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Summit Implementation Review Group December 10, 2008 El Salvador Philippe Benoit Sector Manager, Energy Latin America and the Caribbean The World Bank Energy Security in Latin America and the Caribbean and the role of the World Bank

3 Outline A. Energy Security Defined B. Energy Security Challenges Facing the Latin America and Caribbean Region C. World Bank Strategy to Promote Energy Security in the LAC Region

4 Part A: Energy Security Defined

5 A. Energy Security “Energy” for the WB means: Power (P) [ Gx, Tx, Dx; Hydro, Thermal, Wind, Coal, etc.] + Oil & Gas + Biofuels, Biomass, Nuclear with concerns regarding Climate Change E=P ++ C 2

6 A. Energy Security Focus is on electricity -- but other sources also important (oil, gas, biomass, etc) Energy security for electricity means: Sufficient, secure, quality electricity at a reasonable price Different countries face different challenges, but many common issues Approach: respect differences while looking to leverage off commonalities and synergies

7 Part B. Energy Security Challenges Facing the LAC Region

8 1. Meeting the Increasing Demand for Electricity  Projected growth in electricity demand of 4.8% p.a.  Concern over supply gap Load shedding in some countries Other countries face prospect of future supply deficit  Concern over increasing cost of power supply Capital costs (hydro, wind, etc.) Fuel costs (thermal, etc.) 100,000 MW needed in next ten years (current capacity: 250,000 MW) Annual investment of about US$20 billion required for related generation, transmission and distribution Investment requirements still large under lower demand scenarios B. Energy Security Challenges Facing the Region

9  Impact on region mixed, with certain countries in the Caribbean and Central America especially vulnerable  Challenges both for producer and consumer countries  Despite recent fall in prices, still historically high  Great uncertainty regarding future prices 2. Coping with Impact of High and Volatile Oil Prices B. Energy Security Challenges Facing the Region ?

10 2. Coping with Impact of High and Volatile Oil Prices (cont’d)  Changes in oil prices affect electricity costs (in some cases over US cents 3/kWh per US$10/bbl increase)  GDP impact of higher electricity costs varies: High impact (per $10/bbl): Jamaica (2.3%), Grenada (1.5%), Nicaragua (1%) Low impact: Paraguay, Trinidad and Tobago (0%) B. Energy Security Challenges Facing the Region

11  Opportunity to increase role of clean energy sources; renewed interest in hydropower  Climate change will impact energy resources (e.g. impact on hydrology)  {Other environmental and social impacts – e.g., local pollution, impact on indigenous peoples} 3. Including Climate Change in the Energy Equation B. Energy Security Challenges Facing the Region

12  About 50 million people, mostly in rural and poor urban areas, still lack electricity service  About US$14 million in total needed to increase coverage to above 95% by Increasing Access to Electricity B. Energy Security Challenges Facing the Region

13 5. A World in Flux Impacts on the real economy Oil prices Financial crisis B. Energy Security Challenges Facing the Region

14 Part C. World Bank Strategy to Promote Energy Security in the LAC Region

15 C. WB Group Strategy to Promote Energy Security World Bank IFC MIGA Financing SUPPORT THROUGH Analytical work IN A CONTEXT OF Climate Change Regional Relations Macroeconomic Considerations Public/ Private Mix Volatile Oil Prices Policy Reform The Approach: Collaboration

16 C. WBG Strategy to Promote Energy Security 1.Increase Power Supply  Increase investments in electricity infrastructure: Generation, tranmission and distribution  Diversify energy matrix: Promote development of lower-cost and clean power sources Greater focus on renewables: hydro, wind, biomass, biofuels, geothermal, solar

17 Total energy lending in FY08: $7.6b IBRD/IDA : $4.2b FY08 ($1b FY04, $2b FY07) IFC: $2.9 billion MIGA guarantees $ 110 million  WBG Energy lending has increased in recent years: C. WBG Strategy to Promote Energy Security 1. Increase Power Supply (cont’d) New focus on clean energy: EE, new renewable energy and large hydro represented 35% (US$2.7billion, an 87% increase from FY07) of WBG energy lending in FY08 World Bank is back in hydropower

18 1. Increase Power Supply (cont’d)  Support regional integration (synergies, etc.) C. WBG Strategy to Promote Energy Security

19 2. Promote Energy Efficiency  Demand-side management end-users (e.g. lighting, domestic appliances) policy advice and investment  Supply-side interventions loss reduction efficiency in generation  Energy conservation C. WBG Strategy to Promote Energy Security

20 3. Strengthen Power Sector Planning  Managing High and Volatile Oil Prices: Stronger Analysis of Impacts and Options Improve energy efficiency Diversify energy matrix, reducing dependency on thermal generation  Better Planning for System Expansion: Low-cost options Consider all options: thermal, clean sources Focus on renewables, with special attention to hydro  Support a sound public-private mix: Support reform of sector utilities Recognize differing country-specific views on appropriate public- private mix C. WBG Strategy to Promote Energy Security

21  Mitigation: Support renewables (large and small hydro, wind, biomass, biofuels, geothermal) and gas WBG: Share of renewable and EE in total energy lending is increasing  Adaptation/Resiliency: Understand impacts and plan accordingly (e.g. analyze hydrological changes as part of hydro dev. planning) 4. Integrate Climate Change in Power Sector Management {Maintain attention on local pollution and other environmental and social issues -- incl. Impacts on local populations} C. WBG Strategy to Promote Energy Security

22  Support rural electrification  Support electrification in poorer urban areas  Improve Access to other modern energies (e.g., gas)  Protect Affordability 5. Improve Access to Modern Energy Services for the Poor C. WBG Strategy to Promote Energy Security

23 Impacts on the real economy Oil prices Financial crisis 6. Responding to a World in Flux WBG and other Multilaterals need to help countries to adapt to a rapidly changing world with evolving development challenges C. WBG Strategy to Promote Energy Security

24 THANK YOU