The Challenge of Low-Carbon Development - World Bank Internet ...

A second issue, inherent to any advanced technologyproject, has to do with cost uncertainty and paucity of suppliers.When a technology is new, there will be few experiencedsuppliers, and cost information will be uncertain andclosely held by those few. In the case of the GEF-Bank CSPprojects, initial cost estimates were grossly underestimated.Actual bids came in well above the estimates, but the GEFgrant amounts were already fixed. Hence the size of the CSPplants had to be scaled back, a process that incurred renegotiationand delay. In addition, procurement staff had towrestle with the problem of few qualified bidders. Althoughprocurement rules exist for this circumstance, its relativenovelty led to a cautious and protracted process.A further obstacle was the Bank’s initial insistence thatthe CSP plants be operated by private sector independentpower producers (IPPs). There was great enthusiasm forIPPs in the Bank at the time, but they were not present inthe CSP host countries even for traditional power plants.The IPP requirement thus complicated a technologicalinnovation by overlaying an institutional one. Moreover,the IPP approach held no attractions for the state utilities,whose cooperation was essential.During the long gestation period of the three survivingprojects, much changed at GEF and in the power industryat large. Disenchanted with OP7, the GEF eliminatedit. Meanwhile, CSP experienced a renaissance, driven by aSpanish policy of generous feed-in tariffs and renewed interestin the United States. (The GEF projects, according tosome industry observers, may have helped maintain interestin CSP in the meantime.) Costs appear to have declined,and several different technologies became available.Buoyed by these changes and the advent of the CleanTechnology Fund, and subjected to vigorous external criticismfor prioritizing coal over CSP, the WBG is planninga $750 million investment in a $5.6 billion, 900-MW setof CSP projects in Algeria, Egypt, Morocco, Jordan, andTunisia. A project is also planned for South Africa. Unlikethe modest original investment, these new projects wouldpotentially increase cumulative global capacity by a significantproportion and would be geographically concentrated.So there is a greater potential for advancing the globallearning curve. The imminent completion of the CSP projectsin Morocco and Egypt may help inspire interest in andsupport for the wider new venture.China Efficient Industrial Boiler ProjectIn the early 1990s, GEF-funded World Bank-Chinese analysis(NEPA and others 1994) found that industrial boilersconsumed 350 million tons of coal annually (more thanthe power sector) and accounted for 30 percent of China’senergy-related CO 2emissions. The boilers were also responsiblefor a large proportion of health-damaging urbanair pollution and crop-damaging acid rain. The report suggestedthat better boiler designs could yield 10–20 percentefficiency gains.Consequently, a 1997 GEF-funded, Bank-executed projectsought to spur Chinese capacity to build efficient industrialboilers, complementing government efficiency policies. Theproject’s objectives were to reduce GHG emissions and localair pollution through the development and deploymentof “affordable, energy-efficient and cleaner” boilers throughdesign and policy reform. Most of the $32 million grant wasspent on acquiring technology (IPRs) for new or upgradedboiler designs and auxiliary equipment (such as grates) andtransferring the technology to domestic manufacturers.Procurement was protracted and difficultbecause few companies were interested inselling the technology.Two problems were encountered during implementation.Both related to the project’s strategy of picking winners, thatis, precisely specifying the boiler types to be transferred.First, procurement was protracted and difficult. A combinationof small contracts, tightly specified technologies, anda two-step (technical/financial) bidding process, togetherwith concerns about IPR security, deterred participation byforeign technology suppliers. Only one package had multiplebidders, and two had none. Then, “once contracts wereawarded, contract negotiations proved difficult in somecases, due to difficulties in meeting commercial terms andperformance criteria using Chinese coals. Coupled withmisunderstandings concerning Chinese and internationalcontracting procedures, all of these factors contributed todelays in finalizing technology transfer contracts” (WorldBank 2004). This process delayed implementation by atleast two years. Meanwhile, evolving environmental regulationsbanned the deployment of some of the smaller boilersselected for the project.The project concluded in 2004. A follow-up survey commissionedfor this evaluation found that the beneficiarycompanies produced a total of 7,414 tons per hour of newboilers in 2009, accounting for 3.3 percent of the nationalmarket against an anticipated 35 percent.A 1997 project transferred technologylicenses for efficient industrial boilers toChinese manufacturers.Firms had divergent experiences. Two companies werehighly successful in producing and marketing the newboilers. These well-run companies invested in their own researchand development, improving the designs and keepingcosts nearly competitive with the older, less-efficientSpecial Topics | 67