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Reducing World-Wide Dependence on Fossil Fuels

August 27, 2014

Author: Isidoro Tapia, WG’15

In his 2006 State of the Union Address, President George W. Bush coined the term “addiction to oil” to describe America’s reliance on fossil fuel-based technologies: “Keeping America competitive requires affordable energy. And here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world.”

In his reelection speech in 2012, President Barack Obama announced that U.S. had begun “freeing ourselves from foreign oil”.

What happened in between? A combination of events paved the way for a tremendous shift in public policy: a financial and economic crisis with no precedents since the Great Depression in the 1930s, a dramatic increase in the price of oil, which hit an all-time record of $147 a barrel in June of 2008, and the increasing evidence of the impact of energy-intensive patterns of growth on climate change.

Given the complexity of the energy sector, a single strategy is not enough to reduce dependence on fossil fuels. Consequently, mutually reinforcing responses as the development of natural gas from shale deposits, the massive deployment of mature clean technologies like solar and wind, or new innovation efforts on technologies and market solutions, like the Energy Service Companies (ESCOs), complement each other in the transition toward a new, cleaner and more efficient energy model.

These global efforts find support in The Multilateral Investment Guarantee Agency of the World Bank Group (MIGA), which provides political risk insurance and credit enhancement products to private investors and lenders that support development efforts around the world.

One example of how this dependence on fossil fuels affects humans across the world is the case of Nicaragua. Nicaragua is the country in Central America with the lowest electricity generation per capita, the lowest percentage of population with access to electricity, and the highest dependence on oil for electricity generation. In 2006, the country suffered a very serious energy crisis, with up to 12-hour blackouts that affected virtually the whole country, disrupting the economy and hitting the population.

After the electricity crisis in 2006, Nicaragua decided to pursue renewable energies not only for environmental reasons but also because of the reliability of wind as a source of primary energy. Nicaragua has one of the most aggressive renewable energy goals in the world — it intends to have 94% of its electricity come from renewable energy by 2017. As it is widely accepted, the crisis was primarily due to a heavy reliance on foreign oil. Reducing this over-reliance from 70% to 6% by the development of renewable energy infrastructure, intends to enhance the reliability of the electricity system.

MIGA is supporting renewable energy in Nicaragua through a guarantee backing an investment in Eolo de Nicaragua S.A., a 44-megawatt wind farm in Rivas province. This wind farm decreases greenhouse gas emissions, addresses the need for additional generation capacity in the country, and reduces the cost of electricity for the country. MIGA’s guarantees of $16.3 million for a period of up to 20 years cover an equity investment by Globeleq Mesoamérica Energy (Wind) Limited (GME Wind) of Bermuda.

Simultaneously, private investments in the Nicaraguan energy sector can help boost its economic and environmental sustainability. MIGA’s political risk insurance mitigates the perceived risks to the project, and as such, the guarantees were a critical component for the investor to move the investment forward.

Sometimes, wind energy is perceived to be an intermittent and unreliable source of electricity. On the contrary, after many years of experience across the world, wind availability has proven to be very predictable. As Eolo de Nicaragua evidences, wind energy can contribute to a cleaner, more reliable and efficient model of electricity generation.

Providing a stable and reliable generation of electricity is basic for both human and economic development. Every day activities such as reading or studying are simply not possible without access to electricity. For a family living in a developed country, it is difficult to imagine what night-time is like when switching the lights on after twilight is not possible.

Similarly, many industries are heavy consumers of electricity, and rely on stable sources of generation to keep the factories working. Economic development is virtually impossible in areas without reliable sources of electricity generation. 

 

 

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