FINANCING FOR DEVELOPMENT: ENERGY POLICY CHALLENGES

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1 Your Logo Here FINANCING FOR DEVELOPMENT: ENERGY POLICY CHALLENGES Presented by Presented by Dr. Mandla Gantsho Dr. Mandla Gantsho Vice President: Infrastructure, Private Sector & Vice President: Infrastructure, Private Sector & Regional Integration Regional Integration African Development Bank African Development Bank 30 May May 2007

2 Outline Energy and MDGs Current Realities: Facts & Figures Potential Barriers to Access Energy and Climate Change Policy Implications: Framework Pillars Responses: National, Regional & Continental Financing Energy Development Role of DFIs ADB Group Role Conclusion

3 Energy & MDGs Energy is central to achievement of MDGs: Poverty and hunger Universal primary education Gender equality & women empowerment Child mortality Maternal health HIV/AIDS, malaria and other diseases Environmental sustainability Global partnership for development

4 Outline Energy and MDGs Current Realities: Facts & Figures Potentials Barriers to Access Energy and Climate Change Policy Implications: Framework Pillars Responses: National, Regional & Continental Financing Energy Development Role of DFIs ADB Group Role Conclusion

5 Current Realities

6 Facts & Figures (1/2) More than 600 million people without access to electricity... & increasing: 1.9% rate of new household formation vs 1% rate of new connections Disparity among countries & regions Electricity access rates: above 95% in North Africa and less than 20% in Sub Saharan Africa: 47% in Southern Africa; 29% in West Africa; 10% in East Africa and less than 10% in Central Africa & Island states Urban vs rural settlements

7 Facts & Figures (2/2) Energy consumption: 0.63 toe vs 1.72-world average (4.31 in Western Europe & 8.46 in North America) Predominance of biomass: More than 70% of energy balance and up to 95% in certain countries Energy reserves regionally located: Oil & gas in West & North Africa Hydro in Central Africa Coal in Southern Africa Geothermal in East Africa

8 Outline Energy and MDGs Current Realities: Facts & Figures Potential Barriers to Access Energy and Climate Change Policy Implications: Framework Pillars Responses: National, Regional & Continental Financing Energy Development Role of DFIs ADB Group Role Conclusion

9 Potential. Over 1700 TWh economically exploitable hydropower 9000 MW of untapped geothermal resources Unlimited biomass potential Substantial solar radiation Significant wind power potential Increased availability through energy efficiency Fossil fuels (oil, gas & coal)

10 Outline Energy and MDGs Current Realities: Facts & Figures Potential Barriers to Access Energy and Climate Change Policy Implications: Framework Pillars Responses: National, Regional & Continental Financing Energy Development Role of DFIs ADB Group Role Conclusion

11 Barriers to Access Need for long-term vision to scale up service provision Institutional capacity Shortfall in public funding Poor maintenance of infrastructure Weak environment for private sector investment Small domestic markets Vulnerability to oil price volatility Obstacles to efficient pricing

12 Outline Energy and MDGs Current Realities: Facts & Figures Potential Barriers to Access Energy and Climate Change Policy Implications: Framework Pillars Responses: National, Regional & Continental Financing Energy Development Role of DFIs ADB Group Role Conclusion

13 Energy & Climate Change Energy the largest source of CO 2 emissions in Africa - 54% Africa is highly vulnerable to climate change: Agriculture and food security Half of the continent will face water stress Spread of diseases Risk to coastal areas could force major population movements Negative impacts on peace and security

14 Outline Energy and MDGs Current Realities: Facts & Figures Potential Barriers to Access Energy and Climate Change Policy Implications: Framework Pillars Responses: National, Regional & Continental Financing Energy Development Role of DFIs ADB Group Role Conclusion

15 Policy Framework Objectives: Scale up access: focus on MDGs Promote private investment Increase the proportion of clean energy in the energy mix/balance Strengthen ability to adapt to climate change Create a conducive climate for investment in efficient and cost-effective energy development initiatives

16 Pillars of Framework Energy for development: increasing access to energy (urban and rural; social and economic) Transition to low carbon economy: focus on cleaner use of energy, increase utilization of renewable & energy efficiency technologies Adaptation to climate change: climate proofing of investments and integration of adaptation into project cycle

17 Policy Considerations Scale up access and security of energy supply Impact of energy on climate change Adaptation to climate change: Renewable energy Energy efficiency - biomass Nuclear energy Oil & gas (pooling of resources) Coal

18 Policy Considerations (2/2) Priority areas Enabling environment Mobilization of financing, PPPs & access to CDM Renewable energy and energy efficiency Energy optimization for transport sector, biomass, etc.

19 Policy Responses: National Establish/strengthen Independent Regulatory Bodies Policy reform to open up the energy chain: remove barriers to entry by IPPs Introduce incentives for renewable & energy efficiency technologies (subsidies, penalties, taxes, etc.) Set energy mix targets (e.g. 20% by 2020) Decentralized rural electrification (on & off-grid) Commercialize State Owned Enterprises Provide safety net for the vulnerable SOEs can leverage own balance sheets to mobilize investment capital Training and capacity building of energy sector expertise

20 Policy Responses: Regional (1/2) Strengthen selected RECs Capacity to plan & sponsor regional projects (AU/G8 Initiative) Enhanced capacity for project preparation, e.g. IPPF Pooling of resources Power generation (including renewable and nonrenewable resources) Interconnections (electricity, oil and gas pipelines) PPPs Sharing of expertise and knowledge at the power pools level

21 Policy Responses: Regional (2/2) Building regional markets Implementation of binding protocols (e.g. power purchase agreements) Harmonize national (institutional, regulatory) policies with regional policies Institutional arrangements for effective regulation at the regional level

22 Policy Responses: Continental KEY ROLE FOR NEPAD: Vision & Strategy Promote regional integration imperative Regional safety and security Mobilize resources (e.g. IPPF) THROUGH: Promotion of good governance/transparency Mobilization of political commitment Facilitation of knowledge-sharing, networking & dissemination of best practices Promotion of energy security

23 Missing Links

24 Outline Energy and MDGs Current Realities: Facts & Figures Potential Barriers to Access Energy and Climate Change Policy Implications: Framework Pillars Responses: National, Regional & Continental Financing Energy Development Role of DFIs ADB Group Role Conclusion

25 Financing Energy Development Significant financing gaps: Regional electricity missing links : USD 11 billion Donor commitments increasing, but not sufficient Growth from USD 1.9 billion in 2005 to USD2.4 billion in 2006 USD 10 billion per annum for 100% access by 2030

26 Outline Energy and MDGs Current Realities: Facts & Figures Potential Barriers to Access Energy and Climate Change Policy Implications: Framework Pillars Responses: National, Regional & Continental Financing Energy Development Role of DFIs ADB Group Role Conclusion

27 Role of DFIs TRIPLE ROLE: Catalytic Financier Knowledge Broker Development Partner

28 Outline Energy and MDGs Current Realities: Facts & Figures Potential Barriers to Access Energy and Climate Change Policy Implications: Framework Pillars Responses: National, Regional & Continental Financing Energy Development Role of DFIs ADB Group Role Conclusion

29 ADB Group Role (1/2) CATALYTIC FINANCIER Cumulative investments in Energy Sector: US$ 5 billion Enabler and risk mitigation role Promote PPPs; private sector investment, e.g. Promotion of Pan African Infrastructure Development Fund KNOWLEDGE BROKER Policy support to Governments, RECs, NEPAD Information dissemination: e.g. Initiative on Best Practice in Infrastructure Delivery

30 ADB Group Role (2/2) PARTNER Management of IPPF Technical support for ICA Advocacy/support for PPPs Co-financing arrangements with multilateral/bilateral DFIs

31 Outline Energy and MDGs Current Realities: Facts & Figures Potential Barriers to Access Energy and Climate Change Policy Implications: Framework Pillars Responses: National, Regional & Continental Financing Energy Development Role of DFIs ADB Group Role Conclusion

32 Conclusion Strong commitment to address Africa s energy challenges: However, needs continue to grow Need to build on momentum for change: Enabling policy environment for investment in energy sector a key first step There is clarity on what needs to be done: Regional Entities Governments Donors Private Sector Challenge is now to deliver on commitments

33 THANK YOU