Investing in energy efficiency and renewable energy provides a win-win solution to developing countries that need to balance economic and environmental priorities.
Energy demand in the fast-growing economies of Asia and the Pacific is increasing as the region pushes its development and poverty reduction agenda forward and its people enjoy a more affluent lifestyle. However, this growth cannot continue to rely on fossil fuels. Dependency on the highly volatile oil market makes the region vulnerable to spikes in fuel and electricity prices, affecting household budgets, production costs, and national growth targets.
It is estimated that Asia and the Pacific will need more than $6 trillion worth of investments in new energy infrastructure by 2030.
In the run-up to the 7th Asia Clean Energy Forum on 4-8 June 2012, ADB.org speaks with Aiming Zhou, ADB's Energy Specialist, to find out how this presents an opportunity for countries in the region to invest in clean energy and decouple future economic growth from high carbon emissions. This creates a win-win situation for developing countries that need to balance economic growth with preventing further environmental degradation.
Who is paying the cheapest electricity in Asia and the Pacific? Who has the highest electricity rates?
If Asia and the Pacific's economic growth remains coupled with fossil fuels as well as electricity, energy costs, including electricity prices, will go up unless the region changes its philosophy of consuming more energy to boost GDP growth.
In general, those with fossil fuel resources pay the lowest rates while those dependent on oil and gas imports, such as island countries with no fossil fuel resources pay the highest rates. For instance, Tonga pays about $0.50 plus per kilowatt hour (kWh) compared toresource-rich Uzbekistan's below $0.05/kWh.
Factors such as construction and maintenance cost of power plants, transmission cost, and government regulation and subsidies also affect electricity pricing. Deregulation and privatization of the power industry should lower electricity costs with better service, but is not always the case. A recent ADB study - Comparative Analysis and Policy Study on Residential Electricity Bills in Selected ADB Member Countries - shows the Philippines' residential consumers paying the most expensive electricity in Asia, about $0.28/kWh, even higher than $0.27/kWh in Japan. This despite the Philippines having oil and gas, geothermal, and hydropower resources as well as a deregulated and privatized power industry under the Electric Power Industry Reform Act 2001.
Given the region's growing demand for energy, are electricity prices on an uptrend or downtrend?
Electricity is a critical factor in economic development. With the fast pace of economic growth in the region, the disparity between electricity demand and supply is widening particularly in many of ADB's developing member countries (DMCs). Electricity rates will continue to increase unless the region changes its philosophy of consuming more energy to boost GDP growth. The region needs to undertake reforms in the power sector, such as formulating policies on privatization and regulation, and promoting productivity and efficiency of energy use and changes in consumer behavior.
How can investments in energy efficiency and renewable energy help bring down electricity rates and at the same time mitigate the effects of climate change?
In 2011, ADB's $2.1 billion investments in renewable energy and energy efficiency is expected to generate 3,298 GWh equivalent/year of energy savings and mitigate 13.7 million tons of carbon dioxide equivalent annually.
The famous Kaya Identity for analyzing enviromental impacts, also known as IPAT equation, shows that climate change mitigation relies on clean energy, i.e. energy efficiency and renewable energy. The efficient use of resources and renewable energy will bring down costs gradually and ultimately reduce the carbon footprint.
There are two types of energy efficiency measures. Demand-side energy efficiency via the use of efficient equipment or behavioral change on the customer's side lowers energy consumption without compromising consumer comfort or the country's competitiveness. Supply-side energy efficiency seeks to use less energy input and produce the same or more electricity at the generation and distribution segment.
Renewable energy also has the potential to reduce carbon emissions. Traditional renewable energy, such as hydro and geothermal, can provide cheap electricity. New renewable sources, such as wind and solar energy, seem more expensive than the power generated from oil, gas, and coal, but this is without factoring in environmental costs. Efforts are under way to achieve grid parity in the new renewable energy industry. The goal is to generate power at the same or less cost. Wind power is already at grid parity in some parts of the world and solar power is projected to reach grid parity in 5 to 10 years.
What initiatives have ADB taken to encourage energy efficiency and the transition to renewable energy in the region?
ADB supports clean energy projects in as many sectors (energy and non-energy) and ways as possible. It reached its 2013 target of investing $2 billion in clean energy annually 2 years ahead of schedule. In 2011, ADB's $2.1 billion investments in renewable energy and energy efficiency is expected to generate 3,298 GWh equivalent/year of energy savings and mitigate 13.7 million tons of carbon dioxide equivalent annually. ADB is advancing solar energy through the Asia Solar Energy Initiative and providing technical assistance under the Quantum Leap in Wind Power program. ADB also supports venture capital firms focused on bringing promising climate change-related technologies to commercial production. Another initiative is the renewable energy certificate, a market-based tool to promote renewable energy. For example, if a region wants to support renewable energy, but it does not have renewable sources, it can invest in the renewable energy certificate to reach its renewable energy target and avoid the penalty levied by the national or regional agencies.
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