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Energy Efficiency Can Power Latin America's Growth and Development

September 29, 2010

MEXICO CITY, September 29, 2010 - "Energy efficiency", an idea as simple as changing a light bulb, can become Latin America's new growth engine as the region zips towards 5-6 percent expansion rates and cements a quick recovery from the global financial crisis.

Latin America's power generating capacity may need to double in the next twenty years to meet the growing demand for electricity –an endeavor that carries a price tag of $20 billion in additional investments each year, said World Bank experts at the Energy Efficiency and Access Forum held this week in Mexico.

Since investments of such magnitude in new capacity are not easily affordable by any regional economy it makes better sense to use more efficiently the existing energy infrastructure, argued World Bank Managing Director Sri Mulyani Indrawati.

"Meeting the growth in energy demand by relying exclusively on simply building more infrastructure, in particular new thermal and other power plants, is both unwise and unsustainable," Indrawati told hundreds of experts, government leaders and policymakers attending the Energy Efficiency and Access Forum jointly organized by the Mexican government, the IADB and the World Bank, with funding from the Spanish Fund for Latin America and the Caribbean (SFLAC).

Significant Savings Achievable

Energy efficiency is not only cost-effective but also forward-looking. The potential for total financial savings, or avoided energy cost, of global energy efficiency could rise to $250-$325 billion annually by 2030, experts note.

All in all, energy efficiency initiatives can have positive impacts both on government and household purses. They could ultimately reduce fiscal burdens through energy cost savings, allowing additional funds to be reinvested into other sectors, such as education and health. Additionally, families can see their utility bills shrink through more efficient cooling systems, efficient light bulbs and fuel-efficient vehicles.

Last but not least, all these efforts strengthen energy security by reducing the uncertainty from vulnerability to oil prices, which represents the main source of power generation in many Latin American countries.

The good news is there's a growing consensus among the region's government leaders and policy makers that energy efficiency is an important development tool.

Programs to save energy are being adopted across the region at all levels, including loss reduction and light bulb exchange initiatives such as Brazil's Eletrobras Distribution Rehabilitation Project ($495 million), Mexico's Lighting and Appliances Efficiency Project ($350 million), and Uruguay's innovative Energy Efficiency Project ($7 million) where school children encourage their parents to refrain from wasting energy.

Electricity loss through inefficient distribution is a major problem in the region. Latin America's registered losses in electricity distribution in 2005 equaled the total combined energy consumption of Argentina, Chile and Colombia. Currently, the average losses hover around 16 percent of the region's total output.

"If losses could be reduced in a 20-year period, energy savings could eliminate the need to generate up to 6 percent of the additional electricity needs for those years," said World Bank energy expert Philippe Benoit.

More Innovation Needed

Despite an increased awareness about the importance of smart energy policies, Benoit thinks there is need for a bigger emphasis on innovative tools and stronger institutional frameworks that would help implement quickly "low-hanging" energy efficiency options.

These include regulatory policies such as building energy efficiency codes, energy efficiency standards for appliances, labeling systems, and mandatory industry energy audits. It also includes financial incentive-based approaches such as utility demand side management programs, and market-based mechanisms including Energy Service Companies that provide energy assessment services.

Experts acknowledge that "energy efficiency" can sometimes be a hard sell to the general public who doesn't see its immediate benefits. It also confronts a series of technical, institutional, regulatory and financial barriers.

"Past experience shows that countries need to address several obstacles –including high initial costs of investments and institutional barriers to program implementation- in order to effectively undertake energy efficiency programs in swift fashion and greater scale," said World Bank vice president Pamela Cox.

Cox noted that funders' lack of information is also a reality. "For example, it is not a common practice for commercial banks to grant credits for investments that are repaid with energy savings," she said.

Energy Efficiency Promotes Green

But energy efficiency has so many dimensions that it's hard not to see the benefits of adopting it wholeheartedly. One such dimension is climate change.

Green benefits for embracing and practicing efficiency are plentiful: from less reliance on greenhouse gas producing fuels to adoption of clean energy systems, the environment suffers less and countries become better at mitigating and adapting to climate change. The cost for developing countries to address climate change is estimated at S100 billion per year. Assistance in funding these efforts and setting greenhouse emissions caps will be at the center of discussions in the COP16 Cancun meeting.

"In recent years, since the Bali Roadmap to the Copenhagen Accord, and in the run up to the UN Conference of the Parties, COP16, climate change has been increasingly seen as integral to energy sector development and energy efficiency is slowly but surely emerging as an area of great untapped potential for energy savings, both in financial terms and in terms of reducing greenhouse gas emissions," noted Managing Director Indrawati.

The forum also addresses access to energy in Latin America where 35 million people lack electricity services.

Improved access to modern electricity services that are reliable, affordable, and clean is critical to economic growth, poverty reduction, and improving access to better opportunities in life, according to the World Bank's Human Opportunity Index. Access in rural areas, in particular, brings large benefits, in terms of better delivery of health, education, and communications services, which in turns improves people's lives.

"Providing these typically poor families with access to electricity remains one of the important development challenges facing the region," said Indrawati.

The World Bank is one of the leading donors in LAC for energy access and energy policy programs. The World Bank is currently undertaking investment projects that promote electricity access in numerous countries in the region, including Bolivia, Peru, and Honduras.