Renewable energy resources -- sunlight, wind, running water, biomass, and geothermal heat -- are widely distributed throughout the developing world. They are starting to be exploited through a range of technologies that convert natural energy flows to electricity. Their declining costs and commercial maturation mean that technologies that rely on renewable resources can now be used in a variety of situations.

Advantages of Renewable Energy

Renewable resources are indigenous, do not require fuel purchases, and can be used locally for power generation. So they are particularly advantageous for off-grid applications. In fact, the future of renewables in the developing world may be determined by the extent they serve rural populations. At present, roughly 2 billion people in the world do not receive electricity. Other households are nominally served, but service is so unreliable that they choose to invest in their own sources of power. In the absence of reliable grid power, residents become "self-generators" -- they use diesel generators, kerosene lamps, lead acid batteries charged by diesel generators, candles, and diesel pumps. Many of these sources emit pollutants with adverse environmental and health effects.

In addition to their other advantages, renewable resources could play a significant role in limiting the environmental effects of energy use. Many developing countries, including China and India, are burning increasing quantities of coal to generate power -- with both local health and global climate effects. Improving the environmental performance of the power sector requires changing the generation mix, installing pollution controls, and limiting power demand by improving energy efficiency.

As a result of rapidly growing electricity demand, carbon emissions in the developing world are projected to outpace those in countries that belong to the Organisation for Economic Co-operation and Development (OECD).² (See Figure 1.) According to the World Bank, improving the efficiency of electricity generation, distribution, and use will not be enough to keep greenhouse gas (GHG) emissions from increasing over the next 25 years; doing so will require moving away from dependence on fossil fuels.³ Switching to low- and no-carbon technologies, including renewables, for new electricity generation is the only way for developing countries to cap both their GHG emissions and local pollutants.

At the same time that interest in renewables is growing, developing countries are reforming the way electricity services are provided. (See Box 1.) On the one hand, reforms could offer renewables the opportunity to compete fully and fairly for market share in some countries for the first time. On the other hand, they could further entrench energy technologies that pose local and global environmental threats.

The stakes regarding the impact of reforms on renewables are high. Total projected growth in electricity consumption between 1993 and 2015 in non-OECD countries exceeds that of industrial countries. (See Figure 2.) Asia will contribute the largest increase. (See Figure 3.) Due to high electricity demand growth rates -- in some countries, in the double digits -- new investments in the power sector made in developing countries over the next 20 years will be as large as cumulative investments to date. Countries that have initiated reforms already constitute 78% of generating capacity in non-OECD countries.

Renewable Energy Deployment to Date

Until recently, the deployment of renewable energy technologies in developing countries occurred primarily through direct government investments or international donor programs in which renewables did not compete in open markets. Where renewable pilot projects have been implemented by publicly owned and managed utilities, the decision was often made in order to meet planning, political, or technological objectives.

Today, however, renewables are increasingly deployed commercially in competitive markets. And public support is more oriented toward creating a market environment in which renewables can compete fairly for market share.

Renewable energy technologies compete with nonrenewable technologies to penetrate markets for "bulk" (large-scale) and "distribution" power generation. (The latter refers to small-scale generation to support a grid, to power village mini-grids, or to serve individual households.) Consumers can also use renewables instead of electricity to meet demand-side needs (such as daylighting, water heating, and space conditioning). (See Table 1.)

The successful penetration of renewable energy into bulk markets depends on several factors -- the quality of locally available resources, technological developments affecting the relative cost competitiveness of renewable versus nonrenewable options, and the structure and operation of such markets. Large hydropower, geothermal, and biomass cogeneration (combined heat and power) have already made significant contributions to meeting bulk power needs in several developing countries. For example, India has become a leading wind power producer.

Renewables have also made inroads in distributed power markets, primarily for rural electrification. Local dealers are marketing solar home systems and related services, for instance, in the Dominican Republic, Kenya, India, Sri Lanka, and Zimbabwe. A World Bank loan for solar home systems in Indonesia is based on a competitive market of individual small entrepreneurs.⁴ In such markets, renewables are competing with energy sources based on fossil fuels that are transported long distances or with the generation, transmission, and distribution costs of grid extension.

The future market penetration of renewables in developing countries depends on which model these countries emphasize for power sector expansion. The central station model (in which power lines emanate from a large generating station) has dominated in the United States and other industrial countries. However, more recently an alternative, pro-renewables model has been evolving. This "distributed utility" model places less emphasis on central generation and more on modular generation units that are strategically located close to where power is actually needed -- which is especially desirable in countries with large unconnected rural populations. (See Box 2.) Because OECD countries export both their technologies and their infrastructure models, it is too soon to say whether the distributed model will take hold in developing countries.

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