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1、Energy and Extractives Global Practice SCALING UP TOPHASE DOWN:Financing Energy Transitions in the Power SectorThe World BankApril 2023Report No:AUS0003306 2023 International Bank for Reconstruction and Development/The World Bank1818 H Street NW,Washington,DC 20433,Telephone:202-473-1000 www.worldba
2、nk.orgThis work is a product of the staff of the World Banks Energy and Extractives Global Practice,with contributions from across the World Bank Group.The findings,interpretations,and conclusions expressed in this work do not necessarily reflect the views of The World Bank,its Board of Executive Di
3、rectors,or the governments they represent.The boundaries,colors,denominations,and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.The World Bank d
4、oes not guarantee the accuracy of the data included in this work.Rights and Permissions.The material in this work is subject to copyright.Because the World Bank encourages dissemination of its knowledge,this work may be reproduced,in whole or in part,for noncommercial purposes as long as full attrib
5、ution to this work is given.The recommended citation is as follows:World Bank(2023).“Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector”.Washington,DC:World Bank.Cover image:Pidjoe/iStock via Getty Images.Any queries on rights and licenses,including subsidiary rights,should be
6、 addressed to:World Bank Publications,The World Bank Group,1818 H Street NW,Washington,DC 20433,USA.Fax:202-522-2625;email:pubrightsworldbank.orgScaling Up to Phase Down:Financing Energy Transitions in the Power SectorIIIExecutive Summary ivFigures,Tables,Boxes ixIntroduction 1Chapter 1.The challeng
7、es of financing power sector transition in low-and middle-income countries 3Mobilizing sufficient capital and meeting the added costs of power sector transition 4The higher transition barriers facing LICs and MICs 5The consequences of these barriers for the transition 7Chapter 2.The foundations of p
8、ower sector transitionsand concessionality as a catalyst 9The policy foundations of a virtuous cycle for scaling power sector financing 10Concessional finance as the catalyst for the virtuous cycle 16Chapter 3.Catalyzing capital for clean energy deployment:toward a comprehensive approach 18Financing
9、 to prepare for the transition 19Financing to strengthen utilities,energy efficiency,and demand-side management 21Financing for clean energy rollouts 23Financing for new technology 23Chapter 4.Managing the costs of phasing down coal-fired generation 27Managing the risks of stranded assets and avoidi
10、ng legacy costs 28Financing the phase down of coal 30(Re)financing to phase down 31Chapter 5.Holistic approaches to catalyzing and sustaining the virtuous cycle 34Expanding the pools of public,private,and international capital 34A programmatic country-based approach 37Technology demonstration partne
11、rships 39References 40ContentsThe energy transition in low-and middle-income countries(LICs and MICs)will entail an unprecedented expansion and transformation of power sector infrastructure.This transformation will require a massive scaling up of renewable energy and energy efficiency to meet rapidl
12、y growing demand,followed by a phasing down of coal-fired power generation.Analyses on decarbonizing the power sector carried out as part of the World Banks 202122 Country Climate and Development Reports found that the pace of deployment of renewables-based electricity must accelerate considerably.T
13、he installation rate of solar photovoltaic(PV)capacity will have to double or triple in the next decade in Bangladesh,Ghana,Morocco,and Vietnam,compared with current development trajectories.Similar growth will be required in installations of onshore and offshore wind generation capacity,which will
14、have to increase by 30 to 500 percent in the decarbonization scenarios of Bangladesh,Egypt,Jordan,Morocco,Trkiye,and Vietnam.Simultaneously,energy efficiency and demand-side management will need to be reemphasized to reduce capital requirements of the transition and buy time.In Trkiye,energy efficie
15、ncy investments that could halve the rate of growth in demand would save$1.3 billion annually in new generation capacity,cutting the cost of decarbonization by 20 percent.Once adequate volumes of affordable and reliable renewable energy and energy efficiency materialize,LICs and MICs will also need
16、to retire their coal-fired power plants.Presently,they collectively host 89 percent of the global coal power capacity that needs to be retired or repurposed before the end of its technical lifetime;this puts an estimated$1 trillion in capital costs at risk by 2040.To finance a just transition that i
17、s consistent with both the goals of ensuring universal access to affordable,reliable,sustainable,and modern energy by 2030,and the 2015 Paris Agreement on Climate Change,developing countries will have to mobilize far more capital than they do today.Power sector investment in LICs and MICs,excluding
18、China,must quadruple:from an average of$240 billion annually in 201620 to$1trillion in 2030.This necessary volume of financing,already unprecedented,will grow as decarbonization deepens.In Morocco,for example,the additional capital expenditure required to advance the transition is estimated at$2.6 b
19、illion annually through 2030,rising to$17.4 billion annually by 2050.In Ghana,the figures are similar:$4.8 billion annually by 2030,and$22.6 billion by 2040.However,LICs and MICs,excluding China,are already spending close to$500 billion annually on fossil fuels for power generation(2019 prices),one-
20、half of which is spent on coal and one-third on natural gas.These recurrent energy payments used to burn fossil fuels could go a long way if they were applied instead to bankable investments in clean energy.While current investment is misallocated and insufficient,the volumes needed to meet the Pari
21、s Agreement goals are small compared to the costs of inaction and the size of the global economy($160 trillion in 2022).Nonetheless,in view of the inadequate scaling up in finance thus far,it is clear that new approaches are needed.Executive SummaryScaling Up to Phase Down:Financing Energy Transitio
22、ns in the Power SectorIVInsufficient attention has been paid to the barriers preventing LICs and MICs from mobilizing needed financing.Unless these barriers are removed,they are bound to hinder a just power sector transition.Despite accounting for two-thirds of the worlds population,LICs and MICs re
23、ceive only one-fifth of global investment in clean energy.Scaling investment in the transition for LICs and MICs is held back by:a.Limited affordability in terms of the fiscal space needed to make catalytic public investments and consumers ability to afford the cost of transitions.This barrier means
24、 that many countries are forced to settle for fossil fuelbased electricity generation,with its much lower(up-front)capital costs and pay-as-you-go fuel expenses.Many LICs and MICs are locked into costly and often poorly targeted public subsidies for energy that may preclude the strategic investments
25、 needed for transition of the power sector.b.Limited access to private capital,and the high cost of capital owing to barriers at the country,sectoral,and project levels.Chief among the barriers are underdeveloped domestic financial markets;inadequate alignment with the standards of international fin
26、ancial markets;underdeveloped policy and regulatory frameworks;and institutions that lack adequate capacity.The average cost of capital typical of a high-income country(HIC)is substantially lower than that of a MIC,and the average capital cost of a MIC is substantially lower than that of a LIC.Compo
27、unding crises in energy security,affordability,and resilience make it more urgent than ever to identify and address the barriers to accelerating transition of the power sector.LICs and MICs are caught in a poverty trap;they are unable to afford the high up-front costs of switching to clean energy,an
28、d thus are locked into higher costs and recurring payments for fossil fuels.Up-front capital accounts for a high proportion of the overall costs of renewable energy and energy efficiency,whereas coal and gas power have lower up-front capital requirements but incur higher fuel costs over their operat
29、ing lifetimes.Combined with the higher cost of capital for LICs,the cost structure of renewables has a distorting effect on choices about how to build electricity generation capacity.In an illustrative country analysis without any carbon emission constraints,meeting the demand for electricity costs
30、25 percent more for a LIC than a HIC,purely as a result of the LIC having to pay more for the capital needed to build the network infrastructure and generation assets.Because of the higher cost of capital in a LIC and the up-front capital requirements of renewable generation relative to fossil fuels
31、,LICs have less of an incentive to increase the share of renewables in their electricity mix.Continuing the same illustrative country analysis,if a carbon emission constraint is imposed,the incremental cost of achieving the same carbon target is 33 percent higher for a LIC than for a HIC.A LIC would
32、 also have to achieve the target using less renewable energywhich is inefficient and expensive.Therefore,LICs and MICs risk being locked out of economic projects for transitioning the power sectorand locked into fossil fuelbased electricity generation despite its high,and volatile,operating costs.Th
33、is is a poverty trap applied to electricity.Limited availability and the high cost of capital in LICs and MICs are stifling the formation of a pipeline of promising projects that could help meet development and climate objectives.Pipeline development receives inadequate attention because of limited
34、financing and the holding back of capital by financiers who perceive Scaling Up to Phase Down:Financing Energy Transitions in the Power SectorVrisks associated with lack of track record and a weak enabling environment;this stalls progress.The fact that access and affordability of capital must be add
35、ressed simultaneously creates an opening for multilateral development banks to help LICs and MICs prepare bankable projects that match investors risk-return expectations,while also preparing upstream studies and improving market conditions.LICs and MICs are caught in a poverty trap,unable to afford
36、the high up-front cost of switching to clean energy,and locked into higher costs and recurring payments for fossil fuels.The pathway to universal access to energy and net-zero emissions by mid-century is ambitious and narrow,but it is achievable if governments can foster a virtuous cycle of comprehe
37、nsive and supportive policies and institutions capable of mobilizing financing that delivers access,security,and affordability while meeting global climate goals(See Figure ES1).To chart that path,governments would be responsible for:a.Setting policy directions and laying out roadmaps and targets to
38、 implement the power sector transition,based on a least-cost combination of investment in renewable energy,energy efficiency,and flexibility,accompanied by retirement of existing fossil-fueled generation assets.b.Establishing regulatory frameworks and concrete long-term action plans to guide transit
39、ion of the power sector.Undertaking economy-wide or sector-wide reforms that strengthen the macroeconomic environment and governance at the country level can serve to improve the environment for private investment and enable governments to raise funds for catalytic investments.Over time,these reform
40、s should also help lower the cost of capital and thus ease a major barrier to scaling up investment in clean energy.However,it should be noted that these interventions are complex and are not addressed holistically in this paper.c.Strengthening the institutions that design,operate,and regulate the p
41、ower system.These institutions must make sector plans,set expectations for future power market developments,help investors navigate the risks of stranded assets,and strengthen the transmission and distribution grids so they will not become a bottleneck for off-take of variable renewable energy.d.All
42、ocating fiscal resources to prepare projects and mitigate the risks of early transition investments to incentivize increased private sector participation,including through the adoption of robust carbon pricing and policies.e.Ensuring that results serve near-term imperatives such as energy security,e
43、nergy affordability,and job creation.Early results that successfully balance objectives related to development,distributional consequences for stakeholders,and transition objectives are likely to strengthen long-term political commitment to sustaining and deepening transition of the power sector.Gov
44、ernment guidance and leadership are the critical first steps in laying down a foundation for minimizing risks,boosting market confidence,and ensuring that a growing share of the results will be achieved by private capital.Scaling Up to Phase Down:Financing Energy Transitions in the Power SectorVIFig
45、ure ES.1 A virtuous cycle to propel the power sector transition,with financing approaches that can help to overcome barriers at each stageSource:World Bank.LICs and MICs need supportincluding low-cost(“concessional”)financingto overcome barriers at each stage of the virtuous cycle;initially to scale
46、 up clean energy development and to boost efficiency,and then to phase down the use of coal for power generation.Many LICs and MICs need the most support for the following barriers when scaling up:a.Sector reforms,integrated planning,and capacity building to mitigate the risks of investment in a cle
47、an energy supply.This includes improving electricity pricing by strengthening electricity markets and reforming subsidies to better support policy goals.More comprehensive power sector planning is needed to guide development and minimize capital requirements for the power sector transition.The plann
48、ing must reemphasize energy efficiency and demand-side management as central parts of capacity expansion.Planning must also coordinate the expansion and modernization of electricity grids as foundations for integrating larger volumes of renewable electricity and storage.Strengthening core sectoral i
49、nstitutions,particularly utilities,is needed to reduce developers risks.These sector fundamentals are needed in order to systematically mitigate the risks and thus enable greater participation from the private sector in clean energy investment.Scaling Up to Phase Down:Financing Energy Transitions in
50、 the Power SectorVIIb.Reduction of the up-front costs of clean technologies to enable cost-competitive,affordable,and reliable clean energy.Projects must be delivered at the least cost to consumers,including through market competition and transparent auction approachesthese are necessary conditions
51、for attracting concessional climate financing.Where risks and costs have been reduced to the extent possible,the adoption of promising emerging technologies can be accelerated using so-called viability gap funding until costs fall and markets mature.Frameworks to phase down the use of coal-fired ele
52、ctricity are needed in order to manage the financial and societal challenges of power sector transition and reduce the risk and impact of stranded assets.These challenges include:a.Ensuring that planning covers the risks of stranding new thermal generation plants,and the timeframe for retiring or re
53、purposing existing plants;b.Preparing just transition programs as coal-fired power plants are retired or repurposed to manage the social,environmental,and distributional impacts;and c.Initiating policies and institutional reforms,and communicating strategies to retire and repurpose coal-fired genera
54、tion at scale so stakeholders can prepare and minimize exposure to losses.Because the majority of the financing needs of power sector transition must come from private sources,and because public and donor finance are so scarce,resources with a higher grant elementor concessionalitymust be prioritize
55、d strategically across the virtuous cycle and deployed with a disciplined approach.The degree of concessionality should be sufficient to overcome well-identified and significant barriers to the transition,but should not be higher.Their use should reflect the transformational potential of a given int
56、ervention to sustain virtuous cycles until fiscal and end-user affordability is achieved.Such an approach will make it possible to accelerate the scale and speed of power sector transition before the enabling environment and other elements of the virtuous cycle are fully in place,and will no longer
57、require as much concessional support,if any,as laid out in the World Banks 2018 publication on the strategic use of concessional climate finance.To create conditions for mobilizing the largest possible amounts of private capital,the use of concessional finance must be scaled up,sustained,coordinated
58、,and carefully programmed.Existing schemes that optimize multiple sources of capital are reviewed in this report.They include(i)engagements that tailor needs to country contexts to support the virtuous cycle;and(ii)global technology demonstration partnerships.Country-based programmatic approaches le
59、verage concessional and blended financing to mitigate risks at the country,sectoral,and project levels for the purpose of attracting private capital at the scale necessary for power sector transition.In this approach,financing sources are coordinated and applied toward a series of goals to advance n
60、eeded policy and utility reforms;to de-risk and support renewable energy,energy efficiency,and investments in network reliability;and to retire coal-fired generation assets and ease the related social impacts.This approach will require many of the products of multilateral and regional development ba
61、nksnotably loans and guarantees backed by technical assistance and analytics.Technology demonstration partnerships hold promise for mitigating the risks posed by nascent technologies particularly in frontier markets and thereby scaling up financing for those technologies and driving down costs.Such
62、partnerships could serve as platforms for development and demonstration in developing country contexts,and be helpful in refining associated policies,regulations,and procurement processes.Scaling Up to Phase Down:Financing Energy Transitions in the Power SectorVIIIScaling Up to Phase Down:Financing
63、Energy Transitions in the Power SectorIxFigures,Tables,BoxesFigure 1.A virtuous cycle to scale up financing for power sector transition 10Figure 2.Use concessionality to remove barriers to the virtuous cycle,leading to more 19 private finance for clean energy deploymentFigure 3.The degree of concess
64、ionality appropriate for the deployment of clean energy 24 technologies increases with market and commercialization risksFigure 4.Investment required to decommission and replace 1 GW of coal-fired generation 30 with clean energy,by componentFigure 5.Illustrative sources of financing for transitionin
65、g 1 GW of coal-fired generation 33Figure 6.A financing approach that overcomes barriers at each stage of the virtuous cycle 38Table 1.Power System Cost and Contribution of Renewable Energy by the Typical Cost 7 of Capital in High-,Middle-,and Low-Income CountriesBox 1.Two examples of a systematic ap
66、proach to power sector transition 14Box 2.Incorporating resilience in plans for power sector transition 20Box 3.Selected World Bank Group initiatives to scale up financing for clean 25 energy technologiesBox 4.How governments can avoid the risks of stranded gas-fired assets 28Box 5.First among thous
67、ands:A just transition away from coal at South Africas Komati 31 power stationBox 6.Carbon credits to improve project viability 36Box 7.The Energy Storage Partnership 39The Scaling Up to Phase Down approach is a contribution by the World Bank to the ongoing debate on how to accelerate energy transit
68、ion in low-and middle-income countries(LICs and MICs)as called for by the 2015 Paris Agreement on climate changewhile simultaneously widening access to the reliable and affordable energy that underpins countries development goals.The approach is intended to be a bridge between the challenges facing
69、World Bank clients who are seeking to transition their power sectors and the development partners supporting their efforts.The energy transition is the process of shifting the global energy system away from the consumption of fossil fuels and toward low-carbon technologies in order to support intern
70、ational goals of limiting climate change.In the next decade,much of this transition will first occur in the power sector because solutions using newer technologies have the potential to become cost competitive with appropriate interventions,and also because the power sector is a powerful pathway for
71、 decarbonizing other sectorsmost notably transport,buildings,and industry.The power sector is therefore the focus of this report.The power sector transition will advance energy efficiency and decarbonize the energy supply by expanding renewable energy and strengthening electricity networks in order
72、to integrate renewable energy,demand-side management,and end-use electrification.In LICs and MICs,this transition aims to meet the rapidly growing demand for energy in a way that supports inclusive development consistent with net-zero global emissions by mid-century,and builds resilience to the chan
73、ging climate.A just transition in the power sector should address the needs of workers and communities who are affected by the shift away from fossil fuels;provide modern energy access to millions of people;and protect vulnerable customers from unaffordable energy prices.For the first time,the World
74、 Bank has outlined a vision for how the international community can support LICs and MICs to overcome critical barriers that are paralyzing the power sector transition.Drawing on findings of the first set of Country Climate and Development Reports produced by the World Bank,and decades of engagement
75、 with energy sector development,this approach distills understanding of the unique challenges that LICs and MICs face in undertaking this transition at the scale and pace required to meet their development and climate needs.The approach may help both World Bank clients and development partners in pr
76、eparing a roadmap to catalyze and sustain a virtuous cycle that unleashes urgently needed investment in power sector transition.Chapter 1 explains that the capital-intensive nature of clean energy investments,combined with the lack of access to affordable capital,have a disproportionate and distorti
77、ng effect on the power sector transitions of LICs and MICs.Even where renewable energy has the potential to provide a more affordable energy supply and improve energy security and health,the up-front capital costs that must be borne leave LICs and MICs locked into using costly fossil fuels.Chapter 2
78、 discusses additional barriers to the scaling up of clean energy and the concomitant phasing down of coal.The commitment of governments will be essential in order to foster the policies,regulations,and institutions needed to prepare a pipeline of projects that can attract private capital.This chapte
79、r argues that concessional finance is essential in order to overcome the barriers to investments of private capital at the necessary levels.IntroductionScaling Up to Phase Down:Financing Energy Transitions in the Power Sector1Chapter 3 discusses how public and concessional support must be deployed w
80、ith a disciplined approach in order to scale up clean energy and energy efficiency.Chapter 4 explains the need to phase down the use of unabated coal,and the instruments to do so in a manner that manages losses and protects the most vulnerable.Chapter 5 concludes the paper with a discussion of how l
81、arger and sustained volumes of concessional capital could be more effectively structured within country-based programmatic approaches and technology demonstration partnerships in order to scale up the financial resources and political momentum for transitioning the power sector.Scaling Up to Phase D
82、own:Financing Energy Transitions in the Power Sector2KEY TAKEAWAYS Power sector transition in LICs and MICs entails a massive scale-up of financing to meet rapidly growing demand,and to cover the incremental cost of decarbonization,particularly during the phasing down of coal-powered generation.The
83、capital-intensive nature of clean energy,combined with the limited access of many LICs and MICs to affordable capital,is a major barrier to power sector transition.LICs and MICs face a triple penalty:despite tight budgets,they pay more for less clean energy.Without access to more and cheaper capital
84、,LICs and MICs risk being locked out of otherwise economic solar,wind,and energy efficiency projects,which require relatively high up-front capital investment.At the same time they are being locked into fossil fuel generation despite its higher and volatile operating costs.This is a poverty trap app
85、lied to electricity.Low-and middle-income countries(LICs and MICs)are demonstrating their political commitment to a just energy transition,in particular through their Nationally Determined Contributions(NDCs).Although many have yet to develop credible sector-level implementation plans for achieving
86、their development ambitions while reducing emissions,through their national pledges they are explicitly or implicitly demonstrating their commitment to transition their power sector toward cleaner sources of energy.This transition aims to support the rising consumption associated with expanded acces
87、s to energy and inclusive economic development,while also maintaining low emission levels consistent with the global goal of net-zero emissions by mid-century.The transition hinges on the advancement of energy efficiency,the expansion of renewable energy,and the strengthening of electricity network
88、capacity to integrate variable renewable resources,improve resilience,and eventually replace fossil fuels.It also aims to accommodate the increased demand caused by expanded access and economic development,as well as by the progressive electrification of other end-use sectors.At the same time,the po
89、wer sector transition must be“just.”That is,it must attend to the needs of the workers and communities who are affected by the shift away from fossil fuels;provide modern energy services to all people;and protect vulnerable customers from unaffordable energy prices.Governments are more likely to for
90、mulate and execute politically sensitive just transition plans if they have confidence that they will be able to access financing on affordable terms.The global economic and geopolitical situations have heightened uncertainty among governments and investors about the future of the power sector trans
91、ition.Fuel supply faces the most visible cost pressures,but the cost of clean energy technologies such as solar panels and some wind turbines has also increased.About one-half of the capital invested globally in the energy sector in 2022 went to meet higher costs rather The challenges of financing p
92、owersector transition in low-and middle-income countries Chapter 1Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector3than to fund new infrastructure(IEA 2022).Compounding crises in energy security,affordability,and resilience make it more urgent than ever to identify and addre
93、ss the barriers to accelerating transition of the power sector.Mobilizing sufficient capital and meeting the added costs of power sector transitionTo finance a just power sector transition,LICs and MICs must mobilize far more capital than they do today.To be on track toward net-zero emissions global
94、ly by 2050,power sector investment in LICs and MICs,excluding China,must rise from an average of$240 billion annually in 201620 to$1trillion in 2030(IEA 2021a).1 In particular,eight middle-income countries(China,India,Indonesia,Malaysia,the Philippines,South Africa,Trkiye,and Vietnam)will need to ph
95、ase out more than 1,440 gigawatts(GW)of coal-fired generation by 2050 and replace it with new technologies,at a cost estimated to exceed$2,750 billion.LICs and MICs collectively host 89 percent of the estimated$1 trillion in global coal-fired power generation at risk of being stranded.2 The volume o
96、f additional financing needed is substantialbut not relative to the size of the global economy($160 trillion in 2022).The$130 trillion in financial assets under management by the 450 financial firms from 45 countries that have committed to aligning their operations and financing with the Paris Agree
97、ment couldin principlereadily supply the financing needed for transition of the power sector.Importantly,LICs and MICs are spending$345446 billion annually on fossil fuels for power generation,one-half of which is spent on coal and one-third on natural gas.3 Rather than burning through recurrent ene
98、rgy payments for fossil fuels,countries should be redirecting their funds over time to more productive investments in clean energy that will provide returns on their debt and equity capital.Misallocated and insufficient:Power sector investment in LICs and MICs,excluding China,must rise from an avera
99、ge of$240 billion annually in 201620 to$1 trillion in 2030.Recurrent payments currently to burn fossil fuels could go a long way if applied instead to bankable investments in clean energy.Significant investment in generation capacity,storage,and grid expansion will be required to ensure reliable acc
100、ess,and to meet the increasing demand for electricity;transition of the power sector adds to these investment needs.The transition can be broken down into(i)investment to close the access gap and serve rising demand;and(ii)the additional cost of decarbonization.Meeting electricity demand in Banglade
101、sh and Morocco,to take two examples,would require a doubling of annual power sector investment by 2033 and 2044,respectively.Decarbonization would imply additional costs to be borne by the consumers of electricity and taxpayers.According to the decarbonization analyses undertaken by the World Bank i
102、n several Country Climate and Development Reports,the addition of decarbonization to power system expansion increases the present value of total economic costs from 1 percent(in Iraq)to 10 percent(in Morocco and Ghana).Assuming these costs were transferred to electricity consumers,the average electr
103、icity generation in 2040 would increase between 10 percent(Morocco,Trkiye)and 30 percent(Bangladesh,Ghana).The benefits of decarbonizationincreased economic and energy efficiency,lower energy imports,greater energy security,and improved resilience to climate shocksfar outweigh the costs,but the addi
104、tional cost of decarbonization,particularly if it is reflected in power tariffs,represents a barrier that deters investment.1 Numbers include emerging market and developing economies(EMDEs)in Africa,Europe,Latin America,the Middle East,and Asia,plus four Organisation for Economic Co-operation and De
105、velopment(OECD)countries:Chile,Colombia,Costa Rica,and Mexico.China is excluded as a major outward investor in EMDEs.2 World Bank Group analysis of World Electric Power Plants database,December 2019.3 World Bank estimate,based on IEA World Energy Balance data and 2019 prices.Recent price escalations
106、 imply that this figure is underestimated.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector4The additional capital requirements of power sector transition increase as decarbonization deepens.In the early stages of renewable energy penetration,the existing system,particularly
107、for larger power systems in MICs,will be able to provide most of the flexibility needed to accommodate variable renewable sources of generation,such as wind and solar.However,as decarbonization targets become stricter,it may be necessary to resort to more expensive renewable generation(owing to dimi
108、nishing returns from the cheaper resources)and to deploy low-carbon sources of flexibility and firmness(for example,energy storage and thermal plants running on green hydrogen,or equipped with carbon capture and storage).All of these will raise costs.As an example,in the decarbonization scenario for
109、 Morocco,the additional overnight capital expenditure to initiate the power sector transition is$2.6 billion through 2030,escalating to$17.4 billion through 2050.In Ghana,similar figures are estimated to reach$4.8 billion by 2030 and$22.6 billion by 2040.4 In Trkiye,electrifying buildings could doub
110、le peak demand for electricity in 2040 unless major energy efficiency investments are implemented.Halving the rate of demand growth would save$1.3 billion annually in new generation capacity,cutting the cost of decarbonization by 20 percentbut only if incentives for improved efficiency were in place
111、 and capital for efficiency investments was available(World Bank 2022).In Trkiyemajor energy-efficiency investments could cut the cost of decarbonization by 20 percentbut only if incentives for improved efficiency were in place.LICs and MICs tend to be more vulnerable to the impacts of climate chang
112、e;yet their ability to invest in more resilient energy systems is also constrained by limited planning capacity,access to capital,and affordability.While LICs contribute the least to global carbon emissions,they are disproportionately vulnerable to the negative impacts of climate change because of t
113、heir weaker infrastructure and limited buffers to absorb shocks;this has repercussions for safeguarding development gains and security.The natural disasterdriven damage to critical infrastructure,including power generation,costs LICs and MICs about$18 billion per year,straining already tight fiscal
114、space and lowering investment appetite in the power sector(World Bank 2019b).On top of the cost of damaged assets,disruptions in reliable service to households and firms add to the expense,with the estimated disruption cost ranging between$391 and$647 billion a year.While resilience investments in t
115、he power sector pay for themselves in the long run,as with mitigation investment,the up-front cost barrier is formidable for many LICs and MICs.The higher transition barriers facing LICs and MICsWhile the scale and urgency of the power sector transition are widely recognized,insufficient attention h
116、as been paid to the unique barriers crippling the ability of LICs and MICs to catalyze the needed financing.Although they account for two-thirds of the worlds population,LICs and MICs receive only one-fifth of global investment in clean energy(IEA 2021a).Scaling transition investment in LICs and MIC
117、s is held back by(i)limited affordability,in terms of limited fiscal space to make catalytic public investments and limited consumer ability to pay for cost increases;and(ii)limited access to private capital,and the high costs of capital,owing to barriers such as underdeveloped domestic capital mark
118、ets and inadequate alignment of policy and regulatory frameworks with the standards of international capital,as well as risks posed by an underdeveloped power sector policy and regulatory frameworks and institutions with inadequate capacity.Each of these barriers is discussed below.4 World Bank esti
119、mates.These estimates account primarily for the incremental cost of increasing the share of renewables in electricity generation.The additional costs of ensuring a more resilient and modern electricity network are not included.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector
120、5Limited affordability.Governments in many LICs and MICs have severely limited fiscal space and therefore limited ability to afford the public expenditure needed to catalyze private investment in the transition of the power sector.The global economic crisis is exacerbating that challenge.The limited
121、 public resources available to LICs and MICs are focused on immediate economic and social issues,which,if they touch on the power sector at all,involve basic system development,such as expanding access to electricity or relieving immediate short-term challenges such as the unsustainable financing of
122、 electricity utilities.Many power sector utilities are not financially viable;this is often due to poor governance and management,and associated high costs and inefficiencies.Financial recovery of utilities is further complicated by the low incomes of consumers,who cannot afford higher electricity p
123、rices.The affordability barrier can starve utilities of cost-saving investment,leaving many countries to settle for fossil fuelbased electricity generation,with its much lower up-front capital costs and pay-as-you-go fuel expenses.Moreover,many LICs and MICs are politically locked into costly and of
124、ten poorly targeted public subsidies for energy that may preclude the strategic investments needed for the transition.Limited access to private capital,and the high cost of capital.Most LICs and MICs are unable to raise affordable capital because of their shallow and limited access to capital market
125、s.Developing countries represent only 10 percent of the global outstanding issuances of international debt capital,with the majority occurring in just a few countries.5 Developed countrieswith$22 trillion in outstanding debt issuances by comparisonalso have the benefit of more advanced local currenc
126、y markets.The limited depth of local currency financing markets and the lack of robust hedging instruments for long-term,hard-currency financing pose a major challenge to financing the power sector transition in LICs and MICs.For instance,while advanced market structures in high-income countries hav
127、e deep and efficient local currency bond markets offering long-term yield curves and price references,this success cannot be readily replicated in LICs and MICs.The causes are underdeveloped securitization and inadequate debt-capital innovations and instruments;local liquidity constraints;high trans
128、action costs;a lack of robust environmental,social,and governance(ESG)frameworks;information asymmetry within markets;and weak institutional capacity.All are barriers to accessing capital on affordable terms.At the same time,some MICs are attractive to foreign investors due to their sizeable markets
129、 and creditworthy utilities,but they have policies favoring domestic state-owned enterprises over private investors for various reasons of political economy.In such cases,the barriers are self-imposed but are still politically challenging.A related problem is that domestic ESG standards may not be d
130、eveloped or aligned with international standards for sustainable investing.Macroeconomic stability,a robust legal and institutional environment,sector sustainability,and a certain level of development of the domestic financial sector are all important preconditions for mobilizing private capital.Of
131、144 LICs and MICs,only 19 are investment grade-rated.High cost of capital could inhibit power-sector transition or compromise fiscal and end-user affordability.Raising affordable and long-tenor capital is also complicated by rising debt levels in most LICs and MICs.Economic growth that could lessen
132、the burden of debt repayments has been held back by adverse macroeconomic shocks.Of 73 LICs that were eligible for the Debt Service Suspension Initiative in 202021,41 are in debt distress exacerbated by macroeconomic stresses due to the COVID-19 pandemic and the ongoing war in Ukraine.The burden of
133、existing sovereign debt weighs on the ability of governments to borrow further.International credit rating agencies downgraded more than 40 LICs and MICs between January 2020 5 Statistics from the Bank for International Settlement,Q3 2022.Scaling Up to Phase Down:Financing Energy Transitions in the
134、Power Sector6and February 2021,stating that 17 were either in or at risk of default.The ongoing increase in interest rates to tame inflation will further increase the cost of borrowingand therefore the cost of capital for transition investmentsworldwide.Of 144 LICs and MICs,only 19 are investment gr
135、aderated.6 Unless countries are able to turn around the conditions that limit their robust and affordable access to long-term finance,they will be unable to contribute to the global public good of transitioning their power sectors toward clean energy and away from coal.The consequences of these barr
136、iers for the transition Where capital carries higher costs,projects require higher returns to be bankable;this can trigger affordability constraints and render projects nonviable.Taking a stylized country example,Table 1 illustrates the additional system costs and generation mix associated with deca
137、rbonizing the power system relative to a baseline where emissions reductions are not imposed.The results show the impact that capital costs typical of high-,middle-,and low-income countries would have on an illustrative model of power system decarbonization,all else being equal.In this illustrative
138、country analysis,meeting electricity demand without any carbon emissions constraints costs 25 percent more for a LIC than for a high-income country(HIC),purely as a result of the LIC paying more for the capital needed to build the network infrastructure and generation assets.Continuing the same anal
139、ysis,if a carbon emissions constraint is imposed,the incremental cost of achieving the same carbon target is 33 percent higher for a LIC than for a HIC.With many consumers already finding electricity unaffordable,and the power sector transition raising system costs overall,the LICs appear bound to p
140、ay the most to achieve the same goals because of higher capital costs.Table 1.Power System Cost and Contribution of Renewable Energy by the Typical Costof Capital in High-,Middle-,and Low-Income Countries Country type Present value of system cost(normalized to 100)Renewable energy in 2050 generation
141、 mix(%)Baseline Decarbonization Baseline Decarbonization High income 100 109 70 89 Middle income 109 121 66 86 Low Income 125 140 59 83 Note:To illustrate the impact of different capital costs on the cost of decarbonization and the contribution of renewable energy,the World Banks Electricity Plannin
142、g Model was used to model a single,generic,mid-sized power system.In a baseline and decarbonization scenario,three different sets of assumptions were applied to reflect the different costs of debt and equity that are broadly typical of countries at a particular income level.These values are not an a
143、verage across countries.Results could vary considerably among countries even within the same income group.For comparison,the present value of system cost has been normalized to 100 for the baseline in high-income countries.Source:World Bank estimates.Because of scarce and costly capital,LICs and MIC
144、s risk being locked out of economic projects related to transition of the power sectorand locked into fossil fuel generation of electricity despite its high and volatile operating costs.Critical transition technologies,such as wind and solar power and energy efficiency,face a disadvantage because of
145、 the cost structure of these technologies.Up-front capital accounts for a high proportion of the overall costs of solar and wind power,whereas coal and gas power have lower up-front capital requirements as a proportion of their overall costs,but they incur substantial fuel costs over their operating
146、 lifetimes.The levelized cost of energy of newly constructed solar and wind power plants(and of energy efficiency retrofits)is increasingly competitive,even with the marginal operating cost of existing coal-and 6 Botswana,Bulgaria,Chile,China,Croatia,India,Indonesia,Kazakhstan,Malaysia,Mauritius,Mex
147、ico,Panama,Peru,the Philippines,Poland,Romania,Thailand,Trinidad and Tobago,and Uruguay.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector7gas-fired generation(Lazard 2021).7 However,Table 1 shows that the higher cost of capital in a LIC can make economic investments in solar
148、and wind power plants unaffordable,such that LICs serve the same energy demands with lower levels of renewables.This is true in both the baseline and decarbonization scenarios.More economically viable options are available,but lower-income countries cannot afford to invest in them.About 10 percent o
149、f the total financing needed in both LICs and MICs would have to be on grant terms,but grant element is about 31 percent higher in LICs than in MICs.LICs and MICs are thus caught in a poverty trap,unable to afford the high up-front cost of switching to clean energy,and locked into higher costs and r
150、ecurring payments for fossil fuels.Providing international funds with lower costs of capital to LICs and MICs can correct this penalty and offset the additional costs that LICs and MICs must pay to decarbonize.In the example from Table 1,a LIC could supply electricity in a decarbonization scenario a
151、t the same cost as in the baseline scenario only if it were able to lower its weighted average cost of capital by nearly 4 percent.To achieve the same goal,the MIC would need to lower that same cost by 3 percent.To ensure that electricity in a decarbonization scenario would cost the same as in the b
152、aseline scenario,about 10 percent of the total financing needed in both LICs and MICs would have to be on grant terms.However,it is important to note that this needed grant elementor the degree of concessionality of financial supportis about 31 percent higher in LICs than in MICs.In short,the cost o
153、f capital is a fundamental barrier that could inhibit power sector transition or compromise fiscal and end-user affordability.The chapters that follow discuss the importance of concessional financing to bring these costs down,both directly and by helping to address the fundamental barriers to power
154、sector transition.7 The levelized cost of energy(LCOE)annualizes the capital cost in the break-even price for selling electricity.The LCOE derived in the study is the levelized cost of energy($/MWh)that would provide an after-tax internal rate of return on equity equal to an assumed hurdle rate.Scal
155、ing Up to Phase Down:Financing Energy Transitions in the Power Sector8KEY TAKEAWAYS Government leadership on power sector transitions is translated into a supportive regulatory environment,increasingly capable institutions,and instruments to minimize risks,followed by transparent and competitive pro
156、ject allocation,which can deliver outcomes that serve immediate needs,including energy security,energy affordability,and jobs.These results enable governments to sustain and deepen commitment to power sector transition.Assessing barriers to the foundations of transition will help governments articul
157、ate needs for technical and financial support.Disciplined application of concessional finance removes the barriers to catalyzing and sustaining this virtuous cycle while protecting fiscal and end-user affordability during the transition.These resources are needed to help governments strengthen the e
158、nabling environment;build interest in a pipeline of bankable projects;procure affordable and reliable clean energy services;and support the phase down of coal.Concessional finance must be prioritized for investments that have the potential to transform the power sector by de-risking and attracting p
159、rivate capital on favorable terms;improving the cost-competitiveness of the newer technologies critical for the transition;and financing noncommercial investments and activities of significant social benefit.Responsibility for fostering a strong enabling environment at all levels to propel the power
160、 sector transition lies squarely with governments.Governments are responsible for(i)setting policy direction and implementation roadmaps for the transition;(ii)establishing regulatory frameworks and concrete long-term action plans to guide the transition;(iii)strengthening the power system instituti
161、ons that must make informed sector plans,setting expectations for future market developments,and helping investors navigate the risks of stranded assets;(iv)allocating fiscal resources to mitigate the risks of early transition investments,and incentivizing private sector participation,eventually inc
162、luding robust carbon pricing;and(5)ensuring that early results serve near-term imperatives such as energy security,energy affordability,and job creation.Results that successfully balance the objectives of the transition with those related to development and distributional consequences for stakeholde
163、rs,are likely to strengthen the long-term political commitment to sustain and deepen the transition.The essential message is that putting the foundations for power sector transition into place will reduce its costs and enable scaling up.The components of this foundation are discussed in the sections
164、 below.The foundations of power sector transitionsand concessionalityas a catalyst Chapter 2A strong governmental commitment to transition of the power sector will reduce investors risks and lower the risk premiums they expect.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector
165、9The policy foundations of a virtuous cycle for scaling power sector financingSound policy enables a virtuous cycle that catalyzes private capital for power sector transition.Figure 1 represents a cycle in which policy is translated into results.Each step reinforces the next,steadily building moment
166、um for sustained and deepened action.Government involvement sets the foundation by minimizing risks and encouraging a growing share of the results to be achieved by private capital.While improving fundamental sector conditions can go a long way toward lowering costs and scaling up clean energy,scali
167、ng clean energy can also help to improve fundamental sector conditions.The steps illustrated in Figure 1 are described below.Figure 1.A virtuous cycle to scale up financing for power sector transition Source:World Bank.Political appetite in support of the regulatory and policy environmentA strong go
168、vernmental commitment to transition of the power sector will reduce investors risks and lower the risk premiums they expect.That commitment can be expressed through policies with broad stakeholder buy-in,visible strategies to meet the countrys Nationally Determined Contributions(NDCs),and measures t
169、o achieve long-term decarbonization and build resilience.Regulatory and policy frameworks in the financial and power sectors,including carbon pricing and policy,translate government commitment into implementation roles,targets,and direction.Strong institutions design and implement needed policy,regu
170、latory,legal,market,and procurement frameworks to provide signals to the private sector that they can expand their businesses and should devise new business models aligned with the national plan for the transition.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector10Building in
171、creasingly capable institutions Competent,credible,financially sustainable institutions are needed for effective planning in the power sector,and for the implementation of measures to reduce investor risk and deepen the pool of available capital.Well-functioning electricity sectors have a whole cons
172、tellation of institutionsfrom transmission and distribution utilities to the entities responsible for so-called“soft”infrastructurethat is,market rules,grid codes,spatial planning,tariffs,and regulatory frameworks.Weak institutions raise the perception of risk in the private sector.Although the fund
173、s required to create solid institutions are minor compared with sector investment needs,the task of institutional strengthening often remains neglectedand this is a significant oversight.Redressing this deficiency should be a key priority for governments and providers of concessional climate finance
174、.At the national level,improving the enabling environment for mobilizing domestic and international private capital requires a robust legal and institutional infrastructure,sector sustainability,and a certain level of development of the domestic financial sector.Debt distress and limited fiscal spac
175、e for transitioning the power sector create a chickenegg challenge,with the rewards being cost-saving investments and elimination of the need for subsidies.But alternate sources of long-term financing are also needed to ease pressure on public finances.Governments can engage their central banks and
176、other domestic development institutions to provide incentivesincluding special facilities and financing optionsto induce financial markets to lend for energy transition projects.Addressing additional regulatory constraints in the banking sector,shortfalls in institutional capacity,and high transacti
177、on costs could help to raise domestic capital for power sector transition.The necessary steps include(i)ensuring that capital market policy,and regulatory and institutional conditions support long-term infrastructure investments(for example,through prudential and investment regulations);(ii)developi
178、ng the investor base through pension and insurance market reforms,and building capacity to help these markets diversify into infrastructure and related asset classes;(iii)developing innovative and scalable financing solutions and instruments such as co-investment vehicles,including de-risking instru
179、ments and facilities to address the risk concerns of investors;and(iv)reducing information asymmetry and standardizing taxonomies and frameworks.But financial sector regulatory architectures and taxonomies must be aligned with international standards if they are to attract international investors.Un
180、locking regulatory frameworks can bring in capital from central and development banks,including thematic instruments(green bonds),transition bonds,and sustainability-linked instruments in line with international standards,as well as co-investment platforms and funds(energy transition funds,debt fund
181、s,and private equity)and de-risking facilities or guarantee funds.Critical policy and regulatory institutions in many LICs and MICs have inadequate resources,capacity,and independence to serve the interests of government and consumers.Funding is needed to equip ministries,regulators,and sector plann
182、ers with the people and tools they need to conduct consultations,engage technical experts,set and enforce targets,formulate regulations,steer markets,and manage procurement.Electricity transmission and distribution utilities are linchpins for managing and financing power sector transition in this de
183、cade,but their role is often underappreciated.Utilities are responsible for essential functions,including building the electricity network;they also serve as off-takers of electricity and are the Because power sector transition can be only as successful as its weakest link,strengthening the financia
184、l and operational performance of transmission and distribution utilities must be a priority for governments and their partners.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector11interface with consumers.They must raise capital at affordable rates in order to expand and modern
185、ize networks so they can integrate clean and distributed energy resources,while ensuring a reliable supply of electricity.However,many utilities,especially in LICs,are financially unviable,usually due to a combination of high costs and low revenues.In Sub-Saharan Africa,only about one-third of utili
186、ties fully recover their costs.Of the 45 utilities that do not recover their operating and debt service costs,35 fail to do so despite being subsidized(Balabanyan et al.2021).A range of issues,including regulated tariffs that are set below the cost of service;unsustainable debt levels;the high cost
187、of electricity generation because of poor planning and procurement practices;and operational inefficiencies(including high losses)raises costs for utilities that often are not covered by the government and cannot be passed onto consumers.In many LICs and MICs,the lack of a sector regulator with enou
188、gh independence and authority to set and review tariffs goes hand-in-hand with the weak financial health of utilities.Large unrecovered costs start a chain reaction that erodes the utilities financial positions.Noncreditworthy utilities require sovereign guarantees for liquidity that are sometimes u
189、navailable,risking defaults that can ricochet across the power sector.In MICs with investment-grade ratings,electricity utilities may also be at investment grade and thus in a better financial position to mobilize commercial sources of capital.However,regulatory incentives are often insufficient to
190、induce these utilities to invest in clean energy and phase down their exposure to fossil fuelpowered generating assets.Because power sector transition can be only as successful as its weakest link,strengthening the financial and operational performance of transmission and distribution utilities must
191、 be a priority for governments and their partners.Many measures under the governments or regulators control can bring utility costs in line with revenues.Chief among these are better planning for network investments,and procurement practices that minimize the cost of electricity;consistent enforceme
192、nt of tariff-setting regulations,including automatic adjustments for the costs of generation;mitigation measures to protect poor households;payment discipline throughout the supply chain,including mechanisms to ensure timely payment of electricity bills by public institutions;improved operational pe
193、rformance of utilities through investments in both hard and soft infrastructure(management information systems);stronger utility governance and accountability;and balance sheet restructuring to repay arrears and refinance debt to restore the ability of utilities to borrow at a reasonable cost.Beyond
194、 utilities,national and sectoral institutions need to provide critical direction through analytics that translate political commitments into robust sectoral plans.Ambitious long-term targets for renewable energy and energy efficiency send a signal to the private sector to invest.If the targets are t
195、oo low or too short-sighted,a vigorous market will not form.Targets should embody a phased approach with clear milestones to signal the path forward and encourage the private sector to engage.Planning should include decarbonization modeling that deals with critical uncertainties about technology mat
196、urity,demand,resource availability,commodity market dynamics,and the cost of capital.To avoid bottlenecks for integrating renewable and distributed energy resources,transmission must be properly considered within power system planningrather than separately,as is frequently the case.Some transmission
197、 projects can take as long as 15 to 20 years to complete;this requires lengthy and broad stakeholder engagement for land acquisition and compensation,as well as close coordination with load growth and new sources of electricity generation.Fully integrated planning will increase the accuracy of cost
198、estimates,reduce the risk of stranded assets,and keep risk premiums to a minimum.This process is instrumental in the conception and early preparation of potential projects,and in the creation of an investment pipeline that will be interesting to investors,as discussed below.To avoid bottlenecks for
199、integrating renewable and distributed energy resources,transmission must be properly considered within power-system planning.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector12Fostering an investment pipeline consistent with the stated policy and regulatory directionMarket si
200、gnals for energy efficiency and renewable energy are distorted or weak in many developing countries,which reduces incentives for the private sector to invest.The private sectorwhich consists of commercial developers,engineering firms,and financiersneeds clear signals about demand and incentives if t
201、hey are to bring their human and financial resources in line with power sector objectives.However,few LICs and MICs have well-developed markets for basic energy services that can signal demand and induce private capital to mobilize.Energy prices,which are often regulated in LICs and MICs,do not refl
202、ect the full cost of energy services,including financial costs.Where electricity markets do operate,they commonly co-exist with bilateral contracts that tend to make dispatch in the power system less efficient.Prices that reflect the full costs of energyand possibly also of energys carbon externalit
203、ieswould allow clean energy options to compete fairly and encourage greater investment in energy efficiency,storage,and network strengthening.In the meantime,governments need the capacity to create and enforce codes and standards of efficiency that can build a pipeline of investment and strengthen f
204、irms whose business models are being built around energy efficiency.Governments have a key role to play in supporting the origination and development of initial renewable energy and energy efficiency investments,and sustaining market activity,until market confidence is sufficient to attract private
205、involvement.Public efforts to originate a pipeline of projects and to de-risk investment can kick-start the power sector transition.But the lack of a track record,coupled with technology risks,means that seed capital may be needed to(i)substantially improve the cost-competitiveness of the newer tech
206、nologies that are required to scale up clean energy,and(ii)sufficiently de-risk investments to attract the private sector.Seed capital supports project preparation activities and encourages financial institutions to initiate lending programs in new subsectors and for a more diverse set of end borrow
207、ers.Institutions need early risk capital to carry out upstream studies and to prepare bankable projects that match investors riskreturn expectations.Concessional funds are essential in order to undertake the project preparation activities that are needed to create a robust pipeline.Developing instit
208、utional mechanisms to elicit carbon credits from voluntary or compliance markets can also help generate interest in project origination.Carbon credits for emission reductionswhether provided through voluntary carbon markets or markets established under Article 6 of the Paris Agreementcould complemen
209、t sources of capital and increase returns,and thus the affordability,of investments in the power sector transition.While some countries have initiated the procurement of credits under Article 6,most LICs and MICs will need dedicated assistance in order to establish the necessary institutional mechan
210、isms and processes to take advantage of carbon markets.Transparency and competition to deliver results at affordable prices Transparent,competitive,and predictable procurement processes can help attract more investment,particularly from the private sector.Such processes have been successful in scali
211、ng up low-cost renewable energy investments in several international settings,as described in Box 1.Some governments have orchestrated successful programs to bundle energy efficiency projects at public facilities such as schools and hospitals,creating an attractive procurement opportunity for privat
212、e players.A fair risk allocation between the private and public stakeholderstranslated into clear contractual arrangementswill allow governments to drive down the costs of energy services.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector13Box 1.Two examples of a systematic ap
213、proach to power sector transitionMoroccos Solar ExpansionMoroccos gradual expansion in solar energy over a decade illustrates the transformative role that concessional financing can play when embedded within a systematic policy vision.In the case of Morocco,the vision included the creation of MASEN,
214、a dedicated state-owned agency responsible for procuring large-scale renewable independent power producers,thus building on the procurement experience of Moroccos electricity utility,ONEE,in the early 2000s.In the mid-2000s,Morocco explored scaling up solar investments in order to reduce its depende
215、nce on imported oil,coal,and gas,and its exposure to the volatile prices of those commodities,as well as to expand its global leadership in climate change mitigation.At the time,because solar energy was not a least-cost option for power,even with Moroccos excellent solar resources,scaling up solar e
216、nergy required concessional financing,without which the impact of solar power on consumer energy prices would have been politically unviable.Moroccan consumers or taxpayers would not have had the incentive to bear the full additional cost of providing the global public good associated with a lower e
217、missions development pathway.The Clean Technology Fund(CTF)is part of the Clean Investment Fund,one of the worlds largest and most ambitious multilateral climate finance mechanisms for developing countries that are seeking to shift to low-carbon and climate-resilient development,and to accelerate cl
218、imate action.Launched in 2008a the CTF was an essential part of the solution in Morocco.The World Bank helped Morocco mobilize CTF financing on concessional terms(equivalent to those offered by the International Development Association),along with lending from the International Bank for Reconstructi
219、on and Development(IBRD),to anchor a package of bilateral and multilateral financing involving multiple donors,and a blend of concessional and nonconcessional resources.The initial result was a 20 percent reduction in the tariff bid by the private investors in the first solar public-private partners
220、hips.The private sector subsequently invested in hundreds of megawatts of solar power generation in Morocco,and the program has had significant regional and global demonstration impacts.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector14Box 1.Two examples of a systematic appr
221、oach to power sector transition(continued)Indias Solar ParksIndia has made renewablessolar energy in particularcentral to its efforts to tackle air pollution and climate change,while meeting growing demand for energy and expanding access to it.The creation in 1987 of the Indian Renewable Energy Deve
222、lopment Agency was a first step toward enabling financing for clean energy.The Global Environment Fund supported activities from 1993 to 2002 to commercialize renewable projects and attract private financial institutions.Ambition was significantly elevated in 2010 when India committed to establishin
223、g 20 gigawatts(GW)of solar power capacity by 2022,which was subsequently raised to 100 GW.By 2015 only about 2 GW had been added,bringing total solar capacity to less than 4GW.Although solar plants could be profitable,investors were discouraged by inadequate infrastructure,difficulties with access t
224、o land,and a lack of familiarity with the sector.In 2016,Indias first Nationally Determined Contribution under the Paris Agreement pledged that approximately 40 percent of the countrys installed electric power capacity would be based on non-fossil-fuelbased resources by 2030 with the help of transfe
225、rs of technology and low-cost international finance.At the time,this pledge was estimated to require$150 billion in funding,much of which would come from private sources following improvements to the investment environment(regulatory reforms and new transmission infrastructure).From 2015,the World B
226、ank Group began supporting the governments efforts to achieve its goal by providing$100 million in concessional finance:a$75 million loan from IBRD,a$23 million loan from CTF,and a$2 million technical assistance grant from CTF.The financing is helping to establish large solar parks in Madhya Pradesh
227、 and develop the infrastructure to connect them to the grid and distribute power to consumers.Along with this,the government worked on improving the regulatory and fiscal environment,as well as establishing fair and binding arrangements among state and national agencies,state-owned enterprises,and p
228、rivate energy producers.One measure has been to double the portion of energy that large-scale consumers must source from renewables,and another to raise the tax levied on coal-derived energy,from less than 3 percent in 2016 to more than 17 percent in 2019.A major outcome was the establishment of a b
229、ankable solar project for both domestic and international investors.Competitively procured,the Rewa Solar Park established a record low tariff for renewable energyless than 3 rupees(4.4 U.S.cents)per kilowatt hour.Competitive with power produced from nonrenewable sources,the tariff made new investme
230、nts in coal plants far less attractive and encouraged the Indian government to redouble its ambition to advance solar energy investments in the countrya clear example of the virtuous cycle at work.The World Banks$18 million dedicated to infrastructure for Rewa leveraged almost 32 times that amount i
231、n private investment($575 million),with International Finance Corporation(IFC)providing advisory services for structuring the transaction and a package of$437 million in commercial financing.Under the SolaRISING India program,the World Bank Group is working to replicate the success of Rewa by establ
232、ishing at least three more parks,representing a combined 1.5 GW of capacity.Solar parks built and operated by the private sector are expected to contribute 40 percent of the governments 100 GW target for solar capacity by 2023.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector
233、15Concessional finance as the catalyst for the virtuous cycleWhile governments are responsible for creating conditions for the virtuous cycle,barriers to doing so can be substantial in some countries as a result of weak governance,poorly targeted subsidies,and inadequate capacity and planning,to nam
234、e a few.As a consequence,power sector transition can be paralyzed,despite its potential to alleviate some of the sector challenges.For instance,utilities could significantly lower their energy supply costs and shield themselves from fuel price fluctuations if clean energy could be scaled up in an af
235、fordable manner.Inefficient energy subsidies can be very challenging to remove because of political economy issues,but the scaling up of affordable clean energy can reduce the need for fuel subsidies.Given the scale and the pace of transition required to meet the goals of the Paris Agreement,the wor
236、ld cannot afford to wait until LICs and MICs address all of the macro-sectoral issues involved in gaining access to affordable capital,and only then scaling up clean energy.Instead,development partners can help LICs and MICs scale up clean energy now as governments demonstrate leadership and commitm
237、ent to power sector transition,and embark on setting the required policy,regulatory,and institutional framework for it.Adequate flows of international concessional finance are essential for removing the barriers to catalyzing and sustaining the virtuous cycle,while protecting fiscal and end-user aff
238、ordability amidst the transition of the power sector.Any concessional finance should be used with a disciplined approach in order to accelerate affordable transition.The degree of concessionalityor the size of the grant element blended with other sources of financeshould be sufficient to overcome si
239、gnificant,well-defined barriers to transition,but not be higher.The key consideration for the use of concessional resources should be the transformational potential of a given intervention to strengthen and accelerate the virtuous cycle by dismantling barriers,so that subsequent cycles will need les
240、s,or no,concessional support(World Bank 2018).8 Because the majority of financing needs for the transition must come from private sources,transformational potential is considered as the ability to scale up private finance by catalyzing the virtuous cycle,eventually making markets sustainable without
241、 the further use of concessional finance.Concessional finance is not a substitute for the fundamental reforms needed to propel the virtuous cycle.However,concessional support can help to facilitate and support fundamental reforms,yielding benefits for the sectors health,decarbonization,and affordabi
242、lity.As governments demonstrate leadership and commitment to transition the power sector and assess their progress on each of the six steps in the virtuous cycle,international support provided through concessional finance may be needed to inform policy and regulation,strengthen sector institutions,a
243、nd populate the investment pipeline.A periodic reassessment of progress in establishing these foundations can be used to adjust the targeting of technical and financial support.Concessional finance is not a substitute for the fundamental reforms needed to propel the virtuous cycle.However,concession
244、al support can help facilitate and support fundamental reforms,yielding benefits for the sectors health,decarbonization,and affordability.Once the government articulates its commitment to transition the power sector and sets policy and regulatory direction for removing barriers to it,concessional fi
245、nance may continue to play a role in helping LIC and MIC governments deliver results that keep the virtuous cycle moving.Governments need support 8 This framing of barriers and transformational potential draws on World Bank(2018)“Strategic Use of Climate Finance to Maximize Climate Action:A Guiding
246、Framework.”This framework includes“ambition”as a consideration for prioritizing concessional finance,alongside transformational potential,though the framing of this paper presumes all candidate power sector transition activities are“ambitious”because they orient the country toward a net-zero pathway
247、.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector16in order to address the residual regulatory,financial,and technology risks related to unfinished reforms,or to make effective use of new technologies.Such risks may be at the country,sector,or project level.The degree of con
248、cessionality appropriate for each risk will differ depending on the country context,utility creditworthiness,investment bankability,fossil fuel capacity,and domestic capital market depth and liquidity,among other factors.For many LICs and MICs,concessional finance may be needed for certain near-term
249、 activities.For example:a.Integrated planning and capacity building to mitigate the risks of investment in a clean energy supply,as previously discussed.In LICs and many MICs,public and concessional finance are critical to transmission and distribution investments,particularly those made to expand a
250、ccess to electricity or upgrade networks to increase their efficiency and their ability to integrate variable renewable energy.Concessional finance may also be used by utilities as credit enhancements for de-risking and mobilizing commercial finance,as long as reforms are putting utilities on track
251、toward sustainable operational and financial performance.b.Cost reduction of clean technologies to enable cost-competitive,affordable,and reliable clean energy.Market competition and transparent auctions are the best ways to ensure that projects are delivered at the least cost to consumers,and shoul
252、d be necessary conditions for awards of concessional financing.Where risks and costs have been reduced to the extent possible,the adoption of promising emerging technologies can be accelerated with viability gap funding to make technologies cost competitive,affordable,and reliable until markets matu
253、re.The de-risking of nascent technology is needed for battery and long duration storage,offshore wind,and green hydrogen,among other things,to make early projects bankable.c.Fossil fuel phase-down activities that ease the financial impact of early retirements on the economies of LICs and MICs,and pr
254、epare societies to adjust successfully to the energy transition.Governments in LICs and MICs face the daunting challenge of facilitating the early or accelerated retirement of coal-fired power plants.Concessional resources to refinance existing plant debts make it possible to advance the retirement
255、date,and financial instruments can amortize early retirement costs into the future.Many governments will also need help to ensure responsible physical decommissioning and environmental remediation at coal plants that are being retired and prepare holistic development programs to support the communit
256、ies most affected by phase-down activities.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector17KEY TAKEAWAYSDevelopment programs supported by concessional finance can contribute to the following key priorities for scaling up clean energy supply:Sector planning,electricity pric
257、ing,and subsidy reform to clarify policy goals;systematizing the identification of market barriers,and mobilizing public and private capital Strengthening utilities,with a particular focus on expanding their capacity to identify and procure clean energy investment,and to design and develop flexible
258、grids as a backbone of a power system dominated by clean energy.Systematically mitigating the risks associated with sources of renewable energy Emphasizing energy efficiency and demand-side management to tame the growth of costs Devoting systematic attention to emerging technologies to reduce techno
259、logy risks,improve cost competitiveness,and expand markets.An unprecedented scale-up of clean energy will be needed in order to achieve countries development objectives and meet the temperature goals of the Paris Agreement.The decarbonization analysis carried out by the World Bank as part of its 202
260、122 Country Climate and Development Reports found that the pace of deployment of renewables-based electricity must accelerate,even in countries that have already made considerable progress.For example,the installation rate of solar photovoltaic(PV)capacity will have to double(and in many cases,tripl
261、e)compared with the baseline scenario within the next decade in Bangladesh,Ghana,Morocco,and Vietnam.Similar growth will be required in onshore and offshore wind generation capacity,which will have to rise by 30 to 500 percent in the decarbonization scenarios of Bangladesh,Egypt,Jordan,Morocco,Trkiy
262、e,and Vietnam.Barriers at each stage of the virtuous cycle interfere with the cycles momentum and can block clean energy investments,slowing the pace of the transition.These barriers exist at the country,sectoral,and project levels.This chapter identifies five areas where interventions will be neede
263、d if most LICs and MICs are to overcome critical barriers.The areas are:Transition preparation activities,such as sector planning,electricity pricing,and subsidy reform to clarify policy goals;systematize the identification of market barriers;and mobilize public and private capital;Strengthening tra
264、nsmission and distribution utilities,with a particular focus on their creditworthiness and the capacity of power grids to integrate renewable electricity;Catalyzing capital for clean energy deployment:toward a comprehensive approachChapter 3Scaling Up to Phase Down:Financing Energy Transitions in th
265、e Power Sector18 Emphasizing energy efficiency and demand-side management to tame the growth of costs;Systematically mitigating the risks associated with sources of renewable energy;and Devoting systematic attention to emerging technologies to improve affordability,reduce technology risks,and expand
266、 markets.Each area calls for a different degree of concessional and commercial finance,as illustrated in Figure 2.Figure 2.Use concessionality to remove barriers to the virtuous cycle,leading to more private finance for clean energy deploymentTransformational potentialHow high of a priority for publ
267、icor international finance?Increasing priorityHow muchconcessionalityis needed toremove thebarrier?Increasing concessionalityTransitionpreparationUtility and networkstrengtheningPreparation of renewable and energy efciency projects Clean energyrisk mitigationSource:World Bank.Financing to prepare fo
268、r the transition Governmental political commitment and leadership are necessary conditions for catalyzing investment in energy transition.Sustaining and deepening the transition requires that ambitions translate into detailed implementation roadmaps that are supported by planning,and adequate policy
269、 and regulatory frameworks.LIC and MIC governments commonly need assistance to create this enabling environment.Power sector planning consistent with stated policy is critical for scaling up clean energy and managing the risks of transition.Power system planning should reflect countries development
270、and climate change goals as well as uncertainties about the evolution of technology and fossil fuel prices,among other factors.Resilience of the power system and sector assets to future climate shifts requires planning around climate change over several decades using downscaling and the interpretati
271、on of climate models(see Box 2).Multilateral technical assistance for such planning will play an important role in informing governments and investors about transition pathways in the medium to long term,and in building a consistent near-term investment pipeline.Planning is also important for identi
272、fying and managing the risk of stranded assets.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector19Regulatory and policy frameworks must provide credible sectoral direction to reduce investor uncertainty,assign implementation roles across the government and the economy,and all
273、ocate resources to protect the vulnerable.Working with multilateral development banks,governments can devise whole-of-economy solutions to optimize the use of limited public finance and identify essential sectoral reforms.Concessional finance will be needed to acquire the personnel and tools to impl
274、ement targets,make regulations,foster markets,and design procurement processes as expressed in government policy frameworks.For many countries,phasing out fossil fuel subsidies(both explicit and implicit)provides an opportunity to redirect public resources to more productive activities while realign
275、ing incentives toward decarbonization.Concessional finance can play an important role in energy subsidy reform by funding technical,analytical,and advisory support to set up and apply a transparent tariff-setting methodology;strengthen social safety nets;and conduct communication campaigns while ene
276、rgy subsidies are being reformed.Governments will also need technical assistance in preparing to use instruments such as carbon pricing embedded in the national decarbonization strategy.These instruments can generate revenues once investment appetite accelerates and institutions are in place.Box 2.I
277、ncorporating resilience in plans for power sector transitionEnsuring that the power sector is resilient against emerging risks,particularly looming climate threats,is a priority in transition of the power sector.Faster and more ambitious decarbonization of the sector can reduce the burden of adaptat
278、ion,but given its current pace and scale,planning and financing for resilience needs to grow,especially for those LICs and MICs that are on the front line of the climate crisis.Enhancing climate resilience comes with multiple socioeconomic benefits:in LICs and MICs,the average net benefit of investi
279、ng in more resilient infrastructure can be up to$4.2 trillion,with every one dollar invested yielding four dollars of benefits.a Despite the high return on investment,financing for resilience in the countries that are most vulnerable to the impacts of climate change has not been forthcoming.What mak
280、es financing for adaptation,and more broadly for resilience,particularly challenging is the difficulty of defining the financing needs as well as measuring and tracking delivery in the absence of standardized and transparent data and reporting systems.By the best estimates,the average financing flow
281、s tagged to adaptation in LICs and MICs in 2019-20 were about$41 billion,less than 10 percent of the total climate finance flows.The majority of the adaptation finance tracked to LICs and MICs was provided by public and international actors,such as national development finance institutions(36 percen
282、t)and multilateral development banks(36 percent).In LICs and MICs,each year of delay in the adoption of resilienceenhancing policies in infrastructure,including the power sector,could cost an additional$100 billion in otherwise avoidable disaster impacts.Hence,it is critical that financing for resil
283、ience be accompanied by technical assistance geared toward improving institutional capacity to measure climate risks and take them into account in power sector planning and management,as well as for emergency response and recovery mechanisms.Preexisting energy price subsidies undercut the positive p
284、otential of carbon pricingScaling Up to Phase Down:Financing Energy Transitions in the Power Sector20Box 2.Incorporating resilience in plans for power sector transition(continued)Optimal financing for climate resilience layers three dimensions of public,international,and private finance into early i
285、nvestment that can increase fiscal space.Specifically,public finance can be channeled through budget reallocation and reserve funds while multilateral development banks provide deferred drawdown or equivalent instruments for rapid response assistance in case of disasters.Private sector financing for
286、 resilience typically involves catastrophe bonds and other instruments in the insurance and capital markets.Public-private partnerships for climate resilience insurance can help crowd in more private sector capital.The World Bank Group is committed to scaling up climate adaptation and resilience fin
287、ance to protect and benefit the most vulnerable.In addition to the continuous provision of contingent financing instruments,such as the Contingent Emergency Response Components,the Bank is exploring instruments to enhance the access of small and medium enterprises to finance using a portfolio credit
288、 guarantee scheme that can cover the disaster risks of utilities and system operators.At the upstream level,capacity-building support will be strengthened to enhance data and methodologies for climate risk assessment,and the development of systematic policies and strategies to identify and implement
289、 climate resilience measures in a timely manner.Source:World Bank.2019.Lifelines:The Resilient Infrastructure Opportunity.All figures are World Bank estimates.a.Climate resilience is the ability to anticipate,absorb,accommodate,and recover from the effects of a potentially hazardous event related to
290、 climate change(IEA 2020).Jumpstarting the investment pipeline requires seed capital to prepare promising projects in line with sector plans.Pre-feasibility studies can identify and characterize the technical and financial merits of promising early entry points for project development.Governments ca
291、n also draw in private interest to pursue projects through schemes to explicitly eliminate known sector risks.For instance,Indias solar park scheme(described in Box 1)brought in private investors by having the public sector manage the land risk,including assuring the availability,permitting,and envi
292、ronmental and social aspects of the project.The private sectors ability to lead in identifying and preparing promising projects is increased when governments and development partners share data on physical resource characterizations such as wind profiles and land surveys,power system network maps,an
293、d clearly defined and credible plans for further system development.Financing to strengthen utilities,energy efficiency,and demand-side managementTransition of the power sector will need to occur in parallel with efforts to restore utilities creditworthiness and strengthen network infrastructure.Gov
294、ernment support can keep utilities functioning effectively as transition of the sector accelerates.Utilities should be given the technical assistance and financial support they need to strengthen,upgrade,and digitize network infrastructure to meet growing demand,reduce losses,and achieve much greate
295、r flexibility in order to accommodate growing shares of variable renewable and distributed energy.They will also need support to build capacity and reengineer their business processes to improve their operational and financial performance and manage an increasingly complex network infrastructure.Sca
296、ling Up to Phase Down:Financing Energy Transitions in the Power Sector21Utilities cannot discharge these functions if they are financially unsustainable.A 2018 World Bank market sounding identified weak creditworthiness of utilitiesand the prospect that this would make the utilities unreliable off-t
297、akers of electricityas the most important risk that is limiting private sector investment(World Bank 2019a).For utilities that are on track to achieve operational and financial sustainability,risk mitigation guarantees from multilateral development banks and other international donors can ease fears
298、 of payment delays,defaults,and termination risks,and thus make the establishment of independent power producers more attractive.But such instruments only have a lasting impact if complemented by efforts to improve utilities creditworthiness over time.Such products will help the private sector acces
299、s long-term financing and enable countries to benefit from low-cost renewable energy.Government efforts to create demand for energy efficiency through policy frameworks,regulatory obligations,and price signals must be accompanied by measures designed to overcome financial risks and technical and ins
300、titutional obstacles.At the heart of the financial and technical challenges of financing for energy efficiency is the perceived risk of whether the costs saved through greater efficiency will be enough to repay the underlying investments.The technical challenges of(i)establishing proper baselines th
301、rough energy audits,and(ii)verifying the accrued savings and other system benefits,can lead to higher perceived risks and transaction costs.This in turn reduces investment,undermining the enormous potential represented by energy efficiency and demand-side management.Measures to mitigate the risks as
302、sociated with energy efficiency investments are too often applied as isolated pilots or short-term fixes.Three strategies can lower the barriers to energy efficiency financing:(i)direct financial support such as targeted credit lines and specialized funds complementing rebates and subsidies initiate
303、d by the government;(ii)risk-mitigating mechanisms such as guarantees or insurance;and(iii)technical facilitation from energy service companies or equipment lessors.These measures,individually or in combination,have proven effective in many countries.However,few projects,even those that have met the
304、ir objectives,have been replicated or scaled up.Because it takes time to create a commercial finance ecosystem,concessional support must be sustained while the market compiles a sufficient track record and assembles a solid pipeline of projects in energy efficiency and demand-side management.Buildin
305、g a critical mass of demonstration projects will build the case for energy efficiency and catalyze a scale-up in energy efficiency financing.Accrediting a larger pool of equipment and energy service providers will enhance trust and confidence in the energy efficiency market.With concessional finance
306、 and technical assistance,businesses can be encouraged to enter the market,test approaches and technologies,and develop their capabilities.In the process,they will discover best practices and find ways to reduce risks and costs.Together,their efforts will build the business case for energy efficienc
307、y.Engaging a wider range of stakeholders,particularly those in the private sector,in more long-term,national-scale energy efficiency programs with clear targets and strong training components would help to create a sustainable market that could continue to grow as concessional support is phased out.
308、In LICs and many MICs,public and concessional finance is critical to transmission and distribution investments.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector22Financing for clean energy rollouts Clean energy rollout financing is needed to mitigate the residual risks of ren
309、ewable energy investments.Affordable power networks,robust institutions,and even affordable capital are not enough to pivot investment toward renewable energy in all countries.Other instruments will be needed to cover foreign exchange risks,demand risks(for mini-grids),and,in some cases,guarantees t
310、o make long-term contracts more affordable while off-takers continue moving toward financial viability.Multilateral development banks and international donors should expand their portfolios of risk mitigation instruments,which could be developed and tested withconcessional climate finance to address
311、 these issues in developing countries,particularly those posing the highest risks.Market competition and transparency in clean energy procurement can help drive down costs and protect fiscal and consumer affordability.Auctions are an accepted mechanism for efficient price discovery and can be combin
312、ed with bulk procurement by the government to aggregate contracts and drive costs down further.Indias Energy Efficiency Services Limited has used this approach to purchase low-cost LED lights as part of a World Banksupported energy efficiency campaign.Governments can also work with development partn
313、ers to standardize contracts,drawing on international experience to reduce transaction costs and mitigate investor uncertainty about how to protect their investments.Bankable project structures,along with transparent procurement processes and balanced risk allocation,are essential elements in attrac
314、ting private investors.Development partners can also help governments to structure public first-loss guarantees to reduce real and perceived residual risks for investors,drawing private capital to critical investment areas.Various financing models,such as corporate finance,cash flowbased project fin
315、ance,and other innovative financing models(for example,asset-backed securitization),are used by both public and private investors.Corporate finance may be based on the strength of the underlying balance sheet and the debt raising capacity of sponsors,whether they are state-owned utilities or private
316、 concerns.Project finance may be considered for specific projects in order to enable private sponsors and state-owned utilities to mobilize more capital(through dedicated special purpose vehicles)by leveraging the underlying project cash flow.Financing for new technology Capital on concessional term
317、s will be needed in order to make early commercial technologies affordable,and to reduce or spread out the risks associated with them.LICs and MICs will need to be fast adopters of new technologies in order to support transition of the power sector.As the transition deepens,new technologies will mov
318、e from pilots to commercial applications,or from commercial operations in developed markets to large-scale deployment at affordable prices in frontier markets of LICs and MICs(offshore wind is a good example of this).But financing projects with technology that is novel in a given market may require
319、mitigation of the residual technology risk,which is present in first-of-a-kind deployments in any new market or in a new regulatory or environmental context,even if it has been commercially deployed in other markets.Concessional capital may be used to make technologies financeable and affordable in
320、developing countries by de-risking projects through first-loss seed capital,and contingent liquidity to kick-start sustainable lending programs.In addition,some technologies may require significant cost reductions through instruments like viability gap funding for large-scale deployment without adve
321、rsely affecting financial sustainability;for example,battery storage solutions for more robust and flexible networks.Without concessional support to make capital accessible and affordable until market confidence improves and costs come down,technologies in frontier markets will diffuse only very slo
322、wlyif at allwhile the lock-in risks of fossil fuels will grow.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector23Technology commercialization and market risk determine the appropriate level of concessionality for newer technologies,as illustrated in Figure 3.The figure does n
323、ot address whether the project is worth pursuing;one may assume it has been assessed and determined to have transformational potential.Some examples of World Bank Group initiatives to scale up clean energy technologies are described in Box 3.Commercial technologies in mature markets require little o
324、r no concessional finance.Projects of this sort fall into the lower-left quadrant of the Figure 3.They include well-prepared solar and onshore wind projects in MICs;these are projects that may be financed with private capital at market rates.Some energy efficiency projectsfor example,industrial mode
325、rnization and equipment upgrades in creditworthy countries,LEDs in buildings,and brownfield geothermal projects backed by long-term sales agreementsmay be financed in similar ways.Possible sources of finance include commercial banks,the private sector arms of multilateral development banks,export cr
326、edit agencies,and investment funds.Concessional finance still has a role in leveraging private capital for mature technologies in LICs.Here affordability may be a concern,and sectoral risks such as the inability of off-takers to pay may require concessional financing to help bring down project costs
327、.Projects of this type fall into the upper-left quadrant.Other possible sources of finance would include,again,commercial banks,the private sector arms of multilateral lenders,export credit agencies,and investment funds.Figure 3.The degree of concessionality appropriate for the deployment of clean e
328、nergy technologies increases with market and commercialization risksLow riskstable marketLow riskproven at large commercial scale High riskwithout commercialdemonstrationHigh riskevolving marketMarket riskSolar,onshore wind onshore wind in marketwith long-term contract and credible of-takerTechnolog
329、y commercialization risk Solar,onshore wind in market with substantialof-taker risk Green hydrogen in evolving markets,with unrealized renewable potential and uncertain demand Green hydrogen in stable market with low-cost renewables and guided by policy support,but export demand uncertainty remains
330、Higherrisks,higherdegree ofconcessionalitySource:World Bank.Scaling Up to Phase Down:Financing Energy Transitions in the Power Sector24Lenders may require large risk premiums to finance frontier technologies,such as long-duration energy storage,carbon capture and sequestration,and low-carbon hydroge
331、n.Projects with high levels of commercialization risk fall in the upper-right and lower-right quadrants.While the costs of such technologies are dropping,projects that include them will continue to rely on equity(corporate balance sheets),some bank debt,and concessional funding from public funds or
332、international institutions to make them affordable.Where the market risks are also significant(upper-right quadrant),the need for concessionality will be even higher.Deployment of these technologies may rely on strategic investment(for technology development,or industry cluster development),private
333、equity,and grant support.Box 3.Selected World Bank Group initiatives to scale up financing for clean energy technologiesSolarThe World Banks Sustainable Renewables Risk Mitigation Initiative(SRMI)is a comprehensive approach to risk mitigation based on global lessons.It builds on the importance of a tailored and holistic approach to electricity systems that is focused on reducing all regulatory and