Communication from the Commission to the Council and the European Parliament - Energy cooperation with the developing countries
Date: 2002-07-17
Institutions: European Commission
Subjects: EU growth strategy, cooperation policy, developing countries, economic policy, energy policy, environmental protection, recommendation, sustainable development

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 17.7.2002
COM(2002) 408 final

COMMUNICATION FROM THE COMMISSION
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

Energy cooperation with the developing countries

COMMUNICATION FROM THE COMMISSION
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

Energy cooperation with the developing countries

Introduction

The Johannesburg World Summit in August-September 2002 (Rio + 10) will for the first
time address globally the issue of sustainable development. Energy is likely to be high on
the agenda in view of its central role in the three dimensions of sustainable development:
the social dimension, the economic dimension, and the environmental dimension. In the
particular  context  of  energy  and  development,  these  preoccupations  basically  translate
into  providing  energy  services  and  secure  and  affordable  energy  supply  for  the
eradication  of  poverty  and  for  economic  development  and  into  clean  and  safe  energy
technology to address climate change, urban air pollution and other risks to human health
and the environment.

Neglected for a long time, in recent years - and particularly in the context of the work in
preparation for the Johannesburg World Summit - energy has become an essential part of
the  sustainable  development  debate.  The  Johannesburg  Conference  should  provide  an
opportunity  to  catch  up  in  this  area,  by  allotting  to  energy  the  place  that  it  deserves  in
order  to  contribute  to  sustainable  development.  The  Seville  European  Council
(21-22 June 2002) emphasised the EU's commitment to the success of Johannesburg and
its desire to encourage initiatives, in particular in the field of energy, including renewable
energy sources.

The  EU's  experience  and  aid  can  facilitate  the  establishment  of  a  sustainable  energy
sector in the developing countries. Energy is in effect essential to achieve the Millennium
Development Goals.1 Similarly, energy is linked directly or indirectly to each of the six
sectoral  priorities  of  Community  development  policy.2  At  the  same  time,  the  EU's
security of supply is closely linked to that of the developing countries. They will be even
more closely linked in future as a result of the expected increase in consumption of fossil
fuels and the aggravation of environmental problems, in particular climate change and air
pollution.

Energy,  a  sector  where  three  major  issues  (poverty  reduction,  security  of  supply,  and
environmental protection) coincide, should be integrated, in its three dimensions, into the
existing  EU  cooperation  instruments,  namely  development  policy,  energy  policy,
environment policy and research policy.

1

2

The are seven Millennium Development Goals: (1) halve extreme poverty and hunger, (2) achieve
universal primary education, (3) promote gender equality, (4) reduce child mortality, (5)improve
maternal health,  (6)  combat  AIDS  and  other  epidemics,  (7)  ensure  environmental  sustainability.
There is a close link between access to basic energy services and these objectives.
the  eradication  of  poverty
The  first  objective  of  Community  development  policy 
(cf. COM(2000)212). The six priority sectors of Community development policy are: (1) the link
between trade and development, (2) support for regional integration and cooperation, (3) support
for macro-economic policies, (4) transport, (5) food security and sustainable rural development (6)
institutional capacity-building, good governance and the rule of law.

is 

2

                                                
How  can  the  sustainable  physical  availability  of  energy  products  on  the  market  be
assured  at  a  stable  price  which  is  affordable  for  all  consumers,  for  the  welfare  of  the
populations  and  the  smooth  functioning  of  the  economies?  In  the  run-up  to  the
Johannesburg  Summit  and  beyond,  this  Communication  seeks  to  propose  a  framework
for discussion, a cooperation framework based on the ownership principle and concrete
recommendations to integrate energy more  effectively into the sustainable development
concept. The EU Energy Initiative which will be presented in Johannesburg is at the heart
of these concrete cooperation proposals.

A)

The facts

Energy inequality - at present, nearly two billion people in the world - concentrated in
peripheral  urban  areas  and  isolated  rural  areas -  do  not  have  access  to  basic  energy
services.3  This  is  the  energy  paradox  which  characterises  the  beginning  of  the  XXIst
Century. This energy inequality affects in particular two-thirds of the African population,
who depend to a very large extent on traditional biomass4 for their energy supplies.5 The
non-rational  use  of  biomass  has  harmful  consequences  for  health  and  the  environment.
There are also strong links between energy and gender. The burden of survival activities
such  as  collecting  biomass  and  using  it  for  cooking  –  with  the  related  health  problems
due  to  indoor  air  pollution  -  often  falls  on  women,  while  the  availability  of  modern
energy services could reduce this drudgery.

Access  to  energy:  energy  as  a  sine  qua  non  of  the  action  to  combat  poverty -  A
corollary  of  the  right  to  development  is  access  to  basic  energy  services.  Energy  is
instrumental in all the key sectors of development - health, refrigeration of food, lighting
and domestic heating, transport, agriculture, industrial production and modern means of
communication.  To  paraphrase  a  famous  saying,  is  development  not  democracy  plus
electricity?

Access  to  reliable,  high-quality  sustainable  energy  is  essential,  both  for  those  currently
without access to energy services, and for the future productivity increases and economic
development  needed  to  accommodate  the  forecast  population  growth  and  urbanisation.
Where energy is lacking, poverty develops and an "energy-poverty" vicious circle comes
into being. In this respect, the question of  access to energy is  also an ethical issue,  and
one which is of particular concern in the least developed countries. One of the best ways
of  breaking  the  "energy-poverty"  vicious  circle  undoubtedly  lies  in  the  possibility  of
having  access  to  knowledge,  i.e.  education  and  training.  In  this  connection,  new
technologies and the information society represent an opportunity which the developing
countries  must  be  able  to  seize.  It  cannot  be  seized  without  energy,  and  it  is  therefore
urgent to combat energy deprivation in order to avoid this opportunity being transformed
into a new North-South divide.

Looking beyond the question of the environment, energy, like water, is not a good  like
others. It is a powerful factor in regional development, in particular where electricity is
concerned.  The  problem  is  particularly  acute  in  the  developing  countries,  where  it  is

3

4

5

"Basic energy services"  means access  to  electricity  for  lighting,  refrigeration,  telephones,  radios
and televisions, as well as fuels, kerosene and LPG for cooking and heating.
“Traditional biomass” covers wood-fuel, agricultural residues, animal wastes, charcoal, etc.
In  sub-Saharan  Africa,  with  the  exception  of  South  Africa,  traditional  biomass  represents  over
two-thirds of total energy consumption. Source : “Energy as a Tool for Sustainable Development
for ACP countries” 1999, European Commission and UNDP.

3

                                                
necessary to avoid the exodus of  rural populations to urban  centres  where  situations  of
extreme poverty arise. As with the control of fire in the early days of mankind, energy is
a powerful factor in economic and social cohesion.

The global character of energy markets, and of the implications of energy use – The
volatility  of  the  international  energy  markets  is  particularly  sensitive  as  far  as  the
developing  countries  are  concerned,  in  particular  the  countries  which  are  net  oil
importers, since they are the main victims of an increase in oil prices,6 and some of them
spend up to 50% of their trade surpluses on energy imports. Similarly, the consequences
of  climate  change  (drought,  flooding,  hurricanes,  etc.)  primarily  affect  the  developing
countries, even though they only account for a comparatively limited proportion of global
CO2  emissions  (37%).7  Most  of  the  major  natural  disasters  in  recent  years  (Hurricane
Mitch, flooding in Bangladesh, drought in the Horn of Africa) have been concentrated in
the  least  developed  areas  of  the  planet.  Likewise,  the  relentless  rise  in  the  level  of  the
oceans is threatening the existence of many Pacific micro-States. Victims to some extent
of the energy schemes of the XXth Century, paradoxically the developing countries need
to become protagonists in the energy developments of the XXIst Century.

The  heterogeneity  of  the  developing  world  -  Quite  apart  from  the  uncertainty
surrounding the very definition of the concept of "developing country",8 the developing
world  is  very  diversified  when  it  comes  to  energy.  Some  developing  countries  are  net
energy  importers,  while others are  net  exporters or transit  countries.  There  is  a  marked
difference between the net oil importers and the crude producers. The energy mix is also
very different from one country to another.

The  Mediterranean  region  is  a  good  illustration  of  this  diversity  in  terms  of  energy
situations:  within  a  single  region  there  are,  side  by  side,  producing  and  exporting
countries such as Algeria and  Egypt, energy-dependent countries such  as  Lebanon, and
transit countries like Morocco. This heterogeneity renders obsolete any approach aimed
at applying the same “recipees” in the different developing countries. Another illustration
of  the  developing  world's  energy  complexity  is  that  having  a  wealth  of  energy  raw
materials 
long  chalk,  synonymous  with  eradication  of
underdevelopment  and  poverty.  The  example  of  the  mono-exporting  economies
(Venezuela, Algeria, Nigeria) is significant in this respect.

is  not  always,  by  a 

Last but not least, the case of Least Developed Countries (LDCs) is one more example of
the diversity of energy situations in the developing world. LDCs are indeed characterised
by very low levels of access to adequate energy services. In particular, they are heavily
reliant on biomass use (principally for cooking and heating), resulting in a heavy burden
of fuel collection, especially for women and children, as well as poor indoor air quality,
and frequent unsustainable use of natural resources.

Profoundly differing energy situations  between the EU and developing countries –
Compared  with  the  EU,  the  developing  countries  are  characterised  by  very  high
population growth and low energy consumption and efficiency. On average, per capita

6

7

8

According to the OECD's calculations, a $10 increase in the price of oil over a year would reduce
growth  in  the  EU  by  0.2%.  The  impact  is  five  to  ten  times  greater  in  the  energy-dependent
developing countries.
Source : European Commission Annual Energy Review 2001.
The  existing  terminology  on  the  subject  is  that  of  the  United  Nations  and  ofithe  DAC  in  the
OECD.

4

                                                
electricity consumption in the developing countries is one-tenth of the figure in the
European Union.9. The forecast is that in the next few years there will be a significant
increase  in  energy  demand  in  the  developing  countries,10  on  account  of  population
growth,  increasing  urbanisation  and  economic  development.  However,  per  capita
consumption  will  continue  to  be  significantly  lower  on  average  in  the  developing
countries  than  in  the  industrialised  countries;  in  sub-Saharan  Africa  in  particular  (with
the  exception  of  South  Africa),  per  capita  energy  consumption  is  tending  towards
stagnation. This wide variety of situations is a fundamental factor in energy cooperation
relations between the EU and the developing countries. However, it does not prevent the
existence of common energy cooperation objectives and interests between the two parties
(diversification,  economically  sustainable  security  of  supply,  economic  growth,
competitiveness, environmental protection, energy efficiency) or risk-sharing  (depletion
of  fossil  fuel  reserves,  environmental  damage)  in  the  event  of  failure  to  control  the
situation.

B)

The international context

Growing, albeit recent international concern – apart from the issue of climate change,
energy has for a long time been absent to a large extent from certain major international
processes.  For  example,  the  Doha  Conference's  agenda  for  development  makes  no
specific  mention  of  energy.  Only  recently  has  it  emerged  as  a  growing  international
concern.11 The issue of energy in  developing countries is, as it were, an orphan without
an international parent organisation to look  after  it  and  specialise  in  these  matters.  The
International Energy Agency, for instance, which brings together the richest countries of
the world, has never concerned itself in any significant way with the question of energy
in developing countries.

The  forthcoming  Johannesburg  Summit  could  raise  the  profile  of  sustainable  energy.12
However, energy is far from being the number one priority at international level. For the
most part, the rich countries themselves have only accorded secondary importance to the
question of energy development, as the G8 debates demonstrate. The discussions on this
topic are still to a large extent incoherent and more connected with developments in the
action  to  combat  climate  change.13  While  declarations  of  intention  are  necessary,  they
need to be followed up by concrete action as part of a coherent framework.

9

10

11

12

13

One-seventh in terms of total energy consumption.
According to the POLES model, it is estimated that in 2020 the developing countries will account
for  50%  of  global  primary  energy  consumption  compared  with  nearly  40%  at  present;  the
forecasts also indicate a doubling of electricity consumption in those countries between 1995 and
2020.
Mention should be made of the following in particular:
-  the  3rd  United  Nations  Conference  on  the  least  developed  countries  (May  2001)  the  action
programme of which includes recommendations on energy and sets out priority actions;
-  the  resolution  on  renewable  energy  recently  adopted  by  the  joint  EU-ACP  Parliamentary
Assembly (29 October – 1 November 2001);
-  the  recent  G8  Energy  Declaration  (Detroit,  May  2002)  which  emphasises  energy  cooperation
with the developing countries and refers to the report submitted to the Genoa G8 Summit by the
renewable energy task force.
Cf. Commission communication "Towards a global partnership for sustainable development" for
the Johannesburg Summit: COM (2002) 82 final.
The  climate  change  topic  was  addressed  for  the  first  time  at  international  level  at  the  1992  Rio
Summit,  culminating  in  the  1997  Kyoto  Protocol.  The  7th  Conference  of  the  Parties  for  the
implementation of the Kyoto Protocol (CoP7) in Marrakech in November 2001 pave the way for
the concrete implementation of the Protocol.

5

                                                
C)

Action by the EU

Energy  is  part  of  EU  development  aid  policy  –  Some  EU  Member  States  place
significant  emphasis  on  energy  in  their  development  aid  programmes.  However,
following the refocusing of the priorities of Community development aid in 2000, energy
is not a sectoral priority of Community policy. Nevertheless energy has a key part to play
in underpinning activities in the 6 priority areas of Community development cooperation.
Taking  this  situation  into  account,  energy  projects  proper  account  for  less  than  5%  on
average of the  total amount  of Community development  aid  since 1990.14  Nonetheless,
the  energy  projects  financed  under  the  main  aid  programmes  (MEDA,  EDF,  ALA,
TACIS, etc.) have produced significant results in terms of the development of this sector
for many developing countries, and some specific energy programmes have been funded,
e.g.  the  ALURE  programme15  for  Latin  America  between  1996  and  2001,  and  the
COGEN and EC-ASEAN  Facility  programmes  in  progress  for  Asia.16 Also,  the  energy
sector receives - and has received in the past - considerable funding from the Community
development  resources  at  the  disposal  of  the  European  Investment  Bank  (risk  capital,
equity funding, loans, etc). However, the secondary nature of energy in the requests for
assistance from the developing countries restricts the development of Community action
in this area.

A changing global energy situation - The EU, and the developed countries in general,
have achieved their development thanks to an energy model characterised by abundant,
cheap  and  polluting  energy.  With  the  development  of  the  international  energy  markets
and climate change, this model has reached its limits. The EU has undertaken a thorough
reform  of  its  energy  model,  and  the  developing  countries  could  benefit  from  this.  The
recent Green Paper on the security of the EU's energy supply, which calls for reinforcing
the  existing  policies  on  energy  efficiency  and  renewable  energy  sources,  is  a  useful
reference in this respect.17.

As  a  result  of  its  experience  as  regards  networks,  research,  and  the  development  of
less-polluting and/or more efficient energy and all the instruments, and in particular the
financial  instruments,  at  its  disposal,  the  European  Union  has  a  vital  role  to  play  in
energy cooperation with the developing countries. The EU is also the biggest supplier of
development aid in the world (over EUR 27 billion per annum), the leading commercial
power in the world and a major source of direct private investment.

*

*

*

This Communication first of all analyses the energy situation in the developing countries
and then  propose  a reference  framework for  energy  cooperation with them. A  series  of

14

15

16

17

This average masks considerable variations in the percentages for the different regions.
ALURE  is  a  programme  for  economic  cooperation  between  the  EU  and  Latin  America  in  the
energy  sector  implemented  by  the  European  Commission  between  1996  and  2001.  During  that
six-year  period,  ALURE  made  it  possible  to  carry  out  25  projects  involving  a  hundred  or  so
European  and  Latin  American  partners  in  8  countries  and  3  Latin  American  regions,  with  a
Community budget amounting to EUR 32 million.
The COGEN and the EC-ASEAN Facility programmes concern the ASEAN countries and have a
budget of EUR 25 million and EUR 18 million respectively for a period of 3 to 5 years.
COM (2000) 769 final "Towards a European strategy for the security of energy supply".

6

                                                
operational recommendations to implement the cooperation flow from  this analysis  and
the reference framework.

I. 

ANALYSIS OF THE ENERGY SITUATION IN THE DEVELOPING COUNTRIES

An analysis of the energy situation in the developing countries makes it possible, despite
the differences in the energy balances, to distinguish broad trends, and make distinctions
by groups of countries/regions and comparisons with the energy situation in the EU. This
analysis  clearly  indicates  the  main  challenges  with  which  the  developing  countries  are
confronted on the energy front.

A)

Energy demand

The rate of growth in energy consumption in the developing countries is on average three
to  four  times  higher  than  in  the  industrialised  countries.  However,  the  situation  varies
considerably  from  one  region  and  one  country  to  another.  In  sub-Saharan  Africa,  for
example,  energy  consumption  has  not  risen  for  decades.  However,  Asia's  energy
consumption is likely to outstrip that of the OECD area in the fullness of time.

i)

Current situation

Energy  consumption  per  capita  in  the  developing  world  is  still  far  lower,  about  a
sixth18. ,than in the OECD, While it has been growing fast in relative terms during recent
decades, the gap in absolute terms is widening.  In 1971, per capita energy consumption
was 20 gigajoules in developing countries, compared with 161 gigajoules in the OECD.
In 1999 it was 34 gigajoules, still far below the OECD’s 194 gigajoules per capita.

These  figures  mask  very  unequal  access  to  energy  worldwide.  In  Africa,  per  capita
energy consumption  has  barely  increased  since 1970 and  remains less  than  10%  of  per
capita energy consumption in North America. In Asia, per capita energy consumption has
doubled  since  1970  but  is  still  less  than  15%  of  the  North  American  figure.  Latin
American  energy  consumption  per  capita  is  less  than  20%  of  North  American
consumption.

Energy  consumption  per  capita  is  even  more  inequitable  when  viewed  in  terms  of  per
capita  electricity  consumption.  Whereas  average  annual  electricity  consumption  in
the OECD is around 10 000 KWh per capita, it is only 1000 in developing countries
on average, 500 in India and in several sub-Saharan African countries around 100.
Less than 10% of the population of sub-Saharan Africa has access to electricity.

The annual growth rate of the total amount of energy used in developing countries has
been three or four times that of industrialised countries  (4.9%  as opposed  to  1.4% p.a.,
1970  to  199819).  This  reflects  much  higher  population  growth  rates  in  developing
countries  than  in  industrialised  countries,  and  also  industrialisation,  urbanisation,
increased road transportation, increased personal incomes, the shift from traditional, non-
commercial energy etc. The share of developing countries in global commercial energy
has increased from 13% in 1970 to close to 40% now.

18

19

Data and estimates in this section are from the World Energy Assessment (UN/WEC 2000). The
figures in 2.1 are from WEA, Table C.1.
WEA Table 1.1.

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ii)

Present trends

According  to  some  scenarios20,  world  population  will  rise  by  34%  between  now  and
2030,  almost  exclusively  in  developing  countries.  Global  GDP  will  rise  by  148%,  the
major driver being an almost tripling of Asian  economic performance, almost matching
that  forecast  for  the  OECD.  Consistent  with  their  needs,  developing  countries  will
account  for  75%  of  the  total  incremental  energy  consumption  in  the  world  over  this
period – with the main contribution coming  from Asia, and together they will consume
more  energy  than  the  industrialised  countries.  Asia  being  by  far  the  region  with  the
highest share of  growth will replace  the OECD region as the largest  energy-consuming
area  in  the  world.  Behind  these  figures  for  total  consumption,  however,  energy
consumption per capita will still be very unequal between industrialised and developing
worlds.

This  clear  trend  of  escalating  energy  demand  in  emerging  dynamic  economies,
particularly  in  Asia,  causes  great  environmental  concern,  especially  because  these
regions  are  driving  oil  consumption,  with  their  overall  share  of  global  oil  consumption
growing from 22.5% to 30.2% between 1990 and 1997. With regard to global energy and
environmental  economics,  China  concentrates  essential  opportunities  and  threats,  being
now  the  second  largest  energy  consumer  and  third  largest  producer  in  the  world,  with
high  dependence  on  coal.  In  the  absence  of  drastic  measures,  China  will  become  the
largest emitter of greenhouse gases within the next decades, overtaking the USA.

In  all  future  scenarios,  an  important  factor  is  energy  intensity,  the  ratio  of  energy
consumption to GDP. Historically, the energy intensity of economies has tended to rise
during early phases of economic development, when industrialisation and “motorisation”
of economies are strong, then peak and decline, as less energy-intensive sectors become
more important.  The later  this  happens,  the  lower  the  peak  energy  intensity  because  of
intervening  energy  efficiency 
to  be
showingthe same pattern and risk making the same mistakes that Western societies made
throughout  the  XXth  Century,  in  particular  as  regards  failing  to  control  demand  and
making  widespread  use  of  very  expensive  technologies.  Demand  increases  generally
outweigh  energy  efficiency  improvements.  This  has  evident  implications  for  the  cost
burden of energy on developing countries and for the global growth in energy use.

improvements.  Developing  countries  seem 

B)

Energy supply

The  relative  share  of  energy  sources  in  the  developing  countries  varies  significantly
compared with the figures for the EU.

Coal  predominates  in  Asia,  while  in  Africa  renewables  (mainly  traditional  biomass21)
have a large share.

i)

Current situation

Non-commercial  energy  accounts  for  approximately  10%22  of  global  primary  energy
use.  In  developing  countries,  roughly  30%  of  primary  energy  used  is  non-commercial,

20

21

22

The POLES model, a business-as-usual model.
Biomass can only be considered to be a renewable resource when it is replaced at the same rate at
which it is consumed.
Different estimates range between 8% and 14%.

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normally  firewood,  charcoal,  crop  residues  and  animal  wastes.  In  some  developing
countries, particularly in Africa,  the  share  may  reach  80%.  The  technologies  used  with
these fuels are generally very inefficient and very simple (open 3-stones fire).

The structure of energy supply tends to be different in developing countries from that
in  industrialised  countries.  In  the  developing  world  as  a  whole  there  is  relatively
greateruse  of  coal  and  renewables,  relatively  less  of  oil,  gas  and  nuclear  energy.  This
differs somewhat among developing countries.

Coal  is  by  far  the  most  prominent  source  in  Asia  accounting  for  40%  of  total

•
energy supply. 77% of this is used for power generation.

Latin America relies on oil for almost half its energy supply, and three-quarters of

•
its power generation.

Renewables have a large share in Africa, mainly due to biomass, which represents
•
70%  of  final  energy  consumption  for  sub-Saharan  Africa  (or  more  than  80%  for  sub-
Saharan Africa without South Africa)23.

The little recourse to nuclear energy is concentrated in Asia (China, India, North

•
Korea) and South Africa24.

The dependence of developing countries on imported oil has already had clear financial
implications for them. There is a close causal link between oil price rises since the 1970
and Third World debt, much of which has its roots in the need to pay for oil imports or
oil  production  capacity  in  the  past.  Oil  price  rises  and  instabilities  have  led  to  vicious
circles,  that  undermine  development.  The  close  correlation  between  oil  prices  and
economic growth, as diagnosed in the Commission’s Green Paper, is particularly relevant
to  developing  countries  as  regards  their  policy  on  security  of  energy  supply,  including
policies  on  certain  renewable  energy  sources.  Some  developing  countries,  in  particular
geographically  isolated  ones such  as the Pacific  micro-States,  have  to  pay  far  more  for
their  fossil  fuels  than  the  average  world  price.  This  has  a  very  detrimental
macroeconomic impact. Furthermore, the lack of access to appropriate financing to invest
in  fuel-efficient  and  renewable  technology  further  increases  the  vulnerability  of  these
countries.

Finally,  the  absence  of  regional  cooperation  and  interconnected  infrastructure  implies
that any perturbation in a given national market will have full impact locally without the
possibility of being smoothed out as in the EU.

ii)

Present trends

The  relative  importance  of  oil  in  the  energy  mix  of  developing  countries  is  forecast  to
grow,  with  consumption  increases  notably  in  Asia.  The  share  of  gas  is  forecast  to
increase in all regions, particularly Asia and Latin America. The developing Asia region,
currently a net exporter, is likely to become a net importer by 2020. Coal consumption in
developing countries is forecast to grow by almost 3% p.a. between now and 2020. It will
continue to be the dominant fuel in China and India and they will account for most of the

23

24

Source :  “Energy  as  a  Tool  for  Sustainable  Development  for  ACP  countries”  1999,  European
Commission and UNDP.
POLES baseline.

9

                                                
world’s  incremental  coal  use  during  this  time.  Coal  will  remain  the  most  important
source of electricity generation in many developing countries.

Nuclear  power  is  expected  to  more  than  double  its  capacity  in  developing  countries
between 2000  and 2020, although  from  a low base25. With few  exceptions  these  plants
will  be  built  in  China  and  India,  where  the  share  of  nuclear  in  electricity  generation  is
planned to increase. For the developing world as a whole, the share of nuclear energy in
electricity  generation  is  expected  to  remain  around  4%.  Low  coal  and  gas  prices  and
increasing  costs  associated  with  establishing  safe  operations  may  make  investment  in
nuclear  generation  not  economically  viable.  In  addition,  the  conditions  for  good  long-
term  management  and  governance  environments,  to  ensure  safe  operations,  cannot  be
met by most developing countries..

Future  use  of  biomass  is  difficult  to  predict,  although  it  can  be  expected  that  with
economic  and  social  development,  consumption  of  traditional  biomass  will  decrease.
With population growth, wood-fuel is becoming a scarce (and unsustainable) resource in
many  areas,  contributing  in  many  cases  to  deforestation.  Improved  forest  management
and  fuel-switching  for  domestic  use,  for  example  from  biomass  to  LPG,  represents  an
opportunity for many developing countries, the latter also providing health benefits to the
users due to reduced levels of indoor air pollution.

On  the  other  hand,  the  cost  of  certain  renewable  energy  sources  –  often  cited  as  an
obstacle for a higher penetration rate in developing countries in the past, has come down
significantly  in  recent  years.  With  the  continued  maturing  of  the  renewable  energy
industry  in  Europe  and  elsewhere  in  the  developed  countries,  this  trend  is  expected  to
continue hence bringing the cost of such technologies  within reach of more developing
countries.

C)

Economic issues

The  share  of  imported  energy,  in  particular  oil  and  gas,  affects  the  economic
development of most of the developing countries.

i)
The  financial  implications  for  developing  countries  of  increased  reliance  on
imported energy, particularly oil and gas, have been very considerable. This is likely to
be  even  more  so  in  the  future,  when  demand  in  developing  countries  will  also  have  a
bigger impact on oil market prices. If future global oil demand increases from present 75
mbpd  to  115  mbpd,  a  5  $/barrel  upward  pressure  on  oil  prices  would  be  a  modest
assumption.  The  financial  implication  for  developing  countries  however  would  be  far
from  modest :  an  additional  oil  import  bill  around  $90  billion  annually,  an  amount
comfortably  exceeding  the  total  value  of  present  or  future  worldwide  development  aid.
Moreover, the economies of developing countries are, in general, far more vulnerable to
volatile oil prices than the EU.

This  “scenario”  underlines  three  conclusions :  the  EU  and  developing  countries
have  a  shared,  growing  interest  in  oil  and  gas  market  stability ;  developing
countries  will  increasingly  have  a  self-interest  in  policies  promoting  energy
efficiency  and  alternative  energy  sources ;  and  the  present  producer-consumer
dialogue will gradually have to include major consumer developing countries.

25

Source : World Energy Assessment (UN/WEC 2000).

10

                                                
Insecurity  of  energy  supply,  as  manifested  for  example  by  unreliable  electricity
ii)
supplies,  is  commonplace  in  developing  countries.  It  is  both  socially  and  economically
damaging.  Energy  insecurity  discourages  investment  by  threatening  production  and
increasing costs due to the reserve capacity (electricity generation) required. The cost of
stand-by electricity generation for small investors is particularly high26.

iii)
The energy sector investment needs in developing countries are very substantial.
Based  on  different  scenarios,  capital  requirements  of  the  energy  sector  in  developing
countries over the next twenty years are in the range of $150 to 200 billion p.a.27. Annual
investments  in  the  electricity  generation  sector  alone  are  estimated  at  $70-85  billion
p.a.28.

Indeed, 

countries, 

in  developing 

It is clear that financing of this order cannot be provided mainly by development aid or
public  budgets. 
are
gradually moving towards private sector financing, but private funds are not flowing into
many developing countries,  especially the poorest such  as those in  sub-Saharan  Africa,
for a variety of reasons, especially risk to investors. Very little foreign direct investment
reaches  the  least  developed  countries.  Official  development  assistance  remains  limited.
Most  developing  countries  have  to  finance  their  energy  development  from  domestic
savings  and  development  aid.  This  is  a  much  tougher  task  than  what  happened  in  rich
countries  when  they  subsidised  the  establishment  of  their  own  energy  sectors  (coal,
nuclear) as pointed out in the Green Paper.

investments 

energy 

If  investment  is  to  be  attracted,  not  only  into  the  energy  sector  in  developing
iv)
countries  in  general,  but  specifically  into  energy  efficiency  and  renewable  energy
sources, a concerted and broad-ranging effort is required. Appropriate commitments at
multilateral and bilateral level should be undertaken in order to ensure the legal certainty
that  foreign  operators  need  in  order  to  invest  and  operate  in  a  country.  Whilst  such
investments  are  meeting  lesser  obstacles  in  industrialised  countries  due  to  a  supportive
regulatory  framework,  they  will  continue  to  meet  obstacles  in  developing  countries
unless  appropriate  financing  and  operating  mechanisms  are  developed.  Given  the  very
real  needs  for  increased  energy  supply  for  development  in  these  countries,  incentives
must  be  created.  The  Clean  Development  Mechanism29  is  an  example  of  an  already
agreed instrument but others, even more ambitious and complementary, are also needed.
Whereas  research  and  development  on  certain  innovative technologies is  hindered  by  a
saturated  market  in  the  industrialised  countries  and  too  low  purchasing  power  in  the
developing  countries,  instruments  such  as  the  CDM  may  give  way  to  new,  unsaturated
markets  for  first  investments  and  give  incentive  for  further  R&D  on  innovative
renewable energy and energy efficient technologies.

D)

The lack of institutional capacity and human resources

26

27

28

29

In Nigeria, around 92% of firms surveyed in the mid-1990s had their own generators. For small
firms, the investment in generating capacity represented almost a quarter of their total investment,
and for large firms a tenth (African Development Bank 1999).
WEA p.356, based on WEC-IIASA scenarios.
IEA WEO.
The Clean Development Mechanism (CDM) is a project-based mechanism outlined in Article 12
of the Kyoto Protocol. Under the CDM, an industrialised party can earn credits, certified emission
units  (CERs),  against  its  international  commitments  for  greenhouse  gas  emission  reduction
through  an  approved  project-based  investment  in  a  developing  country.  The  COP-7  meeting  in
Marrakech in 2001 agreed on the rules and modalities of the project-based mechanisms, including
the CDM, so that CDM projects can start immediately.

11

                                                
In  many  developing  countries  there  is  no  real  definition  of  energy  policy.  This  is
attributable in  particular  to  the  fact  that  public institutions lack  adequate  structures,  the
necessary  human  resources  and  other  crucial  means  (such  as  access  to  complete  and
reliable statistics) to be able to develop such a policy. The EU has built up considerable
experience  of  the  planning  and  formulation  of  energy  policies.  It  is  therefore  in  a
privileged  position  to  help  the  developing  countries  develop  their  administrative
capacities and energy policies over the long term.

In general, institutional support is intended to provide the developing countries with the
means to:

•

•

•

develop  a  more  efficient  public  administration,  relying  on  a  educated  work-
force, capable of performing the tasks required of an effective public service.

including  a  social,  economic  and
develop  appropriate  energy  policies 
transparent
environmental  dimension.  This  covers 
regulatory structures, a pricing policy guaranteeing as far as possible that prices
reflect  costs  at  national  level,  subsidy  levels,  technical  regulations,  import-
export  practices,  etc.  It  should  be  based  on  the  availability  and  analysis  of
statistics  relating  to  the  national  energy  situation  and  the  different  population
categories;

the  establishment  of 

implement  the  policies  thus  formulated.  This  includes  in  particular  the
development  and  establishment  of  appropriate  institutional  procedures  for
energy services. Institutional support should also make it possible to assess the
comparative advantages of public and private services, the role of deregulation,
the  technological  options  available  (in  particular  renewable  energy  sources,
energy  efficiency  and  the  rational  use  of  fossil  fuels),  and  contribute  to  the
emergence  of  (public  and/or  private)  local  capacities  for  the  development  and
monitoring of projects targeted on the supply of energy services.

E)

Absence of an appropriate legislative, regulatory and financial framework

The  existence  of  an  appropriate  legislative,  regulatory  and  financial  framework  is  a
precondition for attracting the private investment flows needed to develop basic energy
services and infrastructures. This is mostly lacking in the developing countries.

In the majority of the developing countries, the price of conventional energy sources  is
artificially  lowered  as  a  result  of  public  subsidies.  This  price  distortion  policy  is  an
obstacle to investments in energy efficiency. The use of subsidies should be transparent,
limited in time and targeted on specific social goals, as with cross-subsidies between rich
urban  areas  and  poor  rural  areas.  The  inappropriate  taxation  of  imported  energy
equipment also sends a negative message to the market

In  addition,  in  certain  developing  countries,  inefficient  and  sometimes  corrupt  energy
services  drain  public  funds  for  the  benefit  of  a  minute  proportion  of  the  population.
Improving the efficiency of energy services should make it possible to make better use of
public resources as a result of measures aimed at restructuring and opening up services to
competition.

As far as  financing is concerned, the limited nature of public funds and the increasingly
accepted  idea  of  a  more  limited  role  for  the  State  have  aroused  the  interest  of  the
governments  of  the  developing  countries  in  the  mobilisation  of  private  investment,  in

12

particular in the context of privatisation or of opening up the capital of public enterprises.
In this context, the development of a transparent regulatory framework, the reinforcement
of  financial  intermediaries,  and  the  development  of  public-private  partnerships  are
fundamental for the mobilisation of domestic and foreign capital in the context of equity
investments.  In  addition,  income  from  public-private  partnerships  should  be  managed
transparently and equitably.

II. 

A  REFERENCE  FRAMEWORK  FOR  ENERGY  COOPERATION  WITH  THE
DEVELOPING COUNTRIES

The EU's energy cooperation with the developing countries has hitherto mostly been on a
case-by-case basis. Also, the volume of aid allocated has remained very limited. On the
basis  of  the  above  analysis  of  the  energy  situation,  a  reference  framework  should  be
proposed for the EU's external action in the energy sphere.

The ownership by the beneficiary countries of their development strategies is the key to
the success of cooperation. This means that the energy policy and cooperation priorities
are defined by the beneficiary countries/regions, by involving the largest possible number
of  stakeholders  (public  and  private  sectors,  civil  society,  etc.).  Consequently,
development cooperation funds cannot be earmarked for specific sectors at Community
level.  In  this  connection,  the  EU  attaches  prime  importance  to  the  quality  of  dialogue
with the partner countries, which should make it possible to ensure consistency between
the  national  policies  and  the  Community  support  mechanisms.  The  development
priorities as a whole  are set out in strategy  documents for  the reduction of poverty and
strategy  documents  by  country  and  by  region.  These  documents  are  based  on  the
"ownership"  concept,  and  negotiated  between  the  Community  and  the  beneficiary
countries.  They  define 
the  framework  within  which  cooperation  projects  and
programmes, eg in the energy sector, are funded and implemented. The energy dimension
of  these  documents  has  so  far  remained  limited  or  even  non-existent.  It  is  desirable  to
deepen the energy dialogue with the beneficiary  countries so as to  reinforce the  energy
dimension.

The  situation  is  very  diverse  within  the  developing  countries.  The  broad  lines  of
cooperation proposed should be responsive to the flexibility required by the diversity of
energy situations and integrated in a modular fashion in the strategy documents.

A)

General aspects

The reform of the energy sector and technology transfer are two fundamental aspects of
future cooperation activities which concern both energy demand and energy supply.

i)

Reform of the energy sector

In order to meet the requirements concerning the opening-up of the market and promote
private investment, an appropriate legislative and regulatory framework is necessary, in
particular as regards regulation, the unbundling of activities, pricing and the promotion of
private  participation.  In  all  these  areas,  the  EU  has  unparalleled  experience  by  virtueof
having established the biggest integrated market in the world. This experience should be
put to the benefit of the developing countries.

13

Apart  from  the  formulation  of  energy  policies  and  the  detailed  rules  for  implementing
them,  the  need  to  reform  the  energy  sector  in  the  developing  countries  essentially
concerns the following aspects:

-  Opening  up  production  and  distribution  to  the  private  sector  (in  particular  granting
licences  to  independent  electricity  generators).  Where  the  opening-up  of  markets  is
concerned, the EU has developed an original concept based on regulated competition,30
offering a third way between pure liberalism and outmoded statism. This is of particular
interest  for  the  regions  involved  in  regional  integration.  However,  in  the  case  of  the
developing  countries  there  is  a  major  financing  problem  which  has  to  be  resolved  by
devising  innovative  financial  arrangements,  and  acquiring  the  requisite  expertise,
combining  donations,  loans  and  equity  funding  in  order  to  reduce  the  risks  taken  by
investors. The development of such funding arrangements is a challenge for the providers
of finance and  the international financial institutions active in  the  developing  sector,  in
particular  the  European  Investment  Bank.  In  this  context,  a  regulatory  framework,
ensuring equitable and transparent distribution of benefits is essential.

-  Pricing:  The  establishment  of  a  structured  energy  market  calls  for  transparency  in
pricing  and  invoicing,  for  both  large  consumers  and  households.  One  of  the  major
problems in this respect is that in certain developing countries some of the energy is not
paid for by the users, in  particular public ones.  In  addition,  price subsidy  arrangements
should  be  revised  in  order  to  improve  transparency,  take  account  of  all  environmental
costs  and  reduce  distortions  at  market  level  and  organise  income  transfers  from  urban
areas to poorer rural areas. Where pricing is concerned, energy policy and social policy
go hand in hand.

In  addressing  these  issues  in  developing  countries,  it  will  be  particularly  important  to
keep  the  access  to  energy  of  the  populations  at  large  as  a  high  priority  for  any  sector
reform.

ii) Technology transfer

Technology  transfer  and  creating  the  conditions  for  it  to  be  effective  are  fundamental
aspects  for  the  energy  sector.  Mention  should  be  made  in  particular  of  technologies
relating  to  clean  coal,  renewable  energy,  nuclear  safety,  and  equipment  and  appliances
aimed at increasing energy efficiency.

The EU has given priority to energy efficiency and the development of renewable energy
sources  since  the  oil  price  increases  in  the  1970s  and  early  1980s.  Much  of  this
technology  can  be  applied  with  immediate  benefit  in  developing  countries.  The
additional push for energy efficiency in the 1990s in order to reduce CO2 emissions has
demonstrated  that  particularly  energy-efficient  technology  is  also  often  economically
attractive.  The  present  development  of  fuel  efficient  motor  vehicles,  following  the
agreement  between  the  Commission  and  car  manufacturers  is  astriking  example.
Developing countries have all good reasons to follow suit, and with the right incentives,
transferring this technology would be highly  appropriate. Similarly, the development of
wind energy, the most rapidly expanding electricity-generating technology in the EU, is a

30

The  process  of  opening  up  the  European  electricity  and  gas  markets  provides  for  safeguards
(public  service  obligations)  to  protect  the  final  user,  and  in  particular  the  most  vulnerable
consumers.

14

                                                
good example. European wind turbine manufacturers have already developed production
activities in a number of developing countries, notably India.

B)

Demand-side cooperation

Apart from the  absolute priority of  guaranteeing  access to adequate  energy  services for
the "energy poor",  demand-side  cooperation is undoubtedly  the  most  promising  avenue
of approach, since improving energy efficiency is a crucial area that has to a large extent
not  been  exploited  so  far  in  the  developing  countries,  while  the  EU  has  built  up  vast
experience in this field.

The right and the need of the developing countries to increase their energy consumption
is  beyond  question.  However,  in  most  cases,  and  particularly  in  the  case  of  those
countries which already have a significant industrial sector, there is a very considerable
potential  for  improving  energy  efficiency,  and  this  could  be  an  effective  way  of
promoting  low-energy-intensity  economic  development.  Accordingly,  the  developing
countries  should  focus  their  efforts  more  on  improving  energy  efficiency  than  on
controlling the overall rise in demand. This is consistent with the general  commitments
entered into under the Climate Convention and the Kyoto Protocol.

There is a close - and unfortunate - link between the fact that developing countries have
higher  energy  intensity  in  their  economies  and  pay  a  bigger  share  of  GDP  for  energy
services.  One  of  the  ways  to  break  this  link  is  to  give  priority  to  energy  efficiency  in
policy formulation and implementation.

Energy efficiency is important in energy conversion (electricity generation), distribution
and  end  use.  Measures  to  improve  energy  efficiency  are  usually  highly  cost-effective,
however  often  with  a  relative  high  up-front  investment,  which  takes  some  time  to  be
recovered.  However  simple  improvements  in  management  practices,  to  improve
operation and maintenance, can yield significant energy savings and be cost-effective.

Energy efficiency is important at all levels. Modern gas-fired electricity generation offers
efficiency  above  50%,  and  over  85%  with  co-generation,  whereas  much  conventional
coal-fired capacity in developing countries , operates at around 25% efficiency. Firewood
stoves for cooking can be improved to greatly reduce the need for firewood and limit in-
door  air  pollution.  Appliances  such  as  refrigerators  or  light  bulbs  come  with  very
different  efficiencies.  And  the  impact  of  fuel-efficient  cars  on  the  oil  import  bill  of  a
developing country can be significant.

Penetration  of  modern  energy-efficient  technology  in  developing  countries  basically
requires three elements :

– 

– 

– 

Providing  access  to  the  technology  for  use  in  the  production  industry  of
developing countries ;

Providing access to capital for the necessary (often higher) investment in energy
efficiency ;

Creating  a  legal  and  financial  framework,  instruments  and/or  economic
incentives to ensure that the technology is implemented.

Leapfrogging to modern technology implies cooperation between governments, industry
and  financial  institutions.  The  high  priority  given  to  energy  efficiency  in  the  EU,  as

15

expressed in the European Commission’s recent proposal for the “Intelligent Energy for
Europe”  programme,  provides  an  excellent  basis  for  cooperation  with  developing
countries  in  this  field.  This  programme,  which  has  a  limited  budget,  will  not  be
sufficient,  however  and  will  complement  the  big  Community  development  aid
programmes (MEDA, EDF, etc.) which have more financial resources at their disposal.

C)

i)

Supply-side cooperation

Promoting energy diversification

The objective of energy diversification applies to both the consuming countries and the
producing countries, the latter often being mono-exporters and hence vulnerable.

The  purpose  of  energy  diversification  is  to  reduce  dependence  on  the  traditional  fossil
fuels  such  as  oil  and  gas,  whose  drawbacks  are  well  known  (price  volatility,  limited
reserves), by broadening the national/regional energy mix. The latter will be determined
on  a  case  by  case  basis  by  the  countries/regions  concerned  depending  on  their  specific
features and their assessment of the different possible alternatives/combinations.

In  this  connection,  three  options  should  be  examined,  without  any  preconceived  ideas
about  their  appropriateness/relevance,  which  should  be  assessed  in  the  light  of  their
economic, social and environmental sustainability:

a)

Coal

Coal  is  abundantly  available  throughout  the  world,  including  in  many  developing
countries (China, India, South Africa, Colombia). It is generally a cheap source of energy
and any country in the world can benefit from low world market prices for coal, likely to
continue for decades.

The main drawback of coal is its environmental performance. For industrialised countries
having quantified targets for greenhouse gas emissions (mainly CO2), the possible use of
coal  is  limited.  On  the  other  hand,  since  this  limitation  does  not  apply  to  developing
countries  for the  moment,  it  is  generally  expected  that  coal  consumption  in  developing
countries will increase in the coming years (decades), mainly for electricity generation.

Developing  countries,  however,  face  a  number  of  local  environmental  problems,
particularly air pollution, and many are also concerned about transboundary air pollution
due to emission of SO2, NOx and heavy metals. Awareness is also growing  that  in  the
longer term it will be necessary also to limit coal consumption in developing countries ,
if the ultimate objective of the Climate Convention is to be achieved.

In  view  of  the  overwhelming  importance  of  coal  in  developing  countries,  clean  coal
technologies must be introduced on a wide scale. Specific attention should be paid to this
aspect of cooperation in order to accelerate  further large-scale penetration of clean coal
technologies. Clean coal technology has been developed within the EU during the last 20
years,  in  particular  under  the  ECSC  Treaty  and  the  Community  R&D  Programme.
Processes to reduce emission of SO2, NOx and particulates make it possible to burn coal
in  large  installations  with  a  minimum  of  impact  on  local  air  quality  or  acidification.
Improved  efficiency  towards  50%  allows  significant  reductions  in  CO2  emission
compared to most existing installations in developing countries. Utilising waste heat for
domestic heating, cooling or other low-temperature heating purposes allows even higher

16

overall efficiencies. Improved inspection and maintenance of existing plants often offers
low investment and highly efficient ways of improving the utilisation of coal.

Clean  coal  technology  does  not  stop  with  the  abovementioned  examples.  Promising
future technologies include coal gasification combined with technologies to capture and
store (underground) CO2 which would in principle allow coal to be used in a sustainable
way. However, a number of important barriers still have to be overcome, notably the high
cost  of  capture  and  permanence  of  long-term  storage  underground.  This  is  a  clear
example  of  technology  development  at  present  mainly  depending  on  industrialised
countries,  but  certainly  with  important  prospects  for  all  countries.  In  this  respect,  the
possibilities of associating developing countries with the development and deployment of
these new technologies should be explored.

With  support  from  the  ECSC,  the  EU  has  also  developed  some  of  the  world’s  best
mining  technology.  Transferring  this  technology  could  lead  to  improvements  in  the
efficiency  of  coal  production  in  developing  countries.  Standards  of  safety  in  the  coal
industries of some such countries are low, as is demonstrated, for example, by  a recent
series of mine disasters in China. In this respect too, ECSC programmes have supported
the  development  of  a  wealth  of  readily-transferable  technology  which  could  help  to
improve not only safety, but also standards of health and working conditions

The example of China, however, demonstrates the muted commercial interest on the part
of European industry to export these new technologies for lack of an overall framework
ensuring financing and genuine exploitation of technology transfer.

b) Oil and gas

Both oil and gas are expected to increase considerably in the energy mix in developing
countries.  In  the  case  of  oil,  the  main  reason  is  increased  use  in  the  transport  sector,
where for the time being alternatives are limited. In the case of natural gas, the increased
use  is  often  linked  to  the  need  for  improvements  of  environmental  conditions,
particularly urban air pollution. However, natural gas is also an attractive fuel  from the
climate change point of view because it can be used with high efficiency and it has lesser
carbon content than the other fossil fuels.

Both oil and gas are foreseen to be in limited supply in the medium term. This, as well as
the  potential  implication  for  climate  change,  calls  for  use  of  oil  and  natural  gas  in  the
most  efficient  way  as  previously  mentioned  in  connection  with  energy  efficiency.  In
addition to this, use of oil products requires appropriate environmental measures whether
heavy  fuel  oil  used  in  combustion  plants  or  gasoline  and  diesel  used  for  transport
purposes. Part of the clean coal technology, such as flue gas desulphurisation is equally
useful when burning oil products.

c)

Renewable energy

While the potential of renewable energy is increasingly being vaunted on account of its
benefits  from  the  point  of  view  both  of  the  environment  and  of  security  of  supply,  its
share will remain limited, especially as, in the absence of specific policy measures, such
as  those  taken  by  the  EU  to  promote  renewable  energy,  in  general  the  high  cost  of
renewable energy is an obstacle to its expansion, at least in the short term.

For the European Union, renewable energy production should double by 2010 from 6%
to  12%.  This  would  be  achieved  through  very  high  investments,  particularly  in  the

17

electricity sector where the share of electricity produced on the basis of renewable energy
should  reach  22%  by  2010  according  to  the  Directive  on  the  promotion  of  renewable
energy.

Use of  renewable energy  in  developing  countries  is  often  much  higher  than  in  the  EU,
but  mainly  based  on  firewood  for  cooking  and  heating  (traditional  biomass),  or  on  big
hydro-electricity plants. Both can have drawbacks from the point of view of sustainable
development. Excessive collection of biomass is a threat to sparse and vulnerable forest
cover  in  many  semi-arid  areas  and  use  of  that  biomass  is  the  cause  of  serious  health
problems due to high levels of indoor air pollution. Big hydro-electric schemes have been
the subject of much environmental concern, with the result that few projects are likely to
advance in the coming years.

As  total  energy  demand  in  developing  countries  will  increase  and  the  use  of
firewood  should  be  replaced  by  more  sustainable  energy  sources,  the  share  of
traditional  biomass  in  these  countries  (and  globally)  should  show  a  decrease  over
the  medium  to  long  term.  It  will  require  a  significant  effort  to  introduce  modern
renewable energy sources (e.g solar, wind, small hydro, sustainable biomass, etc) at
a  rate  sufficient  to  maintain  the  present  overall  share  of  total  renewable  energy,
both globally and in developing countries (see Table II in Annex).

These perspectives are important for the evaluation of the future role of renewables
in the energy supply pattern of developing countries. They stress the importance of
a diversified energy supply structure. They also show that it would be a mistake to
believe  that  the  solution  to  the  expected  increase  in  energy  consumption  in
developing countries would primarily be found in renewable energies, whose cost is
for many of them currently out of reach. However, with adequate energy policies in
place,  locally  available  renewables  could  be  competitive,  in  particular  for
decentralised  electricity  production,  and  be  in  a  position  to  make  a  significant
contribution to the developing countries’ current energy needs, in particular taking
into account current trends, which indicate that the economics of renewable energy
will  improve  for  developing  countries,  as  a  result  of  cost  reductions  through
increased use in developed countries.

The potential as regards renewable energy lies in particular in rural areas where access to
energy  depends  on  decentralised  electricity  generation.  Recent  and  possibly  future
developments,  in  particular  wind  and  solar  energy,  offer  potentially  promising
contributions  to  energy  supply  in  rural  areas.  Rural  areas  are  often  too  sparsely
populated  or  have  a  too  low  potential  electricity  demand  to  justify  the  investment  in
electricity  transmission  and  distribution  of  centrally  generated  electricity.  Locally
produced electricity from wind or solar power may offer the best solution to cover basic
energy  needs  for  light,  communications,  health  services  and  initial  production  and
commercial development. This aspect is particularly important in the context of poverty
eradication.  If  properly  integrated  in  rural  development  policy,  renewable  energy  will
also  contribute  to  improving  life  in  rural  areas,  thus  hopefully  contributing  to  reducing
the  incentives  for  migration  from  rural  to  urban  agglomerations  with  all  the  associated
social problems.

For  the  abovementioned  reasons  of  security  of  supply  and  environmental  protection,  it
makes sense to support developing countries through:

-

assistance to promote the necessary technical capacity;

18

supporting  efforts 

-
institutional capacity to promote the use of locally available renewable energy sources;

the  necessary  regulatory  framework  and

to  establish 

-
providing improved access to renewable energy and energy efficiency technology
as  developed  by  EU  industry.  RTD  efforts  deployed  in  the  EU  should  address  the
constraints to using these technologies in non-industrialised countries or in remote rural
areas.  The  demonstration  of  these  technologies  in  real  (developing  country)  conditions
should not be neglected either;

-

developing appropriate financial mechanisms to promote renewables.

d)

The nuclear option

A number of developing countries (eg: China, India, South Korea, Taiwan, South Africa)
are pursuing nuclear energy as part of their overall energy mix.

The  European  debate  on  nuclear  power  has  clearly  demonstrated  the  necessity  of  high
safety standards and environmentally safe treatment and deposition of nuclear waste.

Safe use of nuclear power requires a high level of technical and managerial skills; broad
understanding  and  acceptance  of  the  issues  by  the  general  public  is  also  necessary  for
sustainable use of nuclear. Without a guarantee of long-term good governance, the safety
of nuclear power use cannot be ensured, both from nuclear contamination and terrorism
points of view. While experience in the European Union has shown that with the required
skills and governance use of nuclear power is technically possible, such a combination of
factors are absent in most developing countries.

Achieving  good  governance  and  political  stability,  while  a  major  objective  of  EU
development cooperation is a long-term process.

In  developing  countries,  it  is  generally  understood  that  public  finances  will  not  be
sufficient to provide energy services to those without, and it will be private capital that
will underpin their future energy need. The private sector is reluctant to take on the risk
and  liabilities  (safety,  waste  disposal,  etc.)  of  new  nuclear  capacity  in  developing
countries, even when it is proved to be economically competitive.

Where developing countries have nonetheless opted or are opting for nuclear energy, and
where this is consistent with a national strategy promoting sustainable development, and
sufficient safeguards exist, the EU may provide technical assistance for establishing and
implementing  the  necessary  regulatory  framework  and  institutional  capacity  to  manage
nuclear  energy  safely,  including  control  of  nuclear  materials  (safeguards),  waste
management, and the safest technologies..

ii)

Facilitating the development of networks, and in particular interconnections

The European energy market is moving towards a singel integrated energy market. This
development has  been made possible  through  the  close  political  cooperation  within  the
EU, particularly the establishment of the  Internal Market, and through the development
of  an  extensive  network  of  energy  supply  infrastructure  which  allows  full  exchange  of
gas and electricity, in particular, between Member States.

Development of regional energy infrastructure can offer benefits of economies of scale,
especially  with  small  countries,  where  there  is  potential  for  reducing  transaction  costs

19

and increasing competitiveness through the sharing of the development, management and
operations of energy infrastructure facilities. Such opportunities exist for shared facilities
in gas and electricity infrastructure and trade.  Electricity  pools  can  significantly  reduce
expenditure  on  new  generating  capacity,  as  well  as  operating  costs,  and  can  help  to
enhance energy security31.

It  is  however  important  to  recognise  that  the  benefits  of  regional  cooperation  and
infrastructure  investment  are  heavily  dependent  on  local  circumstances.  The  European
market  is  characterised  by  a  high  consumption  in  a  relatively  small  area.  Many
developing countries have a low consumption over big areas, a situation that favours an
energy supply system based on local production. However, some regions lend themselves
to the development of regional cooperation on account of their size, population density
and  distribution  of  energy  resources.  This  is  the  case,  for  example,  with  the
Mediterranean  region  where  the  energy  distribution  system  is  still  very  limited.  The
development  of  genuine  energy  cooperation  between  the  12  Mediterranean  partners
would  make  it  possible  to  resolve  most  of  the  problems  of  the  region  where  energy  is
concerned.

Many  potential  large  hydropower  projects  in  developing  countries,  apart  from  the
environmental  impacts,  often  have  high  transmission  and  distribution  cost  to  bring  the
electricity  to  potential  consumers.  Whereas  there  is  no  obvious  solution  to  the  lack  of
economic feasibility because of insufficient demand or too high distribution costs, there
are  solutions  to  overcome  political  or  institutional  barriers  to  regional  energy
cooperation. There is reason to believe that many regions in the world (South America,
West Africa, sub-Saharan Africa, South East Asia) can benefit from a closer cooperation
on energy supply systems. Such cooperation will also be particularly useful in the case of
renewable energies with varying  availability. Hydropower, or wind energy only deliver
their full supply benefits if they are combined with energy sources that do not depend on
weather  fluctuations.  In  this  respect,  the  approach  to  electricity  grids  in  developing
countries  should  be  adapted  to  a  future,  more  decentralised  energy  production,  using
dispersed and intermittent resources, such as renewable energy

Moreover,  it  should  be  noted  that  energy  cooperation  is  not  necessarily  linked  to
infrastructure-based  energy  exchange.  Capacity-building  and  exchange  of  experiences
can  be  shared  on  a  regional  basis  by  countries  with  modest  energy  demand  (Africa,
Pacific Islands).

It  is  also  worth  stressing  that  the  role  of  energy  networks  in  securing  reliable  and
affordable  energy  supply  is  not  only  an  international  problem.  Many  developing
countries struggle with the challenge of establishing purely national grids (gas in Nigeria,
electricity  in  China  and  in  Iran)  to  provide  basic  energy  services  in  areas  where  the
demand  is  modest.  These  efforts  deserve  to  be  supported  as  part  of  national  poverty
eradication schemes and also as a crucial element for improving conditions in rural areas.

31

It  is  estimated  that  pooling  electricity  generation  facilities  in  Southern  Africa  could  generate
savings of $80 million per annum in operating costs and $700 million in expansion costs over the
next 20 years.

20

                                                
III. 

THE MEANS TO BE DEPLOYED: OPERATIONAL RECOMMENDATIONS

With a view to the Johannesburg Sustainable Development Summit, a European Union
Energy  Initiative  in  the  developing  countries  should  be  launched  in  order  to  give  a
political boost and a very concrete dimension to cooperation in this area. More generally,
this Initiative is part of a series of across-the-board proposals for the long term aimed at
helping  to  improve  the  effectiveness  of  energy  cooperation  with  the  developing
countries.

This  energy  cooperation  with  developing  countries  should  draw  on  the  EU’s  own  long
experience with the environmental problems arising from the use of conventional energy
and  recognition  of  the  need  for  a  more  innovative  approach  to  securing  affordable  and
sustainable  energy  sources,  thus  focusing  on  sharing  solutions  that  are  energy-efficient
and  do  not  waste  energy  or  which  harness  renewable  energy  while  not  comprising  the
need for developing countries to have access to basic energy services.

A)

Recommendations for the long term

a)
Integrating  energy  as  a  general  component  of  EU  development  aid
programmes – It is important that energy should occupy a place within EU development
cooperation  reflecting  its  cross-sector  dimension  and  its  role  as  a  precondition  for  the
reduction of poverty. Given the anticipated rise in the overall volume of development aid
in the next few years it would be desirable for it to have a significant beneficial effect on
energy  cooperation.  Where  the  EU  development  aid  programmes  are  concerned,  it  is
necessary  that,  on  the  basis  of  the  requests  from  the  beneficiary  countries/regions,  the
share  of  energy  in  the  overall  annual  volume  of  development  aid  should  increase
significantly in the medium term.

The  means  of  achieving  this  objective  may  vary  depending  on  the  programmes  or
countries/regions  concerned,  entailing  an  increase  in  the  number  and/or  size  of  energy
projects  or  the  introduction  of  an  energy  component  in  sectoral  projects  concerning
education,  health,  water,  etc.  The  integration  of  energy  into  poverty  reduction  strategy
papers (PRSPs), defined by beneficiaries, is important in that regard. This will first of all
necessitate  making  the  beneficiary  countries  more  aware  of  energy  questions,  if  the
beneficiary  countries/regions  so  wish,  by  adjusting  the  indicative  national  and  regional
programmes  which  form  the  basis  for  cooperation  between  the  EU  and  the  developing
countries.  This  concern  already  seems  to  have  been  taken  on  board  by  a  number  of
developing  countries.  In  addition,  development  aid  programmes  and  projects  in  the
energy sector should systematically include energy efficiency objectives.

b)
Developing institutional support, technical assistance and networking to give
the  beneficiary  countries  the  capacities  to  implement  their  energy  choices  -  The
formulation and implementation of energy policies, in particular the requisite regulatory
framework  to  promote  investment,  the  diversification  of  sources  of  supply  and  the
rational use of energy, require a high level of expertise which, for the most part, is very
limited in the developing countries.

Given  the  numerous  studies  already  funded  in  the  past,  it  is  proposed  that,  for  the
countries/regions which  so desire,  all or part of the  financial  assistance  available  under
the  EU's  development  aid  programmes  should  be  concentrated  on  twinning  operations.
On  the  basis  of  extremely  good  results  and  experience  in  the  Central  and  Eastern
European candidate countries, this would make it possible to second European experts to

21

the  beneficiary  countries.  These  secondments  would  be  of  limited  duration  but
sufficiently long (one to three years) to strengthen the administrative capacities of these
countries and make concrete progress in terms of  the  regulatory  framework,  the  energy
balance  and  the  diversification  of  supplies,  as  well  as  financial  mechanisms  for  the
deployment  of  energy  production  capacities  and  networks.  Moreover,  ad  hoc  technical
assistance  mechanisms  should  be  envisaged,  as  well  as  support  for  existing
national/regional  energy  centres.  Support  to  training  will  also  make  it  possible  to
contribute  in  the  medium  term  to  the  formation  of  a  competent  pool  of  energy
professionals in the developing countries.

Furthermore,  the  EU  has  a  vast  network  of  local  and  national  agencies  responsible  for
energy matters,  in particular  the  promotion  of  renewable  energy  and  energy  efficiency.
Consequently,  it  is  proposed  that  some  of  the  EU  funds  available  for  international
cooperation should be devoted to the networking of EU energy agencies and equivalent
centres  (already  in  existence  or  to  be  set  up)  in  the  developing  countries.  The  EU
Intelligent  Energy  for  Europe  programme  could  act  as  a  catalyst  in  this  connection.32
Given the need to ensure a proximity policy responsive to the very varied specific needs
of  the  developing  countries,  local  centres  will  be  strongly  encouraged.  This  sort  of
networking  will  make  it  possible  to  reach  the  largest  possible  number  of  stakeholders,
both public and especially private (civil society).

c)
Developing  an  appropriate  regulatory  framework  and  innovative  financial
mechanisms in order to promote investments in clean technologies in the context of
public-private  partnerships  -  Investing  in  clean  technology  is  first  and  foremost  the
responsibility of industry and it is vital that the market and investment conditions in the
developing countries should be such as to encourage the involvement of enterprises in the
technology  transfer  process.  In  many  cases,  the  economic  viability  of  clean  sustainable
energy  investments  is  not  yet  sufficient  for  private  capital  investors  without  flanking
support measures, including the provision of public funds in the form of equity, grants or
subsidies. This problem is accentuated by high up-front capital investment costs although
this is compensated by low operating costs in the longer term.

A regulatory framework and appropriate public funding (own resources and development
aid)  therefore  have  an  important  role  to  play  in  this  area,  particularly  as  a  means  of
mobilising  private  capital.  Mention  should  also  be  made  in  this  connection  of  the
Community's  technological  research  activities,  in  particular  under  the  6th  Research
Framework Programme  which  will  be  open  to  all  third  countries,  including  developing
countries, and will offer exemplary energy partnership possibilities. The development of
such  partnerships  should  also  make  it  possible  to  mobilise  additional  banking  sector
funding.  With  support  from  the  EU  Energy  Initiative  (cf.  §B),  this  should  make  it
possible to analyse the needs of the beneficiary countries in terms of innovative funding
arrangements and help to develop such mechanisms combining the expertise and sources
of funding available (donations, loans, equity funding).

d)

Encouraging regional cooperation

Regional (and subregional) cooperation  on  energy can  generate  genuine added value in
the developing countries with a view to sustainable development. The problem is that the

32

The  Intelligent  Energy  for  Europe  programme  includes  an  international  cooperation  dimension
(COOPENER) to  which the European  Commission proposes to allocate EUR 19 million for  the
period 2003-2006.

22

                                                
size of the national markets is insufficient to stimulate private investment, whereas most
of the energy distribution problems can be resolved on a regional scale. The development
of regional cooperation can stimulate and facilitate the implementation of reforms in the
energy sector and the involvement of the private sector. Likewise, the development and
interconnection of energy distribution networks at regional level should make it possible
to improve access to energy and the security of supply of the populations concerned.

Given its experience and the instruments at its disposal, the Community should lend its
support to the efforts of the developing countries who wish to embark upon this path. In
this connection, it can rely on the regional dialogue as well as the regional dimension of
cooperation  under  the  big  development  aid  programmes.  With  regard  to  the  regional
energy  dialogue,  the  role  of  the  existing  fora  should  be  strengthened  (e.g.  Euro-
Mediterranean  Energy  Forum,  Asean  Centre  for  Energy,  etc)  as  fora  for  information,
awareness-raising  and  the  discussion  of  energy  policy  issues.  A  detailed  regional
dialogue  can  generate  regional  integration  projects  concerning  energy,  as  with  the
Mediterranean Electricity Ring Project33.

e)
Developing  coordination  within  the  EU  and  with  other  international
providers  of  finance  and  organisations  –  While  good  coordination  is  essential  as
between  the  Community  cooperation  instruments,  it  is  also  crucial  to  have  good
coordination  between  the  Commission's  energy  cooperation  activities  and  those  of  the
Member  States.  The  reference  framework  proposed  in  this  communication  should
generally contribute to this, as should the EU Energy Initiative (cf. §B) more specifically.

At  international  level  there  are  many  fora  which  address  the  question  of  energy  in  the
developing  countries,  but  in  a  rather  dispersed  or  compartmentalised  manner.  Mention
should be made in particular of the United Nations  (UN Development  Programme, UN
Environment  Programme),  the  World  Bank,  the  International  Energy  Agency,  G8,  and
the  World  Energy  Council.  Generally  speaking,  it  would  be  desirable  for  the  dialogue
with  the  organisations  responsible  for  energy  coordination  to  be  stepped  up  at
international and, especially, at regional level. For example, in the case of Latin America,
OLADE (meeting of the Energy Ministers), ECLAC (United Nations Regional Economic
Commission) and the IDB (Inter-American Development Bank) have lengthy experience
in this connection, and  there  is  dialogue  between  these  organisations  and  the  European
Commission.  Strengthening  the  coordination  shall  also  be  beneficial  concerning  the
poverty reduction strategy  papers.A single focal point for the analysis and management
of  statistics  concerning  the  energy  situation  in  the  developing  countries  would  be
particularly  useful.  It  is  desirable  that  an  existing  international  organisation  with  the
requisite experience should play this role. In particular, consideration should be given to
the role that the International Energy Agency could play in this respect.

The  EU  Energy  Initiative  will  provide  an  additional  opportunity  to  improve  the
coordination of EU action with that of other international donors.

B)

The EU Energy Initiative

In  order  to  promote  cooperation  between  the  EU  and  the  developing  countries  in  the
energy  sector,  and  taking  into  account  the  long-term  actions  mentioned  above,  in
Johannesburg the EU will launch an EU Energy Partnership Initiative. The Initiative was

33

The Mediterranean Electricity Ring Project is one of the six MEDA regional projects in progress
in the energy sector.

23

                                                
already  announced  in  the  Commission  communication  on  the  external  dimension  of
sustainable development (COM (2002) 82, February 2002):

“Adopt  in  2002  a  European  Union  initiative  on  cooperation  in  the  field  of
energy  and  development  within  poverty  eradication  efforts,  with  a  particular
focus on the provision of reliable sources of energy, improved energy efficiency,
including  energy  savings,  clean  technologies  and  development  of  renewable
sources, including capacity and institution building."

The Member States confirmed their support for this proposal in the Council Conclusions
adopted at the Development Council meeting on 30 May 2002.

“The  EU  will  be  developing  and  launching  at  the  WSSD  an  energy  initiative
with a particular focus on poverty eradication by improving access to adequate
sustainable energy services in rural, peri-urban and urban areas, through the full
menu  of  technical  and  institutional  options,  including  rural  electrification,
decentralised  energy  systems,  increased  use  of  renewable  energy  (such  as
hydropower,34 tidal energy, wave energy, wind power, biomass, solar energy or
geothermal  energy),  and  enhanced  energy  efficiency  (including  cleaner,  more
efficient  fossil  fuel  technologies,  technology  for  more  efficient  appliances  and
the more efficient use of traditional biomass).

Through  the development  of  partnerships,  the  core  of  the  initiative  will  be  the
provision of support for institutional capacity-building, and technical assistance
to  developing  countries  to  put  in  place adequate  energy  policies.  Development
Banks,  investors  and  the  private  sector  will  be  invited  to  participate  in  the
financing.”

The Seville European Council of 21-22 June 2002 reiterated the Council Conclusions and
specified  that  the  EU  would  pay  particular  attention  to  Africa  when  implementing  the
Initiative in order to give a boost to the NEPAD Initiative. However, the Initiative will be
open to all developing countries and could develop on a regional basis.

The  objective  of  the  Initiative  is  outlined  in  the  Development  Council  Conclusions  of
30/05/2002:

“The EU reconfirms  its firm  commitment to:  Facilitate  the  achievement  of  the
Millennium  Development  Goal  of  halving  the  number  of  people  in  extreme
poverty  and  other  MDGs  by  2015,  through  the  provision  of  adequate,
affordable, sustainable energy services."

Activities, which may be either nationally or regionally based, will be developed through
dialogue  with  partners.  The  benefits  of  regional  activities  in  particular  should  be
considered.  Key  partnership  activities  under  the  initiative  could  include:  institutional
capacity-building,  transfer  of  knowledge  and  skills;  technical  cooperation;  market
development,  including  facilitating  adequate  forms  of  public-private  partnerships,  and
facilitation of cooperation with financial institutions, in addition to taking a cross-sectoral
approach to energy.

34

If compatible with the principles of Integrated Water Resource Management, as promoted through
the EU Water Initiative, which will also be launched in Johannesburg.

24

                                                
The  Initiative  will  encourage  partnerships  between  governments  and  the  organisations
responsible for development and energy in the developing countries on the one hand and
their counterparts  at the European  Commission and in the Member States on the  other.
Relevant and/or interested financial institutions and private companies will be invited to
participate in the Initiative, together with NGOs. The Commission is ready to help set up
a small secretariat to ensure coordination of the Initiative. The Commission will enhance
mechanisms  to  ensure  coherence  of  and  coordination  between  the  various  instruments
and programmes involving energy in the different developing countries/regions

In view of the voluntary nature of the Initiative and the need to incorporate activities into
the  national  development  programmes,  success  will  depend  to  a  large  extent  on  the
developing countries themselves. In the dialogue with them, special emphasis should be
given  to  the  potential  contribution  that  energy  efficiency  and  energy  demand
management as well as renewables can make to the development of their energy systems.
The EU Energy Initiative should promote the mobilisation and combination of the funds
available  and,  as  far  as  possible,  taking  into  account  the  existing  implementation
mechanisms,  result  in  an  increase  in  the  proportion  of  development  aid  devoted  to  the
energy sector. The scale of EU development aid justifies launching a specific EU Energy
Initiative. This does not, however, in any way rule out EU support for any other initiative
pursuing similar or comparable objectives at national level or in the context of the United
Nations.

Annexes

25

Energy consumption of world regions as a proportion of the world total

Africa Asia

Latin

Middle

CIS

Central and

Other

EU15

America

East

Eastern
Europe

OECD

Total

 Solid fuels

 Oil

 Gas

Electricity

5 %

4 %

3 %

2 %

3 %

23 %

37 %

18 %

7 %

17 %

5 %

1 %

6 %

4 %

5 %

4 %

0 %

6 %

8 %

3 %

9 %

8 %

6 %

23 %

7 %

3 %

5 %

2 %

3 %

3 %

36 %

34 %

42 %

36 %

44 %

15 %

10 %

17 %

16 %

18 %

N.B. 1 :

Situation in 1999, the last year for which figures are available, except for electricity (1998).

World

(Mtoe)

9553

2126

3417

1995

1014

N.B. 2 :
Africa (i.e. 3 % of 3 417 Mtoe).

How to interpret the table:  e.g. the oil percentage for Africa (3%) is the proportion of world oil consumption accounted for by

26

Renewable energy consumption and forecasts for 2030

North
America

Latin
America

EU 15

North
Africa  and
Middle
East

Sub-
Saharan
Africa

Central
and
Eastern
Europe

Former
Soviet
Union

South Asia South  East

Asia

China Pacific
OECD

WORLD

2000

2010

2020

2030

5 %

5 %

5 %

5 %

23 %

23 %

20 %

18 %

6 %

8 %

8 %

9 %

2 %

1 %

1 %

1 %

62 %

43 %

29 %

21 %

6 %

5 %

5 %

5 %

4 %

4 %

3 %

3 %

39 %

22 %

14 %

9 %

16 %

17 %

13 %

10 %

9 %

7 %

8 %

6 %

4 %

4 %

4 %

4 %

12 %

10 %

8 %

7 %

N.B. 1 :

Source: PRIMES model (for the EU) and POLES model (unpublished results) according to a business-as-usual scenario.

N.B. 2 :

The percentage indicates the proportion of energy consumption from renewable energy sources.

27