transitioning to renewable energy policies, programs and institutions that support long-term...

Transitioning toRenewable Energy

Policies, Programs and Institutions that Support Long-term Transformation of Emerging

Renewable Energy Markets

Presented at the Workshop onFinancing Sustainable Electricity:Policy and Governance Obstacles

World Resources InstituteWashington, DC, USA

April 21, 2004

21 April 2004 Transitioning to Renewables 2

Transitioning towards Sustainability

“…the key tasks of the coming years include encouraging and supporting the transition towards sustainability, involving both public and private stakeholders, and building alliances for the next crucial steps.”

From “Changing Course: A Contribution to a Global Energy Strategy”Heinrich Böll Foundation Paper No 22, 2002


“Fossils Today, Renewables Tomorrow” - Has it Worked?

• Many Policies, Programs and Institutions (PPI) created to support renewable energy (RE) do not account sufficiently for macro economic and energy systems – The result, often, is a “false” market for RE

that survives only as long as the PPI is in place, and/or program failure over time.

• Many PPI do not focus on creation of the market conditions that support sustained penetration and expansion of RE. – Many focus on RE to the exclusion of broader

issues which often have more impact on RE scale up


Current Funder View ofCentral Role of RE…A New Bank Energy Business

Strategy Framework

Energy

Direct Poverty Alleviation

Governance /Private Sector Development

Macro/Fiscal

Stabilization

Environmental Sustainability


Energy

Direct Poverty Alleviation

Governance /Private Sector Development

Macro/Fiscal

Stabilization

Environmental Sustainability

…But, How Does RE Fit into these Larger Societal Goals?


Transitional PPI Create the Enabling Environment for RE

• Successful RE PPIs focus on MWs installed AND on creating the proper markets conditions for sustained, “organic” growth.

• The creation of the proper “enabling environment” requires a long-term, multi-sectoral collaboration between Gov’t, NGO, int’l institutions and private sector.


Elements of Transitional PPI

• Accounts for existing macro and energy systems and either overcomes barriers or takes advantage of opportunities.

• Supports “market-like” adoption and maintenance of RE. Promotes “operational sustainability”.

• Provides catalytic incentives to energy actors, such as utilities, entrepreneurs, IPPs, cities, communities, etc.

• Receives participation and ongoing support from end-users.


Diffusion=Supply Push+Demand Pull

• Traditional RE PPI development focused on Tech Transfer or Dissemination – – Connotes a “Supply Push” focus

• Transition focused on Tech “Diffusion”:– Connotes an Equal Focus on “Demand Pull”– Must expand idea of “technology” to include

the human and institutional “software” required to sustain tech.

– Transition requires ongoing “buy-in” from all parts of value chain (from government to utility to entrepreneur to consumer) for sustained success.


Transition as Evolution

Time

RE

Diffu

sio

n

From Jan Rotmans, et al.


RE Transition within Rings of Influence

Macro ConditionsMarket, Economic, Political Context

Meso ConditionsEnergy Market Environment

Micro Conditions Sustainable Energy Market Specifics

Transitional PPI Address All “Rings of Influence”


The “Transition” Model

Model focuses on relationship between markets defining “Rings of Influence” on RE

• Macro – The larger national and international context within which all economic activity takes place, e.g., Uganda (legal, political, economic), East Africa, the international oil market, etc.

• Meso – The market or sector in which specific economic activity takes place, e.g., The Ugandan Energy Sector or regional energy markets

• Micro – The specific marketplace in which the specific economic activity takes place, e.g., RE market in Uganda.


Examples of the Role of PPI within Rings of Influence

• Macro: A poor legal environment impedes ALL investment, including RE. A PPI which creates a mitigates legal risk for RE counters this barrier.

• Meso: A lack of utility willingness to allow for IPP interconnection hurts ALL energy producers. A regulatory change which removes this barrier helps ALL energy projects.

• Micro: RE is more expensive than conventional power. A production tax credit increases value of each KWh.


How does Transition Model help in Development of RE PPI?

• When RE promoters view their “market” within a larger context, they can craft more effective PPI strategies and alliances within each Ring of Influence so as to:– Include elements in PPI which create bridges or

buffers against macro-dysfunctions – Find and create non-traditional alliances

around mutual interests to advance RE cause– Find mutual benefits that can be leveraged

(community development) in PPI


Transition Model Application for RE

Objectives Barriers Mechanisms

Macro/ “National”

Kyoto/CO2,Oil dependence,Rural Economic Development

Financial markets, legal system, political resistance

Promote Economic Development initiatives

Meso/ Energy

Diversify fuel sources; extend energy to remote areas

Utility connection; small customer base

Regulatory reform

Micro/ RE Energy Access; SE for SD

Technical limits, capital cost, high production costs

Technical assistance; Risk mitigation; tax incentives


PPI at the Macro (Economic) Ring of Influence

Macro: Market, Econ, legal, Political Barriers• Legal – 3rd country arbitration, legal reforms, new laws• Finance – Counter-guarantees, IFI funds• Taxation – changes in tariffs, taxes, including carbon tax


PPI at the Meso (Energy Sector) Ring of Influence

Meso: Energy Market Context

• Utility Reform• DG connectivity• RPS/Feed-in Tarrifs/ PTC• Legal/political reforms for PPA, IPP or entrepreneurship• Carbon Taxes


PPI at the Micro (RE) Ring of Influence

Micro:

•Risk Finance - specific to RE

• Technical Assistance

• Public Awareness

• Project Level support such as production tax incentives, invest subsidies, etc


IIEC/Boell Study

• Using this transition model, IIEC and Boell have undertaken an exploratory study of Transitional PPI in five target markets: South Africa, Philippines, Brazil, Philippines, and Thailand (SEA).

• Purpose is to evaluate each nation’s unique challenges and opportunities, and to quickly evaluate RE PPI which are “transitional”.

• Provide lessons learned and framework for stakeholder dialogue


Transitional PPI Case Study Evaluation Process

• Review state of energy and national development goals

• Review specific “transitional” PPI, with focus on:– Goals, Barriers and Mechanisms, including

implementing agents– Funding sources and funder’s objectives– Beneficiaries/markets – needs, roles, barriers (NIMBY)– Outputs – expected and actual– Integration with other PPI

• Results and Lessons Learned– Replicability, applicability


India Case Study - MEDA

• MEDA, instituted by the Ministry of Non-conventional Energy Sources (MNES); initiated Wind Energy Program in Maharashtra by creating an investor friendly enabling environment

• Invested in Wind Energy to promote, sell electricity to the grid, generate revenue stream and resources to promote RE

• Demonstration of power wheeling system with Maharashtra State Electricity Board

• Operationalized Power Purchase Agreements and created favorable tariff recovery for wind energy


The Transition Model & PPIs in India

Macro: Market, Econ, Political Conditions

Meso: Energy Market Conditions

Micro: Sustainable Energy Market Conditions

-MNES-State Energy Development Agencies-IREDA

-Power Purchase Agreements-Preferential electricity tariff

-Solar water heating systems-Wind energy projects-Sugar COGEN


Transition in India - MEDA

Macro

Meso

MicroUtilizing RE &

Demonstrate Wind Energy Potential

Goal Barrier Mechanism

Evolve Renewable Energy Policy

Higher First-Costs

Offer Tariff Reductions, Accelerated Depreciation

Higher lead times for Power Purchase

Agreements

Integration with the (Electricity)

infrastructure

Regulatory Intervention for Fast=tracking PPAs

Regulatory Issues

Promotion of Open Access Policies


Brazil Case Study: PROINFA

• PROINFA – Program for Alternative Sources for Electricity was launched in April 2002 by a Federal Law.

• Expects in the 1st phase to authorize 3,300MW of renewable generation, and for a second phase reach 10% of electriciy generation.

• Only grid connected systems can be included at PROINFA.


The Transition Model & PPIs in Brazil

Macro: Market, Econ, Political ConditionsMeso: Energy Market Conditions


Unstable economy, lack of investments

No PPAs available

Industry lack of awareness


Transition in Brazil: PROINFA

Macro

Meso

Micro

Governance


10% Renewables in 2020 No PPA availableNo normative value

GOB offers long-term PPADefinition of normative value

Industry lack of awarenessCapacity building Focused training

Political changesHigh interest rates

Environmental authorizationPublic perception (high tariffs)

Private/Public partnershipAccelerate environmental

analysisPublic campaign


Thailand Case Study: RE PPIs

• SPP regulation of 1992 allows co-gen and renewable SPPs (< 90MW) to sell power to the grid. Due to low buy-back tariff, many projects were not financially feasible

• In 2001, EPPO introduced a subsidy from ENCON fund for qualified renewable SPPs. 43 proposals, 31 biomass SPPs approved, ~500MW with 3B Baht in ENCON subsidy

• New problems: Public perception


The Transition Model & PPIs in Thailand




- ENCON fund

- RE SPPs- RE VSPPs

- Solar Home System- COGEN3


Transition in Thailand: RE SPPs

Nationwide TV campaign

Macro

Meso

Micro

Utilizing RE &Less dependentOn imported fuel


Increase RE Mix No PPA mandate for RE Set out RE SPP regulation

No financial feasibilityCreate financial viability Financial incentives from The ENCON Fund

Public environmentalConcerns

Gain public acceptance


Philippines Case Study: CBRED

• RE Support for Existing Programs– Poverty Alleviation Program– Rapid Rural Electrification Program– WB Rural Power Project

• There have been a number of RE demo projects in the past; most not sustainable

• CBRED Project has been designed to address institutional, financial, technical, market, information and training barriers through capacity building.


The Transition Model & PPIs in the Philippines




-Poverty Alleviation Program

-Rapid Rural Electrification Program

-Capacity Building for Renewable Energy Development (CBRED)


Transition in Philippines: CBRED


Macro

Meso

Micro

Economic Growth & Poverty Alleviation

Lack of Supporting Infrastructure Rapid Rural Electrification

Increase widespread use of RE

Difficulty in accessing traditional financing windows

Capacity Building of Financial Institutions- FINESSE program

Increase NRE loan portfolio

Lack of bankable projectsInsufficient collateral

Set up a Project Preparation FundSet up a Loan Guarantee Fund


South Africa Case Study – RE White Paper

• Prior to 2003, RE PPI were not well coordinated and impacts were few

• Government recently approved a RE White Paper in which was first attempt to set meaningful targets and create an enabling environment for RE development

• PPI under White Paper may include rate set asides, guarantee purchases, rural electrification Programs, etc.


The Transition & PPIs in South Africa




RDP “Electricity for all’, NEPAD, BEE

Service delivery: electrification including off-grid

RE white paper (P) only PPI, PI still in development


Transition in South Africa: RE White Paper

Barrier Mechanism

Macro

Meso

Micro

Goal

Service Delivery

Largeun-serviced constituency

Electrification including off-grid

RDP 1994, ‘electricity for all’

Increased electrificationLong distances imply high

cost

RE White Paper

Set RE target contribution

Economic viability uncertain

Economic analysis for RE Target


Thank you for your attention

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