W O R L D B A N K O P E R AT I O N S A N D C L I M AT E C H A N G E
Electricity Project values additional electric output at $0.15 per kWh, even though this is below the cost of provision, and far below the likely willingness to pay. And correctly valuing additional electricity access is a technical problem that requires information or assumptions about demand, and the IEG review of rural electrification (IEG 2008d) found that only 5 of 13 projects examined used best-practice techniques. Similarly, distortions in coal and (especially) gas markets need to be accounted for in project appraisal. Moreover, economic analysis should incorporate allowance for energy price volatility. Because fossil fuel prices are volatile and uncorrelated with variation in wind and rain, investments in renewables and energy efficiency carry a riskhedging benefit—in effect, another kind of shadow value. Some ESMAP work has been important in drawing attention to this (Hertzmark 2007). But while the carbon shadow value is perceived only when carbon markets are active,
the risk-hedging value associ- High energy prices act ated with renewables is a clear like carbon taxes in some benefit to the investor or to the ways. host nation—depending who bears the price risk. Furthermore, most develop- For project appraisals to ment and carbon impact send the right signals they assessments look within the must value energy and boundaries of the project. But electricity at economic projects—especially low-car- prices, but this is not bon projects—often aspire to easily done. catalyze replication and diffusion through demonstration or market transformation effects. These include learningcurve effects, reduction of perceived risk, and stimulus of supply and service markets. Multipliers should therefore attach to both the development and Renewable energy and carbon effects of these proj- energy efficiency are ects. In practice, spillover ef- hedges against volatility fects may dominate within- of fossil fuel prices.
Figure 3.2: Real Energy Prices of Coal, Gas, and Oil, 1990–2008
12
10
1990 $/mmbtu
8
6
4
2
19 90 19 M1 90 19 M 90 6 M 19 11 91 19 M4 91 19 M9 92 19 M2 9 19 2M 92 7 M 19 12 9 19 3M 93 5 M 19 10 94 19 M3 94 19 M8 95 19 M1 95 19 M 95 6 M 19 11 96 19 M4 96 19 M9 97 19 M2 9 19 7M 97 7 M 19 12 9 19 8M 98 5 M 19 10 99 19 M3 99 20 M8 00 20 M1 0 20 0M 00 6 M 20 11 01 20 M4 01 20 M9 02 20 M2 0 20 2M 02 7 M 20 12 0 20 3M 03 5 M 20 10 04 20 M3 04 20 M8 05 20 M1 0 20 5M 05 6 M 20 11 06 20 M4 06 20 M9 07 20 M2 0 20 7M 07 7 M 12
0
Date Coal, Australia, real $/mmbtu
Crude oil, average, spot real $/mmbtu
Natural gas, Europe, real $/mmbtu
Natural gas, U.S., real $/mmbtu
Source: World Bank Global Economic Monitor.
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