strategy

Financing energy efficiency

Synonyms:
Providing loans to the energy sector
Subsidizing energy efficiency measures
Context:
This strategy features in the framework of Agenda 21 as formulated at UNCED (Rio de Janeiro, 1992), now coordinated by the United Nations Commission on Sustainable Development and implemented through national and local authorities.

The World Bank, and other Multilateral Development Banks (MDBs), are the main source of public funds for energy investments. As "lenders of last resort", and as banks for "reconstruction and development", the MDBs are mandated to accept larger risks than commercial banks. This means that the MDBs are in a position to lead the way in the transition to sustainable energy supply and use by taking on board the financial risks associated with opening markets for new and renewable energy technologies. However, the MDBs have a history of concentrating on large-scale, capital intensive energy expansion projects in their lending operations. Increasingly, they are also recognizing the need to promote sustainable energy, and are taking various initiatives to do this. However, it is apparent that these initiatives are barely influencing current MDB energy operations, which are still strongly biased towards supply-oriented and fossil-fuel based investments. Moreover, there is no significant trend in the MDBs' project pipelines to indicate that reforms are taking hold.

Implementation:
In 33 years of operation in Latin America and the Caribbean, the Inter-American Development Bank (IDB) has made 257 loans for US$14,200 million to finance $53,200 million in projects in the energy sector. Some of the largest loans in the energy sector in 1993 include: $500 million for the Caruachi hydroelectric power project in Venezuela; $328 million for the Porce II hydroelectric power plant project in Colombia; $320 million for the Costa Rican electric power development programme, stage II; and $57.5 million for private sector energy development in Jamaica.

The potential for energy efficiency technology in East Europe is very large with many benefits for industry, improved housing conditions and reduced environmental pollution. Increased interest in financing energy efficiency projects has been expressed recently by the World Bank, the European Bank (EBRD), and the International Finance Corporation (IFC) which may be able to benefit from the successful experiences of eastern European commercial banks already active in this field. Discussions covered multilateral financial mechanisms such as those operated by the European Union, bilateral financing programmes involving innovative approaches such as the German Aid Programme for Energy Efficiency Support in Hungary and the activities of the international financial institutions such as the World Bank, EBRD and the IFC. In addition recent developments for financing mechanisms under the Energy Efficiency 2000 Project in the form of the Energy Efficiency Demonstration Zones l were presented which are under development in the Russian Federation and have been proposed on 27 more sites in 14 other central and eastern European countries. Work in the Russian Demonstration Zones has led to the development of self-financing technical assistance schemes in which western investments in energy efficiency technology are repaid with the oil or gas recuperated by the activities within the zones.

One key constraint to implementing energy efficiency has been the apparent lack of good projects in East Europe for the international financial institutions and bilateral fund managers while central and eastern European cities and enterprises have been in need of investment capital from those sources. A second important initiative taken by the [Energy Efficiency 2000 Project] was the [Ad Hoc] Group of Experts which met in Budapest. Manuals on Financial Engineering and on Business Planning are the first publications of this group; they have been prepared largely by the Magyar Hitel Bank.

Subjects:
Energy
Finance
Credit
Cybernetics
Type Classification:
D: Detailed strategies