The outlook for primary energy supplies, heat, and electricity is questionable
for the Eastern Europe and Central Asia region, despite Russia and Central
Asia’s current role as a major energy supplier to both Eastern and Western
Europe. In spite of the underlying resource base, the region as a whole will
face an energy crunch unless investments of more than $3 trillion are made over
the next 20 years, according to the new World Bank report,
Lights Out? The Energy Outlook in
Eastern Europe and the Former Soviet Union, launched
today.
“The
demand for primary energy in the Europe and Central Asia region is expected to
increase by 50 percent by 2030,”
said
Peter Thomson,
Director for Sustainable Development in the World Bank’s Europe and Central Asia
region,
“while the demand for electricity is
expected to increase by 90 percent.”
“Before
the current global financial crisis hit in 2008,”
Thomson explained,
“several
importing countries in the region had begun to experience difficulties with
supplies. The financial crisis has slowed demand for energy and has created some
breathing room to allow countries to take action to mitigate the impact of the
anticipated energy crunch. But this window of opportunity will only exist for
about five to six years. Mitigating actions are required on both the supply and
the demand side, and without a change in behavior the region as a whole could
face an energy crunch – moving from being a net energy exporter to a net energy
importer by 2030.”
Energy
trends reflect economic trends
Following
the break-up of the Soviet Union, the countries of Europe and Central Asia
experienced six years of dramatic economic decline, followed by vigorous
economic recovery, enabling the region to become one of the most economically
dynamic in the world. This economic performance was reflected in the region’s
energy sector – the initial economic decline was accompanied by a sharp
reduction in the production and consumption of energy. But as the region’s
economy recovered, both production and consumption increased. Investment,
however, lagged, particularly in energy asset maintenance and upgrading,
creating the prospect of an energy crunch.
The
region was the hardest hit by the global financial crisis that began in 2008,
dampening energy demand significantly. This created some breathing room, but
this is only a temporary respite before energy availability again becomes a
serious concern. Once growth picks back up, so, too, will energy
consumption.
Investment
needed to stave off crunch
According
to the report, if energy production is to be maintained or increased to meet
Europe’s energy requirements, significant investment will be required. The
projected needs for primary
energy development from
2010 to 2030 are estimated to be on the order of almost $1.3 trillion in order
to ensure the availability of oil, gas, and coal. In addition, the region’s
power sector
infrastructure is in desperate need of upgrading. Electricity
capacity has hardly increased since the early 1990s and plants are getting old.
Investment needed in power sector infrastructure over the next 20 to 25 years is
on the order of $1.5 trillion, with a further $500 billion required for district
heating.
“The
deteriorating capacity has not yet become a full-blown crisis,”
said Thomson,
“because of
the decline in demand during the 1990s and the current drop off in demand
related to the financial crisis. But construction lead times of several years
mean that action is required now. This level of investment – more than $3
trillion – cannot be provided in this region by the public sector alone.
Attracting private sector investors will require changing the investment climate
to make it conducive to such investment.”
Energy
Efficiency – untapped potential
Investing
in energy efficiency achieves three goals, simultaneously and at least cost:
lower greenhouse gas emissions, better energy security, and more sustainable
economic growth.
According
to the report, an additional $1 invested in energy efficiency may avoid more
than $2 in production investment. But much potential remains untapped because of
the many obstacles to investments in energy efficiency, including inadequate
energy prices and lack of payment discipline, a lack of information on the
latest technologies, too few contractors and service companies, and financing
constraints.
Governments
have a major role to play in energy efficiency, not only in allowing energy
tariffs to reflect costs, but by being proactive in setting and updating energy
efficiency standards for homes, equipment, and vehicles, and in enforcing them.
The report recommends that to set an example, governments should undertake
energy efficiency programs in the public sector, inform the public on energy
efficient technology options, and design cities with alternative means of
transport.
The
outlook for addressing climate change
The
challenge for these countries going forward will be to secure additional energy
supplies quickly and at minimum cost, while acting in an environmentally
friendly fashion to limit the growth of greenhouse gases.
According
to the report, carbon emissions relative to GDP in the region are among the
highest in the world. In 2005, Russia was the third-largest CO2 emitter in the
world, after the United States and China. The region’s EU members have already
started tackling climate change, improving energy efficiency, developing
renewable energy technologies, and tapping into carbon finance. Other countries
in the region will face increasing pressure to catch up, and
quickly.
However,
there is a disconnect between the global efforts to reduce carbon emissions and
the region’s national energy strategies for the next 20 years. The region’s
policymakers and businesses will have to rethink these strategies and engage
seriously in the global efforts. But transitioning to a low carbon economy can
be costly. By tapping into carbon finance, countries in the region can reduce
their carbon footprint and attract critical capital to rebuild their energy
infrastructure and industrial base using efficient and cleaner technologies.
Governments should ensure that national policies and legislation facilitate the
use of carbon finance, foster rapid technological modernization, and spur a
revolution toward energy efficiency.
Time
is of the essence
The
report emphasizes that given the enormous need for investment, and the long lead
times required to implement projects in the energy sector, countries need to
position themselves to secure funding support for such progress as quickly as
they can. Failure to introduce an enabling environment to support investment in
the sector will translate into a shortfall in investment that, in turn, could
constrain economic activity. A 10 percent shortfall in energy availability could
lead to a 1 percent reduction in economic growth, and a larger shortfall could
have even more detrimental impacts.
“The
World Bank stands ready to assist countries in meeting their energy
needs,”
said Thomson,
“by helping
them create an attractive climate for investment, and by helping secure access
to various sources of funding, including carbon finance. However, countries need
to act swiftly – time is of the essence.”