AIMM Sector Framework Brief
Sector Economics and Development Impact Department
International Finance Corporation

POWER
March 2019

Development Impact Thesis – Developing countries face large power deficits, with important implications for economic growth andhuman development. The World Bank Group’s engagement in the energy sector is designed to help client countries secure theaffordable, reliable, and sustainable energy supply needed to end extreme poverty and promote shared prosperity. IFC provides
financing and advisory services to firms in the power sector which:→ Increases access to reliable, affordable power→ Leads to concomitant direct, indirect, andinduced effects on GDP and employment→ Results in potentially significant environmental
and social effects

→ Improves market structure and functioning→ Improves sector resilience and quality of supply→ Increases the spatial connectivity of theelectricity systems→ Leads to adoption of new sustainability, climate
mitigation, and/or climate adaptation
technology/processes, practices that can be
replicated by other players→ Introduces inclusive business models

Project
Outcomes

Contributions toMarket Creation

Development Gaps Addressed• Low electricity access rates• Unreliable supply• High power generation costs
and tariffs• Growth and job creation• Carbon intensity of powersystemRating Construct – All AIMM sector frameworks include detailed guidance notes that help define project outcomes and contributions
to market creation, aggregating to an overall assessment of development impact.
•

For project outcomes, stakeholders, economy-wide, and environmental effects are the key components for which industryspecific benchmarks define the context in which an IFC operation seeks to drive changes. This gap analysis is combined with aseparate set of impact intensity estimates that specify the expected results using predefined indicators.

•

For contributions to market creation, industry-specific market typologies define stages of development for five market
attributes (or objectives): competitiveness, resilience, integration, inclusiveness, and sustainability. These market typologies,
when combined with estimates of how much an intervention affects the development of a market attribute, provide thefoundation for IFC’s assessment of an intervention’s market-level potential for delivering systemic changes.
PROJECT OUTCOME INDICATORS
Access• Energy delivered to off-taker(s) during the reporting period, GWh• New users reached, #CONTRIBUTION TO MARKET CREATION INDICATORS

CompetitivenessMarket structure and functioning• Changes in market structure: composition, new entrant,• Price responses: liquidity, pricing regulation & instruments, price adjustments• Changes in product offering and innovation: quality, standards, new technology• Regulation changes: market regulatory frameworks, renewable energy support

Resilience

Capacity to face shocks and stresses• Diversification of electricity generation sources• Effect on financial sustainability of the energy sector• Capacity of institutional bodies to regulate the sector• Adoption of technologies, planning, approaches that build resilience to shocks andstresses (e.g. climate)

Integration

Connectivity (with external and other domestic sectors, including capital mobilization)• Changes in the spatial connectivity of electricity systems• Linkages within the power supply chain

InclusivenessMarket-wide focus and access for underserved groups• Adoption of inclusive business models targeting underserved groups• Better regulation to enhance access/affordability for underserved groups

Sustainability

Environment and social practices and innovations, including availability of climate
related technologies/product• Adoption of sustainability practices and standards (e.g. energy efficiency, climate
mitigation & adaptation measures or processes, ESG standards)• Conducive legal/regulatory framework for sustainability• Broad institutional capacity for supporting practices, standards, technology• Innovations in instruments or incentives to support changes in market practice… of which share of new users from underserved groups (rural, low income, etc.), %Stakeholders

Quality• Number of power outages, #/month or SAIFI• Average length of power outages, hours or SAIDI• Average transmission & distribution losses, % of output
Affordability• Average end-user tariff, USc/kWh• Average cost of generation, USc/kWh

Economy-wide• Value added, $• Indirect and induced employment, #• GHG emission reduction/avoidance, tons

Environmental

IFC’s Environmental and Social Performance Standards define IFC clients’ responsibilities for managing their environmental and social
risks. While for most IFC investments, meeting Performance Standards reflects improved environmental and social performance,
effects from implementation of the standards are only claimed in the AIMM framework where a clear counterfactual can beestablished and where the investment intent is to improve environmental or social outcomes.
Sector Specific Principles or Issues – The following principles will be applied for projects rated under this framework:
Principle or
Issue

Treatment Under Framework

Scope ofassessment

Both project and market creation effects are measured annually over the monitoring period of the investment. These effects
typically outlive the project's monitoring period. Effects that can be measured and monitored during the project's monitoring
period are emphasized.

Normalization andbenchmarking

Impact assessments are based primarily on the size of the deficit being addressed. This methodology gives greater weight toprojects addressing large deficits and those creating missing markets. A secondary consideration is normalization to avoid
disadvantaging small projects, e.g. impact per million dollars invested or percentage improvement.
Power generation projects are assessed based on the expected impact of electricity delivered to off-takers unless a clear link toAccess benefits of power end-users can be established. Besides distributed generation, the link to end-users is indirect and dependent on the actions and/or
investments made by other stakeholders. To evaluate access effects of power generation projects, AIMM considers access deficits,
generation projects
the country’s access expansion plans, and the project’s potential contribution to meeting access objectives.

Treatment ofnegative effects

Negative externalities are taken into consideration in the assessment and highlighted when significant enough to mitigate theoverall rating. Potential negative effects at the project level include: (i) large contingent liabilities, (ii) a significant increase in thesubsidy bill, (iii) large negative balance of payments effects, (iv) significant gross GHG emissions, and (v) large-scale resettlement.
Other potential negative environmental and social risks are addressed through IFC’s Performance Standards.
Operationally, potential negative effects at the market level include: possible negative effects on competition if solidifying themonopoly position of a client operating in a market that is not a natural monopoly, local content requirements that are assessed tohave potential negative anti-competitive effects, negative effects on resilience if investing in an energy resource that is alreadydominant in the generation mix and is susceptible to supply / price shocks.

Qualitative
benchmarks

The analysis of context in which a project is taking place may be either quantitative (through benchmarking of quantitative
indicators to the performance of other emerging markets) or qualitative. Qualitative benchmarks typically comprise of a check list of
market features that define market stages, optimality of observable outcomes (e.g. tariffs), and feasibility of alternative solutions(e.g. those determined by energy resource endowments). In cases where comparison across markets on a purely quantitative basis
is not meaningful, a qualitative assessment is used instead.

Project Outcomes – Project gap analysis is used to classify project contexts according to the size of the deficit / gap being addressed.
For each indicator, the size of the gap is measured in relation to development goals associated with the sector (e.g. universal access).
Contexts are classified into very large, large, medium or low gap, for each performance dimension. Market gaps are defined using a
combination of qualitative and quantitative benchmarks, which leaves room to consider context-specific attributes that drive
investments in the sector. Moreover, for specific outcome indicators, such as average cost of generation and end-user tariffs, a global
quantitative comparison is not feasible given limited tradability of both energy resources and electricity, i.e. a quantitative gap analysis
would need to consider differences in resource endowments and purchasing power to be meaningful. In this methodology, the most
relevant comparators can be chosen to benchmark performance.
COUNTRYCONTEXT

Low Gap

Access− National access near
universal− No difference in accessbetween rural/BOP, others− High per cap consumption;no short-term supply
shortage; medium-term
supply shortage possible

Quality− Outages infrequent; modest − Low, localized or seasonal
grid quality issues oroutages; outages high indemand growth
specific areas or seasons− Average T&D losses close to − T&D losses below MIC
normal; access high, T&D
average but above normal
losses for T&D firms

Medium Gap

Large Gap

Very Large Gap− High per cap consumption, − National access below− National access well below
above peers; some supply
universal and country target
universal and country target
and access gaps; supply falls − Underserved groups access − Underserved groups’ accessbelow national target
lower; rural rate well below
significantly lower; rural− National access rate high;universal
rate well below universal
pockets of access gaps
− Per cap consumption well
− Per cap consumption sign.
below comparable markets;
below comparable markets− Some access disparities;
rural rates remain low
below country target
and country target

2− Frequent outages; typicallyplanned during peaks;
unreliable supply significant
constraint to doing
business; generators used

− Frequent outages, mostly
unplanned during peaks;
long duration of power
outages (high deficits);
unreliable supply significant

COUNTRYCONTEXT

Low Gap

Medium Gap

losses not binding
constraint− Performance may still fallshort of global frontiers[≤0.2 outages per month in
top 10 countries at 2016]− Electricity tariffs fall within
national targets and are atpar with (or lower than in)comparable markets in theregion− No or limited evidence ofefforts to further lower cost

Affordability− Cost of electricity to endusers is lower than incomparable markets in theregion, but still considereda binding constraint toaccess− Evidence of active effort tolower costs (e.g. incompetitive markets:
innovation and pricecompetition)

Large Gap

Very Large Gap− T&D losses high, significant
loss for T&D firms; subsidy
used; losses affect rates

constraint to doing
business; generators used
− T&D losses very high,significant loss for T&D
firms; subsidy used; losses
affect rates− Cost of electricity to end
users is high and exceeds
national targets− Evidence that cost restricts
access to and/or utilizationof services− If present, subsidies notlarge enough to facilitate
full integration of lowincome consumers− Unserved users pay morethan grid connected users
from alternative sources− May be a sector strategy tolower tariffs− Cost of electricity to end
users is high andsignificantly exceeds
national targets− Evidence that cost restricts
access to and/or utilizationof services− If present, subsidies do notfacilitate full integration of
low-income consumers− Unserved users pay morethan grid connected users
from alternative sources− May be a sector strategy tolower tariffs“Core outcomes” for power sector investments include effects on customers and associated economy-wide effects, as well as
environmental outcomes. The key stakeholders are expected to be customers (households and firms) who are the primary consumersof electricity. The improvements in electricity access, reliability and affordability is expected to generate higher consumer welfare forhouseholds and job creation and growth effects within the economy. Often, IFC clients are path setters, demonstrating new power
generation technologies, as well as innovation in transmission and distribution. Therefore, IFC plays an important role in the expansionof renewable energy and in energy efficiency, with positive environmental effects (e.g. reduction in GHG emissions) as well as otherpositive environmental effects (e.g. biodiversity conservation).
The AIMM system also takes into consideration other positive impact areas such as on suppliers and employees of the client firm,
these are given less weight than the core outcomes, as they are typically secondary benefits associated with a power sector project,rather than a project’s main development objective. The rating guidelines award a higher collective implicit weight to core outcomes
and cross-cutting outcomes (e.g., gender, inclusive business, GHG emissions reduction) with clear project intentionality. Strategic
indicators to be tracked and reported for power sector projects are a sub-set of the indicators measuring core effects reflecting a
project’s intended area of focus. An IFC operation’s project-level outcomes are assessed based on the magnitude of its impacts inrelative terms i.e. using a normalization rule that provides an indication of the intensity of impact (e.g. impact per dollar invested).
Table below provides summary for the impact intensity assessment categories.
PROJECTINTENSITY
Access• New users reached, #• Energy delivered to
off-taker(s) during thereporting period,
GWh

Below Average− Yields positive accesseffects that are small
relative to the size of theinvestment; this rating isissued for projects where
access is a secondary
objective, e.g. projects
targeting to improve thecarbon footprint of the gridwith some access effects

Average− Yields positive accesseffects that are averagerelative to the size of theinvestment

3

Above Average− Leads to substantial
increase in energy delivered(additional GWh) or T&D
capacity (additional MW);the capacity/output
increase is associated with asignificant and quantified
improvement in access;
impact is delivered
efficiently

Significantly Above
Average− Leads to a significant
increase in energy delivered(additional GWh) or T&D
capacity (additional MW);the capacity/output
increase is associated with asignificant quantified
improvement in access;
impact is delivered
efficiently, e.g. additional
capacity per million USD
invested is consistent withcomparable projects/
technologies in the sector

PROJECTINTENSITY

Below Average

Average− Yields positive quality

Above Average− Leads to substantial

Significantly Above
Average

Quality• Number of power
outages, #/month or
SAIFI• Average length ofpower outages, hours
or SAIDI• Average transmission& distribution losses,% of output− Yields positive quality
effects that are small
relative to the size of theinvestment; this rating isissued for projects where
quality is a secondary
objective, e.g. projects
targeting to improve thecarbon footprint of the gridwith some quality effects

effects that are averagerelative to the size of theinvestment− Leads to a significant

Affordability• Average End User
Tariff, US c/kWh• Average cost ofgeneration, US c/kWh− Yields positive affordability
effects that are small
relative to the size of theinvestment; this rating isissued for projects where
quality is a secondary
objective, e.g. projects
targeting to improve thecarbon footprint of the gridwith some affordability
effects− Yields positive affordability
effects that are averagerelative to the size of theinvestment− Leads to substantial− Leads to a significant
increase in energy delivered
increase in energy delivered(additional GWh) or T&D(additional GWh) or T&D
capacity (additional MW);capacity (additional MW);the capacity/output
the capacity/output
increase is associated with aincrease is associated with asignificant and quantified
significant quantified
improvement in
improvement inaffordability of service;affordability of service;impact is delivered
impact is delivered
efficiently
efficiently, e.g. additional
capacity per million USD
invested is consistent withcomparable projects/
technologies in the sector

Economy-wide• Value added, $− Multiplier per 1M USD ofinvestment low vs. otherprojects in IFC project
database− Multiplier per 1M USD ofinvestment average vs.
other projects in IFC project
database− Multiplier per 1M USD ofinvestment above averagevs. other projects in IFC
project database− Multiplier per 1M USD ofinvestment significantly
above average vs. otherprojects in IFC project
database

Economy-wide• Total employment, #− Multiplier in bottom 35th
− Multiplier in bottom 36th topercentile vs. other projects
66th percentile vs. otherin IFC project databaseprojects in IFC project
database− Multiplier in bottom 67th to90th percentile vs. otherprojects in IFC project
database− Multiplier in to 10th
percentile vs. other projects
in IFC project database

increase in energy delivered(additional GWh) or T&D
capacity (additional MW);the capacity/output
increase is associated with asignificant and quantified
improvement in quality ofservice. Impact is delivered
efficiently

increase in energy delivered(additional GWh) or T&D
capacity (additional MW);the capacity/output
increase is associated with asignificant quantified
improvement in quality ofservice; impact is delivered
efficiently, e.g. additional
capacity per million USD
invested is consistent withcomparable projects/
technologies in the sector

The AIMM methodology considers the uncertainty around the realization of the potential development impact being claimed, making
a distinction between the potential outcomes that a project could deliver and what could be realistically achievable in the project's
development context. Table below presents the key types of risks factors for power sector operations.
PROJECT
LIKELIHOOD

Operational Factors

Sector Factors

Assessment
Considerations• Client track record of delivering impact in the focus area s• Client's market position and product offering• Sponsor's technical strength and support to project• Covenants assuring implementation of project components(e.g. commitments to extend of access to BOP populations)• Project likelihood of reaching financial close at targeted levelof capitalization (mostly relevant to Funds)• Presence of funded plan for the development ofcomplementary infrastructure• Public partner track record in meeting contractual obligations• Government track record in committing counterpart
resources (e.g. financing for resettlement plan)• Realism of magnitude of anticipated impact (measured
against industry standards, client/EPC contractor's
experience, public partner's capacity)• Extent of political support and social buy-in• Financial viability in the absence of subsidies• Affordability in the absence of subsidies• Resilience to exogenous shocks• Alignment of monetary policy risk (currency of trade, FX
convertibility, FX transferability, taxation) with objectives• Exposure of project development effects to exogenous
shocks e.g. FX risk (e.g. price or supply risk if project relies onimported fuel, contingent liability risk if tariff is USD-indexed)

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PROJECT
LIKELIHOOD

Operational Factors

Sector Factors• Client commitment to ESG standards and implementation
track record

Contribution to Market Creation – The electricity industry is comprised of four main parts: generation, transmission, distribution andretail. A market is defined as the industry / sub-sector in which the project is taking place (excluding markets affected by the projectthrough economic linkages). For the electricity sector, two market segments are considered: the power generation (wholesale) andthe power networks (distribution/transmission and retail) markets. In measuring a project’s effect on financial integration, firms’
capacity to mobilize capital from both local and global capital markets is assessed. AIMM assessments for both project outcomes andcontribution to market creation places emphasis on development outcomes that are clearly attributable to the project, measurable,
and monitorable, for contribution to market creation, attribution is established by identifying a clear channel linking the project to theanticipated effect and identifying measurable indicators of market creation effects that can be monitored.
Power market typologies provide the building blocks in the AIMM system to construct a narrative for how much an IFC intervention isadvancing a market objective. These typologies provide a description of the market gap based on various stages of development for agiven sector from least developed to most advanced and enable the location of the market before and after IFC’s intervention. The
table below summarizes the characterizations of the electricity market for three market attributes (competitiveness, resilience andintegration).
MARKET
TYPOLOGY

CompetitivenessHighlyDeveloped

Moderately
Developed− Sector is fully liberalized,
free entry in generation,
distribution, supply/retail− Wholesale market exists
with day-ahead andintraday markets; balancing
and ancillary markets fully
functional− Most generation plants BAT
high-efficiency− RE generation welldeveloped and competitive− Regulatory rules promote
efficient access to thetransmission network− Sector liberalizing withintroduction of competition
to some segments of themarket (generation andretail) to facilitatecompetitive entry− IPP participation in
generation increasing− Transmission network open
and accessible to all5

Underdeveloped− Market is undergoing
restructuring to clarify andredefine roles of market
players− Command and control
methods of planning andmanaging the sector still inplace which result ininefficiencies due toinability to capture complex
interdependencies in themarket− Market centrally managed
by system operator thatpurchases electricity
through long term PPAs
many of which are notcompetitively awarded− There is minimal IPP
participation− Generation composed ofmainly old thermal plants at
low-levels of efficiency

HighlyUnderdeveloped− The sector is dominated bya vertically integrated utility
that controls all activity− The company is notsensitive to customer needs
and may lack incentives toimprove service or engage
in technology innovation− Government exercises
direct regulatory andfinancial oversight of theutility company− Sector suffers from pooraccountability with
taxpayers bearing mostinvestment risks− No clear pass-throughmechanism of wholesalecosts of generation to theend-user tariff

MARKETTYPOLOGY

Resilience

Integration

HighlyDeveloped

Moderately
Developed− Generation well diversified
with mix of types and fuels− Full cost recovery; noreliance on subsidies− PPAs are fully bankable− Independent, competentenergy regulator in place− Stakeholders have goodawareness of potential
climate change risks togeneration. These
considerations are regularly
incorporated into project
design− Generation relatively
diversified− Generation cost reasonablewith some high-cost plants
running occasionally;
subsidies decreasing− Improved bankable PPA
structures in place− Some shortage in capacity;
occasional service
disruptions− Generation plants
susceptible to climatechange risks which arebeing incorporated into
new project designs or
rehabilitation of existing
generation plants− Generation mix dominatedby one or two sources− Generation cost high due tousage of rental units or lowefficiency high cost plants;heavily reliant on subsidies− PPAs not bankable due tonon-creditworthy off-takers− Extensive baseload capacity
shortage; disruptions occur
regularly due to shortages− Generation plants
susceptible to high climatechange risks with limited
consideration taken tothese risks in designing new
projects− Generation dominated by
one generation source
susceptible to supply risks− RE share nearly zero despite
viable potential− Fully reliant on subsidies;
end-user tariffs detachedfrom system costs− There is no energy law− There is no clear ministry
responsible for regulationof the sector− Generation plants
susceptible to high climatechange risks. Firms do notincorporate resilience
considerations, (e.g. climate
information relevant for
their operations andresilience measures, in theirbusiness planning andoperations)− Country connected to allneighboring networks andhas market coupling− 100% electricity coverage− Generation fully integrated
into economy, with a welldeveloped local supply
chain as well as local EPC
capacity− Projects easily financed
through a mix of financing
instruments and investors− Country connected to mostneighboring networks− Some linkages to domestic
economy; has developed
but incomplete supply chain− Project financing available
but institutional investors
have limited access toproject finance− Country connected to one
neighboring country− Country has significant
areas with no coverage− Limited local capacity inproject development or EPC− Minimal loans to corporates
from private banks or otherintermediary investors− No interconnection capacitywith neighboring countries− No local capacity in project
development or EPC
contracting− All energy projects rely onstate financing, statebudgetary support or loans
from state banks

Underdeveloped

HighlyUnderdeveloped

A project need not result in market-level effects. Typically, it takes multiple coordinated and well-planned interventions (more than
one project, repeat clients, investment plus advisory, some WB/MIGA activity, etc.) to have market impact. Market-level impact
implicitly considers past and ongoing WBG investments that affect the likelihood or magnitude of market creation impact expectedfrom the project. The scope is restricted to WBG interventions directly linked to the IFC investment being evaluated. Market creation
impacts represent systemic/catalytic shifts in the structure or functioning of a market whose lifetime is not necessarily linked to theproject’s. Effects that can be measured and monitored during the project’s monitoring period are emphasized.
MARKET
MOVEMENT

CompetitivenessMarginal

Meaningful

Significant

Highly Significant

Competitiveness in electricity markets creates incentives for efficiency and innovation while providing affordable transparent prices
consistent with long-term investments. Competitive markets also protect against inefficient costs that are otherwise simply passed
through to captive consumers. IFC projects can support market competitiveness through enabling improvements in the market
structure and regulation as well as via catalytic effects through introduction of innovative technologies and processes. Highly
significant impact is associated with projects that create a “missing market”, support a first mover, or operationalize significant
regulatory reforms undertaken in the sector, with strong replication potential. The project contributes to competitivenessmarginally when there is limited scope for market-wide adoption, weak attribution of market creation impacts to the project, or thechannel for delivering impact is not well established.

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MARKETMOVEMENT

Marginal

Meaningful

Significant

Highly Significant

Resilience

Robustness of the electricity system and the continuity of electricity supply is critical to the sustainable development of countries aswell as to the standard of living of the population. A disruption to the delivery of energy can lead to major socio-economic andenvironmental consequences. A resilient power system that is subject to a stress can continue to operate by shifting to an alteredstate that is far from its normal conditions. In this sense, the concept of energy resilience includes the element of adaptability. IFC
projects can enhance energy resilience through systemic effects on diversification of electricity generation mix and improve
resilience of electricity infrastructure to enhance the sector’s adaptability to potential shocks including climate risks. A resilient
energy system is also largely an outcome of the way the energy system navigates phases of reorganization in response to shocks
and changing circumstances. The regulatory framework and capacity of the stakeholders within the energy system are key drivers of
ensuring resilience. Both IFC projects and WBG advisory/policy efforts that support regulatory reform, enhance regulatory capacity,and improve cost-recovery will also contribute to this market attribute.

Integration

Both the physical and financial integration of the electricity system are key features to enhance the development and deepening of
the power market. Projects can contribute to market integration by introducing new or expanded physical infrastructure that
addresses shortcomings or bottlenecks and materially improve spatial connectivity of electricity infrastructure between regions (i.e.
connecting regional grids within the country), as well as between countries. In addition, projects that promote integration ofdomestic supply chains and integration of capital markets through mobilizing institutional investors or introduce innovative
financing products such as green bonds will contribute to this market attribute.

The market likelihood adjustment follows the principles for the likelihood adjustment for project outcome potential. In general, thelikelihood assessment includes sector-specific, as well as broad country risks that may prevent potential catalytic effects fromoccurring, plus political economy or policy/regulatory risks that may constrain market systemic change. Due to the diversity of market
creation attributes and channels, most of the likelihood factors are expected to be sector, or intervention specific.
MARKET
LIKELIHOOD

Sector Factors

Political / Regulatory / Policy Factors

Assessment
Considerations• Public partner track record in meeting contractual obligations• Presence of funded plan for the development ofcomplementary infrastructure• Extent of political support and social buy-in• Financial viability in the absence of subsidies• Track record of regional power exchange• Coherence of specific policies and standards across borders• Presence of established and well-tested regulatory and legal
framework• Existence of a capable and independent energy regulator• Government track record in upholding new policies(measuring risk of policy reversals)• Regulatory scope and capacity• Collaboration track record of participating countries/entities7