Concept Note Support to the World Bank s Energy Sector Management Assistance Programme (ESMAP)

Concept Note Support to the World Bank s Energy Sector Management Assistance Programme (ESMAP) Strategic questions: 1) The ESMAP programme covers a broad range of issues. Should Denmark continue to provide core funding to ESMAP or should a part of the funding be provided as soft earmarking to activities which corresponds particularly well with Danish priorities and competences? 2) A Danish secondment is included in the proposed support to ESMAP to strengthen links between the Danish resource base and ESMAP. How best to utilise this secondment? Could other initiatives be taken to increase synergy between ESMAP and Danish development cooperation (multilateral and bilateral) as well as business competences? Context ESMAP is a World Bank (WB) technical assistance and knowledge programme established in 1983. It provides advisory and analytical services to low- and middle income countries to increase their know-how and institutional capacity to achieve sustainable energy solutions for poverty reduction and low carbon development. ESMAP is a key facility in terms of addressing SDG7 (Ensure access to affordable, reliable, sustainable and modern energy for all) as well as the objective of the Paris Climate agreement to keep global temperature increases below 2 degrees Celsius compared to pre-industrial level. The programme works both on barriers to increase energy access and to reduce emissions from the energy sector. With funding from 15 donors, ESMAP supports clients through targeted technical assistance, knowledge generation and dissemination, pre-investment project preparation, and implementation support. Access to modern energy is a critical challenge to achieve the SDGs. Almost 3 billion people in developing countries continue to rely on traditional biomass fuels for their cooking and heating needs. Equally, continued increases in carbon emissions from the energy sector due to dramatic increase in electricity demand in a number of Asian countries are threating to bring the 2 degree target out of reach. As part of its involvement in the SE4All initiate, a comprehensive Global Tracking Framework (GTF) for SDG7 has been developed by ESMAP. The GTF is able to monitor global development in terms of access to electricity, renewable energy capacity and improvements in energy efficiency. The 2016 survey concludes that the world is making progress on SDG7 and the SE4All targets on access to energy, energy efficiency and renewable energy, but that progress is by far too slow. Global efforts need to be significantly scaled up if the targets are to be brought within reach by 2030. 1

An external evaluation of ESMAP was carried out in 2015-2016 with a positive assessment. Among the findings of the evaluation are that ESMAP objectives and programs remains highly relevant. Also country level activities are highly relevant to the needs and priorities of their client countries and deliver high quality technical work. Comparative advantages of ESMAP include the position within the WB and ability to quickly mobilize to meet country needs and requests. The ESMAP programme is well governed with high quality and responsive management and a lean administrative budget although there is a tendency that ESMAP resources are stretched too thin. ESMAP activities have been largely effective in achieving development objectives. To meet current and future demand evidence suggest that resources will need to increase. SDG7 on sustainable energy is among the priority SDGs set out in the Danish strategy for development assistance and humanitarian assistance The World 2030. Energy is an important area in terms of promoting inclusive sustainable growth as a key priority in the strategy. And the focus of ESMAP on getting framework conditions in place and using public funds to catalyze private investments is also very well addressing the priorities of the strategy. Having said that, it is obvious that because the ESMAP portfolio is very broad (see below) parts of the ESMAP correspond better with Danish priorities and strengths than others. The is also the reason why two recent Danish contributions to ESMAP have been soft earmark (mini-grids and fossil fuels subsidy reform). Technologies related to renewable energy (primarily wind) and energy efficiency are areas where Denmark holds strong competences (knowledge and business). To increase links between the Danish resource base and ESMAP services, it is suggested to fund a 3 year secondment to ESMAP as part of the Danish grant. The secondment could have a strong link to key Danish competences on renewable energy for example on RE grid integration which is also an area where ESMAP is in need of additional resources due to high demand from client countries. A focus on strengthening partnership focus of ESMAP could possibly also be an element in the ToR for such a person. An additional focus point will be on using ESMAP competences where possible in other Danish development activities (multilateral and bilateral). A Danish contribution of DKK 45 million to ESMAP Multi Donor Trust Fund (MDTF) is proposed to support implementation of ESMAPs Business Plan (BP) 2017-2020 with a total budget of 215 million USD. Denmark has supported ESMAP since 2005. The last core contribution of 45 million DKK to ESMAP was provided in 2013. During 2015 and 2016 a number of additional commitments to ESMAP were made from the Climate Envelope to specific parts of the ESMAP programme. This includes 13 million DKK in support to the mini-grids programme, 11 million DKK in support to fossil fuels subsidy reform and 11 million DKK in support to energy sector reform in Ethiopia. What has ESMAP achieved during the last three years? During the last three years ESMAP has supported activities in 130 countries and influenced WB IDA and EBRD financing of 3,7 billion USD, leveraging an additional 1,8 billion USD 2

from other partners. The following are examples (from the ESMAP annual report) of the results achieved by ESMAP programmes during the period: ESMAP has Built the foundation for urban energy efficiency planning and investments through city-level diagnostics using the TRACE tool in 70 cities Informed the development of several investments, including a 100 million USD IBRD loan for municipal energy efficiency in Mexico, 14 million USD IDA financing for urban energy efficiency in the Kyrgyz Republic, and a 300 million USD public-private partnership for street lighting in Belo Horizonte, Brazil Provided technical assistance to 22 countries, including technical studies, capacity building, and knowledge exchange events Provided technical assistance to 13 countries to identify and prepare projects; 3 of these projects are now being implemented with support from the WB Allocated 9.8 million USD through the annual block grants resulting in 1.2 billion USD of WB lending informed and improved policies and strategies for energy sector reforms, governance, markets and planning adopted in several countries including Afghanistan, Armenia, Georgia, Kazakhstan, and Vietnam Provided 9.8 million USD to 19 countries for comprehensive technical assistance to governments on energy subsidy reform, including quantification of subsidies; assessment of the impact of reform on households, firms, and the economy; design of impact mitigation mechanisms; analysis of stakeholders and of public perception; and support for communications, informing the preparation of development policy loans for energy pricing and sector reforms, such as in Egypt and Jordan Helped accelerate, under the Urban Poor initiative, electrification in slum areas in Kenya to more than 100,000 connections per year Enabled 5.3 million households in 7 countries to gain access to electricity and 2 million in 3 countries to gain clean cooking solutions Through the Lighting Africa Programme facilitated the sale of over 9 million qualitycertified products, resulting in over 15 million people with Tier 1 access per the SE4ALL Multi-Tier Framework Helped eight countries to obtain an initial assessment of their wind power resource and five countries for solar, resulting in improved data for government planning and private sector development Implemented three series of flagship publications that provide critical data to inform sustainable energy goals and policies: the Global Tracking Framework (2013, 2015); Readiness for Investment in Sustainable Energy (2014); and Beyond Connections (2015) Supported the installation across 10 countries of 1,484 MW of renewable energy generating 3,200 GWh annually 3

The above is an extract of some of the results that ESMAP has achieved also with Danish funds from the previous strategic period. A more advanced monitoring system for ESMAP is being developed. This system will allow aggregated monitoring of ESMAP results also at outcome level (see below). An external evaluation of ESMAP was carried out in 2015-2016 with a positive assessment. Among the findings of the evaluation are that ESMAP objectives and programs remains highly relevant. Also country level activities are highly relevant to the needs and priorities of their client countries and deliver high quality technical work. Comparative advantages of ESMAP include the position within the WB and ability to quickly mobilize to meet country needs and requests. The ESMAP programme is well governed with high quality and responsive management and a lean administrative budget although there is a tendency that ESMAP resources are stretched too thin. ESMAP activities have been largely effective in achieving development objectives. To meet current and future demand evidence suggest that resources will need to increase. Overview of envisaged programme support ESMAP s 2017-2020 BP builds on its track record as a global program for analytical and advisory activities in the energy sector. The program is fully integrated with the WB s country policy dialogue and lending programs. In 2016 the WB launched its climate change action plan which reconfirms the WBs commitment to increase the climate related share of its portfolio from 21 to 28 percent by 2020 in response to client demand. ESMAP is a key instrument for the WB in working to achieve this target. The 2017-2020 BP continue to focus efforts in four thematic areas: Energy access, energy efficiency, renewable energy and cross cutting areas. Linked to these thematic areas are a number of priorities and objectives. On energy access key focus is on the expanding clean cooking and heating solution, green mini-grids and the lightning global programme which in cooperation with IFC provide off-grid solar technologies through market driven approaches On energy efficiency focus is on integration efficiency service considerations in WB building sector operations, policies and dialogues as well as general urban operations. Focus also on increasing financing from other development partners. On renewable energy focus is on resources assessment for wind and solar (DTU is a leading operator on wind mapping) as well as assisting countries to strengthening grid planning capabilities and modernize grids to integrate increased share of renewable energy. Global geothermal development as well as solar support is also among the key priorities. On cross cutting issues focus is on energy subsidy reform as well as the annual block grants to ESMAP regional offices to improve energy sector performance in WB countries. 4

The table below provides an overview of activities and objectives of the 2017-2020 ESMAP BP. THEMATIC AREAS Energy Access Energy Efficiency Renewable Energy Cross-Cutting Areas PRIORITIES Efficient Clean Cooking and Heating SE4All Technical Assistance Green Mini-Grids Urban Poor Lighting Global Efficient & Sustainable Buildings Efficient City Services Resource Assessment and Mapping Integrating Variable Renewables Global Geothermal Development Solar Support Annual Block Grants for Energy Sector Governance, Markets and Planning OBJECTIVES Increased number of WBG country operations supporting access to cleaner, more efficient cooking and heating solutions Increased number of low access countries that are enabled to mobilize sector-level financing on the scale required to achieve universal electrification targets Increased number of WBG operations with scaled-up least cost mini-grids Necessary knowledge base developed on policy and regulatory aspects Increased number of WBG operations where electricity access in slums and peri-urban areas is mainstreamed Increase access to modern, clean, reliable and sustainable electricity services provided by off-grid solar technologies through market-driven approaches, in cooperation with IFC Increased number of WBG operations with energy efficiency considerations integrated in building sector operations, policies, and country dialogues Increased number of WBG municipal services operations with energy efficiency considerations integrated; Increased mobilization of finance from other development partners Increased number of countries with validated maps of renewable energy resources at sufficient scale and quality to support policy planning and commercial development Increased number of countries with strengthened grid planning capabilities and modernized grids to integrate increased share of variable renewable energy Increased investment pipeline for geothermal resource confirmation Increased number of countries with adequate enabling environments to leverage and accelerate commercial finance in solar technologies Increased number of countries with improved energy sector performance 5

SE4All Knowledge Hub Energy Subsidy Reform Global dashboard developed to monitor progress towards the achievement of SDG7; Improved availability of data and indicators Increased number of countries that reform energy subsidies, while mitigating the impacts on the poor and vulnerable An overall theory of change for ESMAP is included in annex 1. Indicators A comprehensive results chain for the BP 2017-2020 has been developed. This includes impact indicators at different levels. High level outcomes include development financing informed, policy/strategy informed, client capacity increased, and innovative approaches & solutions Generated. In addition, ESMAP has (after demand from development partners) agreed to include indicators at the next level up. There are: New capacity and increased generation of renewable energy, Electricity savings resulting from energy efficiency improvements, Households with access to modern energy services and avoided GHG emissions. These are higher level indicators, with more indirect attribution to ESMAP since ESMAP does not finance investments directly. These outcomes will be aggregated from the results frameworks of the World Bank investment projects informed by ESMAP. Budget The total budget for the BP 2017-2020 is 215 million USD. Business Plan Thematic Areas FY17-20 budget ($m) FY17-20 Business Plan target Annual Block Grants - Energy Sector Governance, Markets & 28,0 40,0 Planning SE4ALL Knowledge Hub 12,0 16,0 Energy Subsidy Reforms 20,0 20,0 Energy Access 32,0 58,0 Renewable Energy 22,0 47,0 Energy Efficiency 18,0 25,0 Program Management & Administration, M&E, KM, Comms) 8,0 9,0 TOTAL 140,0 215,0 Budget by priorities FY17-20 allocation FY17-20 Business Plan target Efficient and Clean Cooking 8 24 SE4forAll TA 8 12 Mini-Grids 8 8 6

Urban Poor Access 4 4 Lighting Global 4 10 Total: Energy Access 32 58 Sustainable & Efficient Buildings 8 10 EE City Services 10 15 Total: Energy Efficiency 18 25 RE Mapping 8 15 Geothermal 2 6 VRE Grid Integration 8 15 Solar 4 11 Total: Renewable Energy 22 47 The proposed resource envelope for the 2017-2020 BP represents a substantial increase compared to the budget of 137 million USD of the previous BP (noting also that this is a fouryear business plan, compared to three years last time). This growth is driven by what ESMAP management describes as an overwhelming demand of ESMAP services for example within mini-grids and RE grid integration. Other donors to the MDTF (that has current pledges of about 140 million USD) include the Netherlands, Sweden, Norway, Switzerland, Germany, France, Island, Japan, Australia, the EU COM and the Rockefeller Foundation. The Netherlands is currently the largest contributor to the 2017-2020 BP with a commitment of 35 million USD. As of today, pledges and anticipated contributions are at about USD 130-140 million, which leaves a funding gap of about 70 million USD to the ESMAP BP. At the Consultative Group Meeting in April 2017, donors noted that funds pledges to-date and anticipated in 2018 would enable ESMAP to implement the 17-20 BP at a level similar to the previous BP; some donors also noted that supplemental contributions might be considered in subsequent years, depending on availability of budget and program performance. Among donors there are different preferences in terms of ESMAP focus on IBRD versus IDA countries. ESMAP monitoring ESMAP is establishing a more robust monitoring process of its portfolio of projects supported by web-based tools and reports with updated templates enhanced with specialized functions: a) Grant Financing Request - quality assurance prior to financing or creating trust fund accounts; b) Progress Grant Reporting & Monitoring - monitoring of project progress, including assigning ratings for implementation progress and risks; and c) Completion - evaluation of completed activities and outputs and achieved outcomes. In addition to the above, monitoring of projects is also undertaken at the portfolio level of each ESMAP thematic and/or cross-cutting area, and it is proposed that progress reports are produced for these areas and possibly select ESMAP priorities (e.g., Solar Program, Mini- Grids). Monitoring also takes place at different levels of supervisory authorities of the Bank (e.g., Regional, Global Practice). 7

ESMAP monitoring reports include planned outputs, implementation schedules, and expected outcomes. Periodical reviews of each project for these indicators help identify what follow-up may be required, as well as portfolio actions (e.g., extension of delivery or closing dates). In addition, ratings for implementation progress and risks for each project also help identify follow-up/portfolio actions which may be necessary for projects to achieve its goals, outcomes and/or results. Also, ESMAP s Monitoring and Evaluation (M&E) Portal has been designed as a monitoring tool, providing a public version of ESMAP monitoring reports. A schematic diagram of ESMAP monitoring reports is presented below. Lastly, a number of overall portfolio indicators at outcome level will be reported on (as mentioned above). Programme governance Programme governance is the responsibility of the CG, which meets annually and takes the strategic decisions of ESMAP. The CG is supported by a Technical Advisory Group, which consists of three persons. The day-to-day management of ESMAP is the responsibility of the ESMAP Programme Manager. The present CG is chaired by the Director of Sustainable Energy Department and each of the donors supporting ESMAP are represented in the CG. Risks A risk assessment for the BP has been developed covering risk categories, rating and mitigation measures (attached in annex 2). Among the risks which are rated moderate are for example ESMAP fails to direct resources, timely, efficiently or appropriately. A range of different mitigation measures has been identified for each of the risk factors. Gender During the 2014-2016 BP plan period, ESMAP developed a base of knowledge in the area of gender and energy through development of background notes, deep dive studies, training materials, assessments and outreach to partners, as well as know how on identifying entry points and working with energy teams and governments to integrate gender considerations into energy operations. Under the new business plan, ESMAP will transition to mainstreaming gender throughout its business lines and grant programs. Within ESMAP thematic areas, this means that clean energy, energy efficiency and energy access will have gender specific outputs as part of their program delivery. This combination of a knowledge and an operational focus underpins ESMAP s approach to supporting well informed action on gender equity in the energy sector 8

Annex 1. TOC for ESMAP 9

Annex 2 Risk Framework ESMAP Risk Framework Risk Description Risk Rating Proposed Mitigation Measures I. Strategic Risks 1. ESMAP s work not being guided by clear strategic framework. 2. ESMAP fails to direct resources, timely, efficiently or appropriately. 3. The Bank s existing capital base, in particular, IBRD capital, is not adequate to meet borrower demands for loans, thus decreasing the leverage potential of ESMAP. Low Moderate Moderate CG provides guidance and advice, meeting annually to review the strategic direction, achievements, use of resources and funding requirements. TAG provides informed, independent opinions to the CG about the purpose, strategic direction, and priorities, as well as provides advice and suggestions on current and emerging global energy sector issues likely to impact ESMAP s client countries. For global and regional activities, strategic alignment with the Bank s corporate objectives (approved Bank/regional/sector strategies). For country-specific activities, strategic alignment with Country Partnership Framework (CPF) or Country Engagement Note (CEN). IDA 18 replenishment of $75 billion with a proposal to leverage IDA's equity by blending donor contributions and the Bank s internal resources with funds raised through debt markets, based on the recent triple-a rating that IDA received from credit agencies. Energy GP provides: (a) increased focus on IDA-18 delivery; (b) enhanced efforts to mobilize concessional funds (e.g., climate finance) for Middle Income Countries (MICs); and (c) commitment to the cascade principles 1 to increase leverage of non-bank, commercial finance. 4. Roles & Responsibilities are unclear, diffused or unknown roles and responsibilities lead to diminished performance or lead to potential, real or perceived conflicts of interest. Low ESMAP follows the Bank s Accountability and Decision-Making (ADM) framework which: (a) clarifies roles for key decisions; (b) establishes disciplined decision processes; and (c) modifies behaviors and ways of working. The Bank s Conflicts of Interest Office, within the General Counsel s office, assists staff and management in identifying and managing potential, real or perceived conflicts in the operational setting, including those arising between and among the three Bank institutions (i.e., IBRD/IDA, IFC and MIGA). 1 The cascade approach is a hierarchical approach to development investment decision making by promoting judicious use of scarce public and concessional resources to crowd-in commercial capital and minimize the public debt burden of the Bank s clients, while delivering sustainable and affordable infrastructure services. 10

ESMAP Risk Framework Risk Description II. Operational Risks Risk Rating Proposed Mitigation Measures The Bank s Development Finance (DFi) Vice Presidency s role and initiatives enhance transparency and facilitate strategic dialogue with donors, information sharing, prioritization and fundraising coordination. 5. ESMAP activities/projects: do not respond to client needs; are duplication with existing activities and sources of finance; suffer implementation problems or delays; and/or do not have adequate results measurement and dissemination of results. fail to co-ordinate and promote coherence with the relevant programs of contributing donor partners. the benefits of ESMAP support not reaching vulnerable population, including girls and women, especially in fragile environments. Moderate Country and regional activities are anchored in World Bank country programs and must demonstrate client commitment Aid coordination strengthened by ESMAP s participation in and organization of events, including annual meetings, dialogue roundtables, joint study tours Country-level activities are implemented through World Bank operational units, which participate in country/project-specific coordination structures and processes. ESMAP activities are subject to standard World Bank portfolio monitoring and implementation status reporting systems. ESMAP M&E system will have an upgraded online feature for improved transparency and timeliness of information. ESMAP is developing a Knowledge Management system for strengthening organization and dissemination of knowledge. Annual Portfolio Review to strengthen focus on results and outcomes. Approved ESMAP activities include plans for TTLs to coordinate and include consultations with donors in the field or in donor capitals, as appropriate. Approved ESMAP proposals include identifying the expected benefits and the risks to extending them to the most vulnerable population, in particular, females and those residing in fragile, conflict and violence afflicted countries. 6. ESMAP Staff Turnover. Low Teams have critical mass that allows for assigned back-ups and are also complemented by external specialists. 11

Annex 3. PAP for Danish contribution to ESMAP 8 June 2017: Presentation to Programme Committee July August 2017: Appraisal 26 October 2017: Presentation to Council for Development Policy November 2017: Presentation to Finance Committee 12