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Grounding green power

  1. 1. Climate & energy PaPer SerieS 2011grounding green PowerBottom-uP PerSPeCtiveS on Smart renewaBleenergy PoliCy in develoPing CountrieSlutz weiSCher, davida wood, athena BalleSteroS, Xing Fu-BertauX
  2. 2. © 2011 The German Marshall Fund of the United States. All rights reserved.No part of this publication may be reproduced or transmitted in any form or by any means without permission in writingfrom the German Marshall Fund of the United States (GMF). Please direct inquiries to:The German Marshall Fund of the United States1744 R Street, NWWashington, DC 20009T 1 202 683 2650F 1 202 265 1662E info@gmfus.orgThis publication can be downloaded for free at Limited printcopies are also available. To request a copy, send an e-mail to Paper SeriesThe GMF Paper Series presents research on a variety of transatlantic topics by staff, fellows, and partners of the GermanMarshall Fund of the United States. The views expressed here are those of the author and do not necessarily represent theviews of GMF. Comments from readers are welcome; reply to the mailing address above or by e-mail to working PapersWorld Resources Institute Working Papers contain preliminary research, analysis, findings, and recommendations. They arecirculated to stimulate timely discussion and critical feedback and to influence ongoing debate on emerging issues. Mostworking papers are eventually published in another form and their content may be revised.about gmFThe German Marshall Fund of the United States (GMF) is a non-partisan American public policy and grantmaking institu-tion dedicated to promoting better understanding and cooperation between North America and Europe on transatlanticand global issues. GMF does this by supporting individuals and institutions working in the transatlantic sphere, by conven-ing leaders and members of the policy and business communities, by contributing research and analysis on transatlan-tic topics, and by providing exchange opportunities to foster renewed commitment to the transatlantic relationship. Inaddition, GMF supports a number of initiatives to strengthen democracies. Founded in 1972 through a gift from Germanyas a permanent memorial to Marshall Plan assistance, GMF maintains a strong presence on both sides of the Atlantic. In ad-dition to its headquarters in Washington, DC, GMF has six offices in Europe: Berlin, Paris, Brussels, Belgrade, Ankara, andBucharest. GMF also has smaller representations in Bratislava, Turin, and Stockholm.about wriThe World Resources Institute (WRI) is an environmental think tank that goes beyond research to create practical ways toprotect the Earth and improve people’s lives.about hBFThe Heinrich Böll Foundation is affiliated with the German Green Party. As part of the Green political movement it hasdeveloped worldwide as a response to the traditional politics of socialism, liberalism, and conservatism. The main tenets areecology and sustainability, democracy and human rights, self-determination and justice. HBF places particular emphasison gender democracy, meaning social emancipation and equal rights for women and men. As a green think tank and aninternational policy network, the Heinrich Böll Foundation is active in ecology, democracy and human rights worldwidewith 30 offices across the globe.transatlantic Climate Bridge initiativeThis paper would not have been possible without funding from the Transatlantic Climate Bridge, an initiative of the GermanMinistry for Foreign Affairs to connect and support those working to address the challenges of climate change, energysecurity, and economic growth at the local, the state, and the federal level in the United States and Germany.On the cover: (Left) A man works on power line from a microhydro power source to E Wi Jo village in Thailand. (Right)Tanzanian engineers and policymakers visit a solar farm in central Thailand built using Thai-made solar panels. Photos byChris Greacen.
  3. 3. Grounding Green Power Bottom-up perspectives on smart renewable energy policy in developing countries Climate & Energy Policy Paper Series May 2011 Lutz Weischer, Davida Wood, Athena Ballesteros, Xing Fu-Bertaux1Executive Summary 1Acronyms 4Introduction 5Context and Concepts 7Planning and Developing a Strategy 14Designing Generation-Based Incentives 19Creating an Enabling Policy and Regulatory Framework 34Providing Attractive Financing Options 38Building the Necessary Technical Environment 40Recommendations 42Annex: Overview of Case Study Countries 451 Lutz Weischer is a research analyst with the World Resources Institute’s Climate and Energy Program As part of theInternational Technology Policy team, his work focuses on making international cooperation more effective in developing,deploying and improving the technologies needed to address climate change Davida Wood is a project manager with theElectricity Governance Initiative at WRI Athena Ballesteros leads WRI’s International Financial Flows and the Environ-ment project, which works to improve the environmental and social decision making and performance of public financialInstitutions Xing Fu-Bertaux contributed to this paper in her capacity as a researcher in WRI’s Institutions and GovernanceProgram, where she worked on the International Financial Flows and the Environment project
  4. 4. AcknowledgmentsThe authors would like to thank the many the challenges of climate change, energy security,colleagues who helped us write this working paper and economic growth at the local, the state, andLetha Tawney provided valuable input on the the federal level in the United States and Germanysections on innovation and transmission as well The authors would like to thank Arne Jungjohannas the overall paper Clifford Polycarp provided at HBF and Thomas Kleine-Brockhoff, Thomasvaluable input on international public finance for Legge, Nigel Purvis, and Tessa Paganini at GMFrenewables as well as the entire paper James Brad- for their advice and support for the project Finally,bury, Edward Cameron, Jenna Goodward, Ruth the authors would like to thank the participants inGreenspan Bell, Jennifer Morgan, Janet Rangana- the November workshop for sharing informationthan, Neelam Singh, Shally Venugopal, and Jacob on their countries’ experiences with us, in partic-Werksman all provided comments and advice that ular Asoka Abeygunawardana, Odon de Buen,greatly improved the paper Polly Ghazi and Maggie Ranjit Deshmukh, Chris Greacen, Mark Hankins,Baron provided editorial support The research and Christina Hanley, Jasper Inventor, Suman Kumar,writing of this paper were made possible by funding Pete Maniego, Anastas Mbawala, Osvaldo Solianogenerously provided by The German Marshall Fund Pereira, Mustapha Taoumi, Hilton Trollip, Fabbyof the United States and the Heinrich Boell Founda- Tumiwa, and Neerja Upadhyaya While all of thetion North America The paper was made possible above reviewers and partners were very generousby funding from the “Transatlantic Climate Bridge,” with their time and advice, the authors alone arean initiative launched by the German government responsible for the content of this working paperto connect and support those working to address
  5. 5. Executive SummaryDEVELOPING COUNTRIES IN THE RENEWABLE which outlines a climate friendly pathway forENERGY TRANSFORMATION meeting global energy demands 3 Case study countries:In order to meet the intensifying climate challenge, Transforming the energy system on this scale will Brazilthe global energy system must undergo a funda- require significantly increased support from devel-mental transformation, with a rapid increase of India oped countries, channeled through both bilateralrenewable energy worldwide 1 Developing coun- assistance and multilateral institutions, as well as Indonesiatries are at the forefront of this challenge, since they philanthropic initiatives Our conclusions, derivedare expected to add around 80 percent of all new Kenya from a series of case studies and a comprehensiveelectric generation capacity worldwide in the next Mexico review of existing literature, suggest that donorstwo decades 2 should deploy financial support more effectively by MoroccoThe deployment of energy from renewable sources moving beyond a project-by-project approach to one that creates the right environment for invest- Mozambiqueis accelerating in developing countries, and alreadyaccounts for a higher percentage of electricity ments in scaled-up, nationwide deployment South Africageneration than in the developed world In 2008, Sri Lanka This working paper seeks to assist in this process,non-OECD nations generated 21 percent of their by identifying key components of smart renewable Philippineselectricity from renewable sources including energy policy in developing countries, focusing onlarge-scale hydroelectric power (compared with 17 Tanzania the power sector It also provides recommendationspercent in OECD countries), according to Inter- for maximizing the effectiveness of international Thailandnational Energy Agency (IEA) statistics However, support for deployment of renewable energies,this figure must more than double by 2035, to 46 drawn from these on-the-ground experiences inpercent, in order to meet the IEA’s “450 scenario,” developing countries ABOUT THIS WORKING PAPER Chapter 1 introduces the approach and method- ology taken in this paper and describes the key concepts we address The second chapter discusses what developing countries are already doing to1 The International Energy Agency’s “450” scenario describes a deploy renewable energy sources, and how theypathway to stabilize atmospheric greenhouse gas concentrationsat 450 parts per million of CO2-equivalent, which would result can be supported in scaling up such efforts It alsoin a 50 percent chance of limiting global average temperature introduces a set of principles of smart renewablerise to 2 degrees Celsius above pre-industrial levels (see IPCC,Climate Change 2007: Impacts, Adaptation and Vulnerability. energy policy to propel such a transformation,Contribution of Working Group II to the Fourth Assessment developed by the World Resources Institute TheseReport of the Intergovernmental Panel on Climate Change(Cambridge, UK: Cambridge University Press, 2007), 801) are based on insights drawn from case studies ofIn this scenario, global electricity generation from renewable existing renewable energy policies in 12 countriessources would have to increase by 285 percent between 2008 and2035 See International Energy Agency, World Energy Outlook in Africa, Asia, and Latin America (see sidebar) as2010 (Paris, France: IEA, 2010), 620-21, 652-53 well as from existing literature2 The International Energy Agency estimates that around 80percent of global electric capacity additions between 2008 and 3 This point will be further elaborated in chapter 2 In the IEA’s2035 will take place in non-OECD countries, i e in a group that “450” scenario (see footnote 1), the share of renewable energyis rougly the same as the developing world See International in electricity generation would have to increase from 17 percentEnergy Agency, World Energy Outlook 2010 (Paris, France: IEA, in 2008 to 44 percent in 2035 in OECD countries and from 212010), 620-21, 652-53 percent to 46 percent in non-OECD countries Grounding Green Power 1
  6. 6. The following five chapters each examine one key • Planning can grow more sophisticated aselement of smart renewable energy policy, discuss deployment expands; for serious scaling up oflessons learned, and identify needs for interna- renewable energy, long-term planning will betional support These cover planning and strategy necessary(Chapter 3), well-designed generation-based incen-tives (Chapter 4), an enabling policy and regula- • Planning decisions need to be based on atory framework (Chapter 5), attractive financing realistic and transparent assessment of the fullconditions (Chapter 6), and the necessary technical cost of different optionsenvironment (Chapter 7) Our findings and recom- • The planning process benefits frommendations are summarized in Chapter 8 transparency, accountability, and stakeholderBelow we define our principles of smart renewable participationenergy policy and then highlight our key find- Designing generation-based incentives (Chapter 4):ings and recommendations for each of the five keyelements of such a policy • Policymakers need to choose an appropriate incentive for their context It is important thatPRINCIPLES OF SMART RENEWABLE incentives reward actual power production, notENERGY POLICY just installationWe define smart renewable energy policy as the set • In many situations, a feed-in-tariff (FiT) is theof rules, regulations, and government actions that most appropriate generation-based incentivelead to an increased share of renewables in total to encourage private investment in renewableelectricity consumption in line with a country’s devel- energyopment objectives. Smart renewable energy policyencourages private investment, achieves its objec- • Competitive bidding can result in lower pricestives in a cost-effective way, promotes continuous and be an appropriate incentive mechanism forinnovation, and is designed through transparent, large-scale projectsaccountable, and participatory processes • Governments can increase the cost- effectiveness of renewable energy support bySMART RENEWABLE ENERGY POLICY ON THE reducing fossil fuel subsidiesGROUNDSuccessful approaches to renewable energy policy • It is important that incentives reward actualand support vary by country, but there are some power production, not just installationcommon themes and recommendations emerging • Deciding how to fund an incentive mechanismfrom the experiences made in case study countries raises political and equity challenges that mayanalyzed in this paper International support can be more easily navigated with help from thebring the lessons from these experiences to more principles of transparency, accountability,countries and scale up existing successes The participation, and capacitylessons learned from the case studies are as follows:Planning and developing a strategy (Chapter 3): • A price premium that decreases over time can drive performance improvement and cost • Official renewable energy targets are a crucial reductions first step2 The German Marshall Fund of the United States
  7. 7. • Getting the price right at the beginning, based Building the necessary technical environment on an assessment of the technology, market (Chapter 7) conditions, and resource availability, is critical • Developing, installing, operating, and for the success of a FiT maintaining renewable energy projects all require specific technical know-how • FiTs are most effective if they are set at a technology-specific rate that reflects the cost • The unique challenges renewables pose for the of generation However, in order to save scarce grid infrastructure in terms of transmission resources, they are also sometimes set at a price and intermittency need to be addressed that only reflects the cost avoided by the utility that didn’t have to produce the power itself • Scaling up of renewable energy can benefit from the bundling of renewable energy projects • Caps can be used to control the cost of an into clusters and prioritizing geographic areas incentive mechanism for new transmission planning • Combining different generation-based INTERNATIONAL SUPPORT FOR SMART incentives can also help control the cost of RENEWABLE POLICY: RECOMMENDATIONS renewable energy policy Governments in the United States, Europe, and • Incentives need to be designed in a way that other developed countries, through bilateral limits speculation by imposing penalties or assistance and multilateral institutions, can support canceling permits if no generation projects are the transformative renewable energy scale-up in built developing countries This will require the devel- opment of country-specific support packages andCreating an enabling policy and regulatory frame-work (Chapter 5) mixing and matching of a range of finance sources and tools The balance of evidence presented in this • Any generation-based incentive needs to be paper suggests that such support packages should part of a broader set of power-sector rules and include: regulations 1 Technical assistance, capacity development, • Institutions and procedures for transparent, and institution building to help developing accountable, and participatory decision- countries develop strategies, targets, and poli- making can lead to better and more cost- cies; effective decisions 2 Grant-based international public financing for • Processes should allow for periodic review and generation-based incentives to cover additional changes to the generation-based incentives if cost; necessary 3 Subsidized capital and risk mitigation toProviding attractive financing options (Chapter 6) address incremental investment needs and • Preferential financing options complement higher costs of capital; and generation-based incentives by reducing investors’ risks and addressing the high upfront 4 Technical capacity building capital needs Grounding Green Power 3
  8. 8. We hope this guide will assist both developingcountry governments in designing smart renewableenergy policy, and bilateral donors and multilateralinstitutions in supporting the scaling up of renew-able energy in the power sectors of developingeconomiesAcronymsAPERC Andhra Pradesh Electricity Regulatory IREDA Indian Renewable Development Agency Commission IRP Integrated Resource PlanBNDES Brazil National Development Bank kWh kilowatt per hourCDM Clean Development Mechanism NAMA Nationally Appropriate MitigationCERC Central Electricity Regulatory Action Commission NARUC National Association of RegulatoryCIFs Climate Investment Funds Utility CommissionersCTF Clean Technology Fund MNRE Indian Ministry of New and RenewableDBCCA Deutsche Bank Climate Change Energy Advisors MW MegawattDfID UK Department for International OECD Organization for Economic Development Co-operation and DevelopmentDTI The Department of Trade and Industry (OECD)EGI Electricity Governance Initiative PIIE Peterson Institute for InternationalEPPO Energy Planning and Policy Office, Thai Economics Ministry of Energy PPA Individual Power Purchase AgreementESMAP World Bank’s Energy Sector PROSOL UNEP Program Solaire Management Assistance Program PV PhotovoltaicEU European Union RE Renewable EnergyFiT Feed in Tariff REC Renewable Energy CertificatesGEF Global Environment Facility REED Rural Energy Enterprise DevelopmentGERC Gujarat State Electricity Commission RPS Renewable Portfolio StandardGHG Green House Gas SPP Small Power ProducerGNI Gross National Income UN United NationsGW Gigawatt UNEP United Nations EnvironmentHPPF Healthy Public Policy Foundation ProgrammeIAEA International Atomic Energy Agency UNFCCC United Nations Framework ConventionIEA International Energy Agency on Climate ChangeIPCC Intergovernmental Panel on Climate VSPP Very Small Power Producer Change WRI World Resources Institute4 The German Marshall Fund of the United States
  9. 9. 1 IntroductionThe purpose of this working paper is to identify America convened in November 2010 At thissome key components of smart renewable energy workshop, renewable energy experts from 12 Case study countries:policy in developing countries, based on on-the- African, Latin American, and Asian countries (seeground experiences The paper aims to draw Box 2) discussed their experiences with renew- Brazilrecommendations from the analysis of these key able energy policies and considered how they Indiacomponents on how international support for might be supported internationally Countries anddeployment of renewable energies can be made experts were selected with the goal to achieve a Indonesiamost effective This paper starts from the premise balance between different regions, different country Kenyathat donors and international institutions need to conditions (in terms of size and level of economic Mexicomove beyond the traditional project-by-project development) and different backgrounds (regula-approach to a smart renewable energy policy tors, academics, civil society) The case studies Moroccoapproach that creates the right environment for presented at this workshop are listed in the Annex Mozambiqueinvestments in scaled-up deployment of renewable and summaries can be accessed online at www wrienergy org/developing-country-renewables South Africa Sri LankaWe define smart renewable energy policy as the set Using lessons learned from our sample of countryof rules, regulations, and government actions that case studies, and building upon the wealth of Philippineslead to an increased share of renewables in total knowledge contained within the broad literature on Tanzaniaelectricity consumption in line with a country’s devel- renewable energy policy, the paper provides recom-opment objectives. Smart renewable energy policy mendations to bilateral and multilateral donors as Thailandencourages private investment, achieves its objec- well as international climate finance and technologytives in a cost-effective way, promotes continuous institutions on how to support smart renewableinnovation, and is developed in transparent, energy policies in client countries Policymakers inaccountable, and participatory processes developing countries can also directly apply many of the lessons identified in this paper As a nextThe analysis presented in this paper builds on step building on this research, it would be usefulongoing World Resources Institute (WRI) research to provide estimates on the needed investment toon climate finance, electricity sector governance, implement the approach suggested in this paperrenewable energy policy, international technology and to break these down by support phase, country,cooperation, and innovation 4 The recommenda- level of ambition in terms of renewables expansion,tions draw heavily on insights from a workshop etc This question is, however, beyond the scope ofWRI and the Heinrich Boell Foundation North this paper4 This paper is the result of a collaboration between several WRI We focus on the electricity sector and do notprojects The Two Degrees of Innovation project works with consider energy for transport, heating, or industrialresearchers, engineers, policymakers, and other practitionersto create the conditions for global innovation in clean energy, processes For the purpose of this paper, we definefrom research to deployment, see http://www wri org/project/ renewable energy as electricity produced frominnovation The Electricity Governance Initiative, a joint projectof WRI and Prayas Energy Group, works with sector decision- solar and wind power, tidal and wave power, smallmakers and civil society to promote transparency, accountability, hydro power, geothermal power, and biomass 5 Weand public participation in the electricity sector, see http://wwwwri org/project/electricity-governance The International Finan- concentrate on the developing world, where thecial Flows and the Environment Project works to improve theenvironmental and social decision making and performance ofpublic and private International Financial Institutions, see http:// 5 Unless otherwise noted, we do not include large hydropowerwww wri org/project/international-financial-flows as a renewable energy source in this paper Grounding Green Power 5
  10. 10. greatest growth in the energy sector is taking place, was published both to inform ongoing discus-even though similar transformations are essential sions about the most effective use of developmentin the developed world 6 The term “developing and climate finance and to expose our thinking tocountry” is used with due respect and caution The a broader audience The authors intend to refineauthors recognize that this term does not reflect a the framework presented in this paper further anduniform taxonomy and carries with it certain defi- welcome feedback and suggestionsnitional and conceptual baggage 7 Chapter 2 explains key concepts and describes theThe countries typically classified as being “devel- context for renewable energy policy globally Theoping” are highly diverse and the cases analyzed next five chapters each look at one key elementreflect some of that diversity This paper does not of smart renewable energy policy, discuss lessonsattempt to propose a model that would work in all learned, and identify needs for internationalcountries, but rather recognizes that all successful support These components are planning andpolicies will have to be context- and country- strategy (Chapter 3), well-designed generation-specific The authors do attempt to identify some based incentives (Chapter 4), an enabling policylessons learned from the analysis of successes and and regulatory framework (Chapter 5), attractivebarriers in specific countries that could inform financing conditions (Chapter 6), and the necessarypolicy choices and international support in other technical environment (Chapter 7) The findingscountries and recommendations are summarized in Chapter 8The research presented in this working paper buildson a first analysis of a limited number of casesand should be regarded as preliminary This paper6 As will be elaborated in the next chapter, the InternationalEnergy Agency estimates that around 80 percent of globalelectric capacity additions between 2008 and 2035 will takeplace in non-OECD countries, i e in the developing world SeeInternational Energy Agency, World Energy Outlook 2010 (Paris,France: IEA, 2010), 620-21, 652-537 According to the United Nations Statistical Division, there isno established convention for the designation of “developed”and “developing” countries in the United Nations system Incommon practice, Japan in Asia; Canada and the United Statesin northern America; Australia and New Zealand in Oceania;and the countries of Europe are considered “developed” regionsThe World Bank tends to avoid using the term “developingcountries” in its classification and prefers instead a four tierscheme divided into income groups These are low income coun-tries (GNI per capita of US$995 or less); lower middle incomecountries (GNI per capita of $996 - $3,945); upper middleincome countries (GNI per capita of $3,946 - $12,195); and highincome countries (GNI per capita of $12,196 or more) The Bankclassifies all low- and middle-income countries as developingbut notes, “The use of the term is convenient; it is not intendedto imply that all economies in the group are experiencing similardevelopment or that other economies have reached a preferredor final stage of development Classification by income doesnot necessarily reflect development status ” (Source: WorldBank Country Classification - http://data worldbank org/about/country-classifications )6 The German Marshall Fund of the United States
  11. 11. 2 Context and ConceptsDEVELOPING COUNTRIES IN THE GLOBAL While decision-makers in developing countriesENERGY TRANSITION recognize the contribution renewable energy canThe overwhelming majority of new electric capacity make to combating global climate change, theyto be added in the next two to three decades will be primarily pursue it for domestic reasons, in thein developing countries The International Energy context of national sustainable development strat-Agency (IEA) has calculated three scenarios for the egies 12 Renewable energy provides countries andworld’s energy future; all three show that around people with a range of benefits in a way that simply80 percent of global electric capacity additions expanding the traditional fossil fuel-based powerbetween 2008 and 2035 are expected to take place supply cannot achieve These benefits include:in non-OECD countries, a group of countries • increased energy access,roughly equivalent with the developing world (seeTable 1) The capacity to be added in non-OECD • economic development and job creation,countries over this period represents more than theentire capacity installed in OECD countries today 8 • reduced local pollution and improved health,At the same time, the global energy system is in the • increased energy supply security, andmiddle of a transition from a dependence on fossil • insulation from increasingly volatilefuels towards the use of more renewable sources In international fuel prices that are a strain on2009, renewables accounted for 47 percent of new tight public budgets and countries’ balances ofpower generation capacity worldwide 9 Developing paymentscountries play an important role in this transition,as illustrated by the many capacity targets, strate- For example, the support for small renewablegies, and policies they have implemented in recent energy producers in Thailand is driven by ayears to support renewable energy generation 10 number of policy objectives, including “fosteringMore than half of the existing renewable power rural economic development” and “reducing fossilcapacity is now in developing countries 11 fuel imports ” In Tanzania, the policy objectives are described as “addressing challenges related to low8 Authors’ calculations, based on International Energy Agency, generation capacity, expensive emergency genera-World Energy Outlook 2010 (Paris, France: IEA, 2010), 620-21, tion, blackouts, and low rural electrification ”13 The652-53 Indian Ministry of New and Renewable Energy9 See REN21, Renewables 2010 Global Status Report (Paris: provides the following rationale for pursuingREN21 Secretariat, 2010), 53 The calculation is based on datafrom the IEA, IAEA, and REN21 Measured in dollars, the renewable energy: “India’s need for secure, afford-investment in new renewable energy generation capacity even able, and environmentally sustainable energy hassurpassed fossil-fuel investment for the second year in a row in2009, see United Nations Environment Programme and Bloom-berg New Energy Finance, Global Trends in Sustainable Energy 12 REN21, GSR 2010. Nigel Purvis, Jumpstarting Global GreenInvestment 2010. Analysis of Trends and Issues in the Financing Growth: International Climate Strategies in the New Transatlanticof Renewable Energy and Energy Efficiency. (United Nations Context, GMF Climate & Energy Paper Series (Washington, DC:Environment Programme, 2010), 12-13 Both estimates include The German Marshall Fund of the United States, Novemberlarge hydro 2010), http://www gmfus org/cs/publications/publication_ view?publication id=136910 For an overview on existing policies in developing countries,see REN21, Renewables 2010 Global Status Report (Paris: REN21 13 Chris Greacen and Anastas Mbawala, Country Case Studies:Secretariat, 2010), http://www ren21 net/Portals/97/documents/ Thailand & Tanzania. Feed-in-Tariffs and Small Power ProducerGSR/REN21_GSR_2010_full_revised%20Sept2010 pdf Regulations (Washington, DC: World Resources Institute, November 22, 2010), http://www wri org/developing-country-11 Ibid , 4 renewables Grounding Green Power 7
  12. 12. Figure 1: Projected Growth in Global Electricity Capacity, 2008-2035 Non-OECD Countries OECD Countries Renewables Nuclear Fossil Fuels All Electricity Sources Current Policy Scenario New Policy Scenario 450 Scenario Distribution of new capacity expected based on Distribution of new capacity expected based on Distribution of new capacity needed in order to policies and measures already formally adopted current policies and new policy commitments that stabilize global atmospheric greenhouse gas and implemented. have already been announced. levels at 450 ppm of carbon dioxide equivalent. 19% (804 GW) 23% 22% 24% (946 GW) (851 GW) (950 GW) 38% 3% (1476 GW) (135 GW) 57% 11% (2190 GW) (454 GW) 36% 55% (1389 GW) (2271 GW) 8% 4% (293 GW) (178 GW) Source: International Energy Agency, World Energy Outlook 2010become one of the principal economic and develop- “medium-term energy security,” and catalyzing thement challenges for the country It is also clear that “conditions for green growth ”15while energy conservation and energy-efficiencyhave an important role to play in the national Nevertheless, this transition is not happening at theenergy strategy, renewable energy will become a speed and scale necessary to stabilize global averagekey part of the solutions and is likely to play an temperature rise at manageable levels There is wideincreasingly important role for augmentation of scientific consensus, recognized by all countries atgrid power, providing energy access, reducing the UN climate conference in Cancun in December,consumption of fossil fuels, and helping India 2010, that warming must at least be held to apursue its low carbon developmental pathway”14 maximum of 2 degrees Celsius above pre-industrialIn South Africa, the Department for Trade and levels in order to avoid unacceptable climate changeIndustry and the Department for Public Enter- risks 16 However, while it can be assumed thatprises are considering ambitious renewable energy the current greenhouse gas reduction pledges ofinitiatives within the government’s Industrial developed and developing countries submitted toPolicy Action Plan The initiative is driven by the the United Nations under the Copenhagen Accorddesire to realize a number of economic benefits: reflect most of today’s renewable energy goals,“Industrial development … in the industrial value these pledges would likely set the world on a pathchain supplying the [renewables] industry,” “exportcompetitiveness,” “regional renewables develop-ment … to be a regional hub and catalyst for thedevelopment of renewables in sub-Saharan Africa,” 15 DTI, Unlocking South Africa’s Green Growth Potential. The South African Renewables Initiative, Update Briefing (Pretoria: The Department of Trade and Industry, December 2010), 914 MNRE, Renewable Energy in India: Progress, Vision, and 16 United Nations Framework Convention on Climate Change,Strategy (New Delhi, India: Ministry of New and Renewable The Cancun Agreements: Outcome of the Work of the Ad HocEnergy, Government of India, 2010), 11, http://www mnre gov Working Group on Long-term Cooperative Action under thein/pdf/mnre-paper-direc2010-25102010 pdf Convention, Decision 1/CP 16, paragraph 48 The German Marshall Fund of the United States
  13. 13. towards global warming of somewhere between 2 5 A NEW ROLE FOR INTERNATIONAL SUPPORTand 5 degrees Celsius 17 Though developing countries have many reasons to pursue renewable energies in their own right, theyThe IEA’s forecasts show that, without new policies, will need international support to transition to amore than two thirds of the new electric capacity low-carbon economy 19 The cost of this transitionin developing countries would be powered by and other barriers, such as a lack of capacity, makefossil fuels (the IEA’s “Current Policies” scenario, it unlikely that the transition to more renewablesee Table 1) The scenarios also underline that a energy will happen quickly enough and at the scalegradual transition to more renewables is under required to limit global temperature rise to twoway in the developing world, but that it happens degrees above pre-industrial levels, absent interna-too slowly to reach the globally agreed climate tional supportgoal The “New Policy” scenario, which assumes allrecently announced pledges, targets, and policies Through multilateral institutions and bilateral— many of which are contingent on international assistance, the United States, European nations,support — are implemented in a stringent way, and other developed countries can help makeshows a marked increase in renewables compared the transformation possible International publicto “Current Policies ” However, a large gap remains financing already plays an important role incompared to the even more ambitious “450” catalyzing renewable energy deployment andscenario, which describes a pathway needed to diffusion in developing countries The multilateralstabilize atmospheric greenhouse gas concentration development banks, the bilateral aid agencies, theat a level of 450 parts per million CO2 equivalent Global Environment Facility, and, more recently,necessary to make the 2-degree target attainable In the Clean Technology Fund, have been the mainthe latter scenario, the fossil fuel share would only sources During the period 1997-2005, bilateral andbe 15 percent, while renewables would account for multilateral agencies were collectively investing onthree quarters of new capacity 18 average $1 4 billion a year in renewable energy in developing countries 20Many successful examples of good policies andpractices to promote renewables already exist in Currently, the international community isdeveloping countries This presents the question of designing new mechanisms to manage climatewhether the seeds for the global energy transfor- finance and to improve international technologymation are already contained within these experi- cooperation while developed country governmentsences and whether it is possible to identify lessons are considering their strategic funding decisionslearned and needs for additional support, so that over the next years This presents a unique oppor-these success stories can be scaled up and adapted tunity to move to the next phase of renewablefor other countries energy support This next phase could build on the experiences and momentum in developing countries to focus on building capacity and reliable frameworks — the package of measures we call17 M den Elzen et al , The Emissions Gap Report: Are the Copen-hagen Accord pledges sufficient to limit global warming to 2 deg. Cor 1.5 deg. C? A preliminary assessment (United Nations Environ- 19 Purvis, Green Growth.ment Programme, 2010), 48-50 20 D Tirpak and H Adams, “Bilateral and multilateral financial Authors’ calculations, based on International Energy Agency,18 assistance for the energy sector of developing countries,” ClimateWorld Energy Outlook 2010, 620-21, 652-53 Policy 8, no 2 (2008): 135–151 Grounding Green Power 9
  14. 14. smart renewable energy policy — rather than a tional cost to make a large-scale global transforma-simple project-by-project approach tion away from fossil fuels possibleCompared to just financing an individual wind However, international funding for developmentfarm, financing the conditions that incentivize and climate change mitigation is also limited Well-building and operating wind farms will have a designed and comprehensive renewable energymore transformative impact 21 Predictable frame- policy can help reduce the cost gap, for exampleworks will also allow developing countries to better by removing fossil-fuel subsidies or by helping tocapture the economic benefits associated with set adequate support levels that are not unneces-increased renewable energy generation, because sarily generous 24 In this way, smart renewablethey attract more investor interest and larger parts energy policy can help ensure that public funds —of the value chain, which in turn leads to more jobs both from within a developing country and fromin manufacturing, for example 22 international sources — are used in an effective and efficient way By encouraging innovation, smartOne major barrier to renewable energy deploy- renewable energy policy also has the potential toment in developing countries is the higher cost of bring down the cost of renewable energy tech-these technologies when compared to conventional nologies, so they can become a financially viablefossil fuels In those countries that have success- mainstream solutionfully deployed renewable energies beyond indi-vidual projects, this cost gap has been addressed Donor countries can expect some tangible benefitsby public policy 23 In most developing countries, for their own economies from such an investmentwhere domestic financial resources are limited and Smart renewable energy policy in developingeconomic development is the overriding priority, countries can create export markets for renewableit is difficult to mobilize financial support from energy technology produced in donor countriesdomestic sources alone; therefore donor funds However, it should not be expected that developingwould likely be needed to cover some of the addi- countries will import all of the necessary equipment in the long run The real long-term benefit should be expected from the creation of global markets21 The literature shows that all countries where renewables and the additional opportunities for innovation that(excluding large hydro) have reached a significant marketshare have had renewable energy policy frameworks in place emerge when more countries deploy renewablesSee REN21, GSR 2010; J F Kirkegaard, T Hanemann, and L The addition of large additional capacities providesWeischer, It Should Be a Breeze: Harnessing the Potential ofOpen Trade and Investment Flows in the Wind Energy Industry, a chance to quickly test new designs or approaches,PIIE WRI Working Paper (Washington, DC: Peterson Institute to develop better manufacturing, operations, andfor International Economics and World Resources Institute,December 2009); J F Kirkegaard et al , Toward a Sunny Future? maintenance processes, and iteratively improveGlobal Integration in the Solar PV Industry, PIIE WRI Working both the technologies and the energy systems ofPaper (Washington, DC: Peterson Institute for International which they are a partEconomics and World Resources Institute, May 2010)22 WRI research on the global wind and solar PV industry It can be expected that costs will decrease andhas indicated that countries with policies creating large andpredictable demand have been able to capture larger portions performance improve as a result The size of theof the value chain and create more domestic jobs as opposed to market in which firms, including those from donorcountries with unstable, on-off demand See Kirkegaard, Hane- countries, can participate will grow The lowermann, and Weischer, It Should Be a Breeze, and Kirkegaard et al ,Toward a Sunny Future? 24 We return to these two key elements of smart renewable23 REN21, GSR 2010 energy policy below, in chapter 410 The German Marshall Fund of the United States
  15. 15. costs of renewable energy technologies would also 2. Smart renewable energy policy is basedbenefit donor countries in that it would lower the on clearly defined objectives. Workshopcosts of their own domestic emissions reductions 25 participants highlighted that smart policy begins with a clear definition of the end inPRINCIPLES OF SMART RENEWABLE ENERGY mind As discussed in the case studies below,POLICY objectives are most often defined in terms ofWe define smart renewable energy policy as the set added power generation, but can also includeof rules, regulations, and government actions that technology development, energy access, orlead to an increased share of renewables in total elec- economic development goals A clear articula-tricity consumption in line with a country’s develop- tion of policy objectives can help ensure thatment objectives. smart renewable energy policy contributes to a country’s broader development aspirationsMany developing countries have already experi-mented with renewable energy policies that go 3. Smart renewable energy policy encour-beyond a project-by-project-approach, building ages private investment. There was broadthe framework that creates the right conditions for agreement among the workshop participants,transformative deployment at scale Based on the supported by the existing literature on renew-experiences made in the 12 case study countries able energy policy, that policies will have athat were represented at the Renewable Energy more transformational impact if they leveragePolicy Workshop and in the existing literature, private investment by promoting attractive andsome key principles of smart renewable energy predictable market conditions The conditionspolicy can be identified These key principles are investors look for have been characterized asbriefly introduced below The next chapters will “loud, long, and legal”:then discuss how these principles are applied in • “Loud — incentives need to be sufficientpractice to make a difference to the bottom line and 1. Smart renewable energy policy is a compre- improve the bankability of projects; hensive package. Developing country experts • Long — sustained for a duration that reflects participating in the workshop stressed that it the financing horizons of a project or deal; is not sufficient to just set a renewable energy and deployment goal or add an incentive mecha- nism Rather, smart renewable energy policy needs to take into account the broader context renewables operate in Smart renewable energy policy strives to create an enabling environ- ment including power sector regulations, investment and financing conditions, suit- able electric grid infrastructure, and technical capacity25 On the benefits of growing global markets for renewableenergy technologies, see Kirkegaard, Hanemann, and Weischer,It Should Be a Breeze, and Kirkegaard et al , Toward a SunnyFuture? Grounding Green Power 11
  16. 16. Box 1 Transparency, Accountability, Participation and Capacity (TAP-C) The Electricity Governance Initiative (EGI), a joint project of WRI and Prayas Energy Group, has developed a governance framework organized around the TAP-C principles — transparency, account- ability, stakeholder participation, and capacity — that should guide the development of robust policy and planning processes, transparent procedures for the selection of projects and setting of prices, and clear performance metrics for monitoring and evaluation Transparency and access to information: the process of revealing actions and information so that outsiders can scrutinize them Attributes of transparency include comprehensiveness, timeliness, and availability Participation: input from diverse stakeholders to help decision-makers consider different issues, perspectives, and options when defining a problem Forms of participation include technical review processes and public hearings Accountability and redress mechanisms: the extent to which there is clarity about the role of various institutions in sector decision-making, there is a systematic monitoring of sector operations and processes, the basis for decisions is clear or justified, and legal systems are in place to uphold stake- holders interests Capacity: the capacity of government and official institutions to act autonomously and independently, the institutional ability to provide access to decision-making processes, as well as the capacity of civil society (particularly NGOs and the media) to analyze issues and participate effectively 1 1 Adapted from “The Electricity Governance Toolkit: Benchmarking Best Practice and Promoting Accountabilty in the Electricity Sector” June 2007 EGI is a joint project of WRI and Prayas Energy Group • Legal — a legally established regulatory 4. Smart renewable energy policy is cost-effec- framework, based around binding targets tive. It was stressed by workshop participants or implementation mechanisms, to build that public money needs to be spent in such a confidence that the regime is stable, and way to ensure that investments — backed by can provide the basis for long-life capital- ratepayers, taxpayers, or foreign donors — are intensive investments ”26 efficiently meeting policy objectives Because objectives could include, for example, driving26 The “loud, long, and legal” framework was developed by long-term price reductions or supportinga group experienced renewable energy financiers of invited technologies at different stages of development,to provide input on “good policy” for renewable energy forthe Ministerial-level International Conference on Renewable this principle does not necessarily translate toEnergies in Germany in 2004 See Kirsty Hamilton, Unlocking maximum deployment at minimal cost, but itFinance for Clean Energy: The Need for “Investment Grade” Policy,Energy, Environment, and Development Programme Paper calls for careful policy design to avoid oversub-(London: Chatham House, December 2009), 8 Deutsche Bank sidizationClimate Change Advisors has proposed a similar set of criteria,summarized as “transparency, longevity and certainty” See DBClimate Change Advisors, Paying for Renewable Energy: TLC at 5. Smart renewable energy policy encouragesthe Right Price. Achieving Scale through Efficient Policy Design innovation. Experts at the workshop agreed(New York: Deutsche Bank Group, December 2009), 1512 The German Marshall Fund of the United States
  17. 17. on the need for financial support for renewable 6. Smart renewable energy policy is designed energy to be temporary, provided as long as through transparent, accountable, and these technologies are not yet competitive with participatory processes. As will be discussed fossil fuel options There is broad agreement in more detail below, workshop participants in the literature that further reductions in cost conveyed examples where a lack of open, and improvements in performance, reliability, transparent, and accountable decision-making and safety of renewable energy technolo- processes has led to less effective and less gies will be needed so these technologies can efficient policy implementation Conversely, become a mainstream option replacing more following basic principles of good electricity emissions-intensive alternatives Therefore, sector governance has often enabled better investments along the entire innovation chain decisions These principles are transparency, are needed to create conditions that are favor- accountability, stakeholder participation, and able to the rapid emergence and diffusion of capacity (TAP-C, see Box 1) new ideas and practices for zero-carbon power generation: in research and development, demonstration, deployment, and diffusion 27 While it is often assumed that innovation mainly happens in the research and develop- ment phase, workshop participants stressed the need for innovation beyond the lab, i e throughout the life cycle of the products, across the entire supply chain, and throughout the energy system Our cases studies reveal how innovation beyond the lab can be stimulated by regulatory incentives that drive cost-effective- ness and performance enhancement27 Shane Tomlinson, Pelin Zorlu, and Claire Langley, Innovationand Technology Transfer: Framework for a Global Climate Deal(E3G and Chatham House, November 2008), http://www e3gorg/programmes/climate-articles/e3g-report-launch-innovation-and-technology-transfer-framework-for-a-global/ Grounding Green Power 13
  18. 18. 3 Planning and Developing a StrategyThe following five chapters each look at one area Table 1: Renewable Energy Targets and Paymentof smart renewable energy policy and discuss Mechanisms in Different Countrieslessons drawn from the case studies that show Country Targethow the principles identified above are imple-mented on the ground Each chapter identifies Brazil Nonekey lessons, each followed by examples from 15% RE by 2020; 41 GW by 2017, 72 Indiathe case studies In a second step, each chapter GW by 2022discusses how donors and international institu- 5% geothermal, 5% biofuels, and 5% Indonesiations can support broader application of these other RE by 2025lessons Kenya None Mexico 6 6% RE by 2012LESSONS LEARNED: SUCCESSFUL POLICY Morocco 2 GW solar and 2 GW wind by 2020NEEDS A PLAN 100 MW wind, 125 MW smallIn order to expand deployment of renewables, Mozambique hydro, 3 bagasse plants, 79,000 smallinvestors, and technology, providers need to have PV systems etcsufficient confidence that there will be a market South Africa 10,000 MW RE by 2013The first steps to providing that predictability areplanning processes to define and regularly update Sri Lanka 10% non-conventional RE by 2015a vision for the future of electric power genera- Philippines Additional 6,972 MW by 2030tion, transmission, and distribution in a given Tanzania Nonecountry, including an explicit role for renewables Thailand NoneOfficial renewable energy targets are a crucial Source: Presentations given at renewable energy policy workshop,first step. Targets reflect an understanding of the see http://www wri org/developing-country-renewables Notes: Targets for the Philippines are preliminary Targets for India arefuture role that different sources of renewable suggested by the federal government, but ultimate implementationenergy generation will play alongside efficiency lies with the Statesand conventional generation in the context of a instance India 29 Other countries, such as Indonesia,country’s available resources and capacities Done set the target share for individual technologies 30correctly, targets can provide investors with higher Yet another approach is to define targets in termsvisibility by underlining the political commitments of absolute additional capacity For example, theto renewable energy deployment Many developing Philippines are currently considering a target ofcountries have set renewable energy targets (see increasing their renewable energy capacity byTable 1) 28 adding 6,972 megawatts (MW) between 2010Some countries have chosen to define a renew- and 2030 This can again be broken down byable energy share in the overall power mix, for technology, for example in the case of the Phil- 29 Suman Kumar, “Country Case Study: India” (presented at the Renewable Energy Policy Workshop, WRI, Washington, DC, November 22, 2010), http://www wri org/developing-country-28 It should be noted that some workshop participants expressed renewablesconcern that the technical basis for these targets is not clear,making it difficult to know whether the targets are statement 30 Fabby Tumiwa and Imelda Rambitan, Scaling Up Renew-of political ambition or reference to resource capacity and able Energy Investments. Lessons form the Best Practice Modelseconomic feasibility In general, more transparency about the in Indonesia (Washington, DC: Bank Information Center, Julyassumptions underlying targets was called for 2010)14 The German Marshall Fund of the United States
  19. 19. ippines, 1,420 MW of geothermal, 985 MW of other, emissions-intensive sources Thai NGOswind, 4,167 MW of hydro, 200 MW of biomass, worked successfully to have VSPP sources included80 MW of solar, and 120 MW of ocean energy as a supply option in Thailand’s national powerRather than just emphasizing raw numbers, the development plans beginning in 2007 32goals are communicated by stressing that achievingthe numbers will make the Philippines the top In January 2010, the South African governmentgeothermal producer globally and the top wind began the development of an Integrated Resourceproducer in Southeast Asia 31 Plan (IRP 2010) that will include objectives for renewable energy development for the next 20Planning can grow more sophisticated as deploy- years The South-African IRP is an example ofment expands; for serious scale up of renewable a comprehensive approach considering demandenergy, long-term planning will be necessary. projections, resource availability, and the cost andFor individual contracts awarded to a first round benefits of different sources of energy, both on theof small projects or for early stage FiT programs, a supply and demand side 33detailed strategy that outlines the respective sharesof different renewable energy technologies and Planning decisions need to be based on a trans-their integration with the national energy system parent and sound assessment of the full cost ofmay not be imperative In the short run, encour- different options. Leveling the playing field foraging the development of easy-to-realize projects clean energy requires new methodologies for deter-and developing first experiences is tempting for mining cost, so that the benefits, risks, and hiddengovernments and investors alike But even on costs of all energy sources are assessed realisticallya small scale, some planning will increase the and openly in any planning process This means,probability of success of individual projects — for for instance, that supply-side risks such as risingexample to ensure that land and water resources, fuel costs and currency fluctuations need to beas well as access to the grid, are available In the considered alongside the risks and higher upfrontlong run, integrated resource planning is needed costs of renewable energy Other examples includeto articulate the relationship between ambitious the costs of transmission lines for large hydro andrenewable energy goals and the broader electricity potential price increases for fuel transportationsystem for coal and oil, which are not always included in upfront cost estimates At the same time, currentThailand has implemented successful programs for business models provide strong incentives to over-small power producers (SPP) and very small power estimate future demand, often resulting in excessproducers (VSPP) that allow for the bottom-updevelopment of renewable energy sources and theirconnection to the grid, even though there was nodetailed plan to integrate these new small proj-ects Integrating SPP/VSPP sources into planningbecame more important as their numbers grew and 32 Greacen and Mbawala, Country Case Studies: Thailand &they developed the potential to actually displace Tanzania. Feed-in-Tariffs and Small Power Producer Regulations. 33 Hilton Trollip, Status of renewable energy implementation in31 Pete H Maniego, “Country Case Study: Philippines” South Africa with a focus on the REFIT and the role of Multi-(presented at the Renewable Energy Policy Workshop, WRI, lateral Development Banks (Washington, DC: World ResourcesWashington, DC, November 22, 2010), http://www wri org/ Institute, November 22, 2010), http://www wri org/developing-developing-country-renewables country-renewables Grounding Green Power 15
  20. 20. capacity 34 Integrated resource planning tools are arrangements in the relevant ministries and state-useful to optimize the resource mix for realistic owned enterprises 35levels of demand They will also help ensure thatessential infrastructure is available and send clear The planning process benefits from transpar-signals about market size to investors ency, accountability, and stakeholder participa- tion. Public engagement is necessary to determineEven after the decision was made to include small how to share both the benefits and impacts of arenewable energy projects in the Thai power transformed energy system A transparent, multi-development plans, Thailand is still far from fully criteria planning framework can help evaluate thesetapping its renewable energy potential In part, the tradeoffs, including job creation and environmentaladoption of new software that would assess the impacts Often, the planning process tends to behidden costs and risks of conventional fuels (fossil, shaped by vested interests, as powerful incumbentbig hydro, and nuclear) would help to level the suppliers defend their relationships with utilitiesplaying field for new renewable energy and government officials It is not uncommon that board members of state-owned utilities are seniorBut progress will require more than new computer government officials, producing conflicts of interestprograms The overlapping governance struc- and sometimes corruption in some countriestures of ministries and state-owned enterprisesproduce conflicts of interest that make it easier Civil society has a significant role to play infor entrenched interests and utilities to resist the demanding transparency for the assumptions thatdisplacement of conventional power sources While underpin planning decisions (including assump-the VSP program was successful as a low profile, tions about cost, risk, and demand) and thelocal approach, scaling up will require a shift in composition of advisory boards Civil society inputincentives for incumbent political and utility offi- should also inform the planning process Beyondcials as well as for investors in new technologies organizations with expertise in energy modeling, groups organized around air pollution, consumerDrawing on the TAP-C concepts, Thai NGOs advocacy, and open government have an interest inhave developed an “alternative” power develop- opening up planning processes to public scrutinyment planning framework that advocates newmodeling and forecasting methodologies as wellas more a transparent decision-making processWith increased public scrutiny of power planning, 35 Thai NGOs developed a multi-stakeholder advisorythey hope to prompt a restructuring of governance committee to select 14 indicators of good governance from the Electricity Governance Initiative’s toolkit to apply to the Thai planning process These indicators were the basis of an assess- ment that linked weak governance to faulty decision-making, and ultimately to the need for improved transparency and processes for public input Better decision-making processes ultimately resulted in the inclusion of VSPP as a supply option The alternate power development plan prepared by Thai civil34 “Thailand’s Electricity Reforms: Privatization of Benefits society argues that a combination of demand-side management,and Socialization of Costs and Risks,” Chuenchom Sangarasri co-generation and renewable energy, and other sector efficien-Greacen and Chris Greacen, Pacific Affairs Volume 77, no 3, cies could reduce the projected need for new thermal powerFall 2004 Andrew Marquard, The Origins and Development of plants significantly: from 54,005MW to 8,535MW PresentationSouth African Energy Policy, University of Cape Town, Jan 2006 by Suphakit Nuntavarakorn, Healthy Public Policy Foundation,p 168 Also echoed in the comments of former Chairman of the at the 14th Annual Anticorruption Conference, Bangkok 2010:Eskom Board Bobby Godsell to the National Press Club of Cape http://electricitygovernance wri org/news/2010/12/egi-14th-in-Town on Feb 26 2010 ternational-anti-corruption-conference16 The German Marshall Fund of the United States
  21. 21. In January 2010, the South African government power producer (VSPP) generation as a supplybegan the development of an Integrated Resource option in the Thai Power Development Plan wasPlan (IRP 2010) that will include objectives for partially a result of NGO engagement The groupsrenewable energy development for the next 20 saw incorporating renewables and energy efficiencyyears IRP 2010 increased the transparency around as a supply option in the energy planning as a waypreviously closed electricity planning process and to cut down substantially on expensive and envi-allowed for more robust public engagement Civil ronmentally damaging thermal power plants Thesociety observers have pointed out the benefits of alternate power development plan prepared by Thaiintegrating industrial planning with national energy civil society argues that a combination of demand-systems planning However, they have also identi- side management, cogeneration, and renewablefied areas where the IRP methodology needs to be energy and other sector efficiencies could reduceimproved to allow for a proper determination of the the projected need for new thermal power plantscosts and benefits of the renewable energy tech- significantly, from 54,005 MW to 8,535 MW 37nologies in relation to conventional sources Forexample, the economic benefits to be gained from INTERNATIONAL SUPPORT: CAPACITYthe development of local renewable energy equip- DEVELOPMENT, INSTITUTION-BUILDING, ANDment manufacturing are not explicitly referred to in TECHNICAL ASSISTANCE FOR SOUND POWER-IRP 2010 SECTOR PLANNING International donors can provide technical assis-In South Africa, the government structures in tance and capacity building to assist countries incharge of developing renewable energy strate- developing plans and strategies for their energygies are in place, but they often lack the necessary sector For example, the Global Environmentcapacity and influence within the government to Facility (GEF) supported a project in South Africaensure implementation According to civil society in 2007 that provided knowledge, hard data, andobservers, the approach of regulators in the depart-ment of energy, which is mandated with renew- analysis for developing the country’s Integrated Resource Plan targets for renewable energies 38able energy development, remains dominated by Similarly, international partnerships such as thepowerful conventional energy (coal and nuclear) Renewable Energy and Energy Efficiency Partner-and related expertise and capacity The participa- ship have supported governments in Ghana andtion of civil society groups in planning processes Mozambique to applying planning and decision-meant that voices more favorable to the develop-ment of renewable energies were included in theplanning process 36Civil society organizations in Thailand have also 37 Presentation by Suphakit Nuntavarakorn, Healthy Publichad some success in improving the decision- Policy Foundation, at the 14th Annual Anticorruption Confer-making process Thai NGOs have worked to ence, Bangkok 2010: http://electricitygovernance wri org/ news/2010/12/egi-14th-international-anti-corruption-confer-improve both the procedural and substantive enceaspects of the planning process, drawing on the 38 Trollip, Status of Renewable Energy Implementation in SouthTAP-C framework The inclusion of very small Africa with a Focus on the REFIT and the Role of Multi-Lateral Development Banks, 2010; Smita Nakhooda and Athena Ball-36 Trollip, Status of renewable energy implementation in South esteros, Investing in Sustainable Energy Futures. MultilateralAfrica with a focus on the REFIT and the role of Multi-lateral Development Banks’ Investments in Energy Policy, WRI ReportDevelopment Banks. (Washington, DC: World Resources Institute, 2010) Grounding Green Power 17
  22. 22. making tools such as GIS to analyze renewablesources and data, and tariff-setting tools 39In recent years, the World Bank’s Energy SectorManagement Assistance Program (ESMAP) hasintroduced a set of mechanisms, including trainingand technical assistance, to support low-incomecountries’ to develop plans to diversify their energysupply and switch to zero- and low-carbon tech-nology options 40In addition to providing technical expertise, tools,and data, donors might consider providing moresupport for the institutions and processes thatare necessary for good plans and strategies Asdiscussed above transparent, accountable, andtransparent processes organized by regulatory insti-tutions that have the necessary capacity are crucialDonors might also consider building the capacity ofcivil society groups so they can play a more activerole in planning processes39 http://www reeep org/file_upload/7217_tmpphpwumA8F pdf40 World Bank, http://www esmap org/esmap/overview18 The German Marshall Fund of the United States
  23. 23. 4 Designing Generation-Based IncentivesSELECTING A GENERATION-BASED INCENTIVE hour they would need to operate a project and notTargets and integrated planning are not enough to for an upfront subsidy 41build a market for power from renewable sources Policymakers can choose between several types ofPolicymakers need to translate their targets and generation-based incentives that are summarizedplans into actual investor interest by setting incen- in Table 2, along with some of their key advantagestives Policymakers need to consider several tools at and drawbackstheir disposal to create a favorable market environ-ment for renewable power As our case studies and These mechanisms, whether they are applied inexperiences elsewhere show, a generation-based developed or developing countries, often lead toincentive mechanism is one key component in the price increases for the electricity consumer, as utili-broader mix of policy and regulatory instruments ties pass along the added costs Alternatively, theGeneration-based incentives will be discussed in incremental costs may be covered fully or partiallythis chapter, before we return to the broader policy out of a public budget This can make these mecha-environment in Chapter 5 nisms difficult to implement in countries suffering public budget constraints, and particularly hardPolicymakers need to choose an appropriate to justify in developing countries where addingincentive for their context. It is important that generation capacity at the lowest cost possible isincentives reward actual power production, not often the overriding policy priorityjust installation. One crucial component of smartrenewable energy policy in both developed and However, 18 developing countries currently havedeveloping countries is mechanisms to guar- a FiT, 5 have some form of renewable RPS, andantee payment to renewable energy producers for 11 use competitive bidding to procure renewabletheir electricity, in order to make their projects energy Table 3 summarizes the incentive mecha-commercially viable These payments are usually nisms used in our case study countriesat a premium above market rates for conventionalsources It is preferable to choose an incentive that In many situations, feed-in-tariffs are the mostrewards each kilowatt hour produced, because appropriate generation-based incentives tosubsidizing the upfront capital cost of an installa- encourage private investment in renewabletion only can lead to projects being built without energy. The FiT is the most widely used incen-much attention given to optimizing their perfor- tive mechanism globally Seventy-five percent ofmance, including through regular maintenance, or global solar photovoltaic capacity and 45 percenteven connecting them to the grid of global wind capacity were supported by FiTs in 2008 42 A review of different incentive mechanismsAll of the incentives studied in this working paper in the developed world by Deutsche Bank Climatethat have been successful in triggering additional Change Advisors found advanced FiT schemes torenewable energy installations are based on actual be the most appropriate mechanism to providepower produced This is the case for the FiTs the transparency, longevity, and certainty at thein India, the Philippines, South Africa, and Sri price that investors are looking for It is also seenLanka as well as the small power producer (SPP)programs in Thailand and Tanzania It is also true 41 See the presentations and case studies form the Renewablefor the auctions in Brazil and India, where power Energy Policy Workshop, available at http://www wri org/devel- oping-country-renewablesproducers bid for the guaranteed price per kilowatt 42 REN21, GSR 2010, 23 Grounding Green Power 19