Resultsfrom the GEF Climate Change Program by eat9932

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									                        Evaluation Report #1-02



Results from the GEF Climate
                     Change Program
  Results from the GEF
Climate Change Program




   Global Environment Facility
    Monitoring and Evaluation Unit
                                                                                                                           ii




                                                     Foreword

The GEF Council, at its meetings in December 1999 and May 2000, requested a review of GEF opera-
tions prior to discussions on the next trust fund replenishment, which began in 2001.1 This review, the
Second Study of GEF’s Overall Performance (OPS2), was carried out by a fully independent team in
2001. The OPS2 is the third major GEF-wide review to take place since the GEF was created.2 Among
the broad topics the OPS2 team assessed were:

•    Program Results and Initial Impacts
•    GEF Overall Strategies and Programmatic Impacts
•    Achievement of the Objectives of GEF's Operational Policies and Programs
•    Review of Modalities of GEF Support
•    Follow-up of OPS1

 To facilitate the work of the OPS2 team, GEF's Monitoring and Evaluation team, in cooperation with
the implementing agencies, undertook program studies in three GEF focal areas—biodiversity, climate
change, and international waters. These program studies provided portfolio information and substantive
inputs for the OPS2 team's consideration.

This report summarizes the findings of the Climate Change Program Study. That study was undertaken
in 2000-2001 by an interagency team comprised of staff from the GEF Secretariat, the three GEF imple-
menting agencies, and the GEF Scientific and Technical Advisory Panel, with additional support from
consultants. The team worked under the guidance of an interagency steering committee.

Jarle Harstad
Senior Monitoring and Evaluation Coordinator




1
    Joint Summary of the Chairs, GEF Council Meeting, December 8-9, 1999, and GEF/C.15/11.

2
 The first two studies, respectively, were Global Environment Facility: Independent Evaluation of the Pilot Phase, UNDP,
UNEP, and World Bank (1994) and Porter, G., R. Clémençon, W. Ofosu-Amaah, and Michael Philips, Study of GEF's
Overall Performance, Global Environment Facility (1998).
iii                                                                      Results from the GEF Climate Change Program




                                              Acknowledgements

      Several individuals and organizations within and outside the GEF family of institutions supported and
      contributed to the Climate Change Program Study. In particular, an interagency Steering Committee
      guided the study. Members of the committee included Dennis Anderson, GEF Scientific and Technical
      Advisory Panel; Jarle Harstad, GEF Monitoring and Evaluation Team; Richard Hosier, United Nations
      Development Programme; Eric Martinot, GEF Secretariat; Alan Miller, GEF Secretariat; Ramesh
      Ramankutty, GEF Monitoring and Evaluation Team (task manager); Mahesh Sharma, World Bank; and
      Ravi Sharma, United Nations Environment Programme.

      The exercise was carried out by a team consisting of staff from the GEF Secretariat, the GEF imple-
      menting agencies, and the GEF Scientific and Technical Advisory Panel (STAP), along with several
      consultants working under the guidance of the Steering Committee. Individuals involved in the specific
      components of the study were as follows:

      • Portfolio Coverage Analysis: Dilip Ahuja, Indian Institute for Advanced Studies, Bangalore, India

      • Solar Thermal Cluster Review: Dennis Anderson and Jason Mariyappan, Imperial College of Science,
        Technology and Medicine, London, UK

      • Energy Service Companies Cluster Review: Tony Wilson and Andy Gilchrist, AEA Technology
        Environment, Oxfordshire, UK

      • Energy Efficient Products Manufacturing and Marketing Cluster Review: Sabrina Birner, June
        Consulting, Paris, France; Eric Martinot, GEF Secretariat

      • Solar PV Cluster Review: Eric Martinot, Ramesh Ramankutty, and Frank Rittner, GEF Secretariat

      • Grid-connected Renewable Energy Cluster Review: Eric Martinot, GEF Secretariat

      • China Country Review: Eric Martinot, GEF Secretariat; Nandita Mongia, United Nations
        Development Programme, New York; Li Junfeng, Consultant, Center for Renewable Energy, Beijing,
        China

      • Mexico Country Review: Martin Krause, United Nations Development Programme, New York;
        Yasemin Biro, GEF Secretariat; Walter Vergara, World Bank; Sergio Sanchez, Consultant

      In addition, Mahesh Sharma (World Bank), Ravi Sharma (UNEP), Dana Younger (IFC), Alan Miller
      (GEF Secretariat) and Chona Cruz (GEF Secretariat) provided input, advice, and guidance to the study.

      We would like to thank the governments and other partner agencies of Bangladesh, China, Egypt, Ghana,
      Hungary, Mexico, Sri Lanka, Thailand, Tunisia, and Uganda for facilitating country visits under the
      various study components.

      Special thanks are due to my partner in this enterprise, Eric Martinot, GEF Secretariat, for his collabora-
      tion in conceiving and implementing this study, and to my supervisor, Jarle Harstad, the Senior
      Monitoring and Evaluation Coordinator of the GEF, for his valuable guidance throughout the course of
      this exercise.

      Ramesh Ramankutty
      Task Manager
                                                      iv




                                      Contents

Executive Summary                                v

1. Scope and Approach of Study                    1

2. The GEF Climate Change Portfolio               5

3. Overall Findings                              9

4. Findings from Cluster Reviews                 15
v   Results from the GEF Climate Change Program
                                                                                                            vi




Executive Summary

Background                                           5. Rural solar photovoltaic (PV) cluster review
                                                        (previously published August 2000).
During the last decade, the Global Environment
Facility (GEF) has provided more than US$1           6. Assessment of GEF climate change portfolio
billion for more than 270 climate change-related        coverage.
projects in 120 countries. Not counting enabling
activities and some short-term measures, 120 of      7. Two country reviews, for China and Mexico,
those projects in 60 countries demonstrate an           that assess how GEF projects are collectively
impressive range of approaches to promoting             addressing country and global environment
energy efficiency, renewable energy, and (to a          objectives.
lesser extent) sustainable transport. The Climate
Change Program Study, initiated in June 2000,        The present report provides a brief synthesis of
set out to answer four questions about that subset   the results from these reports, organized by the
of 120 projects:                                     four basic questions.

1. Are activities relevant to country needs and      Scope of the Climate Change
   global objectives?                                Portfolio

2. What are the most significant implementa-         The initial direction of the climate change port-
   tion issues and lessons?                          folio was established by the Ad-hoc Working
                                                     Group on Global Warming and Energy
3. What are the impacts/likely impacts of GEF        (AWGGWE), set up by the GEF Scientific and
   projects?                                         Technical Advisory Panel (STAP). Based on a
                                                     list of technical interventions that reduce or limit
4. What are the factors influencing sustain-         emissions of greenhouse gases developed by the
   ability and replication?                          STAP, early GEF projects often focused on
                                                     demonstrations of a variety of technologies.
The study resulted in seven new reports and          More recent projects have gone beyond tech-
incorporated one previously completed report:        nology demonstrations to focus on sustainable
                                                     market-oriented approaches that pilot new busi-
1. Energy-efficient products manufacturing           ness models, financing mechanisms, demand-
   and marketing cluster review.                     side incentives, and means of public
                                                     involvement. Over time, the portfolio has
2. Grid-connected renewable energy cluster           become dominated by a smaller number of tech-
   review.                                           nology applications and strategies that are not
                                                     necessarily related first and foremost to short-
3. Energy service company cluster review.            term greenhouse-gas reduction, but rather reflect
                                                     a complex balance of needs, interests, and inter-
4. Solar thermal power plant cluster review.         actions among governments and GEF imple-
                                                     menting agencies.
vii                                                              Results from the GEF Climate Change Program




      Due to the confines of time and resources avail-       Replication of successful outcomes and models
      able for the program study, it was not possible to     has gained increased attention in more recent
      arrive at a definitive assessment of the degree to     projects. Because GEF projects are small relative
      which country needs have been met through              to the scale of the climate change problem,
      GEF-financed projects. Such an assessment              recognition has grown that achieving global envi-
      would require a comparison of needs existing           ronmental objectives depends greatly on replica-
      before initiation of the projects with those           tion and indirect impacts through demonstration of
      existing now. Such data are often lacking or diffi-    project benefits. Measuring achievement of global
      cult to obtain. In addition, national communica-       environmental objectives is challenging because
      tions under the United Nations Framework               replication of GEF projects is difficult to monitor.
      Convention on Climate Change (UNFCCC) do               Some projects—such as those for efficient
      not always fully reflect national development          lighting, efficient refrigerators, rural solar PV,
      priorities.                                            coal-bed methane, and electric power demand-
                                                             side management—have clearly been replicated.
      Detailed reviews of the GEF-financed climate           Replication of other projects has so far been
      change portfolios in two countries—Mexico and          minimal or remains undocumented.
      China—indicate that GEF projects are consistent
      with national priorities in those countries.           Emerging Lessons
      Furthermore, the technology applications
      promoted in GEF projects are broadly relevant to       Eight significant lessons emerging from the
      at least some national objectives in virtually all     climate change program study are highlighted in
      countries. For example, the GEF has clearly            this synthesis:
      helped with a number of core country priorities,
      such as promoting renewable-energy-based rural         1. Lessons and good practices are emerging but
      development and electrification programs and              need to be better incorporated into project
      reducing electric power demand. Still, it is fair to      designs to promote learning. One of the key
      say that most GEF projects do not result from             advantages of supporting projects through
      coherent, integrated approaches to development            GEF Operational Programs is to facilitate the
      and environment at the country level, but are             dissemination of lessons among all partici-
      rather conceived on an ad-hoc basis.                      pants in the GEF programs. This study finds
                                                                that such dissemination is slow and only
      As the portfolio evolved, the need to support             recently has become more efficient. Although
      rural energy enterprises, provide financial inter-        the annual project implementation reviews
      mediation, and attract private sector financing           provide a forum for learning, the first
      became apparent. To respond to these needs and            concerted effort to pass on lessons from the
      demonstrate how the GEF can leverage private              climate change program was the solar PV
      sector resources to achieve global benefits, the          cluster review, which was completed in 2000.
      International Finance Corporation (IFC) of the
      World Bank Group developed five projects that          2. Indirect influences and impacts are key GEF
      feature new forms of enterprise support, financial        results. Some of the key impacts of GEF-
      intermediation, and private sector co-financing.          financed projects are indirect in the sense that
      These projects have used GEF funding commit-              those impacts were not explicit objectives of
      ments to mobilize more than $200 million of               the projects. In many cases, significant impacts
      private sector co-financing to date. Impacts from         from projects have been recorded during
      two of these projects are described in the cluster        project preparation (PDF) phases or early in
      reviews, while the other three have just started.         project implementation.
      All five will warrant a separate cluster review in
      the future.
                                                                                                              viii




3. Replication of project results is not well          Impacts
   planned or monitored. In general, GEF proj-
   ects have not been operational long enough to       Eleven projects in the portfolio were completed
   gauge how well their replication is providing       as of early 2001. Another 25-30 projects have
   global environmental benefits. Still, most proj-    been operational long enough for their impacts to
   ects contain few provisions or plans for            begin to become evident. The impacts of these
   achieving or monitoring replication.                35-40 projects have been analyzed by project
                                                       application (cluster):
4. Project risk assessment and management need
   to be strengthened. Implementation of projects      Energy-efficient products. GEF-financed projects
   is often hindered by project managers’              have demonstrated important and effective
   inability to adjust to changes in markets, poli-    approaches for facilitating and accelerating
   cies, macroeconomic conditions, co-financing,       greater demand for and supply of energy-efficient
   and government commitments.                         manufactured products, particularly lights (nearly
                                                       5 million of which have been installed through
5. Transfer of technological know-how is more          GEF projects), but also refrigerators, motors, and
   difficult than project proponents anticipate.       building materials. Some project approaches have
   Such transfer appears impeded by problems           resulted in sustained reductions in the price of the
   with technology acquisition and application to      products and in highly cost-effective abatement
   domestic conditions.                                of carbon emissions. Market gains for efficient
                                                       lights in particular are being sustained and repli-
6. Long-term programmatic approaches require           cated.
   sufficient GEF “credibility” and experience in
   a country. Country stakeholders need time to        Grid-connected renewable energy. The GEF has
   accumulate experience with GEF-financed             facilitated implementation of important regula-
   projects before they are willing and able to        tory frameworks supportive of grid-connected
   develop long-term programmatic approaches           renewable energy, but has done so in only two
   that apply the principles of GEF Operational        countries so far (Mauritius and Sri Lanka). Other
   Programs over longer time frames with more          impacts have been limited to one-time technology
   comprehensive results.                              demonstrations, research, and increased skills
                                                       and awareness. The GEF's largest market impact
7. The GEF's potential for influencing policy          has been in India, where direct and indirect influ-
   needs to be better utilized. The influence of       ences on private sector power project develop-
   GEF projects is evident in three policy areas—      ment and financing have resulted in nearly 1000
   national codes and standards, electric power        MW of new renewable-energy generating
   sector policies, and rural electrification poli-    capacity.
   cies. But that influence has so far been modest,
   and additional policy areas could be addressed.     Off-grid solar PV. Rural applications of solar
                                                       photovoltaics (PV) constitute the largest single
8. The contribution of GEF-financed projects to        group of projects in the climate change portfolio.
   social benefits and poverty alleviation needs to    However, most of these projects have little or no
   be assessed. The social and development bene-       implementation experience yet. Of roughly
   fits of GEF projects, especially those that cater   600,000 solar home systems expected from
   to rural energy development needs, need to be       approved projects, only 18,000 have been
   better documented. An assessment of these           installed thus far. Several business models and
   benefits is key to helping countries improve        schemes to extend credit to businesses and
   sustainable development programs. Many proj-        consumers show promise of being sustainable
   ects do promote strong beneficiary participa-       and further replicated. Awareness of solar home
   tion, but fail to document benefits or impacts      systems is increasing in several countries and
   occurring in local communities.                     technical standards are improving. The impact of
ix                                                            Results from the GEF Climate Change Program




     projects on rural electrification planning and       • Demonstrating models for sustainable busi-
     policies has been small, but more recent projects      nesses, both public and private
     are emphasizing these issues.
                                                          • Promoting “market transformation”
     Energy service companies. Viable energy service        approaches that expand markets for energy-
     companies (ESCOs) have been established in two         efficient products
     countries (Tunisia and China) as a result of GEF
     projects. Financing for existing ESCOs has been      • Negotiating voluntary agreements with the
     facilitated in the Hungary project. Other projects     private sector to take energy-inefficient prod-
     with ESCO components provide technical assis-          ucts off the market
     tance, training, and audits, but are not expected
     to lead to full-service (i.e., “performance-         • Creating new legal frameworks and precedents
     contracting”) ESCOs. With the exceptions of            for energy service companies.
     China and Hungary, no other countries have
     documented replication or energy-savings             The study also revealed factors that can nega-
     impacts of ESCOs from GEF projects. Prospects        tively influence sustainability:
     for the emergence and sustainability of ESCOs
     appear strongest as a result of the China project,   • Privatization of power utilities without consid-
     which is also pioneering the resolution of key         eration of the future existence and role of
     policy and legal issues to allow growth of the         demand-side management units
     ESCO industry. Several GEF projects appear to
     be increasing awareness and acceptance of            • Short-term power-purchase tariffs for grid-
     ESCOs among industrial clients, policy-makers,         based renewable energy that hold such tariffs
     and financiers.                                        hostage to fluctuations in conventional fuel
                                                            prices
     Other applications. Projects for coal-bed
     methane, gas-pipeline leakage repair, fuel           • Dependence of consumer finance and rural
     switching, decentralized wind power, utility           businesses on the resources of GEF projects
     demand-side management, village-scale mini-            without creating viable and sustainable
     grids, and district heating-efficiency improve-        commercial sources
     ments have all shown significant impacts and
     could all be replicated on larger scales and used    • Project implementation arrangements that fall
     as models for ongoing and future GEF projects.         into an “equipment installation and demonstra-
     So far, three projects—coal-bed methane in             tion” role and fail to demonstrate business
     China, decentralized wind in Mauritania, and           models.
     demand-side management in Thailand—are
     being replicated.

     Sustainability

     The Climate Change Program Study found that
     projects have promoted sustainability by:
Scope and Approach of Study                                                                                  1




1. Scope and Approach of Study

The overall objective of the Climate Change            most effective technologies? Are technology
Program Study was to assess the achievements of        applications really “win-win?” Do key barriers to
GEF-financed climate change operational                adoption of technology applications remain unad-
programs. To assess those achievements, the            dressed in particular markets? The analysis was
study attempted to answer four key questions:          conducted as a desk study, supplemented, as
                                                       appropriate, with material from the other compo-
1. Collectively, are the program activities both       nents of the program study.
   relevant to client country needs (as articulated
   by national communications or other national        Cluster Reviews
   strategies/plans) and effective in meeting
   global environmental objectives?                    Work on GEF climate program indicators
                                                       suggested that clusters of projects with similar
2. What are the most significant implementation        technology applications or approaches to barrier
   issues and lessons? Are these issues and            removal can be effectively and collectively
   lessons country-specific?                           assessed with one set of indicators. Clustering
                                                       facilitates aggregation of project-level results to
3. What are the impacts/likely impacts of GEF          the program level and highlights program-level
   projects?                                           lessons about relevance, sustainability, replica-
                                                       tion, and impact. Four new reviews of project
4. What are the primary factors influencing            clusters were undertaken. A review of a fifth
   sustainability and replication prospects of         cluster, off-grid solar PV, was completed in May
   clean energy alternatives promoted by the           2000. The four clusters covered under the
   GEF—within projects, within countries,              reviews are as follows:
   regionally, and internationally?
                                                       • Grid-connected wind, biomass, and small-
In answering these questions, the study consid-          hydro power (14 projects)
ered the applications and markets targeted by the
GEF portfolio of projects, the results of reviews      • Solar thermal power plans (4 projects)
of individual groups of projects (cluster reviews),
and the results of reviews of portfolios in selected   • Energy service company models and perform-
countries.                                               ance (10 projects)

Portfolio Coverage                                     • Energy-efficient product manufacturing and
                                                         markets—lights and boilers (8 projects).
The study assessed the relevance of the port-
folio’s technology applications and target             Many of the projects in three of these clusters
markets in meeting global environmental objec-         have significant amounts of implementation
tives and supporting client countries’ develop-        experience and evaluation information, and many
ment priorities. Are GEF programs targeting the        of them contain lessons relevant to recently
2                                                                          Results from the GEF Climate Change Program




    approved projects, including pipeline projects.                   Country Reviews
    The solar thermal cluster review can aid strategic
    considerations of Operational Program #7 and                      Country-level programmatic approaches have not
    may reveal important indirect influences on                       been implemented in practice in GEF client
    renewable energy technology markets. The four                     countries. However, China, India,3 and Mexico
    clusters, together with the projects in the off-grid              have two or more GEF projects. Reviews of how
    solar PV cluster, account for 59 projects—nearly                  those projects, collectively, are addressing each
    two-thirds of the GEF projects being imple-                       of the three countries’ development goals and
    mented.                                                           global environment objectives are proving useful
                                                                      in establishing principles and frameworks for the
    In keeping with the study’s objectives, the cluster               development and implementation of country-
    reviews addressed the following topics:                           wide GEF-financed programs.

    (a) Broad Trends. With respect to what national                   Each review attempts to answer the four questions
        and international policy, investment, tech-                   noted above on the basis of project reports and
        nology, business development, and cost                        evaluations, cluster reviews with relevance to the
        trends should projects be evaluated? What                     given country, and field information.
        issues do the relevant trends suggest are
        most deserving of further attention or of                     Program Indicators
        intervention?
                                                                      The GEF has developed seven project-perform-
    (b) GEF Program Results. What are the                             ance indicators for the climate change operational
        specific results being achieved under proj-                   programs.4 The Climate Change Program Study
        ects, and how do these results aggregate to                   has attempted to test the application and appro-
        the program level, making use of the seven                    priateness of these indicators in assessing the
        program indicators?                                           success of (a) the entire GEF project portfolio,
                                                                      (b) individual clusters of projects, and (c)
    (c) Influence of GEF Projects on Trends. Are                      country-wide programs.
        the GEF project results, or the very process of
        developing those projects, influencing policy,                The seven performance indicators are
        investment, technology, business develop-
        ment, and cost trends? Are the lessons of                     1. Energy production or savings and installed
        those projects being utilized in projects not                    capacities
        financed by the GEF?
                                                                      2. Technology cost trends
    The solar thermal cluster review was conducted
    as a technology assessment/strategic review                       3. Businesses and supporting services develop-
    without country visits. That review considered                       ment
    the role and influence of the GEF in promoting
    these technologies in a primarily international                   4. Financing availability and mechanisms
    context. None of the solar thermal projects have
    been implemented to date.                                         5. Policy development




    3
      The review of the India portfolio could not be carried out due to the earthquake in Gujarat, a province in India, during
    early 2001.

    4
     See Measuring Results from Climate Change Programs: Performance Indicators for GEF, GEF Monitoring and
    Evaluation Working Paper 4, September 2000 (Washington, DC: GEF).
Scope and Approach of Study                         3




6. Awareness and understanding of technologies

7. Energy-consumption and fuel-use patterns and
   shares.

The data for these indicators have come from
published literature, project documentation and
evaluation reports, phone and e-mail communica-
tions and interviews with project personnel and
other stakeholders, and country visits by
members of the study team or by local or interna-
tional consultants.
4   Results from the GEF Climate Change Program
The GEF Climate Change Portfolio                                                                             5




2. The GEF Climate Change Portfolio

The strategy of GEF-financed climate change             greenhouse gas-emitting technologies that
programs is to “support sustainable measures that       have not yet become widespread, least-cost
minimize climate change damage by reducing the          alternatives in recipient countries for specified
risk, or the adverse effects of climate change.”5       applications.
The strategy is implemented through four opera-
tional programs, enabling activities, and some       (d) Operational Program #11, Promoting
short-term measures projects.                            Environmentally Sustainable Transport,
                                                         supports a long-term shift toward low-emis-
Operational programs support measures designed           sion forms of transport. Program #11 is a new
to achieve long-term impacts:                            program, introduced in 1999, and therefore is
                                                         not examined by the Climate Change
(a) Operation Program #5, Removal of Barriers            Program Study.
    to Energy Efficiency and Energy
    Conservation, seeks to remove barriers to        Enabling activities provide support for planning
    large-scale application, implementation, and     and endogenous capacity building, including
    dissemination of least-economic-cost, energy-    institutional strengthening, training, research, and
    efficient technologies.                          education, that will facilitate implementation of
                                                     effective climate change response measures in
(b) Operational Program #6, Promoting the            accordance with the United Nations Framework
    Adoption of Renewable Energy by Removing         Convention on Climate Change.
    Barriers and Reducing Implementation Costs,
    is focused on (1) removing barriers to           Short-term measures are projects that reduce
    commercial or near-commercial renewable          greenhouse gases in the short term. Such projects
    energy technologies and (2) reducing any         may not be part of an operational program. They
    additional implementation costs for renewable    are funded if they are priorities of a country, cost-
    energy technologies that result from a lack of   effective in the short term, and likely to succeed.
    practical experience, initially low-volume
    markets, or scattered applications, so that      Approved GEF Projects
    economically profitable “win-win” transac-
    tions and activities will increase the deploy-   As of June 30, 2000, the Global Environment
    ment of renewable energy technologies.           Facility had approved 272 climate change-related
                                                     projects. The total GEF allocation to those proj-
(c) Operational Program #7, Reducing the Long-       ects amounts to $1.08 billion, and the total cost
    term Costs of Low Greenhouse Gas-Emitting        of those projects is $7.1 billion. The portfolio is
    Energy Technologies, aims to reduce green-       made up of full-size projects, medium-sized proj-
    house gas emissions from anthropogenic           ects, and enabling activities, as shown in Table 1.
    sources by increasing the market share of low


5
    GEF Operational Strategy, pp. 31.
6                                                                        Results from the GEF Climate Change Program




                                                    Table 1. GEF Portfolio
                                     (approved for work program entry as of June 30, 2000)


      Type of Project                       Number of               GEF Allocation              Total Project Cost
                                            Projects                (US$ millions)              (US$ millions)

      Full-size Projects                      108                      982.43                       6,967.99

      Medium-size Projects                     22                       15.68                            45.36

      Enabling Activities                     142                       82.45                            88.61

      Total                                   272                    1,080.56                       7,101.97




    In terms of GEF allocation, regular projects                     accounts for the largest share of projects (64%),
    account for about 90 percent of the portfolio. The               the World Bank accounts for the largest share of
    portfolio distribution across the Implementing                   the GEF allocation (70%).
    Agencies is shown in Table 2. While the UNDP



                             Table 2. GEF Climate Change Portfolio Across Implementing Agencies
                                     (approved for work program entry as of June 30, 2000)


      Agency                                Number of               GEF Allocation              Total Project Cost
                                            Projects                (US$ millions)              (US$ millions)

      UNDP                                    174                       298.98                          675.91

      UNDP/UNEP                                  1                        2.16                            3.26

      UNEP                                      29                        20.7                           25.21

      World Bank                                68                      758.53                          6,397.6

      Total                                   272                    1,080.56                       7,101.97




    Support for operational programs is indicated in                Program #6 has the largest number of projects
    Table 3. Among those programs, Operational                      and the largest allocation of GEF resources.


                             Table 3. Operational Programs in the GEF Climate Change Portfolio
                                     (approved for work program entry as of June 30, 2000)


                                Short-term       Enabling      OP #5        OP #6      OP #7        OP #11        Total
                                Measures         Activities

      Number of Projects        25               142           40           52         10           3             272

      GEF Allocation            137.25           82.45         250.69       394.64     200.29       15.22         1,080.56
      (US$ million)

      Total Project Cost        628.31           88.61         1,727.18     3,948.26   684.08       25.55         7,101.97
The GEF Climate Change Portfolio                                                                                7




Completed Projects and Projects                                projects had been completed. Those projects
in Progress                                                    were allocated about $150 million of GEF
                                                               resources. As of that same date, 58 projects
The major focus of the Climate Change Program                  accounting for about $400 million of GEF
Study is full-size projects. Medium-sized projects             resources had been in the implementation stage
are relatively new. Enabling activities were                   for at least a year.
subjected to an extensive review6 and the findings
from that review are incorporated into this study.

As of June 30, 2000, 30 climate change-related




6
    Samir Amous, et al., Review of Climate Change Enabling Activities, October 2000 (Washington, DC: GEF).
8   Results from the GEF Climate Change Program
Overall Findings                                                                                              9




3. Overall Findings

Relevance of GEF-Financed Projects                     countries. In some cases, as in projects to intro-
to Country Needs and Global                            duce CFLs, the technology has been locally
Objectives                                             adapted, and manufacturing capacities have been
                                                       established or given additional support. In other
Assessment of the relevance of the GEF project         cases, such as rural solar PV, local manufacturers
portfolio to client countries’ needs is hindered by    may produce items such as charge controllers,
the lack of data and difficulty of obtaining data      batteries, and lamps, even if the solar panels
on the needs existing before initiation of the proj-   continue to be imported. Most projects appear to
ects and those existing now. To determine the          have enhanced local capacity through training of
extent to which the portfolio has met needs, the       local technicians, development of financing and
Climate Change Program Study relied on reviews         institutional capacity, or support of regulatory or
of country-wide GEF programs in China and              legal development, all activities that set the stage
Mexico.                                                for project replication.

                                                       Unlike other climate change operational
Portfolio coverage has evolved and expanded but
                                                       programs, which involve a comparatively large
not necessarily in a directed, strategic manner.
                                                       number of technologies, Operational Program #6
After the GEF was restructured and became a
                                                       (Promoting the Adoption of Renewable Energy
financial mechanism of the UNFCCC, the
                                                       by Removing Barriers and Reducing
facility’s operational strategy and programs were
                                                       Implementation Costs), emphasizes only a few
developed to respond to guidance from the
                                                       technologies, primarily home systems for off-
convention. As a result, the scope of appropriate
                                                       grid solar-energy applications. The projects under
activities expanded. Because the GEF rarely
                                                       this program have demonstrated the viability of
rejects sensible proposals for renewable energy
                                                       using renewable energy sources in meeting rural
or energy savings projects, the GEF project port-
                                                       electrification objectives. Challenges for these
folio reflects diverse technologies, applications,
                                                       projects are (a) addressing issues of affordability
and sectors. Making a judgment about the merits
                                                       and sustainability; (b) systematically incorpo-
of proposals that were never presented to the
                                                       rating in project design linkages between rural
GEF because of decisions made by governments
                                                       electrification strategies and rural development
or GEF implementing agencies is, of course,
                                                       needs associated with health, education, water,
difficult.
                                                       sanitation, and employment; and (c) documenting
                                                       income generation and other social benefits
The GEF project portfolio addresses two key
                                                       known to have resulted from the projects.
priorities of developing countries: technology
transfer and capacity building. Most climate
                                                       This last point is particularly important because
change projects are directed, at least in part,
                                                       very little documentation is available on the
toward increasing the understanding, awareness,
                                                       extent to which GEF-supported rural energy proj-
diffusion, and adaptation of environmentally
                                                       ects serve development objectives such as
friendly technology and toward promoting
                                                       increased employment and livelihood, health,
domestic manufacturing appropriate to client
                                                       sanitation, water access, and literacy.
10                                                            Results from the GEF Climate Change Program




     Under Operational Program #7 (Reducing the           tate learning among participants in the GEF’s
     Long-term Costs of Low Greenhouse Gas-               four solar thermal projects is considerable. The
     Emitting Energy Technologies), four solar            projects (three approved by the GEF Council in
     thermal power plant projects are proceeding in       India, Morocco, and Mexico, and one approved
     accordance with the program’s original philos-       for project development financing in Egypt)
     ophy—that sequential support of multiple proj-       account for about $150 million of GEF resources
     ects would reduce costs through economies of         and are expected to install 137 MW of solar
     scale and learning by doing. In practice, however,   components. The cluster review of those projects
     the projects may be undertaken simultaneously,       suggests that the GEF would benefit from much
     rather than sequentially. With the exception of      greater efforts to disseminate lessons learned by
     stationary fuel cells, most technologies envi-       participants in any one project to participants in
     sioned under the program are represented by at       the other projects.
     least one project in progress or in the pipeline.
                                                          Lesson 2: Indirect influences and impacts are
     Significant Implementation Issues                    key GEF results.
     and Lessons
                                                          Many GEF-financed projects have indirectly
     Eight significant lessons emerging from the          influenced investment decisions and policy
     Climate Change Program Study are highlighted         actions, sometimes even before any hardware is
     here. Although some of these lessons are             installed through the project. These influences
     country-specific, most are applicable to all         may not be explicit objectives of projects, but
     programs in the GEF program portfolio.               nonetheless represent key GEF results. In a
                                                          surprising number of cases, indirect influences
     Lesson 1: Lessons and good practices are             and impacts have occurred during early project
     emerging but need to be better incorporated          preparation activities. A variety of stakeholders,
     into project designs to promote learning.            including policy-makers, financial institutions,
                                                          firms, utilities, investors, and NGO, have become
     Lessons from completed projects can inform the       more knowledgeable and confident about tech-
     design of other GEF projects, as well as other       nologies as a result of the GEF’s commitment of
     initiatives external to the GEF. In general, the     funds, along with the dialogues, training efforts,
     available lessons from early projects are just       priority-setting exercises, and institutional coor-
     emerging as a body of knowledge. A few recent        dination that typically occur during project
     projects have built on the lessons from earlier      preparation and implementation. Increased
     projects: the Global Efficient Lighting Initiative   awareness and confidence have in turn influenced
     employed lessons from earlier efficient lighting     investment decisions or policy actions in parallel
     projects in the GEF portfolio; the China TVE         with the GEF project. Some examples:
     Phase II Project built on the lessons of the China
     TVE Phase I Project; and a recent demand-side        The Mauritius Bagasse Power Project influenced
     management (DSM) project in Vietnam has              several sugar mills to make bagasse power plant
     drawn from the DSM project in Thailand. Off-         investments on their own, independent of the
     grid solar PV projects have begun to benefit from    project. The project also prompted the govern-
     some of the early solar PV projects in the port-     ment to create stronger regulatory frameworks
     folio, particularly since completion of the solar    for independent power producers using bagasse.
     PV portfolio review by the GEF Secretariat in        These indirect impacts occurred even though a
     2000. Annual project implementation reviews do       demonstration power plant planned for the
     provide one forum for learning, even if the infor-   project was never built.
     mation available is insufficient to provide in-
     depth understanding of project performance.          The positive experience of the Mexican utility

     The opportunity and need for the GEF to facili-
Overall Findings                                                                                              11




CFE with the Mexico Efficient Lighting Project          larger market for efficient refrigerators and
(1991-97) led it to run an ambitious follow-on          started to develop high-efficiency prototypes and
program. From 1998 to 2000, the new program             production models even before the project
sold 4.8 million CFLs all over Mexico. With the         started.
experience gained from the GEF project, the new
program was able to run without subsidies, with         Other countries in Asia are launching projects to
reduced administrative costs, and with shorter          emulate the China Efficient Lighting Project,
repayment terms. CFE staff have indicated that          even before the project is implemented. Together
their experience with the GEF project played an         with an earlier UNDP project in which the GEF
important role in the design of subsequent nation-      and other donors collaborated, the efficient
wide energy saving programs.                            lighting project is increasing the countries’ expe-
                                                        rience with and confidence in efficient lighting.
The business climate for rural PV sales and
supporting infrastructure created in part through       Preparation activities, studies, dialogues, and
the Sri Lanka Energy Services Delivery Project          GEF commitment associated with the Mexico
convinced Shell International Renewables to             Renewable Energy in Agriculture Project,
enter the Sri Lanka PV market (by purchasing an         together with enhanced capacities fostered
existing dealer). In addition, the project indirectly   through GEF-supported enabling activities,
influenced a decision by a nationwide department        assisted the Mexican government in redesigning
store in Sri Lanka to enter the solar PV business.      its rural development plans to emphasize renew-
                                                        able energy rather than costly grid extensions.
The Costa Rica Wind Power Project helped                The approach, first tried in a few municipalities,
support the emergence of a significant private          is being implemented in as many as 28 states,
sector wind power industry due to the govern-           potentially affecting more than half a million
ment’s decision to engage in the power supply           farms.
business. Although the planned government-
owned 20 MW demonstration wind farm has not             The approval of the Malawi Renewable Energy
yet been constructed, the GEF-supported project         Project encouraged the government to pay
did renew the government’s dialogue with private        greater attention to the success of prior pilot
developers and helped establish a regulatory            microcredit and community banking approaches,
framework that resulted in more than 30 MW of           serving primarily women, and to incorporate
operational privately financed wind farms.              those approaches into its energy and sustainable
                                                        development program, even before the GEF
Soon after the Poland Coal-to-Gas Project was           project started.
initiated, many of Poland’s environmental invest-
ment funds began to fund coal-to-gas conver-            Solar thermal power plant projects approved by
sions. In fact, a large coal-to-gas industry            the GEF for India, Morocco, Mexico, and Egypt
emerged. Many boiler conversions took place             have lent credibility to the technology, created
with government and private financing, long             fresh interest in applications of that technology,
before any GEF-supported installations occurred.        and positively affected the development of other
The project is credited with catalyzing these           projects in both developed and developing coun-
broader trends.                                         tries. GEF support has helped put this technology
                                                        on the agenda of other organizations and given
The China Efficient Refrigerators Project devel-        credence to or helped expand ongoing research,
oped and helped enact new national refrigerator         development, and commercialization programs in
standards during the project development phase.         several countries.
Chinese refrigerator manufacturers, influenced
by project preparations, began to expect a much         Lesson 3: Replication of projects is not well
12                                                            Results from the GEF Climate Change Program




     planned or monitored.                                efficiency markets, macroeconomic conditions,
                                                          and education of users. The Peru project
      A few projects have been replicated. A good         supported the Centro de Conservacion de Energia
     example is the Mexico Efficient Lighting Project,    in establishing energy service contracts for
     which has been replicated by the national utility    energy-efficiency investments within the textile
     CFE on a larger scale. Another example is the        and steel industries. But no agreements were
     China Coal-bed Methane Project, which has            completed, in part because insufficient efforts
     been replicated by the newly established China       were made to help client companies understand
     Coal-bed Methane Corporation. Replication can        the ESCO concept. The economic recession and
     occur within a project, as happened in Thailand.     changes in government made energy saving proj-
     The Thailand DSM Project was expanded in             ects a lower priority in Peru. Finally, companies
     1997 to include a DSM component for the              unexpectedly failed to meet the financial guaran-
     Bangkok distribution utility, MEA, under a           tees demanded by banks as part of a financing
     World Bank-supported power distribution              mechanism under the project.
     project. Similarly, the China Efficient
     Refrigerators Project spawned parallel efforts       Unfamiliarity with performance contracting and a
     during early project stages that could be consid-    distrust of consultants among industrial firms in
     ered replication. And the Hungary Energy             Tunisia have thwarted attempts by a GEF-
     Efficiency Co-financing Program has promoted         supported energy service company to engage in
     financing of energy efficiency investments by        energy performance contracting. The local
     Hungarian commercial banks, another form of          Tunisian ESCO has been successful, however, in
     replication.                                         marketing its services under contractual arrange-
                                                          ments that do not rely on performance contracts.
     Replication of a successful GEF approach led to      And in Chile, electric power restructuring led to a
     a subsequent GEF project in one case. During the     decrease in the bulk power tariffs imposed on
     implementation of the Poland Efficient Lighting      copper mines. This decrease, along with higher
     Project, the IFC received requests from other        profits from increasing world prices for copper,
     countries wishing to host a similar CFL promo-       left these mines with less interest in and incentive
     tion program. These requests prompted IFC to         to invest in energy efficiency. Planned invest-
     design the GEF-supported Efficient Lighting          ments under the Chile project never were made.
     Initiative, now being implemented in seven coun-
     tries.                                               Selection of suitable consumer credit schemes
                                                          has greatly affected the progress of projects
     In general, projects in the GEF project portfolio    involving solar home systems. The Sri Lanka
     are too new to gauge how well their replication is   Energy Services Delivery Project started with
     providing global environmental benefits.             dealer-supplied credit but soon switched to
     Replication has tended to happen unpredictably       microfinancing, which appeared more viable, in
     rather than through specific planned activities      part because of the long-established history and
     within projects, and has tended to be reported       tradition of microfinance institutions in that
     anecdotally. Many more instances of replication      country. Implementation of the Indonesia Solar
     may already have occurred but remain undocu-         Home Systems Project ceased during that
     mented because project monitoring has not            country’s macroeconomic crisis, in part because
     focused on replication.                              dealers were unable to obtain commercial finance
                                                          to support the dealer-supplied credit model
     Lesson 4: Project risk assessment and                employed in that project. In solar home systems
     management need to be strengthened.                  projects in Sri Lanka and Vietnam, uncertain
                                                          rural electrification policies have depressed
     Energy-efficiency projects in Peru, Tunisia, and     demand for solar home systems. In Ghana,
     Chile illustrate the need to recognize, in project   imported equipment costs are rising due to
     design and implementation, the state of energy-      currency depreciation, while political pressure is
Overall Findings                                                                                              13




reducing fees charged to rural households for         cient refrigerators provide direct support to
system use, thus calling into question the prof-      manufacturers for acquisition of technological
itability (and the sustainability) of the project.    know-how. In both cases, this acquisition is
                                                      proving more difficult than originally expected,
Institutional conditions have played major roles      suggesting that attempts in other GEF projects to
in the progress of grid-connected renewable           transfer technological know-how directly to
energy projects. In Sri Lanka, the tough chal-        domestic manufacturers may prove difficult. The
lenge of allowing third-party, small-hydropower       efficient boilers project had problems with a first
producers into a previously monopoly utility          round of technology license acquisition because
system has resulted in compromise power               foreign manufacturers wanted more money than
purchase frameworks that are not sustainable          the project had allocated and because foreign
from the private producers’ viewpoint. In China,      technology was not directly applicable to China’s
changing institutional arrangements in the elec-      need to burn raw coal. The project did acquire
tric power sector due to restructuring have left      one license for a new technology package for one
provincial utilities unable or unwilling to embark    Chinese manufacturer by allocating that manu-
on planned investments of 190 MW in new wind          facturer a larger share of project funds, but settled
power capacity as part of a GEF-supported             for acquisition of lesser improvements to existing
project. Almost all of that investment will be        boiler designs and of product design tools for the
cancelled.                                            remaining eight manufacturers. In the efficient
                                                      refrigerators project, planned visits of Chinese
In some cases, changes in co-financing or             manufacturers to foreign manufacturers were
government commitment have hindered project           refused by the foreign manufacturers because of
progress. In the China biomethanation project,        market competition concerns. Instead, Chinese
for example, changes in local government leader-      manufacturers must rely on study tours to foreign
ship and lack of promised co-financing for            academic and research institutions, which do not
demonstration projects have delayed implemen-         adequately convey the technological and
tation by many years. Such changes should be          commercial know-how that Chinese manufac-
tracked carefully in the future to gauge how          turers want.
significantly they could affect other projects in
the GEF portfolio.                                    Lesson 6: Long-term programmatic
                                                      approaches require sufficient GEF “credi-
Designing a project to exactly fit market, macro-     bility” and experience in a country.
economic, and policy conditions is difficult. But
adjusting the design during project implementa-       The China country review highlights the chal-
tion can enhance project performance. Even if         lenges of programmatic assistance frameworks
the design reflects conditions at the time of         and the need for the GEF to possess sufficient
project start, flexibility during implementation to   credibility in its recipient countries. Two such
respond to changing conditions is important.          frameworks have been under development in
Given that only a few projects have successfully      China, one for energy efficiency and one for
adapted to changing conditions during imple-          renewable energy. However, the review found
mentation, it will be useful for the GEF to           that even as late as 1996, the credibility of the
employ flexible funding mechanisms such as            GEF in China was relatively low and such frame-
adaptable program loans.                              works would not have been viable. Only a few
                                                      projects had been approved or put into develop-
Lesson 5: Transfer of technological know-how          ment. Now that more projects have been imple-
is more difficult than project proponents             mented, Chinese stakeholders have embraced the
anticipate.                                           principles of the GEF’s operational programs,
                                                      and the GEF has gained credibility among offi-
Two China projects for efficient boilers and effi-
14                                                              Results from the GEF Climate Change Program




     cials and industry. The GEF and China have             through multi-stakeholder steering or advisory
     recently been able to agree on development of          committees made up of representatives of the
     long-term programmatic approaches to energy            private sector, NGOs, and consumer groups. But
     efficiency and renewable energy under develop-         these stakeholders are generally not encouraged
     ment by the UNDP and the World Bank.                   or required to report or document social and
                                                            development impacts.
     Lesson 7: The GEF’s potential for influencing
     policy needs to be better utilized.                    The extent to which GEF projects have benefited
                                                            communities by increasing incomes and employ-
     GEF projects have influenced policy develop-           ment and by expanding social services needs to
     ment in three areas—national codes and stan-           be assessed. As projects mature, efforts to use
     dards, electric-power-sector policies, and rural       renewable energy are expected to be integrated
     electrification policies. Although generally           with redefined sustainable development and
     modest, project impacts on policy have been            poverty alleviation programs and with new tech-
     significant in a few cases, suggesting that proj-      nology delivery and financing models, including
     ects’ potential to facilitate appropriate policies     community-based enterprises and microfinance.
     has been underutilized. Projects have success-         Assessment and documentation of social and
     fully supported codes and standards for efficient      development benefits from renewable energy are
     lights in Mexico, efficient refrigerators in China     important for promoting the incorporation of
     and Thailand, and solar home systems in                renewable energy into sustainable development
     Zimbabwe, Sri Lanka, and Indonesia. The GEF            programs.
     has proven quite capable of facilitating important
     regulatory frameworks supportive of grid-              Mexico and Malawi are among the countries that
     connected renewable energy in two countries—           are redefining their sustainable development
     Mauritius and Sri Lanka. And rural electrification     programs. In Mexico, the government’s
     policies and planning have been influenced by at       redesigned rural development plan reflects a
     least two projects in Argentina and Sri Lanka.         switch from grid-connected rural electrification
     When asked to identify the most important              to solar- and wind-powered systems. In Malawi,
     impacts of existing and new GEF projects in            the government has integrated microcredit and
     China, a Chinese government official ranked            community banking approaches into its energy
     highest the projects’ influence on policy.             and sustainable development program. Other
                                                            examples of rural “productive use” approaches in
     Lesson 8: The contribution of GEF-financed             the GEF portfolio that could affect sustainable
     projects to social benefits and poverty allevia-       development programs by documenting social
     tion needs to be assessed.                             benefits include the energy and water sector
                                                            reform project in Cape Verde, which extends
     GEF projects, especially those that cater to rural     wind power and solar PV to community-based
     energy development needs (particularly off-grid        electricity cooperatives for street lighting and
     renewable energy projects) provide social bene-        water pumps, and a GEF project in Bolivia that
     fits for participants, but those benefits need to be   established a revolving fund to support small
     documented. More than three-quarters of GEF-           enterprises in 23 municipalities.
     supported off-grid projects are implemented
Findings from Cluster Reviews                                                                                   15




4. Findings from Cluster Reviews

Annual Project Performance Reports, country                 tors, motors, and building materials (see table
visits, cluster reviews, agency reports, and                below). The benefits from almost 5 million effi-
informal communications have documented the                 cient lights installed through GEF projects are
impacts of 32 projects in operational programs              being sustained and replicated on larger scales.
#5, #6, and #7. In addition, the impacts of three           Some project approaches have resulted in
energy-related, short-term response measures                sustained reductions in the price of the products
have been documented. Of these 35 total proj-               and in highly cost-effective abatement of carbon
ects, 11 are formally completed. This section               emissions. Market gains for efficient lights in
summarizes the significant impacts of projects in           particular are being sustained and replicated.
four thematic clusters and notes the impacts of
other projects outside these four clusters. A               Energy production or savings and installed
recent working paper suggested that impacts                 capacities. Three projects in Thailand, Mexico,
should be organized by cluster and discussed                and Poland have resulted in installation of more
with respect to seven performance indicators.7              than 4.6 million compact fluorescent lamps
The discussion below follows these suggestions.             (CFLs) and electricity savings of 3,400 GWh
                                                            (equivalent to several months’ output from a
Energy-Efficient Products Cluster                           1,000 MW coal or oil power plant). Other energy
                                                            consumption reductions were achieved through
Summary: GEF-financed projects have demon-                  industrial, commercial, and residential energy-
strated important and effective approaches for              efficiency improvements in the Thailand project.
facilitating and accelerating greater demand for            One of the most notable achievements of that
and supply of energy-efficient manufactured                 project was the compete transformation of the
products, particularly lighting, but also refrigera-        fluorescent-light market, representing 20 million


                                          Energy-Efficient Products Cluster


    Project                         Implementing Agency         Year Approved by GEF       Year Completed

    Mexico Efficient Lighting       World Bank                  1991                       1997

    Thailand DSM                    World Bank                  1991                       2000

    Poland Efficient Lighting       IFC                         1994                       1998

    China Efficient Boilers         World Bank                  1996

    China Efficient Refrigerators   UNDP                        1998




7
 See Measuring Results from Climate Change Programs: Performance Indicators for GEF, GEF Monitoring and
Evaluation Working Paper 4, September 2000 (Washington, DC: GEF).
16                                                                     Results from the GEF Climate Change Program




     annual sales, in which virtually all sales of less-          Project has provided nine Chinese boiler manu-
     efficient T-12 lights were replaced with sales of            facturers with technology licenses from foreign
     T-8 lights that are 10 percent more efficient.               suppliers for upgraded or new industrial coal-
                                                                  fired boiler technologies that are more efficient.
     Costs per technology unit or measure installed.
     The most visible price-reduction effects of the              Financing availability and mechanisms. The
     GEF portfolio have occurred in this cluster. Three           Poland project established an innovative subsidy
     completed projects clearly decreased prices of the           mechanism whereby an overall GEF subsidy of
     technologies they targeted. The Poland project               $2.6 million leveraged a total CFL retail price
     resulted in a sustainable price decrease for CFLs            reduction worth $7.2 million through competi-
     of at least 35 percent. In fact, one of the project’s        tively solicited manufacturer subsidies and retail
     key impacts was the lowering of CFL prices. In               markup effects. The Mexico project introduced to
     Thailand, sales of low-price CFLs increased in               Mexico two new mechanisms for consumer
     part because of the widespread publicity                     financing of CFLs: (a) pay-on-the-bill financing,
     campaign promoting the benefits of CFLs sold at              whereby the price of the lamp is deducted in
     “7-11” convenience stores nationwide, and                    installments off of a customer’s electricity bill,
     offered at lower prices due to bulk purchases by             and (b) a similar procedure managed by
     the national electric utility. Bulk procurement in           employers, in which an employee’s investment in
     the Mexico project, coupled with utility-provided            CFLs is made through paycheck deductions.
     subsidies, reduced consumer prices to $5-8, from             Both of these financing approaches continue to
     pre-project prices of up to $25. Since the project           be used after the completion of the project.
     was completed, average CFL prices have further
     declined, by up to 30 percent, and the project is            Policy development. Policy development in at
     credited with accelerating price reductions that             least three projects has focused on national codes
     would have happened more slowly otherwise.                   and standards for energy-efficient equipment. In
                                                                  the Mexico project, the development of national
     Business and supporting services development.                CFL quality standards began in the early stages
     Supporting institutions for energy efficiency have           of project development. The standards were then
     been strengthened through several projects. As               launched and enforced during the project. An
     part of the Thailand DSM Project, the national               increasing number of CFL models are being sold
     electric utility (EGAT) created a demand-side                and labeled according to these standards. In the
     management office. This office has successfully              Thailand project, EGAT’s DSM Office worked
     negotiated voluntary T-12 to T-8 lamp                        with the Thai Consumer Protection Agency to
     changeovers, conducted bulk procurement and                  make energy-efficiency labeling mandatory on
     distribution of CFLs through convenience stores              single-door refrigerators. In the China project,
     nationwide, led campaigns to promote public                  national energy-efficiency standards for refrigera-
     awareness of energy efficiency and conservation,             tors were enacted.
     promoted awareness of appliance energy labels,
     and disseminated classroom educational mate-                 Awareness and understanding of technologies.
     rials. The experience that the Mexican utility               The Poland project has produced the most data of
     CFE gained during the Mexico project has                     any project8 on changes in awareness and under-
     allowed it to proceed with additional DSM                    standing of technologies, in this case of CFLs.
     programs without GEF support, including the                  Before the project began, only one in 10 Polish
     sale of an additional 4 million CFLs. The China              households owned at least one CFL. This
     Efficient Refrigerators Project resulted in the              increased to one in 3 households a year after the
     enactment of new energy-efficiency standards for             program. Also, about 97 percent of the CFL
     refrigerators. The China Industrial Boilers                  purchasers surveyed intended to replace their

     8
      A comprehensive monitoring and evaluation program was designed and effectively implemented for the Poland Efficient
     Lighting Project.
Findings from Cluster Reviews                                                                                  17




existing CFLs with new CFLs after they burn out.         percent in 1996 to 38 percent in 1998, and a
After the project, a larger number and wider             refrigerator program transformed the single-door
variety of stores (from small shops to supermar-         refrigerator market, increasing the market share
kets) began to sell CFLs. Stores also began to           of the most efficient units from 12 percent in
carry a wider variety of CFL models. Print media         1995 to 96 percent in 1998. One of the most
coverage of CFLs increased and shifted from              notable achievements of that project was the
describing CFLs to explaining where and how to           compete transformation of the fluorescent-light
best use them. The Ministry of Education wrote           market, representing 20 million in annual sales,
that “it is apparent that as a result of the project     in which virtually all sales of less-efficient T-12
large numbers of students and teachers have              lights were replaced with sales of T-8 lights that
gained useful insight into the use of energy and         are 10 percent more efficient.
its impact on the environment.” The Thailand
project conducted a major public awareness               Grid-Connected Renewable Energy
campaign that made 87 percent of Thais aware of          Cluster
energy-efficiency issues, particularly the advan-
tages of energy-efficient lighting, refrigerators,       Summary: The GEF has facilitated implementa-
and air conditioners.                                    tion of important regulatory frameworks
                                                         supportive of grid-connected renewable energy,
Energy consumption, fuel-use patterns, and               but has done so in only two countries so far
impacts on end users. Several energy-efficiency          (Mauritius and Sri Lanka). Other impacts have
projects affected energy consumption patterns, as        been limited to one-time technology demonstra-
evidenced by changes in market shares associated         tions, research, and increased skills and aware-
with those projects. The Poland project increased        ness. The GEF’s largest market impact has been
the percent of households with CFLs from 11.5            in India, where direct and indirect influences on
percent to 19.6 percent. The Thailand project also       private sector power project development and
had significant impacts on market shares: An air         financing have resulted in nearly 1000 MW of
conditioner program increased the market share           new renewable energy generating capacity.
of energy-efficient air conditioners from 19

                                    Grid-Connected Renewable Energy Cluster


  Project                          Implementing Agency       Year Approved by GEF        Year Completed

  India Renewable Resources        World Bank                1991

  India Small Hydel                UNDP                      1991

  Mauritius Bagasse                World Bank                1991                        1997
  Cogeneration

  Philippines Geothermal Power     World Bank                1991                        2000

  Brazil Biomass Gasification I    UNDP                      1992                        1996
  Project

  Costa Rica Wind Power            World Bank                1992

  India Biomethanation             UNDP                      1994

  Sri Lanka Energy Services        World Bank                1996

  Brazil Biomass Gasification      UNDP                      1996
  Project II

  China Renewable Energy           UNDP                      1997
  Capacity Building
18                                                              Results from the GEF Climate Change Program




     Energy production or savings and installed            China, and the China Renewable Energy Capacity
     capacities. Directly installed grid-connected         Building Project created the China Renewable
     renewable energy capacity from two projects           Energy Industry Association, which has
     totals 110 MW (86 MW in India and 24 MW in            supported new activities by its members to
     Sri Lanka). Indirectly, at least another 840 MW       expand their business and link with foreign
     of capacity has been influenced by GEF support.       expertise.
     The India Renewable Resources Project assisted
     the India Renewable Energy Development                Financing availability and mechanisms. Projects
     Agency (IREDA) to promote and finance more            in Costa Rica, Sri Lanka, and India (small hydro,
     than 360 MW of wind projects and 65 MW of             biomethanation, and renewable resources) have
     mini-hydro projects by the private sector. The        provided direct financing for power project
     Mauritius project indirectly influenced almost a      developers and for demonstration installations.
     doubling of electricity generated from bagasse in     But only one project has so far facilitated a long-
     that country, with the addition of an estimated 3-    term financing mechanism for grid-based power:
     5 MW of new bagasse generation capacity. The          The India Renewable Resources Project strength-
     Costa Rica project indirectly helped to support       ened the capabilities of the India Renewable
     more than 30 MW of privately financed and oper-       Energy Development Agency (IREDA) to
     ated wind farms. The Philippines project              promote and finance private sector investments.
     expanded by 390 MW the capacity of an existing        As a result, more than 360 MW of wind projects
     geothermal facility and transmission system. The      and 65 MW of mini-hydro projects have been
     India Biomethanation Project has so far resulted      financed through IREDA. The project also helped
     in six demonstration installations, including three   to raise awareness among investors and banking
     180-kW biogas engines and four 450-kW dual-           institutions of the viability of wind power tech-
     fuel engines for power generation from biogas         nology and helped to lobby for lower import
     from two sewage treatment plants. Other subpro-       tariffs for wind systems. During the 1990s, many
     jects nearing completion include a 1-MW power         financial institutions decided to offer financing for
     plant that uses biogas from a sugar factory.          wind farms in India, a key project goal. Other
                                                           impacts on financing availability of other projects
     Business and supporting services development.         have not been documented.
     GEF projects have fostered business development
     in Mauritius, Sri Lanka, Costa Rica, and India by     Policy development. Electric-power-sector poli-
     facilitating conditions for independent power         cies supportive of renewable energy have been
     producers in those countries. The India Small         influenced by the GEF in Sri Lanka and
     Hydel Project has resulted in supporting services     Mauritius. The Sri Lanka project has developed
     for small hydro business development. Through         regulatory frameworks for independent power
     capacity-building activities, more than 50 offi-      producers (IPPs), including standardized “non-
     cials have been educated about the planning,          negotiable” power-purchase tariffs and contracts
     design, construction, management, and mainte-         (PPAs). This project encouraged the national
     nance of small hydro power. Local ownership and       utility to adopt IPP frameworks and agree to
     management models are being tested at three of        PPAs, which together with demonstrations of
     the demonstration sites. An “Alternate Hydro          prior mini-hydro installations and new incentives
     Energy Center” has strengthened its capability to     for developers (such as import duty waivers and
     test equipment and train stakeholders, and a local    income tax concessions), spurred the market.
     educational establishment now offers a postgrad-      Likewise, the Mauritius project led to the estab-
     uate program on alternate hydro energy. Thirteen      lishment of a framework for IPP development. A
     states have issued guidelines for engaging the        project evaluation states that “the project’s major
     private sector in the commercial installation of      accomplishment was progress in helping to estab-
     small hydro plants. Renewable energy business         lish an institutional and regulatory framework for
     associations have been fostered in Sri Lanka and      private power generation in Mauritius and the
Findings from Cluster Reviews                                                                                   19




provision of technical studies and trials to support       Off-Grid Solar PV Cluster
technologies for improved bagasse production
and improved environmental monitoring.”                    Summary: Rural applications of solar photo-
                                                           voltaics (PV) constitute the largest single group
Awareness and understanding of technologies. All           of projects in the climate change portfolio, but
projects have fostered greater awareness of grid-          most of these projects have little or no implemen-
connected renewable energy technologies among              tation experience yet. Of roughly 600,000 solar
policy-makers, utilities, private firms, and finan-        home systems expected from approved projects,
ciers. The India Biomethanation Project has                only 18,000 have been installed thus far. Several
increased awareness of and knowledge about                 business models and schemes to extend credit to
biomethanation technologies in India.                      businesses and consumers show promise of being
Representatives of various technical institutes            sustainable and further replicated. Awareness of
and government agencies have participated in               solar home systems is increasing in several coun-
overseas study tours to visit biomethanation               tries and technical standards are improving. The
plants, manufacturers, and experts in the field of         impact of projects on rural electrification plan-
waste-to-energy. A quarterly newsletter on bioen-          ning and policies has been small, but more recent
ergy is being published. The project has also              projects are emphasizing these issues.
prepared a directory of entities and individuals
working in the field of waste-to-energy and spon-          Energy production or savings and installed
sored conferences and workshops to share experi-           capacities. About 18,000 individual solar home
ences with biomethanation. In Costa Rica,                  systems have been installed through five projects
greater awareness of wind energy applications              in Zimbabwe (10,000), Sri Lanka (2,000),
has helped to foster government decisions that             Bangladesh (1,500), the Dominican Republic
allowed greater private sector investments in              (3,500), and Vietnam (1,000). The India project
wind farms.                                                supported village-scale applications of PV, in

                                             Off-Grid Solar PV Cluster


  Project                           Implementing Agency        Year Approved by GEF       Year Completed

  India Renewable Resources         World Bank                 1991

  Zimbabwe Solar Home               UNDP                       1991                       1997
  Systems

  Bangladesh Grameen Shakti         IFC                        1994
  (SME)

  Dominican Republic Soluz          IFC                        1994
  (SME)

  Vietnam SELCO (SME)               IFC                        1994

  Sri Lanka Energy Services         World Bank                 1996
  Delivery

  Argentina Renewable               World Bank                 1997
  Energy in Rural Markets

  Mexico Renewable Energy           World Bank                 1999
  in Agriculture

  Malawi Renewable Energy           UNDP                       1999
  Program
20                                                            Results from the GEF Climate Change Program




     which five PV power plants of 25 kWp each            many GEF project designs. Three projects have
     supply electricity to about 500 families connected   demonstrated credit delivery models (as they
     into village-scale mini-grids managed and main-      progress, many more projects are designed to
     tained by a cooperative society. The Mexico          demonstrate a variety of credit models). The
     project has so far resulted in installation of one   Zimbabwe project provided consumer credit
     solar water-pumping station for agricultural use.    through the Agricultural Finance Corporation
                                                          (AFC) to 4,200 households through a revolving
     Costs per technology unit or measure installed.      fund mechanism. The Bangladesh project is
     Very little data are available on any cost reduc-    demonstrating a successful application of a
     tions occurring during solar PV projects. Reports    “dealer-supplied credit” model in which one
     from the Zimbabwe project stated that market         organization (Grameen Shakti, legally a non-
     prices declined, in part through elimination of      profit), performs all functions: marketing, sales,
     import duties on imported components. Data           service, credit provision, collections, and guaran-
     from other projects indicate current sale prices     tees. The Sri Lanka project is demonstrating the
     for systems, but do not indicate the changes in      initial viability of a microfinance model, in which
     those prices over time. Two projects have influ-     households purchasing solar home systems from
     enced a reduction in import duties for PV system     dealers can obtain consumer loans from a
     components: in Zimbabwe, import duties were          national microfinance institution (MFI). The MFI
     reduced from 40 percent to zero and, in Sri          has many local branches and strong ties to the
     Lanka, duties were reduced from 30 percent to 10     communities in which it operates.
     percent.
                                                          Policy development. Policy development in off-
     Business and supporting services development. Five   grid solar PV projects has focused on standards
     solar home systems projects have had significant     and rural electrification policies. Standards for
     impacts on business and supporting services. The     solar home systems were first developed under
     technical and business capabilities of dealers       the Indonesia project. The Sri Lanka Energy
     were enhanced in Zimbabwe (more than 20              Services Project at first adopted the standards
     dealers), in Sri Lanka (three primary dealers),      used in Indonesia, but then modified the stan-
     and in Bangladesh, Vietnam, and the Dominican        dards to allow smaller systems better suited to Sri
     Republic (one dealer in each country). The           Lanka’s consumer demand and solar insolation
     Zimbabwe project expanded the network of             characteristics. Later, in both Indonesia and Sri
     dealers, established PV module standards to          Lanka, minimum requirements were further
     certify and warranty installed systems, and devel-   reduced because of consumer demand for a
     oped equipment certification institutions.           variety of systems, and because some dealers
     Evolving business models in these five projects      continued to have trouble meeting the standards.
     serve as examples to spur business development.      Rural electrification policies and planning by
     The Dominican Republic project, for example,         governments have been influenced by at least two
     helped a dealer to develop a promising fee-for-      GEF projects: The Sri Lanka project has encour-
     service business model that targets up to 50         aged the national electric utility and the govern-
     percent of the population in the rural communi-      ment to more explicitly recognize and
     ties it serves and charges $10 to $20 per month      incorporate solar home systems into rural electri-
     for electricity service. By improving the business   fication planning, and the Argentina project has
     model, the dealer is approaching a “proof of         resulted in the government developing a policy
     concept” at a scale of 5,000 fee-for-service         that increases support for rural energy service
     customers. Such a model could be replicated          concessions.
     elsewhere by other firms.
                                                          Awareness and understanding of technologies.
     Financing availability and mechanisms.               Several solar home systems projects have
     Consumer credit for rural households to purchase     conducted activities to increase end users’ aware-
     solar home systems has been a central feature of     ness of the technologies and benefits, but the
Findings from Cluster Reviews                                                                                   21




impacts of these activities have not been directly        and sustainability of ESCOs appear strongest as
measured. The Sri Lanka project conducted                 a result of the China project, which is also
village-level workshops throughout the country            pioneering the resolution of key policy and legal
to promote solar home systems. In these work-             issues to allow growth of the ESCO industry.
shops, dealers demonstrate their products, and            Several GEF projects appear to be increasing
village leaders learn about the technology. In            awareness and acceptance of ESCOs among
addition, potential local microfinance organiza-          industrial clients, policy-makers, and financiers.
tions have learned about the project and gauged
local interest in solar home systems. In its first        Energy production or savings and installed
series of training courses, the Mexico project            capacities. Few energy savings impacts have
trained 180 farmers and state and local authori-          been quantified for projects in this cluster, with
ties to use the systems.                                  the exception of the China and Hungary projects.
                                                          Estimated lifetime energy savings from approved
Energy consumption, fuel-use patterns, and                subprojects under the China project amounts to
impacts on end users. Neither data on amounts of          3.3 million tons coal equivalent (mtce), or the
fuel displaced by solar home systems in GEF               equivalent of 2.2 Mt carbon emissions reduction.
projects nor data on social benefits and other
income-generation effects are available. In               Business and supporting services development.
general, project M&E plans have not addressed             Two projects have established new ESCOs to
these issues.                                             work with industry and utilities to make energy-
                                                          efficiency investments. These ESCOs pilot busi-
Energy Service Company (ESCO)                             ness models that are the first of their kind in
Cluster                                                   these countries, and thus a major result of the
                                                          projects is demonstrations of the viability of such
Summary: Viable energy service companies                  business models. The Hungary project has
(ESCOs) have been established in two countries            strengthened the capabilities of 20 energy-effi-
(Tunisia and China) as a result of GEF projects.          ciency companies to market, assess, and finance
Financing for existing ESCOs has been facili-             energy-efficiency projects. The China project
tated in the Hungary project. Other projects with         established three pilot, private sector ESCOs that
ESCO components provide technical assistance,             have so far invested $30 million in 150 projects
training, and audits, but are not expected to lead        using energy performance contracting models for
to full-service (i.e., “performance-contracting”)         the first time in China. The project is also
ESCOs. With the exceptions of China and                   encouraging more widespread use of the ESCO
Hungary, no other countries have documented               business model throughout China. More than 80
replication or energy savings impacts of ESCOs            potential ESCOs have expressed interest in
from GEF projects. Prospects for the emergence            participating in a second phase of the project,


                                     Energy Service Company (ESCO) Cluster


  Project                           Implementing Agency       Year Approved by GEF        Year Completed

  Peru TA for Energy Efficiency     UNDP                      1991                        1995

  Tunisia ESCO (SME)                IFC                       1994

  Hungary Energy Efficiency         IFC                       1996
  Co-financing Program

  China Energy Conservation         World Bank                1997

  Egypt and Palestinian             UNDP                      1997
  Authority Energy Efficiency
22                                                                   Results from the GEF Climate Change Program




     and more than 10 additional ESCOs have begun               sion via a recently approved IFC parallel invest-
     operating. The Tunisia project established one             ment program. In the Egypt project, commercial
     ESCO as a joint venture between a Canadian                 banks are lending to individual energy-efficiency
     ESCO and a group of Tunisian banks; after two              projects. The China project has attracted the
     years of operation, this ESCO has completed 70             interest of commercial banks in financing
     energy audits, made 35 proposals, and under-               ESCOs, and increased their willingness to do so.
     taken one investment project. The Egypt project
     has supported 70 industrial audits, and 12 sites           Other Applications/Impacts
     currently employ the audit results to implement
     energy saving measures. The Egypt project has              Summary: Projects for coal-bed methane, gas-
     not yet resulted in creation of a commercial               pipeline leakage repair, fuel switching, decentral-
     ESCO model, although other developments in                 ized wind power, utility demand-side
     Egypt, including an operating ESCO funded                  management, village-scale mini-grids, and
     through the IFC/GEF Small and Medium                       district heating-efficiency improvements have all
     Enterprises Program, suggest that commercial               shown significant impacts and could all be repli-
     ESCO models can be viable.                                 cated on larger scales and used as models for
                                                                ongoing and future GEF projects. So far, three
     Financing availability and mechanisms. Three               projects—coal-bed methane in China, decentral-
     projects in particular have expanded financing             ized wind in Mauritania, and demand-side
     availability. The Hungary project has piloted new          management in Thailand—are being replicated.
     financing mechanisms that have facilitated and
     guaranteed financing for energy service compa-             Sri Lanka Energy Services influenced develop-
     nies. Three Hungarian financial institutions have          ment of 80 village-scale mini-grids using small
     utilized the project’s “partial guarantees”                hydro serving about 3,500 people (using 500 kW
     (provided on a “first loss” basis), to fund, on a          total capacity). Seven of these schemes were
     transaction-by-transaction basis, an initial six           financed directly through the GEF project
     investment projects valued at $1.6 million. The            (totaling 70-100 kW capacity); the remaining
     project has helped lower credit risks and hence            schemes were financed by international donors
     has demonstrated the financial viability of invest-        and local government.
     ment projects. The project has also generated
     interest from most major commercial banks in               China Sichuan Gas made a substantial contribu-
     Hungary, providing a good foundation for expan-            tion to increasing gas reserves and gas production



                                                      Other Applications


       Project                           Implementing Agency         Year Approved by GEF       Year Completed

       China Coal-bed Methane            UNDP                        1991                       1997

       Poland Coal-to-Gas                World Bank                  1991

       China Sichuan Gas                 World Bank                  1992

       Mauritania Decentralized Wind     UNDP                        1992                       1996

       Jamaica Demand-Side               World Bank                  1993                       1999
       Management

       Sri Lanka Energy Services         World Bank                  1996
       Delivery

       Bulgaria Energy Efficiency        UNDP                        199
Findings from Cluster Reviews                                                                                              23




capacity in Sichuan province, as well as to                     models (with cooperatives), trained local techni-
improving safety and environmental protection                   cians, promoted consumer awareness, and devel-
throughout the province’s gas transmission                      oped financing and institutional capability for
network. The project increased the proven                       further development of small wind-electric
reserves from 400 bcm in 1993 to 554 bcm in                     systems. A second phase, extending the experi-
1998 and increased annual production capacity                   ence to 100 villages, has started with financing
from 6.5 bcm to 9.3 bcm over the same period.                   from the French government.
The project also helped to reduce pipeline leak-
ages and introduced the process of leakage detec-               Poland Coal-to-Gas promoted the conversion of
tion and repair to the gas transmission company                 small- and medium-sized boilers from coal to
for the first time. The company hadn’t realized                 natural gas fuels. The project raised awareness of
the importance of pipeline monitoring and had to                the potential for coal-to-gas conversions in
bring in new analytical tools and gain new skills,              Poland. In particular, many of Poland’s environ-
including the establishment of a new pipeline                   mental investment funds, like the Bank for
monitoring and rehabilitation center. As a result               Environmental Protection, began to fund coal-to-
of the project, system leakage rates reduced from               gas conversions. In fact, a large coal-to-gas
3.6 percent in 1996 (the first time leakage had                 industry emerged in Poland. Many boiler conver-
been monitored) to 1.5 percent in 1998.                         sions have occurred with Polish government and
                                                                private financing. The project helped increase the
China Coal-bed Methane created the China                        government’s awareness of the need to address
Coal-Bed Methane Corporation, which is facili-                  boiler conversions nationwide. The project gener-
tating joint ventures and providing financing for               ated information, publicity, and promotion that
exploitation of coal-bed methane. This project                  influenced the thinking of boiler owners and
has created new business infrastructure and                     financiers. In addition, the EU Phare* program
supporting services to recover coal-bed methane.                took note of the project and began to develop
At three sites, the project demonstrated tech-                  similar projects for coal-to-gas conversions in
niques and technologies that Chinese coal mines                 neighboring countries.
can employ to reduce atmospheric methane emis-
sions and recover methane as a fuel. Training                   Bulgaria Energy Efficiency has conducted studies
workshops were held at these same sites. The                    of the feasibility of several municipal energy-
project published a detailed assessment of                      efficiency projects, and a number of energy-effi-
China’s coal-bed methane resources and                          ciency investment projects are now underway as
strengthened the country’s capacity to conduct                  a result of the project’s capacity building and
such assessments routinely. More than 500                       institutional development. These projects involve
people were trained, from senior government                     a school, district heating improvements, residen-
policy makers to senior managers and engineers                  tial apartment buildings, and street lighting.
of coal mining companies. Several additional
exploration and development agreements with                     Factors Influencing Sustainability and
foreign partners have been negotiated since the                 Replication
project was completed.
                                                                The Climate Change Program Study highlighted
Mauritania Decentralized Wind installed demon-                  some of the factors that appear to influence
stration wind-electric systems for rural electrifi-             sustainability, either positively or negatively.
cation in 19 villages with 900 households. The
project piloted sustainable service-delivery




*
 The Phare program is one of the three pre-accession instruments financed by the EU to assist the applicant countries of
Central Europe in their preparations for joining the EU.
24                                                              Results from the GEF Climate Change Program




     Some examples of positive influences on sustain-         energy-efficient products, which suggests that
     ability:                                                 the gains from the market transformation
                                                              programs are not likely to be reversed.
     • Demonstration of sustainable business models.
       “Demonstration of a viable business model,           • Voluntary agreements with the private sector.
       whether that business is public, private, utility,     Two of the Thailand DSM market transforma-
       or even permanently subsidized, is key to              tion programs (fluorescent tubes and refriger-
       achieving project sustainability and achieving         ator labeling) have had sustainable impacts on
       the GEF programmatic objective of trans-               the market. The voluntary agreement
       forming (or developing) markets for solar PV,”         concluded between EGAT and fluorescent tube
       concluded the solar PV cluster review. Two             manufacturers effectively and completely
       projects may be close to demonstrating                 “washed” the Thai market clear of inefficient
       sustainable business models. In Sri Lanka, a           T-12 fluorescent tubes. In 1994, when the
       partnership between dealers of solar home              program began, efficient tubes had a 40
       systems and a rural microcredit organization           percent market share, and by the end of 1995,
       appears to offer a sustainable model for house-        the efficient tubes had achieved a 100 percent
       hold purchases of these systems. In the                market share.
       Dominican Republic, the firm Soluz
       Dominicana is close to demonstrating a “proof        • Establishment or precedents of new legal
       of concept” for a business model for serving           frameworks. Projects can foster new legal
       up to 5,000 households using a “fee-for-               frameworks and promote sustainability
       service” approach.                                     through adoption of these frameworks. A
                                                              project may encourage lawmakers or adminis-
     • “Market transformation” approaches. The                trators to consider and define legal issues they
       market changes brought about by the Poland             otherwise would have ignored or considered
       Efficient Lighting Project have been sustain-          unworthy of attention. The best example is the
       able. Two years after the close of the project,        China Energy Efficiency Project, whose value
       the market changes resulting from the project          may be as much about encouraging new legal
       were still in place. Retail prices of CFLs in          precedents or contractual forms as it is about
       Poland decreased by 34 percent in real terms,          direct energy-efficiency investments. The
       and Polish CFL market experts and manufac-             project is likely to set a precedent for the legal
       turers agree that the project was largely              accounting status of ESCOs in China. Such a
       responsible for this dramatic price decrease.          precedent is important for the future growth of
       The project helped increase sales volumes and          the ESCO industry in China, and was only
       manufacturer competition, and the public               possible after the three pilot ESCOs had grown
       education campaigns helped increase                    and accumulated assets sufficient to draw
       consumer demand to the point at which the              government scrutiny. The contractual forms
       price decrease was sustainable. In Thailand, a         that the three ESCOs have used with their
       refrigerator program appears to have sustain-          clients also came under government auditor
       ably transformed the refrigerator market.              scrutiny and created the need for the govern-
       High-efficiency refrigerators are now the              ment to formally classify these types of
       norm, and the unit with the highest highest            contracts. Once a legal ruling occurs, other
       level of efficiency became the dominant unit           future ESCOs and their clients will face lower
       on the market as early as the second year of           risks and place greater confidence in applying
       the program. In fact, surveys show that a              performance contracting models, establishing
       variety of energy-efficient appliances                 business plans, and understanding the legal
       promoted through the Thailand project have             and tax implications of performance
       sustained markets. Customers have been                 contracting.
       highly satisfied with the reliability of the
Findings from Cluster Reviews                                                                             25




Some examples of factors that can negatively           tions about how the consumer credit will be
influence sustainability:                              sustained after the Agricultural Finance
                                                       Corporation revolving fund winds down. This
• Privatization of power utilities supporting          fund is becoming depleted, in part because of
  demand-side management. In Thailand, the             concessional terms and in part because of
  fate of the highly successful Demand-Side            macroeconomic conditions. Also in question is
  Management Office (DSMO) of the national             whether many of the businesses established or
  electric utility (EGAT), created under a GEF         strengthened during the project are sustain-
  project, is uncertain in the face of EGAT’s          able. During the project, businesses were
  planned privatization. Despite impressive            dependent on the Project Management Office
  achievements under the project, the publicly         (PMO) for customers, credit, equipment subsi-
  supported DSMO (the main innovation piloted          dies, and even the equipment itself. Without
  by the project) may not be sustainable.              the PMO, many of these businesses have been
                                                       unable to operate on their own and have
• Short-term power-purchase tariffs for grid-          closed.
  based renewable energy. A sustained market
  for small hydropower development under the         • Project implementation arrangements that do
  Sri Lanka Energy Services Project is question-       not demonstrate business models. The Ghana
  able, given the way power-purchase tariffs           Solar PV Project was originally designed to
  were established. Tariffs were tied to short-run     demonstrate a business model in which the
  avoided utility costs based on the international     national utility, the Volta River Authority,
  price of oil. In 1997 and 1998, tariffs were set     would provide fee-for-service to rural house-
  at the equivalent of 5 cents/kWh, and mini-          holds using solar home systems. At the conclu-
  hydro development flourished. Because of the         sion of the project, it was intended that the
  downturn in oil prices in 1998-99, however,          utility would assess the costs, service, cash
  prices were only the equivalent of 3.5               flow, and management of these systems in
  cents/kWh in 1999. As a result, all develop-         terms of the viability of this business model.
  ment essentially stopped in 1999. And this           The demonstration of this model could also be
  fluctuation has seriously hurt the longer term       used to convince other private companies to
  interest of private mini-hydro developers in Sri     enter the market, an explicit project objective.
  Lanka. “The low tariffs and unresolved dispute       But responsibility for implementation of the
  [on tariff calculation methods] have caused a        project was transferred to the Ministry of
  deep slump in mini-hydro development,”               Mines and Energy early on. This office may
  stated a project status report in 2000.              succeed in installing and servicing a given
                                                       number of home solar systems. But given that
• Consumer finance and rural business depend-          the office is subject to government rules and
  ence on project resources. The Zimbabwe              regulations, its ability to demonstrate and
  Solar Home Systems Project greatly expanded          judge business viability in a transparent
  the network of private dealers and resulted in       commercial manner is questionable.
  the sale of 10,000 systems, but there are ques-
Global Environment Facility
1818 H Street, NW
Washington, DC 20433 USA
Telephone: 1(202)473-0508
Fax: 1(202)522-3240
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