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Development Banks & Energy
New Initiatives, But Lack of Progress. Massive Support Continues for Unsustainable Energy.
The importance of international financing for the development of the energy systems of developing countries and of Central and Eastern Europe is indisputable. The
decision of which energy investments to make is often a question of which funds are available.
Even where sustainable energy solutions are the most cost-effective way of providing basic energy services, they are only chosen if they have equal funding
opportunities. And this is too often not the case. This is why we focus on financing in this issue, describing the problems and some of the better examples on how
multilateral development banks' financing can be used for sustainable energy.
Promising Initiatives
In relation to energy, the World Bank and other Development Banks are promoting or supporting deregulation of the energy sector to varying degrees through technical
assistance, policy dialogues, seminars, and loan conditionality. In the midst of this, there are examples of market-based initiatives to promote sustainable energy.
The World Bank's private-sector lending arm, the International Financial Corporation (IFC), for example, has launched a Photovoltaic Market Transformation Initiative
(PVMTI), which will award $30 million competitively, through the Global Environmental Facility (GEF), to companies promoting solar PV. The IFC has also created a
commercial debt and equity fund, capitalized at between $150 to $240 million, called the Renewable Energy and Energy Efficiency Fund (REEF) to promote small
renewable and energy efficiency projects. Further, the World Bank, the IFC, US-based private foundations, and others are proposing a Solar Development Corporation
(SDC) to provide business development services to local solar entrepreneurs. The SDC would also provide credit to solar businesses and to purchasers of solar home
Liberalization Favours Fossil Fuels
Despite promising initiatives such as those mentioned above, however, deregulation is tending to promote oil, coal, and gas (fossil fuels) in the short term. Meanwhile, the
extension of modern energy services into rural areas, along with initiatives in renewable energy, energy efficiency, and biomass, are being placed at a disadvantage. This
is partly because their capital costs for new and renewable technologies tend to be higher, and partly because the price of fossil fuels doesn't include external social and
environmental costs.
A central issue is the way in which reforms take place and are regulated. In this context, public energy policy seems to be key. The central theme of all the development
banks' energy activities is liberalization. So, market regulation is becoming increasingly important in ensuring wider access to energy services and in promoting efficient
use of renewable-energy sources. This is problematic in many of the countries in which the development banks operate, however, because of their lack of experience
with open regulatory processes. Indeed, some countries simply do not disclose information on private-sector loans. This makes the role of the development banks all the
more important in ensuring that regulations protect the public interest and lead to sustainable energy development.
Inadequate Regulations
In the face of a need for strong regulations, the development banks' own regulatory policies for the promotion of sustainable energy seem weak. The 1992 energy
policies of the World Bank, for example, contain important language relating to the promotion of sustainable energy, but the Bank's current restructuring process has led
to the downgrading of these policies in August, 1996 into non-binding ìGood Practiceî documents. So, there are now no mandatory performance indicators against which
to judge the sustainability of the Bank's energy investments.
Unsustainable Operations
Most recently, a June-í97 study by the Washington, DC based Institute for Policy Studies, 'The World Bank and the G7: Changing the Earth's Climate for Business', has
claimed that the World Bank is still massively supporting unsustainable energy development.
Regional Banks: Much the Same
The situation in the regional development banks is mixed but shows the same general picture: an interest in sustainable energy is stated by the banks, various promising sustainable energy initiatives exist, but there is a lack of progress in mainstreaming these initiatives. -The European Bank for Reconstruction and Development - faced with energy intensity that is 1.5 - 6.4 times higher than that of EU countries, and with electricity use per unit of economic output typically twice as high as that in OECD countries - created an Energy Efficiency Unit in 1995. Its impact has been limited, however, and, meanwhile, the EBRD is promoting further development of nuclear energy in Bulgaria, Lithuania, Russia, and Ukraine through its Nuclear Safety Account. -The Inter-American Development Bank, for the most part, is promoting regional energy integration based on fossil fuels, especially natural gas, and has recently downgraded its energy policies. -The African Development Bank made an effort to produce an energy policy in 1993, drafts of which contained important language on the creation of capacity for African countries to implement an integrated least-cost energy-planning approach. It has yet to finalize the process, and its energy lending is not based on sustainability criteria. -The Asian Development Bank has shown increased attention to already commercialized renewable-energy sources, such as wind and small hydro, and has begun to take up demand-side management. Unfortunately, it seems to be neglecting a huge array of options for demand-side energy efficiency.
Still a Major Role for NGOs
Trade unions, politicians, social and consumer organizations, and other potential agents continue to be absent from the arenas of energy and development. It is clear that environmental and developmental NGOs still have a major role to play in efforts to reorient MDB energy activities towards sustainable energy. More information: Ian Tellam, Coordinator Energy, Both ENDS, Damrak 28-30 1012 LJ Amsterdam, Netherlands, ph: +31 20 623 0823, fax: +31 20 620 8049, e-mail:
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Sustainable Energy News
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ISSUE #20 Sustainable Energy News (16 pages) (1998-02-01)
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