Addressing Policy & Legal Framework

Selcuk TanatarMENA Sustainable Business Advisory

June 1, 2011

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AGENDA

• IFC’s CLIMATE CHANGE AGENDA

• MENA CLIMATE CHANGE CHALLENGES

• POLICY CHALLENGES AND APPROACH

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We foster sustainable economic growth in developing countries by supporting private sector

development, mobilizing private capital, and providing advisory and risk mitigation services to

businesses and governments.

Member of the World Bank Group

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IFC’s mandate:Helping Businesses Combat Climate Change

• Addressing climate change and environmental and social sustainability is a top priority

• In year 2010, IFC invested more than $1 billion in renewable energy and energy efficiency projects

• IFC climate change mitigation Advisory Services especially useful in middle income countries

Private sector solutions for climate mitigation / adaptation and inclusive development

Climate Business: technology, products and services that

“do more with less”

ENERGY: Low carbon generation, energy efficiency,

storage, smart grids.

TRANSPORTATION: Vehicles, systems, fuels and logistics

WATER: Capture, treatment, conservation, wastewater

treatment

AIR & ENVIRONMENT: Emission control, trading and

offsets

BUILDINGS: Low carbon strategy, energy efficiency,

sustainable materials.

MANUFACTURING: Green chemicals, RE/EE supply chain,

cleaner production.

AGRICULTURE & FORESTRY: Land mgmt, low carbon and

adaptation strategies, biomass.

RECYCLING & WASTE: Recycling and waste treatment services

Climate business will only scale and have impact with significant private sector participation – that is where IFC has an important

role to play

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MENAClimate Change

Challenges

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GHG emissions increased 118% since 1990 while world av. is 20% and Europe is 0%

Energy intensity is the worlds

second highest after Russia and 50% higher than

world average

MENA CLIMATE CHANGE CHALLENGES

Frequent power outages, 4-8

h/day in some countries leads to

prod. and sale losses

All countries under water

scarcity. Jordan and all GCC

countries under severe scarcity

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• Resource Efficiency:

• Facilitate investment in efficient use of energy, water and

materials

• Reduce resource

intensity and support low

carbon growth

• Clean Energy: • Demonstrate

commercial viability and removal of barriers for RE

SO, WHAT WE NEED TO DO IS...

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HOWEVER, IT IS NOT AN EASY JOB!

• Very high fuel and electricity subsidies across MENA

• Only energy scarce countries reflect costs or tax fuel – to a certain degree

High fuel, electricity and water subsidies, combined with lack of adequate regulation, are serious barriers preventing investments in energy efficiency and renewable energy.

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• Resource Efficiency:

• Facilitate investment in efficient use of energy, water and

materials

• Reduce resource

intensity and support low

carbon growth

• Clean Energy: • Demonstrate

commercial viability and removal of barriers for RE

WHERE IT MAKES SENSE?

In energy scarce countries,

• fully or in great part depending on fuel import,

• with declared policies for resource savings

In energy scarce countries,

• who have problems with access to (reliable) energy,

• with political will for renewable energy

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LEBANONPOLICY CHALLENGES

andOPPORTUNITIES

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WE KNOW THE IMPACT OF ENERGY SCARCITY…

• Oil import meets 94 - 96% of total primary energy supply

• Equivalent to US$ 4 billion (~ 15% of GDP)

• Of which great share is lost or costs not recovered

In Lebanon

• Daily black-outs are experienced between 3-8 hours more than 200 days/year

• Countered by the highest level of self-generation capacity in the region

• Leading to estimated,

• $ 400 million loss in profits for the industry, and

• $ 1 – 2 billion burden on the government budget

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AND THE GREAT POTENTIAL AND OPPORTUNITIES…

Solar thermal generating potential of 38,752 TWh/year

300 sunny days/year

Wind electricity generating potential of 6.1 GWh/year

Levelised costs:

Oil based electricity ~ 10 – 17 $c/kWh

Hydro, SWH and Wind ~ 5 – 15 $c/kWh

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POLICY BARRIERS IDENTIFIED GLOBALLY

Beck & Martinot, 2004

Costs and Pricing• Subsidies for

competing fuels

• High initial capital costs

• Difficulty of fuel price risk assessment

• Unfavorable power pricing rules

• Transaction costs

• Environmental externalities

Costs and Pricing Legal and Regulatory

• Lack of legal framework for independent power producers

• Restrictions on siting and construction

• Transmission access

• Utility interconnection requirements

• Liability insurance requirements

• Standards

Legal and Regulatory

Market Performance

• Lack of access to credit.

• Perceived technology performance uncertainty and risk

• Lack of technical or commercial skills and information

• Insecurity of the markets vs. long pay-back period

• Lack of awareness and incentives

Market Performance

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HOW MUCH OF THIS IS APPLICABLE TO MENA?

Costs and Pricing• Subsidies for

competing fuels

• High initial capital costs

• Difficulty of fuel price risk assessment

• Unfavorable power pricing rules

• Transaction costs

• Environmental externalities

Costs and Pricing Legal and Regulatory

• Lack of legal framework for independent power producers

• Restrictions on siting and construction

• Transmission access

• Utility interconnection requirements

• Liability insurance requirements

• Standards

Legal and Regulatory

Market Performance

• Lack of access to credit.

• Perceived technology performance uncertainty and risk

• Lack of technical or commercial skills and information

• Insecurity of the markets vs. long pay-back period

• Lack of awareness and incentives

Market Performance√

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THE LIST IS LONG, IT IS HARD WORK TO GET THINGS RIGHT, AND IT WILL TAKE

TIME…Denmark

Grass-rooters build first windmills

despite no regulation and

incentives

Mid 1970’ies 2010

Renewable energy sector meets ~ 29% of energy consumption

First windmill built for a hotel. Policy makers discuss

“who owns the wind”

Late 1980’ies 2023

Government targets to reach 20GW installed

wind power capacity

Turkey2005

Parliament enacts feed-in tariffs for renewable energy

Government starts incentivizing wind energy industry

Late 1980’ies

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FIRM LEVE

L

SECTOR LEVEL

COUNTRY/ REGIONAL

LEVEL

HIGH

LOW

HIGH

LOW

Policy/ Regulation

Need

Long Term Impact

..AS WE KNOW THE BIG IMPACT IS CREATED BY

POLICY AND REGULATION.

AND WORK UPWARDS,

BUT WE SHOULD NOT BE PESSIMISTIC…

WE CAN STILL MAKE

PROGRESS BY STARTING

WHERE IT IS EASIER..

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• Resource Efficiency:

• Facilitate investment in efficient use of energy, water and

materials

• Reduce resource

intensity and support low

carbon growth

• Clean Energy: • Demonstrate

commercial viability and removal of barriers for RE

EXAMPLES OF INITIATIVES

Support and incentivize REff Support auto/co-generation with renewable energy

FIRM LEVEL

Support to extend REff practices to firms in group, supply chains,

clusters, through NGOs, associations, etc.

SECTOR LEVEL

Incentivize REff through lead organizations such as utilities,

FIs, etc.

Improve the investment climate for renewable energy sector

COUNTRY/

REGIONAL

LEVEL

polic

y/r

eg

ula

tion

need

HIGH

LOW

Support off-grid / mini-grid systems based on renewables

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FIRM LEVE

L

SECTOR LEVEL

COUNTRY/ REGIONAL

LEVEL

HIGH

LOW

HIGH

LOW

Policy/ Regulation

Need

Long Term Impact

3. LINK THE DOTS, REMOVE

DISTORTIONS AND ENSURE

COMPETITION.

2. ENABLE EXPANSION THROUGH

“INTEGRATORS” AND SERVICE PROVIDERS

TO SUMMARIZE - WITH POLICY AND REGULATION…

1. EMPOWER AND SUPPORT

FRONT RUNNERS

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THANK YOU

Selcuk Tanatar (stanatar@ifc.org)