Clemencia Torres de Mästle The World Bank Washington, D.C. February 15, 2006 Access to Electricity services

2 Outline of the Presentation 1. Introduction 2. Why does access matter? 3. Main challenges 4. Solutions for expanding access 5. Banks role: some examples

3 1. Introduction Multiple Dimensions of Electricity Services Multiple Dimensions of Electricity Services Access Quality of service Efficient use Environmental impact The Presentation will focus on Access The Presentation will focus on Access

4 Access to electricity is low…

5 Country or region Population without Electricity (million) % Population with Electricity % Urban Population with Electricity % Rural Population with Electricity South Asia Sub-Saharan Africa North Africa & ME East Asia Latin America Developing Countries 1, Sources: World Bank, 2000, IEA …especially in rural areas

6 2. Why does access to electricity matter? Key input for economic development and improved living standards Growth and poverty reduction Education Gender equality Health Environmental sustainability Source: Energy Poverty Issues and G8 Actions, The World Bank, Moscow/Washington DC, February 2, 2006

7 Millennium Development Goals Electricity matters Source: Source: Barnes, Douglas (2000) World Bank. "Social Infrastructure and Poverty Studies"

8 3.Challenges to Expand Access to Electricity (1/2) General: Lower Income DwellersLower Income Dwellers Low consumption of EnergyLow consumption of Energy High Cost-Low ReturnHigh Cost-Low Return Rural: (Even more costly) Remote Areas Remote Areas Low density of population Low density of population Urban: (additional issues) Illegal Settlements Illegal Settlements

9 BAHIA Grid extension costs per consumer in US$ Columns: Distance from existing grid in km Posts per consumer 0-1 >1 – 5 > 5 – 10 > 10 – 20 > > > 0.5 – > 1.1 – > 2.1 – >4>4>4> The low hanging fruit has been picked difficult users remain, costs go up

10 Challenges to Expand Access to Electricity (2/2) Free-Market Reforms initially brought more investment, but with scant trickle down effect towards the poorest. Free-Market Reforms initially brought more investment, but with scant trickle down effect towards the poorest. Obligation to serve of Utilities limited to a given area. Obligation to serve of Utilities limited to a given area. National uniform tariff and badly targeted subsidies hinder cost-recovery and lead to poor service. National uniform tariff and badly targeted subsidies hinder cost-recovery and lead to poor service. Unrealistic standards of service and equipment quality in rural areas. Unrealistic standards of service and equipment quality in rural areas. Difficulty to monitor and enforce compliance in distant and disperse communities. Difficulty to monitor and enforce compliance in distant and disperse communities.

11 4. Solutions for expanding access (1) in Urban and peri-urban areas Problems Solutions Volatile income of poor dwellers discourages connection Volatile income of poor dwellers discourages connection Illegal settlements Illegal settlements Financial & regulatory hurdles to extend distribution lines beyond area of mandatory coverage. Financial & regulatory hurdles to extend distribution lines beyond area of mandatory coverage. Pre-paid smart meters; subsidies to connection; social tariffs Pre-paid smart meters; subsidies to connection; social tariffs Land titularization; urban planning with basic infrastructure Land titularization; urban planning with basic infrastructure Fine tuning laws and regulations with respect to property rights and financing of the distribution lines. Fine tuning laws and regulations with respect to property rights and financing of the distribution lines.

12 4. Solutions for expanding access (2) in rural areas 4. Solutions for expanding access (2) in Rural Areas High Cost/Low returns: users in remote and disperse areas, more expensive to serve, particularly with traditional grid expansion… Better Subsidies: Investment rather than use Alternative technologies: Solar, Wind, Hydro, Minigrids Integral solutions to maximize development impact of electricity Light handed regulation suited to rural characteristics 4. Solutions for expanding access (2) in rural areas 4. Solutions for expanding access (2) in Rural Areas High Cost/Low returns: users in remote and disperse areas, more expensive to serve, particularly with traditional grid expansion… Better Subsidies: Investment rather than use Alternative technologies: Solar, Wind, Hydro, Minigrids Integral solutions to maximize development impact of electricity Light handed regulation suited to rural characteristics

13 5. Banks Role in Increasing Access to Electricity: Some Examples

14 Analytical Work (1): Regulatory Principles for Electrification (ESMAP, 2006) Analytical Work (1): Regulatory Principles for Electrification (ESMAP, 2006) Defining more efficient, light handed regulations for RE, in light of the peculiar characteristics of rural areas: Difficulty of enforcement due to the distance and the dispersion of population. Diversity of technologies with different regulatory requirements. Source: Reiche/Tenenbaum/Torres. Promoting Electrification: Regulatory Principles and a Model Law. ESMAP and EWDEN - Washington DC

15 Analytical Work (2): Subsidy Design for Electrification Analytical Work (2): Subsidy Design for Electrification Electricity subsidies are ubiquitous! (1), (2) Quantity-based subsidies perform poorly! (1) subsidize connections, not tariff self selection and geographic targeting Pay attention to practical success factors! (2) s ecure funding disburse performance-based fit competition type to market stage fit risk allocation and financing to provider size Sources: - - (1) Komives/Foster/Halpern/Wodon. WHO BENEFITS FROM UTILITY SUBSIDIES? WATER, ELECTRICITY, AND THE POOR. World Bank - Washington DC – (2) Reiche/Rysankova/Goldmark. OBA Subsidies for Electricity Access in Latin America. World Bank - Washington DC – forthcoming

16 Argentina - PERMER Renewable Energy for Rural Markets Project Project: 30,000 rural households + schools off-grid concessionaires or coops providers chose technology users choose service level part of subsidy paid against installations Financing: $10 GEF $30 IBRD $44 Concessionaires $26.5 FEDEI (Gov. Fund) $10 Users $120.5 million Total

17 Argentina - PERMER Renewable Energy for Rural Markets Project Technology neutral supply for remote rural users… Solar Home Systems Wind Home Systems PV-diesel-battery village grids hydro village grids wind-diesel village grids diesel village grid clusters

18 Nicaragua PERZA A US$ 22 million IDA/GEF/GoN project to service isolated areas with private providers over 5 years.

19 Nicaragua PERZA Key Elements Integrated provision of services to rural areas: Electricity, micro- finances and BDS. Integrated provision of services to rural areas: Electricity, micro- finances and BDS. Output-Based Subsidies for Electricity and for BDS Output-Based Subsidies for Electricity and for BDS Support to RE policies, institutional strengthening and investment in actual projects Support to RE policies, institutional strengthening and investment in actual projects Civil Society Participation: Politicians, IFIs, communities, Private Sector and NGOs. Civil Society Participation: Politicians, IFIs, communities, Private Sector and NGOs. maximizes development impact & ensure business sustainability maximizes efficient use of scarce resources support long term impact, replicability & sustainability demonstration effects & learning by doing make it possible, efficient & sustainable in remote areas

20 Thank you