• 12.12.2024
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The World Bank’s fund for lower-income countries – the International Development Association (IDA) – is about to be replenished. Many member countries have already pledged millions of dollars to this 21st round of funding, known as IDA21: Spain with €400 million, the US with $4 billion, Brazil, Norway, and most recently the UK with nearly £2 billion. This week, South Korea plays host to the final pledging meeting, at which the World Bank is aiming for a record $100-billion-plus replenishment, to address critical global challenges like climate change, poverty alleviation, energy transition and access, and sustainable development for the world’s most vulnerable populations.

To better understand how the fund approaches these challenges, we took a closer look at the IDA energy portfolio from 2013 to 2023, using data collated by Oil Change International. Our research found that nearly 75% of IDA funding for all energy projects was loans – almost five times higher than the amount allocated as grants. In addition, the type of energy supported is not made clear for a staggering 54% of this funding, making it impossible to gauge the sustainability and environmental impact.

In this blog, we lay out the findings and make recommendations for how the IDA21 fund can truly deliver clean, accessible energy for people who need it the most.

Hidden carbon risks in unspecified energy projects

From within the finance allocated to energy projects, renewable energy received the largest amount of support from IDA between 2013 and 2023 (see Figures 1 and 2). Despite a noticeable shift towards funding renewables, non-renewable investments continued to hold a share in recent years, even after peaking in 2016 (see Figure 3). However, half (272) of the energy projects do not have clear information on the type of energy source that they support. Half of these are Transmission & Distribution (T&D) projects which move electricity from the source through the grid to end users. The other half, marked “unclear” are various initiatives aimed at: (1) supporting electricity production; (2) liberalising all or parts of a country’s energy sector; (3) enabling cross-border trade in energy; (4) promoting private sector participation in the energy sector; (5) enhancing the financial viability of the energy sector such as tariff reforms, improvement of bill collection, payment of arrears; (6) removal of energy subsidies; and (7) capacity building for government ministries.

 

Figure 1. Number of IDA energy projects (2013-2023). Bar graph showing four categories: renewables (193), unclear/mixed (137), transmission and distribution (135), non-renewables (82).

Figure 1. Number of IDA energy projects (2013-2023)

Figure 2. IDA funding to energy projects (2013-2023, in million USD). Bar graph showing four categories, in order of the amount of IDA funding: transmission and distribution, renewables, non-renewables, unclear/mixed.

Figure 2. IDA funding to energy projects (2013-2023, in million USD)

Figure 3. IDA funding to energy projects, per year (2013-2023, in million USD). Line graph what share of the funding was given to each of four categories (transmission and distribution, renewables, non-renewables, unclear/mixed).

Figure 3. IDA funding to energy projects, per year (2013-2023, in million USD)

The lack of information on the type of energy source creates a major blind spot for IDA, making it impossible to accurately assess the carbon emissions associated with these projects. T&D projects can significantly influence greenhouse gas emissions. Moreover, if these T&D projects ultimately rely on non-renewable sources, IDA’s energy portfolio may be more heavily weighted toward fossil fuels than initially perceived.

This concern is not unfounded. Conventionally, investments into T&D have boosted connections for existing fossil fuel plants, rather than improving the viability of new renewable energy technologies. This in turn locks low-income countries (LICs) further into carbon-based energy systems. When T&D investments are tied to transnational energy trade, the risk of carbon lock-in extends beyond national borders. Compounding these risks is the World Bank’s loan-dominant financing structure, which pushes LICs further into debt distress, leaving them with little choice but to rely on fossil fuel extraction and primary commodities for export in order to fulfil their debt repayment obligations. The Bank must consider the long-term implications of T&D investments to avoid locking in carbon-intensive systems, thereby limiting future emissions reduction opportunities. Instead, grid expansion and upgrading should be specifically to enhance connectivity for diverse renewable energy technologies, to support transition to fully renewable energy systems.

Funding renewable energy while ensuring access for communities

IDA funding for renewable energy for the past 10 years has surpassed fossil fuel investments, signalling an important shift towards cleaner energy systems. However, the majority (67%) of funded projects are large-scale, many of which do not guarantee energy access for local people. While large-scale renewable energy projects should support economic development and job creation, and have the potential to help countries end reliance on fossil fuels (including gas and liquefied natural gas (LNG)) their success is often hindered by inadequate community involvement and top-down approaches.

Distributed renewables appear to have a stronger link to providing energy access as compared to large-scale projects (see Figures 4 and 5). To ensure equitable outcomes, distributed renewables must be further supported and the deployment of large-scale projects must operate in tandem with community-level engagement and investment. Without this balance, there is a substantial risk of impoverishing the very communities that surround and depend on these projects. In Senegal for example, the Taïba N’Diaye wind farm (PETN) supported by the World Bank Group (WBG) provides a growing share of renewable energy to the national energy mix. However, communities affected by the project are yet to be compensated for their losses, by the PETN or the WBG as its main financiers. The PETN company has a duty to strengthen initiatives to reduce the socioeconomic and environmental impacts of the wind project.

Figure 4. Renewable project scale, type, and community access (2013-2023). A complex graph linking together the project scale with project type and whether it provides access to communities or not.

Figure 4. Renewable project scale, type, and community access (2013-2023)

Figure 5. A bar graph showing Renewable energy sources and energy access (2013-2023).

Figure 5. Renewable energy sources and energy access (2013-2023)

Another cause of concern is the inclusion of high-risk “renewables” such as large hydropower and biomass in IDA’s supported projects. Biomass causes deforestation, large hydropower projects can disrupt ecosystems and displace communities, and both often fail to directly provide energy access to local communities. In contrast, solar power presents an opportunity as the most community-focused renewable source, offering practical, scalable and decentralised solutions for energy equity and access in rural areas. Out of 104 solar-based projects in IDA’s portfolio, 64 provide direct access to local communities as they focus on microgrids and home systems that can be adapted to various socio-economic contexts.

The debt trap in renewable energy financing

Despite the World Bank’s mission of “ending poverty on a livable planet” and its explicit acknowledgment that half of IDA recipient countries are in, or at high risk of, debt distress, not a single year has seen grants surpass loans in funding across any category. Less than a quarter (around 22%) of IDA’s renewable energy investments from 2013 to 2023 were disbursed as grants (see Figure 7).

Multilateral development banks are increasingly prioritising “bankable” private sector projects and public private partnerships (PPPs), relying on loans that intensify debt stress, where national governments bear the economic liabilities. A high reliance on debt compared to equity makes financing more challenging, especially for high capital cost projects like large-scale renewable energy developments. Countries are typically required to repay loans in hard currency, driving project structures that prioritise making profits and reaching new markets over benefiting communities.

Figure 6. Overall IDA energy financing by mechanism (2013-2023) in million USD. A pie chart showing that Loans were 25146.95 million USD, representing about three quarters; Guarantees were 2606.30 million USD; Grants were 5885.47 million USD.

Figure 6. Overall IDA energy financing by mechanism (2013-2023) in million USD

Figure 7. Line graph showing Renewable energy financing by mechanism by fiscal year (2013–2023) in million USD.

Figure 7. Renewable energy financing by mechanism by fiscal year (2013–2023) in million USD

IDA21 represents a critical opportunity for the World Bank to address global energy access gaps and climate challenges. While the International Development Association has increased funding for renewable energy over the past decade, gaps in project transparency, reliance on loans over grants, and the continuation of non-renewable energy investments hinder progress toward a just energy transition. Without prioritising equitable and sustainable energy solutions, IDA risks perpetuating debt cycles, fossil fuel dependency, and socioeconomic inequities in vulnerable countries.

Our recommendations for IDA21:

  1. Incorporate comprehensive metrics for energy projects: Introduce metrics evaluating affordability, equitable distribution, and community ownership of energy initiatives. Ensure full disclosure of energy sources to avoid masking fossil fuels within the portfolio.
  2. Increase grant-based financing: Shift priorities to grants for energy projects, reducing reliance on loans and minimising debt burdens. This approach will encourage sustainable development without exacerbating economic vulnerability in low-income countries.
  3. Strengthen localised renewable solutions: Enhance support for decentralised, community-focused renewable energy projects such as microgrids and solar home systems. This strategy ensures equitable energy access and empowers communities while mitigating environmental and social impacts.

Thanks to Ashley Siagian for the research, analysis and write-up of this article, which was originally published on Linkedin Pulse