Last week I had the opportunity to share some of IDB´s projects and developments on energy efficiency in the region at the CSIS conference in Washington, and I’d like to share some of our work with our readers.
Energy efficiency could emerge as what some of us like to call the “prosperity fuel”: the IDB as the largest development lender in Latin America and the Caribbean is working closely with our clients in this direction.
The IDB lent US$9.3 billion in 2016 and in the energy sector, we’ve lent more than US$3.6 billion during the last 5 years (an average of over US$700 million per year).
Energy intensity is a proxy that is used for measuring EE. It shows how much energy is needed to generate each unit of economic output. In the following graph, you can see that a significant drop of ~25% occurred in the global energy intensity during the past 20 years. In LAC, we see relatively a smaller drop of about ~7%. That is the result of a variety of factors, but what I think what’s probably more important going forward is that we have seen an increased interest in Energy Efficiency.
I am reasonably optimistic that LAC will be able to achieve the Sustainable Development Goal of doubling the rate of improvement in EE by 2030. Based on the growing interest of our member countries in EE, we anticipate that the IDB will increase its EE lending portfolio.
In 2040 electricity demand in LAC will increase by around 95% under a business as usual scenario. Capturing energy efficiency benefits will require a system-wide approach encompassing not only regulation but also significant investment. While EE in the LAC region has multiple benefits, there are also a number of important barriers. I want to describe how some of those barriers have a significant impact on energy development, specifically in the LAC region.
One key constraint is the absence of strong institutional support for EE. On the one hand, we’ve seen an increased interest within specialized institutions focusing on EE as a general proposition. Nevertheless, the level of interest is significantly higher on the renewables side.
Second, EE legislation at national levels is often weak; the enforcement mechanisms used by LAC governments are often ineffective. Other barriers to the adoption of EE-friendly policies include: lack of information, inadequate regulatory frameworks, and insufficient allocation of financial resources to EE programs.
We have initiated successful EE projects in Jamaica, Barbados. In Barbados the “Energy Smart Fund” developed a package of financial instruments coupled with technical assistance to enable the design, preparation and implementation of commercially and economically viable RE and EE technologies aimed at reducing electricity costs for end users, improving energy security and environmental benefits.
In Jamaica, the “Energy Management and Efficiency Program” focuses on installing more efficient electric equipment (such as Solar PV, air-conditioning, LED-lighting) and building support materials in hospitals, schools and public agencies.
We are developing promising new projects in Ecuador, Argentina, and Mexico with a focus on EE measures in public buildings.
In developed countries, people have insisted upon an acceptable level of comfort, for example, through the use of air conditioning in a hot climate. An EE program typically aims to replace the AC with a more efficient one and dispose of the old AC unit.
What happens in developing countries where people have not yet reached that minimum level of comfort?
An EE program would consider the overall energy needed to reach the target comfort level as an input of the program. If a household has 2 rooms and only 1 AC unit, an EE program can promote the purchase of an additional energy efficient appliance without disposing of the old one (if it is still functioning well). While the overall energy consumption increases, the quality of life will also increase following a more efficient path per unit of area refrigerated.
Similarly, this would apply to commercial air conditioning, which is directly related to increasing workers productivity. Energy consumption in OECD is four-times higher than in LAC countries. The reality is that there are higher standards of living in OECD countries.
A fundamental question for our governments is how can they increase the standards of living to get to the levels of the OECD and generate the necessary energy service outputs. There is no doubt that with EE improvements we can achieve that target in a more efficient manner than has been achieved to date. But let’s be clear, the expectation is that our clients will increase their energy consumption per capita, not to 4.4 as in OECD but somewhere above the current levels.
One of the things that holds us back is not simply the issue of the narrative, but also with the analytics. Our metrics are not well adapted to a situation where countries simply look at increasing the levels of energy services.
This is also true for street lighting. While there is a public interest in replacing existing street lamps, there is also an interest in adding more coverage along roads and in more communities. EE can play an important role when adding new capacities for energy services. This is exactly what the IDB has done in financing the Smart Fund program with the Government of Barbados and with private sector firms.
Some of the elements that need to be considered to design effective EE programs in the context of their needs to increase their standards of living include:
- Considering adequate baseline and metrics
- Promoting lifecycle assessments for investment decisions (to overcome upfront investment barriers)
- Raising awareness on benefits of EE
- Supporting governments strengthen institutional and regulatory frameworks
- Assisting with innovative financing mechanisms
In conclusion, our objective is to support the development of our client countries in a sustainable manner, consistent with environmental and climate change objectives. EE plays a key – and hopefully growing — role in diversifying national energy matrices and truly becoming the “Prosperity Fuel” as a driver for further economic development and wellbeing of our countries.
Watch the presentation: