| Project Detail |
ADB is collaborating with regional and international partners to support, study, and pilot the ETM, which aims to catalyze public and private capital to accelerate the transition to clean energy in ADB DMCs. Fossil fuel is a primary electricity source of ADB Pacific DMCs. The proposed KSTA will support the preparation of an Accelerated Energy Transition (AET) for them. The AET will aim to mitigate the negative impact of systemic, external market risks, while supporting regional priorities in achieving energy efficiency and renewable energy targets and strengthening economic resilience and sustainability. The AET will apply differentiated approaches, depending on the situation.
Project Name Regional Initiative on Accelerated Energy Transition for the Pacific Small Island Developing States
Project Number 56329-001
Country / Economy Regional
Cook Islands
Fiji
Micronesia, Federated States of
Kiribati
Nauru
Niue
Palau
Papua New Guinea
Marshall Islands
Samoa
Solomon Islands
Tonga
Tuvalu
Vanuatu
Project Status Active
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA: Regional Initiative on Accelerated Energy Transition for the Pacific Small Island Developing States
Technical Assistance Special Fund US$ 1.00 million
ADB is collaborating with regional and international partners to support, study, and pilot the ETM, which aims to catalyze public and private capital to accelerate the transition to clean energy in ADB DMCs. Fossil fuel is a primary electricity source of ADB Pacific DMCs. The proposed KSTA will support the preparation of an Accelerated Energy Transition (AET) for them. The AET will aim to mitigate the negative impact of systemic, external market risks, while supporting regional priorities in achieving energy efficiency and renewable energy targets and strengthening economic resilience and sustainability. The AET will apply differentiated approaches, depending on the situation. Development of the AET will be informed and guided by (i) regional- and country-level research and policy dialogue; (ii) facilitation of a regional senior officials platform to promote continued strong country ownership and support for the AET; and (iii) capacity development to strengthen knowledge and share experience in a range of potential mitigation measures. The AET process will develop a structure to integrate the benefits of addressing systemic and external risks through market solutions with increased country commitment to energy efficiency and renewable energy targets. The AETs country design and implementation are consistent with Pacific DMCs energy plans and national goals under the Paris Agreement.
Project Rationale and Linkage to Country/Regional Strategy
Despite resource, technological, and capacity constraints, Pacific DMCs have committed to achieving 50% renewable energy generation by 2050. ADB is committed to supporting a just energy transition for the Pacific DMCs, and achieving prosperous, inclusive, resilient, and sustainable development.
Systemic risks distort energy-sector investment planning in the Pacific DMCs, specifically in renewable energy. Even if future energy demand could be anticipated, Pacific DMC governments tend to prioritize short term non-market interventions and tariff adjustments to ease the cost of energy for consumers. Heightened uncertainty and perceived political risk cause private investors to delay investment decisions until power tariff settings stabilize and non-market interventions are addressed. Uncertainty adds risk to the transition to renewable energy, increasing the possibility of inappropriate and/or irreversible choices that could affect energy costs in the long-term. Further, delays in prioritizing appropriate technologies to generate clean, efficient, renewable, and affordable power may result in a need to divert productive resources to compensate for weaknesses in infrastructure, with potentially constraining implications for the development process in the Pacific DMCs.
The last 20 years have seen an unprecedented rise in the scope and impact of systemic non-market risks such as the volatility of hydrocarbon prices, cost of technology, and supply chain disruptions caused by the coronavirus disease pandemic. The 2022 Russian invasion of Ukraine has pushed oil prices to a peak, with volatility nearly twice of that observed in 2020-2021.
Pacific DMCs rely heavily on imported fossil fuel for their primary energy supply, although efforts are underway to reduce this, supported by ADB among others. During the transition phase, they are especially vulnerable to higher, more volatile prices that ultimately ripple through all segments of their economies. As prices fluctuate, so does the cost of electricity production in the Pacific DMCs, with far-reaching effects on fiscal and trade balances, the cost of doing business, and household living standards, including food security. The economic effects of high prices manifest over time in real terms as a greater share of oil imports as a percentage of GDP, a high proportion of oil in the primary energy supply, and rising oil imports and expenditure.
The proposed TA responds to the request articulated by ADBs Pacific DMCs to: (i) address the immediate knowledge needs and priorities associated with potential mitigating measures against systemic risks and non-market distortion events (e.g., imported fuel price volatility and fuel supply chain disruption); (ii) accelerate progress in research and analysis for transition to clean energy sources; and (iii) report to the next Pacific DMC Governors Meeting, scheduled for May 2024. The TA is fully aligned with the aim of ADBs Pacific Approach, 2021-2025 to build and support a more resilient Pacific subregion; and with that of the Pacific Islands Forums 2050 Blue Pacific Continent Strategy to strengthen investments that promote energy efficiency and a transition to renewable sources of energy. The TA is aligned with the ADBs Country Knowledge Plan and included in the indicative country pipeline and monitoring reports for the PIC 12, PNG, and Fiji. |
