Renewable Energy, Privatisation and the World Bank Group, An NGO View

Renewable Energy, Privatisation and the World Bank Group, An NGO View
World Bank-led Privatisation Works against Renewable Energy Despite Early Promises of Energy Sector Restructuring
TNI Energy Project, September 2001

Via its policy prescriptions for restructuring, the World Bank has instigated sweeping changes to Indonesia's ailing energy sector.

Privatisation

World Bank energy policy in the 1990's was characterised by its dogmatic focus on privatisation of the energy sector. This narrow, market-locked policy of 'one size fits all countries' has pushed privatisation forward as if it were the panacea to the problems in the energy sector, rather than just one of the tools in the restructuring kit.

Deregulation

Unregulated electricity markets tend to favour the cheapest energy sources because they are deter-mined entirely by price, without capturing environmental and social externalities, or policy objectives such as clean air or rural electrification. Fossil-fuel power generation and distribution networks tend to be the cheapest option, partly because often the cost of the necessary infra-structure is already borne by the state and heavily subsidised. Risk averse, private investors tend to shy away from uncharted territories and, when price is everything, prefer the market size and relative safety of big, established grids. Such projects can benefit people that already have access to a grid but increasing supply to those that already have access can also introduce a disincentive for efficiency, increase inequity and reinforce the 'power poverty' of those who remain disconnected.

Renewable energy sources are perceived to be high-risk investments and, in the absence of public subsidies are expensive to finance. Without adequate regulation, the private sector has shown little interest in extending energy supplies to rural areas and prefers to concentrate on the larger scale, more lucrative contracts; supplying urban and industrial users.

In this way, the World Bank's policy of commercialisation has made conditions for large-scale fossil fuel technologies even more favourable to investors.

Fossil Traditions

World Bank investment overwhelmingly favours fossil-fuelled energy production. From 1980 to 1997 less than 2% of World Bank energy sector lending went to renewable energy projects. Investment in renewable energy has since increased but is still dwarfed by oil and coal.

The way that the Bank adds up the costs and benefits of projects also works against renewable energy technologies because full life cycle costs are generally not counted. Most of the costs for renewable energy and energy efficiency projects occur early in the project's life whereas a coal plants costs are more evenly spread over the life of the project and are usually publicly subsidised.

For NGOs, pinning down Bank policy can be an added hurdle. After a great deal of NGO input, the intended operations document Fuel for Thought, failed spectacularly to achieve its goals and, after internal reviews, was retracted quietly by the Bank late last year. Retrospective policy changes are an unwelcome complication, as are the many rhetorical policies about greening energy investments which have served only to 'green-wash' an otherwise 'brown' portfolio. While the Global Environment Facility has brought some renewable power online, it also divert attention from the Bank's failure to implement its principles of environmental sustainability and rural power provision that it promises in its own policy documents.

The Wrong Renewables?

On the occasions renewable energy has featured, the World Bank focused on grid-connected or grid-scale renewable options - often without due consideration for community participation. Without effective engagement, large renewable projects, like any large project, can wholly inappropriate to local conditions - or merely ineffective, for instance, once again supplying wealthier urban energy users rather than the rural areas that then remain powerless.

Where to now?

For Indonesia, most of which lacks grid access, smaller decentralised projects are necessary to meet electricity needs and power sustainable economic development. Outside Indonesia, NGO efforts have been concentrated over the years on reforming Bank policies on renewable energy - albeit with discouraging results so far. Renewable energy has still to be implemented as a component of the Bank's mainstream policies and operations, rather than an afterthought. While international NGOs work towards this end, NGOs and civil society within Indonesia can engage newly forming regulatory bodies and stakeholders to help build the framework that tilts the playing field away from centralised fossil grid power to decentralised renewable off-grid rural power.