Report Repurposing Power Markets The Path to Sustainable and Affordable Energy for All NOVEMBER 2024 REPURPOSING POWER MARKETS Page ii IFC IFC—a member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2024, IFC committed a record $56 billion to private companies and financial institutions in developing countries, leveraging private sector solutions, and mobi- lizing private capital to create a world free of poverty on a livable planet. For more information, visit www.ifc.org. Page 1  Repurposing Power Markets The Path to Sustainable and Affordable Energy for All REPURPOSING POWER MARKETS Page 2 Acknowledgments This report was prepared by a team led by Elcin Akcura (Senior Energy Economist, World Bank) and Ayooluwa Olusola Adewole (Infrastructure Economist, IFC) under the supervision of Pablo Fajnzylber (Director, IFC) and Omar Chaudry (Manager, IFC) at IFC’s Development Impact Measurement Department. The report benefitted from the guidance of Susan Lund (Vice President, Economics and Private Sector Development, IFC) and Riccardo Puliti (Regional Vice President, Asia and the Pacific, IFC). The lead authors were Elcin Akcura, Ayooluwa Olusola Adewole, and Emelly Mutambatsere (Manager, IFC). Daniyal Hashmat Ullah (Infrastructure Economist, IFC), Ron Leung (Consultant, IFC), and Tosin Kolajo Gbadegesin (Consultant, IFC) provided research assistance. The report benefitted from feedback from the following peer reviewers: Vivien Foster (Principal Research Fellow, Imperial College London), Alan F. Townsend (Principal Industry Specialist, IFC), David Loew (Senior Energy Economist, World Bank), and Tatyana Kramskaya (Senior Energy Specialist, World Bank). Brian Beary and Irina Sarchenko (both IFC) were responsible, respectively, for editing and design. Page 3 Table of Contents Table of Contents Acknowledgments2 Foreword4 Executive Summary 5 1. Introduction  9 2. Structuring Power Markets  15 3. Leveraging the Private Sector 36 4. Enabling the Private Sector  69 5. Conclusion and Recommendations  111 Appendices116 Glossary  137 Endnotes141 Bibliography  143 REPURPOSING POWER MARKETS Page 4 Foreword E nsuring access to clean, affordable, and reliable energy—United Nations Sustainable Development Goal 7—is essential for growing our economies, reducing poverty levels, and improving living standards. While there is progress toward realizing this goal, it is not enough. To accelerate progress and meet the 2030 targets, unprecedented levels of private capital must be mobilized to complement public investment in the power sector. This report provides a comprehensive analysis of how countries can do so by repurposing existing power market designs and by tapping private capital channels more effectively and at greater scale. Drawing on IFC's seven Development Bank Group to decades of experience working connect 300 million people to with the private sector under electricity in Sub-Saharan Africa various and continually evolving by 2030 is a good example of power market structures, the our commitment to reaching report identifies strategies this goal. The partnership and shares best practices for aims to halve the number of engaging the private sector Africans without electricity. as the indispensable partner At IFC, we are committed in achieving SDG7. The report to helping our clients and VALÉRIE LEVKOV recommends that policymakers, partners make the transition Global Industry Director investors, and development as seamless as possible. We for Energy, Metals & finance institutions be guided will continue to provide Mining, and Sustainable Infrastructure Advisory, IFC by '6Is'—Innovate, Integrate, innovative financial solutions, Institutionalize, Incentivize, advisory services, and risk Invest, and Identify—in mitigation tools that mobilize ramping up their efforts to private capital for the power clean energy transition. sector in emerging markets and developing economies. The recently announced Together, we can build a more partnership between the World sustainable, resilient, and Bank Group and the African inclusive energy future for all. Executive Summary T he electricity industry is undergoing a transformative evolution driven by three overarching trends: decentralization, digitalization, and decarbonization (3Ds). To ensure access to clean, affordable, and reliable energy for all by 2030—UN Sustainable Development Goal 7 (SDG7)—countries need to repurpose their power market designs to adapt to this transformation and unlock new opportunities. This report provides a fresh global perspective on how to leverage existing designs to effectively mobilize private capital at scale, complementing public investment to achieve SDG7. It draws on a new global database that tracks the evolution of power market structures in all 230 global economies over the past three decades. As countries strive to meet ambitious targets on sustainable energy and access, purposeful power market design will be critical to unlocking the investment needed to meet SDG7. Evolving Power Market Structures and island states with limited market size) that constrain it from moving to a different Alternatives to integrated power model. However, even among those that market monopolies—the traditional retained it, many introduced some form model—have been deployed by many of private management and ownership. countries since the 1990s. The general trend has been to allow greater private Increasingly, countries are adopting either sector participation. Two key factors are a single buyer model (SBM) where the state driving this trend: the need to improve overall authorizes private investors to operate power market performance and the imperative of plants as independent power producers finding additional funding sources given high (IPPs), or various competitive wholesale growth in demand and tight fiscal space. and retail market structures (WRC) where public and private generation, distribution, In 1989, when markets were on the cusp of and supply companies, and end users major structural changes, the state-owned participate in the market. SBM, often viewed vertically integrated utility (VIU) model as an intermediary step toward full market dominated, with 215 economies using it. Today, liberalization, has become the most prevalent it is the second most used structure, operating model, used by 89 countries. Meanwhile, in 72 countries. Those that have retained VIU WRC models are used by 69 countries and have done so either as a policy choice or due are more common in advanced economies. to external factors (such as smaller economies REPURPOSING POWER MARKETS Page 6 Competition Is Associated with Lowering Carbon Emissions: The analysis reveals that SBM-structured Better Sector Outcomes markets were historically associated with The analysis reveals that transitioning to higher carbon emissions compared to VIU, more competitive power market structures with SBM countries seeing a significant is associated with improved access to increase in CO2 emissions per capita. The electricity, generation capacity, adoption WRC model scored better for lowering of renewable energy, and private sector the carbon footprint. Each additional year participation through IPPs. Countries with more in WRC was associated with a reduction competitive structures also tend to attract of 1.95 metric tons of CO2 per capita. higher levels of private financing. However, the effectiveness of market reforms varies Private Sector Participation: across regions and must be complemented by Switching from VIU to either SBM or stable governance and policy environments WRC significantly increases private for investments to have sustained impact. sector participation in the power sector through IPPs. Each additional Key findings from this report include: year a country spends outside VIU is Access and Generation Capacity: associated with a 0.87-year increase in Transitioning from VIU to either SBM or the number of years that have elapsed WRC resulted in significant improvements since the first IPP entered the market. in electricity access and generation Private Financing Flows: capacity. Each additional year in SBM was Countries with more competitive power associated with a 0.34 percentage point market structures tend to attract higher increase in overall electricity access and a levels of private sector financing compared similar increase in rural electricity access. to countries that keep the VIU model. Renewable Energy Adoption: This correlation is particularly strong WRC performed best at accelerating the in the East Asia-Pacific region as well rate of adoption of renewable energy, as in Latin America and the Caribbean, with WRC countries seeing a significant North America, and South Asia. increase in the share of renewables in their electricity mix compared to those operating under VIU. Each additional year a country spends in the WRC structure is associated with a 0.57 percentage point increase in the share of renewable energy. Page 7 Executive Summary What Are the Big Challenges Tailored Recommendations and Opportunities? The report also provides recommendations The report identifies four main constraints— tailored to each power market model cost, complexity, corruption, and lack of to guide policymakers in repurposing cost recovery (the 4Cs)—that limit private markets. These include: sector engagement, especially in less- For VIU: established markets. To address these constraints and repurpose power markets Consider transitioning to more to meet SDG7, the report recommends that competitive structures given their policymakers, investors, and development potential to improve sector outcomes. finance institutions follow the 6Is: Use renewable energy auctions Innovate by leveraging private or other transparent competitive sector financing and technological bidding for IPP contracting to attract solutions such as smart grids, energy private sector financing at scale. storage, and hybridization. Explore alternative forms of private sector Integrate renewables and unelectrified engagement such as private management communities by utilizing distributed of VIUs or incentivizing private sector generation and off-grid solutions. solutions in the off-grid segment. Institutionalize investor-friendly practices, For SBM: including transparent regulation Utilize competitive auctions and and procurement, strengthened market-driven procurement to scale up regulatory capacity, and enhanced renewable capacity cost-effectively. creditworthiness of utilities. Avoid locking power systems into Incentivize private sector engagement high-carbon pathways through through targeted procurement, predictable rigid long-term power purchase revenue streams, and risk mitigation tools. agreements with thermal generators. Invest alongside the private sector in Scale up blended solar and storage critical infrastructure such as transmission power purchase agreements to ensure networks and regional power markets. more continuous electricity supply from Identify opportunities for development intermittent renewable energy sources. finance institutions to provide technical advisory support, mobilize early-stage capital, and create investment platforms. REPURPOSING POWER MARKETS Page 8 For WRC: For investors, the report encourages them to adapt their business models to developing Implement clean energy standards, design country contexts, explore innovative new capacity market products, and develop financing instruments, and actively engage ancillary services markets that better with policymakers and development finance compensate renewable capacity attributes. institutions to identify areas of potential support. Create appropriate revenue streams to Development finance institutions can scale commercialize evolving technologies up their financial instruments and risk mitigation such as variable renewable energy and tools, work more systematically to support battery energy storage systems. upstream reforms, and create bankable project Accelerate the transition from feed- pipelines. The report highlights the important in-tariff structures to more market- contribution they can make in establishing based instruments, especially for platforms and mobilizing resources, such as the utility-scale solar and onshore wind. World Bank and African Development Bank’s partnership on electricity access in Africa and the World Bank Group's new consolidated one-stop-shop guarantee platform. Achieving SDG7 will require mobilizing private capital at unprecedented scale. Smart power market designs are crucial to unlocking that investment. This report presents pathways to reach SDG7, mindful that policymakers must continually adapt and be open to further repurposing of power market designs to meet the challenges and opportunities of the future. Page 9 Introduction 1 Introduction D eveloping countries are not on track to meet United Nations Sustainable Development Goal 7 (SDG7)—ensuring access to affordable, reliable, sustainable, and modern energy for all by 2030. Today, over 685 million people worldwide still live without electricity with the vast majority, some 600 million people, in Africa.1 Even where electricity is available, it is often the growing demand for electricity.2 Utility- unreliable and expensive. Due to successive scale solar energy is already the least costly crises including the COVID-19 pandemic and option for new electricity generation in most Russia’s invasion of Ukraine, progress on SDG7 countries worldwide.3 The installed capacity has slowed. These shocks have increased energy of solar photovoltaic (PV) technology is price volatility, exacerbating energy shortages expected to outpace coal by 2027, which when and concerns over energy security, putting it happens will make solar the world’s largest a further drag on progress. As things stand, power source.4 By 2030, solar mini-grids could none of the SDG7 targets are on course to be bring high-quality uninterrupted power to reached. The number of people globally without 380 million people.5 Connecting 490 million access to electricity is actually estimated to people to solar mini-grids could cut 1.2 billion have increased by about 10 million in 2022. tons of carbon dioxide (CO2) emissions.6 At the current rate, 660 million people will 2023 was a record-breaking year for deploying still have no access to electricity by 2030. For renewables globally, expanding by 473 gigawatts the world to reach SDG7, the annual growth (GW) to hit a total capacity of 3.9 terawatts rate on access needs to double, according (TW).7 However, despite this positive and to the International Energy Agency. accelerating growth, the UN’s goal, pledged at Renewable energy can be a big part of the its annual climate conference in 2023 (COP28), solution, helping countries both to extend access of tripling renewable power capacity by 2030 and meet their goals in an environmentally is still off track. To reach global climate targets, responsible manner. Along with wind, solar has 1.1 TW (or 1,100 GW) of renewables a year is become one of the cheapest options to meet needed globally, more than double the current REPURPOSING POWER MARKETS Page 10 expansion rate. Growth in renewables is also advanced economies, with emerging markets overly concentrated in advanced economies receiving only 20 percent, or $966 billion. Even and a few upper-middle-income countries,8 more concerning, the share of private financing particularly China, where the installed capacity in emerging markets’ power sectors shrunk from of renewables surged by 63 percent in 2023 36 percent to just 12 percent of total private to reach almost 298 GW. In contrast, Africa sector financing during this period. There is experienced a much more modest increase of an urgent need for a large ramp-up in private 4.6 percent, with total renewable capacity for investments in emerging power markets. the entire continent just 62 GW.9 A glaring gap Since 2010, private capital flows have has opened, with the vast majority of developing increasingly supported renewable energy countries falling behind on renewables, despite projects while flows to networks and thermal their massive economic and development needs. generation have declined. Sustainable finance To plug existing gaps in electricity infrastructure instruments, such as green bonds—fixed- and meet rising ambitions on climate, a income instruments with proceeds earmarked major increase in investment is needed. This exclusively for projects with a positive cannot be achieved by the public sector alone. environmental impact—have meanwhile Unprecedented mobilization of private capital gained in prominence. Green bonds and loans channeled toward developing countries is are increasingly used in the power sector, with imperative. The urgency of ramping up climate $198 billion issued in 2023, although down from finance was highlighted at the UN’s COP27 $283 billion in 2021.11 Cumulative issuance from climate conference in 2022: the final agreement 2010 to 2023 reached a total of $1.48 trillion.12 called for $4–6 trillion a year of investments However, similar to the trend in total private in renewables until 2030 in order to arrive investment flows, emerging markets received at net-zero CO2 emissions by 2050. Annual just 16 percent of all sustainable financing flows investments in renewable energy generation during this timeframe. This gap has widened in need to surge from $570 billion in 2023 to recent years, with emerging markets receiving $1.55 trillion on average between 2024 and just 9 percent of total financing in 2023. 2030 globally—almost triple their current Development finance institutions levels—to reach agreed climate targets. increasingly play a crucial role in plugging However, private financing flows to the power power infrastructure development gaps in sector in emerging markets fall far short of emerging markets. Between 2010 and 2023, what is needed and pale in comparison to the their total annual financing for the power boom in financing happening in advanced sector grew from $42 billion to $73 billion, or economies (Figure 1.1).10 Between 2010 and approximately $709 billion over the entire 2023, an estimated $4.84 trillion flowed from period. Renewables’ share of the total grew the private sector into global power markets. Of from 27 percent to 66 percent, reflecting the this, approximately 80 percent was invested in prioritization of clean energy projects. Page 11 Introduction FIGURE 1.1 Emerging Markets Greatly Lag Advanced Economies on Private Investment Investment flows into the power sector—advanced versus emerging markets Emerging Markets $ Billion Advanced Markets 600 100% 500 80% 400 60% 300 40% 200 20% 100 0 0% Source: IFC based on ​ . Data includes project and corporate finance IJGlobal (2023)​ transactions with at least one private sector financing source. Despite this investment bump, developing The latest projections through 2030 suggest countries are not on track to meet SDG7. Small that urgent policy interventions are needed, island states, least-developed countries, and including in how power markets are designed.15 landlocked developing countries are especially lagging.13 Moreover, the clean energy transition Aim of the Report is looking more uncertain amid soaring prices A repurposing of global power markets and shortages of critical raw materials required is essential to reach SDG7. As new clean for renewable technologies. Rising material energy technologies emerge on both the costs led to a 25 percent increase in prices for PV supply (renewable energy, battery storage) modules (solar panels) between 2020 and 2022.14 REPURPOSING POWER MARKETS Page 12 and demand (electric vehicles, distributed evolution. These overarching trends demand generation such as rooftop solar) side, it a major rethink of how power markets are creates complex design challenges for many structured. Alongside the 3Ds, four major countries.16 Well-designed power markets can constraints continue to hinder progress on incentivize the kind of investments that ensure SDG7—cost, complexity, corruption, and lack renewable energy gets integrated at a scale of cost recovery—the ‘4Cs.’ These constraints that will substantially increase rates of access are disincentivizing the private sector from to clean, affordable, and reliable electricity. engaging in the power sector, especially in less- established markets. In the face of these trends The private sector has a critical role to play, in and constraints, policymakers, private investors, particular in helping markets evolve in a way and development finance institutions need to do that furthers sustainability and access goals. The six things: innovate, integrate, institutionalize, public sector will continue playing an important incentivize, invest, and identify—the ‘6Is.’ Only role too, especially in designing markets and if they take action on all six fronts will they regulations, coordination and planning, providing succeed in making electricity more sustainable, incentives, and ensuring a level playing field for accessible, and affordable (Figure 1.2). private sector participants and value for money. In developing designs for the future, lessons can The report details avenues for private sector be learned from their more than three decades participation across the power sector value of experience with power sector reforms.17 chain, from generation to transmission and distribution/supply, and identifies opportunities This report presents a fresh view of how for private sector involvement across various to fully leverage the various power market power market designs. It assesses progress designs to mobilize private capital in a way being made on the access and sustainability that it complements public investment so goals of SDG7 and offers recommendations that their collective efforts work toward for enhancing the private sector’s role in reaching SDG7. Based on IFC’s decades of advancing on both fronts. The report also experience working with the private sector in touches on SDG7’s energy efficiency objectives, a wide array of power market structures, the although this is not the primary focus. report provides insight on how best to tap the private sector for investment, innovation, and expertise. It identifies deployable strategies Report Structure for countries seeking to redesign their Chapter 2 provides an overview of global power markets with an eye to unleashing power market structures and models and the power of the private sector to usher in trends in private investment over the past more sustainable, affordable electricity. three decades. The chapter includes original analysis of what impact adopting a different Three major trends—decentralization, power market structure tends to have on key digitalization, and decarbonization (the ‘3Ds’)— metrics such as improved electricity access are shaping the electricity sector’s current Page 13 Introduction FIGURE 1.2 Global Power Markets: Trends, Challenges, Actions A framework for delivering SDG7 TRENDS CHALLENGES ▶ Decarbonization ▶ Cost 3Ds ▶ Digitalization POWER 4Cs ▶ Complexity ▶ Decentralization MARKETS ▶ Corruption ▶ Cost Recovery ACTIONS ▶ Innovate ▶ Invest ▶ Integrate ▶ Identify ▶ Institutionalize ▶ Incentivize 6Is Source: IFC rates, growth in renewable-based power meet access, sustainability, and other key sector generation, and future private investment flows. objectives. The chapter provides an overview of It shows how different market designs have the key issues policymakers need to consider in performed historically in improving access and redesigning existing power market structures sustainability and how current trends (notably to accommodate the transformations brought the 3Ds) might impact future performance. about by decentralization, digitalization, and decarbonization. It showcases examples of Chapter 3 presents emerging opportunities how the private sector can be an effective for countries to leverage the private sector to REPURPOSING POWER MARKETS Page 14 and crucial partner. Recommendations, both cross-cutting and stakeholder-tailored, are provided for each power market structure. Chapter 4 highlights a range of policies that the public sector can pursue as they rethink power market structures to make the private sector a valued partner in meeting SDG7 goals. It discusses actions that governments can take to institutionalize investor- friendly practices, incentivize private sector participation, and address current bottlenecks to private investment. Again, both cross- cutting and tailored recommendations are provided by power market structure. Chapter 5 concludes the report by synthesizing the key recommendations for policymakers, investors, and development finance institutions. The Appendices consolidate the policy recommendations, organized by market structure, and offer a primer on how electricity systems and markets work. Page 15 Structuring Power Markets 2 Structuring Power Markets KEY INSIGHTS Over the past four decades, alternatives to integrated power market monopolies—the traditional model—have been deployed by many countries. The general trend has been to allow greater private sector participation in power markets. Two key factors are driving this: the need to improve overall market performance and the imperative of finding additional funding sources in the face of high growth in demand and tight fiscal space. In 1989, when markets were on the cusp of some major structural changes, the state-owned vertically integrated utility (VIU) model dominated, with 215 economies using it. Today, VIU is the second most used structure, its popularity having declined greatly, being used now in only 72 economies. Those that have retained VIU have done so either as a policy choice or due to external factors that constrain it from moving to a different model. VIU tends to be the preferred structure notably of smaller economies and of island states. However, even among those that have retained this overall model, many have introduced some form of private management and ownership. Increasingly, countries are adopting the single buyer model (SBM) in which the state authorizes private investors to operate power plants as independent power producers (IPPs), and various forms of competitive wholesale and retail market structures which allow active participation in the market of public and private generation companies, distribution and supply companies, and end users. SBM, often viewed as an intermediary step in market liberalization, has become the most prevalent model, used by 89 countries. Wholesale-retail competition models are less widespread, used by 69 countries, and are more common in advanced economies. IFC’s econometric analysis of global power market structures, based a panel dataset18 developed in-house and which uses an array of power sector indicators, finds that: ▶ More competitive market structures have a positive and significant effect on energy access, installed generation capacity, adoption of renewables, and participation of IPPs. ▶ Private investment flows are positively correlated with competitive market structures, though regional disparities exist. Designing power markets that deliver clear, correct signals that encourage private sector entry takes time. Whatever market structure countries choose, they should adapt their design to address the dual challenges of meeting both their sustainability goals and other public policy goals, notably on energy access, affordability, and reliability. REPURPOSING POWER MARKETS Page 16 H ow a power market is designed determines how the sector can address complex economic, social, environmental, and engineering challenges to deliver sustainable and reliable electricity at the least cost to consumers. This is no simple task as supply and demand must be balanced every second, multiple resource and network constraints satisfied, and the market must send the correct price signals to stimulate efficient generation and investment over time. Electricity market designs differ significantly globally. This is a sector where there is no ‘one-size-fits-all’ model that works for every market. For any design to function well, a country’s geographic, political, and economic context needs to be considered. And experimentation is essential. This chapter reviews global trends in adoption publicly owned VIU model to introduce a of different designs. It draws from a unique new degree of private sector engagement since 1989 Global Power Market Structures Database19 (Figure 2.1). This has generally been in the power that captures the market’s evolution in 230 generation segment, but there are also cases economies from 1989 to 2024.i It provides of private sector participation in the networks. insight into the most promising design options Since 1989, 152 economies have allowed private available to countries aiming to reach UN independent power producers, or IPPs, into the Sustainable Development Goal 7. IFC’s analysis generation segment.20 In this section, we provide indicates that market structures that enable a short overview of each power market structure private sector entry are associated with and share some insights based on over three several improved outcomes for the sector. decades of experience in their deployment.21 Vertically integrated utility (VIU) Types of Power Market Structures The oldest market structure among Forty years ago, the power sector was widely models currently utilized is the VIU. Under regarded as a public utility function. The state- this model, a single entity carries out all owned VIU model dominated globally. Since functions in the electricity sector, including then, a wide variety of countries—small and generation, transmission, distribution, and large, advanced and emerging economies—have retail supply (Figure 2.2). In 1989, it was by deployed alternatives to integrated monopolies. far the dominant model, with 215 economies The dominant overarching trend has been the using it, providing electricity to 92 percent adoption of market designs that, to varying of the world’s population. By 2024, just 72 degrees, expand the role of the private sector. countries and territories, accounting for According to the aforementioned database, 135 7 percent of the world’s population, were countries have transitioned from the traditionally operating VIU. It is currently the second The database covers all 193 countries recognized by the United Nations as well as 37 additional economies which includes countries’ overseas i  territories (e.g. French Guiana). 1989 was selected as the base year to capture the market structures in place before the dissolution of the Soviet Union and Yugoslavia. Their breakup triggered the emergence of new electricity markets out of successor countries and an overall gradual trend toward market liberalization. See https://datacatalog.worldbank.org/search/dataset/0065245/global_power_market_structures_database. Page 17 Structuring Power Markets FIGURE 2.1 Evolving Power Markets: A Global Overview Vertically Integrated Utility Single Buyer Model Wholesale Competition 1989 2024 Source: Akcura, 2024. REPURPOSING POWER MARKETS Page 18 FIGURE 2.2 Vertically Integrated Utility Vertically Integrated Facility Customers System operation Generation Residential Transmission Commercial Distribution Industrial Source: IFC most prevalent market structure and is has the right incentives. Restrictions on market especially common in Sub-Saharan Africa. entry could also perpetuate concentration of market power, even when economic and As of July 2024, 84 percent of VIUs are state- technological changes support new entrants.22 owned companies. Only 11 economies have private VIUs without any IPP presence. These The technical and financial performance of are mostly either small, island states, or VIUs has been mixed. Some markets leveraged fragile and conflict-affected states such as the model to better coordinate investment Somalia, where private energy service suppliers decisions and operations—thereby improving primarily provide electricity through mini- cost efficiency and lowering risks—and to grids. The unique context of these countries, achieve energy security and social objectives including major issues with their sector’s such as rural electrification. However, some financial sustainability, constrains the scope for economies operating VIUs have performed more private sector entry. Private VIUs can improve poorly, with investment lags, lack of competition, operational performance but they rely on weak financial performance, low efficiency, effective regulation to mitigate abuse of market and high losses. This is because the VIU model power and ensure that the private monopoly typically creates less incentive to innovate and Page 19 Structuring Power Markets improve performance, especially for state- operating it, covering 29 percent of the world’s owned entities that have standing fiscal support population. Under SBM, the state authorizes available. In addition, this market structure private investors to operate power plants as can be subject to government interventions IPPs which generate electricity and sell it to such as on bill collection, tariffs, and fuel a single buyer, typically the national power procurement that are driven more by short- company or a wholesale purchasing agency term political goals and which tend to adversely (Figure 2.3). IPPs usually sell their output to a impact VIU operations. The countries that have single buyer through long-term power purchase succeeded at maintaining high performance agreements, or PPAs. Under this model, decision- using VIU structures have found ways to making on whether to add capacity and expand alleviate these risks—for example, through power systems is centralized. This model corporatization or public listings of state utilities. allows system operators to maintain a unified wholesale price and simplifies price regulation. Single buyer model (SBM) While this model has several design variations, The SBM is the most utilized power market one common feature is the presence of some structure, with 89 countries and territories FIGURE 2.3 Single Buyer Model Utility Generation Independent Power Producer Customers (IPP) System operation Single Buyer Residential Independent Power Producer (IPP) Transmission Commercial Distribution Industrial Source: IFC REPURPOSING POWER MARKETS Page 20 arrangement for centralized purchasing. segments creates opportunities for the private The diverse designs stem from differences sector.24 There are a variety of wholesale and in objectives pursued, the power sector retail competition market design options. conditions, and political and institutional Sixty-nine countries, covering 63 percent of contexts. A single buyer could, for example, the world’s population, have some form of retain ownership and control over generation competition in their wholesale markets. Most assets (and other functions such as distribution) of these countries allow generators and large or be detached from other functions. The energy consumers (distribution companies design that involves the least structural and industrial consumers) to conclude bilateral change allows IPPs to sell power to the VIU energy contracts. Most countries complement that has not been unbundled or privatized. bilateral contracting with a type of organized This design allows limited competition, spot market in which short-term trades are whereby private generators compete to conducted either a day in advance (day- supply power to the VIUs via contracts. ahead market) or within a day of (intra-day The SBM is relatively easy to implement market) actual delivery of power (Figure 2.4). and tailor to country contexts. Faced with There are several types of spot market. They public financing constraints, countries can can be designed as ‘power exchange/net pool’ use IPPs to significantly increase generation settlement which involves double auctions capacity. However, the model also brings where power generators submit bid prices considerable risks. SBM can, for instance, and quantities to sell, and buyers (distribution/ lock in poorly designed and negotiated long- supply companies, traders, and large consumers) term PPAs, which could be detrimental to submit offers to purchase. The generators’ bids the sector’s financial sustainability or hinder are then stacked in increasing order of price a transition to more competitive structures.23 offered, and the demand bids are stacked in Sub-optimal sector outcomes can result decreasing order of their prices, with market- if the single buyer is financially weak and clearing price determined by where the two sets unable to honor the terms of PPAs. intersect. Forty-two countries have adopted Organized wholesale power markets this structure. An alternative spot market design is the ‘power pool/gross pool’ settlement, A third power market model, one embraced which involves a single auction where only the by countries interested in introducing more generators offer bids, and the price is determined competition, encourages active participation by the highest accepted generator’s sell bid of public and private generation companies, that intersects with forecasted demand. Eight distribution and supply companies, and end countries operate this wholesale structure. users. Allowing the market to set prices reveals the true cost of electricity and provides clear Thirteen countries, primarily in Latin America, signals for where investments are needed, have adopted a cost-based structure in designing while competition in wholesale and retail their wholesale markets. This design shares Page 21 Structuring Power Markets FIGURE 2.4 Bid-Based Wholesale Market Models Power Exchange (Net Pool) ISO Physical Operation Power Exchange Realtime Market (Day ahead) Forward Market (Intraday) SUPPLY BID DEMAND BID DEMAND BID DEMAND BID Generators Distribution Company Retailers Customers Power Pool (Gross Pool) Generator Generator Generator SUPPLY BID SUPPLY BID SUPPLY BID Competitive Pool Market and System Operation MARKET CLEARING PRICE Customers Source: Adapted from Bouddou et al. (2020) REPURPOSING POWER MARKETS Page 22 some of the characteristics of bid-based spot Organized retail power markets markets, but with one significant divergence: Sixty-six economies allow some competition the quantity and the price components of in the retail segment of the electricity market, the bids are derived from formulas set by the where the end users (residential, commercial, market operator. For example, under this model, and industrial) can choose their power supplier the price paid to thermal generators is set by and other services. If well implemented, this the system operator at the marginal cost of model enables pricing and service options that the plant, based on fuel input prices and the are tailored to customer needs, while facilitating technical characteristics of the plant (Figure 2.5). the introduction of beneficial new technologies In addition, some groups of neighboring and processes. However, the vast majority of countries have created regional economies (164) operate structures that do not organized wholesale power markets to give customers different options for choosing further enhance competition, energy a supplier or participating in the market. security, and sustainability (Box 2.1). FIGURE 2.5 Cost-Based Organized Wholesale Market Model Generator Generator NON-REGULATED PRICE COST-BASED GENERATION BID Market and System Operation BULK SUPPLY PRICE (SYSTEM MARGINAL PRICE) Generator Generator Large Customers Customers Source: Adapted from Power Engineering International (2003) Page 23 Structuring Power Markets BOX 2.1 The Western Balkans Show How Competition in the retail segment Regional Power Exchanges Can Boost can only exist if there is some Energy Security and Promote Renewables form of wholesale competition For several years, the Western Balkan countries have sought market structure. This means that to put in place competitive wholesale market structures by all countries that allow some level establishing a regionally integrated power market with a of retail competition also allow view to enhancing both energy security and sustainability. some competition in the wholesale Most of them do not have a big enough power market alone segment of the market. Thirty- to operate their own liquid power exchanges. However, by integrating liquid cross-border markets, they can cuts costs two economies permit partial for energy consumers through more competition and foster retail competition (Figure 2.6.a) more effective use of existing generation and transmission where large electricity consumers infrastructure.25 Aggregating generation and demand can freely choose their retail over a larger trading region also promotes integration supplier but small consumers like of more intermittent renewable energy sources. That is households remain regulated. because expanding renewables in small isolated markets Thirty-four economies provide requires considerable investment in backup generation and storage, which increases the cost of the system. for full retail choice (Figure 2.6.b) where all consumers can choose Serbia established the first power exchange in the region their electricity supplier. in 2016—SEEPEX, or SEE Power Exchange—marking a significant step toward a regional power trading solution. The partial retail model is used Through a partnership with Norway’s finance ministry, mainly in Latin America while the IFC has since 2016 provided the Albanian government full retail competition model is technical and regulatory power market advice. This led to more common in Europe, home to the establishment of the Albanian power exchange, ALPEX, becoming operational in 2023, the second such exchange 82 percent of countries that use it. in the region. ALPEX’s design involves a transparent Advances in technology—especially hourly price that can be projected forward and used digitalization of the sector through to attract new and cheaper investments in the energy the adoption of smart meters—are sector. By matching the hourly bids and offers to sell and creating new avenues in developing buy energy in a centralized auction, ALPEX also helps countries for introducing more Albania to optimize use of its hydropower reservoirs. retail competition (Box 2.2). Montenegro and North Macedonia launched their individual power exchanges just after ALPEX launched, while Kosovo’s power exchange became operational in 2024. The eventual joining up of these individual power exchanges is expected to forge a more liquid and transparent Western Balkans regional power market. This will benefit both consumers and producers by ensuring fair prices, a more secure and reliable electricity supply, and greater integration of renewable energy sources. FIGURE 2.6 Retail Competition Structures a. Partial retail competition Generator Generator Generator Generator Utility Utility Buyer Wholesale Marketers Transmission Distribution Small Large Residential Industrial Commercial Commercial Customers Customers Customers Customers b. Full retail competition Generator Generator Generator Utility Retail Transmission Wholesale Marketers Marketers Distribution Commercial Residential Customers Industrial Customers Customers Source: Adapted from Enerdynamics (2023b) and Enerdynamics (2023a) Page 25 Structuring Power Markets BOX 2.2 Localized Retail Markets—A New Frontier for Innovating on Renewables and Increasing Affordability Advances in technology are enabling the formation community manager, who provides the necessary of localized electricity retail markets through peer- controlling software or market platform and to-peer electricity trading and virtual community who can sell the collective surplus energy to power pools. In peer-to-peer (P2P) electricity third parties and manage the balancing group. trading, community members buy or sell power P2P trading can create savings for both consumers directly with each other without intermediation and the overall power system. For example, by conventional suppliers. In this system, the consumers with excess distributed generation end-consumer can become a ‘prosumer’—both capacity can monetize the energy, while consumers producer and consumer—by exchanging their needing to purchase power can secure it from low- excess electricity with other consumers within cost local (primarily renewable energy) generation. their community. This trade is coordinated by a Electric Company EXPORT PRICE RETAIL PRICE Energy Sharing Coordinator Consumer Prosumer Prosumer Consumer Consumption Generation Generation Consumption Generation Consumption TRANSACTION ENERGY Continued on Page 30 REPURPOSING POWER MARKETS Page 26 Thus far, localized retail markets have been electricity from renewable energy, and matches primarily deployed in advanced countries, but them with small energy customers through they also hold promise for developing countries. back-to-back contracts, hedging itself via limited In Colombia, most consumers including small spot market exposure. In 2022, IFC approved businesses, commercial, industrial, and residential a $10 million investment in Vatia intended to users cannot contract their energy directly help it triple its generation capacity using solar with generators, nor buy it directly on the spot and to increase its national market share. market due to their smaller size. However, retail In Bangladesh, the renewable energy start-up aggregators, such as Vatia, are bypassing this SOLshare is installing small-scale mini-grids to restriction. Retail aggregators facilitate contracts connect local consumers with prosumers who between large generators and small retail have solar panels installed in their homes. P2P customers. By aggregating both the supply and trading platforms enable prosumers to trade in demand sides, aggregators allow generators excess solar energy. A reliable power network to find a purchaser while enabling smaller end is made available across the locality covered users to find generation sources adapted to through a mini-grid. The company currently their needs. Vatia sources its electricity from operates 34 mini-grids across Bangladesh. different generators, most of whom produce Power Market Structures 1989 Chile was the only country that operated a competitive wholesale market structure, Continue to Evolve while 69 countries were using it by 2024. Since 1989, many countries have changed their power market structures, experimenting The experiences of countries in transitioning with designs aimed at improving efficiency between market structures offer valuable while meeting key policy goals (Figure 2.7).ii lessons. By analyzing the Global Power Market Structures Database and other data sources, While the VIU model was used in 215 economies the report tackles two key questions: in 1989, it has since fallen out of favor, with only 72 using it today, covering just 7.2 percent of How have power market structures the world’s population (Table 2.1). In contrast, impacted key sector outcomes over the the number of countries using SBM and past 35 years? competitive wholesale market structures has How have power market structures increased from 14 to 89 during the same period. impacted investment flows in It has tended to be higher-income countries the past 13 years?iii that have transitioned out of SBM. Back in For more details on each market structure please see a forthcoming working paper: Akcura and Mutambatsere (2024) Global ii  Overview of Power Market Structures. Policy Research Working Paper. Washington, D.C.: World Bank Group. (forthcoming). The 13-year timeframe is chosen because this analysis relies on IJ Global Database which has comprehensive iii  transaction data for advanced and emerging markets mainly from 2011 onward. Page 27 Structuring Power Markets FIGURE 2.7 Global Electricity Market Structure Transition 1989–2023 230 Single Buyer Model Number of countries Wholesale/Retail Competition Vertically Integrated Utility 0 Source: Akcura, 2024 Market transformations increased This analysis reveals several significant access to electricity but impact relationships between power market structures and energy sector outcomes. on renewables is mixed.iv Overall, transitioning out of VIU, regardless of To identify if differences in power sector whether to SBM or WRC, resulted in potential outcomes can be discerned that are associated short-term reductions in renewables' share of with the power market structure adopted, the overall energy mix and increases in carbon an analysis was conducted of the effects of dioxide (CO2) emissions. But the transition also transitioning from the previously dominant tended to lead to significant improvements in VIU model to either SBM or to wholesale electricity access, generation, and supply, as and retail competition (WRC) models.26 well as increased private sector participation More details on the econometric analysis will be outlined in a forthcoming working paper: Akcura iv  and Adewole "Impact of Power Market Structure on Key Energy Sector Outcomes." REPURPOSING POWER MARKETS Page 28 through IPPs. Thus, while transitioning to SBM renewable energy, higher CO2 emissions, and proved effective at expanding electricity access reduced total electricity supply. Transitioning and attracting private investment through to the WRC model, on the other hand, appears IPPs, it was associated with lower adoption of to be conducive to increases both in renewable TABLE 2.1 Power Market Structures by Country, 1989 versus 2024 Population (share of Average Number of the world Regional per capita GDP Countries population) Distribution* (constant 2015 $) 1989 2024 1989 2024 1989 2024 1989 2022 Vertically 215 72 4.74 0.57 EAP: 40 EAP: 16 40,283 56,137 Integrated billion billion ECA: 49 ECA: 13 Utility (VIU) (92%) (7.2%) LAC: 45 LAC: 19 MENA: 21 MENA: 3 NA: 2 NA: 1 SA: 8 SA: 1 SSA: 50 SSA: 21 Single Buyer 14 89 0.42 2.33 EAP: 1 EAP: 18 28,181 16,475 Model (SBM) billion billion ECA: 11 ECA: 4 (8.2%) (29.4%) LAC: 1 LAC: 15 MENA: 0 MENA: 16 NA: 1 NA: 0 SA: 0 SA: 6 SSA: 0 SSA: 28 Organized 1 69 0.01 4.98 EAP: 0 EAP: 7 5,293 85,958 Wholesale/ billion billion ECA: 0 ECA: 42 Retail (0.3%) (62.8%) LAC: 1 LAC: 13 Competition MENA: 0 MENA: 2 (WRC) NA: 0 NA: 2 SA: 0 SA: 1 SSA: 0 SSA: 1 Source: Akcura (2024). Note: GDP data is based on 2022 estimates from the World Bank’s World Development Indicators. The 2021 data was utilized for economies whose 2022 GDP was not available, while the earliest available data was utilized for economies without GDP data for 1989. Legend for Regions: EAP = East Asia-Pacific; ECA = Europe and Central Asia; LAC = Latin America and the Caribbean; MENA = Middle East and North Africa; NA = North America; SA = South Asia; SSA = Sub-Saharan Africa Page 29 Structuring Power Markets energy use and overall electricity supply, thereby a solar or wind power producer to the market. potentially contributing to lower CO2 emissions. This is a big contrast with the previous decade These findings are consistent some of the key where just 11 of the 46 countries that moved insights in other studies,27 which highlight from VIU to SBM did so via renewable energy the importance of private sector participation producers, with the rest turning to thermal IPPs. in improving electricity sector outcomes. When countries transition to SBM it is important to carefully manage the reform process to Greater competition boosts ensure a smooth transition, while maintaining a uptake of renewables. focus on promoting renewable energy sources. The WRC model has performed best of the three Countries should avoid locking their systems to a models at accelerating the rate of renewable high CO2 emission pathway through rigid long- energy adoption. Countries operating under term PPA contracts with thermal generators. WRC saw a significant increase in share of Single buyer model has a renewables in their electricity mix compared strong record of success to those operating under VIU. Specifically, each additional year a country spends in the WRC for expanding access. structure is associated with a 0.57 percentage The analysis reveals that the SBM is associated point increase in the share of renewable with the best historical performance in energy. This finding underscores the potential expanding electricity access, particularly in of competitive electricity markets to drive rural areas. Countries that spent more years in the transition to cleaner energy sources. SBM witnessed significant increases in overall electricity access and rural electrification The analysis also finds that countries that rates relative to those under the VIU transitioned away from VIU may have model. Each additional year with SBM was experienced a temporary setback in renewable associated with a 0.34 percentage point energy adoption if they replaced it with SBM. increase in overall electricity access and a This does not indicate that the SBM structure similar increase in rural electricity access. is inherently biased against renewable energy generation. Rather it is more likely to be the case SBM’s success in expanding electricity that renewable energy generation, especially infrastructure, especially to underserved solar and wind, was not cost effective until populations, is due to multiple factors, foremost the last decade for most countries. As a result, being its ability to attract private investment most countries that transitioned from VIU to through IPPs, as well as unlocking public SBM mainly relied on thermal generators. resources for transmission and distribution, and its focus on centralized planning. In contrast, the That trend is now shifting as solar and wind WRC model does not demonstrate a significant generation costs have significantly declined. impact on electricity access. This may be due Since 2015, eight out of the 16 countries that to the countries adopting the WRC model switched from VIU to SBM did so by bringing in REPURPOSING POWER MARKETS Page 30 FIGURE 2.8 Impact of Transitioning from Vertically Integrated Utility on Power Sector Outcomes Regression Coe cient Electricity Access SBM . Renewable Energy Share SBM . Increase in the outcome Renewable Energy Share RWC . Reduction in the outcome Private IPP Years out of VIU . Total Electricity Supply SBM . CO per capita SBM . Source: IFC Analysis. Note: Bubbles represent the impact of the transition from a vertically integrated utility on power sector outcomes. Outcomes in light blue indicate a reduction in the outcome, while navy blue indicate an increase. Statistically significant results at five percent level are shown. often having already achieved high levels of capacity for every additional year they spent electrification by the time they transition to it.28 under the SBM model compared to those operating the VIU model. This suggests that SBM Where SBM has been less successful, however, may not be as effective at expanding overall is in boosting supply of electricity. The analysis electricity generation capacity. However, it is finds that SBM is associated with lower total important to note that its impact on electricity electricity supply per capita compared to VIU. supply levels may vary depending on the specific Countries operating under SBM had, on average, country context and the implementation of 1.52 percent lower total electricity installed complementary policies and investments. Page 31 Structuring Power Markets More competitive markets are The wholesale-retail competition associated with an increase in supply. model is associated with In contrast, the WRC model exhibits a positive lower carbon emissions. impact on total electricity supply. Countries This analysis also sought to identify which operating under WRC saw a significant models were most associated with lowering increase in electricity supply compared to carbon footprints. The findings reveal that SBM- those using the VIU model. Each additional structured markets were historically associated year in WRC is associated with a 3.27 percent with higher carbon emissions compared to increase in total electricity installed capacity. VIU, with SBM countries seeing a significant This underscores the strong potential that increase in CO2 emissions per capita. This is competitive electricity markets have to potentially due to their reliance on fossil fuel- attract investment, encourage efficiency, and based power generation to meet the growing stimulate the growth of generation capacity. electricity demand. Each additional year in an SBM structure is associated with a 3.92 metric IFC’s analysis finds that switching from vertically ton increase in CO2 emissions per capita. This integrated utility to either a single buyer model finding highlights the need for countries that or wholesale and retail competition significantly use SBM to pro-actively prioritize the use of increases private sector participation in the cleaner energy sources and to implement power sector through independent power policies that mitigate negative environmental producers. Each additional year a country impacts of power sector development. spends outside VIU is associated with a 0.87-year increase in number of years that On the other hand, the WRC model scored have elapsed since the first IPP entered better on reducing the carbon footprint. the market. Each additional year in SBM is Countries operating under it tend to have associated with a 0.24-year increase in the lower CO2 emissions per capita compared number of years since the first private IPP to those operating VIU. Each additional year entered, and a 0.34-year increase for WRC. in WRC is associated with a reduction of 1.95 The results suggest that both SBM and WRC metric tons of CO2 per capita, although the are conducive to attracting more independent effect is not consistently significant across all power producers, with WRC outperforming model specifications. Many countries with SBM. The analysis also implies that reforms WRC markets relied on renewable energy that allow for more competition and private producers to launch their spot markets. sector participation tend to encourage long- The analysis also assessed the impact of term involvement of IPPs in power markets. macroeconomic, political, and regulatory factors on electricity sector outcomes. It finds that economic indicators, particularly real GDP growth, have a significant positive impact REPURPOSING POWER MARKETS Page 32 on electricity generation, overall electricity VIU structure demonstrates relatively weaker access, and rural electrification. Regulatory correlations with private investment. This indicators are positively associated with access implies that state-dominated, non-competitive to electricity, as evidenced by benchmarks like market environments have more limited linkages the Regulatory Indicators for Sustainable Energy, with private sector investments in the power or RISE, which is a global set of indicators on sector. This finding is not surprising as the VIU countries’ energy policies and regulations that structure generally allows limited scope for focuses on access, efficiency, and renewable private sector engagement compared to other energy. Institutional factors, particularly political market structures. Historically, private sector stability, are positively associated with total investments in countries with VIU structures electricity supply. The analysis does not find occurred mainly through minority or majority significant relationships between a utility’s shareholdings in the VIU or through build- creditworthiness and the key outcome variables. transfer type investments in generation or This could be because historically countries network assets. However, that is changing, with may have primarily relied on fiscal support and growing scope for private sector engagement government guarantees to expand electricity in VIU countries—for example through off-grid access, backstop the utility obligations of or mini-grid investments where the private IPPs, and scale up renewable generation. sector is allowed to operate alongside the VIU. More competition tends to generate The correlation analysis reveals some regional increases in private financing flows. differences. In South Asia and East Asia- Pacific, the analysis suggests that as the The analysis also examined the relationship power market structure evolves, there tends between the power market structures operated to be a significant increase in private sector by countries and private financing flows financing. Eleven countries in these regions across emerging economies between 2010 have transitioned to a more competitive power and 2023. The goal was to ascertain if certain market structure since 2010. These transitions models showed a greater propensity than are correlated with the unlocking of substantial others to attract more private investment investment in the regions. Latin America and in power infrastructures. The findings reveal the Caribbean and North America also show that countries with more competitive power a strong positive correlation between market market structures tend to attract higher liberalization and higher investment flows. levels of private sector financing compared to countries that kept the VIU model (Figure 2.9). In Europe and Central Asia, the link is weaker, likely due to market liberalization having largely Specifically, countries that opted for competitive occurred in their economies in the 1990s, wholesale and retail market structures received with most having already transitioned to an higher private financing inflows for generation, organized competitive wholesale structure transmission, and distribution. Conversely, the FIGURE 2.9 Relationship Between Market Structures and Private Sector Investment—Advanced and Emerging Economies Correlation Coe cient . Vertically Integrated Utility . Single Buyer Model . Organized Wholesale and Retail . Correlation Coe cient . . Middle East & North Africa . Sub Saharan Africa . Europe & Central Asia . Latin America & Caribbean . North America . East Asia & Pacific . South Asia . Source: IFC Analysis Note: Size of the bubble represents the relative magnitude of the correlation REPURPOSING POWER MARKETS Page 34 FIGURE 2.10 The Boom in Renewables Is Overwhelmingly Concentrated in Advanced Markets Global power market financing trends 2010–2023 Advanced Markets % Emerging Markets Billion Share of sustainable finance to energy % Share of sustainable finance to energy % % % % % % Transmission and Distribution Share of private sector finance % Thermal and Combined Heat and Power CHP % Renewables including large hydro % % Source: IFC based on IJ Global (2023). Data includes project and corporate finance transactions with at least one private sector financing source. Page 35 Structuring Power Markets by 2010. In the Middle East and North Africa, In Chapter 3, we will examine some of the and in Sub-Saharan Africa, the correlation is key issues for countries to consider when very weak, indicating that market structure adapting their power market structures. Some has been a negligible driver of private of these findings are informed by historical financing. State-controlled VIUs and SBMs market realities, it should be noted, and these still dominate in these regions and attempts realities are being transformed by the current at liberalization and introducing IPPs have yet big trends impacting the sector—the so- to meaningfully boost investment. Historically, called ‘3Ds’ of decentralization, digitalization, many countries that transitioned to SBM and decarbonization. For example, there experienced delays in securing the first IPP and has been a marked decline in the cost of associated investments due to concerns about solar-generated electricity. This chapter will contract bankability and other sector issues. highlight key priorities and best practices for aligning power market designs to better The findings suggest that adopting more leverage the private sector to achieve SDG7. competitive market structures could stimulate private financing in countries where state monopolies dominate, but that the effectiveness varies across regions based on the composition of the existing frameworks. In addition, if the positive impacts on investment flows are to be sustained, market reforms must be complemented with stable governance and policy environments.   REPURPOSING POWER MARKETS Page 36 3 Leveraging the Private Sector KEY INSIGHTS The electricity industry is undergoing a transformation, driven by three overarching trends: decentralization, digitalization, and decarbonization (the 3Ds). Countries are repurposing their power market structures to meet the objectives of United Nations Sustainable Development Goal 7—ensuring access to affordable, reliable, sustainable, and modern energy for all. The 3Ds present a wealth of opportunities for countries to leverage the private sector to achieve these goals. Mobilizing private capital through innovative financing instruments such as green bonds, sustainability-linked loans, and securitization can bridge the massive investment gap in clean energy infrastructure. Deploying smart grid technologies and strategically integrating efficient ‘baseload generation’ capable of running 24 hours a day can make systems more flexible and reliable while accommodating higher shares of variable renewable energy. Baseload generation efficiency is critical to integrating more intermittent renewable energy sources to ensure sufficient power generation capacity is available to cover demand when solar radiation levels dip, or wind is not blowing. An area where the private sector can have a particularly positive impact is integrating renewable energy sources and unelectrified communities into power systems. Previously, the expansion of renewables like wind and solar was hindered by their intermittent nature i.e. they are not continuously available. However, the falling costs of energy storage technologies and the rise of solar-plus-storage hybrid systems are enabling greater penetration of intermittent renewables. The private sector has a vital role to play in scaling up distributed renewable energy solutions such as mini-grids and off-grid systems. Such technologies create an innovative complementary pathway to increasing access to electricity access in remote areas. As countries repurpose power markets in different ways, the strategies and case studies presented in this chapter offer insights into how to effectively engage the private sector. Page 37 Leveraging the Private Sector T he electricity sector has entered a new phase of evolution. Three big trends— decentralization, digitalization, and decarbonization—are driving a repurposing of power market structures. Alternatives to the traditional centralized system are emerging thanks to advances in technology that allow for small-scale generation located directly at demand sites such as rooftop solar installations on houses or industrial sites. Decentralization is also blurring the distinction between producer and consumer. Customers are generating their own power, becoming ‘prosumers’ who both produce localized electricity and respond to market demand by adjusting their consumption patterns, either individually or through an aggregator.v Meanwhile, digitalization of the power sector managing power systems. Costs are being is breaking down the traditional boundaries incurred to maintain the power system balance. between storability and grid dependency Flexible non-intermittent electricity sources through, for example, cloud-based power- such as thermal or hydropower that can ramp pooling solutions, which allow energy from up and down quickly, as well as extra energy multiple sources to be combined and managed storage capacity, need to be fed into the grid together online, like a virtual power plant. This too to ensure a continuous, reliable supply given makes it easier to balance supply and demand, the ramp-up of intermittent sources, notably improving efficiency. As power infrastructures solar and wind. Ancillary services capable of continue to digitalize, electricity systems promptly addressing supply-demand imbalances are becoming ‘smarter’ with consumers and and avoiding power outages must be developed, producers interacting more with the grid. along with robust frameworks for compensating flexible generators to ensure adequate supply. Decentralization and digitalization can in As more intermittent renewables enter the turn help catalyze the other big trend in the mix, flexible generators like gas power plants sector—decarbonization—as concerns about and batteries face greater unpredictability with climate change continue to grow. Efforts revenues since they must remain on standby in are intensifying to shift power generation case of a supply shortage e.g. solar production mixes and technologies away from fossil dips due to cloudy skies. To incentivize these fuels and toward low- or zero-carbon producers to remain in the system, they need to resources. Solar and wind have emerged as the be offered alternative financial compensation renewable energy sources with the greatest mechanisms. This marks a departure from growth potential globally (Figure 3.1). the traditional model where power markets The addition of more intermittent energy were designed to support electricity generated sources like wind and solar into centralized mainly from thermal sources, especially fossil electricity grids creates new challenges in fuels, which can be dispatched continuously. Prosuming often describes consumers—households, businesses, communities, organizations, and v  other agents—that rely on smart meters and generation units (such as solar photovoltaic panels) to generate electricity and/or combine them with home energy management systems, energy storage, electric vehicles, and electric vehicle-to-grid systems. Parag and Sovacool (2016) REPURPOSING POWER MARKETS Page 38 FIGURE 3.1 To Get to Net Zero Emissions, Solar and Wind Need to Grow Quicker Required renewable increases, by technology, to reach net zero emissions Gigawatt Renewable additions need to increase x . times to be on track with the International Energy Agency net zero scenario Solar Wind BGOC* Hydropower *BGOC refers to Bio-power, Geothermal, Ocean power, and Concentrating Solar Power. Source: Adapted from REN21 (2023). Countries need to repurpose their existing power experiencing growing demand for electricity market structures to accommodate the ongoing supply and governments and regulators face transition from energy systems constrained strong pressures to make power systems more by capacity (infrastructure-related issues) to reliable and affordable. For many developing systems constrained by the energy sources that countries the sustainability goals often come feed the system. If they succeed in making this into conflict with other goals for the sector. transition, it will both make power systems more Thus, while power systems especially in resilient and help meet sustainability objectives. emerging markets remain underpinned by Many developing countries face a bigger traditional structures, the overarching trends burden with more complex challenges, seeking in the sector are challenging the status quo. both to advance on sustainability goals, while As highlighted in the previous chapter, there at the same time needing to greatly expand is no ‘one size fits all’ blueprint for how to access to their still-unelectrified populations. structure power markets. Countries continue On top of this, developing economies are to experiment with models in response Page 39 Leveraging the Private Sector to the so-called 3Ds of decentralization, Smart grid technologies digitalization, and decarbonization. This Private sector innovation solutions in presents new opportunities to leverage the smart metering, advance communication, private sector to increase energy access and and control technologies will be critical make it more affordable. This chapter outlines to making power systems more efficient, strategies for countries to consider when flexible, and resilient. Technology can help repurposing their power markets, with a focus utilities better manage demand, integrate on those that leverage the private sector. intermittent renewables, and improve Recommendations are summarized by market operational decision-making. It also lays structure type at the end of each section. the foundation for more advanced market designs that harness innovations like Innovate — New Financing dynamic pricing—where electricity prices and Technology Solutions vary based on real-time demand and supply—and transactive energy models— The private sector will be instrumental where energy transactions are managed in helping countries repurpose power in real time using digital platforms. market designs, especially in developing They can promote decarbonization by innovative solutions. Its contribution will scaling up renewables generation while be particularly useful in three key areas: ensuring grid stability. And they are Financing instruments essential tools to further digitalize and decentralize the sector. The private sector can help mobilize the massive investment needed for Baseload generation decarbonization by developing and As countries flow more renewables into deploying innovative financing tools. These their power systems, the private sector include green bonds, sustainability-linked can help optimize the role of baseload loans, and other instruments that align generation to make systems more stable financial incentives with sustainability and reliable. In any power system, a objectives. Diversifying the pool of certain amount of so-called baseload financiers, such as through venture capital, generation needs to be supplied to the capital markets, and securitization—which electrical grid at a given time to meet involves combining different financial the minimum power demand. Typically, assets and selling them to investors— baseload generation is met by deploying can further expand the pool of available flexible thermal or hydropower assets that funding for clean energy projects. can provide essential grid services, such as ramping up to full capacity in a short space of time, to balance the intermittent nature of renewable sources. Strategic REPURPOSING POWER MARKETS Page 40 placement and sizing of these assets, regions. By issuing debt securities such as informed by rigorous planning and market corporate bonds or asset-backed securities, analysis, can support the integration power companies can access more financing of renewables while avoiding stranded than is available from commercial banks assets—infrastructure investments that and potentially with better financing terms. may become obsolete or underused For example, in 2019, immediately prior to due to changes in technology or market the COVID-19 pandemic, renewable energy conditions. companies globally were able to raise $6.6 billion through public markets. Capital market These areas are examined in more detail below. financing decisions are guided by expectations Tapping nontraditional financing that typically refer to historical trends to channels to ramp up renewables project future performance. A study by Imperial College London and the International Mobilizing private capital at scale is crucial Energy Agency29 comparing the financial to meeting the enormous climate financing performance of listed fossil fuel to renewable needs of developing economies. Historically, power companies found that the latter offered they relied on public financing, typically state- investors higher total returns. Renewable owned enterprises and banks, to support energy stocks also had lower volatility power infrastructure investments. This has across the board compared to fossil fuels. often exposed the sector to significant risks and financing constraints as public financiers Innovative financial instruments and platforms face rising levels of non-performing loans can help attract greater private investment. and low capital adequacy ratios (for example, Green, social, sustainable, and sustainability- Bangladesh). Local commercial banks are an linked bonds have emerged as an important alternative financing source for power projects. mechanism to channel private climate financing However, these tend to have lending limits that to developing countries. Despite the potential, restrict their exposure to the power sector or their issuance has been relatively constrained utility. In some countries such as Indonesia, in developing countries given how much local banks have reached these lending limits. climate financing is needed, with only around In recent years, several financial instruments $136 billion issued in 2022, of which China have been developed that are helping to bridge accounted for half.30 However, the landscape the growing gap between developing and is shifting positively, as detailed in the most developed countries in global infrastructure recent IFC-Amundi report on Emerging financing, especially for renewables. Market Green Bonds.31 This report highlights a significant surge in the issuance of green, One such solution is capital market financing. sustainability, sustainability-linked, and social Capital markets, both international and local, bonds in emerging markets, which increased have a large and underutilized financing by 45 percent in 2023, reaching an all-time high pool that could fund power projects in most of $209 billion. Notably, issuers outside China Page 41 Leveraging the Private Sector boosted their transactions by approximately 65 percent, totaling $111 billion. This growth is BOX 3.1 driven by an increased demand from portfolio investors and a maturation of the asset class, Developing Countries signaling a robust future for sustainable Are Making More Use of securities in these regions. Development Sustainable Financing finance institutions such as IFC are actively In June 2022, IFC extended an innovative expanding these financing sources (Box 3.1). $115 million ‘super green’ loan to Neoenergia Coelba, a Brazilian distribution utility, to bolster With more than $70 trillion in assets vulnerable grid infrastructure. This pioneering globally, institutional investors—particularly sustainable financing instrument combined pension funds, sovereign wealth funds, and green use-of-proceeds and sustainability- insurance companies—are a significant linked features, making it Latin America’s first potential source of finance for power market super green loan in the power distribution assets. Institutional investors tend to have sector. As the sustainability coordinator, IFC is assisting Neoenergia in creating sustainability- limited exposure to infrastructure assets in linked financing targets on climate action emerging markets. Traditionally more risk- and gender inclusion along with its first averse than banks, they tend to invest in de- sustainability-linked financing framework. risked operating assets (that is, refinancing) Another recent example is IFC’s green and rather than greenfield assets to avoid risks sustainability-linked loan of €300 million associated with construction projects. For ($329 million) to Iberdrola, the Spanish-based example, in 2020 IFC supported a facility that power utility. The loan’s key performance mobilized financing from several institutional indicators included the reduction of emissions investors, including insurance companies, to by more than 60 percent relative to 2020 refinance an existing debt package of Asahan levels which, if achieved, would contribute 1, a 180-megawatt hydropower plant in to limiting global warming to 1.5 degrees Celsius in addition to more than doubling Indonesia operating and generating revenue Iberdrola’s renewable energy capacity by 2030. since 2011. The financial restructuring facility more appropriately reflected the project’s de-risked nature, enabling institutional introduced vehicles such as venture capital investors to take advantage of lower-cost funds, bonds, and securitized assets in which debt and invest directly in an infrastructure institutional investors can participate. Such asset for the first time in Indonesia. financing vehicles are increasingly popular in Refinancing operating power infrastructure the renewables segment and could be further assets is vital as it creates opportunities expanded through securitized assets pools that for developers to recycle their capital while combine assets with different risk profiles. mobilizing investors with varying risk appetites. Innovation in financial structuring has REPURPOSING POWER MARKETS Page 42 Venture capital is driving clean tech focus to segments that are more software- innovation in emerging markets. focused such as smart grids where returns have historically been better. It has also shifted focus Venture capital is an important source of finance from developed to emerging markets, with India for commercializing early-stage innovative becoming the largest market for venture capital projects. It is unique because it facilitates and private equity in 2019 reaching $1.4 billion, funding for startups—new firms that are overtaking the United States and Europe. experimenting with unproven technologies or business concepts—which normally have Venture capital is far from the only financing scant access to traditional financing. Venture solution for supporting innovative clean capital is being used to finance the more technology companies. Investors operating nascent segments of power projects like hybrid with a longer time horizon and higher solar and wind technologies and off-grid capitalization levels can be better suited to scale power projects. According to the International up clean energy startups and realize returns. Energy Agency, total equity investment Development institutions are notably helping to (including growth equity) in energy technology bridge the financing gap in emerging markets startups in 2019, just before the pandemic (Box 3.2). For example, in 2012 IFC and the World began, was around $16.5 billion, of which $4 Bank-managed Global Environment Facility billion was early-stage venture capital.32 launched the Cleantech Innovation Facility that targets small, highly innovative startups Overall, deployment of venture capital in the that promote green innovation and transfer power sector has been more limited than of clean technologies to developing countries. in some other sectors such as software and More than 12 startups in Armenia, India, South medical technology. This is due to power Africa, and Türkiye have gained access to venture technologies’ commercialization being more capital through the facility. IFC continues to capital intensive, often with long incubation support early-stage ventures in developing periods that make investors wait longer before countries, including through investments in they see satisfactory returns. Renewable energy battery storage and smart-meter technologies. technologies have experienced success in mobilizing venture capital and private equity, Securitization can expand access to with capital flows peaking in 2008 at $9.9 electricity to unserved communities. billion supporting global growth in renewable Securitization is an innovative financing energy deployment. A sharp drop in such flows instrument that can help channel private seen since that time signals a maturing of capital toward expanding electricity access in technologies such as solar and wind. By 2019 unelectrified communities. By pooling together venture capital and private equity investment illiquid assets, such as loans or receivables, in renewable energy technologies was down and structuring them into tradable securities, to less than a third of its 2008 peak.33 In recent securitization allows for the mobilization of long- years venture capital investors have switched term funding from a wider range of investors. Page 43 Leveraging the Private Sector This can be particularly valuable in the context of financing electricity connections for low- BOX 3.2 income households, where upfront costs are high and repayment periods are often extended. DARES—Boosting Private Investment in A recent example of this approach in Renewables in Africa action is IFC’s investment in 2023 of up to $48.8 million (30 billion West African CFA francs) The World Bank Group is working to increase access to electricity across Sub- in a social bond issued by a securitization vehicle Saharan Africa through its Distributed to support the Electricity for All Program in Access through Renewable Energy Scale-Up Côte d’Ivoire. With an electricity access rate of Platform (DARES) initiative. The program 71 percent in 2021, Côte d’Ivoire faces significant promotes private investment in distributed discrepancies in access between urban and rural renewable energy systems with a focus on areas, with many customers who live in remote five areas: mini-grids, off-grid solar, systems areas unable to afford the electricity connection for schools and clinics, solar irrigation and cold storage, and business models to fees.34 The government’s program, created improve reliability and displace diesel. in 2014, connects low-income households to the grid for an upfront cost of only $1.67 Tapping expertise from three different arms (1,000 CFA) with a balance of $249 (149,000 of the World Bank Group (IBRD, MIGA, and IFC), the program develops innovative CFA) funded via flexible financing to the financing and risk mitigation instruments customer. By securitizing these receivables, the that increase private sector investments program can access long-term private sector at regional level. In Nigeria, for example, local currency funding in the capital markets, DARES offers performance-based grants to allowing it to scale up and reach even more operators of mini-grids using a compensation households. As of June 2023, the program had model based on new customer connections facilitated close to 800,000 new connections. (a monetary sum per end-user connected) for isolated mini-grids, and a percentage of This landmark transaction, which includes capital expenditure for grid-connected mini- a 15-year maturity tranche (the longest grid projects. DARES provides significant tenor for a securitization transaction in the technical assistance to governments and the private sector, with differentiated approaches region), demonstrates how such innovative tailored to country contexts and markets. financing structures can help unlock private capital to help reach universal access to electricity. By aligning financial returns with social impact, these instruments can attract a broader range of investors and channel much-needed funding to help close the electricity access gap in developing countries. REPURPOSING POWER MARKETS Page 44 Innovative financing approaches are also critical financing methods that harness technological for scaling up investments in energy efficiency. innovations have been deployed to address Energy-efficient homes and buildings use less payment challenges. For example, advances in energy to heat, cool, and run appliances and metering technology have enabled businesses electronics, and energy-efficient manufacturing to better analyze consumer data and develop facilities use less energy to produce goods. strategies accordingly, while also improving Improving energy efficiency both reduces energy collection rates.36 Improved payment systems costs for consumers and supports sustainability. and a better understanding of customer Unfortunately, many countries lack robust preferences have in turn allowed electricity and established financial markets to facilitate providers to create asset-backed securities.vi financing for energy efficiency enhancements. This reduces the time it takes for investors to To advance on this front, countries can leverage recover costs, thereby improving cash flow and private sector solutions such energy service enabling portfolios to grow at higher rates.37 companies (so-called ESCOs) that specialize in Innovative approaches to off-grid energy designing and implementing energy efficient financing include peer-to-peer lending and options (Box 3.3). Digitalization within the power results-based financing, which consists of sector will also improve energy efficiency as providing funds based on the achievement smart tech-enabled automation and analytics of specific performance milestones. Delivery reduce system losses and involve consumers of these milestones are usually outlined in a more in operation. For instance, through specified grant agreement.vii Results-based demand response, consumers receive financial financing has been implemented in several incentives to reduce their energy use during peak Sub-Saharan Africa countries including Kenya, periods, actively contributing to grid stability. Rwanda, Tanzania, and Uganda. In peer-to-peer Advances in remote monitoring platforms will lending, the off-grid solar provider receives a also likely make systems more energy efficient. loan from a group of individual or institutional Innovative financing instruments are lenders facilitated by a crowdfunding platform. making electricity more affordable. This is beneficial for investors as the platforms processing the lending also perform credit From a private sector perspective, recovering checks.38 Another new approach is results- costs and ensuring earning margins are based crowdfunding which combines peer- appropriate for the degree of assumed risk is to-peer and results-based financing with essential for projects targeting low-income online debt-based securities company issuing customers to be scaled up.35 Innovative bonds at a fixed interest rate to investors An asset-backed security is a financial instrument where income payments are derived from a pool of collateralized assets. In the case of vi  off-grid solar, future receivables from customers’ payments are sold to investors who, over time, recover their investments and earn interest. In the case of results-based financing, a company is incentivized by payments made after the installation or vii  delivery of their products or services. For example, in the case of off-grid solar providers, they receive the funds once they have installed an agreed number of customers (such as ex-post rather than ex-ante). Page 45 Leveraging the Private Sector via an online platform.39 Advances in online pre-agreed outcomes. This approach goes crowdsourcing and the digitalization of beyond the output-level indicators commonly financial instruments have contributed to the used in development partner-funded results- rise of these alternative funding sources.40 based financing initiatives, such as the number of cookstoves or off-grid solar products sold Another such tool is outcomes-based finance, or distributed. By focusing on outcomes rather an advanced form of results-based financing than outputs, outcomes-based financing aims where payments are contingent on achieving BOX 3.3 Private Sector Solutions Are Advancing Energy Efficiency in Developing Countries Energy Service Companies, or ESCOs, are lack the capacity and/or incentives to identify, important contributors to achieving UN finance, and implement energy efficiency Sustainable Development Goal 7 targets, in projects. ESCOs, by assuming most of the particular the goals around energy efficiency. technical, financial, and performance- An ESCO is an organization that provides a related risks under the performance-based full range of services to design and implement contracts, can stimulate market demand energy efficiency options. Services include: for more energy efficient systems. identifying, designing, and developing energy 3. Providing access to innovative financing. Many efficiency projects; financing or acquiring financing industrial, commercial, or public sector clients for the energy-efficiency project; installing refuse to invest in many energy-efficiency energy-efficiency technology/equipment; projects because these programs are small and measuring, monitoring, and verifying the scale with high transaction costs. ESCOs can project’s energy savings. In developing countries, overcome this challenge by bundling resources, ESCOs have successfully operated for years and thereby helping these projects to proceed. play a crucial role in the following aspects: The World Bank Group has continually supported 1. Reducing global energy consumption countries’ efforts to become more energy efficient. and greenhouse gas emissions. Because For example, IFC advised on how to design a their profits are directly related to the street lighting project in the state of Rajasthan in energy savings, ESCOs are intrinsically India, specifically on how to design the transaction incentivized to design effective systems, and prepare the necessary documents to support offer specialized support, and engage in ESCOs’ operation. By 2015, the project had already ongoing monitoring and verification to ensure reduced greenhouse gas emissions by more than the highest possible energy efficiency. 4,000 tons and Rajasthan had reduced its annual 2. Developing markets. Many developing electricity costs for street lighting by 23 percent. economies are very energy intensive and energy inefficient. At the same time, they REPURPOSING POWER MARKETS Page 46 to drive a more meaningful and sustainable Innovative payment models can impact. IFC has supported several innovative reduce financial risk for providers. outcomes-based financing pilot projects and is exploring ways to replicate and scale In parallel, innovative electrification business them. For example, IFC was a key partner models are emerging, reflecting the diverse in developing the world’s first impact bond markets in which private energy providers for clean cooking. IFC provided technical operate.42 These models fall into the following assistance to support the measurement and broad categories: pay-as-you-go (PAYG), cash- ‘sale’ of health and gender outcomes separate based sales, lease-to-own, and service-based. from carbon credits to generate cashflows Under PAYG, consumers pay for the energy they for modern energy cooking solutions that need and top up their accounts with credits. target low-income consumers and women.41 PAYG has been perhaps the most significant model for deploying off-grid electrification IFC is itself a financing innovator too, for since first used in Eastern Africa in 2010.43 It example through its support for distributed has been accompanied by the rapid expansion renewable energy certificates. Designed to of digital infrastructure and has benefited from monetize the positive climate impacts achieved the rising number of previously underserved through communities using distributed communities in Africa that have gained access renewable energy, these certificates provide to mobile digital services, particularly mobile an additional revenue stream for renewable money.44 Providers serving consumers through energy projects. They also create a tangible link PAYG benefit from consumers’ familiarity with between the investor and the positive social PAYG offerings for various mobile services.45 and environmental impacts that stem from For example, Azuri PayGo Energy has installed extending access to clean energy. IFC invested tens of thousands of PAYG solar home systems a $3.5 million senior loan to Bix Capital, which in Ethiopia, Ghana, Kenya, Malawi, Rwanda, provides debt financing to decarbonizing Sierra Leone, South Africa, Tanzania, Togo, projects secured against future cashflows from Uganda, and Zimbabwe.46 The user pays a carbon credit off-take agreements. This form small one-time installation fee, then purchases of financing is starting to gain traction among a scratch card or uses an integrated mobile major corporations. In early 2023, the U.S. money service to top up. After 18 months software company Salesforce agreed to purchase of top-up payments the user fully owns the 280,000 megawatt hours of the certificates system and can use renewable energy at no from aggregator Powertrust. The agreement further cost. A key feature of countries that will support projects in multiple countries and support the PAYG model is a strong policy regions, including Brazil, India, Sub-Saharan environment for off-grid electrification. Africa, and Southeast Asia, illustrating the global reach and scalability of such mechanisms. Several African countries, including South Africa and Zimbabwe, have transitioned to PAYG as a way to manage commercial losses. Since Page 47 Leveraging the Private Sector 1990 South Africa has installed prepayment that also benefits system operators by helping meters for more than 4.3 million domestic them to manage peak loads and identify customers,47 while Zimbabwe has 750,000 in advance when a grid is under strain and domestic customers on PAYG and aims to move susceptible to fail. This will become increasingly its remaining 103,000 customers into it.48 critical because the increase of solar and wind capacity in the grid also increases the risk of In lease-to-own models, customers own the imbalances between energy production and system once they have reimbursed the full demand—for example, when the wind is not price, which usually takes two or three years. blowing, when it is cloudy, or at nighttime. In both models, after-sales services are offered for as long as payments are made. If customers Smart grids integrate advanced communication delay payments, their systems get switched and control technologies, including smart off. In the service-based model, the system meters, into the grid infrastructure to better remains the provider’s property for the lifetime manage electricity flows. A smart grid allows of the product, and customers pay a regular an electricity system to run more efficiently, fee to continue using the energy services. reducing the need for spinning or backup generators to handle fluctuations in demand. In addition, smart grids help integrate localized Deploying Smart Grid Technologies distributed power generation by measuring Can Promote Cleaner Power power in both directions, allowing smaller Smart grids and smart meters play an generators to sell unused power back to the increasingly critical role in electricity systems grid. Smart grid technologies also promote as more intermittent renewable energy comes system innovations such as virtual power into the system. By sending data directly to plants—cloud-based data control centers that a central computing facility, advanced smart provide reliable power supply by integrating meters enable accurate remote reading. System several types of distributed power sources by operators use smart meter data to manage aggregating data on production. When fully the electricity more optimally, improving utilized, such platforms can improve operational decision-making on energy procurement, efficiency and enhance capacity to connect operations control, and risk management. variable renewable energy to the grid. Smart meters permit two-way interaction Deploying smart technologies brings between the consumer and utility. Modern challenges, the experience of early adopters smart meter solutions provide extensive power has shown. Many technological complexities load profiling, outage reporting, the ability to and integration issues that can arise when connect and disconnect remotely, and voltage incorporating them into systems need to monitoring and net metering capabilities. be mastered. For smart grid technologies Smart meters allow consumers to adjust their to be successfully launched, there needs to demand in response to price signals, a feature be a business case and a plan for systematic REPURPOSING POWER MARKETS Page 48 BOX 3.4 Using Smart Meters for Dynamic Retail Pricing: Türkiye As variable renewable energy comprises a growing In Türkiye, IFC has financed grid upgrades made share of power generation, demand-side flexibility by Osmangazi Elektrik Dagitim A.S. (OEDAS), a will play an increasingly vital role in balancing leading power company, to expand electricity electricity systems. Retail tariffs based on time- distribution and accelerate smart meter adoption. of-use mirror underlying price fluctuations at As more renewables are integrated into power the wholesale level and reflect real-time power grids, time-based pricing enabled by smart supply conditions. The price signals they give meters will be key to aligning how and when consumers in turn incentivize them to conserve customers consume electricity with when the energy during high-cost periods, helping them supply is available. Linking pricing to the real- to manage their energy use and storage more time conditions of power systems incentivizes effectively. Adding a locational component— customers to adjust demand and tap into new meaning prices also depend on the geographic value streams. The flexibility and responsiveness location of the customer—can be beneficial by unlocked by smart meters can help integrate clean, encouraging distributed energy resources to be variable power sources in a cost-effective way. placed in locations where they most effectively support the grid and alleviate local congestion. deployment, and an implementation framework Smart meter penetration rates vary worldwide that considers market maturity, data privacy but are accelerating in many markets, especially and cybersecurity, and adaptive regulation. for utilities looking to modernize aging analog meter stocks (Figure 3.2). The residential smart Smart metering costs have declined over the meter penetration rate is expected to double past decade due to increased competition from 30 percent in 2022 to 60 percent by among vendors, improvements in metering 2030.49 Technological improvements continue communications and data management to make smart meters more cost-competitive. systems, and integration with grid management Declining metering and IT costs, combined with platforms. The proliferation of lower cost meters new grid-edge capabilities,viii are increasing has enabled more widespread smart meter incentives for utilities to invest in smart metering adoption, expanding beyond large industrial infrastructure. Ramping up deployment of and commercial customers to encompass mass smart meters should be encouraged as it deployment for residential consumers too. will lead to more dynamic, responsive, and transactive electricity grids (Box 3.4). ‘Grid-edge’ is an umbrella term that covers all the technology, hardware, software, and business innovations in the proximity of the end viii  consumer near the ‘edge’ of the power grid. Examples include electricity generation, transmission or storage resources located onsite at residential or commercial premises such as home solar panels, small wind turbines, and electric vehicle charging infrastructure. Smart meters, smart thermostats, smart appliances, and software that automates price-responsive demand response and real-time grid optimization are also considered as grid-edge. Page 49 Leveraging the Private Sector FIGURE 3.2 Developing Regions Lag in Smart Meter Uptake Number of smart meter installations globally Total Million East Asia and the Pacific Europe and Central Asia North America Middle East and North Africa Sub Saharan Africa Latin America and the Caribbean South Asia Source: Northeast Group (2023) REPURPOSING POWER MARKETS Page 50 Smart Deployment of efficiency gas power plants in ‘peaking’ roles allows greater renewable energy penetration Baseload Generation while maintaining system stability. As countries scale up variable renewable energy sources like wind and solar, baseload For example, recognizing the need for efficient generation—delivering the minimum level of baseload capacity, Uzbekistan worked with power needed in the system to meet demand— IFC as lead advisor in structuring a novel remains vital to ensuring an affordable, reliable public-private partnership tender for a electricity supply. The intermittent nature of combined cycle gas turbine (CCGT) project in renewables poses grid integration challenges Uzbekistan’s Syrdarya region. With 1.5 gigawatt that underscore the continued near-term capacity and a 62 percent efficiency rating, the need for flexible baseload assets to balance Syrdarya plant will be able to meet 17 percent fluctuations and meet peak demand. Strategic of Uzbekistan’s electricity demand when deployment of baseload hydropower and high- operational. Its high efficiency, flexible CCGT FIGURE 3.3 Uzbekistan’s Syrdarya Plant Shows How Combining Sources Can Enhance Reliability and Lower Carbon Footprint Syrdarya-2 generation, carbon dioxide-equivalent emissions and natural gas consumption forecast under 2050 decarbonization scenario % GAS CONSUMPTION GENERATION . billion % cubic meters , per annum Gigawatt hours % % EMISSION % , tonnes of carbon . billion dioxide equivalent % cubic meters , Source: IFC Page 51 Leveraging the Private Sector technology will optimize the country’s energy The following are important systems by balancing and scaling up variable considerations when deciding whether renewable energy capacity (Figure 3.3). to use gas for peaking reserves: Deployment of efficient CCGT plants needs to be Does the power system require firm selective and aligned with national renewable power, meaning power available at all energy targets and decarbonization timelines, times, either for continuous baseload as well as with international commitments generation or to complement renewables? such as the nationally determined contributions Is gas a realistic, affordable, and lower enshrined in the 2016 Paris Climate Agreement. carbon alternative to coal, diesel, Similarly, the use of CCGT plants should also be or fuel oil? informed by holistic planning to ensure they are right-sized—carefully tailored to match expected Are there alternatives to gas that would demand—thereby avoiding over-investment not entail investing in coal-fired capacity? and the risk of creating stranded assets (these Does the power system require peak are assets that become prematurely obsolete). power and/or ancillary services that help How they are deployed should be informed integrate intermittent renewables while by studies on grid integration that assess the maintaining reliability? hourly availability and flexibility of renewable energy resources. Such CCGT plants should be dispatched on a merit-order basis, meaning the plant will only be dispatched when required and ahead of less-efficient gas-fired generation. Recommendations INNOVATE Cross-Cutting ▶ Leverage innovative financing tools like green bonds and sustainability-linked loans that align financial incentives with sustainability goals when scaling up private sector participation. ▶ Diversify the pool of financiers through venture capital, institutional investors, capital markets, and securitization, to expand the funding sources available for clean energy projects. ▶ Deploy tailored financing methods to mobilize financing from specific sources such as refinancing to mobilize institutional investors, and outcomes-based finance to make power more affordable. REPURPOSING POWER MARKETS Page 52 ▶ As intermittent renewable energy sources grow, scale up smart grid technologies that make electricity systems run more efficiently and reduce the need for spinning or backup generators to handle fluctuations in demand. ▶ Carefully consider the shifting role of traditional baseload power generators such as coal and gas power plants when designing future power systems to ensure alignment with decarbonization goals. Renewables’ intermittent nature presents a challenge to their integration in the grid. Flexible baseload assets are therefore needed to balance fluctuations in supply and meet peak demand. ▶ Review new investments in non-renewables, especially thermal-fired power plants, as baseload power generators. While they can be part of a country’s holistic least-cost power model, helping to ensure projects are economically viable as more renewables enter the mix, caution should be exercised to prevent over- investment in them which could lead to stranded assets. Vertically Integrated Utilities (VIUs) ▶ Issue debt securities such as corporate bonds or asset-backed securities, through which VIUs can access more financing than they can from commercial banks and potentially with better financing terms. ▶ Tap institutional investors such as pension funds, sovereign wealth funds, and insurance companies as these can be good sources for refinancing brownfield renewable energy assets. ▶ Install bidirectional smart meters to promote distributed renewable energy generation, such as solar panels on residential rooftops. Residents can sell unused locally generated power back to the grid. This also promotes a transition to a more competitive market structure if desired. ▶ Experiment with innovative approaches to off-grid energy financing such as peer-to-peer lending and results-based financing that can benefit both VIUs and private sector off-grid operators. Single Buyer Model (SBM) ▶ In SBM markets, system operators can use the wealth of data collected by smart meters to improve management of the electricity system, aiding decisions on energy procurement, operations control, and risk management. ▶ SBM structures that integrate renewable energy producers need to carefully consider the role of flexible generation assets like energy efficient combined cycle gas turbines that can rapidly load power to grids as needed and offset sudden dips in wind and solar output. This can be particularly useful in countries that still rely heavily on coal. Wholesale and Retail Competition (WRC) ▶ Scale up financing of networks to enable further renewables integration and incentivize greater participation of consumers in the market through mechanisms such as demand response, where consumers adjust their electricity usage in response to supply conditions. ▶ Deploy more smart grid technologies as these help to expand localized retail power markets by enabling prosumers (consumers who also produce energy) to participate in the market. ▶ Ensure sufficient flexible baseload generators such as hydropower and combined cycle gas turbine plants that provide backup energy supply to balance out the intermittent supply of renewables and maintain grid stability. As more renewables come onto grids, baseload power generation will be exposed to far greater volatility in seasonal, daily, and intraday load, underscoring the need to ensure reliability and predictability in supply. To support this reliability, it may be necessary to develop capacity markets that compensate providers of dispatchable peak power—generators that can be called upon quickly during high demand periods—to ensure they are economically viable and available when needed. Page 53 Leveraging the Private Sector Integrate — Scale Renewables, Energy storage technologies Reach Unelectrified Communities are increasingly key to As countries navigate the clean energy sustainability goals. transition, the private sector can play a As the clean energy transition accelerates, pivotal role in developing innovative solutions storage technologies like pumped hydropower that support the at-scale integration of and battery energy storage systems (BESS) are renewable energy to the grid and extend poised to play an increasingly vital role in power electricity access to communities without markets and systems (Figure 3.4). By charging power. The private sector is at the forefront (storing) when renewable generation exceeds in developing energy storage technologies demand and discharging when required, storage and hybrid renewable energy systems, which can help increase the amount of variable wind are crucial for providing stable, reliable, cost- and solar that can be integrated into systems. effective clean energy that makes a significant Storage also enables two-way power flows, contribution to decarbonizing the economy. supporting mini-grid and off-grid access. FIGURE 3.4 Asia Leads for Energy Storage Technology in Emerging Markets Capacity additions of pumped storage and utility-scale battery storage, 2022 Pumped storage Battery storage Asia . . % North America . Total storage capacity in Europe . . Rest of the World . % Gigawatt Source: REN21 (2023) Note: Pumped storage is a type of hydropower where water is pumped to a higher elevation during periods of low demand and released to generate electricity when demand is higher. Battery storage, on the other hand, uses chemical batteries to store electricity for later use. Both technologies are essential for managing the variability of renewable energy sources like wind and solar. REPURPOSING POWER MARKETS Page 54 Unlocking storage’s diverse capabilities—to 2016. The largest project in operation currently store excess clean electricity, to provide grid is the 3 gigawatt-hour Moss Landing installation services, and to dispatch energy on demand— in California, United States, while the largest is key to driving the energy transition. planned project is the 4 gigawatt-hour SolarQ Gympie installation in Queensland, Australia. The size and type of BESS depends on the purpose and context—for example, whether it Emerging markets excluding China lag in is for on-grid or off-grid use, or whether it will BESS, with the largest projects in the tens of be integrated with renewable energy power megawatts rather than at gigawatt scale (1 plants, or is for standalone ‘utility-scale’ units. gigawatt = 1,000 megawatts). They include the Utility-scale storage systems help advance 24.5 megawatt Hunts Bay project in Jamaica large-scale decarbonization goals as they can and a 10.5 megawatt project in Mexico of Aura be connected to distribution and transmission Solar III, an IFC client. A five-hour duration networks or power generation assets. Examples 20 megawatt battery became operational of the services they provide include frequency in South Africa in 2023, making it the largest regulation (helping to maintain stable electricity BESS in Africa. While in developed markets it supply by balancing the frequency of the grid has typically been large companies using their on a minute-by-minute basis ), time shifting corporate balance sheets to finance battery (building in the ability to buy and store power storage projects, this is rare in emerging markets, when it is least expensive and to release it where access to finance is still in its infancy. during peak demand when prices are high), and Project finance—the basis for financing power alleviating local transmission constraints.50 projects for the past 40 years—needs to be adapted to cater to various factors in emerging Falling costs in the battery manufacturing sector markets. Nevertheless, progress is evident— are making BESS viable for a range of services. IFC estimates that annual new installations in For example, lithium-ion battery pack costs BESS in developing countries will grow from 1.1 fell by 89 percent between 2010 and 2020 and gigawatts in 2020 to 27.3 gigawatts in 2030. are projected to continue falling for the next decade (Figure 3.5).ix At the same time, energy Unfortunately, the regulatory framework has storage installations are forecast to grow by not kept up with the advances and innovations a factor of 27 between 2020 and 2035 and to in the technology. A more supportive regulatory attract close to $400 billion in investment. environment would help energy storage developers align their plans with national energy As the economics become more viable, BESS goals and targets—for example, renewable are getting bigger. The first 10 megawatt-hour energy and storage mandates. It would also project was built in the early 2010s while the first enable them to be appropriately compensated 100 megawatt-hour project was completed in for their services, to benefit from clear and The turnkey cost of utility-scale BESSs are set to almost halve between now and 2030, due to continued reductions in battery costs. ix  Page 55 Leveraging the Private Sector FIGURE 3.5 Advances in Technology Are Making Storage Increasingly Affordable Battery cost projections for 4-hour lithium-ion systems High Mid Low Source: Cole & Karmakar (2023) transparent procurement processes, and to To incentivize deployment of battery storage legally integrate with other energy assets. and enable greater penetration of renewable In the United States, regulators in the states energy, countries can implement various of California and Hawaii have successfully strategies (Table 3.1). These should focus built regulatory environments that enable on creating financial incentives, putting in storage, as have Australia (particularly grid- place a supportive regulatory framework, scale) and the United Kingdom. Developing and considering complementary policy countries can learn from these experiences. options that add more storage to systems. TABLE 3.1 Toolbox for Promoting Battery Energy Storage Systems Action Description Battery energy Setting a BESS capacity target makes it easier for private investors to storage system calculate how much to invest and is recommended as a first step. (BESS) Renewable energy Setting a national renewable energy target paves the way for (share of overall Targets various policies that expand both renewables and BESS. electricity supply) Setting an electric vehicle or e-mobility target provides Transportation a clear picture of the anticipated increase in demand (number of battery- for power. This in turn helps government ministries and powered vehicles) utilities to better respond to the increase in demand. Mandatory BESS installation for utilities or public/ BESS mandate government buildings is an effective way to promote (percent) more renewable energy generation. Policies Investment Direct Private or public funds can be incentivized to invest in BESS. tax credits Tax reduction Tax reductions and exemptions for BESS projects (or BESS or exemption profits) incentivize private investors to participate in them. The presence of an auction or reverse auction platform attracts private players including investors and operators to compete Auctions or on cost-effectiveness, which incentivizes BESS installation reverse auctions to increase performance. Operating a single-buyer model or higher-level market is a pre-requisite for this measure. A feed-in tariff—a policy mechanism that guarantees a fixed price for energy fed into the grid from renewable sources— Feed-in tariff incentivizes consumers to invest in BESS. Feeding the grid with energy stored in BESS provides a source of income to either the utility or the system developer that owns the BESS. Policies Interconnection Standards are necessary to enforce the safe Indirect standards incorporation of small/medium/large BESS. In countries with low electrification rates, embedding BESS Energy access/ with off-grid energy access and/or electrification rate electrification rate policies facilitates the deployment of innovative business models like community solar, solar, and storage services. The adoption of renewable portfolio standards, which Renewable portfolio require a certain percentage of electricity sold to come from standards renewable sources, can incentivize utilities to adopt BESS. Time-of-use and net metering programs enable utilities and system Time-of-use and operators to profit from arbitrage, or selling energy stored in BESS net metering that is charged during low-cost hours at high-paying hours. Source: Adapted from World Bank (2021) Page 57 Leveraging the Private Sector Direct policy measures include mandates allocate risks and responsibilities between for BESS deployment, tax credits given for the public and private entities involved. investments, and tax reductions or exemptions for BESS projects, all of which incentivize Hybridization is promoting private sector involvement as evidenced, for reliability and sustainability. example, with the United States’ experience. In recent years, there has been an uptick in Indirect measures can include energy policies the deployment of hybrid renewable energy that incentivize utilities and generators to systems, which consist of variable renewable supply electricity more effectively or to scale energy sources like solar or wind paired with up renewable energy capacity. Examples battery energy storage systems to provide include auctions or reverse auctions, where dispatchable renewable power. Business models developers bid to provide energy at the and financing options for these systems are lowest price, creating competition and driving still evolving (Table 3.2). If effectively deployed, down costs, which encourages competition hybridization, which refers to the integration of and cost-effective deployment of renewable multiple energy sources such as solar, wind, and energy projects. Other examples include battery storage systems to create a more stable measures that expand access to electricity by and reliable power supply, can serve as a cost- creating opportunities for BESS deployment effective transition toward secure, sustainable in underserved areas. On decarbonization, electricity access for all. Blended solar and targets can be set for utilities to procure storage power purchase agreements can ensure a certain percentage of their energy from a continuous supply from intermittent renewable renewable sources, which in turn drives sources, enabling round-the-clock availability. up demand for BESS. Time-of-use and net Reforms in grid planning and market design metering policies incentivize utilities and are critical to fully leverage hybrid systems. consumers to optimize their energy usage These design choices to accommodate and to integrate renewable energy, creating hybridization should consider for the further opportunities for BESS participation. tradeoffs between ensuring reliable power Governments and utilities should also availability (dispatchability) and managing consider revenue models and life-cycle the associated risks such as increased costs considerations when deploying BESS as or system complexity. To procure hybrid these will determine how a project generates systems, countries can utilize competitive revenue and establishes agreements with auctions tailored to the business model, with relevant stakeholders. It is essential to assess selection criteria based on least-cost capacity the long-term costs associated with operating or energy bids over the contract duration. and maintaining BESS, to plan for eventual Contracts should be structured in a way decommissioning and recycling, and to clearly that incentivizes both producers and TABLE 3.2 Types of Contracts Used in Solar-Plus-Storage Project Contracts Solar-Plus-Storage Single Capacity Blended Energy Entities Involved A state utility, likely A state utility, likely A state utility or a central the grid operator the grid operator procurement agency reassigning contracts to utilities Renewable Energy Single contract with two Single contract, Single contract, single fixed and Storage types of payment: single fixed payment based on energy Remuneration payment based on produced (dollars per • Payment for photovoltaic available capacity megawatt hour) with no cells is for energy produced (dollars per explicit capacity payment.* (dollars per megawatt hour) megawatt month) • Payment for storage is for capacity made available (dollars per megawatt month) Variations Not applicable Not applicable • Simple blended • Time-differentiated rates (peak and off-peak) • 24/7 firm power supply Emphasis Dispatchability Dispatchability Firmness Dispatch Buyer Buyer Seller or system operator Decisionmaker Operation and Separate entity Separate entity Separate entity or the seller Maintenance Suitability of High High Low, as the seller has control Storage Services of the storage assets Risk Allocation: On seller On buyer On seller Resource Variability Risk Allocation: On buyer On buyer More on buyer Curtailment Risk Allocation: On buyer On buyer On buyer Market Variability Commercial Very high High Low for commercial and Technical characteristics; some similarities Similarities based on technical specifications to Thermal- of the solar-plus-storage project Generation Power Purchasing Agreements Procurement/ Two products, simultaneous One product, • Blended simple and 24/7: Award Criteria auction; award possibly based award based on One product award on levelized cost of electricity lowest dollar per based on lowest dollar megawatt hour per megawatt hour • Time-differentiated: two products, simultaneous auction, average peak/ off-peak price Source: Adapted from ESMAP (2023) * This pricing assumes all resource variability, fuel cost volatility and market risks have been transferred from seller to buyer. Power purchase agreements in other jurisdictions may have more nuanced pricing structures whereby some risks remain with the buyer, and a fixed-plus-variable payment structure is advisable. Page 59 Leveraging the Private Sector buyers. Thoughtful project planning and progress was made on expanding electricity structured frameworks are imperative given access from 2010 to 2018, with over 130 million the complexity of hybrid models compared people gaining access annually, this pace has with single variable renewable energy. since slowed to only 109 million people per The World Bank Group is using the hybrid year gaining access from 2018 to 2020.51 approach to expand electricity access and The COVID-19 pandemic was a further setback. renewable energy integration (Box 3.5). In 2022, the global access rate declined for the first time in decades. In Sub-Saharan Private Sector Solutions to Integrate Africa, the number of people without access Unelectrified Communities and to electricity increased by an estimated 6 million.52 Unelectrified households, businesses, Meet Sustainability Goals and smallholder farmers rely on increasingly Improving electricity access, reliability, and expensive and polluting fossil fuel alternatives affordability alongside sustainability is a major such as kerosene and diesel. While many challenge for developing countries. While rapid BOX 3.5 How Hybridization Can Help Small Island States Decarbonize: Maldives As the small island nation The robust risk mitigation to fund complementary grid of Maldives advances on its package developed by the upgrades. Given the success clean energy transition, the World Bank gave private so far, Maldives has requested World Bank-financed ASPIRE investors the confidence to bid additional financing to meet its and ARISE projects have been competitively on solar power ambitious renewable energy helping it continue down that purchase agreements. Bids goals. The World Bank aims to path. These projects have became increasingly competitive replicate this model in other enabled the installation of over time as project pipelines small island developing states. over 53.5 megawatts of solar expanded. The projects ensured By mobilizing private investment capacity and 50 megawatt- adequate integration of new in clean energy infrastructure, hours of battery storage. This solar capacity into the power these projects have enabled has reduced the Indian Ocean grid. They also provided payment access to affordable, sustainable country’s annual import bill security mechanisms and power in the Maldives. Such by around $30 million, with dollar-denominated power partnerships can serve as a projected lifetime savings of $756 purchase agreements to blueprint to accelerate the million over 25 years. It has also attract investment. Leveraging global energy transition. decreased Maldives’ reliance on co-financing from partners subsidized, imported diesel and like the Asian Infrastructure has lowered electricity prices. Investment Bank was crucial REPURPOSING POWER MARKETS Page 60 governments pursue ambitious electrification about 41 percent of the rural population of Chile programs, their budgets are constrained, the had no access to electricity compared with about costs of financing have risen, and households’ 1 percent of the urban population.53 By 2012, the capacity to pay is diminishing, all of which country had achieved full rural electrification. is hampering electrification efforts. An electrification program launched in 1994 aimed to increase the rural electrification rate At current rates, electricity access will only from 50 to 75 percent by 2000. The program be expanded to an additional 260 million was aligned with other electricity sector people by 2030, leaving 670 million without reforms that increased competition between access, predominantly in Sub-Saharan Africa. both technologies and suppliers, promoted Coordinated policies and financing will be more private investment, and decentralized critical to get electrification efforts back on decision-making. It mobilized funding from all track and achieve full access by 2030. Reliability stakeholders—consumers, private companies, of supply also remains a challenge. Even where and existing cooperatives. The program was a grid connections exist, power outages are major success, with the rural electrification rate common in many developing countries. This rising from 53 percent in 1992 to 76 percent by negatively impacts quality of life and constrains 1999, exceeding the original 75 percent target a productive uses of electricity. Connectivity year early.54 Ingredients in its success include: and reliability of supply are not the only challenges. Ensuring that households can afford The presence of a competitive to use electricity once connected remains a environment. Competition was introduced significant challenge for developing countries. at several levels: among the communities involved for financing the projects, among This section presents several examples of private distribution companies for implementing sector initiatives to expand electricity access their projects, and among regional to unelectrified communities sustainably and authorities for the funds provided by the affordably. This can be achieved in various ways, central government. including by deploying centralized solutions and distributed renewable energy solutions such as The willingness of many established solar home systems, mini-grids, and microgrids. distribution utilities to participate. South American success stories offer Implementation by a competent and lessons on rural electrification. motivated government agency. Chile’s energy commission was given sufficient The progress made to date in electrifying authority to develop and guide a national underserved populations in developing countries electrification policy initiative. has been achieved mostly through centralized grid-scale investments. For example, this is how Peru and Bolivia adopted the Chilean model Chile has attained universal electrification of for handing over the interconnected and both rural and urban populations. Back in 1990, commercially viable system to the private sector, Page 61 Leveraging the Private Sector allocating government resources and subsidies decarbonization and decentralization. Its role is to rural areas. Peru’s urban areas achieved particularly apparent for achieving household a 99 percent electrification rate, while rural electricity access through standalone off-grid areas reached 95 percent—a major increase solutions that use renewables like solar. These from the 60 percent pre-reform electrification solutions can deliver basic electricity access more rate. Meanwhile, Bolivia increased its rural rapidly and at scale than on-grid solutions. electrification rate from 40 to 80 percent. Regions where electrification rates remain low Based on international experience, a set of such as Sub-Saharan Africa have seen targeted principles for expanding grid-based rural electrification strategies that aim for the wide electrification programs was developed by deployment of decentralized off-grid solutions, a group of development experts.55 These as evidenced in Kenya, Rwanda, and Uganda.56 principles include the sustained commitment of Even in countries where the government’s governments, evidenced by the emergence of focus is more on grid-based solutions, off-grid institutions with operational autonomy; regularly solutions can accelerate the electrification updated rural electrification plans; and electricity process.57 Off-grid technologies can reach more priced at cost recovery once electricity network remote households years or even decades earlier lines are handed over to the distribution utility than grid extension programs, thus accelerating or other service provider. Involving communities economic development in remote areas. They is key as it builds grassroots support and can also provide reliable electricity in areas lowers barriers to adoption for new customers where grid-based electricity is constrained. A seeking electricity. Finally, to minimize market-based approach to promoting off-grid investment costs, customizing the technical solar can achieve electricity access at scale, design standards to meet the low demand speed, and lower cost, making it an attractive seen in remote rural areas is recommended. option for resource-constrained countries. Scaling solar and off-grid solutions In addition, existing standalone fossil fuel-based can help meet twin goals. generators can be replaced with renewable energy sources (Box 3.6). In parts of South Renewable energy-based distributed generation Asia and Sub-Saharan Africa, a significant and standalone off-grid solutions provide a proportion of households, industrial facilities, complementary tool to advance on sustainability and mines utilize diesel-based backup goals while improving access, reliability, and generators to cope with unreliable grid affordability. This is especially useful in countries electricity. In Western Africa, these generators where governments lack the resources to deliver are estimated to account for over 40 percent universal energy access through subsidized of the electricity consumed annually.58 As well grid extension. The private sector can play as their negative environmental effects, these a vital role in scaling up these technologies, generators are increasingly unaffordable due complementing public investment and taking to ongoing high volatility of diesel fuel prices. advantage of the opportunities presented by REPURPOSING POWER MARKETS Page 62 Demand is soaring for installing are estimated to have benefited from improved solar home energy systems. access to energy through off-grid solar energy kits.61 In Africa, solar home system companies Across the world, standalone off-grid renewable such as Bboxx, M-Kopa Solar, and Mobisol have energy solutions led by startups are rapidly successfully increased energy access through growing in response to market demand. standalone solar systems, demonstrating Financing in the form of debt, equity, and the private sector’s effectiveness in helping grants to the off-grid solar sector increased countries meet universal electrification targets. from $19 million in 2013 to $457 million in 2021.59 Global sales of solar home systems and pico- These experiences suggest that standalone solar (very small) systems reached a record 9.5 systems should emanate from a government- million units in 2022,60 and 401 million people supported off-grid strategy that incorporates BOX 3.6 Distributed Solar Hybrid Power Is Helping Nigeria to Decarbonize With an unreliable grid supply customers in Nigeria. It offers photovoltaic capacity fourfold and frequent blackouts, two main products: power- to 38 megawatts. By funding businesses in Nigeria face severe as-a-service which involves the growth of this pioneering electricity access challenges. building power solutions, taking company, IFC helped catalyze Diesel generators are often the over complete management of Nigeria's distributed renewable only backup option, despite power project sites, installing energy sector. Although diesel being costly and polluting. solar photovoltaic modules, and is still required as backup, Distributed renewable energy installing battery energy storage Daybreak's solar hybrid systems solutions can provide cleaner, systems or replacing diesel minimize its use to ensure more reliable, and affordable generators where necessary; availability for commercial power. However, the commercial and solar-as-a-service and industrial customers. viability of solar hybrid systems which entails installing solar The project is making energy needs to be demonstrated photovoltaic modules to reduce more sustainable and affordable to attract investment in dependence on other sources for commercial and industrial this nascent market. of power available onsite. customers that depend on IFC in 2021 financed the The transaction was IFC's first unstable grid supply. And by expansion of energy company distributed energy investment making their electricity supply Daybreak Power Solutions' in Sub-Saharan Africa. Daybreak more reliable too, it supports distributed generation capacity. is the second largest provider of productivity and economic The project provides power commercial solar hybrid power growth, enabling clean growth system management services in Nigeria. The $20 million and catalyzing climate-smart and alternative energy sources equivalent financing enables private sector investments in to commercial and industrial Daybreak to increase its solar Nigeria’s off-grid power sector. Page 63 Leveraging the Private Sector local characteristics, innovative financing ultimately benefit consumers and is less likely structures, and incentives for solar home to cause market distortion.63,64 Successful system providers such as tax and import deployment of off-grid renewable energy duty waivers. Kenya, Rwanda, Tanzania, and markets is also linked to innovative financing Uganda used such fiscal exemptions to drive instruments that include access to mobile growth. These four countries alone account payment systems for customers. Innovative for more than 25 percent of off-grid solar business models in Bangladesh, Kenya, and Peru markets worldwide. In 2022 Kenya further have dramatically increased their populations’ granted a 50 percent tax exemption for access to solar energy (Box 3.7). Training local companies providing off-grid solutions that technicians and workers to provide support sell electricity from renewable sources.62 services like repairs also plays a role. Tax exemptions for operators tend to attract Net metering is a useful innovation, more companies than end-user price subsidies. but designs need fine-tuning. Having more operators in the market in turn creates competitive price pressures and that In some countries, large capacity additions of renewable energy have been supported by BOX 3.7 Innovative Business Models Are Helping Scale Solar in Kenya, Bangladesh, and Peru Building on the success of mobile example, Powermundo supports energy efficiency and other money transfers through African a range of clean technologies infrastructure. The Company service provider M-PESA, some including cookstoves and water does not provide loans directly firms such as Azuri, M-KOPA, filtration systems in addition to to end users but rather works and Sun King have adopted a solar panels, offering different with participating organizations pay-as-you-go model for solar credit arrangements across the that act as intermediaries. energy panels in Kenya. These supply chain for wholesalers, More than 50 power operators firms finance solar installations retailers, and end users. are responsible for identifying for customers, using both debt, customers, installing the system, In Bangladesh, the government equity, and grants. M-KOPA and providing maintenance. set up the Infrastructure has connected more than Between 2003 when it entered Development Company Ltd. in 1 million customers in Sub- the solar home system market 1997 as a non-bank financial Saharan Africa to solar energy. and 2019, it helped finance institution which in addition access to solar electricity for 18 In other countries, financing to solar home systems, million people—12 percent of for solar panels has taken offers domestic biogas, solar the population—delivering more advantage of existing structures irrigation, renewable systems than 4 million home systems. or institutions. In Peru, for (including solar mini-grid), REPURPOSING POWER MARKETS Page 64 FIGURE 3.6 Outlook for Mini Grids: Regional Breakdown Projections for mini-grid expansion, 2021–2030 Population connected to mini grids millions South East Asia & Latin America & Rest of Africa Asia Pacific Caribbean the World Cumulative investment in mini grids billions South East Asia & Latin America & Rest of Africa Asia Pacific Caribbean the World . Total number of mini grids installed South East Asia & Latin America & Rest of Africa Asia Pacific Caribbean the World , , , , , , , , , Source: Energy Sector Management Assistance Program 2022. Page 65 Leveraging the Private Sector behind-the-meter rooftop systems. In such off-grid solutions involving intermittent energy BOX 3.8 sources, prosumers with grid access depend on the grid when their captive generator does Mini-Grids Are Expanding not produce power. These prosumers can sell Access to Clean Power in surplus power to the grid when the captive Democratic Republic of Congo generator is active and are compensated The Democratic Republic of Congo (DRC) through net metering (calculated by subtracting has one of the lowest electrification rates total energy produced from consumed). Battery in the world, with only about 19 percent of storage may be used in the absence of grid the population having access as of 2019. To address this alarming deficit and meet the backup, or to complement it. The market design government's goal of connecting 30 percent challenge of this option is twofold: recovering of the population by 2024, IFC partnered the fixed costs of the network infrastructure with the government on the Scaling Mini- serving prosumers and managing the higher Grid program that aims to bring clean, balancing costs of additional intermittent power. solar energy to over 1.5 million households, businesses, schools, and health clinics through Ideally, congestion rentsx would cover the public-private partnership mini-grids. cost of network infrastructure serving these In 2022, the program secured $400 million prosumers. But under current tariff structures, in funding from private investors to deploy final customers are charged a per-kilowatt- 180 megawatts of solar photovoltaic capacity hour tariff that covers the cost of energy and to the cities of Mbuji-Mayi and Kananga. transport services by the grid system. As a The government partners and IFC worked result, net metering systems do not recover all together to assess electricity demand, identify overhead costs of the grid. Additional practical potential solar plant locations, and engage challenges have emerged with the net metering with local authorities to garner community support. The program features innovations modalities adopted by mature renewable like a first-of-its-kind minimum revenue energy markets such as the European Union. guarantee to help reduce risk and attract For example, net metering fails to reflect the further private investments. The other real-time power market price signal reflecting supporters of the program are the Global the real-time supply-demand balance. Infrastructure Facility, the Green Climate Fund, the Rockefeller Foundation, the Sustainable Also, net metering increases the risk of a Renewables Risk Mitigation Initiative, and mismatch between demand and supply, which the governments of Italy and Canada. could create system operation problems— for example, when power gets injected into Congestion rents are financial incentives for power generators and other market participants to adjust their output or transmission patterns x  to reduce congestion and increase grid reliability. These payments are the difference between the market price of electricity in the congested area and the cost of generating and transmitting the electricity. The payment is made to the generators or other market participants who help to alleviate congestion. REPURPOSING POWER MARKETS Page 66 the system even when demand is low. These grid solutions face financial risks stemming challenges led the EU to amend its renewables from customers’ lack of creditworthiness framework, which will affect how net metering because they have direct exposure to corporate is designed in the future by, for example, or household risk. This marks a significant requiring variable renewable energy producers departure for power sector investors who to provide balancing capacity. The EU experience previously would not typically assume such risk. offers lessons on how to design distributed Off-grid private investments can be scaled generation markets in developing countries for up by diversifying the risk they pose to supply customers who have unreliable grid access. using a range of products to both households Renewable-based distributed generation and and creditworthy firms. IFC’s InfraVentures standalone off-grid solutions face constraints fund, for example, uses seed equity to fund from lack of scale, incomplete regulation, and scalable distributed generation and off-grid credit-risk exposure. Companies offering off- pilot projects that incorporate disruptive TABLE 3.3 Mini-Grid Industry Growing Steadily As Performance Improves Key performance indicators 2018 2021 2025* Cost (calculated as the levelized cost of energy in dollars- $0.55/kWh $0.38/kWh $0.30/kWh per-kilowatt hour of a best-in-class solar hybrid mini-grid) Pace of deployment (number of mini-grids built per year 20-75 150 450 aimed at addressing deficits in access to electricity) Service quality (expressed in ‘uptime,’ the industry-wide standard based on the percentage 90-97% 99% 99% of time a system is up-and-running) Finance (total cumulative investment) $13 billion $16 billion $25 billion Enabling environment (average score for mini- grids framework in top 20 electricity access-deficit 59/100 64/100 75/100 countries, based on World Bank RISE index) Source: Energy Sector Management Assistance Program 2022. *2025 is a projection based on a business-as-usual scenario. Page 67 Leveraging the Private Sector technologies. This includes concessional Alternatives to grid-based access extension financing to help shoulder risk and ensure through mini-grids and micro-grids are thus adequate capital for early stage investments. becoming prominent in Africa and South Asia where many such communities live (Figure 3.6). Another initiative is Lighting Africa, an IFC– World Bank program active in 26 African Renewable energy mini-grids can improve countries which provides technical assistance access, affordability and sustainability. Their and financing to extend off-grid solar products costs have been declining since 2018 while their through private operators. Such approaches quality of service has improved (Table 3.3). These promote generation and distribution in an characteristics make mini-grids an attractive integrated and replicable format, reducing proposition for countries suffering from poor the risk of a supply-demand mismatch. quality electricity supply and low access rates (Box 3.8). They also make this segment For hardest-to-reach communities—including potentially attractive for private sector investors. those living in remote areas, in marginalized urban communities, and displaced populations— advancing on electrification goals is especially challenging and requires tailored solutions. Recommendations INTEGRATE Countries can leverage the private sector to scale-up integration of renewables and extend access to unelectrified populations. Recommendations, both cross-cutting and by market structure, are presented below. Cross-cutting ▶ Leverage the private sector to scale up energy storage technologies and hybrid renewable energy systems to provide stable, reliable, and cost-effective clean energy. ▶ Utilize private sector solutions for integrating unelectrified communities both through centralized grids as well as renewable energy-based distributed generation and off-grid solutions. ▶ For electrification of hardest-to-reach populations, the private sector has a major role to play in scaling up renewable energy-based mini-grids and micro-grids. The private sector can supplement public investments and in tandem help drive up access rates while meeting sustainability goals. ▶ In many countries mini-grids are more cost effective than grid extensions but remain unaffordable for the poorest. Development finance institutions can provide countries with upfront investment capital to make such access more affordable. Innovations in financing such as flexible payment options can help too. National rural energy agencies should consider including mini-grids in existing subsidy programs. Tanzania has done this, for example, through a per-connection subsidy for mini-grids. REPURPOSING POWER MARKETS Page 68 Vertically Integrated Utility (VIU) ▶ Countries with VIUs need to create a supportive regulatory environment that ensures energy storage developers can align their plans with national energy goals and targets including with renewable energy and storage mandates (Table 3.1). ▶ VIUs with deficits in access to electricity and lack of reliable supply should scale up renewable energy-based distributed generation and off-grid solutions. ▶ To address deficiencies, VIU countries can consider allowing the private sector to enter the off-grid space to provide services to hard-to-reach rural communities. Where the private sector is permitted to provide power in rural areas, authorities should have in place an appropriate tariff framework for rural service providers, key performance indicators along with an incentive framework for achieving them, and an appropriate investment framework. Single Buyer Model (SBM) ▶ Storage technologies provide valuable ancillary services such as spinning reserve and voltage support. SBM countries need to ensure that energy storage developers are appropriately compensated, procurement processes are clear and transparent, and storage is legally integrated with other energy assets. ▶ To procure hybrid systems, countries with SBM can utilize competitive auctions tailored to the business model, with selection criteria based on least-cost capacity, or energy bids over the contract’s duration. Contract structures must balance incentives between producers and buyers. ▶ Standalone renewable energy-based systems should emanate from a government-supported off-grid strategy that incorporates local characteristics, innovative financing structures, and incentives for solar home system providers such as various tax exemptions and import duty waivers. Wholesale and Retail Competition (WRC) ▶ The creation of an ancillary services market alongside the competitive wholesale market can be instrumental in scaling up batteries in WRC countries. Batteries’ participation in this market segment to provide frequency regulation and spinning reserve creates another revenue stream. ▶ Time-of-use and net metering policies can incentivize utilities and consumers to optimize their energy usage and to integrate renewable energy, creating opportunities for battery energy storage systems participation. ▶ Utility-scale hybrid storage projects are growing in countries with organized wholesale/retail markets. However, it can be difficult for market and system operators to find efficient and reliable ways to integrate and operate these technologies. Hybrid generators need to be effectively represented in the market- clearing software used to clear bids in day-ahead and real-time markets, and dispatch models that use advanced mathematical techniques to model the dispatch of power plants. ▶ Behind-the-meter policies can incentivize scaling up of renewable energy-based distributed generation under organized retail market structures. Distributed generators can be integrated into the wholesale and retail markets by allowing localized retail markets to be set up through peer-to-peer trading. Page 69 Enabling the Private Sector 4 Enabling the Private Sector KEY INSIGHTS Countries are stepping up efforts to repurpose their power markets as they pursue more affordable and sustainable energy for all their population. Increasingly they are harnessing the private sector to achieve these goals. As the power sector continues to be transformed by three overarching trends— decentralization, digitalization, and decarbonization (the 3Ds)—countries need to adapt by repurposing their power market structures. While this is challenging, it also unleashes a wealth of opportunities. Chapter 3 showed how the private sector can be a critical and effective partner for countries in achieving UN Sustainable Development Goal 7—access to affordable, sustainable, reliable, and modern energy for all. Chapter 4 outlines what the main barriers are to private sector engagement in developing countries. These barriers, most pronounced in less well-established markets, can be grouped into four broad categories: cost, complexity, corruption, and lack of cost recovery (4Cs). Action needs to be taken to overcome each one and ensure that risk is allocated appropriately across stakeholders. To entice the private sector to engage more, key areas where progress is needed include design and transparency of electricity procurement processes, governments’ willingness to create the right incentives for participation of private operators, and buyers’ track record and creditworthiness. The degrees of success in advancing on these fronts will determine what kind of private sector investor enters the market and at what scale. Chapter 3 discussed how countries’ responses should be guided by two underlying principles: innovate and integrate. Chapter 4 further details the specific actions governments can take to put and keep them on the path to more accessible, affordable, and sustainable energy. The actions are categorized under four broad themes (4Is): ▶ Institutionalize investor-friendly practices. ▶ Incentivize private sector participation through how power markets are designed. ▶ Invest alongside the private sector in key infrastructure. ▶ Identify opportunities for development partners to support this process. REPURPOSING POWER MARKETS Page 70 T o ensure access to sustainable, affordable, and reliable energy for all by 2030, financing for electrification from both public and non-public sources needs to be scaled up along with investments in renewables and in improving power grids. Existing infrastructure deficits and rising aspirations have created large investment gaps that cannot be met by the public sector alone (Figure 4.1)—it will require an unprecedented mobilization of private capital toward developing countries. As Chapter 3 highlighted, there are growing Private investors also need to be compensated opportunities for the private sector to support for the risks they take. When governments developing countries in repurposing power make a cost-benefit analysis of private sector market designs. At the same time, the public engagement, they often conclude that there sector’s roles of policymaker, regulator, and is not a compelling enough case for private sector planner are crucial to enable private sector involvement, with public options sector participation. This chapter identifies seeming more attractive. The ‘complexity’ the enablers and challenges to private sector constraint refers to the challenges associated engagement. The following are the four cross- with structuring of power projects in less- cutting action areas where policymakers established markets where the requisite can create a more enabling environment: technical expertise and financial markets institutionalize investor-friendly practices; are scarce. The prevalence of corruption in a incentivize the private sector through the market inhibits private sector engagement by design of power markets; invest alongside creating bottlenecks, notably forcing private the private sector in key infrastructure; sector players to expend resources in navigating and identify opportunities for development bureaucratic environments. Lack of scope partners to support this process. for cost recovery dampens investor interest, especially in distribution of electricity, where they directly interface with customers. Institutionalize Investor- Friendly Practices To address these constraints (the‘4Cs’), the following cross-cutting Market mechanisms provide the basis for measures should be taken: greater mobilization of private investments in power systems but are not sufficient Implement transparent regulation and to attract investors—explicit reform is procurement practices. needed in tandem. Four constraints—cost, Strengthen technical capacity and complexity, corruption, and lack of cost independence of the sector regulator. recovery—limit private sector engagement, especially in less-established markets. Prioritize reforms that enhance financial sustainability and creditworthiness of A project’s cost is determined by capital power utilities. expenditure, operations and maintenance costs, and upfront costs incurred in preparing it. FIGURE 4.1 Projected Clean Energy Investment Needs by 2030 and Constraints on Public Investment ANNUAL INVESTMENT INCREASE REQUIREMENTS TO RELATIVE TO , B , B + % One Earth Climate Model , B + % BNEF Net Zero Scenario , B + % IRENA . Scenario ENHANCE ROLE FOR PRIVATE SECTOR FISCAL POLITICAL INNOVATIVE Limited fiscal space and Scarce public funds The power sector is in a elevated borrowings compete against other period of transformative constrain scope of public governmental priorities technological change sector investment in major like health and education State owned utilities infrastructure projects Public subsidies and are less able to adapt tariffs to consumers distort energy markets Source: Adapted from REN21 Global Status Report 2023 Note: The graph depicts three different scenarios for annual investment requirements to 2030 in the clean energy sector. These scenarios represent varying levels of ambition and the associated financial needs. The One Earth Climate Model represents the highest level of ambition, requiring an estimated $1,865 billion annually by 2030 to meet global climate targets. This scenario assumes rapid and extensive decarbonization efforts to limit global warming to 1.5 degrees Celsius. The Bloomberg New Energy Finance (BNEF) Net Zero Scenario estimates that $1,400 billion annually is needed by 2030 to achieve net-zero carbon emissions by 2050. This scenario considers moderate policy and technological advancements. The International Renewable Energy Agency (IRENA) 1.5 Scenario estimates that $1,300 billion annually is required by 2030 to meet the 1.5 degrees Celsius climate target. This scenario involves significant shifts toward renewable energy and energy efficiency, albeit with a slightly lower investment requirement than the One Earth Climate Model. Transparent regulation and procurement cause long project delays that can lead even the processes are essential for attracting private most determined developers to walk away. investors. Public procurement processes in When electricity generation contracts are the electricity sector are prone to established negotiated out of the public eye, the result can vested interests such as incumbent utilities be a poor deal for the sector and consumers. and fuel suppliers seeking ways to ensure they Qualified private sector investors, especially benefit from new contracts or prevent outside first-time foreign investors, can be deterred by parties from participating in the sector. When complex and uncertain award processes, with a sector develops a reputation for corruption corruption often playing a role. Lead times to and cronyism, it can be a major disincentive prepare are often long (in some markets, two for private operators to enter the market. years or more) and expensive (such as high In such cases independent power producers due diligence costs) as the developer needs (IPPs) are usually relegated to operating on the to invest resources putting together a bid and sector’s margins, in smaller-scale renewable managing construction, environmental and energy generation or off-grid solutions. In some social, and other project development risks. countries, only politically connected private The prevalence of unsolicited bidding can sector companies operate—enjoying benefits keep experienced qualified investors out of such as tax breaks, subsidized loans from state- the market as they need to know that their owned banks, and preferential access to assets bids will be evaluated fairly before investing being privatized. These companies have vested time and money in project development. interests in the existing government and try to stop new players entering. As a result, the sector On the other hand, having a transparent suffers from restricted competition, resource procurement process facilitates private inefficiencies, and limited growth opportunities. sector engagement by limiting transaction costs, reducing the complexity of the bidding With a power project, the procurement process process, ensuring fairness in selection of starts with choosing a company or consortium bidders, and eliminating or at least reducing responsible for a high-value, immovable asset opportunities for corruption. A fair process over a long period. It covers development and reassures investors that the public contracting design and moves through finance, construction, authority will assess the projects and make commissioning, operations and maintenance, awards based on honest contracting practices. and, finally, the end of economic life phase of repowering or decommissioning. The design Some countries have embraced technological of the procurement process is critical given innovations to improve their procurement the long-term contractual nature of the practices. For example, electronic procurement agreement and the difficulty of quantifying (e-procurement) can make the process risks (current and future) throughout a more transparent, shorten procurement power project’s lifetime. Costly, complex, or cycles, and provide real-time data that aids corruption-plagued procurement processes better decision-making. E-procurement also Page 73 Enabling the Private Sector provides a clearer audit trail as each step private capital invested in IPPs); and stimulate in the process is well documented, making energy conservation and research and it easy to see which suppliers have bid for development (Figure 4.2).65 As private sector a contract and what they have bid. The participation grows, the regulator’s role is government of Kenya reformed its procurement increasingly that of honest broker, creating regulations in 2013, requiring all public entities solutions and building consensus between to adopt and implement e-procurement. The private investors and national stakeholders system included, for instance, built-in price including the government and consumers. referencing, meaning that bids that were To carry out these functions, a well-functioning above an indicated benchmark could not be regulatory agency needs to be equipped with accepted. Kenya Power is one state corporation adequate resources, an appropriate legal that adopted e-procurement systems. mandate to protect its autonomy, and clear Enhance role of regulators agency values and operating procedures. as honest brokers. Currently, 153 economies have an energy sector regulator, 97 of which have been established Companies and consumers create power in the past 25 years (Table 4.1). Their level of markets, but institutions and policies set resources, independence, and capacity varies the rules that shape them and can make greatly. Sub-Saharan Africa has the most them more likely to succeed. Strategic policy recently established energy regulators and interventions can spur the dynamic development 13 countries in the region do not yet have a of power structures, making them more sector regulator of any capacity. According to productive, environmentally friendly, and the World Bank’s Global Electricity Regulatory inclusive. Energy regulatory agencies have a Index,66 the lack of independence of the valuable role to play (and increasingly they energy regulator, especially with regard to are playing it) both in realizing overall sector independence from stakeholders and tariff objectives and enabling effective private setting, is a challenge in almost all countries. sector participation. They need to perform To address this, policymakers should prioritize a balancing act to protect consumers from improving the capacity of sector regulators. abuse by firms with substantial market power Private investors need credible, competent, while supporting investment by protecting accountable, and reliable energy regulators investors from arbitrary government action. to effectively function in the sector. Specifically, energy regulators should: Credible, creditworthy power constrain the exercise of monopoly power utilities can draw private capital. by incumbent suppliers; provide incentives that drive operational efficiency and improve To succeed, projects need a reliable, steady quality of service; optimize how the sector cash flow that ensures cost-recovery. In is structured; help expand the system in the power generation, the off-taker (buyer)’s least costly way (for example, by tapping credibility, reliability, and creditworthiness REPURPOSING POWER MARKETS Page 74 FIGURE 4.2 Role of Regulators in Achieving UN Sustainable Development Goal 7 Fostering innovation Promoting investment in grid promotion and support development and operation ELECTRICITY REGULATOR Ensuring consumer Strengthening market protection and design and regulation empowerment Source: Adapted from Raza (2023) are key considerations for investors. They That is why private generation investors need to minimize the risk of retroactive tariff and commercial banks prefer sectors where adjustments and payment delays that will a well-functioning power utility exists. challenge the financial sustainability of their In countries with VIU and SBM structures, the project. Their perceived risk that one of these off-taker is typically a public power utility. outcomes may materialize will be priced into However, in many developing countries power the PPA and is factored into loan assessment utilities are barely financially sustainable. and conditions attached to the loan agreement According to a World Bank database67 that by banks, which affects the amount of debt tracks the financial and operational performance financing available for the project. In certain of over 180 utilities in 90+ countries, less than cases, the off-taker’s riskiness could be perceived 40 percent of utilities generated enough as far beyond investors’ acceptability limits. revenue to meet their annual operating and They may therefore be unwilling to proceed debt service costs. Financially weak off- even with the incentive of higher returns. This takers deter private players from investing. could lead to underinvestment in the sector. Page 75 Enabling the Private Sector TABLE 4.1 Most of the Newer Energy Regulators Are in Africa Number of countries/territories that established an energy regulator in past four decades 11 10 16 18 16 21 15 Pre-1991 1991-2000 2001-2010 2011-2020 2021-2024 Sub-Saharan Africa 10 11 16 South Asia 2 4 North America 2 1 Middle East and North Africa 1 8 1 Latin America and the Caribbean 2 16 6 6 Europe and Central Asia 2 21 18 6 1 East Asia and the Pacific 15 2 2 Total 6 50 62 32 3 Source: Akcura (2024) Policymakers need to put utilities on a sounder has a solid record of covering imbalances in financial footing. A review of the database the off-taker’s balance sheets. In Indonesia, reveals that private power utilities in high- and investors are assured by a legislative mechanism middle-income countries have had slightly that requires the government to pay for any higher levels of cost recovery in recent years. budgetary shortfalls of its off-taker, Perusahaan Listrik Negara. In contrast, in Honduras, the To put themselves on firmer financial footing, off-taker National Electric Power Company utilities that are off-takers should become less has a history of payment arrears to generators reliant on government support to meet their (usually four to eight months late), including contractual obligations. In cases where off- reneging on support payments to the first solar takers are not creditworthy, investors will look at IPPs that entered the market in 2014–2015. the government’s track record in supporting and Elsewhere, governments’ decisions to reduce improving the financial health of these entities. generous administrative feed-in-tariffs such In Bangladesh, for example, the off-taker is as occurred in Ukraine and Viet Nam also had not yet creditworthy, but the government REPURPOSING POWER MARKETS Page 76 a negative impact, denting investor confidence Specifically, governments have an indispensable to enter a nascent, already risky market. role to play to ensure alignment among various sectors, local and regional governments, the In markets with limited private sector private sector, and other stakeholders. The engagement, an additional challenge is where an World Bank Group’s experience with rolling out off-taker lacks a track record to assure investors so-called least-cost geospatial electrification— and financiers that it will honor the PPA’s terms. which integrates grid, mini-grid, and off- To attract financing, the government may need grid solutions with each accompanied by to offer sovereign guarantees to reduce risk. investment financing prospectuses—provides Governments can leverage their higher credit valuable insights into how this can be done. ratings and larger balance sheets to support a large portfolio of projects. As the off-taker Originally developed around 2008–2009 in builds a track record of creditworthiness with Rwanda and Kenya, these plans have since investors, such guarantees become no longer been replicated in many countries. They are necessary. Examples of this kind of transition based on the principle of creating markets include Colombia, Mexico, Philippines, and through collaboration with multiple partners. Türkiye (discussed later in the chapter). They coordinate off-grid, mini-grid, and on-grid solutions with demographic and Countries can pursue private sector solutions geographic information system mapping in commercializing utility operations (Box techniques. This approach combines technical, 4.1). For example, state-owned utilities can economic, demographic, and demand- offer shares to strategic partners before an supply data to create comprehensive, initial public offering (IPO) or fully privatizing, data-driven electrification strategies. a solution that can work well for distribution companies. The strategic partner often executes Such a geospatial planning approach enables the turnaround plan—for example, Karachi governments to optimize allocation of Electric in Pakistan, which IFC supported with resources and prioritize investments across an investment. The strategic partner brings different electrification options. It does this by technical value, global knowledge, and capacity, making it easier for them to identify the most helping prepare the utility for the IPO or cost-effective and efficient ways to expand privatization. Sometimes the (partial) IPO itself electricity access, taking into account factors triggers efficiency improvements, although such as population density, terrain, existing utilities need to have reached a certain level of infrastructure, and renewable energy potential. efficiency before successfully launching an IPO. Moreover, these plans serve as powerful When governments plan and tools for attracting private sector investment. coordinate, private investors come. The accompanying investment financing prospectuses provide a clear roadmap for Another essential ingredient is effective potential investors, highlighting opportunities government coordination and planning. across different segments of the electricity Page 77 Enabling the Private Sector sector value chain. This transparency helps to align electrification efforts with broader and strategic vision can significantly development goals, creating a solid foundation enhance investor confidence, thereby for sustainable and equitable energy access. driving private sector engagement. By embracing a coordinated planning approach, governments can foster a more inclusive and collaborative environment for achieving universal access to electricity. This process not only optimizes resource allocation but also BOX 4.1 Burundi: Pioneer in Private Sector-Driven Electrification Burundi, a small landlocked businesses to the grid under a If successful, this support model country that is both fragile and pilot project supported by the can be replicated in other one of the world’s poorest, World Bank Group. The ultimate markets across Africa, the region faces significant challenges in goal is to sign a wider public- most in need of increasing its achieving universal access to private partnership concession population’s access to electricity. electricity. Just 12 percent of its that will connect over 70 percent Such a model underscores population has access and less of Burundi's population in the the critical role creditworthy than 2 percent in rural areas, one coming years, providing clean, utilities play in attracting private of the lowest rates in the world. affordable, and reliable power investment. The project also To address this, the government to as many as 9 million people. demonstrates the potential for signed an interim agreement private sector-led electrification IFC is providing $1 million in with the private electricity in challenging markets, especially early-stage development company Weza Power (a if it leverages available expertise financing which will also subsidiary of Virunga Power) in and development partners such support the company in raising 2023 to develop a new electricity as the World Bank Group. additional financing of up to $1.5 distribution utility, given the billion. The World Bank will also operational and financial support Weza Power through constraints faced by Burundi’s the ASCENT program, with $10 existing public utility REGIDESO. million earmarked for the pilot Weza Power, the first private project. The World Bank and IFC sector electricity distribution have also developed an energy company to operate at a sector reform roadmap and national level in Sub-Saharan identified investments to support Africa in over a decade, aims to both the public and private connect 45,000 households and sectors in scaling up access. REPURPOSING POWER MARKETS Page 78 Recommendations INSTITUTIONALIZE Cross-Cutting ▶ Ensure stable and transparent regulatory and procurement practices that set clear market rules which address cost, complexity, and corruption barriers in the sector, complemented with a legal system that enforces contracts on a fair and consistent basis. The more predictable government regulations and policies are, the lower the risks for investors. ▶ Implement programs to centralize permits and approvals, such as in ‘one-stop shops’ for energy project development to streamline permitting and licensing procedures. ▶ Strengthen technical capacity and independence of the sector regulator. Robust regulatory capacity is crucial to a well-functioning power market. It fosters greater independence in tariff design and implementation and stronger enforcement of market rules by national regulatory agencies. ▶ Create a regulatory framework that incentivizes operational efficiency while also ensuring the financial health of utilities. Utilities with strong financials can more easily invest in system improvements and access capital from private investors at lower interest rates, reducing debt service costs to ratepayers. ▶ Ensure longer-term financial sustainability of the off-taker(s) through: (a) tariff designs that effectively balance cost recovery and affordability objectives; (b) achievable and enforceable key performance indicators for distribution companies to improve service quality; and (c) least-cost and efficient planning of capacity additions. ▶ To balance affordability concerns with cost-recovery tariffs, countries can explore options to reduce costs of service delivery, for example through cost-effective procurement of generation, system planning to avoid wastage and oversupply, and managing non-technical losses through pre-paid metering. Vertically Integrated Utility (VIU) ▶ Strong regulators are critical to ensure that a VIU is delivering value for money given that VIUs face no competitive pressure from other players. ▶ Countries considering privatizing their VIU should select the private party through an open and transparent process. They can also consider public listings of state utilities. ▶ Countries considering transitioning out of VIUs should design a market structure that effectively addresses key barriers to successful private sector entry including addressing the 4Cs. ▶ Corporatization of state-owned VIUs can be a helpful step toward setting up a market structure with private sector participation. Some highly advanced power markets were launched on the back of corporatization. For example, when Singapore corporatized its VIU in 1995, it helped the sector to gradually transition into one of the world’s most liberalized electricity markets. Single Buyer Model (SBM) ▶ To attract IPPs, countries with SBM structures should avoid erratic and non-transparent decision making so as to reduce investors’ perceived regulatory risk and keep capital costs as low as possible. ▶ Competitive procurement should be favored. Countries should resist direct negotiations and unsolicited bidding as this can keep experienced qualified investors out of the market. The public contracting authority should assess projects and make awards based on honest contracting practices. Page 79 Enabling the Private Sector ▶ Strengthening the creditworthiness of the single buyer will attract more private sector investment to the sector and, concurrently, develop the complementary infrastructure needed to meet access objectives. Wholesale and Retail Competition (WRC) ▶ Regulators have a complex responsibility of monitoring all wholesale and retail players to ensure effective and fair competition with the objective of delivering the best outcomes for consumers. They should pay close attention to market shares, concentration ratios, customer switching rates, and price-cost margins. ▶ Continuous improvement in regulatory capacity will help the sector to adapt to evolutions in the market, notably those driven by technological innovation—for example, distributed generation enabling localized retail power markets. ▶ In countries with some competition at the retail level, regulated tariffs should be designed to enable utilities to recover costs with a reasonable rate of return, maintain the technical health of the electricity system, retain and expand staff as needed, and expand infrastructure to meet growing and unmet demand. ▶ In countries with full retail competition, the regulator should closely monitor the retail market to ensure costs are efficiently and fairly distributed, prevent undue price discrimination, and reduce risks to consumer welfare (e.g., energy poverty). Incentivize Private Sector during decision-making, implementation, and oversight phases. The objectives of Engagement the public and private stakeholders must The public sector can incentivize private sector be aligned. This can be difficult given the participation through a range of measures existence of often competing objectives: within each market structure. In challenging profit and revenues for private investors, cost country environments, IPPs can be difficult recovery of the project tariff for the off-taker, and costly to develop, albeit not necessarily affordable tariffs for the end consumer. more so than projects of a vertically integrated Governments consequently need to provide the power company. Policymakers need to provide appropriate incentives. Especially in markets with appropriate incentives including creating limited private sector engagement, governments targeted procurement and revenue streams to may have unsound expectations about the cost encourage private sector investment, especially of projects. They often compare projects with for renewable energy. They can deploy a range the costs of service from existing assets that are of risk mitigation tools to lower perceived risks fully amortized or were funded by subsidized and associated costs for the private sector. loans from state banks. Such a comparison is Political buy-in is critical. flawed as new assets developed by the private sector face a different cost structure—including Without it, sector policy is little more than a financing costs, legal fees incurred in drafting wish list. Execution of power projects is complex and negotiating contracts, and costs of applying and requires coordination and agreement for different permits and licenses. Investors also among multiple stakeholders, including need to be rewarded for the risks they incur. REPURPOSING POWER MARKETS Page 80 In challenging markets, long-term contracts Policymakers need to optimize compensation such as PPAs are often used to identify and models for distributed and utility-scale allocate risks among stakeholders (Box 4.2). renewables to accelerate private sector investments. An array of procurement measures Government guarantees are not usually under different power market structures have necessary in markets where the private sector been adopted globally to mobilize private has already been operating, especially if the capital for solar and wind (Figure 4.4). country has a good track record of meeting its contractual obligations to the private sector with Historically, feed-in-tariffs (FiTs) were widely limited retroactive changes to contract terms. In used by governments to promote the low- more established markets, the private sector is carbon generation of electricity by providing more willing to take on risks, including wholesale price certainty and thus investment security to market price risk (Chile, Colombia, Mexico, developers of renewable energy sources. Under Philippines), currency risk (South Africa), and a FiT, utilities pay a certain tariff for deliveries technology risk (Philippines, Türkiye). The needs of renewable energy. Tariffs are set by law for of international and domestic investors can a defined period. Some include a mechanism differ. Domestic players tend to be more familiar by which the tariff declines over time. FiTs with the political landscape and have links with have been used under all types of power domestic banks, especially state-owned ones. market structures. Several emerging markets They also tend to be more willing to enter implemented FiTs to kickstart renewables, such into a PPA that international investors would as Egypt in 2017 which was supported by an IFC- consider non-bankable, and they can leverage led $653 million financing package to construct comparative advantages by having the means, 13 independent solar photovoltaic projects. through local banks, to better manage risks. The FiT model is becoming less used, however, To scale renewables, create targeted particularly for onshore wind and solar procurement and revenue streams. technologies as their costs have decreased and become more competitive. As competitive Since 1989, 152 economies have introduced procurement models become more favored, private IPPs to the power generation segment contracting authorities are shifting away from of their market. Countries have differed greatly FiTs in favor of price competition. There are a in the type of technology and energy source few exceptions. FiTs can be useful where the deployed by their first IPP and trends have market for renewables is nascent or when the also shifted over time (Figure 4.3). Where technology has high project development costs previously, IPP entrants were primarily thermal not included in auctions.68 FiT programs should or hydropower generators, since 2021 the be designed to avoid long-term PPAs based first IPP entrants have predominantly been on high tariffs (even if justified by costs), they solar. For example, among the 19 countries should have caps on participation, and should whose first IPP project is currently under entail sector-wide planning and forecasting preparation or construction, 15 are solar IPPs. capabilities to avoid over-contracting. Page 81 Enabling the Private Sector BOX 4.2 Structuring Power Purchase Agreements to Lower Investor Risk Power Purchase Agreements (PPA) can as capacity payments (a fixed amount paid for make private sector investments more available capacity), which allow the IPP to cover bankable by considering the contractual its fixed costs (debt service, fixed operating costs, risks that projects pose, including: agreed equity return) with the capacity charge. Termination risk: If the purchaser of power— Macroeconomic and currency risks: Both the off-taker—terminates power off-take or lenders and private sponsors will hesitate to a concession agreement, project sponsors invest in a country with fiscal issues such as high may be left without recourse to the market inflation out of concern that their investment to recoup their investments. Contract terms could be depreciated. Also, if the project’s costs (the PPA or a concession agreement) should are in a foreign currency but its payments under give private investors clarity as regards the the PPA are in the local currency, there will be a obligations of the relevant state entity to currency mismatch. To avoid subjecting the power compensate them if the contract is terminated producer to currency risk, investors may ask that for reasons other than the private investor's fees and tariffs be either denominated in, or linked fault. For example, the contracting entity to, an exchange rate of the currency of the power could provide a termination payment to cover producer’s debt. Some countries do not allow the IPP’s outstanding debt to lenders. currency guarantees. For example, Ethiopia at the point of transitioning to a Single Buyer Model Curtailment risk: Curtailment occurs when structure did not allow this, which affected the the off-taker reduces or restricts electricity bankability of its debut solar independent power delivery from the generator to the grid. It can producers. Others have refrained from issuing occur for a variety of reasons, including: strains such guarantees based on negative experiences— to the network because of variability in power Thailand, for example, after the Asian financial crisis generation (a particular problem with intermittent of the 1990s. Such policy positions or practices on renewables); system-wide oversupply where the guarantees can be deal-breakers from a bankability off-taker must curtail some generators to bring perspective, especially when illiquid local capital the system into balance; and local transmission markets prevent borrowing in local currency. constraints. Curtailment has significant financial consequences for the IPP, especially if operating Dispute resolution: International arbitration a merchant plant or if the IPP is paid based on is usually chosen because of its perceived the amount of electricity delivered rather than neutrality and rigor. Insistence on local available capacity under the PPA. The IPP’s debt arbitration can significantly reduce investors’ is structured based on projections of electricity interest as good contracts are meaningful only delivery. A gap caused by curtailment creates if they can be enforced. The effect of requiring risks for the lender because the company may local rather than international arbitration struggle to keep up with debt repayments. In is evident in Egypt’s 2014 debut renewables countries with a history of curtailment, private feed-in-tariff program, which closed only investors and lenders may require measures such one project despite the high tariff offered. REPURPOSING POWER MARKETS Page 82 FIGURE 4.3 Significant Variation Between Countries in Technology Type for Independent Power Producers Energy source of first independent power producer No independent power producer Solar Coal Wind Diesel / Heavy fuel oil Biomass Gas Geothermal Hydropower Source: Akcura (2024) In power markets with an organized and are also used in Bulgaria, Croatia, and Serbia. wholesale market, an alternative to By the end of 2022, 83 countries had in place FiT—a feed-in-premium (FiP)—can be utilized. either FiT or FiP payment policies. Six countries Under a FiP, producers are paid the market price (Austria, Costa Rica, Finland, New Zealand, when variable renewable energy is dispatched Switzerland, and Uganda) phased out FiTs in and then compensated through a premium 2022 while another six (Bulgaria, China, Ireland, for the difference between this market price Mauritius, and South Africa) brought them back and the existing FiT. FiPs were adopted in again after previously removing them.69 South the Turkish wholesale market as a support Africa announced the reintroduction of FiTs mechanism for renewable energy investments for solar to tackle a series of rolling blackouts. Page 83 Enabling the Private Sector FIGURE 4.4 Options for Procuring Renewables Amount of solar and wind procurement, 2023–2024, gigawatts ld or a a W ic ic er c er he ifi Am Am c ft Pa pe o th a tin ro in st ia or Ch Re Eu As La N Unidentified 10 5 4 Utility owned 2 18 Competitive auctions 35 40 5 18 5 Corporate power 10 12 15 22 purchase agreement Fixed tari s and premiums 10 300 3 3 Utility power 2 3 5 2 purchase agreement Merchant and others 2 3 Source: IEA (2023b) REPURPOSING POWER MARKETS Page 84 Thailand introduced a 25-year FiT for solar proposals.70 Nontransparent procurement photovoltaic and solar-plus-storage in 2023. exposes PPAs to risks of renegotiation, corruption allegations, and cancellation, as Renewable energy auctions seen historically in various countries including are becoming more popular Guatemala, Indonesia, Pakistan, and Tanzania.71 in emerging markets. Competitive tendering obliges IPPs to earn contracts through demonstrated cost and These auctions have considerable merits over technical merit rather than connections and FiT mechanisms, including an ability to produce this can lower costs. Best practice renewable highly visible price signals that can affect energy tenders employ two-part PPA tariff markets more broadly. They have demonstrated structures with payments made for making their effectiveness as a pass-through mechanism capacity available combined with marginal for competitive technology costs in the wind cost-based energy rates.72 Availability charges and solar segments in all types of market provide revenue certainty to cover IPP capital structures. Argentina, Brazil, Chile, India, Mexico, and fixed operating expenditures, enabling and South Africa have had success with these project bankability. Energy rates based on actual auctions, adding a great deal of renewables- generation align dispatch with system needs, based capacity with downward trends in price. avoiding unnecessary curtailment. Competitive In Sub-Saharan Africa, the use of competitive tendering also allows for the discovery of bidding processes to procure grid-scale solar efficient pricing through competition and photovoltaic energy is emerging as the preferred transparent risk allocation to the parties best mode of procurement. From a baseline set in able to manage them.73 The IFC-supported 60 South Africa about a decade ago, solar auctions megawatt Kampong Solar project in Cambodia have since been implemented in countries demonstrates the benefits of competitive including Benin, Ethiopia, Malawi, Namibia, procurement. Developed through public- Senegal, Uganda, and Zambia. Other countries private collaboration, it was the country’s are in preparation stages. These auctions have first utility-scale solar IPP project awarded helped lower tariffs from about 8 U.S. cents per through a competitive auction. The winning kilowatt hour in Zambia in 2016 to 2.6 U.S. cents tariff of $0.039 per kilowatt hour was about in South Africa in 2022. Renewable auctions are one-third the previous rate, delivering over $2 also becoming a tool for countries to transition billion in projected lifetime consumer savings. from VIU to SBM (Benin, for example) or for allowing countries with nascent SBM structures Market-driven procurement of solar and to gain further experience with IPPs (Malawi). wind generation is becoming more prevalent, especially in countries with organized, Under the single-buyer model, competitive competitive wholesale and retail markets. These bidding for IPP contracts can reduce renewable include modalities such as corporate PPAs generation costs compared to the alternatives between renewable producers and corporate such as bilateral negotiations with a selected customers, merchant projects where the generation company or accepting unsolicited Page 85 Enabling the Private Sector generators sell on the wholesale spot market, pegged to wholesale prices. The International and remuneration through certificate programs. Energy Agency estimates that these modalities Under a corporate PPA, a renewable energy will account for 17 percent of utility solar and generator can enter into a bilateral contract wind capacity expansion between 2023 and with a corporate buyer (off-taker). The various 202474 (Figure 4.5). Corporate PPAs currently are pricing structures for periods are agreed the main market procurement being deployed. beforehand, including fixed prices and discounts FIGURE 4.5 Feed-in-Tariffs Are Being Replaced by Market-Driven Procurement Share of solar and wind by primary procurement type, 2023–2024 forecast Utility owned % Merchant and others % Utility PPA % Unidentified % Corporate PPA % Market driven % Competitive auctions % Fixed tari s and premiums % Source: IEA (2023b) REPURPOSING POWER MARKETS Page 86 Rise of solar and wind requires widespread grid failure, capacity can be procured rethink of compensation mechanisms. from designated power plants producing electricity from a completely unenergized state Increasing the share of utility-scale variable without needing any external power from the renewable energy can create revenue challenges grid; ‘contingency’ reserves, or capacity procured in current organized wholesale market from standby generators that provide frequency constructs. Solar and wind power generation and voltage control to balance the system; and do not have fuel costs since sun and wind are ‘synchronization’ services that prevent system cost-less thus the marginal cost of producing a collapse—for example, system elements that can unit of their energy is zero. As greater volumes offset sudden surges in demand. Traditionally, of zero marginal cost wind and solar enter the thermal generators and hydropower were system, wholesale energy prices decline and the main sources for such ancillary services. wind and solar’s declining capacity factors at Variable renewable energy is technically able higher penetration also result in lower capacity to provide essential ancillary services, including payments. Together, these declining revenue regulation and contingency reserves.75,76 streams across energy, capacity, and ancillary Policymakers can therefore encourage services markets create a ‘missing money’ renewables’ participation in ancillary services problem, meaning producers cannot fully markets. This can provide new sources of recover their costs through current wholesale revenue for power generators and new options market structures at higher penetration levels. for system operators to manage grid reliability. This missing money manifests as un-bankable merchant risk for new projects beyond initial Net metering has been pivotal in promoting subsidy and contract periods. Large-scale the adoption of distributed renewables, renewables therefore require supplementary particularly solar, by enabling consumers to revenue solutions and risk mitigation to attract produce their own energy and then providing adequate investment. Policymakers can explore them with credits on their bills up to the retail several tracks to address these including rate when they generate more than they implementing clean energy standards to provide consume. However, increasing distributed guaranteed renewable energy offtake and solar generation under net metering can redesigning payment mechanisms to better negatively impact utilities by reducing consumer compensate renewable capacity attributes. contributions for grid investment cost recovery. High adoption may also lead to suboptimal Policymakers will also need to reevaluate their solar dispatch by lacking real-time wholesale ancillary services resources as more variable price visibility. Net metered solar provides renewable energy sources enter the grid. less reliable capacity at higher penetration Ancillary services address immediate imbalances levels. Without visibility into real-time market between supply and demand and ensure power prices, solar customers lack the price signals system recovery to avoid power outages. These needed to optimize dispatch decisions and include ‘black-start regulation’ where in case of align production with system needs. Page 87 Enabling the Private Sector These limitations can be addressed by Policymakers can incentivize the uptake integrating wholesale markets for distributed of risk mitigation instruments, including resources. Direct participation in energy corporate PPAs or hedging products,xi to markets better aligns compensation with real- manage some of these risks. In many countries, time value, while providing access to ancillary corporations are procuring renewable service markets creates additional revenue energy under these corporate PPAs as a streams. To unlock savings made from reduced key part of their sustainability strategy. In grid investment needs, portfolios of battery 2022, the United States, India, Spain, China, and solar-sourced energy can be aggregated and Bangladesh were the largest markets to create virtual power plants that integrate for corporate PPAs, in descending order.77 diverse energy sources. Aggregation allows Corporate PPAs can exist under any type of individual power sources that alone are too market structure (Figure 4.6). For example, small to be of interest to utilities and system in 2022 an apparel company in Bangladesh, operators to become so, thus adding viable which has an SBM structure, announced the supply to the grid. However, changes to installation of a 2 gigawatt on-site solar facility existing net metering frameworks in countries to provide electricity via a corporate PPA. where they exist should be implemented Corporate PPAs are an increasingly attractive gradually to maintain investor confidence. option, given the growing demand by Risk mitigation tools are needed to incentivize corporations in both advanced and emerging investment. To mobilize the capital required markets for electricity generated from to deploy renewable energy at an accelerated renewables—both to meet sustainability targets rate, these need to be incorporated in emerging and to allow them to procure cheaper electricity. power markets to better match investors’ These new forms of off-take mitigate some risk and return expectations. Renewable of the risks associated with utility off-take by energy financiers face numerous risks as providing cashflow for a share of production, these assets have high upfront capital costs. a break-even ratio for lenders, and financial They also face real and perceived regulatory, mitigation when the price of electricity drops. political, macroeconomic, and counterparty In countries with organized wholesale and risks in many emerging markets given that retail markets, a stable regulatory environment these markets are relatively new with limited with tariff structures based on costs and non- experience financing renewable energy discriminatory third-party access can alleviate and a limited track record with IPPs. price volatility-related risks to renewable generators. In addition, the incorporation An example of a hedging product is a proxy revenue swap which allows the exchange of a fixed payment for the variable value of the xi  project’s revenues. This financial product has been used since 2016 for wind and is also becoming more common for solar projects. The swap can help stabilize revenue streams for wind and solar projects and provide increased certainty for investors as it hedges against weather-related risks that impact wind and solar power production. The first use of proxy revenue swaps for solar occurred in 2018 for two projects in Queensland, Australia covering a total installed capacity of 176 megawatts. (Brozynski and Tuenter 2018) REPURPOSING POWER MARKETS Page 88 of financial instruments such as electricity with bilateral contracts to buy and sell power futures and other derivatives can help market supply contracts for a specified future date. The participants to manage, or hedge, price risks in price stipulated in the contract is compared these more competitive market structures. to the spot market price as a reference. If the contract price is more than the reference In the Philippines, price uncertainty has been price, the buyer pays the seller the difference. hedged using voluntary forward contracts. The If the contract is less than the reference price, Green Tiger Markets, the country’s forward the seller pays the buyer the difference. power market operator, allows participants FIGURE 4.6 United States and India Are Leading Markets for Corporate Clean Energy Purchases Capacity increases in corporate power purchase agreements and main markets Global Capacity and Annual Additions Five Largest Markets in Gigawatts % Annual additions United States + % from % Other countries % Previous year's capacity India % Spain % China % Bangladesh % % Source: REN21 (2023); S&P Global Commodity Insights (2023) Page 89 Enabling the Private Sector These forward contracts, sometimes called exposure to the middle of the day, the period of ‘contracts for difference,’ help reduce price greatest certainty on solar radiation levels.78 volatility. Consumers can purchase cash-settled Several countries have created official futures forward contracts that provide them with markets to accommodate price volatility. electricity price certainty for months or years For example, Intercontinental Exchange lists in advance. They allow consumers, especially futures for Austria, the Baltic region, Belgium, companies, to more accurately forecast France, Germany, Italy, the Netherlands, electricity expenses which can free up capital Spain, Switzerland, and the United Kingdom for growth initiatives. Power suppliers can use as well as options for the German, French, forward contracts to secure better financing and Italian markets. However, insufficient by reducing their risk profile. This is especially liquidity is an ongoing issue in these markets. important for variable renewables. In August 2024, Green Tiger Markets launched ‘Solar Specific’ forward contracts that only have price Recommendations INCENTIVIZE Cross-cutting ▶ Create targeted procurement and revenue streams, especially for renewable energy. ▶ Optimize compensation models for distributed and utility-scale renewables. ▶ Increase visibility and transparency of sub-national, national, and cross-country programs such as procurement programs that increase capacity, especially for renewables. Programs should have targets that are enforceable with well-publicized auction dates and portfolio standards (obligations on distribution companies to buy an increasing share of renewable energy over time). ▶ Implement regulatory reforms that lower off-take payment risks. ▶ Deploy risk mitigation tools that lower perceived risks and associated costs for the private sector. Vertically Integrated Utility (VIU) ▶ Through regulatory incentives, policymakers should incentivize publicly or privately-owned VIUs to accommodate residential solar photovoltaic investments driven by net-metering programs. Countries concerned with potential negative impact that the emergence of prosumers may have on VIU revenues can explore decoupling utility revenues from sales, introducing fixed charges as a part of the final tariff, introducing prosumer charges on generated energy, or providing monetary incentives to the utility to expand distributed renewable energy generation. REPURPOSING POWER MARKETS Page 90 ▶ Policymakers should consider allowing corporate power purchase agreements (PPAs) between renewable energy generators and corporate buyers to exist alongside the VIU. ▶ Countries considering transitioning out of VIU should incentivize private sector entry through measures such as: legal or ownership unbundling of the VIU; designing PPAs that factor in risks private sector firms face when entering an untested market; and exploring risk-hedging instruments that mitigate such risks, including partial guarantees from development finance institutions. Single Buyer Model (SBM) ▶ Policymakers should enhance the bankability of PPAs (Box 4.2) given that well-structured PPAs that appropriately consider contractual risks help attract Independent Power Producers (IPPs) when operating an SBM structure. ▶ Providing well-targeted government guarantees on PPAs is necessary to ensure the long-term commercial sustainability of the sector in the absence of a creditworthy and experienced single buyer. As utilities gain experience with private sector contracting and develop a solid track record of meeting their contractual obligations, such government guarantees can be scaled back. ▶ Introducing competitive bidding for IPP contracts. This can reduce generation costs compared to contracting via bilateral negotiations or accepting unsolicited proposals. ▶ Consider allowing corporate PPAs—for example between renewable energy generators and corporate buyers, to exist alongside the SBM structure. Wholesale and Retail Competition (WRC) ▶ Most countries with WRC have achieved goals in increasing access to electricity. They can now focus on expanding market-driven procurement of solar and wind generation. These include modalities such as corporate PPAs between renewable producers and corporate customers, merchant projects where generators sell on the wholesale spot market, and remuneration through certificate programs. ▶ In countries where variable renewable energy generators cannot fully recover their costs on the wholesale market, policymakers can consider requiring supplementary revenue solutions and risk mitigation to attract adequate investment. Such solutions available include: implementing clean energy standards to provide guaranteed renewable energy offtake; designing new capacity market products that better compensate renewable capacity attributes; and evolving ancillary services markets to introduce products suited to renewable capabilities. ▶ Enable aggregated portfolios of distributed batteries and solar to act as virtual power plants, thereby unlocking the savings made from reduced grid investment needs. ▶ Ensure a stable regulatory environment, with tariff structures that reflect actual costs and non- discriminatory third-party access as this can alleviate merchant risks to renewable generators. Page 91 Enabling the Private Sector Invest Alongside the Private Sector network limitations that prevented the use of cheaper wind power from Scotland. In delivering sustainable and affordable energy to all, the public and private sectors need to Although developing countries constructed work in tandem to develop the requisite power around 1.17 million kilometers of new power infrastructure. Investments in transmission transmission lines in the past decade, the infrastructure (both national grids and pace of investment has slowed in the last interconnectors with neighboring countries) five years, declining on average by 7 percent need to be significantly scaled up, in particular per year excluding China.79 Most developing to connect new consumers and renewable countries rely solely on public funding such generators to grids. Investment is also needed to as fiscal subsidies, government grants, and upgrade existing (often aging) grid infrastructure preferential rate loans from state-owned to meet rising demand, to manage intermittency banks to develop transmission infrastructure. challenges stemming from incorporating more renewables, and to make transmission Policymakers can deploy various lines more resilient to climate change. strategies to direct more private capital to transmission infrastructure. Investments in grid infrastructure often lag investments in power generation. The queue Enhancing transmission infrastructure is of proposed renewable projects waiting for essential to achieving sector objectives on access to transmission infrastructure exceeds access, security of supply, and integration of installed wind and solar capacity in many renewables. While state-owned transmission countries. Grid enhancement lead times as companies are likely to maintain their critical role long as five or ten years hinder the expansion in financing transmission assets, private investors of power generation. Siting, permitting, and can help bridge the significant financing gaps. construction of major transmission projects To date, what private investment there has often face delays. Insufficient transmission been has tended to go toward distribution capacity is already resulting in renewable networks, not transmission networks. More generation being curtailed in some countries. investment in the latter would be welcome, For example, in Chile around 290 gigawatts given how stretched state-owned transmission of wind and solar generation was curtailed in companies’ financials are, especially in 2022. South Africa’s current transmission grid developing countries. Private institutional is facing constraints in some renewables-rich investors with long-term horizons may find this provinces resulting in difficulties connecting segment especially attractive given the stability new utility-scale solar and wind power plants. and predictability of regulated revenues. Nearly three-quarters of the United Kingdom’s total power curtailment cost in 2023 resulted Several different business models have been from having to activate gas power plants in deployed globally to engage the private sector England and Wales in response to transmission in transmission (Table 4.2). The National REPURPOSING POWER MARKETS Page 92 Grid Corporation of the Philippines, a private Second, investments needed for transmission consortium, in 2007 was granted a 25-year and distribution cannot be met without raising concession to operate, maintain, and expand the tariffs. Tariff reform remains a significant transmission sector. The Philippines’ state retains challenge in developing countries, where ownership of the country’s transmission assets. governments and regulators hesitate to For such a setup to work, a strong regulatory increase the network component of the end- framework needs to be in place to ensure that user tariff to keep prices more affordable. To the private counterpart has the right incentives manage these challenges, governments and to provide a quality grid—and service—while investors can learn from the experiences of realizing a reasonable return on investment. several countries including Brazil, Kazakhstan, Peru, and Philippines in attracting private Argentina, Brazil, Chile, India, and Peru attracted investment in transmission using novel private investment in transmission through approaches. Several adopted an independent so-called build-own-operate-transfer plans, power transmission model where typically where the private investor finances, builds, and the state-owned transmission utility enters a operates new transmission lines under a long- long-term contract with a private company term contract and then transfers them back tasked with the design, construction, and to the state. Under Argentina’s ‘public contest financing of a single transmission line or set method,’ a single market participant can propose of transmission lines. These contracts can be and develop transmission upgrades. This method structured as transmission service agreements, allows for cost-sharing with other market but can also take other forms such as lease or participants. In Brazil’s transmission auctions, line concession agreements. The independent the tender for each transmission project is power transmission arrangement can be awarded to the party offering the lowest implemented with limited or no regulatory allowed annual revenue below the maximum set reform and thus provides a potential option by the Brazilian Electricity Regulatory Agency. for countries to expand transmission Expanding private investments in networks infrastructure within a reasonable timeline. however faces several challenges. First, with At a policy level, transmission planning and a few exceptions, structural reforms in less deployment needs to keep pace with access advanced markets have retained transmission expansion requirements and projected and distribution as public sector functions. renewable capacity growth. For example, Currently, 137 economiesxii have not unbundled new transmission infrastructure should be power transmission in any form, mainly in the expanded to areas where renewable resources regions of Sub-Saharan Africa, Middle East and are abundant. Processes to site and permit North Africa, and East Asia-Pacific (Figure 4.7). projects must be accelerated. Grid operators can xii Unbundling is a structural reform that involves separating the core functions performed by power utilities or power companies. In the case of a Vertically Integrated Utility, it involves the separation of generation, transmission, distribution and (sometimes) retail functions. TABLE 4.2 Business Models to Promote Private Sector Investment in Transmission Infrastructure LONG-TERM BUILD-OWN- FINANCIAL MERCHANT DEDICATED CONCESSION OPERATE- OWNERSHIP LINE LINE FOR IPP* TRANSFER The private company The private The private The private New line obtains a company company company evacuating concession finances, provides part finances, power from to manage builds, and of the financing builds, and Independent and operate operates a new for a new operates the Power existing transmission transmission transmission Producer (IPP), transmission line, then line, but it line, with connecting to assets and is transfers it is built and revenues the existing responsible for back to the operated by coming entirely grid. expanding the government. the system from short- transmission operator. term wholesale grid in its area transmission of operation. market prices. Contract Long term Long term (often Indefinite, but Indefinite Same as IPP, duration (30-50 years) 25 years or more) possibly with a unless the line or indefinite buy-back option is transferred at for the system commission operator Contract All existing New line (or New line New line, often New line coverage and new lines sometimes a a high-voltage in a limited package of lines) direct current transmission zone (country, region) Revenue/ Regulated Majority of The plan Revenues from If line not tariff setting revenues, revenue defined is typically wholesale market transferred, generally by winning bid, applicable to the prices, sometimes revenues defined defined annually for the entire system operator, supported by as part of IPP and subject contract e.g., congestion price mechanisms contract payment to periodic rents or regulated (e.g., cap-and- regulatory review revenue floor program) Who funds Private sector Private sector Private sector and Private sector Private sector capital system operator expenditure? Applicability Limited Yes, if the line Yes Yes, but requires Not to inter- in each of the restructured recommended connections borders is based markets and a since this implies on a build-own- primary model cross-border operate-transfer for multilateral integration of scheme. power trading specific assets instead of grid integration Global Philippines, parts Argentina, Denmark and Australia, Applies globally examples of Europe Australia, Brazil, Germany Estonia, Finland, Chile, India, Peru, United States United Kingdom, United States Sources: World Bank, “Linking Up: Public Private Partnerships in Power Transmission in Africa,” 2017; adapted from International Energy Agency, “Attracting private investment to the electricity transmission sector in Southeast Asia,” 2020. REPURPOSING POWER MARKETS Page 94 utilize scenario modeling to forecast optimal As with power IPPs, investments in transmission expansion requirements over the next decade. infrastructure can leverage corporate off- The optimal path forward requires holistic power takers. For example, there could be a new system planning and cooperation among all discovery of a commodity or development of stakeholders. The development of generation an industry in a region of a country with little and transmission assets cannot continue in silos. or no transmission infrastructure. The private Getting the timing right on generation and grid sector could be engaged to build a transmission investments will be critical to meet access and line primarily for this demand center benefiting decarbonization objectives cost-effectively. from the creditworthiness of the industrial companies. An example of this is Zambia and the FIGURE 4.7 Transmission Operator’s Structure Varies by Region Type of transmission unbundling No unbundling Functionally unbundled Legally unbundled/Independent Transmission Operator Independent System Operator Ownership unbundled Source: Akcura (2024) Page 95 Enabling the Private Sector Copperbelt Energy Corporation. Another option is to leverage large BOX 4.3 demand centers such as foreign buyers or regional power pools to Africa’s Experience in Building generate revenues for transmission Regional Wholesale Power Markets investments. The Southern Africa Improving cross-border trade can be a powerful tool Power Pool example (Box 4.3) to improve electricity access and reliability in emerging illustrates how investments markets, while also supporting decarbonization. Africa can be anchored in regional is home to several regional power pools, founded by economic communities in each region. They support demand and electricity traded the gradual evolution from uncoordinated bilateral through a regional wholesale sporadic trading to a more cooperative approach market. These types of innovative that unlocks new power generation and connection financing mechanisms can unlock opportunities, improves efficiency, and helps stabilize constraints and crowd in public national grids (Figure B4.2). The level of trade and and private sector financing. competition in these power pools varies considerably. A more traditional approach, Figure B4.2. African Regional Power Pools one especially common in VIU Central African Power Pool and SBM structures, is to rely Comité Maghrébin De L’electricité COMELEC on private financing of publicly Eastern African Power Pool Southern African Power Pool owned or managed assets. This West African Power Pool can take several forms including: the transmission system operator raising private sector financing to invest in transmission infrastructure; granting a long- term concession to a private company to operate and maintain the transmission network while the public utility maintains ownership; and entering a build- own-operate-transfer agreement with a private investor to develop a single new transmission line. Financing is optimized under this model if the system operator is commercially run and creditworthy. Continued on Page 100 REPURPOSING POWER MARKETS Page 96 The Southern African Power Pool (SAPP) is The SAPP day-ahead market is facing liquidity and the first and the most advanced of its kind in transmission capacity constraints (Figure B4.3). Africa. Since its establishment in 1995, SAPP Several renewable power projects are being built has advanced beyond bilateral contracting in the region intending to sell on SAPP which will to become a regional competitive wholesale improve liquidity, including the 350-megawatt market that includes a day-ahead and intra- Mpatamanga hydropower project in Malawi. day market. It has meanwhile established a On transmission infrastructure enhancement, sound governance structure at the policy and several key interconnections across three corridors operating levels and has developed functional (East, Central, and West) have been identified by multilateral competitive markets. In addition, it has SAPP. These will require investments of around established a coordination center that advises on $2 billion. The World Bank Group, along with the the feasibility of transmission arrangements for African Development Bank and other cooperating bilateral trade, operates the competitive markets, partners, supports SAPP through the regional and monitors the power pool’s functioning, transmission infrastructure financing facility, a $1.3 including whether it is following the operating billion mechanism that aims to unlock constraints rules. Since 2014 the World Bank has supported and crowd in public and private sector financing. SAPP through a program that deepens technical, financial, and legal transaction capacity in regional project preparation, funds project preparation, Figure B4.3. Volumes of Electricity Traded and supports member utilities and regional stakeholders on planning issues like renewables on SAPP Day-Ahead Market, By Year integration and promoting regional power trading. Gigawatt hours 2,000 1,830 SAPP illustrates how countries with a small 1,730 market size where the national off-taker faces 1,430 1,420 creditworthiness issues can leverage a regional market to transition to wholesale markets. Some 1,270 1,060 1,060 of SAPP’s features make it an ideal candidate to lead the transition to competitive wholesale markets across Sub-Saharan Africa. These include: 0 operating the only functional day-ahead market in the region where none of the national systems have established power exchanges, and operating a dollar-based trading system, one where the trading members have a strong track record of Source: Fleming (2023) settling bills, making it a creditworthy market. New independent power producers operating in SAPP countries that have financially constrained off-takers can turn to the creditworthy SAPP market to make projects more bankable. Page 97 Enabling the Private Sector Regional power markets are a to Georgia in times of peak demand in Georgia. powerful tool to increase investment. In this way, Georgia takes advantage of its abundant hydropower to generate export These markets can make the power sector more revenues from electricity trade while it benefits resilient to seasonal and short-term supply from import possibilities to maintain system shocks, lower costs, and expand renewable balance in peak demand times. Bilateral trade energy production. Cross-border trade in also occurs between states within a country, electricity allows countries to minimize supply India being a good example (Box 4.4). Such and demand imbalances by tapping more diverse structures are straightforward to establish, resources and by making it easier to manage but they limit the potential efficiency gains peak demand timing across geographies. At that accrue from more flexible multilateral the same time, these larger markets provide a trade arrangements that can better harness framework that often works better than smaller advantages of wider inter-regional diversity. individual markets for mitigating investment risks. Policymakers should thus enable their In Asia, several members of the Association development through institutions and policies. of Southeast Asian Nations (ASEAN) trading bloc are working to interconnect grids to The key ingredients needed for regional power advance decarbonization efforts. The Lao markets to succeed are a shared infrastructure, People’s Democratic Republic-Thailand- appropriate institutions, harmonized policies, Malaysia-Singapore Power Integration and regulations that coordinate cross-border Project, which became operational in 2023, system operation. Managing their commercial, kickstarted multilateral cross-border power technological, and regulatory complexities trade of up to 100 megawatts between Lao requires strong and consistent political and Singapore via Thailand and Malaysia commitment and high levels of coordination using existing interconnections. Singapore’s by the policymakers of participant countries. electricity retailer, Keppel Electric Pte Ltd, There are many different regional power market signed a two-year PPA with Electricite du designs from which countries planning to create Laos, Lao’s state-owned VIU, to import their own can borrow or adapt (Table 4.3). 100 megawatts of renewable energy. The Bilateral trade can be an effective way agreement is the first instance of multilateral to promote investment. Bilateral trading cross-border electricity trade involving four arrangements between countries allow them ASEAN countries. It is also Singapore’s first to balance supply and demand by drawing on renewable energy import agreement. their complementary resources. For example, Market-based models such as explicit or Georgia’s hydropower generators export implicit auctions can be adopted to allocate seasonally to neighboring markets such as interconnector capacity. For explicit auctions, Türkiye, where energy demand is high during the transmission rights to cross-border capacity summer months when Georgia has excess are auctioned ahead of real-time delivery e.g., electricity. Occasionally, Türkiye exports power REPURPOSING POWER MARKETS Page 98 monthly. Explicit auctions are a good tool for avoid this pitfall as they are conducted real time ensuring that capacity is not locked in by a few and capacity is allocated consistently ensuring players while also providing greater certainty least-cost dispatch. However, they require a to generators on the availability of and access wholesale power exchange as the transmission to interconnectors. However, on the downside capacity is granted in the order that parties they can tie up unutilized capacity that could clear the spot market (day ahead or intraday). otherwise be used in real time. Implicit auctions TABLE 4.3 Regional Power Markets Come in Many Forms and Sizes Select models of cross-border trading in electricity Bilateral, unidirectional power trade • Thailand imports from Lao PDR • India Inter State Transmission System Bilateral, bidirectional power trade (ISTS) • Turkey and Georgia electricity trade • Lao PDR-Thailand-Malaysia-Singapore Multilateral, multidirectional trade among Power Integration Project differentiated markets • Southern African Power Pool • SIEPAC Multilateral, multidirectional trade among • EU Internal Energy Market harmonised markets Unified market structure, differentiated • Nord Pool operations Unified market and operations • PJM Source: Adapted from IEA (2019). Note: PJM is a regional transmission organization in the United States. It is part of the Eastern Interconnection system serving all or parts of the U.S. states of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, and West Virginia, and Washington, D.C. Page 99 Enabling the Private Sector Western European countries have integrated their electricity systems by allowing implicit BOX 4.4 auctions of trading capacity among their electricity systems. Under this approach, Renewable Energy Auctions cross-border transmission capacity is of India’s Inter-State not explicitly auctioned but implicitly Transmission System available via power exchanges among India’s Inter-State Transmission System the participating countries. Cross-border promotes power-sharing among its states. To electricity is traded in real-time across support the initiative, India is developing a green participating power exchanges, allowing energy corridor that connects eight renewable energy-rich states (Andhra Pradesh, Gujarat, for price convergence among countries. Himachal Pradesh, Karnataka, Madhya Pradesh, Such harmonized trading structures Maharashtra, Rajasthan, and Tamil Nadu) to other foster more competition and enhance the states that lack renewable generation potential. resilience of the integrated power system. The program is a good example of how the They can accrue significant efficiency gains different public policy goals of renewables because regional market price signals integration, sustainability, and resilience enhance the efficient flow of electricity can be aligned. It simultaneously supports within the borders of the harmonized interconnection, the achievement of India’s market. However, these arrangements are renewable energy targets, and greater highly complex to design and implement. energy security for connected state grids. Deepening integration means more market To date, around 19.4 gigawatts of solar and 18.7 rules must be harmonized between the gigawatts of wind projects have been auctioned participating jurisdictions, which can entail by the Solar Energy Corporate of India (SECI), harmonization of wholesale market rules India’s renewables regulator. Winning bidders, as well as potentially ancillary service and in a reverse auction, sign a power purchase agreement with the central off-taker, SECI, which capacity markets. Such integrated regional then enters into a formal agreement to sell the markets require a strong regional mindset electricity to a state distribution company. among participants, robust institutional arrangements, and sophisticated governance IFC supported the development, construction, operation, and maintenance of a 300-megawatt tools to ensure effective market operation. solar farm in India that forms part of the system These different models operate under and continues to evaluate other investment a range of institutional structures and with opportunities. Developed in the northern state of Rajasthan, this project will sell power to SECI varying degrees of integration. For example, under a 25-year agreement at a tariff of $0.0316 multilateral trade can be conducted through per kilowatt hour. SECI will then supply the a loosely coordinated framework where power through the national grid to other states each jurisdiction retains its autonomy or with lower renewable generation capacity. through more integrated dedicated regional institutions. Overall, the deeper the level of REPURPOSING POWER MARKETS Page 100 integration, the greater the potential benefits affordability goals, but they need to invest in and the organizational complexity to manage the requisite infrastructure (interconnectors, the system and alleviate risks. Policymakers can transmission lines) and institutions to utilize the power of regional power markets manage regional trade effectively (Box 4.4). to meet sustainability, accessibility, and Recommendations INVEST Cross-cutting ▶ Co-develop national grids and new interconnectors with neighboring countries. ▶ Upgrade existing (often aging) grid infrastructure to meet growing demand, address the issue of growing intermittency of supply stemming from more variable (renewable) energy sources coming onto the grid, and make transmission lines more resilient to the effects of climate change. ▶ Develop business models that engage the private sector in power transmission systems, including through concession agreements, build-operate-own-transfer agreements, and financial ownership and merchant options. ▶ Enable regional power markets. To integrate power systems across borders (both between and within countries), the following elements are essential: investment in enabling infrastructure such as interconnectors, grid components, and grid synchronization; development of appropriate institutions and harmonized policies to co-ordinate how the system functions across borders; and deploying risk mitigation tools like capacity auctions to manage grid congestion. ▶ Ensure these assets are economically viable. Detailed cost-benefit analysis is needed on each project and participating countries should agree upfront how to share costs. One option is a ‘beneficiary pays’ principle, where costs are distributed according to each participant’s expected benefits. Alternatively, costs can be allocated based on political agreement. Having a central body that can facilitate cost allocation negotiations will increase the chances of establishing the necessary supporting infrastructure. Vertically Integrated Utility (VIU) ▶ VIUs can consider allowing private sector investment to build new transmission capacity or to rehabilitate existing transmission assets using a range of options, each one entailing a different degree of investment management by the VIU. ▶ For those considering transitioning to another market structure, they should consider unbundling transmission from the VIU and creating an independent transmission operator or an independent system operator with a separate balance sheet. ▶ When feasible, improving cross-border trade can be a powerful tool to mobilize financing while alleviating VIUs’ challenges with extending access and improving reliability. Regional trade, whether bilateral or through regional wholesale markets, presents opportunities to strengthen system governance and leverage economies of scale. Page 101 Enabling the Private Sector Single Buyer Model (SBM) ▶ Countries with SBM structures can deploy a range of methods to attract private investment in transmission infrastructure (Table 4.2). ▶ By participating in regional power pools, SBM countries can use trade to advance their green energy transition and improve energy security. Conducting least-cost power system planning optimized at the regional level helps ensure the appropriate design and development of the power pool. Policymakers should also ensure their utility is adequately prepared to trade through the power pool, including having the processes, systems, and personnel needed to establish trading units in the trading entity (this can be the single buyer). ▶ Sovereign guarantees and development finance institutions or donor support can help utilities to engage in, and harness the benefits of, regional trade and thereby contribute to strengthening creditworthiness. Currently, financial weakness and operational inefficiency in a single buyer engaging in cross-border trade can inhibit development of regional trade and make it challenging for them to raise the necessary debt financing. ▶ Allow third-party access to cross-border infrastructure to sector participants like independent power producers. Not allowing such access can significantly lower the economic viability of the infrastructure. Wholesale and Retail Competition (WRC) ▶ Policymakers in countries with WRC structures have a range of options for mobilizing private investment in transmission and interconnectors (Table 4.2). ▶ Ensure efficient and equitable allocation of cross-border capacity as this enables cross-border trade in electricity. Ideally, develop harmonized allocation rules or market tools to support coordinated capacity calculation and allocation mechanisms. Market-based models to consider include explicit and implicit auctions. Identify Opportunities to Leverage Over the past decade, DFIs have increased financing for renewable energy, from $12 Development Partners billion in 2010 to a record $55 billion in 2023. Development finance institutions (DFIs) Renewables’ share of total DFI funding for power such as IFC play a crucial role in unlocking markets has correspondingly grown from 27 investment and supporting infrastructure percent to 71 percent over this period, reflecting development in power markets in lower- and the prioritization of clean energy projects (Figure middle-income countries. They provide long- 4.9). Renewables financing, which includes term funding that helps bridge financing large hydropower, accounted for 54 percent of gaps, especially in countries with limited total financing during this period. DFI funding access to private capital. DFI financing flows for conventional thermal power generation has to the power sector from 2010–2023 totaled conversely declined—from $28 billion in 2010 to $709 billion (Figure 4.8). Investment totals $7 billion in 2023—reflecting a shift in support from DFIs are increasing, with financing to away from fossil fuels. Financing for transmission the sector peaking in 2023 at $78 billion.80 and distribution networks has fluctuated REPURPOSING POWER MARKETS Page 102 between $2 billion and $18 billion annually. DFI capital at the scale necessary to drive impact. financing continues to be crucial in catalyzing The 2023 World Bank Evolution Roadmap expansion of renewable power capacity. To fully outlines how IFC, partnering with the other achieve development goals, it is essential to World Bank Group institutions (IBRD, IDA, further enhance DFI support for modernizing MIGA) will ramp up efforts to enable private electricity grids and expanding access. sector solutions, mobilize private capital, and strengthen private sector development. 81 As a champion of private sector investment in new markets for seven decades, IFC is expanding DFIs increasingly are helping utilities its role beyond financing individual projects, as to manage their power sectors better. are other development partners. The enhanced role recognizes the increasing need to help Much of the support DFIs provide focuses policymakers and other investors to finance on improving utilities’ cost recovery through projects that enable and mobilize private better planning, reform of tariff systems, minimizing losses, and enhancing bill collection. FIGURE 4.8 Most Development Finance Today Supports Renewables Expansion Global trends in DFI financing to the power sector Billion Transmission and distribution Thermal and combined heat and power Renewables including large hydro Source: IFC based on IJ Global (2023) Page 103 Enabling the Private Sector Countries can especially benefit from advisory Mobilizing early-stage assistance on sector management and capital is critical. private procurement. Development partners can also support efforts to establish missing One major constraint to attracting private institutions and plug gaps in complementary capital to developing countries, particularly infrastructure by addressing transmission low-income and fragile and conflict-affected bottlenecks, network redundancy, and system ones, is lack of early-stage private capital. resilience (Box 4.5). Aligning sector-level Such capital is essential to support a project’s interventions with investments supported by development—for example, for conducting private investors creates synergies between risk assessments, environmental and social public and private activities and encourages impact studies, and project structuring to bring follow-up investments in pioneering projects. the project to financial close—and to pilot novel business models. DFIs can bridge the gap in early-stage support, supplementing the FIGURE 4.9 Investments Shift from Thermal to Renewable Power Generation Share of DFI financing to power sub-sectors % Transmission and distribution % Thermal and combined heat and power % % Renewables including large hydro % % Source: IFC based on IJ Global (2023) REPURPOSING POWER MARKETS Page 104 resources of sponsors, and provide upstream BOX 4.5 advisory support. Resources may include a concessional or grant component that pays IFC Future Grids Alliance— for the extensive work needed to (partially) Helping Energy Utilities de-risk infrastructure projects and initiatives Navigate the Energy Transition and bring them to a stage where they can The Future Grids Alliance is an IFC initiative be financed. It may also involve seed money that supports energy utilities in emerging to pilot technologies and approaches in new markets in navigating the complex challenges of markets, or financing of early activities that implementing a just energy transition, with a focus support project development. For example, on achieving universal energy access and managing IFC’s InfraVentures fund makes early-stage climate risk. As the cornerstone of power investments in private and public-private systems, utilities are the key player in leading the partnership infrastructure projects. It helps transition toward affordable, clean, reliable energy. However, they must contend with increasing pilot projects to provide proof-of-concept. impacts from climate change, new energy supply It is not always feasible to hedge project and demand patterns, and a global push for risks in developing countries because of universal energy access, all the while operating in complex political and regulatory environments. underdeveloped hedging markets or low liquidity. Certain risks cannot easily be The IFC-led alliance offers a comprehensive borne by any counterparty. Political risks— suite of solutions to help utilities overcome these expropriation of assets without indemnity, challenges. Members gain access to a global network, featuring IFC-organized events with political force majeure, breach of contract by technical experts and influential business leaders. the state and state entities—cannot easily These events foster collaboration and knowledge- be borne by the private investor and is often sharing among major power utilities in emerging transferred to the state through sovereign markets. Additionally, IFC provides a range of guarantees and undertakings. Some risks are advisory and project co-development services, embedded in the public-private partnership covering technical, climate, social, and sustainable contract, while others are institutionalized. finance aspects, and it offers innovative financial products, including sustainable debt, equity, Blended finance is a useful risk- mezzanine debt, local currency, and risk mitigation instruments. This financing supports investments in mitigation tool in the DFI kit. renewable energy, storage, network digitalization, Blended finance can play an essential role and grid expansion, empowering utilities to lead in reducing project risk, both through risk- the charge toward a sustainable energy sector. mitigation instruments and subordinationxiii (Box 4.6). IFC has increasingly been This refers to structuring a financing arrangement so that some investors, often development finance institutions, agree to take on a lower xiii  repayment priority, absorbing first losses to protect senior creditors. Page 105 Enabling the Private Sector BOX 4.6 Scaling Up Renewable Energy in Egypt Through Risk Mitigation and Partnerships In 2022, IFC and various priced at $0.02 and $0.03 per IFC provided $145 million in partners announced a $1.1 billion kilowatt hour, respectively, the direct debt financing and financing package for twin lowest rates in Africa and among helped mobilize an additional solar and wind construction the least expensive globally. $660 million in loans from projects involving independent development finance partners To enable competitive pricing power producers in Egypt. and commercial banks. and attract private investment The planned 560-megawatt on such an ambitious scale, as The combined funding allowed Abydos solar photovoltaic plant the mandated lead arranger, IFC the projects to optimize their and 505-megawatt Amunet was able to structure a tailored capital structure with maximum wind farm are Egypt’s largest solution for Abydos and Amunet leverage and minimal financing renewable energy projects to using interest rate swaps. This costs. It also resulted in record- date. They will generate over hedging instrument exchanged low renewable energy tariffs 4,000 gigawatt hours annually variable interest rate debt for for the region. The project once operational, enough to fixed interest rates, thereby demonstrates how innovative supply clean energy to over capping financing costs over risk management tools 1 million Egyptians, and will the long term. With the interest combined with collaborative reduce the country's greenhouse rate risk mitigated, IFC could partnerships can unlock climate gas emissions by 1.7 million tons then extend sizable, long-tenor finance for emerging markets. annually. Power from the solar loans to the project companies. park and wind farm will be deploying different forms of blended finance to This is enabling affordable tariffs in pioneering promote the development of renewable energy projects that stand a better chance of being in high-risk frontier markets. For example, commercially sustainable in the face of rapid subordinated blended finance debt has helped technological advances. There are also nascent meet the debt service cover that senior lenders risk-mitigation instruments (liquidity support require when offering non-recourse project or political risk insurance) in renewable energy. financing.xiv ‘Stapled’ senior concessional Between 2009 and 2023, IFC made about loans—offered as part of a package that includes 200 investments in grid-scale solar and wind commercially priced debt—enable credible energy projects of which about 13 percent have developers to take part in renewable energy a blended concessional finance co-investment. auctions in countries with no track record. The nature of IFC’s support has evolved in line A non-recourse financing instrument permits the lender to receive repayment only from the profits of the project the financing is supporting. xiv  The lender is only allowed to seize the collateral specified in the project’s financial agreement, even if its value does not cover the entire debt. REPURPOSING POWER MARKETS Page 106 with solar and wind market trends, from a focus and competition in power markets. Platforms on enhancing returns in early adopters that deployed by IFC in the power sector include: faced high technology costs, to reducing risk. Scaling Solar, which is focused on creating Government guarantees and undertakings a virtual marketplace for solar energy by are not always adequate to make projects standardizing project documentation. It bankable, especially when fiscal sustainability utilizes subsequent rounds of auctions in or governance is weak. In contexts where smaller markets to achieve scale. capital markets are deep and the potential RenovAr, a program aimed at expanding risk manageable, project sponsors can tap the Argentina’s electricity capacity through commercial insurance market for total or partial development of a bankable structure and coverage. When such conditions are absent, organizing an auction. The program has DFIs can take on this role. Among the World successfully deployed a comprehensive risk Bank Group institutions, the International mitigation package. Development Association, which works with the poorest and most fragile countries, and Egypt’s Feed-in-Tariff (FiT) program, which International Bank for Reconstruction and supports wholesale procurement for Development can mitigate risks through partial renewable energy projects. IFC supported risk or payment guarantees. The World Bank it by consolidating multiple transactions Group’s Multilateral Investment Guarantee into a streamlined process through Agency can provide insurance for political standardization of financing and security risks, while IFC can mitigate risk through a documentation. blended finance-based facility. Collectively, The World Bank complements investments these insurance products build investor in such platforms by initiatives aimed at confidence, widen the base of potential lenders, minimizing risk in the sector through: and lengthen the tenor of loans available regulatory reforms; enhanced planning of to the project from lenders (Box 4.7). capacity additions; facilitating the use of its New platforms help scale digital auction platform; building the capacity private sector investments. of public implementing entities; management of legacy contracting modalities; and specific Over the past few years, IFC has prioritized a measures to enhance the credit position of the more holistic, scaling-based approach that aims off-taker. Platforms enable countries to spread to increase bankable private sector infrastructure overhead costs of their engagements and create opportunities. Instead of focusing on developing the scale needed to make investing in power a single asset, this approach creates a pipeline market value chains economically feasible. of infrastructure projects. It relies more on platforms to scale up private capital mobilization as they tend to trigger greater standardization Page 107 Enabling the Private Sector DFI collaboration and more effectively in concert and at scale on these engagement is growing. issues.82 One focus of efforts will be to help deploy large amounts of private capital through Recently, there has been an uptick in local currency lending and foreign exchange collaboration between development finance hedging solutions. A digital co-financing institutions in pursuit of the UN Sustainable portal is also being developed, to be hosted by Development Goal 7 of more affordable, the World Bank, through which multilateral reliable, sustainable energy for all. In April development banks will share information and 2024, the World Bank was one of 10 DFIs to better identify opportunities to co-finance. announce their joint commitment to work BOX 4.7 Deploying Risk Mitigation Instruments: Djibouti Ghoubet Wind Project Djibouti, strategically located million in guarantees to two are playing in transitioning at the convergence of the international investors, Africa countries away from a vertically Red Sea and the Gulf of Aden, Finance Corporation and Climate integrated power market model. faces challenges in meeting Investor One. The investors The farm is expected to generate its electricity needs due to were part of a public-private 237,000 megawatt-hours limited natural resources. consortium that developed the annually, eight times Djibouti's Less than half its population groundbreaking 58.9-megawatt current electricity consumption. (42 percent) has access to Ghoubet wind farm, Djibouti's Beyond bolstering energy electricity and the country relies first independent power independence, it will reduce heavily on electricity imports producer. Operational since 2023, carbon dioxide emissions by from neighboring Ethiopia and the project's guarantees cover approximately 154,500 tons aging fossil fuel generators. up to 90 percent of investments yearly. The project can also Despite abundant wind, sun, and future earnings, guarding spur further foreign private and geothermal potential, the against such risks as currency investment, especially in country has struggled to attract inconvertibility and transfer renewable energy projects, foreign private investment, restrictions, expropriation, including additional wind with prospective investors breach of contract, and war and farms near Djibouti's port, and often citing lack of electricity civil disturbance. Through this solar and geothermal projects. as the primary constraint. investment, Djibouti transitioned These efforts align with the from the Vertically Integrated In 2020, the Multilateral government’s Vision 2035 plan Utility structure it had operated Investment Guarantee Agency— to develop the country and under since 1960 to a Single the World Bank Group’s underscore the vital role of risk Buyer Model. The project is a division for insuring against mitigation tools in fostering good example of the prominent political risks—provided $91.6 more sustainable energy. role that solar and wind power REPURPOSING POWER MARKETS Page 108 Some examples of DFI-led partnerships guarantee and insurance instruments that and resources that countries can reduce risk for energy transition projects tap as needed include: in emerging markets. ETAF will act as facilitator, coordinator, and knowledge World Bank and African Development hub, providing technical support, Bank partnership on electricity access mobilizing resources, and fostering in Africa: This joint initiative, announced collaboration. It will support feasible in 2024, aims to provide electricity access projects and mitigate investment risks to at least 300 million people in Africa by through innovative financing solutions, 2030. The World Bank will work to connect matchmaking of project partners, technical 250 million people to electricity through assistance, and project facilitation. ETAF‘s distributed renewable energy systems current project pipeline is in Africa, Asia, or the distribution grid, while the African Latin America, and small island developing Development Bank Group aims to connect states. an additional 50 million people. Africa remains the continent with the largest World Bank’s new consolidated gaps to fill on access. guarantee platform: The World Bank in 2024 launched a consolidated one- IFC-MIGA-IRENA partnership on stop guarantee platform that brings energy transition: Unveiled in 2023, the together all of its guarantee products and partnership between IFC, the Multilateral experts. The intent is to give its clients Investment Guarantee Agency and more transparency and certainty on the International Renewable Energy Agency guarantee process and to maximize the (IRENA) set up an Energy Transition limited capital available by streamlining Accelerator Financing Platform, or ETAF. these offerings. The platform focuses IFC has pledged $1 billion to the platform on innovation and includes off-grid and that IRENA is managing. IFC brings mini-grid solutions. The Nuru mini-grid its expertise by increasing the flow of solar project in the Democratic Republic private capital to ETAF projects, IRENA of Congo is a good example of where the leverages its membership to attract project platform will focus efforts. proposals, and MIGA contributes via Page 109 Enabling the Private Sector Recommendations IDENTIFY Cross-cutting ▶ Pro-actively identify areas where DFIs such as IFC can help tackle investment bottlenecks. ▶ Consider seeking DFI support in areas like capacity enhancement and private procurement. Development partners can, for example, help establish missing institutions and plug gaps in complementary infrastructure such as transmission bottlenecks, address network redundancy, and build resilience. ▶ Identify DFI-led platforms and resources that address their needs, including the recently launched World Bank and African Development Bank partnership on electricity access in Africa and the World Bank’s new consolidated one-stop guarantee platform. Vertically Integrated Utility (VIU) ▶ VIUs can tap DFI risk mitigation toolkits and financing options such as sustainability-linked loans to address local market constraints such as local banks reaching lending limits to the VIU, a limited capital market, or the non-creditworthiness of a VIU. ▶ Publicly owned VIUs considering partnering with the private sector can benefit from advisory support from DFIs on which approach or model may work best for them. ▶ VIUs considering transitioning to other market structures can receive advisory and technical support from DFIs, which draws from global best practice but also considers country context. Single Buyer Model (SBM) ▶ Countries with SBM structures that have underdeveloped hedging markets or low liquidity can access DFI blended finance products to minimize risk around projects, both through risk mitigation instruments and subordination. ▶ In countries that recently transitioned to SBM or where the single buyer does not yet have a good track record, DFIs can help bridge financing gaps through risk mitigation instruments (liquidity support or political risk insurance), early-stage support (including seed money to pilot technologies and approaches), and concessional financing or grants. ▶ To create bankable private sector infrastructure opportunities, SBM countries can participate in platforms that DFIs create to mobilize private capital at scale, especially for renewables. ▶ Policymakers can draw on DFI financing or technical support to develop regional power markets. REPURPOSING POWER MARKETS Page 110 Wholesale and Retail Competition (WRC) ▶ Policymakers in countries with a WRC structure can get technical and advisory support from DFIs to repurpose wholesale and retail markets in ways that respond to the overarching sector trends of decentralization, digitalization, and decarbonization. These could include investments or technical support to: develop demand response, for example using smart meters and smart grid investments; create tariff structures that incentivize the participation of prosumers in retail markets; and address supply bottlenecks by scaling up intermittent renewable energy generation and transmission, which can be done through policy support on permitting and licensing procedures and by scaling up investments in networks connecting renewables to the grid. ▶ Policymakers can benefit from DFI financing or technical support to develop regional power markets. Page 111 Conclusion and Recommendations 5 Conclusion and Recommendations T his report has charted how power markets have evolved over the past four decades and presented countries with options for repurposing them to better leverage the private sector to provide more sustainable, reliable, and affordable electricity to all. This chapter distills the key recommendations for policymakers, investors, and development finance institutions. Policymakers green bonds, sustainability-linked loans, and securitization can bridge the massive Policymakers should carefully assess how they investment gap in clean energy infrastructure. can advance in each of the six areas of action— innovate, integrate, institutionalize, incentivize, The private sector can help invest, identify (6Is)—in a way that works best integrate renewable energy and in their country context. They should leverage unelectrified communities. technological and financial innovations emerging from the private sector, incorporating the range The falling costs of energy storage technologies of technologies available while tailoring them and rise of solar-plus-storage hybrid systems to country and sector context. By engaging is enabling greater penetration of intermittent the private sector, countries can accelerate the renewables. Distributed renewable energy uptake of smart grid technologies, renewable solutions such as mini-grids and off-grid energy-based distributed generation and systems offer a complementary pathway to off-grid solutions, battery energy storage, extending access to electricity to remote, and hybrid solar systems. Mobilizing private underserved areas and the private sector can capital with financing instruments such as play a vital role in scaling up such technologies. REPURPOSING POWER MARKETS Page 112 To increase private investment, policymakers impact. While the precise measures countries may need to modify how their power take will vary depending on their power market market structures are designed. Specifically, structure, policymakers and regulators should they should institutionalize more investor- continually reassess and repurpose market friendly practices that remove the key designs in an open and transparent fashion barriers to private entry—cost, complexity, with appropriate levels of consultation. corruption, and lack of cost recovery (the Summary recommendations for 4Cs). Stable and transparent regulatory and policymakers, listed by market structure, procurement rules and practices are essential, are presented below (for more detailed as is a legal system that enforces contracts recommendations, see Appendix A): on a fair and consistent basis. Developing appropriate procurement and revenue Vertically Integrated Utility (VIU) streams that incentivize private investment in Transitioning out of a VIU structure can renewables and extending access is critical. improve sector outcomes in certain The public sector should continue to invest contexts. Improvements in access rates alongside the private sector in critical and power generation capacity have infrastructure and institutions, especially in been observed under more competitive transmission infrastructure. This dual investment power market structures. Policymakers approach is indispensable to achieving goals should evaluate whether such a on access, security of supply, and integration transition would work in their market’s of renewables generation. Policymakers should specific circumstances. also develop regional power markets by making Countries planning to transition out of the necessary investments and establishing the VIU should design a market structure that appropriate enabling institutions and policies. removes the key barriers to successful Public utilities will continue to play a critical private sector entry: cost, complexity, role in developing and managing transmission corruption, and lack of cost recovery (4Cs). networks and interconnectors. However, with public resources increasingly strained, Policymakers operating under VIU should policymakers should consider some of the consider renewable energy auctions or strategies presented in Chapter 4 to encourage other types of transparent competitive private investors to invest alongside them. bidding for independent power producer contracting. This will attract private sector Policymakers should reflect and identify how financing at scale and allow discovery Development Finance Institutions (DFIs) of efficient tariffs, in turn enabling can support them in meeting their goals. bankable projects. Countries should take full advantage of DFI toolkits and resources, as presented in Chapter 4, mobilizing private capital at scale to drive Page 113 Conclusion and Recommendations In certain country contexts, for example Countries should avoid locking power small island states or fragile countries, systems into a high carbon pathway there may be intrinsic inhibitors to moving through rigid long-term power purchase away from the VIU model at this stage. agreements with thermal generators. In these cases, policymakers can consider Countries using SBM should scale other forms of engagement with the up blended solar and storage power private sector such as putting the VIU purchase agreements to ensure more under private management or incentivizing continuous supply of electricity from private sector solutions in the off-grid intermittent renewable sources and enable segment (for example, mini-grids). round-the-clock availability of electricity. Single Buyer Model (SBM) Wholesale and Retail Competition (WRC) SBM has generally been a successful The WRC structure is observed to be the structure for increasing electricity access. most conducive to expanding renewable However, historically, improvements on energy and overall electricity supply. Each access came at an environmental cost. additional year in WRC is associated with Each additional year in the SBM structure a 3.27 percent increase in total installed was associated with a 3.92 metric ton capacity of electricity. This underscores the per capita increase in carbon dioxide potential of competitive electricity markets emissions. This downside occurred mainly to attract investment, increase efficiency, because until recently renewable energy and boost generation capacity. generation (especially solar and wind) was not cost effective for most countries. As In designing WRC structures, policymakers a result, most countries that transitioned should respond to the three overarching from VIU to SBM mainly relied on thermal trends: decentralization, digitalization, generators. and decarbonization. Doing so will help them meet UN Sustainable Development This is changing as solar and wind Goal 7—affordable, reliable, sustainable generation costs have significantly energy for all. declined. In countries with SBM, policymakers should utilize competitive To address the revenue challenges that auction mechanisms and a range of adding more renewables into systems market-driven procurement modalities poses, policymakers can consider the including corporate power purchase following: implementing clean energy agreements to scale up renewable capacity standards that provide guaranteed cost effectively. renewable energy offtake; designing new capacity market products that better compensate renewable capacity attributes; evolving ancillary services REPURPOSING POWER MARKETS Page 114 markets to introduce products suited to Investors should deploy their know-how, renewables’ capabilities; and implementing capital, and experience in developing countries locational marginal pricing to better to integrate unelectrified communities and reflect the value of congestion relief from variable renewable energy sources. Business strategically sited renewables. models and technologies need to be adapted to developing country contexts. They should Policymakers should create appropriate consider non-traditional sources of financing revenue streams to commercialize evolving and risk mitigation tools to make renewable technologies such as variable renewable energy projects more bankable and affordable. energy and battery energy storage These include sustainability-linked financing systems. In countries with organized instruments such as green bonds, green loans, wholesale markets, markets for ancillary corporate bonds, asset-backed securities, services can be created. Adoption of time- and venture capital. In countries with deep of-use and net metering policies can create capital markets and the where potential opportunities for participation in battery risks are manageable, project sponsors can energy storage systems. tap insurance markets for total or partial In countries with wholesale and retail coverage. Investors can utilize corporate markets, policymakers can accelerate the power purchase agreements to diversify transition from feed-in-tariff structures their revenue streams and hedge off-taker to more market-based instruments risks. Investors can also participate in futures especially for utility-scale solar and power markets and utilize other derivatives onshore wind where the technologies to manage or hedge price risks in countries are now cost competitive. with organized wholesale market structures. Investors Development Finance Institutions Effective partnerships between policymakers The many financial instruments and risk and private investors are essential to realizing mitigation tools that DFIs have created Sustainable Development Goal 7, especially should be scaled up. DFIs should deploy given the growing scarcity of public financing. their cumulative resources, financial and Private investors should engage more with credit enhancement tools to help developing developing country governments and clearly countries at both national and regional communicate what they need to enter new level to crowd in investment in clean markets. Such engagement will provide energy technologies. When tapping these policymakers with the market insights they resources, they should require proof-of- need to plan and may prompt them to remove concept, especially for new technologies entry barriers and alleviate sector risks. and business models in new markets. Investors should also actively engage with DFIs to identify areas of potential support. Page 115 Conclusion and Recommendations DFIs need to identify how they can best support policymakers in scaling up private sector investment. They should create their own pipeline of scalable, bankable private sector infrastructure projects, making full use of multi-participant platforms. They can also help reduce risk on investments by assisting and advising on regulatory reforms, planning capacity additions, digital auctions, bolstering the capacity of public implementing entities, managing legacy contracting modalities, and enhancing off-takers’ creditworthiness. REPURPOSING POWER MARKETS Page 116 Appendices Page 117 Appendices Appendix A Consolidated 6I Recommendation Cards for Repurposing Each Market Structure Cross-Cutting Innovate ▶ Leverage innovative financing tools (green bonds, sustainability-linked loans) that align financial incentives with sustainability objectives to scale up greater private sector investment for clean energy projects. ▶ Diversify the pool of financiers through venture capital, institutional investors, capital markets, and securitization, to expand the funding available for clean energy projects. ▶ Deploy innovative financing methods (e.g., outcomes-based finance) to improve affordability. ▶ Countries with growing intermittent renewable energy, need to scale up smart grid technologies to allow their electricity systems to run more efficiently, reducing the need for spinning or backup generators to handle demand fluctuations. ▶ Carefully consider the shifting role of traditional baseload generators (such as coal and gas power plants) in future power systems to align with decarbonization ambitions. The intermittent nature of renewable energy poses grid integration challenges that underscore the continued near-term need for flexible baseload assets to balance fluctuations and meet peak demand. ▶ New investments in non-renewable energy (especially thermal-fired power plants) baseload generation should be reviewed as part of a country’s holistic least-cost power model to ensure these projects are economically viable under scenarios with rising renewables generation and prevent over-investment that could lead to stranded assets. REPURPOSING POWER MARKETS Page 118 Cross-Cutting Integrate ▶ Leverage the private sector to scale up energy storage technologies and hybrid renewable energy systems to provide stable, reliable, and cost-effective clean energy. ▶ Utilize private sector solutions for integrating unelectrified communities both through centralized grids as well as renewable energy-based distributed generation and off-grid solutions. ▶ For the hardest-to-reach populations, renewable energy-based mini-grids and micro-grids can be scaled up. The private sector can play a vital role in scaling up these technologies, acting as a supplement to public investment to accelerate access and sustainability. ▶ There are many countries where mini-grids are more cost effective than grid extensions but are still unaffordable for poor people. Countries can seek support from development finance institutions (DFIs) for upfront investment capital to improve the affordability of these options. Financial innovation can also support affordability—for example, through the adoption of flexible payment options. National rural energy agencies can consider including mini-grids in their existing subsidy programs. For example, Tanzania adjusted its incentive program for rural electrification to accommodate mini-grids by providing a per-connection subsidy for mini-grids. Institutionalize ▶ Stable and transparent regulatory and procurement practices are needed that set out the rules of the market to address cost, complexity, and corruption barriers in the sector, complemented by a legal system that enforces contracts on a fair and consistent basis. The more predictable government regulations and policies are, the lower the risks for investors. ▶ Implement programs to centralize permits and approvals, such as in ‘one-stop shops’ for energy project development to streamline permitting and licensing procedures. ▶ Strengthen the sector regulator's technical capacity and independence. Regulatory capacity is crucial to building well-functioning power markets, and greater independence in tariff design and implementation and enforcement of market rules by national regulatory agencies is essential. ▶ Create a regulatory framework that incentivizes operational efficiency while also ensuring utilities' financial health. Utilities with strong financials can invest in system improvement and borrow capital from private investors at lower interest rates, reducing debt service costs to ratepayers. ▶ Ensure the longer-term financial sustainability of the off-taker(s) through: tariff reforms to ensure prices reflect the full cost of energy services; setting achievable and enforceable key performance indicators for distribution companies to improve service quality; and implementing least-cost and efficient planning of capacity additions. ▶ To balance affordability concerns with cost-recovery tariffs, countries can explore options to reduce service delivery costs—for example, through cost-effective generation procurement, system planning to avoid wastage and oversupply, and managing non-technical losses through pre-paid metering. Page 119 Appendices Cross-Cutting Incentivize ▶ Policymakers need to provide appropriate incentives, including creating targeted procurement and revenue streams to incentivize private sector investment, especially for renewable energy. ▶ Policymakers need to optimize compensation models for distributed and utility-scale renewables to accelerate private sector investments. ▶ Investors benefit from the ‘visibility’ of sub-national, national, and cross-country programs, including announced procurement programs of new generation capacity (especially for renewable energy) with enforceable targets, including auction dates, portfolio standards (obligations on distribution companies to buy an increasing share of renewables over time), and supporting regulatory reforms to lower off-take payment risks. ▶ Governments can deploy a range of risk mitigation tools to lower perceived risks and associated costs for the private sector. Invest ▶ The public sector should invest alongside the private sector in existing (often aging) grid infrastructure to accommodate increasing demand, manage intermittency resulting from expanding variable renewable energy generation sources, and enhance the resilience of transmission lines to climate change. ▶ Policymakers can pursue several types of business models to engage the private sector in transmission, including through concession agreements, build-own- operate-transfer, financial ownership and merchant options. ▶ Policymakers should prioritize the development of requisite investments as well as institutions and policies to enable regional power markets. Cross-border (both inter- and intra-country) power system integration requires several elements to function and to effectively manage the risks associated with integration. The main elements include: investment in enabling infrastructure (e.g., interconnectors, grid components, grid synchronization); development of appropriate institutions and harmonized policies that co-ordinate system operation across borders; and acquiring a set of tools to mitigate risks that arise from integration such as utilizing capacity auctions to better control grid congestion. ▶ Robust planning and project assessment need to be undertaken to ensure these assets are economically viable. A detailed cost-benefit analysis is needed to assess the project and to split the costs between the participating countries. Costs can be allocated according to the ‘beneficiary pays’ principle, where the costs are distributed in proportion to each participant’s expected benefits. Alternatively, costs can be allocated along lines that are based more on political agreement than economic efficiency. The existence of a central body to support cost allocation negotiations can enhance the chances of the development of the necessary infrastructure. Identify ▶ Policymakers should identify areas where DFIs such as IFC can play a role in helping to unlock investment bottlenecks. ▶ Countries that have strained capacity in sector management and private procurement can consider seeking support from DFIs. Development partners can support efforts to establish missing institutions and plug gaps in complementary infrastructure such as transmission bottlenecks as well as network redundancy and resilience. ▶ Policymakers can utilize DFI partnerships to mobilize DFI resources that are relevant to their needs, including the recently launched World Bank and African Development Bank partnership on electricity access in Africa and the World Bank’s new consolidated one-stop guarantee platform. REPURPOSING POWER MARKETS Page 120 Vertically Integrated Utility (VIU) Innovate ▶ By issuing debt securities such as corporate bonds or asset-backed securities, VIUs can access more financing than is available from commercial banks and potentially with better financing terms. ▶ Institutional investors such as pension funds, sovereign wealth funds, and insurance companies can be good sources for refinancing brownfield renewable energy assets of VIUs. ▶ By integrating bi-directional smart meters, VIUs can enable distributed renewable energy generation such as residential rooftop solar to sell their unused, locally generated power back to the grid and prepare for their transition to a more competitive market structure if desired in the future. ▶ VIUs or private sector off-grid operators can benefit from innovative approaches to off-grid energy financing including peer-to-peer lending and results-based financing. Integrate ▶ Countries with VIUs need to provide a supportive regulatory environment that ensures energy storage developers can align their plans with national energy goals and targets including renewable energy and storage mandates (Table 3.1). ▶ VIUs facing access and reliability issues can scale up renewable energy-based distributed generation and off-grid solutions. ▶ For the hardest-to-reach populations through grid-based access extensions or where grid extension is prohibitively costly, VIUs can utilize renewable energy-based mini-grids and micro-grids. ▶ Countries with VIUs that have access deficiencies can consider allowing the private sector to enter off-grid space to provide services to hard-to-reach rural communities. To enable private sector entry into rural power service delivery, policymakers should: develop an appropriate tariff framework; define key performance indicators and an incentive framework; and define the appropriate investment framework. Institutionalize ▶ The role of regulators is very important in countries with VIUs as there is no competitive pressure on the VIU from other players. Strong regulators are critical to monitor the VIU and ensure it delivers value for money. ▶ Countries that want to retain the VIU structure but are considering privatizing their VIU should select the private party through an open and transparent process. They can also consider public listings of state utilities. ▶ Countries that are considering transitioning out of the VIU structure should plan to design a market structure that effectively addresses key barriers to successful private sector entry including addressing the four main constraints—cost, complexity, corruption, and lack of cost recovery (4Cs). ▶ The corporatization of state-owned VIUs can be helpful as a step toward setting up a market structure with private sector participation. Some highly advanced power markets were launched on the back of corporatization. For example, Singapore’s corporatization of its VIU in 1995 helped the sector to gradually transition into one of the world’s most liberal electricity markets. Page 121 Appendices Vertically Integrated Utility (VIU) Incentivize ▶ Policymakers through regulatory incentives can incentivize the publicly or privately owned VIUs to accommodate residential solar photovoltaic investments driven by net-metering schemes. Countries that are concerned with the potential negative impact of prosumers (producer-consumers) on VIU revenues can explore decoupling utility revenues from sales, introducing fixed charges as a part of the final tariff, introducing prosumer charges on generated energy, or providing monetary incentives to the utility for expanding distributed renewable energy generation. ▶ Countries that want to maintain a VIU structure can consider allowing and incentivizing private sector investments in off-grid including renewable energy- based mini-grids. ▶ Policymakers can consider allowing corporate power purchase agreements between renewable energy generators and corporate buyers, to exist alongside the VIU. ▶ Countries that are considering transitioning out of the VIU structure should take necessary steps to incentivize private sector entry. These could include: legal or ownership unbundling of the VIU; designing power purchase agreements that consider risks of private sector entry into an untested market; and exploring risk hedging instruments to mitigate risks to private investors. These could include partial risk mitigation guarantees from DFIs. Invest ▶ VIUs can consider allowing private sector investment to build new transmission capacity or to rehabilitate existing transmission assets of the VIU through a range of options that entail different degrees of investment management by the VIU. ▶ VIUs considering transitioning to another market structure can consider unbundling transmission from the VIU to create an independent transmission operator or an independent system operator with a separate balance sheet. ▶ When feasible, improving cross-border trade can be a powerful tool to mobilize financing while alleviating access and reliability challenges for VIUs. Regional trade, whether bilateral or through regional wholesale markets, present opportunities to strengthen system governance and leverage economies of scale. Identify ▶ VIUs can tap DFIs’ risk mitigation toolkit and array of financing options such as sustainability-linked loans to help address any local market constraints (for example, local banks at their limit to lending to a VIU, limited capital markets, a non-creditworthy VIU) to raise the requisite investments for advancing access and sustainability objectives. ▶ Publicly owned VIUs that are considering private sector partnership—for example through introducing a strategic private partner, privatization, or public listing—could benefit from advisory support from DFIs. ▶ VIUs that are contemplating transitioning to other market structures can consider accessing advisory and technical support and guidance provided by DFIs, which draws on global best practice and is tailored to country context. REPURPOSING POWER MARKETS Page 122 Single Buyer Model (SBM) Innovate ▶ System operators in SBM markets can use the wealth of data collected by smart meters to improve the management of the electricity system, which affects decisions on energy procurement, operation control, and risk management. ▶ SBM structures that are integrating renewable energy-focused independent power producers (IPPs) need to consider the role of flexible generation assets like energy efficient combined cycle gas turbines that can offer rapid load-following capabilities to offset sudden wind and solar output variability, particularly in countries that still rely on coal. Integrate ▶ Storage technologies provide valuable ancillary services such as spinning reserve (supply that is ready to generate but not currently in use) and voltage support. Countries operating under SBM structures need to ensure energy storage developers are appropriately compensated for their services, benefit from clear and transparent procurement processes, and legally integrate with other energy assets. ▶ To procure hybrid systems, countries with SBM can utilize competitive auctions tailored to the business model, with selection criteria based on least-cost capacity or energy bids over the contract duration. Contract structures must align incentives between producers and buyers. ▶ Standalone renewable energy-based systems should emanate from a government- supported off-grid strategy that incorporates local characteristics, innovative financing structures, and incentives for solar home system providers (such as tax, VAT, and import duty waivers). Institutionalize ▶ To attract IPPs, countries with SBM structures should avoid erratic and non- transparent decision making to reduce investors’ perceived regulatory risk and contribute to keeping the cost of capital low. ▶ Competitive procurement should be prioritized. Countries under SBM should resist direct negotiations and unsolicited bidding which can keep experienced qualified investors out of the market. The public contracting authority should assess projects and make awards based on honest contracting practices. ▶ Strengthening the creditworthiness of the single buyer is vital to attract private sector investment. Incentivize ▶ Well-structured Power Purchase Agreements (PPAs) that appropriately consider contractual risks are essential to attract IPPs and policymakers should thus enhance their bankability (Box 4.2). ▶ Targeted use of government guarantees on PPAs in the absence of a creditworthy and experienced single buyer is necessary to ensure long-term commercial sustainability of the sector. ▶ Competitive bidding for IPP contracts can reduce generation costs compared to bilateral negotiations and a selected generation company or unsolicited proposals. ▶ Policymakers can consider allowing corporate PPAs—for example between renewable energy generators and corporate buyers—to exist alongside the single buyer structure. Page 123 Appendices Single Buyer Model (SBM) Invest ▶ Countries with SBM structures can institute a range of methods to attract private investment in transmission infrastructure (Table 4.2). ▶ By participating in regional power pools, countries can enhance power trade to advance energy transition and improve energy security. Conducting least-cost power system planning optimized at the regional level is critical to ensure the appropriate design and development of the power pool. Policymakers should also ensure utility readiness to trade via the power pool, including processes, systems, and personnel requirements to establish trading units in the trading entity (this can be the single buyer). ▶ The financial weakness and operational inefficiency of the single buyer in cross- border trade can be a key inhibitor for development of regional trade. It will be extremely challenging for single buyers in precarious financial situations to raise the necessary debt financing. Lenders may require sovereign guarantees to provide financing. DFIs and donor grants can also be used to support financing. ▶ Consider allowing open third-party access to cross-border infrastructure. Barriers to access cross-border infrastructure by wider sector participants such as IPPs can significantly lower the economic viability of the infrastructure. Identify ▶ Countries with SBM structures that have underdeveloped hedging markets or low liquidity can consider accessing development finance institution’s blended finance products to minimize risk around projects, both through risk mitigation instruments and subordination. ▶ In countries that recently transitioned to SBM or where the single buyer does not yet have a good track record, development finance institutions can help bridge the gap with risk mitigation instruments (liquidity support or political risk insurance), early- stage support (including seed money for pilot technologies and approaches), and concessional financing or grants. ▶ To create bankable private sector infrastructure opportunities, countries can benefit from development finance institution-managed platforms that aim to mobilize private capital at scale, especially for renewables. ▶ Policymakers can also benefit from development finance institution financing or technical support to develop regional power markets such as power pools. REPURPOSING POWER MARKETS Page 124 Wholesale and Retail Competition (WRC) Innovate ▶ There is a growing need to scale up financing in networks to enable renewable energy integration as well as incentivize participation of demand response in the market. ▶ Smart grid technologies are essential to scale up localized retail power markets, enabling prosumers to participate in the market and expanding localized power retail markets. ▶ Flexible baseload generators such as hydropower and efficient combined cycle gas turbine plants have a role to play as backup energy supply to balance out intermittent renewable energy to maintain grid stability. Baseload power generation will be exposed to far greater volatility in seasonal, daily, and intraday load—while the importance of reliability will increase. This may require further mechanisms, such as capacity markets to pay for backup power sources that can quickly start up to supply electricity when demand is high or when renewable sources are not generating enough power. Integrate ▶ The creation of an ancillary services market (which includes services like frequency regulation and spinning reserve to support grid stability) alongside a competitive wholesale market can be instrumental in scaling up batteries. Batteries can participate in this market segment to provide frequency regulation and spinning reserve, creating another revenue stream. ▶ Time-of-use and net metering policies can incentivize utilities and consumers to optimize their energy usage and integrate renewable energy, creating opportunities for participation in battery energy storage systems. ▶ Utility-scale hybrid storage projects are growing in countries with organized wholesale/retail markets. However, market and system operators are facing challenges in finding efficient and reliable ways to integrate and operate these technologies. Hybrid generators need to be effectively represented in the software and models used to manage market transactions and schedule electricity generation. ▶ Behind-the-meter policies, which include regulations that encourage energy generation and storage at the consumer's premises such as rooftop solar panels or home batteries, can incentivize the scaling up of renewable energy-based distributed generation under organized retail market structures. Distributed generators can be integrated into the wholesale and retail markets by allowing the establishment of localized retail markets through peer-to-peer trading. Page 125 Appendices Wholesale and Retail Competition (WRC) Institutionalize ▶ Regulators in WRC markets have the complex responsibility of monitoring all wholesale and retail players to ensure effective and fair competition with the objective of delivering the best outcomes for consumers. Regulators should pay close attention to market shares, concentration ratios, customer switching rates, and price-cost margins. ▶ Continuous improvement in regulatory capacity is critical, especially to adapt to evolutions in the market caused by technological innovations such as distributed generation-enabling localized retail power markets. ▶ In countries with partial retail competition, regulated tariffs should be designed to ensure that utilities are able to recover costs with a reasonable rate of return, maintain the technical health of the electricity system, retain and expand necessary staff, and expand infrastructure to meet growing and unmet demand. ▶ In countries with full retail competition, the regulator should closely monitor the retail market to: ensure costs are efficiently and fairly distributed; prevent undue price discrimination; and reduce consumer welfare risks (for example, energy poverty). Incentivize ▶ Countries should expand market-driven procurement of solar and wind generation. These include modalities such as corporate power purchase agreements between renewable producers and corporate customers, merchant projects where the generators sell on the wholesale spot market, and remuneration through certificate programs. ▶ Countries where variable renewable energy sources are unable to fully recover their costs through the wholesale market may require supplementary revenue solutions and risk mitigation to attract adequate investment. ▶ Policymakers can explore several tracks to address these including: implementing clean energy standards to provide guaranteed renewable energy offtake; designing new capacity market products that better compensate renewable capacity attributes; evolving ancillary services markets to introduce products suited to renewable capabilities; and implementing locational marginal pricing (a pricing method that reflects the cost of delivering electricity to a specific location, accounting for factors like congestion and losses on the grid) to accurately reflect the value of reducing congestion on the grid by strategically placing renewable energy sources in areas where they are most needed. ▶ Enabling aggregated portfolios of distributed batteries and solar to act as virtual power plants can unlock savings from reduced grid investment needs. ▶ A stable regulatory environment, with cost-reflective tariff structures and non-discriminatory third-party access, can alleviate merchant risks to renewable generators. Invest ▶ Policymakers can consider a range of options to mobilize private investment in transmission and interconnectors, including merchant options (Table 4.2). ▶ Ensuring efficient and equitable allocation of cross-border capacity is critical to enabling cross-border power trade. Developing harmonized allocation rules or market tools supports coordinated capacity calculation and allocation mechanisms. Policymakers can explore market-based models to allocate interconnector capacity, for example through explicit or implicit auctions. REPURPOSING POWER MARKETS Page 126 Wholesale and Retail Competition (WRC) Identify ▶ Policymakers can seek technical and advisory support from development finance institutions to repurpose their wholesale and retail markets to meet the challenges posed by decentralization, digitalization, and decarbonization (3Ds). These could include investments or technical support to: develop demand response (for example, smart meters and smart grid investments); advance tariff structures that incentivize the participation of prosumers in the retail market; clear bottlenecks to scale up intermittent renewable energy generation (for example, through streamlining permitting and licensing procedures for both renewable energy and transmission, and scaling up investments in networks to connect renewables to the grid). ▶ Policymakers can benefit from development finance institution financing or technical support to develop regional power markets. Page 127 Appendices Appendix B A Primer on Electricity Systems Electricity (as a “product”) has several unique The electricity industry is composed of four key characteristics: it cannot be stored in large parts: generation, transmission, distribution, quantities at a reasonable cost, while supply and retail supply. The first stage of the process, and demand need to be in balance at all generation, involves the production of electricity times. These features have a strong bearing in power plants. The transmission of electricity is on how markets are structured. This section its transportation, in bulk, from power stations describes the structure and functioning of along a high-voltage system known as “the grid”. power markets, from the beginning of the value Distribution network is a lower-voltage system chain (power generation) to its end (retail). used for local delivery of electricity to the point FIGURE B.1 Structure of a Centralized Power System GENERATION TRANSMISSION DISTRIBUTION RETAIL Producers High-voltage Lower-voltage Consumers system system Coal station O ces Nuclear plant Homes Wind plant Hospitals Hydropower plant Factories Supplementing supply of the central grid Operators DISTRIBUTED Selling excess GENERATION electricity to the central grid Source: IFC REPURPOSING POWER MARKETS Page 128 of demand. The last stage of the process, retail supply, FIGURE B.2 involves the sale of electricity to the final industrial or Structure of a Decentralized (Off-Grid) residential consumers. Figure Power System B.1 provides an overview of the structure of an electricity School system and how energy flows through these four parts. Hospital Farm Figure B.1 depicts a traditional, centralized structure for the electricity system where MICROGRID generation is located in areas O ce Telecom of best resource availability tower often far from consumers. The electricity generated Residential Factory is then carried through the home transmission and distribution networks across the country Industrial park Source: IFC to consumer load centers. Each component is designed to meet a specific purpose and must work in concert with other be interconnected to the central grid and used to components for this integrated system to function. supplement its supply. This is particularly helpful An alternative to this structure is made possible to commercial and industrial consumers in need by distributed generation (DG) technologies of reliable supply, and also where the use of centered on small-scale generation units built renewables is expanding. In relatively developed near consumers (Figure B.2). DG technologies markets, consumers with DG assets can also include renewable energy such as solar, wind, and sell their excess electricity to the grid, becoming small hydro, as well as fossil-fuel-fired (e.g., diesel) prosumers. DG can even allow consumers electricity generation units. Groups of customers to completely bypass the central grid. This is may also establish a localized “mini-grid” to share particularly relevant in a number of developing electricity generated from these distributed countries whose central grid does not cover the generation sources. entire country. Some developing economies have opted for semiautonomous mini-grids to serve Over the last decade, several DG networks have rural customers who would otherwise lack access been set up across the globe as the costs of the to electricity rather than expand the central grid to relevant technologies have been falling. DG can serve them. Page 129 Appendices Electricity generation Electricity demand (the so-called load) varies significantly over the course of a day, week, and Electricity is a secondary form of energy that year. The load can be split into three categories: is obtained from primary energy sources. base, intermediate, and peak (Figure B.3). Base Although electricity is a homogenous product load is the minimum amount of electricity (each electron of electricity is the same), there is demanded in aggregate by users connected to significant heterogeneity in terms of the primary the grid/system. It is met by power plants that energy source, technology, size, unit cost of run throughout the day and year to supply this production, and flexibility (whether and how fast demand. Hydropower, nuclear, and thermal the generator can be dispatched at the request plants are typically used to supply base load of the grid operator). energy due to their relatively lower operating FIGURE B.3 Load Duration Curve Peak Load Power Gas or hydropower Size of a load in Megawatts Minimum Load experienced late nights Intermediate Load Power usually Older coal plants, gas, hydropower, during spring renewables like solar & wind or fall Base Load Power Coal and nuclear, sometimes hydropower 0 Number of hours in a year that load is of a determined size N Source: Adapted from (Morgan, Apt, and Lave 2005) REPURPOSING POWER MARKETS Page 130 costs, high-capacity factor (i.e., ratio of actual electricity (LCOE). LCOE is the cost of building production to theoretical maximum capacity), and operating a generating plant during its and difficulty varying their supply according to useful life, expressed per unit of electricity demand (either because they are unable to or generated. LCOE calculations consider the because doing so is exorbitantly expensive). capital and financial costs incurred in building the plant, fuel costs for generation, operation Intermediate load is the predictable daily range and maintenance, as well as the capacity factor. of energy demand, from the lowest level (e.g., LCOE profiles depend on the character of the middle of the night) to the highest level (e.g., energy resource. For example, renewable energy midday). It can be met by a variety of power technologies do not have any fuel costs as they plants including those that rely on renewables, rely on natural energy. These have relatively low gas, or thermal energy. operation and maintenance costs compared to Peak load refers to the relatively small period the capital cost of the technology, and typically of time when the system faces the highest low-capacity factors. In contrast, conventional power requirements. Sufficient generation energy generators have significant fuel costs, but capacity must be available in the system (or from also benefit from higher-capacity factors. imported energy imported) to meet this demand, Investment in technology can be merited to or service disruptions will occur. For example, ensure a system’s flexibility. For example, gas- some electricity systems have gas-powered fired combined-cycle gas turbines can be turned generation units (most often gas turbines) that on quickly to secure electricity supply in the may be idle during most of the year but have the event of unplanned disruptions. Environmental capacity to quickly switch on and supply energy considerations also increasingly play a role in the during times of peak demand. choice of technology as countries seek to lower Many power plants do not operate at their the energy sector’s greenhouse gas footprint. full capacity all the time. Large hydropower, Energy security may also push countries to nuclear, and thermal generation plants typically strategically develop more expensive sources of have high-capacity factors and, as was noted electricity that are available locally, for example, earlier, are used to meet base load demand. On geothermal or renewable, or to diversify import the other hand, intermittent generators such routes with potentially more expensive fuel as wind and solar plants, whose production supply sources. relies on weather conditions, have low-capacity factors. The age of the unit, maintenance Structure of electricity networks: routine, fuel quality, and technical specifications transmission and distribution also affect a generator’s capacity factor. A grid is the system of underground and Choosing the best option for a given context overhead electricity lines and associated depends on the generation unit’s cost efficiency, infrastructure used to deliver electricity from which is best reflected by the levelized cost of generators to end consumers. It is split into transmission and distribution networks. The Page 131 Appendices transmission network is composed of the high- Metering voltage lines used to carry electricity over long Electric meters are a key element of an electricity distances to distribution networks or large system since they make it possible to account industrial consumers. The distribution network for electricity consumption. Electric meters consists of lower-voltage (medium and low have varying levels of sophistication and voltage) lines used to transport electricity to the end consumer (households and small commercial consumers). Most countries have a designated system operator, often within FIGURE B.4 the transmission company, that oversees the scheduling and dispatch of electricity supply to Analog Versus Smart Meter ensure the system is always balanced in order to maintain system stability. Scheduling and dispatch need to be carefully coordinated to prevent overloading transmission lines, which can cause congestion and result in system failure and widespread blackouts. Technical and nontechnical losses Transporting electricity implies some level of technical loss of energy as power flows through equipment such as underground cables, overhead lines, and transformers. This is both a reflection of the physical qualities of energy (the flow of energy via electrical currents loses energy in the form of heat and noise), and a function of the technical characteristics of the electricity system, especially the age of the network, and distance from the load. The regulator that sets (or approves) network tariff components and incentives can put pressure on network companies to reduce technical losses (the requirements can be stricter on high- voltage transmission compared to distribution networks). Nontechnical losses may also result Source: Photos via Shutterstock from poor billing, nonpayment, and pilferage. Overall, high losses can jeopardize the quality of service, as they contribute to the sector’s failure to recover costs. REPURPOSING POWER MARKETS Page 132 technical abilities, ranging from analog meters that FIGURE B.5 provide data on cumulative electricity usage and need Smart Grid Components to be read manually, to advanced smart meters Transmission grid that allow for bidirectional interaction between the electricity consumer and Wind farm Factory distributors/suppliers, and provide for more accurate remote reading (Figure Battery School storage building B.4). Smart meters are thus SMART GRID an enabling component of Central Control demand response (facilitating Solar O ce demand adjustments farm building based on price signals or instruction/regulation of the Nuclear Home with system operator, supplier, or plant smart meter aggregator), an important functionality in managing Thermal plant peak-hour loads and a grid’s vulnerability to failure. The Source: IFC wealth of data collected by smart meters is also used by system operators to better efficiently, reducing the need for spinning or manage the electricity system, shaping decisions backup generators to handle unanticipated on energy procurement, operation control, and fluctuations in demand. In addition, it promotes risk management. the integration of localized distributed power generation due to its ability to measure power Smart grids in both directions. This allows small, distributed Smart grids integrate advanced communication generators to sell their unused, locally generated and control technology (including smart power back to the grid/system. meters) into the grid infrastructure to more Electricity retailing efficiently manage the electricity system and offer consumers more transparency and choice Retail, the last step in the process, entails the in their consumption (Figure B.5). A smart activities of selling electricity to end consumers grid allows an electricity system to run more and collecting payment. It is the last stage in the Page 133 Appendices BOX A Creating Tailored Markets to Procure Specific Electricity Services Electricity markets require the procurement of specialized services to ensure system operability. They include: Balancing services A core issue in electricity market design is the necessity of real-time management of electricity flows to prevent any supply-demand imbalances, which could lead to system failures and blackouts. Currently, there is no practical way by which decentralized contracting among market participants can achieve the desired outcome—where demand matches supply to the second—while meeting the physical constraints of the transmission system. Thus, there is a need for a system operator that oversees the scheduling and dispatch of the electricity supply to ensure the system is always balanced and stable. This operator oversees what is known as the balancing market. Settlement services A settlement market is one where deviations between electricity forward contracts that market participants may have concluded before dispatch (for example, contracts concluded a day ahead of dispatch) and the actual physical volumes that were bought and sold at the time of dispatch are financially settled. Ancillary services A market for ancillary services provides tools needed by the system operator to maintain grid reliability and stability of power supply. These services address immediate imbalances between supply and demand and ensure system recovery from a damaging event such as unexpected power plant failure. Types of ancillary services include “black-start regulation” (where in the event of widespread grid failure, capacity can be procured from designated power plants that can produce electricity from a completely unenergized state without the need for external power from the grid); “contingency” reserves (capacity procured from standby generators for frequency and voltage control to balance the system); and “synchronization” services required to prevent system collapse (for example, system elements that can offset sudden surges in demand). Capacity services A market for capacity services enables system operators to secure power supply from generators in order to meet predicted energy demand several years in the future. Capacity services ensure long-term grid reliability by procuring the appropriate amount of power supply resources needed well ahead of time to enable good system planning. This market does not procure physical electricity supply but rather procures from generators the ability to produce electricity when called upon in the future. Payments for capacity services usually cover some or all of the fixed costs of building and operating the procured capacity resources. REPURPOSING POWER MARKETS Page 134 physical flow of electricity but the first in terms and ancillary services (Box A). Market design of finance. Retailing is often undertaken by a context shapes how different power systems distribution company, but in some countries it procure and pay for services. For example, power has been unbundled from distribution and is a markets that are vertically integrated utilities separate function undertaken by independent use administrative tools such as contracts and retail supply companies. In some countries, internal acquisitions to procure the suite of a level of competition has been introduced services required to ensure the balance between whereby consumers can choose their electricity supply and demand and maintain grid stability. In supplier from a number of available supply contrast, in partially or fully competitive power companies (Chapter 2). Consumers can switch systems, a range of actors (including power suppliers periodically based on the range of plants, electricity traders, and aggregators) that tariffs on offer (e.g., fixed tariff, real-time tariff, meet the technical requirements to provide time-of-use tariff, green tariff) as well as other these services can participate in competitive services that retailers may offer including energy service markets. Services could also be funded efficiency services, energy advice, or combining through levies on system users. electricity with natural gas sales. At the heart of electricity systems are Market structures in electricity sophisticated, computerized optimization systems models that may require thousands of servers to run. In competitive markets, bids by generators Creating electricity markets requires combining in the wholesale market provide the input centralized governance systems with scope for values for these models. The output is a system competition and choice where possible. It is of prices that optimizes dispatch, where the not an exercise in laissez-faire. Instead, markets cheapest generators are dispatched. This type of are designed in a regulatory process with a market, assisted by an optimization program, is strong planning component. They feature a often called a smart market. combination of government interventions and market processes. Numerous variations of this The electricity industry is also carefully regulated. combination exist in global electricity markets, Regulation ensures the availability of network reflecting both technical and non-technical systems and compliance with adequate considerations in the market creation process. frequency and voltage levels. It also mitigates the abuse of market power, especially in monopoly Beyond delivering core infrastructure (such segments of the market (such as networks), and as power plants and networks), market ensures that service parameters (such as access mechanisms can be used to procure specific and continuity of service) are respected. In services essential for power system operation. monopoly segments of the market, revenues are Such services are often of a “public good” nature, also regulated—often through price regulation in the sense that market participants cannot that is sometimes supported by subsidies. In be excluded from deriving value from them. setting rates, regulators aim to strike a balance They include balancing, settlement, capacity, Page 135 Appendices between providing incentives for efficiency and ensuring investment and quality of service are adequate. Having key players, market infrastructure, and a regulatory environment in place is necessary but not sufficient for a market to function. The interaction of market forces, planning, and regulation may not lead to the desired optimum. Market rules (intended to ensure short-term operational efficiency and optimize long-term investments) could be ill-conceived, resulting in unintended consequences. This report analyzes the basic design issues, risks, and options faced by emerging markets in creating power markets. REPURPOSING POWER MARKETS Page 136 Appendix C Impact of Market Structures on Electricity Sector Outcomes Base Model with Market Base Model Coefficient Co-variates Coefficient Structure Outcome Variable (p-value) (p-value) Years in WRC Share of Renewable Energy 0.491*** (0.00163) 0.567** (0.0332) Years in WRC Total Electricity Supply 3.270*** (4.64e-09) 1.830** (0.0172) Years in WRC Years Since First Private IPP - 0.340***(0.00276) Years in SBM Share of Renewable Energy -0.309* (0.0574) -0.560** (0.0198) Years in SBM Overall Electricity Access 0.324*** (0.00125) 0.336** (0.0229) Years in SBM Rural Electricity Access 0.258* (0.0767) - Years in SBM CO2 per capita 2.980*** (0.00669) 3.920** (0.0342) Years in SBM Total Electricity Supply -1.920*** (0.00117) -1.520** (0.0299) Years in SBM Years Since First IPP - 0.359*** (2.85e-05) Years in SBM Years Since First Private IPP - 0.242** (0.0113) Years out of VIU Total Electricity Generation 1.410** (0.0118) Years out of VIU Overall Electricity Access - 0.508** (0.0478) Years out of VIU Rural Electricity Access - 0.749* (0.0655) Years out of VIU CO2 per capita - 6.280* (0.0501) Years out of VIU Total Electricity Supply 1.620*** (0.00996) - Years out of VIU Years Since First IPP - 0.863*** (5.58e-17) Years out of VIU Years Since First Private IPP - 0.868*** (5.7e-14) Source: IFC Note: Significance level: *** = 1 percent, ** = 5 percent, * = 10 percent Page 137 Glossary Glossary Account unbundling: Account unbundling consists Contractual risks: The chances of facing losses due to of breaking down bookkeeping activities between the buyer not fulfilling the terms of a contract, or the business segments (generation, transmission, deal performing poorly. In power projects, contractual distribution). It enables clarification of which risks include termination of service agreements, costs come from which parts of the business curtailment of supply, or financial instability caused and how much revenue each one brings in. by factors such as inflation or currency fluctuation. Ancillary services: A range of support services Cost-based pricing: Electricity pricing based to the grid that address short-term imbalances on auditable costs. These include the initial between intraday power supply and demand. capital and the costs of continuous operation, fuel, maintenance, de-commissioning, and Backstopping: Mitigation of the financial and political remediating any environmental damage. risks to which the energy project lenders are exposed. These risks may include sovereign payment guarantees, Curtailment risk: The chance of facing losses when counter-guarantees, and other support mechanisms. the off-taker (the agent responsible for managing distributed energy) reduces or restricts electricity Balancing market: The institutional mechanism delivery from a generator to the electrical grid. It can that deals with the purchase arrangements to occur for a variety of reasons, including: strains to the match electricity production and consumption levels network due to variability in generation, which is often during the operation of electric power systems. a problem with intermittent renewables; system-wide Bankable: Agreement structured to provide oversupply, where supply exceeds demand and the adequate and predictable revenue streams off-taker curtails some generators to bring the system that are certain to bring profit. into balance; and local transmission constraints. Baseload generation: The amount of electric power Decarbonization: Phasing out use of fossil that needs to be supplied to the grid at any given fuels to reduce carbon dioxide emissions. time to meet the minimum power demand. Demand response: A strategy to manage electricity Capacity market: The institutional mechanism consumption by encouraging consumers to reduce wherein participants are paid a per unit of capacity or shift their usage during peak demand times or in that they offer to the market and make available when response to price changes. This helps balance supply and called on at any time during the contracted period. demand, enhances grid reliability, and reduces costs by lowering the need for additional power generation. Contingency reserve (energy): Also referred to as the operating reserve, it is the generation capacity Digitalization: The use of digital technologies to available to the system operator within a short interval change a business model and provide new revenue of time to meet demand in case of a supply disruption. and value-producing opportunities. In energy, this can include expanding the use of smart systems and Contingent liability: A potential liability that metering where consumers and producers interact may be incurred by an entity, depending on with the grid or the power distribution system. the outcome of an uncertain future event. REPURPOSING POWER MARKETS Page 138 Distributed generation: Describes the Independent power producer (IPP): An entity that generation of electricity that is both for use on- is not a public utility but owns facilities that generate site and can be available for distribution to the electric power for sale to utilities and end users. IPPs, grid, rather than transmitting energy over the also called non-utility generators, may be privately held electric grid from a large, centralized facility. facilities, corporations, cooperatives such as rural solar or wind energy producers, or non-energy industrial concerns Electricity system: An interconnected network capable of feeding excess energy into the system. for delivering electricity from producers to consumers composed of four key parts: generation, Independent system operator (ISO): An transmission, distribution, and retail supply. independent entity that handles electricity transmission network operation and planning. The Energy auction: A competitive process for ownership of network assets can remain in the procuring electricity, whereby energy project hands of the integrated firm. The ISO model splits developers bid against each other to supply energy transmission ownership from system operation. based on rules that determine who wins and the price the winner (energy purchaser) pays. Independent transmission operator (ITO): This is a type of legal unbundling. An independent Energy storage: The capture of energy produced transmission operator is an independent entity that at one time for use later to reduce imbalances both owns and handles electricity transmission network between energy demand and energy production. operation and planning. Under this structure, the ITO Feed-in tariff (FiT): A policy tool designed is both the owner and operator of the network. to promote investment in renewable energy Integrated resource plan (IRP): An operational sources by providing price certainty. strategy that outlines an electric utility's resource Financial transmission rights (FTRs): Financial needs in order to meet expected electricity demand contracts which allow the holder to hedge against the over a long-term planning horizon. Key IRP items costs of congestion and offset potential losses related include planned resource additions and retirements, to the price risk of delivering energy to the grid. taking on new sources of energy, growth projections, as well as cost and performance assumptions. Functional unbundling: The separation of certain activities within a vertically integrated utility so that Interconnector: A structure which enables energy each is performed independently by different entities. to flow between electricity networks, including This includes actions such as dividing up roles and regional and international connections. responsibilities in an organization between different parts Legal unbundling: Legal unbundling requires the of the business to ensure that each part focuses on what transmission network to be operated through it does best. It also means having different departments separate legal entities within a vertically integrated that only deal with certain activities in order to clearly utility. This can help prevent the implementation of define decision-making power and responsibility. discriminatory practices by creating a separate legal Green bonds: Any bond instrument whose entity that has been tasked with network activities. proceeds are used exclusively to finance or refinance Levelized cost of electricity (LCOE): The projects with clear environmental benefits. average net present cost of electricity generation Grid extension: A network expansion from for a generating asset over its lifetime. the national power transmission system to new areas and communities.  Page 139 Glossary Microgrid: A small grid system that serves one or more Power market structure: The overarching institutional, consumer facilities (such as a neighborhood, office or financial, and regulatory structure adopted to organize industrial building, or institution such as a hospital or the provision of electricity services in the economy. school). While capable of operating independently, This could range from a vertically integrated power it also has an interconnection to a main grid. market where one company controls all segments of the electricity supply to competitive wholesale and retail Minigrid: An off-grid system that involves small- market structures where multiple companies compete scale electricity generation (typically 10 kilowatts to to supply electricity services to end consumers. 10 megawatts) and which serves a limited number of consumers via a distribution grid that can operate in Power pool: An association of two or more isolation from national electricity transmission networks. interconnected electricity systems with an agreement to coordinate operations and planning Off-grid generation: Standalone electricity for improved reliability and efficiencies of their systems that are not connected to a central generating or transmission facilities, or both. electricity transmission and distribution system. Power pools typically have an institution to oversee Off-taker: The off-taker buys power from a project investments and trade coordination activity. developer at a negotiated rate for a specified Power purchase agreement (PPA): A legal term without taking ownership of the system. contract between an electricity generator and a Ownership unbundling: This is the ultimate form power purchaser. Contract terms usually last 5–25 of unbundling. A company owning and operating a years. During that time, the power purchaser buys network is not allowed to be active in any competitive energy, and sometimes also capacity and/or ancillary segment of the electricity supply chain or have services, from the electricity generator. Agreements an interest with respect to those activities. can include take-or-pay quotas or fixed capacity charges to protect stakeholders from market risks. Peak load: The relatively short period when the system faces the highest power requirements. Price elasticity of electricity demand: A measure of the change in the quantity of consumed Peer-to-peer retailing: A localized electricity market electricity in relation to its price change. where members buy or sell directly with one another without intermediation by conventional suppliers. Prosumers: Households, businesses, communities, organizations, and other agents that rely on smart Physical network: Also known as the electric meters and solar photovoltaic panels to generate grid, this is the system that moves and distributes electricity and/or combine them with home energy electricity. It comprises electricity substations, management systems, energy storage, electric transformers, and power lines that connect vehicles, and electric vehicle-to-grid systems. electricity producers and consumers. Retail competition: Allows competition in the retail Power distribution: The final stage in the delivery segment, where end users of electricity (residential, of electric power, which carries electricity from commercial, and industrial customers) can choose the transmission grid to individual consumers. their power supplier and other services. The aim is for Power exchange: The official market where generators, the sector to offer pricing and service options tailored large energy consumers (supply companies and to customers’ needs and facilitate the introduction industrial consumers), and brokers trade electricity. of beneficial new technologies and processes. REPURPOSING POWER MARKETS Page 140 Scarcity pricing: The principle of pricing electricity Third-party access: A policy that requires such that under conditions of scarcity, generating owners of a natural monopoly-owned electric units will receive higher compensation. This additional grid to grant access to the grid to parties other revenue stream helps to incentivize investment than their own customers, usually independent in new generation and promotes overall system power providers, on commercial terms. reliability. When supply conditions are tight and Unbundling: A structural reform that involves the drop below a predetermined threshold level, the separation of core functions performed by power utilities price for an additional unit significantly rises. or power companies. In the case of a vertically integrated Security of supply: Refers to the electricity industry utility, it is the separation of generation, transmission, providing appropriate electricity system capabilities distribution and (sometimes) retail functions. (such as generation and transmission capacity) Variable renewable energy (VRE): Renewable and storable fuel supplies (such as water, gas, and energy sources that have a fluctuating nature such coal) to maintain normal supply to consumers. as wind and solar photovoltaic (PV) power. Single buyer model (SBM): A model under which Vertically integrated utility (VIU): A utility electricity legislation mandates an entity to be the sole that owns all levels of the electricity supply chain: buyer of electricity in the country. Independent power generation, transmission, and distribution. producers can generate electricity and sell it to the ‘single buyer,’ often the national power company or Virtual community power pools (VPPs): A the transmission system operator. In turn, the single cloud-based (virtual) distributed power plant that buyer sells the purchased energy to distributors. aggregates distributed energy resources for the purposes of enhancing power generation, as well as Smart grid: A system of integrating advanced trading or selling power on the electricity market. communication and control technologies (including smart meters) into the grid infrastructure to more Wholesale competition: Allows competition in efficiently manage the electricity system and offer the generation segment through use of market consumers increased transparency and choice. mechanisms to determine the dispatch of generators and the wholesale price of electricity. This can be Smart home technology: A system that monitors done either through an organized market or through and controls home attributes such as lighting, bilateral contracting between generators and large climate, entertainment systems, and appliances. energy consumers (supply companies and industrial Smart meters: Technology that provides accurate consumers). Under both wholesale trading mechanisms, remote reading by sending electricity usage data the system operator still has the responsibility of directly to a central computing facility. They physical clearing of the market to ensure system allow for bi-directional interaction between security, congestion management, and reliability. In the electricity consumer and the utility. many countries, both trade mechanisms are utilized. Solar photovoltaic (PV): A power system designed to supply usable solar power by means of photovoltaic solar panels to absorb and convert sunlight into electricity. Page 141 Endnotes Endnotes 1. (IEA, IRENA, UNSD, World Bank and WHO. 2024) 21. For more details on each market structure please see a forthcoming working paper: Akcura and 2. (World Bank 2022a) Mutambatsere (2024) Global Overview of Power 3. (IEA 2022) Market Structures. Working paper (forthcoming). 4. (IEA 2022) 22. (Kiesling 2014) 5. (World Bank 2023c) 23. A large body of literature discusses risks related to PPAs and IPPs, such as the cumulative 6. (World Bank 2023c) obligations that expose power utilities to 7. (“Renewable Capacity Statistics 2024” 2024) financial risks (as in Indonesia, Pakistan, Philippines). Such conditions ultimately led 8. (International Renewable Energy Agency 2024) state-owned utilities to default on payments. 9. (IRENA Renewable Energy Capacity Highlights, 2024) 24. (Poudineh 2019) 10. Additional charts are available 25. (Szabó et al. 2017) in the chapter appendix 26. Two main model specifications are used: a base 11. IFC calculations, based on IJGlobal dataset model and a model with co-variates. The base model focuses on the direct relationship between 12. IFC calculations, based on IJGlobal dataset market structures and sector outcomes, while 13. (United Nations 2023) the model with co-variates controls for additional factors such as economy size, population, regulatory 14. (IEA 2023c) indicators, and country risk. More details on 15. (IRENA 2023) the econometric analysis will be outlined in a forthcoming working paper: Akcura and Adewole 16. (ESMAP 2023) (forthcoming) Impact of Power Market Structure 17. A large body of literature covers the impact of on Key Energy Sector Outcomes. Working paper sector reforms on power sector performance and 27. (Foster and Rana 2020) the optimal role of the public sector (Foster and Rana 2020; Gratwick and Eberhard 2008; Jamasb 28. Table in Appendix C presents the regression et al. 2005; Joskow 2008; Kessides 2012; Pollitt results for the main electricity sector outcomes. 2004; Sen 2014; Sen, Nepal, and Jamasb 2016) 29. (Ajadi et al. 2019) 18. (Akcura 2024) 30. (IEA and Imperial 2020) 19. (Akcura 2024) 31. (IEA and IFC 2023) 20. (Akcura 2024) REPURPOSING POWER MARKETS Page 142 32. (Amundi and IFC 2024) 60. (IFC 2019) 33. (IEA 2020) 61. (Lighting Global/ESMAP, GOGLA 2022) 34. (Ajadi et al. 2019) 62. (GOGLA 2022) 35. According to World Bank Data 63. (GOGLA 2022) 36. (IRENA 2016) 64. (REN21 2023) 37. (Bisaga et al. 2017) 65. (GOGLA 2019) 38. (Bisaga 2020) 66. (Acumen 2017; Lighting Africa 2011) 39. (Cogan, Maffini, and Collings 2018) 67. (UNIDO 2018) 40. (World Bank 2020) 68. (Rana, Ngulube, and Foster 2022) 41. (IRENA 2019) 69. (World Bank 2024) 42. (IFC 2023) 70. (REN21 2019) 43. (Zerriffi 2011; Guardo 2018) 71. (REN21 2023) 44. (IRENA 2019; “Market Development 72. (Bellini 2022) of PAYGO - Energypedia” 2017) 73. (Newbery 2002) 45. (Sharma 2017) 74. (Rudnick and Velasquez 2018) 46. (Alstone et al. 2015) 75. (Newbery 2002) 47. (“Azuri Technologies” 2024) 76. (Rudnick and Velasquez 2018) 48. (“Prepayment Electricity” 2023) 77. (IEA 2023b) 49. (Bureau 2023) 78. (Kahrl et al. 2021) 50. (Northeast Group 2023) 79. S&P Global 51. (Govindarajalu, De Sisternes, and Chavez 2021) 80. (Business Wire 2024) 52. (IFC 2021) 81. (IEA 2023a) 53. (IEA et al. 2023) 82. In 2023, Development Finance Institution 54. (IEA 2023b) financing to emerging markets reached $20 billion, down from a peak of $35 billion in 55. (ESMAP 2020) 2017, while overall Development Finance 56. (World Bank 2005) Institution financing to emerging markets from 2010 to 2023 amount to $325 billion. 57. (Barnes 2007; 2011; Banerjee et al. 2015) 83. (World Bank 2023a) 58. (World Bank 2017) 84. (IDB 2024) 59. (Sievert and Steinbuks 2020) Page 143 Bibliography Bibliography ▶ Acumen. 2017. “How Affordable Is Off-Grid Energy ▶ Barnes, Douglas F. 2007. "The Challenge of Rural Access in Africa? An Evidence Review.” https:// Electrification: Strategies for Developing Countries." acumen.org/wp-content/uploads/2017/07/ Edited by Douglas F. Barnes. The Challenge of Evidence-Review-On-Affordability.pdf. Rural Electrification: Strategies for Developing Countries. 1st ed. Washington, DC: Resources for ▶ Ajadi, Tayo, Rohan Boyle, David Strahan, the Future: https://doi.org/10.4324/9781936331697. Matthias Kimmel, Bryony Collins, Albert Cheung, and Lisa Becker. 2019. “Global Trends ▶ Barnes, Douglas F 2011. “Effective Solutions for Rural in Renewable Energy Investment 2019.” Electrification in Developing Countries: Lessons Bloomberg New Energy Finance, 76–76. from Successful Programs.” Current Opinion in Environmental Sustainability 3 (4): 260–64. ▶ Akcura, Elcin. 2024. “Global Power Market https://doi.org/10.1016/j.cosust.2011.06.001. Structures Database.” https://datacatalog. worldbank.org/search/dataset/0065245/ ▶ Bellini, Emiliano 2022. “South Africa’s Sixth global_power_market_structures_database. Renewables Auction Concludes with Lowest Bid of $0.02689/kWh.” Pv Magazine ▶ Alstone, P, D Gershenson, N Turman-Bryant, D M International. December 12, 2022. https:// Kammen, and A Jacobson. 2015. “Off-Grid Power www.pv-magazine.com/2022/12/12/south- and Connectivity: Pay-As-You-Go Financing and africas-sixth-renewables-auction-concludes- Digital Supply Chains for Pico-Solar.” Lighting with-lowest-bid-of-0-02689-kwh/. Global Market Research Report. https://rael. berkeley.edu/wp-content/uploads/2015/05/ ▶ Bisaga, Iwona. 2020. “Innovation for Off-Grid LG-2015-PAYG-Report-Alstone-etal.pdf. Solar Rural Electrification.” 1–11. Springer, Cham. https://doi.org/10.1007/978-3-319-71057-0_138-1. ▶ Amundi and IFC. 2024. “Emerging Market Green Bonds 2023.” PDF. Amundi Asset Management ▶ Bisaga, Iwona, Nathan Puźniak-Holford, Ashley (Amundi) and International Finance Corporation Grealish, Christopher Baker-Brian, and Priti (IFC). https://www.ifc.org/en/insights-reports/2024/ Parikh. 2017. “Scalable Off-Grid Energy Services emerging-market-green-bonds-2023. Enabled by IoT: A Case Study of BBOXX SMART Solar.” Energy Policy 109 (October): 199–207. ▶ “Azuri Technologies.” 2024. Azuri Technologies. https://doi.org/10.1016/j.enpol.2017.07.004. https://www.azuri-group.com. ▶ Brozynski, Christine, and Hans Tuenter. 2018. “Proxy ▶ Banerjee, Sudeshna Ghosh, Douglas Barnes, Bipul Revenue Swaps for Solar | Norton Rose Fulbright.” Singh, Kristy Mayer, and Hussain Samad. 2015. https://www.projectfinance.law/publications/2018/ "Power for All: Electricity Access Challenge in India." june/proxy-revenue-swaps-for-solar/. World Bank. Washington DC: The World Bank. REPURPOSING POWER MARKETS Page 144 ▶ Business Wire. 2024. “Green Tiger Markets ▶ Foster, Vivien, and Anshul Rana. 2020. "Rethinking Facilitates First-Ever Trade in Midday Hours for Power Sector Reform in the Developing World." Philippines Electricity, Pioneering Transparency, World Bank Publications. https://openknowledge. Price Discovery, and Liquidity.” August 27, worldbank.org/handle/10986/32335. 2024. https://www.businesswire.com/news/ ▶ GOGLA. 2019. “Global Off-Grid Solar Market home/20240827875864/en/Green-Tiger- Report Semi-Annual Sales and Impact Data. Markets-Facilitates-First-Ever-Trade-in-Midday- January - June 2019.” https://www.gogla.org/ Hours-for-Philippines-Electricity-Pioneering- sites/default/files/resource_docs/global_off- Transparency-Price-Discovery-and-Liquidity. grid_solar_market_report_h1_2019.pdf. ▶ Bureau, Bulawayo. 2023. “ZETDC Targets to ▶ GOGLA 2022 Global Off-Grid Solar Migrate 103 000 Post-Paid Users.” The Herald Market Report Semi-Annual Sales and (blog). 2023. https://www.herald.co.zw/zetdc- Impact Data July - December 2022 targets-to-migrate-103-000-post-paid-users/. ▶ Govindarajalu, Chandrasekar, Fernando De ▶ Cogan, Davinia, Irene Maffini, and Simon Sisternes, and Sandra Chavez. 2021. “Stationary Collings. 2018. “Crowd Power - Who Is Energy Storage to Transform Power Systems the Crowd?” https://energy4impact.org/ in Developing Countries.” ESMAP Livewire. file/2045/download?token=gwYL2uzX. https://openknowledge.worldbank.org/ ▶ Cole, Wesley, and Akash Karmakar. 2023. server/api/core/bitstreams/0d399a58- “Cost Projections for Utility-Scale Battery 5c91-5ea2-8f0d-8311710c1a19/content. Storage: 2023 Update”. Golden, CO: National ▶ Gratwick, Katharine Nawaal, and Anton Eberhard. Renewable Energy Laboratory. https:// 2008. “Demise of the Standard Model for Power www.nrel.gov/docs/fy23osti/85332.pdf Sector Reform and the Emergence of Hybrid ▶ ESMAP. 2020. “Chile | Tracking SDG 7.” 2020. Power Markets.” Energy Policy 36 (10): 3948–60. https://trackingsdg7.esmap.org/country/chile. ▶ GSMA. 2017. “Lessons from the Use of Mobile in ▶ ESMAP, 2023, "Unlocking the Energy Utility Pay-as-You-Go Models.” https://www. Transition - Guidelines for Planning Solar-Plus- gsma.com/mobilefordevelopment/resources/ Storage Projects," Washington, D.C. : World lessons-use-mobile-utility-pay-go-models/. Bank Group. http://documents.worldbank. ▶ Guardo, A. 2018. “Innovative Business Models org/curated/en/099112223104540303/ to Power Africa: Distributed Renewable Energy P1790740c740f800c0a7960bac2a93b3f8c Generation and Aggregation Platforms for ▶ ESMAP. (2023). Wholesale Electricity Peer-to-Peer Trading.” White Paper, 1–16. Market Design: Rationale and Choices. ▶ Hirons, Mark. 2020. “How the Sustainable http://hdl.handle. net/10986/39720 Development Goals Risk Undermining Efforts ▶ Faruqui, Ahmad, and Cecile Bourbonnais. 2020. “The to Address Environmental and Social Issues in Tariffs of Tomorrow: Innovations in Rate Designs.” the Small-Scale Mining Sector.” Environmental IEEE Power and Energy Magazine 18 (3): 18–25. Science & Policy 114 (December): 321–28. https:// doi.org/10.1016/j.envsci.2020.08.022. ▶ Fleming, Andy. 2023. “Southern Africa Day-Ahead Market (DAM) - Historic Analysis.” Observable. https://observablehq.com/@andyflem/sapp-dam. Page 145 Bibliography ▶ IDB. 2024. “Multilateral Development Banks ▶ IEA, IRENA, UNSD, World Bank, and WHO. Deepen Collaboration to Deliver as a System.” 2023. “Tracking SDG 7: The Energy Progress April 20, 2024. https://www.iadb.org/en/ Report.” Washington DC. https://trackingsdg7. news/multilateral-development-banks- esmap.org/data/files/download-documents/ deepen-collaboration-deliver-system. sdg7-report2023-full_report.pdf. ▶ IEA. 2020. “World Energy Investment 2020.” ▶ IFC. 2019. “The Dirty Footprint of the Broken Grid World Energy Investment 2020. Paris. The Impacts of Fossil Fuel Back-up Generators https://doi.org/10.1787/6f552938-en. in Developing Countries.” www.ifc.org. ▶ IEA 2020a, "Attracting private investment to ▶ IFC. 2021. “The Power of Batteries to Expand the electricity transmission sector in Southeast Renewable Energy in Emerging Markets.” Asia." https://iea.blob.core.windows.net/ Washington D.C: International Finance Corporation. assets/2b8496af-191d-4d3c-bc28-b722e5fa5813/ https://www.ifc.org/content/dam/ifc/doc/mgrt/ Businessmodelsforprivatelyfinancedtransmission.pdf. ifc-infrastructure-batterystorage-final-web.pdf. ▶ IEA. 2022. “Renewables 2022 Analysis and ▶ IFC, “Clean Impact Bond: Mobilizing Finance for Forecast to 2027.” Paris. https://www. Clean Cooking,” May 24, 2023, https://www.ifc. iea.org/reports/renewables-2022. org/en/insights-reports/2023/clean-impact- bond-mobilizing/finance-for-clean-cooking. ▶ IEA. 2023a. “Electricity Grids and Secure Energy Transitions.” Paris: International Energy Agency. ▶ IJ Global 2023. Transaction Database. https://www.iea.org/reports/electricity- https://www.ijglobal.com/” grids-and-secure-energy-transitions. ▶ International Renewable Energy Agency ▶ IEA. 2023b. “Energy Technology Perspectives (IRENA). 2023. “Tripling Renewable Power and 2023.” Paris. https://www.iea.org/reports/ Doubling Energy Efficiency by 2030: Crucial Steps energy-technology-perspectives-2023. towards 1.5°C.” 978-92-9260-555–1. Abu Dhabi: International Renewable Energy Agency. ▶ IEA. 2023c. “Renewable Energy Market Update - June 2023.” https://www.iea.org/reports/ ▶ IRENA. 2016. "Policies and Regulations for renewable-energy-market-update-june-2023. Private Sector Renewable Energy Mini-Grids." Abu Dhabi: International Renewable Energy ▶ IEA. 2024" to "IEA, IRENA, UNSD, Agency (IRENA). www.irena.org/publications. World Bank and WHO. 2024. ▶ IRENA. 2019. “Off-Grid Renewable Energy Solutions ▶ IEA and IFC. 2023. “Scaling Up Private Finance to Expand Electricity Access: An Opportunity Not for Clean Energy in Emerging and Developing to Be Missed.” 9789292601010. Abu Dhabi. https:// Economies.” Paris. https://www.iea.org/reports/ www.irena.org/publications/2019/Jan/Off-grid- scaling-up-private-finance-for-clean-energy- renewable-energy-solutions-to-expand-electricity- in-emerging-and-developing-economies. to-access-An-opportunity-not-to-be-missed. ▶ IEA, and Imperial College. 2020. “Energy Investing: ▶ IRENA. 2024. “Tracking COP28 Outcomes: Exploring Risk and Return in the Capital Tripling Renewable Power Capacity by Markets.” London: Imperial College. https://www. 2030.” 978-92-9260-585– 8. Abu Dhabi: iea.org/reports/energy-investing-exploring- International Renewable Energy Agency. risk-and-return-in-the-capital-markets. REPURPOSING POWER MARKETS Page 146 ▶ IRENA. 2024. “Renewable Capacity Statistics ▶ Lighting Africa. 2011. “The Off-Grid Lighting 2024.” Abu Dhabi: International Renewable Energy Market in Sub-Saharan Africa: Market Agency. https://www.irena.org/Publications/2024/ Research Synthesis Report.” https://light. Mar/Renewable-capacity-statistics-2024. lbl.gov/library/LA-Mkt-Synthesis.pdf. ▶ Jamasb, Tooraj, Raffaella Mota, David Newbery, and ▶ Lighting Global/ESMAP, GOGLA, Efficiency Michael Pollitt. 2005. "Electricity Sector Reform in For Access, Open Capital Advisors (2022), Off- Developing Countries: A Survey of Empirical Evidence Grid Solar Market Trends Report 2022: State of on Determinants and Performance." The World Bank. the Sectorv. Washington, DC: World Bank ▶ Joskow, Paul L. 2008. “Lessons Learned from ▶ “Market Development of PAYGO - Electricity Market Liberalization.” Energy Energypedia.” 2017. https://energypedia.info/ Journal 29 (SPEC. ISS.): 9–42. https://doi. wiki/Market_Development_of_PAYGO. org/10.5547/issn0195-6574-ej-vol29-nosi2-3. ▶ Morgan, M Granger, Jay Apt, and Lester B Lave. ▶ Kahrl, Fredrich, James Hyungkwan Kim, Andrew 2005. “The US Electric Power Sector and Climate Mills, Ryan Wiser, Cristina Crespo Montañés, Change Mitigation.” https://www.nhsec.nh.gov/ and Will Gorman. 2021. “Variable Renewable projects/2008-04/documents/app_appendix_13.pdf. Energy Participation in U.S. Ancillary Services ▶ Newbery, David. 2002. “Mitigating Markets: Economic Evaluation and Key Issues.” Market Power in Electricity Networks.” Lawrence Berkeley National Laboratory. https:// https://pdfs.semanticscholar.org/32bc/ live-lbl-eta-publications.pantheonsite.io/sites/ a32059cbba28eebd36c614bc68fbc0a1fe33.pdf. default/files/vre_as_full_report_release.pdf. ▶ Northeast Group. 2023. “Global Electricity ▶ Kessides, Ioannis N. 2012. “The Impacts of Metering Market Dataset.” Electricity Sector Reforms in Developing Countries.” The Electricity Journal 25 (6): 79–88. ▶ Parag, Yael, and Benjamin K Sovacool. 2016. https://doi.org/10.1016/j.tej.2012.07.002. “Electricity Market Design for the Prosumer Era.” Nature Energy 1 (March):16032. ▶ Kiesling, F Lynne. 2014. “Incumbent Vertical Market Power, Experimentation, and Institutional Design in ▶ Pollitt, Michael. 2004. “Electricity Reform in the Deregulating Electricity Industry.” https://www. Chile. Lessons for Developing Countries.” Journal independent.org/pdf/tir/tir_19_02_04_kiesling.pdf. of Network Industries, no. 3–4, 221–62. ▶ Kim, Hongjin; Bathe, Jack; Park,Jiwon Victoria; ▶ Poudineh, Rahmatallah. 2019. “Liberalized Retail Yang, Soyoung; Kang, Young-Joon; Sedogo,Leopold; Electricity Markets.” 978-1-78467-151–8. Oxford Hwang,Inchul; Tang,Jie; Yamada,Hiroaki; Institute for Energy Studies Working Paper Series. Wang,Qingyuan; Ljungman, 2021 "All Oxford, United Kingdom: Oxford Institute for Energy Battery Energy Storage System (BESS) Studies. https://doi.org/10.26889/9781784671518. Development in Pacific Island Countries." Washington, D.C.: World Bank. http://documents. ▶ “Prepayment Electricity.” 2023. Eskom. April 25, worldbank.org/curated/en/099353103282337963/ 2023. https://www.eskom.co.za/prepayment/. IDU05e52df32040a40492409c0c0651d16683ee3 Page 147 Bibliography ▶ Rana, Anshul, Mumba Ngulube, and Vivien ▶ Sievert, Maximiliane, and Jevgenijs Steinbuks. Foster. 2022. “Global Electricity Regulatory 2020. “Willingness to Pay for Electricity Access Index (GERI) 2022.” ESMAP Report, World in Extreme Poverty: Evidence from Sub-Saharan Bank. https://documents1.worldbank.org/ Africa.” World Development 128:104859–104859. curated/en/099655012072260131/pdf/ ▶ Solshare. 2021. “ME Solshare.” P1744810738d7b0430923a088b019fd36d7.pdf. https://me-solshare.com/. ▶ Raza, Aftab. 2023. “How Electricity Regulators Can ▶ Szabó, László, András Mezősi, Zsuzsanna Pató, Accelerate the Energy Transition?” https://www. Ágnes Kelemen, Ákos Beöthy, Enikő Kácsor, linkedin.com/pulse/how-electricity-regulators- Péter Kaderják, et al. 2017. "SEERMAP: South East can-accelerate-energy-transition-raza/. Europe Electricity Roadmap South East Europe ▶ REN21. 2019. “Renewables 2019 Global Status Regional Report 2017." https://rekk.hu/downloads/ Report.” 978-3-9818911-7–1. Paris: REN21 projects/SEERMAP_RR_SEE_A4_ONLINE.pdf. Secretariat. https://www.ren21.net/wp-content/ ▶ UNIDO. 2018. “Sustainable Energy Regulation uploads/2019/05/gsr_2019_full_report_en.pdf. and Policymaking for Africa Training Manual. ▶ REN21. 2023. “Renewables 2023 Global Status Report Module 5: Structure, Composition, and Role of Collection”. https://www.ren21.net/gsr-2023/ an Energy Regulator.” https://www.unido.org/ sites/default/files/2009-02/Module5_0.pdf. ▶ “Renewable Capacity Statistics 2024.” March 27, 2024. https://www.irena.org/Publications/2024/ ▶ United Nations. 2023. “Advancing SDG7 in Least Mar/Renewable-capacity-statistics-2024. Developed Countries, Landlocked Developing Countries and Small Island Developing States.” ▶ Rudnick, Hugh, and Constantin Velasquez. 2018. United Nations. https://sdgs.un.org/sites/default/ “Taking Stock of Wholesale Power Markets in files/2023-08/2023%20Advancing%20SDG7%20 Developing Countries A Literature Review.” in%20LDCs%20LLDCs%20and%20SIDS-062923.pdf. https://documents1.worldbank.org/curated/ en/992171531321846513/pdf/WPS8519.pdf. ▶ U.S. Agency for International Development. “Adaptive Solar PV Mini-Grids in Tanzania | ▶ Sen, Anupama. 2014. “Divergent Paths to a Common Energy | Mini-Grids.” March 8, 2024. https:// Goal? An Overview of Challenges to Electricity Sector www.usaid.gov/ energy/mini-grids/ Reform in Developing versus Developed Countries. case-studies/tanzania-smart-solar. ▶ Sen, Anupama, Rabindra Nepal, and Tooraj ▶ Vasconcelos, Jorge, and Maria Vasconcelos. Jamasb. 2016. “Reforming Electricity Reforms? 2023. “Electricity Market Reform.” https:// Empirical Evidence from Asian Economies.” fsr.eui.eu/wp-content/uploads/2024/04/ https://www.oxfordenergy.org/wpcms/ eu-electricity-reform-2023.pdf. wp-content/uploads/2016/02/Reforming- Electricity-Reforms-Empirical-Evidence- ▶ World Bank. 2005. “Rural Electricity Subsidies from-Asian-Economies-EL-18.pdf. and The Private Sector in Chile.” ▶ Sharma, Akanksha. 2017. “Going Greenfield ▶ World Bank. 2017. “State of Electricity Access with Utility Pay-as-You-Go Models: Enabling Report.” Washington DC: International Bank for Access to Water, Sanitation and Energy in Reconstruction and Development / The World and beyond East Africa.” GSMA. London. Bank. https://openknowledge.worldbank.org/ bitstream/handle/10986/26646/114841-WP-v2- FINALSEARwebopt.pdf?sequence=6&isAllowed=y. ▶ World Bank. 2020. “Funding The Sun - New ▶ World Bank. 2024. “The Critical Link Empowering Paradigms for Financing Off-Grid Solar Utilities for the Energy Transition.” Washington, Companies.” Washington DC. http://documents1. DC. https://www.worldbank.org/en/topic/ worldbank.org/curated/en/447971581689878643/ energy/publication/the-critical-link-empowering- pdf/Funding-the-Sun-New-Paradigms-for- utilities-for-the-energy-transition. Financing-Off-Grid-Solar-Companies.pdf. ▶ Zerriffi, Hisham. 2011. “Innovative Business ▶ World Bank. 2022. “Climate and Development : Models for the Scale-up of Energy Access An Agenda for Action—Emerging Insights from Efforts for the Poorest.” Current Opinion in World Bank Group 2021-22 Country Climate Environmental Sustainability 3 (4): 272–78. and Development Reports.” Washington, DC. http://hdl.handle.net/10986/38220. ▶ World Bank. 2023a. “Ending Poverty on a Livable Planet: Report to Governors on World Bank Evolution.” https://www.devcommittee. org/content/dam/sites/devcommittee/doc/ documents/2023/Final%20Updated%20 Evolution%20Paper%20DC2023-0003.pdf. ▶ World Bank. 2023b. “Nigeria - Distributed Access Through Renewable Energy Scale-Up Project.” Text/HTML. World Bank. 2023. https://documents. worldbank.org/en/publication/documents- reports/documentdetail/099112923130036443/ BOSIB055491e4e0bc0b3ec051772c00f67f. ▶ World Bank. 2023c. “Scaling Up to Phase Down: Financing Energy Transition in Developing Countries.” Washington, DC. https://openknowledge. worldbank.org/server/api/core/bitstreams/ a7c096b2-1234-42eb-9d9a-7e185370c59f/content. ▶ World Bank Group. 2017. Linking Up: Public- Private Partnerships in Power Transmission in Africa. © World Bank, Washington, DC. http:// hdl.handle.net/10986/26842 License: HYPERLINK "http://creativecommons.org/licenses/by/3.0/ igo"CC BY 3.0 IGO.” https://openknowledge. worldbank.org/entities/publication/201283a6- 1c04-529e-a61c-5ce8df995636 Rights and Permissions This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 IGO License. Under the Creative Commons—NonCommercial-NoDerivatives license, you are free to copy and redistribute this work, for noncommercial purposes only, under the following conditions: Attribution—Please, cite the work as follows: International Finance Corporation, Repurposing Power Markets: The Path to Sustainable and Affordable Energy for All, Washington, DC: International Finance Corporation. License: Creative Commons Attribution NonCommercial-NoDerivatives (CC BY-NC-ND 3.0 IGO). NonCommercial—You may not use this work for commercial purposes. NoDerivatives — If you remix, transform, or build upon this work, you may not distribute the modified material. Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by International Finance Corporation and should not be considered an official International Finance Corporation translation. International Finance Corporation shall not be liable for any content or error in this translation. Third-party content— International Finance Corporation does not necessarily own each component of the content contained within the work. International Finance Corporation therefore does not warrant that the use of any third-party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to International Finance Corporation Publications, International Finance Corporation, 2121 Pennsylvania Avenue NW, Washington, DC 20433, USA; e-mail: publications@ifc.org The findings, interpretations, views, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the Executive Directors of the International Finance Corporation or of the International Bank for Reconstruction and Development (the World Bank) or the governments they represent. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. IFC does not guarantee the accuracy, reliability or completeness of the content included in this work, or for the conclusions or judgments described herein, and accepts no responsibility or liability for any omissions or errors (including, without limitation, typographical errors and technical errors) in the content whatsoever or for reliance thereon. © 2024 International Finance Corporation 2121 Pennsylvania Avenue NW, Washington, DC 20433, USA www.ifc.org