Developing countries must increase their energy consumption to raise living standards. And because of their low energy efficiency today, the potential for gains is great, but not without concerted efforts
A review of World Bank experience in the energy sector of developing countries shows why energy efficiency is low and what the gains from greater efficiency might be.[1] Many individual project components for energy efficiency have succeeded, at least in the short run. But many others (such as boiler tuning, better plant housekeeping, and more efficient motors, light bulbs, and appliances) were not undertaken--or did not realize their full potential.
The reasons for this failure in many instances relate to one or more of the following factors:
Because of their low efficiency today, developing countries have the potential to achieve significant gains in energy efficiency.
In the petroleum sector, losses in refining (excluding the energy requirements of the refining process) are as high as 5%, but could be as low as 0.5% in a well-run refinery. The difference comes mainly from leakage and the flaring of refinery gases. Estimates of avoidable costs in the petroleum product supply chain in Sub-Saharan Africa, before the products even get to the consumer, amount to $1.3 billion a year (about a quarter of the entire Sub-Saharan petroleum import bill).
In the power sector, a recent operational review of the largest utilities in 51 developing countries shows a general trend of declining technical efficiency over a 20-year period. Older power plants in many developing countries consume from 18% to 44% more fuel per kilowatt hour of electricity produced than those in OECD countries. And they suffer transmission and distribution losses two to four times higher. In fact, technical and nontechnical transmission and distribution system losses in the delivery of electricity are commonly greater than 20%--occasionally approaching 40%.
Transmission and distribution losses represent about 31% of generation in Bangladesh, 28% in Pakistan, and 22% in Thailand and the Philippines. (In the United States only 8% of electricity is lost during transmission, in Japan 7%.) These losses, the equivalent of about 75,000 megawatts of capacity and 300 billion kilowatt hours a year, mean a loss to developing countries of about $30 billion a year through increased supply costs. Worse, by the end of the century, on present trends, the aggregate losses would double.
Cutting transmission losses by only one-tenth in Asia would reduce the need for investment in generating capacity during the 1990s by about $8 billion--almost enough to pay for controls to reduce particulate emissions for every new power plant to be built in the entire developing world during the 1990s.
The economic effects of policies and investments that improve energy efficiency in developing countries can be substantial--first, because of the possibilities of delaying capital-intensive investments in energy supply, and second, because of the potential savings in fuels. On average, efficiency rates are one-half to two-thirds of what would be considered best practice in the industrial world, regardless of the processes involved.
The Bank's World Development Report 1992 presents an energy efficiency scenario in which (achievable) economic and institutional reforms are put in place to improve energy efficiency. With reforms in pricing and reductions in transmission and distribution losses, annual electric power investment requirements in 2030 would be about half what they would be under an "unchanged practices" scenario--and emissions of pollutants would be about 25% less.
Other technical studies also estimate that, with today's technology and relatively low energy prices, a savings of 20-25% of energy consumed by the existing capital stock in developing countries could be achieved without sacrificing the economic benefits of energy use. Over the longer term, larger energy savings might be achieved as investments are made in new capital equipment--on the order of 30-60% more than what is now possible.
In the former Soviet Union, Eastern Europe, and the developing countries, a 25% energy efficiency saving would amount to saving 1 billion tons of oil equivalent a year. At current oil prices, this would amount to $160 billion.
And in eight developing countries alone (Brazil, China, India, Indonesia, Malaysia, Pakistan, the Philippines, and Thailand), the possible savings from more efficient primary energy are estimated at about 100 million tons of oil equivalent at current consumption levels, or $16 billion a year.
The greater efficiency for these eight countries could be achieved by structural reforms, energy price changes, a faster rate of technology transfer, and fuel substitution. The possible savings were measured by evaluating the difference in the energy demand projections, with or without energy efficiency. The difference between the two projections in 2010 represents a potential saving of some 750 million tons of oil equivalent a year in the eight countries. At current oil prices, this would amount to annual savings of $120 billion.
