Learning Curves

OED
July 2007

EnergyEfficiencyforaBetter Future

TheAsiaandPacificregionisconsumingagrowingshareoftheworldstotalprimary energysupply.Thisgrewfrom13%in1973to25%in2003.Althoughusepercapitaislow,it willincreaseasincomesandstandardsoflivingimprove.Regionalconsumptionisexpected toriseby89%andaccountfor30%oftheworldsby2030. HowcantheAsiaandPacificregionmeetdemandforenergyinthemostcosteffectiveand environmentallysustainablemanner?Whataretheinherentconflictsandissuesin developinginfrastructurefortheenergysector?HowmightADBhelp?

Background TheAsianDevelopmentBank(ADB)drewupan energypolicyin1981,inthewakeoftheoilcrisisof 1979.Theworldfacedrecordhighpricesforcrudeoil andmanywereconcernedaboutsecurityofsupply. Thepolicyaimedtodevelopinfrastructure,especially forindigenousenergy;promoteenergyefficiency;and encourageforeigninvestments.ADBrefinedthepolicy in1995.Powersectorsweregrowingbuttheir managementwasinefficient,anoutcomeofthedual roleofgovernmentsasmonopolyownersandpolicy makers.ADBsoughttohelpdefineaproperrolefor government;enhancetheefficiencyofproduction, transportation,andenduseofenergy;andintegrate environmentalconsiderations.In2000,itredraftedthe policyinlinewiththesharperdefinitionofADBs overarchinggoal,thatbeingtoreducepovertyinAsia andthePacific.Thenewpolicyunderlinedpoverty reduction,privatesectorparticipationandsector restructuring,theenergyenvironmentnexus,and regionalcooperation. In2006,theOperationsEvaluationDepartment conductedaSpecialEvaluationStudyonEnergy Policy2000Review:EnergyEfficiencyforaBetter Futuretofacilitateworktowardanewstrategy. 1 The methodologyincludedareviewoftheexternalcontext, includinginternationalandregionalagreementsand strategicinvestmentsovertime.Italsocalledfor strategicthinkinginrelationtotheglobalimportanceof energy;alarmovergreenhousegasemissionsand
Operations Evaluation Department Asian Development Bank

globalwarming;trendsinfuelcost,technology innovationsandapplications;andmanagement practices.Dataandinformationweretappedin interviewswithADBstaff;governmentofficials; investorsandoperators;publishedreportsofADB, othermultilateraldevelopmentbanks,and governments;andoperationalrecordsandmanagement informationsystemsinADB.Thestudyleanedon sectorassistanceprogramevaluationsinBangladesh, Pakistan,andthePhilippines,projectperformance evaluations,andvisitstoIndia,thePeoplesRepublic ofChina,andSriLanka. SummaryofFindings Thestudyratedtheenergypolicysuccessful overall,basedonanassessmentofitbeingrelevant borderingonhighlyrelevanteffective,efficient,and highlylikelytobesustainable. ADBsoperationsintheenergysectorhave generallybeeneffective.(Ofthe142projectsand programsthathavebeenevaluatedtodate,82%were ratedsatisfactoryorbetter.)Majoroutcomeshave been(i)financialandtariffrestructuringandlower coststhathavereducedtheneedforsubsidiesand publicsectorfiscalexpenditures;(ii)improvedquality andreliabilityofenergysupply;(iii)demonstration effectsofenergyefficiencyandrenewableenergy projects;(iv)positiveandimmediateimpactsonthe environmentfromenergyefficiencyprojects;(v) improvedgovernanceinthepowerindustry;and(vi) transferofskillsindevelopmentoftariffsand

6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444; evaluation@adb.org; www.adb.org/evaluation/

automatedbilling,andplanningandmanagement reportingsystems. Notwithstanding,thepolicyoveremphasizedits focusonpovertyreductionasadriverofsector operations.Excludingruralelectrification,thereis evidencethatinterventionsinsectorsotherthanenergy canbemoreeffective.Intheenergysector,poverty reductionisusuallyindirectandachievedthroughthe trickledowneffectsofeconomicgrowth,towhich operationsnonethelessmakelargecontributions. Elsewhere,thepolicysuccessfullyincreasedtherole oftheprivatesector.ADBsprivatesectoroperations havecatalyzedfundingandreducedconcernsover projectrisks.Theyhavealsohadpositiveand sustainableeffectsby,forexample,introducing internationalbestpractices,exemplarysafetyrecords, andnewapproachestocommunityrelations. Thestudyfoundevidencethatsomewelldesigned projectsimprovedtheenvironmentthroughenergy efficiencyandtheuseofcleanertechnologies.Still,the levelofADBassistedinvestmentsinenergyefficiency hasbeenfarbelowpotentialandneed,andlendingfor renewableenergyhasaccountedforonly3%ofthe portfolio.Lowenergypricesintheearlypartofthe evaluationperiod,andweaknessesinpolicyand regulatoryframeworks,providedinsufficientincentives foragentstoinvestintheseareas.Thesameappliedto ADBsprojectstoreducegreenhousegasemissions. Lastly,exceptintheGreaterMekongSubregion, whereADBhasfacilitatedenergytrade,resultsfrom regionalcooperationinthesectorhavebeenslowto materialize. TradeoffsBetweenPotentiallyConflictingGoals

Recommendations ThemajorissueintheAsiaandPacificregionwillbe tomanagetradeoffsbetweensecurity,efficiency,and theenvironment.Thestudymaderecommendationsto thisandotherends,includinganticorruption. ManagetheEnergyEnvironmentNexus.Make energyefficiencythesinglehighestprioritysothat allfeasibleeffortsareexpendedtodecreasedemand throughviableenergyefficiencyinitiativesand increasesinsystemefficienciesbeforeinvestingin newgenerationcapacity.Complementthese initiativeswith(a)ADBbecomingknownasacenter ofexcellenceonpolicyandregulatoryframeworks andmarketincentivestoimproveenergyefficiency andrenewableenergy,andtoaddress environmentalconcerns;(b)incorporating,asa matterofroutine,environmentalcostsandbenefits intheeconomicanalysisundertakenforenergy projects;and(c)undertakingstrategic environmentalassessmentsfortheenergysectorin countrieswherethecountrypartnershipstrategy envisionsasignificantroleforADBintheenergy sector. ImproveSectorGovernance.Supplementeffortsto improvegovernancewithguidancetostaffonhow toreduceopportunitiesforcorruptioninthesector. DevelopanImplementationPlanfortheNew EnergyStrategy.Reconcilepolicyandstrategic aspirationswithorganizational,budget,andhuman resourcesimplications.Includearesultsframework withmonitorablekeyindicators(forinputs,outputs andshortandlongtermoutcomes/results)sothat implementationprogresscanbemonitoredand,if necessary,midtermcorrectionscanbemade. Feedback

MarketStability &Robustness Security Geopolitical Instability Electricity Sector

Competition Efficiency Monopoly Regulation

Environment Nature Conservation Climate Change Air Pollution

AtthetimeofpreparationoftheseLearningCurves, ADBManagementsResponseandtheChairs SummaryoftheDevelopmentEffectiveness CommitteeDiscussionswerenotyetavailablefor disclosuretothepublic.Thestudywascompletedin May2007.

1

ADB.2007.SpecialEvaluationStudyonEnergyPolicy2000 Review:EnergyEfficiencyforaBetterFuture.Manila. Available:http://www.adb.org/Documents/SES/REG/SES REG200705/SESREG200705.pdf

Learning Curves available @ www.adb.org/evaluation/ Team Leader: Robert Schenck; Tel +63 2 632 4110; rschenck@adb.org