance, credit enhancement programs can help local banks build new consumer loan portfolios,For short-term financing, renewable energy either by reducing risk for the lending institutionretailers often find it most appropriate to offer or by facilitating increased demand for theirtheir own financing options. Managing a credit loans. Extending loan durations, guarantees, andoperation, however, is in no way similar to collateral support can all be useful supportinstalling and servicing renewable energy mechanisms, depending on the context.systems, and therefore retailers who want tobuild a large-scale credit-backed sales operation Both Sri Lanka and Bangladesh provide goodwill usually look to a banking institution to examples of local financial institutions beingmanage credit delivery. Furthermore, financing used effectively to develop the renewable energy market. Two successful institutions offering25 E+Co, the leader in this field, has raised US$40 million renewable energy micro-credit schemes are since Bonn ($8 million from BMZ; $17 million from Grameen Shakti in Bangladesh and Sarvodaya IFC/GEF and $15 million from IDB/Cabei/BIO for the Economic Enterprises Development Services CAREC fund) and a new company GroFin has recently raised $22 million for SME investment in east Africa. (SEEDS) in Sri Lanka. The Development
PAGE 40 RENEWABLES 2005 BACKGROUND REPORTFinance Corporation of Ceylon (DFCC) in Sri National GovernmentsLanka has been active in financing solar, hydro, Several developing country governments,and biomass systems under World Bank credit especially among emerging market economies,programs.26 SEEDS has now offered financial have instituted large renewable energy programs.support to over 30,000 households to buy SHS’s Some of the largest such programs are located inas a financial intermediary of the DFCC Bank. Brazil, China, and India. Other countries such asSimilarly, the Infrastructure Development Egypt, Malaysia, Mexico, Philippines, SouthCompany (IDCOL) in Bangladesh is active in Africa, and Thailand also have governmentfinancing renewable energy, primarily SHS, funding for renewable energy programs andsupported by a credit line of US$20 million from projects.the World Bank. IDCOL operates throughTextbox 4.2 GVEP Microfinance and EnergyOver the past two years, GVEP has been active in capacity building activities to strengthen the linkages betweenmicrofinance and provision of modern energy services for poverty reduction. These efforts began with a workshop onmicrofinance and consumer lending to improve access to energy services, held in May 2004 in Manila, Philippines.As a result of the momentum gained by the event, GVEP initiated a number of substantive activities on the subject,including forging strategic partnerships with prominent members of the microfinance community, (e.g., Women’sWorld Banking), creating training materials, and supporting capacity development initiatives in energy andmicrofinance.More specifically, with funding from the US Agency for International Development (USAID), GVEP is working withthe Small Enterprise Education and Promotion Network to conduct a Practitioner Learning program entitled“Microfinance and Consumer Lending to Improve Access to Energy Services in Eastern and Southern Africa.” Thetraining program is working with local financial and energy entrepreneurs in Zimbabwe, Tanzania and Uganda toexamine how microfinance institutions can better incorporate loans for energy services into their standard lendingportfolios. The Partnership has also facilitated work between the Self Employed Women’s Association, an India-based MFI, and the Solar Electric Light Company in India, to design lending products that increase the purchasingpower of energy consumers. Moreover, several prominent publications have provided impetus in the area of energyand microfinance, and raised awareness on the role of energy’s linkages with development strategy and microfinanceamong financial practitioners. Finally, USAID, with Citigroup Foundation, is funding research on microfinanceinstitutions that have existing energy lending portfolios to identify gaps and opportunities for future work in thisarena. The research will profile six to nine micro finance institutions (MFIs) engaged in lending for energy in Africa,Asia and Latin America, and will inform future microfinance and energy entrepreneurs who are interested in pursuingsimilar goals.intermediaries to deliver financing to end-users The Brazilian renewable energy programs haveof the systems. Grameen Shakti, working with made significant progress in the areas of biofuelsits parent company Grameen Bank, offers a and decentralized renewable energy systems.finance-product package for SHS.27 For instance, PROINFA has a public resource allocation of 3,300 MW of capacity additions from wind, small hydro, and biomass, andExisting and New Sources of Financing envisions a public investment of US$1.3 billionfor Renewable Energy over 2002-2007, as well as leveraging $2.9 billion of private investment. Other broaderPresented below are existing sources of energy programs are expected to provide afinancing for renewable energy, as well as significant share of resources to the renewableemerging financing sources entering the energy sector. The Luz no Campo (Light in themarketplace. Countryside) Program aims to electrify one million households by 2007 and has a resource allocation of $650 million. The Luz Para Todos (Light for All) Program aims to electrify 1226 million people in the rural areas of Brazil with a DFCC plans to finance rural energy projects worth over US$130 million, primarily supported by World Bank resource allocation of $843 million over 2003- credits. 2008. It is expected that a significant share of27 To date, Grameen Shakti has installed over 42,000 SHS, resources from the latter two programs will also acting as an intermediary of IDCOL.
RENEWABLES 2005 BACKGROUND REPORT PAGE 41be directed toward financing decentralized have shown high levels of activity in renewablerenewable energy systems. energy financing, with the Indian Renewable Energy Development Agency (IREDA) at theChina’s renewable energy program has made forefront28 and many others such as the Chinasignificant achievements in small hydro power, Development Bank, the Development Bank ofbiogas plants, solar hot water systems, and of the Philippines, and the Thai TMP bank alsolate, PV and wind systems. During the first very involved in renewable energy financing.stage of China’s Brightness Program, theTownship Electrification Program electrified one Multilateral Development Banksmillion people during 2002-2004 using hydro, The World Bank Group represents the largesthybrid, and PV systems with government source of renewable energy finance among thesupport of US$340 million. The Chinese development banks. Between 1990 and 2004,government also provides about $125 million the WBG has committed nearly $8.3 billion forannually in subsidies for household-scale biogas renewable energy and energy efficiencysystems. The second phase of the Brightness investment projects. About half ($3.9 billion)Program, the Village Electrification Program, was for hydropower with capacity greater thanaims to provide access to electricity for about 27 10 MW, while $2.3 billion went toward “new”million people by 2010 with a government renewables (defined as energy from wind, solar,budgetary provision of $2.5 billion. geothermal, biomass, and hydropower with a capacity less than 10 MW per facility). AboutThe Indian government-supported renewable $1.3 billion in financing was from theenergy programs have resulted in significant International Bank for Reconstruction andcapacity achievements in wind energy, biomass Development (IBRD) and Internationalpower, solar energy, small hydro development, Development Association (IDA) with $204and deployment of several rural energy systems. million for new renewables. Renewable energyThe Indian Renewable Energy Program, and energy efficiency represents nearly 13coordinated by the Ministry of Non- percent of the Bank’s cumulative power sectorConventional Energy Sources (MNES), has an portfolio from 1990 to 2004. WBG’s lendingannual budget of US$137 million for the year leverages three to six times as much investment2005, of which over 35 percent is earmarked for resources from other sources through its directrenewable energy-based electrification of rural investments and through Multilateral Investmentvillages. MNES has been providing similar Guarantee Agency (MIGA) and the Carbonlevels of resources for renewable energy Finance business. In particular, MIGA supportdevelopment in India since its establishment as a leverages much-needed foreign directdepartment in 1982. investment. MIGA provided guarantees of $428 million to RE and EE projects in the period 1995International and Local Financial Institutions to 2004. This helped leverage Foreign DirectSome international and many domestic financial Investment (FDI) of $2.4 billion. The Bankinstitutions have been active in supporting Group has supported the development of therenewable energy advancement in developing carbon market and currently has approximatelycountries. Fortis, Rabobank, Australia and New $950 million in funds under management sinceZealand Banking Group, American International operation began in 2000. In Bonn, the WorldGroup, and others offer large scale renewable Bank announced a 20 percent annual increase inenergy finance in various emerging markets, support of renewable energy from current levels.particularly Asia. However, their involvement in The Asia Alternative Energy Unit (ASTAE),developing countries has been limited. The established in 1992, played an important role insmall Dutch “ethical” bank Triodos has been a influencing the power sector lending policies ofnotable exception, and has invested in renewableenergy companies throughout Africa and Asia. 28 IREDA, which began operations in 1987, has supportedDomestic financial institutions have been more over 1700 renewable energy projects as of 2003, disbursing about US$850 million and establishing 2400active in financing renewable energy projects MW of renewable energy capacity. IREDA’s operationsand services in developing countries, often were supported by the World Bank, Asian Developmentoperating multilateral or bilateral credit lines. Bank (ADB), KfW, Danish International DevelopmentFor example, South Asian financial institutions Agency (DANIDA), Swiss Development Cooperation (SDC), and the Government of the Netherlands.
PAGE 42 RENEWABLES 2005 BACKGROUND REPORTthe World Bank in Asia toward sustainable The US Agency for International Developmentenergy alternatives. ASTAE developed an has also provided significant levels of fundingalternative energy lending portfolio (including for renewable energy projects and initiatives.energy efficiency) of over $1.3 billion during Some of the initiatives supported by USAID1992-2004. include the network of Renewable Energy Program Support Offices (REPSOs) in LatinThe Inter American Development Bank works American and Asian countries, and thewith Latin American countries such as Brazil, Renewable Energy in the Americas (REIA)Ecuador, and Guatemala, and is involved in initiative with the Organization of Americanpromotion of renewable energy projects. For States, which supports programs throughoutexample, a geothermal energy project of US$55 Latin America and the Caribbean. USAIDmillion is currently under development in energy programs have shifted away fromGuatemala. In addition, a family of trust technology specific program to more technologyfunds—Hemispheric Sustainable Energy and neutral approaches for expanding access toTransportation Funds, established by IDB— modern energy for enhancing economic andfinances renewable energy projects in Latin social development. Nonetheless, renewableAmerica and the Caribbean, as well as energy energy technologies are often the optimalefficiency and cleaner transportation initiatives. solution and these are employed in many USAID-supported programs worldwide.The African Development Bank has been activein renewable energy programs as well, with a The British Government’s Department forcurrent portfolio estimated at over €250 million. International Development (DFID) has supportedProject activities include hydropower, solar renewable energy projects under its Energythermal power, and wind energy technologies. Knowledge and Research (KaR) programs since 1995. A number of projects focused onThe Asian Development Bank has been active in renewable energy technologies such as hydro,renewable energy since 1998 with the Indian solar, and wind were supported under the KaRRenewable Energy Development Project of Programs by DFID. In addition, the DirectorateUS$100 million. The current ADB portfolio General of International Cooperation (DGIS) ofconsists of renewable energy projects in China, the Government of the Netherlands has providedIndonesia, and the Philippines, and renewable considerable support of renewable energyenergy projects are under development in the programs globally. Examples of DGISPacific Islands, Afghanistan, Pakistan, and Nepal. initiatives include supporting the ASTAE initiative of the World Bank, support of windFinally, a number of European banks are active and solar energy companies, and support ofin renewable energy, including the European biomass densification projects in India throughInvestment Bank and the EBRD. IREDA.Bilateral Development Agencies and Banks The Danish International Development Agency’s support of renewable energy has includedKfW has been one of the most active renewables programs in Nepal, and wind energydevelopment banks in financing renewable programs in India. The French Agence deenergy. KfW committed over €470 million lEnvironnement et de la Maîtrise de lEnergieduring 2000-2004, and has set up a special has implemented renewable energy projects infacility for renewable energy and energy several developing countries in Africa and Asia,efficiency that will make available €500 million and in French overseas territories. Several otherover 2005-2009 for up to 50 investment projects, bilateral aid agencies have also been active inas low-interest loans. Deutsche Gesellschaft für supporting renewable energy initiatives,Technische Zuammenarbeit (GTZ), the German including the Swedish Internationaldevelopment agency, has also been active in Development Agency, Swiss Developmentrenewable energy promotion, and has provided Cooperation, Austrian Development Agency,in-kind support in capacity building and Norwegian Agency for Developmenttechnical assistance in several countries Cooperation, Canadian Internationalworldwide for technologies such as biomass, Development Agency, Australian Aid Program,solar, wind energy, and micro-hydro power. and others.
RENEWABLES 2005 BACKGROUND REPORT PAGE 43Finally, the European Union has served as a of which $43 million is from GEF. Thesignificant source of financing for energy Renewable Energy for Enterprise Developmentprograms in developing countries. The average (REEED) Program of UNEP is active in fiveannual commitments to the energy sector by the African Countries, Brazil, and China, and hasEuropean Union during 1997–2001 were provided $9.6 million in financing since 2000.US$795 million. Of this, 14.7 percent or about$117 million annually represents the share of The United Nations Industrial Developmentrenewable energy. The EUEI is in the process of Organization (UNIDO) implements renewablecreating a financial facility of €250 million to energy and rural energy projects aimed atfinance renewable energy, energy efficiency, and productive end uses, and is active in biomassrural electrification projects in Africa, the gasification, small hydro, and wind energy.Caribbean, and the Pacific. The Johannesburg UNIDO, in cooperation with UNEP, is alsoRenewable Energy Coalition (JREC), a coalition active in implementing renewable energy mini-of countries committed to increasing the share of grid projects in Cuba and Zambia. In addition,renewable energy, has also announced plans to UNIDO is working on a US$40 million initiativeset up the GREFF, referenced earlier in this on hydrogen energy involving establishment ofchapter. an International Centre for Hydrogen Energy Technologies. UNIDO has technical cooperationOther International Agencies projects in renewable energy in Africa and Asia.The GEF represents a major source of financing The United Nations Foundation supports thefor renewable energy projects in developing various UN agencies in their developmentcountries. During 1991–2003, GEF allocated projects and has additionally funded renewableUS$838 million to 130 renewable energy energy and energy efficiency initiatives worthprojects in developing countries. GEF financing US$50 million since 1998. The UN Foundationleveraged an additional $4 billion in co-financing, has extended support to UNDP, UNEP, UNIDO,comprised mostly of public financing as well as and United Nations Department of Economicloans and grants from the GEF implementing and Social Affairs (UNDESA) to implementagencies—the World Bank, UNEP, and UNDP. renewable energy programs.UNDP’s service line, Access to SustainableEnergy Services, focuses on several dimensions Global Partnerships and Foundationsof renewable energy such as rural electrification,capacity building, and integrating sustainable There are a number of partnerships launched atenergy considerations into national development the WSSD that are active in the financing ofpolicy. The UNDP portfolio is reportedly the renewable energy. REEEP offers financiallargest among UN agencies at US$2 billion, support to projects involved in policy andincluding GEF co-financing. UNDP is currently financing issues in promotion of renewableimplementing over 800 energy projects in more energy and energy efficiency. Since 2004,than 50 countries under the UNDP-GEF small REEEP has supported 58 such projects andgrants program. About 400 UNDP energy invested over $6 million.projects are now underway with $200 million ininvestments from UNDP’s core resources. GVEP is involved in a number of financing facilitation activities on issues related to energyUNEP is active in the research, development, for poverty reduction, which includes renewableand commercialization of renewable energy energy. This includes banker training, design oftechnologies, and collaborates with a number of risk mitigation instruments, support for micropartners in these program areas. UNEP’s finance for energy initiatives, and assistance torenewable energy portfolio equals about US$35 GVEP countries in fund raising for countrymillion, and consists of partnerships with the action plan implementation (over $12 million tofinance community on various aspects of clean date). Additionally, GVEP is about to launch aenergy investment; with policy makers on new Global Actions Program (GAP) Fundrenewable energy policy development and capitalized with US$1.2 million and supportedimplementation; and with SMMEs on enterprise by the Government of the Netherlands and DFID.development. The UNEP climate change project The GAP fund will facilitate the developmentportfolio has $135 million of financing approved,
PAGE 44 RENEWABLES 2005 BACKGROUND REPORTenergy-poverty reduction activities to increase Implications for BIREC 2005energy access at the community level. Finance and investment are essential elements inSeveral foundations are also supporting the growth and advancement of renewablerenewable energy advancement in developing energy for industrialized and developingcountries. The Shell Foundation supports countries alike. As the industry grows it will beprojects in renewable energy and improved increasingly important to expand the scope andcooking and indoor air pollution campaigns. The breadth of financing sources and instruments,Shell Foundation has supported a number of both locally and internationally. For developinginitiatives in developing countries including the countries, financing will be needed not only forIndia Solar Loan Program with UNEP, the larger scale grid connected projects, but also forUganda Energy Fund, and the East Africa off-grid and rural projects that may involveEnergy Fund, among others. Other foundations SMME and end-user finance. BIREC 2005supporting renewable energy activities in provided a forum for investors, developers,developing countries include the Blue Moon governments, and the donor community toFund, (BMF), Rockefeller Brothers Fund (RBF), discuss renewable energy financing needs andthe Energy Foundation, and the Oak Foundation. issues; explore financial instruments and deal structures; and further accelerate the capital formation process.
RENEWABLES 2005 BACKGROUND REPORT PAGE 455 Capacity Strengthening for Market Development and how to access, finance, and deploy theCapacity Building for Renewable Energy technologies.For renewable energy markets to expand and As this chapter describes, the needs for capacitydeepen, capacity building is required in all areas support can often vary between the industrializedof project and program design, development, and and developing nations, and a host of institutionsimplementation. Capacity building is the will need to be involved in the delivery ofprocess of creating, mobilizing, and converting capacity services. Nonetheless, the fact remainsskills and institutions to achieve desired socio- that more effective strengthening of individualseconomic results. It requires a long-term and institutions worldwide is a prerequisite forcommitment, with activities focusing on the global scale up of renewable energy.individuals, institutions, and systems, andtargeting public, private, and non-governmentorganizations. In the renewable energy area, Identification of Needs and Requirementscapacity building is needed at several levels, andthese must be coordinated to maximize This section outlines the needs and requirementseffectiveness. of countries in different stages of development with regard to capacity building for renewableAt the technology level, capacity is needed to energy market expansion. Countries describeddevelop academic, professional, and vocational here are grouped as follows: (a) Less Developedskills. Support is required on all aspects of Countries, with low levels of per capita incometechnology research, development, and economic development; (b) Newlydemonstration, deployment, marketing, financing, Industrialized Market Economies, that areoperation and maintenance. Further, continued experiencing higher income flows and economicemphasis on accelerating renewable energy R&D growth over a sustained period; (c) Transitionis essential to bring down costs, improve Economies of the Former Soviet Union; and (d)performance, and enhance competitiveness with Developed Countries with high sustained perconventional energy sources. capita incomes and advanced levels of economic development.At the institutional level, national and sub-national governments require capacity support in Less Developed Countriesthe formulation, implementation, and LDCs present significant challenges for theenforcement of effective policies and programs. promotion of renewable energy and for energyFinancial institutions, whether public, private, or access in general. Most of the LDCs suffer frommicro-finance, require training on the costs and the absence of an enabling environment forrewards of renewable energy, how to review and renewable energy promotion, and limitedassess projects, and the risks and risk mitigation research and industrial capacity. Lack of localinstruments associated with renewable energy. skilled entrepreneurs and limited financing further limit the growth opportunities forAt the business level, a range of business renewable energy. Moreover in severalplanning and support services are required to developing countries, traditional biomassensure development and delivery of renewable sources—often used unsustainably—account forenergy services. These need to be aimed at the bulk of the energy consumed, hinderingutilities, SMMEs, entrepreneurs, non economic growth and advancement.government organizations (NGOs), communities,and community organizations. While some LDCs, such as Bangladesh and Sri Lanka, have ongoing initiatives to address theirAt the individual level, capacity strengthening is capacity building needs, these are largelyneeded to increase consumer awareness of the deficient in most of the countries. The needs andcosts, benefits, and uses of renewable energy,
PAGE 46 RENEWABLES 2005 BACKGROUND REPORTrequirements for initiation and development of renewable energy programs to ensurerenewable energy markets in LDCs in general maximum impact and synergy;include the following: • Enterprise development efforts to provide Textbox 5.1 Mechanical Power for Productive Uses in Mali Women in Mali spend much of their time in the daily tasks of grinding cereals, collecting wood, and fetching water, leaving little other free time in their day. UNDP performed a needs analysis and found that the greatest wish and demand from the women was for more time; this includes time to engage with and take care of the family, time to assist in the education of the children, time for income generating activities, and just time off after a long and hard day. Focusing on addressing these women’s needs, UNDP created a program to increase the availability of time through better energy access, in this case through mechanical power. UNDP introduced a Multifunctional Platform (MFP), a simple diesel engine that can power various tools, such as a cereal mill, husker, alternator, battery charger, pump, and welding and carpentry equipment. The women found that the MFP is able to perform their daily tasks with mechanical energy considerably more efficiently than human energy and thus gained desired time in the day. The Multifunctional Platform in Mali has been one of UNDP’s flagship programs and has translated into a West Africa regional energy access program. In addition to working with communities to provide the MFP, UNDP has increased the capacity of villages to operate and repair the MFP as well as take advantage of additional applications for income generation. UNDP has also worked with the government to increase the use of the MFP—with good results. The project has gone from a pilot phase of 50 to approximately 500 platforms and the government is looking to scale up the provision of motive power at the community level to the national scale under the slogan “one village, one platform”. business training, incubation, and seed• Creation of human and institutional capacity capital to establish private sector enterprises to integrate renewable energy utilization into that can source, integrate, install, operate, national development programs in poverty maintain, and service renewable energy alleviation, health, education, food and systems; agriculture, water, and rural electrification; • Capacity building to develop renewable• Establishment of specific policy instruments energy markets through the opportunities that provide opportunities for renewable presented by the CDM under the Kyoto energy development such as national targets, Protocol; regulatory directives, portfolio standards, • Initiatives to increase the engagement of the and tax incentives; finance and banking sectors in funding• Development of local industrial capacity in renewable energy projects, such as capacity R&D, manufacturing, installation and building programs and development of maintenance, and improving the quality of standardized appraisal tools and financial practice in this important area; instruments that are suitable for renewable• Awareness building at the national and local energy investments; levels and in key institutions in the • Capacity building on international standards government, administration, education, and for renewable energy products and private sectors; equipment, as well as harmonization of• Joint research efforts between local research standards across countries; institutions and industry, aimed at renewable • Linkages of renewable energy to poverty energy applications and collaborative efforts reduction and income generating to carry out renewable energy resource opportunities, including ties between energy assessments; and other cross sector programs (agriculture,• Combined efforts between industrialized education, health, rural development, countries and LDCs to promote knowledge SMME, water, etc); and transfer and the development of appropriate • Integration of renewable energy into rural renewable energy technologies; electrification and development planning,• Established mechanisms for coordination including into country level poverty between donors and governments on reduction strategies.
RENEWABLES 2005 BACKGROUND REPORT PAGE 47 capital in support of renewable energyNewly Industrialized Market Economies development—accomplished by instituting courses and programs in renewable energy,Many of the emerging market economies, and supporting research in renewable energyespecially in Latin America and Asia, are applications;experiencing high rates of energy growth andrapid industrialization. These countries have the • Development of low-cost, long-termopportunity to pursue a more sustainable path of domestic financial resources to supportenergy development, and due to the relative size development of renewable energy markets,of their economies, have the potential to create in concert with development of financialsignificant global demand for renewable energy. instruments and risk mitigation mechanismsSome of the emerging market economies such as to encourage investments by the domesticChina, Brazil, and India have large renewable financial sector in renewable energy projectsenergy development programs that have led to an and enterprises;increased local capacity for market development. • International collaborative RD&D of renewable energy technologies such asMost emerging market economies have biofuels, energy storage technologies, andestablished an institutional framework for the distributed electricity systems;energy sector. Often the major challenge is to • Capacity building aimed at the local publicmainstream renewable energy into the existing and private sector to utilize the opportunitiesframework, and reform the traditional approach for renewable energy offered by the CDM;to energy sector planning and implementation. and • Expansion of the national standardizationSome of the needs and requirements to accelerate and quality assurance framework to includethe development of renewable energy markets in renewable energy systems and serviceemerging economies include: delivery, as well as development of local standards to harmonize with international• Creation of renewable energy legislation standards. and/or a legal framework, including establishment of targets to ensure long-term Transition Economies sustained development of renewable energy The transition economies of the former Soviet markets and to induce private sector Union are undergoing significant political and investment; economic reforms as part of the transformation• Integration of environmental concerns and process. Several of these countries have renewable energy components into large- experienced significant progress in their reforms scale rural electrification efforts and other and some have joined the European Union, development programs; making their economic indicators comparable to• Ways and means to incorporate renewable the EU-15 countries. However, other transition energy into existing energy systems (feed-in economies are lagging behind. laws, etc.);• Capacity building for local level institutions, Many transition countries have surplus heat and since renewable energy systems are often power generation capacity and an aging power decentralized; sector infrastructure. Further, energy pricing is• Mainstreaming renewable energy into distorted by subsidies for fossil fuel generation. planning and implementation processes, The needs and requirements to develop which traditionally favor conventional renewable energy markets in transition sources of energy; economies include:• Rationalization of the subsidies for fossil fuel and nuclear energy, which implies • Enactment or creation of renewable energy providing appropriate fiscal and financial legislation and/or a legal framework that incentives for renewable energy includes targets to ensure long-term investments—in other words, creation of a sustained development of renewable energy level playing field; markets, and induced private sector• Establishment of the required educational investments; and research framework to foster human
PAGE 48 RENEWABLES 2005 BACKGROUND REPORT• Rationalization of the subsidies for fossil feed-in directives, portfolio standards, and fuel and nuclear energy, which includes associated regulatory and legal frameworks; provision of fiscal and financial incentives • Capacity building targeted at policy makers for renewable energy investments, at the national and local levels, to provide an especially from the private sector; energy security perspective as well as• Development and implementation of models lessons learned from successful experiences for public-private partnerships in renewable in renewable energy promotion in leading energy projects with European or other industrialized countries; international partners; • Capacity building initiatives targeted at• Establishment of mechanisms to encourage ECAs and government departments and large- and small-scale grid-connected divisions responsible for public procurement, renewable energy generation such as feed-in to develop internal and external markets for directives, portfolio standards, and renewable energy; and associated regulatory and legal frameworks; • Awareness campaigns targeted at the media• Capacity building to utilize the JI and the public in general, to foster public mechanism under the Kyoto Protocol, to support and promote the rational use of develop markets for renewable energy; and energy, including increased renewables.• Creation of a framework to facilitate the increased use of renewable energy for heating applications. Capacity Building: Progress since Bonn At the Renewables 2004 Conference, capacityDeveloped Countries building for market development was recognized as a key challenge. In fact, of the 200 actionsAccess to electricity is more or less universal in and commitments set forth in the IAP, 25 percentindustrialized countries and economic indicators targeted the development of human andsuch as gross domestic product (GDP), per capita institutional capacity (see Exhibit 5.1). This wasincome, and the Human Development Index more than any other issue identified and(HDI) are significantly higher than in developing underscores the importance of capacity buildingand transition countries. Renewable energy across country classifications.initiatives exist in several industrializedcountries, including Germany, Spain, Italy, the Since Bonn, a number of capacity developmentUnited Kingdom, and the United States. activities have ensued. Examples include:However, institutional barriers continue to limitthe potential for renewable energy development. • Industrialized countries, newly industrialized countries, economies inSome of the needs and requirements to develop transition, and developed countries, haverenewable energy markets in industrialized continued to build capacity on policy,economies include: finance, and technical issues. Policy makers, private firms, utilities, industry groups, and• Enactment or creation of renewable energy NGOs have sponsored and participated in a legislation and/or a legal framework, range of domestic, regional, and including establishment of targets to ensure international fora aimed at strengthening the long-term sustained development of capacities of decision makers and renewable energy markets; implementers of renewable energy projects• Rationalization of subsidies for fossil fuel and programs. Examples are the APEC and nuclear energy, which includes Renewable Energy Working Group providing medium- to long-term fiscal and meetings, World Bank Energy Week, Asia financial incentives for renewable energy Renewable Energy Financing Forum, investments, especially from the private Euromoney Renewable Energy Finance sector; Meeting, American Council on Renewable• Establishment of mechanisms to encourage Energy (ACORE) Renewable Energy Wall small- and large-scale grid-connected Street meetings, etc; renewable electricity generation, such as • Research organizations such as Fraunhofer Institute for Solar Energy Systems, the
RENEWABLES 2005 BACKGROUND REPORT PAGE 49 Exhibit 5.1 Distribution of Bonn International Actions by Issue Area Trans Mediterranean Renewable Energy Cooperation, the African Energy Policy Implications for BIREC 2005 Research Network, the Heinrich Boll Foundation, NREL, and others continue to For renewable energy markets to grow and advance renewable energy R&D and deepen, capacity building is needed in all aspects develop and enhance models and tools for of project and program design, development, evaluation; implementation, and operation. Capacity• Partnerships such as REEEP and GVEP development is required for governments, private have made capacity strengthening part of firms and entrepreneurs, financiers, developers, their core strategic work plans and support academia and for industrialized and developing efforts in this area in a number of countries countries alike. Areas where capacity worldwide; strengthening are most needed include• Benefiting from capacity building activities, technology RD&D, deployment, marketing, several countries have recently put in place financing, operation, and maintenance; policy policy commitments, targets, and timetables formulation, implementation, and regulation; for renewable energy advancement and are business planning and development; and following through on implementation (see consumer outreach and awareness. Capacity Chapter 3); needs differ across developing and industrialized• Capacity building efforts have helped to countries given their varying stages of expand the range of corporate and financial technology advancement. BIREC 2005 helped players now investing in renewable energy to frame capacity building priorities for various (see Chapter 4); and countries and constituency groups and explore• G8 Gleneagles Action Plan (in dialogue with mechanisms and means for addressing these. +5 countries of Brazil, China, India, Mexico and South Africa), task with IEA.
PAGE 50 RENEWABLES 2005 BACKGROUND REPORT6 International CollaborationIntroduction policy approaches, incentive mechanisms, and market structures are in relatively early stages ofAlthough the biggest impact on renewable development. International collaboration isenergy markets will result from the actions taken useful to exchange experiences, learn from eachby national governments, it is critical for national other, and discuss best practices, in order togovernments in both developed and developing avoid time-consuming and costly mistakes, andcountries to take leadership on the advancement provide a “short-cut” to success.of renewable energy in their countries. There aresignificant benefits to be gained from Since industrialized countries are currently theinternational collaboration. International leaders in most renewable energy technologiescollaboration refers to activities undertaken (with the exception of some of the newlyjointly by a variety of actors—including emerging countries such as China, India, andgovernments, international organizations, Brazil), it is important for these nations to workmultilateral financial institutions, the private with their counterparts in developing countries tosector, NGOs, research institutions, and civil advance the technologies in these markets. Thesociety—in pursuit of shared objectives that potential benefits of international cooperationform part of an agreed agenda. International could include:collaboration can be truly global, and shouldinvolve manufacturers, developers, trade • Reduced technology development andassociations, financiers and other private production costs;stakeholders with valuable knowledge and • Improved technology performance andexperience, to ensure the resources and methods reliability;applied are the best available. Importantly, • Improved market growth worldwide leadinginternational collaboration should enhance, not to economies of scale and further costdisplace, independent national initiatives. reductions; • Enhanced knowledge of effective marketInternational collaboration can support national strategies and mechanisms to enhancegovernments and industries to build market technology competitiveness;frameworks, strengthen industrial capacity, and • Expanded equipment standardization, andenhance technical know-how through harmonization across countries;information sharing on successful (and not so • Reduced trade and investment barriers;successful) efforts, facilitation of industrial • Expanded opportunities for cooperativerelationships, and connection of local players to technology development and joint venturea wealth of international expertise. By linking manufacturing and marketing opportunities;national efforts to the broader international • Increased South-South and North-Southcommunity, a country can reap the benefits of trade opportunities;technology improvements and cost reductions athome, while contributing to the collective scale • Reduced dependency on imported energy sources;up of renewable energy worldwide. • Improved employment and incomeThough different renewable energy technologies opportunities; andare in varying stages of development, all can • Increased energy access to those in need.benefit from international collaboration. Manydeveloping countries have hydropower and International cooperation in renewable energy isgeothermal resources that can be exploited, and occurring today via a number of mechanismswould gain from the experiences of countries including workshops, fora, technical assistancethat have successfully deployed these and training, pilot projects, and other informationtechnologies. For the “newer” renewable exchange media. Yet to date, these efforts haveenergy technologies (e.g., wind power, solar not yielded significant growth at the global level.technologies, and newer forms of bioenergy), Thus, opportunities exist to increase international
RENEWABLES 2005 BACKGROUND REPORT PAGE 51 Textbox 6.1 Themes of the Renewables 2004 collaboration in the global Conference deployment of renewable energy. Themes of the International for Renewable Energies, Bonn 2004 identified as core “metrics” for international collaboration on Collaborative Support for renewable energy: Policy Development 1) Policy Development 2) Capacity Building A key conclusion drawn at Bonn 3) Technology Transfer was the importance of implementing 4) Joint Research and Development effective policy frameworks to 5) Financing support renewable energy 6) Reduction of Trade Barriers development. There is an urgent In many cases, the major gap in collaborative programs is need for individual governments to international funding for applications and capacity building formulate appropriate and effective within the industry to develop assessment tools and performance policies that promote renewable standards. Key drivers from the investment community are energy under local conditions, by essential for growth and new market development, with overcoming specific local barriers collaborative efforts often producing success where there is and capitalizing upon unique local support for strategic development and road-mapping. These can opportunities. Successful encourage industry and RD&D programs to set development government policies cultivate priorities together with government, providing regulatory foresight to anticipate novel products and processes. international collaboration by helping to create supportive enabling conditions and incentivescollaboration and enhance the global penetration for investment in and capacityof renewable energy products and services, as building for renewable energy; strategicwell as the establishment of truly international international collaboration can help inform themarkets. development of sound policy frameworks. International collaboration can assist through theThe need for increased collaboration was exchange of knowledge and experience in policyhighlighted at WSSD and manifested through the development, on issues such as incentiveJPoI and a number of voluntary partnerships. mechanisms that include feed-in tariffs andThe Political Declaration from the Renewables renewable portfolio standards, and sustainability2004 Conference stressed the need for stronger guidelines developed by both the hydro and windinternational cooperation in six areas: policy industries. Further, governments havedevelopment, capacity building, technology experienced varying levels of success in theirtransfer, joint R&D, financing, and trade barrier implementation of policies to promote renewablereduction (see Textbox 6.1). Continued attention energy.to the themes drawn from Bonn, throughimplementation of the IAP and others, will International collaborative efforts in renewableenhance the success of international energy policy should be undertaken and targetedcollaboration to promote renewable energy, and at energy policy makers and regulators. Thesehelp optimize its contribution to sustainable efforts must be tailored to the requirements ofdevelopment. each country—whether an LDC, emerging market, industrialized, or transition economy.In addressing international cooperation it will be Such efforts should focus on providing theimportant to focus on technologies that have energy security perspective of renewable energybroad and deep applications and not on niche technologies and stress the need to establishmarkets, and those that can help to address the linkages between renewable energy andenergy access issue. It will also be necessary to development and social service programs inaddress specific gaps with targeted solutions. health, education, poverty alleviation, and water, etc. Policy activities should provide examplesThis chapter explores the major collaborative and lessons learned from policy frameworks andthemes identified at the Bonn Conference, as specific policy and regulation instruments thatwell as progress made to date in these areas. It have been used successfully in industrialized andalso provides specific recommendations for developing countries to promote renewableactivities that can further advance international energy. They should also emphasize the
PAGE 52 RENEWABLES 2005 BACKGROUND REPORT Exhibit 6.1 Illustrative Areas for International Cooperation Key Key Key Barriiierss iiin Develllopiiing Counttriiiess Barr ers n Deve op ng Countr es Barr er n Deve op ng Coun r e Pottenttiialll Areass ffor Collllllaborattiion wiiitth Pote nti a Areas fo r Co aborati on w th Po en a Area or Co abora on w h Processssess Processe s Proce e IIndusstriiiallliiized Counttriiiess In dusttr a zed Countr es ndu r a zed Coun r e Pollliicy Po ic y Po cy • Political Support for Consistent RE • International Agreements and Develllopmentt Deve opment Deve opmen Policies Market Mechanisms • Unstable Energy Market Reforms • Open Trade Policies • Lack of Enabling Platforms • Integrated Policy Networks • Immature Regulatory Responses • Policy/Regulatory Exchanges and • Lack of Institutional Framework Technical Support • Energy Security/Diversity • International Policy Cooperation • Conflicting Trade Policies • Removal of Outdated Subsidies Capaciiity Capac tty Capac y • Government Investment In Training • Technology Innovation Buiiilldiiing B u ld n g Bu d ng & Skills Development • Business Management Expertise • Established Accreditation Processes • Collaborative Educational • Institutional Capacity Building Programs • Capacity Building in Assessment • International Research Institutes Tools And Performance Standards • Private Sector/Industry Collaboration • Transfer of Tools/Models for Technology/Financial Assessment Technolllogy Techno o gy Techno ogy • Technology Development Policy • National Policies for Technology Transsfer Transffer Tran er • Technology Awareness Programs Transfer. • Regulatory Reform For • Technology Transfer Co-Operative Intellectual Property Agreements. • Long Term Partnerships On • Private Sector Technology Technology Cooperation Transfer/Business Ventures • International Technology Transfer Funding Streams Joiiintt R&D Jo n t R&D Jo n R&D • R&D Policy/Priorities at National • R&D Funding For International Levels Collaboration • Innovation Culture • Integrated R&D and Technology • Resource Assessments Deployment • Alternative R&D • International Collaboratives • R&D Funding Streams • R&D Programs and Partnerships • Regulatory Foresight on Novel • Inventory on R&D Capabilities Products & Processes • International Product Standards • Product Standardization/Harmonization Fiiinance F n ance F nance • Government Funding Support • Carbon Investment – CDM • Limited Market Liquidity • Carbon Funds • Regulatory Risk • Multilateral /Bilateral Credit Lines • Lack of Enabling Frameworks • Export Credit • Attracting the ‘Kyoto Effect’ • Fiscal Incentives • Credit Risk For Private Sector • Tied Aid Restrictions • Planning and Development Hurdles • Lack of International Investment • Fluctuating Currencies Trade • Conflicting Government Trade • International Law Reform Barriers Priorities, particularly between new • Subsidy Reviews & existing industries • International Grid System Access • Grid Access • World Trade Organization (WTO) • Access to Global Markets Tariff Reform – Doha Round, Conclusion Of Multilateral Trade Negotiations • International Standards
RENEWABLES 2005 BACKGROUND REPORT PAGE 53importance of private sector involvement in bilateral assistance programs also include policyrenewable energy development, providing components.examples of successful policy measures toencourage private sector participation. Finally, Since Bonn, a number of developing countriesinternational collaboration in the policy area have launched major policy initiatives and/orshould contribute to efforts aimed at combating programs that will inform decision-making.the negative effects of climate change, and These include development of the Chinaevaluate the effect of international energy and Renewable Energy Law and small hydroenvironmental agreements on renewable energy resource assessment program; improvedpolicy (giving special attention to the United planning for integration of renewable energy intoNations Framework Convention on Climate rural electrification in the Philippines; the IndiaChange, UNFCCC, Kyoto Protocol and the Ministry of Non-Conventional Energy Sourcesflexibility mechanisms JI and CDM). (MNES); wind resource assessment program; etc. Sharing this information with other developed Textbox 6.2 South-South Policy Collaboration: and industrialized countries will help to African Microhydro Knowledge Network further the global experience base. The African Microhydro Knowledge Network provides both a Many developing countries face regional example of policy collaboration and a potentially replicable problems in formulating effective model for similar action in countries or regions in which like conditions prevail. policies to make available energy to AMKN was launched in April 2005 as a capacity building facility, rural populations, due to a lack of intended to provide a forum for the sharing and discussion of relevant knowledge and experience. policies and experiences in developing microhydropower in sub- The African Microhydro Knowledge Saharan Africa. By pooling knowledge and experiences, the 20 Network (AMKN) demonstrates the nations involved are enhancing microhydro policy development. ability of international collaboration to The AMKN is particularly significant as an example of “South- overcome barriers to effective policy South” international collaboration. development. Another significant policy development example is the EU Commission’s Green-X project 2005.REN21 represents a strong foundation for This project has developed a model to assesscollaborative policy development. Its goal is to learning curves and costs across the availableallow the rapid expansion of renewable energies renewable energy technologies and determinein developing and industrial countries by level and types of appropriate price signals thatbolstering policy development and decision- can be introduced to ensure growth at the lowestmaking on international, national, and sub- socio-economic cost. This model could be usednational levels. REN21 helps create an to assist many countries.environment in which ideas and information areshared and cooperation and action areencouraged to promote renewable energy Capacity Buildingworldwide. The REEEP Sustainable EnergyRegulators Network is another example of a As Chapter 5 discussed, fulfillment of themechanism for international policy collaboration. potential of renewable energy is constrained,Other vehicles include the GVEP knowledge particularly in developing countries, from aexchange service line which includes a policy persistent lack of capacity. In the area ofcomponent; the Global Network on Energy for international collaboration, increasingSustainable Development; the World Bank, knowledge of and access to renewable energywhich continually reviews policy measures and information and analytic tools that can informtheir effects in countries where they operate; the government and private sector decision makers isWorld Bank’s Energy Sector Management an important need. Specific areas for supportAssistance Program (ESMAP) that recently include greater access to: resource assessmentdeveloped a renewable energy toolkit that data and tools for Geographic Informationincludes policy information; and the IEA System (GIS) analysis; input on standardizedRenewable Energy Technology Development power purchase agreements; decision supportImplementing agreement that was announced in software; and current technology cost andBonn and recently formalized. Numerous performance data. Analytical tools include the Solar Wind Energy Resource Assessment
PAGE 54 RENEWABLES 2005 BACKGROUND REPORT(SWERA), RETScreen, and the Homer and generation and other economic developmentVIPER economic analysis models developed by priorities.NREL.Information sharing and development of Technology Transfer, Diffusion, andnetworks among multiple stakeholders should Industrial Developmentalso be an important focus of collaborativecapacity building initiatives. In emerging The promotion of renewable energy forrenewable energy markets, particularly, lack of sustainable development depends upon access toinformation and familiarity with renewables environmentally-sound and appropriateoptions can constrain markets. A growing technologies, particularly in developing countries.number of capacity building initiatives seek to Efforts to facilitate technology acquisition inaddress this by disseminating information and developing and transition countries should buildbuilding networks among diverse potential upon the relative strengths of each partner. Forstakeholders. Some efforts, such as China’s example, countries from the North frequentlyefforts to standardize and promote the integration (but not always) have advanced technology andof solar water heating systems in building design, financial and human resources. Countries fromhave shown that establishing linkages between the South, on the other hand, can often offerdevelopers, manufacturers, designers (architects), lower production and installation costs, andand governments can create or expand markets strong natural renewable energy resources.for the benefit of all. In addition, enterprise These strengths can be shaped into significantdevelopment approaches that cultivate international collaboratives that maximizeentrepreneurs, through seed capital and business mutual gains.skills training to provide renewable energyservices, have opened new Textbox 6.3 Excerpts from the G8 Summit Climate Changemarkets for previously Action Plan 2005underserved populations. 10. Reliable and affordable energy supplies are essential for strong economicA number of organizations growth, both in the G8 countries and in the rest of the world. Access to energysuch as GVEP, ESMAP, is also critical for poverty alleviation: in the developing world, two billionUNDP, UNEP and other people lack access to modern energy services.national and international 11. To respond to the scale of the challenges we face, we need to diversify ourorganizations have worked energy supply mix, including increased use of renewables.to build energy capacityamong energy-poor rural Specifically, on renewable energy…populations around the 16. We will promote the continued development and commercialisation ofworld. This has included renewable energy by:important programs (c) working with developing countries to provide capacity-buildingdesigned to strengthen assistance, develop policy frameworks, undertake research and development,links between stakeholders, and assess potential for renewable energy, including bioenergy.including entrepreneurs,consumers, and consumerorganizations. In particular,training programs have been held targeting The renewable energy field involves a greatcommercial banks, micro-credit organizations, variety of technologies and applications. Theenergy service providers, and others. development of markets depends, in part, on the renewable energy resource available in differentFor capacity building efforts to maximize their locales. Furthermore, production costs andsuccess, it is essential that multiple initiatives economies of scale may favor developingcontinue to build and complement each other. countries in manufacturing many renewableDonor coordination, though often challenging, is energy products. As technological innovationsan important element of building a successful are fostered, there may be incentives forfoundation for renewable energy development. international collaboration to developCapacity building should also, where feasible, manufacturing capabilities in other countries,emphasize and build upon opportunities to link depending on proximity to markets and localthe provision of renewable energy to income- enabling conditions for investment. This
RENEWABLES 2005 BACKGROUND REPORT PAGE 55suggests that there may be significant potential transfer to enable reductions in emissionfor renewable energy industry growth in intensity and includes renewable energy.developing countries, as well as industrializedcountries, and that there will be considerable China, India and Brazil, as well as some otherpotential for South-South, as well as South- developing countries, have each made exemplaryNorth trade and technology transfer. As some efforts to employ renewable energy as theycountries become increasingly concerned about develop. International initiatives such as thedependence on imported oil, for example, they ones above could help to escalate these efforts,are exploring ways to cooperate with other and play a significant role in deploying advancedcountries on a regional basis in the development renewable energy technologies in the Asia-of joint renewable energy industries. Pacific.The CDM of the Kyoto Protocol is an emerging Future efforts in renewable energy technologyvehicle for supporting the diffusion of renewable diffusion should consider initiatives driven byenergy technology between developed and multilateral and bilateral country anddeveloping nations. The CDM offers a fast-track development agencies focusing on developingfor small-scale renewables projects. It can countries, especially the less developed countries.provide a framework for promoting the Such initiatives should be comprehensive andacquisition of renewable energy technologies on include capacity building, market development,a project scale, as well as allowing for the technology information dissemination,continued use of the CDM to reduce emissions intellectual property protection, and financingand promote sustainable development. components to ensure successful and sustainable technology utilization.Multilateral initiatives, such as GVEP, REEEP,the IEA Climate Technology Initiative, the JREC, Similarly, multi-stakeholder collaborative effortsand others, as well as multilateral development that facilitate technology diffusion to emergingbanks and financial institutions, offer vehicles market economies and developing countriesfor promoting technology diffusion. Within the where commercial market opportunities exist,Asia-Pacific region, APEC contributes pivotal should be considered. Such initiatives shouldcollaborative processes on energy, with focus on increasing the scope of the technologyparticular relevance to renewable energy through transfer process to include SMMEs, large multi-the Energy Working Group and the Expert national energy companies active in theGroup on New and Renewable Energy renewable energy sector such as BritishTechnologies. The APEC Forum, which focuses Petroleum, Shell, General Electric, etc., andon advancing trade between member economies, other stakeholders such as research institutionscould become a significant collaborative process and NGOs.to increase the deployment of renewable energytechnologies. A new vehicle that identifies Such initiatives should also focus on policy andtechnology transfer as a particular focus is the financial aspects of technology diffusion, such asAsia-Pacific Partnership on Clean Development intellectual property right issues, and financialand Climate (APPCDC) between the US, Japan, support for technology transfer mechanisms likeAustralia, China, India and Korea (see Textbox licensing, turnkey, or equipment supply.6.4). The APPCDC advocates technology Textbox 6.4 Vision Statement of Australia, China, India, Japan, the Republic of Korea, and the United States of America for a New Asia-Pacific Partnership on Clean Development and Climate The partnership was designed to collaborate on the promotion and creation of an enabling environment for the development, diffusion, deployment, and transfer of existing and emerging cost-effective, cleaner technologies and practices, through concrete and substantial cooperation so as to achieve practical results. Areas for collaboration may include, but not be limited to: energy efficiency, clean coal, integrated gasification combined cycle, liquefied natural gas, carbon capture and storage, combined heat and power, methane capture and use, civilian nuclear power, geothermal, rural/village energy systems, advanced transportation, building and home construction and operation, bioenergy, agriculture and forestry, hydropower, wind power, solar power, and other renewables.
PAGE 56 RENEWABLES 2005 BACKGROUND REPORTResearch, Development, and such as biofuels, hydrogen, fuel cells, energyDemonstration storage technologies, and distributed generation systems; (2) research on integrating renewableAlthough renewable energy technologies have energies with lower utilization characteristicsmade impressive progress since their entrance into large-scale power systems, and making useinto energy markets, and some of the of renewable energy systems for efficiency andtechnologies are now economically competitive, demand-side management initiatives; (3) RD&Dmore RD&D remains to be done to improve on regulation methodologies and approaches fortechnology performance and cost reduction. G8 development of renewable energy; and (4) socio-leaders at Gleneagles urged increased economic research on the possibilities forcommitment to international cooperation in and integrating renewable energy into nationalcoordination of RD&D into energy technologies, development programs aimed at achieving thethereby building upon the Science and MDGs, as well as research on the developmentTechnology Action Plan devised at the 2003 G8 benefits of large-scale renewable energySummit in Evian. The final communiqué from deployment. Also, renewable energy resourcethe Gleneagles Summit suggests the assessments should be directed towards anestablishment of an inventory of existing RD&D improved understanding of how best to takecollaborations, and their differing levels of advantage of specific and local conditions, aseffectiveness. This would guide governmental well as specific capabilities of the parties, inefforts to build effective RD&D partnerships, order to prioritize the development andand would be particularly valuable to developing deployment of renewable energy on a globalnations in their initiation of collaborative scale.programs to advance renewable energy and othertechnologies necessary for sustainabledevelopment. Finance and TradeTo support the development of alternative Meeting the renewable energy needs ofsources of energy supply while improving developing country markets will be a costlyenergy efficiency, IEA created a flexible endeavor. As noted in Chapter 4, satisfying themechanism that allows interested governments Bonn IAP commitments will involve funding ofand organizations to pool resources and research approximately US$10 billion per year, and thisthe development and deployment of particular represents only a portion of the activities intechnologies—called Implementing Agreements. renewable energy today.For 30 years, the Implementing Agreements havebeen a fundamental element among IEA Member The bulk of the funding for renewable energyand non-Member countries in facilitating projects in developing countries will come fromadvancement of renewable energy technologies. self financing (national governments and localToday, there are eight dedicated technology financial institutions), as well as the privatedevelopment programs covering all renewable sector. MDBs and ECAs bring limited directenergy technology options. In fulfilling the G8 resources for energy investments (e.g., MDBsGleneagles Program, the IEA is committed to and ECAs spend roughly US$4 billion per yearcollaborating with all countries, international for ALL power sector investment, not justorganizations, civil society, non-governmental renewables). Nonetheless, these organizationsorganizations, business communities, have an enormous role to play in using theirinternational financial institutions, as well as its funding and influence to leverage public andown extensive energy technology network on private sector funds for renewable energypromoting networks for renewable energy investments in developing countries.research and development. Organizations such as the World Bank, regionalThere is significant potential to carry out joint development banks, and ECAs have allRD&D projects in renewable energy technology expressed their commitment and support forthrough collaborative efforts in and amongst renewables; however, expanding and deepeningindustrialized countries, countries in transition, their activities will help to accelerate marketemerging economies, and LDCs. Some of the scale up. Efforts aimed at broadening the depththemes on which the joint RD&D could focus and breadth of financial instruments will beinclude: (1) research on emerging technologies useful to reduce investor risk, such as guarantees,
RENEWABLES 2005 BACKGROUND REPORT PAGE 57partial guaranties, loan syndication, equity, regulations (particularly for vehicles); andinsurance, etc. MDBs could also explore how to renewable energy quotas. These and other issuesincorporate renewable energy into sectoral and that stem from international law and areadjustment lending programs. By finding amenable to and appropriate for internationaleffective ways to collaborate more closely with collaboration are given in Textbox 6.5.private banks, insurers, investors, foreign directinvestment (both in project finance and equity Ultimately, the ability to attract financing isinvestments), official development assistance, largely dependent on the local enablingand very importantly developing country conditions and market potential. Generallygovernments, MDBs and ECAs can play an speaking, countries which have relativelyimportant catalytic role in increasing the liberalized, transparent, and stable markets forinvestment base for renewable energy. foreign investment are more likely to attract foreign direct investment than those which doAreas for strengthening international not. It is thus important for technical assistancecollaboration could include technical assistance and public financing initiatives to include policyand support targeting finance and banking components that can help develop thesectors in host countries for effective appropriate market conditions. Where feasible,participation in the development of renewable public-private partnerships may be utilized toenergy markets. Such efforts could cover the stimulate or expand markets for renewablebusiness prospects of renewable energy projects, energy, including areas that offer less promiseappraisal and due diligence tools, and for the private sector to invest alone.approaches; project financing and venturecapital; risk sharing support; and micro financing, A variety of innovative financing options haveconsumer lending, and awareness. Collaboration been developed for application in developingon the application and use of flexibility countries to promote energy sector development.mechanisms under the Kyoto Protocol, and their These include microcredit, seed capital for small-linkages to renewable energy projects, is also and medium-size enterprises, and larger-scaleimportant with special attention to JI and CDM. sustainable energy funds. Additional emerging sources include dedicated government cleanAdditionally, the Renewable Energy and energy funds, such as those established by someInternational Law Project (REILP) notes that US states, and global development bonds, agovernment support for renewables through the securitized instrument that could allow investorsemployment of tax and regulatory powers and to invest in renewable energy projects andthe provision of subsidies is often essential for companies in developing countries. Furthermore,the establishment and development of renewable the growing interest among some largegeneration in markets dominated by fossil fuel institutional investors, such as pension funds, inand nuclear power generators. There remains investing in sustainable development, representsuncertainty as to whether such policies could a largely untapped funding source for renewableconflict with rules of the World Trade energy. More effective collaboration of theOrganization (WTO), or whether there are international and developing countryunutilized opportunities within WTO law to communities around the issues of renewablefoster renewables (both for North-South and energy finance and trade, with a specificSouth-North trade). Continued international emphasis on how to better engage the privatecollaboration needs to be directed to minimize sector, enhance local liquidities, and expand theconflict with and maximize support from trade menu of financing options will be essential toissues such as: excise and taxation measures; significantly increase renewable market share.non-fiscal regulatory measures; subsidies; accessto grid and transmission; standards and
PAGE 58 RENEWABLES 2005 BACKGROUND REPORT Textbox 6.5 From Renewable Energy and International Law Project (see www.reeep.org)Issues that relate to international collaboration include: • Due to the positive environmental effects of RET, should WTO member countries should consider placing RET in the “green” box, whereby member countries identify subsidies that the other parties agree to refrain from challenging? • How electricity generated from renewable energy is different from that generated from fossils fuels, both in terms of environmental effects and promoting energy security. This difference needs to be taken into account by those applying and interpreting international trade law. Trade rules on non-discrimination do not require that different situations be treated the same, and a proper understanding of how renewable energy is in fact different will lead to interpretations of trade law that could undermine legitimate governmental efforts to promote these technologies. • How rights of navigation will inevitably impact states that wish to promote development of an offshore generation capacity from wind. • How international agreements address the handling of waste and the impact of this on renewable energy development (for example, by constraining the use of elements used in the manufacture of photovoltaics or regulating waste sawmill co-products that are used for bioenergy; these factors will impact technology choices). • How international agricultural agreements interact with the development of the biomass market. • How international investment agreements could best be used to promote renewable energy projects and the formation of a global market for tradable renewable energy credits. • Given the administrative and funding difficulties of the CDM Executive Board and legal (and investment) barriers facing the CDM itself, both at the international and national levels, is the CDM of the UNFCCC being optimized for the development of renewable energy, and if not, what changes need to be effected? • How measures imposed to protect wildlife under treaties such as the Conventions on Biological Diversity and on Migratory Species, as well as the Ramsar Convention, work with wind energy development. • To help meet both environmental and development goals of the DOHA Round, it is critical that renewable energy be defined as both the finished products and the major components that make up those products. If tariffs are reduced only for finished RE products alone, most of the effect would be concentrated in the handful of developed countries with existing renewable energy industries. Opening tariff reductions to components would greatly increase the dispersion of economic stimulus related to major renewable development efforts. • How WTO rules on technical standards require that states base their regulations on “international standards.” Thus, international standard setting will have a very significant impact on the WTO-compatibility of renewable energy measures. This includes any international standards that define what is a renewable energy source, and norms of reliability, safety, etc. for renewable energy technologies and operations. • How the very purpose of international investment agreements (IIAs) is to support the making of new investments, such as those in renewable energy. Potentially problematic areas in IIAs include non discrimination, expropriation, and performance requirements. Opportunities to increase the use of renewable energy in new treaties in other areas (such as that to be negotiated for a greenhouse gas regime after the expiration of the Kyoto Protocol in 2012) is a major area of work. • How it is important to explore the role “soft” international law can play. Emerging legal norms and policies, guidelines and standards and other legally relevant materials arising from intergovernmental agreements and discussion, relate to and impact the development of renewable energy globally. Some legal experts feel the term itself is oxymoronic, as it is not law if not binding, nonetheless, soft law does inform policy and policy in turn informs legislation. Soft law can be the proverbial “camel’s nose under the tent.” developing/transition countries and theirImplications for BIREC 2005 development partners could take to establish new collaborative initiatives or to reinvigorateA key role of BIREC 2005 was to explore and existing initiatives. Proposed areas forelaborate measures for increased international international collaboration presented at BIRECcollaboration on renewable energy that 2005 are outlined in Textbox 6.6.strengthen and complement actions taken bynational governments. This Chapter served as abaseline for discussion on actions that
RENEWABLES 2005 BACKGROUND REPORT PAGE 59 Textbox 6.6 Enhancing International Collaboration on Renewable Energy Areas raised during BIREC 2005 for enhanced international collaboration on renewable energy included the following: • Inviting governments to contribute to efforts, bilateral and multilateral, that support renewable energy resource assessments and analytical tools to improve understanding of renewable energy market potential in developing countries and the contribution it can make to economic development. • Encouraging governments to support and expand regional collaborative solutions to advancing renewable energy development, and maximizing economies of scale and comparative advantage to mutual benefit. • Encouraging international financial institutions, and the governments that govern them, to strengthen emphasis on renewable energy within their energy and infrastructure lending programs, recognizing the multiple sustainable development benefits from renewables. • Inviting governments to emphasize the importance of sustainable energy in national development plans, including their Poverty Reduction Strategy Papers, that help guide World Bank and donor assistance programs. • Calling upon governments to increase support for joint research and development efforts for renewables. • Encouraging governments to support international collaboration efforts such as REN-21, GVEP, GNESD, JREC, and the commitment to renewable energy development within bodies such as the G-8, OECD and UN. • Inviting governments to resolve to use the WTO ministerial, CSD and other appropriate forums to determine and discuss the most effective means to use international law in its broadest sense to foster the development of renewable energy, and avoid conflicts with trade regulations. • Inviting governments to make development of renewable energy, along with energy efficiency, a special focus of the upcoming cycle of CSD-14 and -15. •
PAGE 60 RENEWABLES 2005 BACKGROUND REPORT7 Options for Enhanced Information Gathering, Sharing, Review, and AssessmentBackground energy policies and programs are crucial elements in the future development ofAt the World Summit on Sustainable international efforts to increase the use ofDevelopment, Heads of State and Governments renewable energies. This is particularlyadopted the Johannesburg Plan of important as renewable energy is still anImplementation. In this document (paragraph emerging field. As the industry develops, it is20e), they agreed “with a sense of urgency, to coming under intense scrutiny and the need forsubstantially increase the global share of timely, accurate data is vital for countries,renewable energy sources with the objective of investors, developers, and others.increasing its contribution to total energy supply,recognizing the role of national and voluntary Today, in the case of conventional energy, dataregional targets, as well as initiatives, where they and information on all aspects of production,exist, and ensuring that energy policies are consumption, and utilization are available from asupportive to developing countries’ efforts to wide variety of national and international sources.eradicate poverty, and regularly evaluate These include national statistical offices, Unitedavailable data to review progress to this end”. Nations Statistical Office (UNSO), IEA, the US Energy Information Administration, and others.The report of the WSSD also noted that theenhanced role of CSD should include reviewing For renewable energy however, comparable dataand monitoring progress in the implementation sources and information is limited with theof Agenda 21 and fostering coherence of exception of some OECD and developingimplementation, initiatives, and partnerships. countries. Information on the actual implementation of renewable energy policies,Participants of the Renewables 2004 Conference programs, and related commitments on a realcontributed voluntary commitments to an time basis, including barriers and opportunitiesInternational Action Program and further agreed encountered, has remained very limited to datein paragraph 8 of their political declaration that and has not allowed a systematic and“measurable steps should be reported to the CSD comparative assessment. This lack ofand that progress should be reviewed as foreseen information constrains the potential for furtherin the Johannesburg Plan of Implementation. An progress in extending the use of renewableappropriate arrangement for follow-up should be energies.identified in a future meeting in preparation forCSD 14/15.” A regular periodic review of implementation constitutes good practice in the development andBIREC 2005 provided an opportunity for sharing elaboration of any significant renewable energyinformation and lessons learned, identifying policy or program—as in any policy. Itoutstanding data gaps and issues, and exploring encourages implementation and enables policiesreporting and review arrangements as follow up and programs to be adapted so as to enhanceto WSSD and Bonn. their effectiveness, for example by addressing gaps and barriers that prove to be of importance during implementation or by exploitingImportance of Information Gathering, particular opportunities that emerge duringSharing, and Periodic Review and implementation. As long as no effectiveAssessment mechanisms for reporting and review exist, efforts to increase the use of renewable energyCreating meaningful arrangements for regular miss out on an opportunity and will not realizeinformation gathering, sharing, reporting, and their full potential.review on the implementation of renewable
RENEWABLES 2005 BACKGROUND REPORT PAGE 61International information gathering, sharing, • Information should be sought from a rangereporting, and review on various aspects of of stakeholders, reflecting the breadth andrenewable energy offer a number of benefits: diversity or organizations involved in the design, development, and implementation of• Provides industry with up-to-date renewable energy policies and programs. information on the status of renewable These include developing and industrialized energy research, development, country governments (including demonstration, and commercialization, representatives from energy, financing, and including costs, benefits, and applications; cross sector ministries of agriculture, water,• Supplies investors with information on the health, education, rural development etc risks, rewards, and risk mitigation where energy is required), private firms, instruments associated with renewable financiers, NGOs, academia, consumers, and energy investments; utilities;• Encourages effective implementation of • Information reviews should be facilitative, commitments and actions; cooperative, consensus oriented, non-• Provides policy makers and regulators with judicial and supportive of the efforts the range of policy options available for undertaken by governments and other actors advancing renewable energy technologies, to be reviewed; as well as lessons learned in implementation. • Data collection, analysis, and review should• Identifies practical steps towards making be conducted in an efficient and effective existing policies and programs more manner, with costs kept to a minimum; and effective. • With a view to the given institutional• Provides access to an expanded pool of economy and efficiency, reporting and knowledge and expertise than is available at review should also be as lean as possible. the local or regional level;• Provides access to financial assistance for program and project support; Information and Assessment Needs• Offers a means for assessing progress on renewables at a national, regional, and There are a number of areas in the renewable global level by countries and other relevant energy field that would benefit from further actors; analysis and review. These include, but are not• Provides access to technical and analytic limited to: tools for program and project design; and • JPoI and IAP Commitments: Progress• Provides access to methodologies for reviews on JPoI and IAP commitments harmonizing data systems. would be useful to assess results, barriers, lessons learned, and next steps. This couldThe challenge becomes how to put in place include results of national governments thatmechanisms for renewable energy information made commitments under the JPoI, Type-2gathering, sharing, reporting and review that are Partnerships launched at WSSD, Bonn IAPtimely, meaningful, and have the buy-in and commitments, and other voluntarysupport of the international community. commitments that have been made in the field of renewable energy. • Global Market Status: Tracking of on-goingPrinciples for Information Gathering, renewable energy activities and progressSharing, Reporting, and Review across countries would help to better document industry status and global marketMechanisms for international information share. This could be done on a routine basisgathering, sharing, reporting, and review should and conducted in a standardized manner foradhere to a number of principles. These include: aggregation and analysis. • Topical Issues: There are a range of topical• Information inputs, analysis, and reporting issues that could be evaluated further to should be voluntary in nature; advance renewable energy market scale up• Information provided should be eligible for and market share, for example: public domain, and thus available for o Assessment of policy measures for dissemination on a transparent basis; addressing specific barriers to
PAGE 62 RENEWABLES 2005 BACKGROUND REPORT technology deployment of individual o Assessment of successful renewable renewable energy technology options energy programs for poverty reduction (solar, wind, biomass, geothermal, and their contribution to the MDGs, etc. hydro, etc). • Geographic Priorities: Stakeholders, o Updates and assessments of new and including governments, financiers, NGOs emerging investment and financing and others may be interested in coming sources for renewable energy projects together at a regional, state, and/or local and programs. level to review issues, options, and barriers o Cost and performance information by to renewable energies in their locales. technology option. • Targeted Groups: There may be support for o Current information on renewable convening specific types of individuals on energy R&D progress. areas mutual interest, including policy o Case studies and lessons learned in makers, financiers, entrepreneurs, renewable energy deployment. technology developers, utilities, the research o Tools, models, and methodologies for community, etc. analyzing renewable energy. o Assessment of renewable energy experiences by application, e.g., grid, off-grid. Textbox 7.1 International Reporting on Renewable Energy The collection of relevant data is an important precondition for national decision making. Many national and international statistical offices collect data on commercial and non-commercial development and use of energy resources. During the past decade, efforts have been stepped up to include the diverse range of renewable sources of energy in the calculation on local and national energy balances. Many national organizations contribute to international efforts of expanding existing databases and energy balances to include differentiated data on the use of renewable energy. Renewable energy can be derived from a great variety of energy sources using different energy technologies. Aggregation of national data at regional and global levels presupposes data comparability which can be enhanced through international cooperation. The Statistics Division of the UNDESA publishes periodical energy statistics yearbooks compiling all available national data on commercial energy production, trade and consumption. With regard to renewable energy, available historic data only include hydro and geothermal energy. However, forthcoming UN statistical data on electricity production will also include other sources of renewable energy. IEA compiles and publishes comprehensive data and analysis primarily based on national data provided by its OECD member countries, but also including energy statistics provided by non-member countries. Since 2002, IEA publishes an annual report entitled Renewables Information with information on renewable energy use in OECD countries. Furthermore IEA is in the process of setting up a Renewable Energy Policies and Measures Database covering IEA member countries and some developing countries, in particular those from the Johannesburg Renewable Energy Coalition. The EIA compiles and publishes comprehensive statistical data and analytical reports on recent, on-going and projected trends in energy production and utilization. EIA publications include detailed data on the utilization of renewable sources of energy for most industrialized countries. Information on developing countries is frequently not available. Renewable energy is derived from a great variety of different sources. The methods used in data collection can vary considerably between countries and organizations. All of the organizations mentioned above offer assistance aimed at harmonizing methodologies in order to ensure a reliable and comparable data collection and analysis at national regional and global levels. Continued international cooperation on improving data collection on renewable energy use at all levels and enhancing the comparability of data will be essential to provide energy policy decision makers as well as investors in energy with a sound basis for decision making. Since 1999, a group of representatives and experts from several international organizations have collaborated under an international initiative to define a set of Energy Indicators for Sustainable Development. This will include the role of renewable energy and other energy technologies on indicators for sustainable development.
RENEWABLES 2005 BACKGROUND REPORT PAGE 63Mechanisms for Information Collection, ADB, AfDB, IDB, and EBRD could alsoReporting, and Review play a more important role in renewable energy information collection and review.There are a variety of mechanisms for collecting, • Global Initiatives. Globally, there are areporting, and reviewing information on number of organizations and initiatives thatrenewable energy progress. Examples include: can be used to enhance information collection, analysis, and review. These• Commission on Sustainable Development. include IEA, the UN (including UNDP, CSD has in place mechanisms for national UNEP, UNIDO, UNDESA, UNESCO, FAO, reporting on JPoI commitments. These WHO, etc), the World Bank Group, GEF, could be enhanced/strengthened as needed etc. to better meet stakeholder needs for analysis and review. For example, CSD could These activities can be conducted individually or include progress reporting on renewable in collaboration with others. energy every 2-4 years in combination with regular national reporting, and/or entrust the CSD secretariat or another body with the Process for Information Reporting and task of preparing a Global Progress Report Review on renewable energy every two years and report out at the CSD session. Type 2 Reporting partnerships could be invited to submit The establishment of a meaningful process for reports with the same frequency as the review of progress towards increasing the use governments. of renewable energies requires that sufficient• Partnerships. In addition to improvements information is generated and becomes available. above, CSD could also supplement its The availability of sufficient information is a activities by commissioning an external basic requirement of any policy or program group for more detailed reporting and review, and is necessary to ensure effective review of renewable energy activities by implementation in general. Only with countries and others. Partnerships emerging appropriate information can gaps be identified from WSSD/Bonn could provide a and strategies for further progress explored in a mechanism for enhanced review and meaningful way. Therefore, information is also reporting, for example, REEEP and REN21. a prerequisite and creates opportunities for• National Level. National governments and demonstrating the need for, and actually other key stakeholders should conduct attracting, targeted financial and technical detailed assessments of their activities and assistance. progress at a national, state, and/or local level in order to learn from and advance Periodic self-reporting is the most appropriate progress on renewable energy. The results and promising basis for generating the necessary of these assessments should be shared with information on implementation of renewable CSD and others. energy policies and the international• Regional Initiatives. There are a variety of commitments to expand the use of renewable organizations at the regional level that could energies. To date, no appropriate process has take the lead on aggregating, reviewing, and been established that would allow for reporting country level renewable energy international comparisons, a general review, and information on a routine and standardized a systematic assessment of progress. Periodic basis. This will facilitate sharing of self-reporting is an important and proven experiences and knowledge on common practice for generating the necessary problems and strengthen regional informational basis in many relevant cooperation. Regional entities could include international processes. Providing for a feedback the Organization Latino Americana de loop in the reporting process that allows for Energia (OLADE) or OAS in Latin America, clarifying data and information submitted APEC or ASEAN in Asia, the New enhances the accuracy of reported information. Partnership for African Development Since not only countries but also non-state actors (NEPAD) or African Energy Policy (including international organizations, private Research Network (AFREPREN) in Africa. entities, and NGOs) have entered into relevant Regional development banks, including
PAGE 64 RENEWABLES 2005 BACKGROUND REPORTinternational activities, required reporting by sources of information. Ideally, reporting couldboth governments and other stakeholders would largely consist of the collection and compilationseem to be indicated. of existing reports. For example, monitoring activities constitute a portion of many actions Periodicity contained in the IAP and many relevant Type-2It may be most appropriate for reporting on the Partnerships. Under real-world conditions,use and promotion of renewable energies to however, some additional effort will beoccur periodically every 2-4 years. Such a necessary—in order to ensure timely andfrequency would allow sufficient time for review, accurate reporting by a broad range of actors, alearning, policy adaptations, and feedback, while certain amount of capacity building may beensuring that available information could be required, particularly in least developedupdated and reviewed regularly so that progress countries. If necessary, an expert group could bebecomes visible timely. established to assist in the collection of data. Content of reports Review ProcessIn regard to the content of the reports, two To exploit its potential added value to the fullestpartially competing considerations must be extent possible, the review process must bebalanced: based on excellence, expertise, and swiftness.• On the one hand, the difficulties resulting Expertise and excellence are required not only to from a generally increasing burden produce high-quality review outcomes but also associated with international reporting to ensure that these outcomes can be accepted would speak in favor of a lean reporting that and used in productive ways by the actors makes use of existing information to a concerned. The review process also must be maximum extent and limits the required conducted in an expeditious way to ensure that effort as much as possible. its results can be used easily and timely so as to• On the other hand, the reports need to further improve the promotion of renewable contain sufficiently elaborate information to energies. allow for comparison and aggregation of data and to serve as a basis for review that Broad based information sources creates added value in the form of useful Reviews should ideally be based on a wide range advice and assistance. of information sources. The quality of a review is highly dependent on the quality of theFinding the right balance between these information and expertise on which it relies. Aconsiderations will require developing a clear wide range of stakeholders are interested in theand simple format for a brief but sufficiently promotion of renewable energies and possessinformative report on the basis of a more detailed relevant knowledge and expertise. In addition toconsideration of the minimum information reports submitted, the review should thereforerequired. These minimum information take into account additional sources ofrequirements would include baseline information information, including information specificallyon the situation in 2000 (or earliest possible provided by interested stakeholders (at thesubsequent year); action taken since then and in beginning of the review process as well as inparticular since the previous review (if any); the response to any preliminary findings).current situation and the effects of action taken; Depending on their availability, these additionalgaps, barriers and opportunities encountered; and sources of information may reduce the reportingplanned future action and its expected effects effort required to enable a meaningful review.(including likelihood of achieving aim/target ofaction, if any). Scope and depth of reviews The value of a review’s outcomes will depend on Resources its scope and depth. Two general approaches canEstablishing a reporting system on renewable be distinguished: a review of information wouldenergies is likely to require a certain amount of be limited to assessing the aggregate effects ofadditional resources. These additional resource reported activities for the promotion ofrequirements will depend on the extent and depth renewable energies (for example at the regionalof the information requested as well as the extent or global level). Such a review would involveto which reporting can rely and build on existing very limited costs but could not be expected to
RENEWABLES 2005 BACKGROUND REPORT PAGE 65create significant additional value. In contrast, a Resourcesreview of implementation could yield significant Overall, additional resource requirements areadditional benefits but may require some likely to remain limited. They will depend onadditional effort. Individual reviews of the the scope of the review and the institutionalimplementation of individual countries and other arrangements chosen. In the most far-reachinginitiatives/actors allow for outcomes such as variant, additional resources may in particular beadvice and assistance focused on individual required for the organization of several meetings.circumstances. Intermediate solutions include Assuming that the review process will bethe following: supported by the CSD, it may be possible to draw on existing structures to some extent (e.g.Individual in-depth reviews could be conducted secretariat services). Limited additionalfor all or certain actors on their demand; and requirements may need to be covered throughIndividual reviews could be carried out only for voluntary contributions.certain categories of actors (e.g. actorsexperiencing particular difficulties, only forcountries, etc.). Synergy and Feedback to CSDTo limit the effort required for a review of There are a variety of means for reportingimplementation and ensure against a potential progress on renewable energy back through theoverload of the review process (a) the individual CSD process. These can include:reviews of countries/actors/initiatives facingsimilar challenges could be combined or • Formal national country reports providedclustered, and (b) periodic reporting and review through the existing CSD process.of different actors could be phased so that the • Progress reporting by voluntary partnershipsreview effort is spread more evenly over the and networks.reporting period (e.g. half of all reports would be • Reports of national, sub regional, anddue every two years of a four-year reporting and regional meetings and forums regardingreview cycle). These options are not mutually renewable energy.exclusive but can be combined. For example, • Reports on multi-stakeholderindividual reviews could be conducted for all forums/activities regarding renewablecountries, distributed evenly over the reporting energy.cycle, and clustered according to similarities ofchallenges, while non-state actors could make For most of these options, reporting could beuse of individual reviews on their demand only. enhanced through external reviews by expert teams that can provide more in-depth evaluationsSuccessful formulation and implementation of of individual and aggregate process. Thesenational policies and regulations can greatly expert teams can be convened on demand bybenefit from an inclusive decision-making relevant international organizations (e.g., OECD,process and from the participation of all IEA, UN, World Bank, etc). Alternatively, aconcerned stakeholders. In some countries, self-standing expert group could be assembled toenergy policy and regulatory frameworks are conduct independent (peer) reviews ofperiodically reviewed at the national level with a country/partnership activities on a more routineview to identify and realize potentials for basis and to report to and supplement the CSDimprovement. However, there is often a reporting and review work.disconnect between energy policy and promotionof renewables, especially in developing countries. The results of the above activities could beTherefore, national decision-making processes discussed at CSD and be placed on the CSDcan benefit from international sharing of website, as well as linked to other relevantexperiences through knowledge transfer and websites operated by governments, partnerships,institutional linkages. Countries that have not and other key stakeholders. Textbox 7.2yet formulated comprehensive national provides selected examples of internationalrenewable energy promotion policies may policy review approaches, with a particular focusrequire assistance to bridge the gap between on the peer review methodology.policy and its implementation.
PAGE 66 RENEWABLES 2005 BACKGROUND REPORT Textbox 7.2 Selected Examples for International Policy Review Currently there is no or only limited experience among members of the Commission on Sustainable development on the use of peer review mechanisms; some national and international examples are given here. In his speech at the World Summit on Sustainable Development, the President of the French Republic, M. Jacque Chirac, made a commitment that France would submit its National Strategy for Sustainable Development for a peer review by other countries, following a proposal by the European Union to develop such a system in order promote the sharing of experiences. A pilot peer review project was initiated in 2004 in cooperation with the United Nations Department of Economic and Social Affairs and the European Commission (DG Environment). The peer review involved eight invited visiting experts, two each from Belgium, the United Kingdom, Ghana and Mauritius. The visiting experts represented both, governmental and non-governmental organizations. The peer review process was facilitated by the International Institute for Environment and Development and has been documented in several reports of the Ministry of Economy and Sustainable development and the Ministry of Foreign Affairs of France. The information exchange and policy dialogue has been rated very useful by the participants who recommended voluntary cooperation under similar mechanisms also among other countries and/or on selected issues of sustainable development. Various policy peer review mechanisms have been established at regional levels and among members of several international organizations. The OECD and IEA have established peer review mechanisms among respective members. Peer reviews are undertaken and published in line with the respective OECD / IEA statutes and guidelines. The periodic IEA energy policy review covers all dimension of energy policy, including the use of renewable energy sources. Peer review mechanisms have also been established under the OECD Environmental Action Program (EAP). Under this program, OECD established a Task Force for the Implementation of the Environmental Action Program for Central and Eastern Europe, Caucasus and Central Asia, with a subsidiary Regulatory Environmental Program Implementation Network (REPIN) and a REPIN Peer Review Scheme. The country of Kyrgyzstan was the first country to invite a peer review under this scheme. Upon request of the Ministry of Ecology and Emergency Situations of the Kyrgyz Republic, a peer review team comprising seven experts carried out a review mission in March 2004, and subsequently submitted its 23 page report summarizing the conclusions and recommendation of the review. The expenses of the review were covered by the EuropeAid Program of the European Union. During recent years peer review mechanisms have also been established among developing countries. The African Peer Review Mechanism (APRM) is generally considered the most innovative aspect of the New Partnership for Africa’s Development (NEPAD). The APRM is a voluntary mechanism open to all member states of the African Union. NEPAD is premised on the need for improved democratic political, economic and corporate governance and an end to conflict as preconditions for sustainable economic growth. As a result the issues of tracking and reporting on political, economic and corporate governance have featured prominently in all NEPAD and APRM documentation as an integral part of the partnership. The NEPAD secretariat appointed the United Nations Economic Commission for Africa, and the African development Bank to prepare indicators and benchmarks for the operationalization of APRM. Thus far, 22 African countries have joined and participate in this regional peer review mechanism. The policies reviewed under APRM do not directly relate to energy or renewable energy, but the functioning of the mechanism may be studied by interested countries and organizations intent on establishing similar voluntary mechanisms of information sharing pertaining to other issues of sustainable development.Implications for BIREC 2005 BIREC 2005 also explored mechanisms forBIREC 2005 provided a forum for verifying the improving information reporting and review. Inimportance of continued and expanded efforts on this regard, participants invited the Commissionrenewable energy information collection and on Sustainable Development to consider ansharing. During the meeting, discussions effective arrangement for reviewing andexamined the data gaps and barriers, with assessing progress towards substantiallyparticular emphasis on the areas of policy, increasing the global share of renewable energyfinance, and capacity development discussed in as foreseen in the Johannesburg Plan ofearlier chapters of this report. Implementation. It was agreed that this would
RENEWABLES 2005 BACKGROUND REPORT PAGE 67provide a long term prospective and encourage energy technologies. The review would also beprompt action. Such periodic review could offer useful in addressing the link between energy andopportunities for enhanced national, regional, the Commission’s biannual thematic cluster.and international cooperation on renewable Finally, it was noted that voluntary reportingenergy for sustainable development that could could be enhanced through inputs from relevantlead to more favorable environments for international organizations, partnerships, andtechnology transfer and accelerated networks.commercialization of innovative renewable
PAGE 68 RENEWABLES 2005 BACKGROUND REPORT8 Conclusions and Next StepsRenewable energy technologies have a research, development, and demonstration tosignificant role to play in improving the lives of in order to drive down costs for thepeople around the world. These technologies technologies; enhance product and systemprovide modern energy services that contribute performance, reliability, and efficiency; andto greater employment and income opportunities, expand the base of cost competitive end usetechnological advancement, cleaner environment, applications. This includes renewableenergy security, improved health care, secure energy RD&D for electricity, thermal,water supplies, educational advancement, equal mechanical, and refined fuel needs. It willrights and gender equality, and overall, enhanced also be important to take forward renewableeconomic and social well being. energy technologies like solar, wind, and modern biomass, to the next generation inToday, renewable energy technologies represent order to advance the learning curve, achievea fast and growing industry. With some cost breakthroughs, address outstandingexceptions however (e.g., China, India, Brazil), technical issues, and increase scale ofthe major markets for these technologies are in production. BIREC 2005 raised visibility ondeveloped countries that have put in place the the need for more RD&D funding; thepolicy and regulatory frameworks necessary to importance of ongoing dissemination ofencourage their use. Developing countries, information on technology performance,where the energy demand is the greatest, have costs, and market potential; and jointnot yet significantly reaped the benefits of the opportunities for RD&D both between andtechnologies. among industrialized and developing countries. Also needed is further researchAt WSSD, Heads of State and Governments and development on "low tech" applicationsfrom across the world committed to substantially in the field (water pumping, waterincreasing the global share of renewable energy purification, etc.), and productive useas part of total energy supply–with a sense of applications, in order to expand the benefitsurgency. This message was reaffirmed and of renewable energy, including to the ruralreinforced at the Bonn Renewables 2004 poor.Conference through the Bonn Declaration andInternational Action Plan. • Improve Policy and Regulatory Frameworks. Securing political commitment and puttingAccomplishing this goal of increased market in place effective policy and regulatoryshare requires the active participation and frameworks are crucial elements to improveengagement of many more countries around the the investment climate for renewable energy.globe, including those throughout the developing Governments have a role to play at allworld. The challenge is how to support these levels—federal, state, and local—and therecountries in fulfilling their commitment to are a range of policy options that have beenexpanded renewable energy growth and market applied and from which lessons are beingpenetration. learned. As many of these policies are still relatively new in their application, and fieldThis report has outlined a number of priorities results limited, BIREC 2005 provided anfor the international community in accelerating opportunity to share experiences on policythe scale-up of renewable energy, particularly in approaches, tools, and techniques; discussdeveloping countries. It also identified the pros and cons of various options; and furtherpotential role for BIREC 2005 in moving these the body of knowledge on best practices.priorities forward. Proposed actions include: • Financing Facilitation. Finance and• Technology RD&D. Continue and investment are essential ingredients in the accelerate investments in technology growth and development of renewable
RENEWABLES 2005 BACKGROUND REPORT PAGE 69 energy for industrialized and developing focus on capacity building and technical countries alike. As the industry matures it assistance, joint R&D, technology transfer, will be increasingly important to expand the reduction of trade barriers, and investment scope and breadth of financing sources and and partnership. It identified broad-based instruments, both locally and internationally. areas for cooperation including North-South, More creative leveraging of public and South-South, and South-North. private sector resources will be needed to meet the financing requirements of the • Mechanisms for Reviewing Progress on renewable energy industry, including ODA, Increased Use of Renewable Energy. GEF, and carbon financing. For developing Chapter 7 outlined options for reviewing and countries, financing sources will be sought reporting progress on renewable energy, not only for larger scale grid connected including JPoI commitments at WSSD and projects, but also for off grid and rural the Bonn IAP. At BIREC 2005, participants projects that may involve SMME and end- reviewed existing arrangements for user finance. BIREC 2005 offered a information collection and sharing and medium for investors, developers, explored mechanisms for periodic review governments, and the donor community to and reporting on renewable energy progress. discuss renewable energy financing needs As an outcome of BIREC 2005, participants and issues and further accelerate the capital invited CSD 14 to consider an effective formation process. arrangement to review and assess progress toward substantially increasing the global• Capacity Strengthening. For renewable share of renewable energy. The review energy markets to grow, capacity would be useful in addressing the link strengthening is needed in all aspects of between energy and the Commission’s project and program design, development, biannual thematic cluster, and voluntary implementation, and operation. Capacity reporting could be enhanced through inputs development is a prerequisite for from relevant international organizations, governments, private firms and partnerships, networks. entrepreneurs, financiers, developers, academia and for industrialized and In conclusion, the opportunities for renewable developing countries alike. Areas where energy are enormous and virtually untapped, and capacity strengthening is most needed countries across the world have committed to include technology RD&D, deployment, work together on increasing the global market marketing, financing, operation, and share of the technologies. BIREC 2005 provided maintenance; policy formulation, a timely forum to share experiences on implementation, and regulation; business renewable energy development, exchange views planning and development; and consumer on policies and approaches, explore financing outreach and awareness. Capacity mechanisms, promote international cooperation, requirements differ across developing and and determine how to monitor and measure industrialized countries given their varying success. The beneficiaries of BIREC 2005, stages of technology advancement. BIREC however, will be more than those present in the 2005 helped to frame capacity building Great Hall of the People on November 7-8, 2005, priorities by various countries and but will extend to those recipients of clean, constituency groups and explore modern renewable energy services that now have mechanisms and means for addressing these. a better quality of life and livelihood.• International Collaboration. Though each country has the lead responsibility for developing its own domestic renewable energy market, and fulfilling commitments made at WSSD towards increasing the global market share for these technologies, a role exists for enhanced international collaboration. BIREC 2005 explored opportunities and modalities for improving international cooperation, with a particular
RENEWABLES 2005 BACKGROUND REPORT PAGE 71Appendix BEIJING DECLARATION ON erodes environmental sustainability at the RENEWABLE ENERGY FOR local, national, and global levels. SUSTAINABLE DEVELOPMENT 5. We also note with concern that recent trends1. We, Ministers and Government in the world energy market, especially the Representatives from 78 countries, having doubling of oil prices in less than two years, met at the Beijing International Renewable has increased the economic risk of relying Energy Conference 2005 (BIREC), reaffirm primarily on imported energy and a volatile our commitment to implement the outcomes world energy market. By developing local of the Earth Summit, the World Summit on sources of energy such as hydro, wind, solar, Sustainable Development (WSSD), and the geothermal and modern biomass including United Nations 2005 Millenium Review liquid biofuels, countries can create Summit, and to substantially increase with a diversified energy portfolios that are less sense of urgency the global share of vulnerable to wide price fluctuations. There renewable energy in the total energy supply, is considerable scope, for example, for as called for in the Johannesburg Plan of deploying biofuels in support of rural Implementation. development and the transport sector.2. We welcome the ongoing and future 6. Despite the growing expansion in the activities and commitments that have arisen development and use of renewable sources from the WSSD, the Bonn International of energy in developed countries, the Conference for Renewable Energies, the G-8 combined share of renewable sources in the Gleneagles Summit, and other international global primary energy supply remains small and regional initiatives that help promote and limited. Most developing countries have renewable energy. not benefited from such expansion. The international community should strengthen3. We emphasize the multiple benefits of its commitment to the scaling up of increased energy efficiency and the use of renewable energy development and use, renewable sources of energy for improving especially in developing countries. access to energy services, thereby contributing to the eradication of poverty as 7. We agree to take further actions at the called for in the UN Millenium national, regional, and international levels to Development Goals (MDGs), increasing job accelerate the market uptake of renewable opportunities, improving air quality and energy technologies and increase investment public health, reducing greenhouse gas in research and development (R&D), emissions and combating climate change, especially by developed countries, in order enhancing energy security, and offering a to enhance efficiency and reduce up-front new paradigm for international cooperation. costs. We also agree on the need for strengthened support for the4. We note with concern that more than 2 commercialization and transfer of billion people in developing countries do not technologies through North-South and have access to modern energy services and South-South cooperation. 2.4 billion people rely on traditional biomass for their basic energy needs. This energy 8. We recognize that significantly increasing divide entrenches poverty by limiting access the use of renewable energy faces a number to information, education, economic of challenges. Government policies have a opportunity, and healthier livelihoods, significant impact on attracting private particularly for women and children, and sector investment and the pace of expansion
PAGE 72 RENEWABLES 2005 BACKGROUND REPORT of renewable energy as demonstrated in energy; (4) increasing access to finance; (5) several developed and developing countries. enterprise development for sourcing, Experience has shown that successful installing, operating, and maintaining actions for scaling up the use of renewable renewable energy systems; and (6) energy, include: (1) creating supportive combining the increased use of renewable policy, legal, and institutional frameworks; energy, energy efficiency, and greater (2) securing public sector commitment, application of cleaner fossil fuel including for R&D and procurement technologies. policies; (3) leveling the playing field; (4) promoting private sector involvement and a 11. We recognize the need for making technical stronger alignment between policy assistance for renewable energy widely timeframes and timelines for investment; (5) accessible to developing countries, supporting the establishment of national especially least developing countries. The renewable energy industries including small UN system can and should play a key role in and medium enterprises; and (6) providing this regard. Its capacity and resources should access to affordable finance, including be strengthened and interagency cooperation micro-finance, and consumer credit should be enhanced in order to avoid mechanisms. fragmentation of effort. We also recognize the importance of disseminating information9. We also recognize the need for significant and knowledge, lessons learned, best financial resources, both public and private, practices, and scaling up experiences in the for investment in renewable energy and development and application of renewable energy efficiency, including the use of energy and energy efficiency. Connecting innovative financing mechanisms, such as multi-stakeholders through networks as well loan guarantees and the Clean Development as other international and regional initiatives Mechanism (CDM), and market-based should facilitate such exchanges and make instruments that can leverage scarce public information more accessible to developing funds. We are committed to creating a countries. positive investment climate to attract private capital for renewable energy. We emphasize 12. We note with appreciation the major focus the catalytic role that financial incentives on energy in the upcoming 2006/2007 cycle and higher shares of ODA can play and we of the United Nations Commission on urge International Financial Institutions Sustainable Development (CSD). We also (IFIs), including the World Bank, the note that the current global situation, Regional Development Banks, and the GEF, including a growing awareness of energy as well as individual governments to poverty in developing countries, the risk of significantly expand their investments in climate change and the important role that renewable energy technologies. We also renewable energy should play in sustainable urge IFIs and other actors to design development and energy security, the improved instruments and products to increasing number of international initiatives ensure effective blending of public and and commitments, and volatility of world private financing which should help buying energy markets, provides an unprecedented down the risks associated with renewable opportunity for addressing the strategic energy technologies. challenge of transforming our energy systems and closing the energy divide10. We further emphasize the need for enhanced between poor and rich, and between international cooperation for capacity developing and developed countries. We building in developing countries for: (1) invite the Commission to consider an strengthening national policy frameworks effective arrangement to review and assess and the integration of renewable energy use progress towards substantially increasing the into national sustainable development global share of renewable energy as foreseen strategies for poverty reduction, health, in paragraph 20(e) of Johannesburg’s Plan education, and agriculture; (2) enhancing of Implementation. This would provide a national capacity for R&D and transfer and long-term prospective and encourage prompt diffusion of renewable energy technologies; action. Such periodic review could offer (3) establishing markets for renewable opportunities for enhanced national,
RENEWABLES 2005 BACKGROUND REPORT PAGE 73 regional, and international cooperation on authorities, international institutions, the renewable energy for sustainable private sector, international industry development through, for example, associations, NGOs, civil society, women’s exchange of lessons learned and best groups, youth, and academia, and emphasize practice and a more favorable environment the importance of their continued role in for technology transfer and the rapid increasing the development and use of commercialization of innovative renewable renewable energy. energy technologies. The review could also be useful in addressing the linkages between 14. We express our deep appreciation and energy and the commission’s biannual thanks to the people and Government of the thematic cluster, and voluntary reporting People’s Republic of China for successfully could be enhanced through inputs from organizing this conference and for their relevant international organizations and generosity and hospitality. We kindly networks. request the Chinese authorities to consider reporting the outcomes and declaration of13. We welcome the participation, and the Conference to the CSD at its 14th contributions made, at the conference by session. parliamentarians, local and regional
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