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

World Bank experienceTwo factors accounted for the success of the projects inBangladesh, Sri Lanka, and China. Consumer finance wascrucial. In Sri Lanka’s energy services delivery project, theSHS vendors and commercial banks were expected to providefinancing but proved ill suited to deal with collectingpayments from the highly decentralized off-grid customers,and the project languished. The project took off aftershifting to a microfinance model.The Bangladesh Renewable Energy for Rural EconomicDevelopment project also relied on well-functioning microfinanceinstitutions. China’s Renewable Energy DevelopmentProject (REDP) achieved success despite lack offinancing arrangements in provinces where many clientswere yak herders who could self-finance a system throughsales of their animals.Microfinance was a critical input forsuccess in several projects.The second factor was the use of output-based producersubsidies. The development of the Chinese industry isnoteworthy, as it illustrates an effective set of mechanismsto promote manufacturing quality and capabilities.Demand-driven grants enabled companies to improve theirtechnologies and financial management systems. Technology-neutralsubsidies—contingent on achieving qualitystandards—served as an incentive to improve quality, providedsmall firms with capital for expansion, and were tosome degree passed on to consumers, boosting demand.As a result, the SHS companies doubled their employment,tripled sales and service outlets from 266 to 721, and morethan tripled sales. The inland city of Xining emerged as amanufacturing center and began to export products.Quality-contingent output-based producersubsidies were important.It is difficult to discern the impact of certification or labelingon consumer perception of quality and therefore ondemand. China REDP supported the development of a“Golden Sun” quality label, but rural familiarity with thelabel appears to be low, and exporters seek internationallyrecognized certification.Projects in Argentina, Bolivia, Indonesia, Mongolia, andSri Lanka aimed to support the development of policyframeworks for off-grid electrification. The Sri Lanka effortwas most clearly successful. In Sri Lanka, the energyservice delivery project indirectly influenced the governmentto rationalize a photovoltaic module import tariff,which was reduced from 35 to 10 percent. Toward the endof the project, the government also introduced its newrural electrification policy, which aims to promote sustainablemarket-based provision of rural service. In contrast,in China, India, and the Philippines, multiple competingprograms for SHS promotion sometimes worked at crosspurposes, with heavily subsidized programs undercuttingthe progress of more market-oriented ones.IFC experienceIFC’s attempts at promoting private sector developmentin the SHS market were generally less successful than theBank’s. A candid IFC review (IFC 2007) points to a lack offlexibility; this is consistent with internal evaluations andwith the views of an industry participant and former client(Miller 2009). A $41 million effort initiated in 2000, the SolarDevelopment Group, comprised for-profit private equity financeand nonprofit technical assistance—in two arms thatwere intended to cooperate but failed to do so. The equityfinance arm collapsed having disbursed only $650,000, avictim of unrealistic expectations about industry profitabilityand rigid procedures. The technical assistance arm, moreflexible and less demanding of returns, disbursed about$2.2 million to 53 small companies spread across manycountries, so that the overall impact was highly diluted. IFCnoted also a failure to coordinate IFC activities with WorldBank support for favorable renewable energy policies.IFC’s approach has been less flexible thanthe Bank’s and has had less success.A more recent IFC-GEF effort, the Photovoltaic MarketTransformation Initiative, provided $30 million to supportphotovoltaic enterprises in India, Kenya, and Morocco.Initially overly bureaucratic, it was restructured for moreflexibility. It has been successful in India, where it hassupported performance guarantees and higher-qualityproducts, though initially it was poorly coordinated with theWorld Bank project. The Initiative has been less successfulin Morocco and Kenya.ImpactsA goal of these projects was to sustainably reduce the price ofSHS and thereby increase access. In general, closed projectsall observed reduction in the cost of photovoltaic systems.Under China REDP, photovoltaic system costs declinedfrom about $16/Wp to $9/Wp. In Uganda, the photovoltaicsystem cost declined from $20/Wp to $12–17/Wp by the endof 2008. These declines probably reflect increased domesticcompetition. The programs are too small to have affected theglobal market for solar modules, where increased Europeandemand drove down prices over the decade.Projects have generally reduced the localcost of photovoltaic systems.Renewable Energy | 29