The World Bank Group recently held a workshop to discuss the topic of what policies work best. The workshop noted that investment in renewable energy worldwide rose to about $250 billion in 2010, up from $160 billion in 2009, to reach about 20% of new investment in the energy space. This is rapid growth, but most analysts agree that it must reach several trillions of dollars a year to propel the needed transition to a sustainable energy future. At the workshop, government and energy utility policymakers compared notes with private sector energy providers and analysts on experience with feed-in tariffs, renewable portfolio standards and energy auctions, among others.
For renewable energy, workshop presenters agreed that policy design and precision are essential to get the best deals for renewable energy. Among the key points that emerged from the workshop:
- a package of complementary policy instruments is most likely to deliver a gradual shift to a lower-carbon energy path
- governments need to set a clear policy purpose and vision for renewable energy and energy efficiency that is certain, long-term and transparent
- FiTs (feed-in tariffs) and auctions’ success depends on system and market conditions: legal and regulatory conditions, institutional and administrative efficiency, and the existence and use of risk-mitigating financial instruments
- RE policies must be coordinated with local energy market conditions
- Policies that have proven their value over time include:
- Reverse auctions
- Adequate FiTs with long-term power purchase agreements
- Mandatory access to the grids
- Incremental cost pass-through.
For energy efficiency, participants were told that a mix of policy tools is also needed to scale up energy efficiency. To promote supply-side energy efficiency, the most common incentives are competitive bidding to elicit proposals that offer the greatest kWh savings, or standard offers in which the government regulator sets the price. Several experts at the workshop lamented the fact that energy efficiency incentives lag behind those for renewable energy.
There was consensus among practitioners that rapid progress is needed on both the supply and demand fronts. To do that, developing countries need support for policy design and financing of energy efficiency as well as renewable energy, on a level-playing-field, based on thorough assessments of their relative attractiveness.
For more information on the workshop, including downloading presentations, visit the World Bank website.
Energy in Demand - Sustainable Energy - Rod Janssen 