Following the Carbon for Clean Energy in Asia
Accelerating energy efficiency, renewable energy and natural gas solutions among middle-income countries in Asia
Challenges
Over 80 percent of new, worldwide coal-fired power plants that began operating between 2017 and 2020 are in middle-income countries in Asia: People’s Republic of China, India, Indonesia, Pakistan, the Philippines and Viet Nam. In addition to the plants that were in operation in these countries, these new power plants will lock-in 260 gigatons of carbon dioxide emissions over their remaining lifetimes. This would exceed the power sector’s carbon budget in line with mitigation pathways consistent with limiting global warming to 2°C. Support for policies and investments to maximize energy efficiency and clean energy in Asian countries will therefore not only benefit local populations through greater energy productivity and cleaner air, but it will also contribute critically to the Paris Agreement targets.
While energy efficiency (EE) is known as the ‘first fuel’ of economic development, due to its enormous potential and low cost, implementation progress has been slow, mainly due to difficulties in finding scalable business models and attracting commercial capital to support these investments. For various institutional and technical reasons, countries around the world, especially middle-income countries in South, East and South-East Asia, have been struggling to identify scalable mechanisms to promote EE.
All these countries have a renewable energy (RE) portfolio, but need to develop affordable scale-up policies. They were eager, therefore, to understand and overcome constraints to least-cost generation.
Towards a Solution
The objective of this knowledge exchange was to improve the capacity of China, India, Indonesia, Pakistan, the Philippines and Vietnam to achieve their respective national, low-carbon energy ambitions by optimizing their EE, RE and gas policies, developing successful business models and adopting suitable financing mechanisms. The exchange aimed at allowing peers in participating countries to exchange experiences and lessons learned on designing and implementing policies to supply low carbon energy at least cost to end users, including through private sector participation in their home countries.
To rapidly translate the business models across countries for similar cross-cutting deals, three knowledge exchange workshops were jointly organized and facilitated by a World Bank team as part of the Follow the Carbon/Energy Transition (FTC/ET) in Asia initiative: the first two in Singapore and the third one in Qinghai, China. The workshops consisted in expert panel sessions, site visits and networking.
Expert panel sessions
The workshops comprised three separate knowledge exchange events on RE Auction, EE, and Grid Integration of RE. Resource experts shared their experience and lessons learned; they were from: (i) countries that successfully implemented RE auctions (Brazil, India, Peru, South Africa and the United Arab Emirates); (ii) countries that successfully implemented EE policies and programmes (China, India, Japan, Mexico, Republic of Korea, Singapore and the United Kingdom); and (iii) countries that are successfully integrating RE into their power systems (Australia, Denmark, Spain and United States of America).
Site visits
Field visits were organized to the world’s largest and most efficient district cooling facility, a green hotel and a green hospital to gain personal experience about Singapore’s experience with green buildings. The Grid Integration of RE workshop included field visits to the world’s largest solar photovoltaic (PV) park in Qinghai, the largest power station of hybrid PV and hydropower at Long Yang Gorge, and the dispatch centre of Qinghai Grid Company in Xining to showcase its experience of 100 percent RE grid integration during nine consecutive days.
Networking
The workshops were interspersed with networking activities between FTC/ET country representatives, resource experts, and World Bank staff.
Results and Lessons Learned
New knowledge
Renewable Energy Auction
- Among the three RE policy options (feed-in tariffs, RE portfolio standards and auctions), feed-in tariffs have delivered success to scale up RE in a short time period. However, tariff levels tend to be high, which can result in an extra burden on consumers or governments for RE subsidies. According to a recent global trend, there is an increasing number of countries shifting from feed-in tariffs to auction schemes, which has led to a rapid decline of the price of solar PV and wind energy, resulting in a massive scale-up of investments. Almost all countries represented at the workshop that successfully implemented RE auction schemes achieved solar PV tariffs that are competitive with conventional power generation, even compared to coal as baseline fuel in India and South Africa.
- In addition to adequate tariff levels with long-term power purchase agreements, successful RE policies should also require mandatory grid access, and incremental costs, if any, to be passed to consumers.
- Solar PV electricity prices are primarily driven by investment costs, cost of financing, cost of land and labour, and solar resources. Current prices are sustainable over time, but the rate of decrease could slow down.
Energy efficiency
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Conducive policies are the essential driver to create market demand for catalysing EE investments. Successful EE experiences demonstrated that mandatory output-based policies are more effective than voluntary input-based approaches, and strong regulations must go hand in hand with financial incentives. China and India adopted mandatory EE targets for industry. China adopted a top-down approach in allocating EE targets to each province and top 17,000 energy-intensive industrial enterprises, and held the obligated parties accountable for achieving the targets. India’s Perform, Achieve, Trade (PAT) scheme is a market-oriented scheme where energy saving targets are allocated to industry sectors and allow trading of energy saving certificates to achieve the national targets at least cost.
Grid integration of renewable energy
FTC/ET countries are at various phases of variable renewable energy (VRE) grid integration (solar PV and wind). Most South-East Asian countries are at the starting phase with a very low share of VRE in the grid system. China and India have a notable VRE share in the system, and some regions of China such as the northwest have experienced a very high share of VRE in the grid system. All have huge potential to scale up over time with proven technical solutions and institutional reforms. From a technical perspective, integrating high levels of VRE into conventional electric power grids poses distinct challenges due to the intermittency nature of solar PV and wind power.
New and improved actions
Following the workshops, the six countries began tailoring knowledge learned to their specific context and leveraging the newly established network for joint efforts in maximizing EE and clean energy. During the process, new and improved actions were undertaken.
Moving forward
All FTC/ET countries have decided on follow-up plans to pilot or implement RE auctions.
Immediately after the RE auction workshop in Singapore, World Bank teams in Indonesia and Viet Nam conducted follow-up in-country workshops and discussions on RE auctions. Resource experts from the Singapore workshop were tapped for these consultations. The World Bank team in Pakistan engaged in follow-up discussions with its government counterparts on how to support them on RE auction. All three teams made plans to mobilize trust funds to support their respective countries in piloting solar auction schemes, and potential funding sources have been identified.
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