TERMS OF REFERENCE: FRAMEWORK FOR STRENGTHENING INVESTMENT CLIMATE FOR RENEWABLE ENERGY IN COUNTRY X

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1 This TOR describes the work of team members and consultants to set out a comprehensive framework that helps policy makers to take full account of the information available on costs and other aspects of different renewable energy technologies to deliver policy, regulations, and guidelines for scaling up renewable energy development and supply in a country. TERMS OF REFERENCE: FRAMEWORK FOR STRENGTHENING INVESTMENT CLIMATE FOR RENEWABLE ENERGY IN COUNTRY X 1. Introduction <Provide Introduction> 2. Background <Provide Background> Assignment for The World Bank funded by ESMAP trust fund 3. Objectives of study The objectives of this study are to: Set out a comprehensive framework that helps policy makers to take full account of the information available on costs and other aspects of different renewable energy technologies to deliver coherent policy, regulations, and guidelines for scaling up renewable energy development and supply in Country X. This coherence would be evident by harmonized approaches across states (while also allowing for state-specific requirements) and reduction in the risks and costs of doing business. Provide recommendations for strengthening the investment climate for renewable energy by assessing the gaps in the current renewable energy sector and identifying areas for intervention and further strengthening through investments, policy, regulation, and market instruments. 4. Tasks 1. Development of an overarching comprehensive framework (Renewable Energy Framework - REF) for assessing the economic basis for supporting investments in renewable energy sector in Country X (a) Early conceptualization of the framework The consultants would identify various economic benefits of renewable energy over conventional energy including inter alia increased availability of power, enhanced access in remote (rural) areas, local environmental benefits, global environmental benefits, energy security benefits, fuel diversification benefits and cross-sectoral benefits (such as disposal of municipal solid waste and health benefits from use of biogas). These economic benefits would be classified as value elements. The framework would map (i) key stakeholders/ beneficiaries/drivers of respective value elements (ii) present policies, regulations and market interventions to realize these economic benefits (see b below for more details) and

2 (iii) gaps in approaches, instruments and institutional framework to integrate these economic benefits in a comprehensive framework, and provide recommendations for the same. The consultants would consult various sector stakeholders to evolve this early concept into a comprehensive Renewable Energy Framework (REF). The REF should address each of the major renewable energy technologies (Solar home/mini-grid/grid connected, Hydropower micro-mini/small-medium, Biomass thermal applications/gasifiers/direct combustion/bio-diesel, Wind small/large projects). For this purpose, the consultants would organize a meeting with various stakeholders and seek comments / feedback on the early concept of the framework. (b) Mapping Policy, Regulatory and Market Interventions Consultants would bring out for various identified economic benefits (value elements) conduciveness to state/federal level policy interventions, institutions best suited to address these value elements and the instruments available for addressing them. They would study various existing and proposed policy, regulatory and market interventions. In this process, the consultants would also identify the advantages and disadvantages of these interventions. (c) International experience of realizing economic benefits of RE. The consultants would carry out desk review to document various policies, regulatory and market interventions prevailing in other countries to realize various economic benefits of RE across various technology options. The approaches and methodologies adopted to integrate these economic benefits in a comprehensive framework to facilitate renewable energy development will also be presented.. (d) Documentation and Dissemination of Renewable Energy Framework The REF would be documented into a report for dissemination to various sector stakeholders. The Report would be titled A Framework for assessing the economic basis for supporting investments in renewable energy sector in Country X. A dissemination workshop would also be organized to present the final report to key stakeholders. 2. Assessment of Investment Climate for Renewable Energy and Approaches to Strengthen the same (a) Assessment of the existing Investment Climate for each of the major renewable energy technologies (Solar home/mini-grid/grid connected, Hydropower micromini/small-medium, Biomass thermal applications/gasifiers/direct combustion/biodiesel, Wind small/large projects). For this consultants would conduct quick desk research and interviews with key stakeholders. A lot of this information is already documented, and it is expected that this would be a rapid information assimilation exercise. The consultants would identify the key issues and risks affecting investment climate in each of these areas, and also document the approaches suggested by various stakeholders for addressing them. (b) Assessment of Renewable Energy Costs Using desk research and interviews with key stakeholders, report on the costs of each of the key forms of renewable technology under consideration in Country X (wind, hydro, solar, biomass, etc.). Costs should cover the complete electricity production costs (i.e. capital and O & M costs). Benchmark these costs with conventional energy sources such as coal, gas, for power generation as well as

3 use of liquid fuel for captive energy use (diesel water pumping for irrigation, use of diesel generators by commercial and residential users etc.) (c) Assessment of renewable energy resources in Country X The consultants would set out potential for incremental capacity of each technology in Country X (provide this assessment at the state level), based on research from secondary sources. The assessment of resources would be co-related with the likely cost of power as found in the previous task to evolve an indicative supply curve. (d) Review of Renewable Energy Targets and Strategy The consultants would review the renewable energy targets set by the Government of Country X for the XI Plan and also over the next 20 and 50 years. They would examine the existing strategy of GoI and the key approaches being proposed for achieving the targets. The consultants would co-relate the findings of the investment climate assessment, renewable energy costs, potential for renewable energy and the economic basis for supporting renewable energy technologies, with the targets and strategy being envisaged by the Government. (e) Assessment of Renewable Energy Policy Instruments and Initiatives The consultants would assess the policy instruments and initiatives most useful in addressing the investment climate issues with the aim of achieving the renewable energy targets. They would also bring out the gaps in policy, regulation, institutions and financing that may affect the achievement of the renewable energy targets. In doing so, consultants should assess the policies used in Country X and the reasons for their relative successes or otherwise. What business models are working and has potential for scaling up? What have been the sources of finance? What are likely to be the major sources of finance going forward? What has worked internationally - provide examples from Europe & China. (f) Review of regulatory environment in states to facilitate renewable energy development. This will entail a review of approaches adopted by various state regulators and CERC for feed-in tariffs, renewable purchase obligations, other specific guidelines/ regulations to promote renewable energy, and impact of other regulatory guidelines (e.g. open access, trading, etc.) on renewable energy projects. Consultant will highlight good practices and areas where harmonization of regulatory interventions would be essential to achieve the RE targets set for XI plan. (g) Identify areas for potential World Bank support for strengthening renewable energy investments with a transformational impact, based on the findings of the above tasks. This would include examining appropriateness of Bank support for technology neutral initiatives such as Renewable Energy Fund, Renewable Energy Certificate regime and use of Climate Investment Funds. In addition, the consultants would also review the appropriateness of Bank support for technology specific initiatives across all the major RE technologies. They would also examine the various institutions in the sector and suggest which ones offer a significant advantage for Bank s strategic engagements in the RE sector. (h) Review of Opportunities for Supporting Increased Investments in Small-Medium Hydropower Sub-sector Further to point (f) above, the consultants would specifically examine the opportunities and approaches for supporting increased

4 investments in Small-Medium Hydropower sub-sector. Suggested approaches should lead to enhanced development of hydropower resources in states where such investments have lagged despite significant potential. The approaches should aim at strengthening the market for small-medium hydropower developers and should leverage the broader financial markets of the country for funds. The consultants would also explore innovative project structures to address risks and barriers to such projects. The consultants would examine the institutional structures for promoting small-medium hydropower projects in states where the existing hydro-power potential has not been adequately developed, with a particular focus on incubating a pipeline of projects, addressing environmental and social safeguard concerns, formulating basin-level development strategies and addressing transmission system concerns. The consultants would also examine how such interventions may be used for augmenting access to electricity services in surrounding rural areas. The consultants would examine whether interventions in small-medium hydropower are the most preferred when compared against interventions in other technologies. (i) Documentation and Dissemination of Investment Climate Assessment for Renewable Energy in Country X The consultants would prepare a report on all the above aspects, which would be presented to stakeholders during the dissemination workshop. The report would be titled Assessment of Investment Climate for Renewable Energy in Country X and Approaches for its Strengthening. 4. Deliverables and schedule Deliverable Elapsed time after project kick-off 1 Note on Early conceptualization of the Renewable Energy Framework and 2 weeks proposed methodology for conducting the assignment. 2 Renewable Energy Framework Report 5 weeks A Framework for assessing the economic basis for supporting investments in renewable energy sector in Country X 3 Investment Climate Assessment Report 8 weeks Assessment of Investment Climate for Renewable Energy in Country X and Approaches for its Strengthening 4 Dissemination Workshop 10 weeks 5 Final study report 12 weeks 5. Team interactions within country It is expected that the consultant team will interact extensively with a number of the key policymaking bodies and stakeholders. These include <x>. 6. Team composition It is expected that the winning bidder will have extensive experience of Country X electricity sector policy and regulatory context (preferably including that for renewable energy). The consultants should have a good understanding of policy making to increase incentives for investment in renewable energy in a number of European countries and preferably also China.

5 The team will be led by an experienced and well regarded expert in power sector economic regulation and policy. The work will require extensive interaction with and understanding of stakeholders and their relationships and activities. It is therefore important that bidders adhere to the guidance on team composition, particularly in relation to experience in the Country Xn power sector. The ideal team will combine an experienced and effective Country X-based team with highly experienced international expert(s) in renewable energy policy. Key members of the team should be: Project Director at least 15 years of substantive international experience of regulation in the power sector, including experience in regulatory/policy treatment of renewable energy. Will preferably have experience of working in the Country Xn power sector. Regulatory Economist experience in power sector regulation internationally and at the state level in Country X, with at least 10 years of overall experience. Financial Specialist experience in the Country Xn power sector, with at least 8 years overall experience. Renewable Technology Expert experience of at least 8 years on renewable energy technology applications and practical challenges in implementation and operation of projects. The bidding firms may choose to strengthen their proposal further by assigning additional roles as they deem fit for the assignment.