Why the World Bank Shies Away From Energy Efficiency

[Sorry for cross-posting]

Why the World Bank Shies Away From Energy Efficiency

By Peter Bosshard, August 8, 2013
Reuters AlertNet, http://bit.ly/13JYZzk
and Huffington Post, http://huff.to/15SIKBR

Decentralized renewable energy projects are highly effective at reducing
energy poverty. Energy conservation and efficiency improvements are the
cheapest way to close the gap between energy demand and supply. Too bad
such measures don't fit the business model of the World Bank, the
world's most important energy financier.

Under a project supported by the World Bank and the Swedish government,
the Vietnamese electricity utility in recent years sold one million
efficient CFL light bulbs and installed thousands of electricity meters.
The project was an "extremely cost effective" part of an energy
conservation and efficiency program that reduced the country's
electricity demand by 700 megawatts.

The International Energy Agency has estimated that developing countries
could save three dollars in investment for power plants for every dollar
they invest in efficiency improvements. According to the Agency, such
investments "stand out as the cheapest and fastest way to curb demand
and emissions growth in the near term".

The World Bank's experience with energy efficiency projects confirms
this assessment. On average, such projects are considerably more
economic than new power stations. Unlike power plants, they don't
degrade the environment and displace local communities. In spite of such
benefits, energy efficiency improvements receive short shrift at the
World Bank: From 1991 to 2007, the Bank devoted only about 5 percent of
its total energy finance to such projects.

In 2010, the World Bank approved $3.75 billion dollars for the giant
Medupi coal power plant in South Africa, even though energy conservation
and efficiency programs would have been cheaper. The Bank currently
considers support for a polluting lignite coal power plant in Kosovo and
two large hydropower plants on the Zambezi, even though energy
efficiency measures have again been shown to be cheaper.

What's the problem? Comparing the energy efficiency program in Vietnam
with the Gilgel Gibe I Dam in Ethiopia may help to explain. Per dollar
of cost, the efficiency program saves about three times as much
electricity as the dam generates - and without displacing any people.
Yet per dollar of loan disbursement, the administrative overhead of the
complex efficiency program is about ten times bigger. In terms of
development impact, the efficiency program scores higher. In terms of
institutional self-interest, it loses out.

A World Bank evaluation found in 2009 that "internal Bank incentives
work against [efficiency] projects because they are often small in
scale, demanding of staff time and preparation funds, and may require
persistent client engagement over a period of years". "This", the report
concluded, "makes them less attractive to managers and agencies that use
disbursement as a measure of action and large turbines as a visible
symbol of achievement".

The World Bank's business model has harmed project quality for decades.
In 1992 the internal Wapenhans report found that a pervasive "pressure
to lend" undermined project assessment. Five years later, the Bank's
Quality Assurance Group castigated the institution's "pressure to lend",
and pointed to the "fear that a realistic, and thus more modest, project
would be dismissed as too small and inadequate in its impact". The World
Bank's central problem is "a culture of loan approval, institutionalized
in various perverse internal incentives", argues Bruce Rich in his
forthcoming book, Foreclosing the Future, about the Bank's environmental
track record.

For the past 20 years, World Bank Presidents have promised to fix the
institution's perverse incentives, and to increase support for energy
efficiency projects. On July 16, the Bank management once again assured
its Board of Directors it would address the issue through a new working
group. This is window dressing. The energy directions paper which the
Bank published on the same day limits lending for coal power plants, but
continues to focus on large gas and hydropower projects. An earlier
draft of the paper explains that "the high ratio of preparation and
supervision costs to total project size is a considerable disincentive"
for Bank managers to undertake effective but complex solar,
micro-hydropower or energy efficiency projects.

The member countries which fund the World Bank have so far been
complacent in accepting a situation which suits the export interests of
their equipment suppliers. If they are serious about promoting
least-cost solutions to the world's energy and climate crisis, they need
to redirect their funds towards institutions that are better equipped to
support renewable energy, energy conservation and efficiency improvements.

Peter Bosshard is the Policy Director of International Rivers.
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