Governance conditions for renewable energy

This is the seventh and last of a series of environmental columns that I started writing last April, right at the time the world was celebrating Earth Hour. Using how Western and Chinese thought have classified the elements of the world (the subject of the first column), I have written about Earth (agriculture and land), Metal (mining), Air (climate and air pollution); Water (water resources and water pollution), and, just last week, Wood (forests). In this column, I write about Fire, which to the Greek philosopher Heraclitus was the most fundamental of all elements, the underlying substance of the universe. According to this pre-Socratic thinker: “All things are an interchange for fire, and fire for all things, just like goods for gold and gold for goods”.

Fire is of course logically identified with energy. It is this important area of sustainable development – how the world (and the Philippines with it) could ensure inclusive and authentic development while moving away from a fossil-based energy system that has polluted our atmosphere, causing health problems and climate change, and what is needed to transition to the brave, cleaner world of renewable energy—this column will look at. How can clean energy be achieved? Who will pay for renewable energy? More specifically, what are the governance conditions for renewable energy?

Although I did not plan on it, it is a happy coincidence that I ask these questions (and this column is published) during the week when the Asian Clean Energy Forum of the Asian Development Bank is being held. Many energy practitioners and advocates from all over the world are in town for this annual event, and among them are my former colleagues from the World Resources Institute, an international environmental think-tank based in Washington DC, USA. Among many things, WRI does excellent work on climate change and energy (see http://www.wri.org/stories/2011/06/wri-experts-asias-clean-energy-future) and, led by its long-time president Jonathan Lash, has been influential in both international and key national decision making processes on these issues. Among its projects is the Electricity Governance Initiative – a collaboration of civil society, policy-makers, regulators, and sector actors to promote the open, transparent, and accountable decision-making processes that are necessary to reach a socially and environmentally sustainable energy future. EGI is a joint undertaking of WRI and the Prayas Energy Group (India) while the Ateneo School of Government is its local partner.

As articulated in the EGI Web site, “the processes and institutions that shape how decisions are made in the electricity sector influence the success of policy and reform efforts.” We believe that electricity reforms done via closed political processes without adequate public input have ended up focusing on attracting private investment while ignoring social and environmental concerns. For EGI, “If reform processes are to bring about meaningful change, they must be supported by systems of good governance guided by transparency, participation, and accountability.”

This brings me back to the question I posed earlier—how do we achieve clean and renewable energy?

Again, I turn to EGI for answers. In a recent opinion piece (http://www.wri.org/project/electricity-governance), EGI asserts that as feed-in tariffs gain traction as a policy mechanism of choice to promote renewable energy, the bigger picture of the financial health of developing country electricity sectors must be considered. EGI believes that in order for feed-in tariffs or other electricity policies to be effective, a comprehensive approach essential to address the financial and governance challenges that continue to trouble utilities. And the most critical of reforms needed are transparent tariff setting processes that provide space for public scrutiny and input.

According to EGI, the truth is that in developing countries “there have been few institutions structured to allow for stakeholder engagement in a way that can accommodate a range of analyses and approaches”. In these countries, institutional processes for disclosing information and incorporating public input are usually underdeveloped. “If independent agencies exist at all, they often lack sufficient mandate, authority and capacity to implement these tasks. When a lack of open, transparent processes combine with an absence of visible regulatory actions to curb inefficiencies, consumer confidence is lost.”

EGI has observed that “The lack of formal channels for integrating consumer perspectives has had adverse effects. With the lack of institutional space in which to explore a range of solutions, consumers have typically taken to the streets or threatened political stability in response to tariff increases that have been viewed as inequitable.” It cites examples from Indonesia (where the government was unable to sustain significant tariff increases even in spite of World Bank and Asian Development Bank loan conditionalities), the Indian state of Tamil Nadu (where the utility fs massive debt must be attributed to multiple types of subsidy payments that the state government has not transferred), and Thailand (where consumer groups advocate that renewable energy policy should be bundled with energy efficiency and demand-side management, rather than deployed in isolation). In Indonesia also, as EGI points out, citizen organizations assert that subsidies for renewable energy should not be allowed as a gblank check h, and must be related to public interest objectives and regulatory oversight.

This lack of transparency in electricity and other energy decisions can also be a problem in the Philippines, according to EGI, where there is a serious tendency to keep marginalized sectors, especially those who are non-industry players, out of energy decision making processes. For example, the voices of indigenous peoples and local communities are usually ignored in the development of power and fuel projects. This lack of transparency and public participation in energy planning and development has led to compromised environmental principles and standards as well as social conflict resulting in escalating costs for the country. This should be avoided as the Philippines implements its recently enacted Renewable Energy Act; otherwise support for renewable energy would diminish.

EGI believes that consumers, as individuals and through citizen and civil society organizations, must be able to participate in the rate setting process for electricity, providing analysis and feedback, reducing information asymmetry, and last but not least requiring better corporate governance and performance standards from utilities. Consumers can also give important input into the setting of investment priorities and the distributional impacts of tariff design.

For most citizen and civil society organizations, the focus on investor issues has made the regulatory process irrelevant and of little value. Thus, as EGI observed, “begins a cycle of non-engagement, for when civil society organizations stay away from regulatory proceedings, the perception that the process has been captured by project developers is reinforced, and has the potential to build popular suspicion of renewable energy generation rather than a constituency that demands more ambition.”

To break this unhealthy cycle – a triple negative for the environment, development and good governance – EGI supports bigger investments in stronger and more effective regulatory institutions, including transparent and accountable decision-making processes. Capacity building for the effective participation of consumers, citizens and civil society organizations in these processes is likewise essential to achieve good environmental and economic objectives. These are the governance conditions required for clean and renewable energy. -Dean Tony Lavina, Manila Standard Today

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