Sameer Shukla is the Head of Global Energy Practice World Bank for the European and Central Asian regions. Mr. Shukla's background is in finance and energy and he has been working for the World Bank for 24 years. Throughout his career, Mr. Shukla has been working to support countries in energy security and reforms and also to help them successfully manage the energy transition. In this interview, Mr. Shukla discusses the global shift towards sustainable forms of energy, and the important factors which a government must consider as it seeks to create an enabling environment. Mr. Shukla also talks about the importance of private investment, and the key obstacles that emerging countries must overcome to successfully integrate renewable energy sources.Topics to be discussed:
- A brief introduction to Mr. Shukla and his involvement the global renewable energy space Is there a clear global transition towards cleaner forms of energy and where in this process do various countries stand?
- What are the most important factors for the integration of renewable energy adoption in emerging markets?
- Are investors becoming more willing to invest in these long-term time horizons in developing countries?
- What are the challenges which need to be addressed in order for renewable energy to reach greater penetration levels?
- How does the World Bank uses its capital provision commitment to facilitate more capital investments
00:06 Karan Takhar
Hello everyone. This is Karan Takhar and welcomes to the Zenergy podcast. Over the past decade, India has done an impressive job of integrating renewable energy into its energy mix. For this Fulbright podcast series, I sought to investigate the enabling factors and potential of India's global leadership in renewable energy, with a focus on solar. This Fulbright series is broken down into Four Seasons. This season we capture the views of high-level officials of the Indian Government in energy delegates from African countries looking for Indian support. We'll try and understand how India's continued progress in renewable energy development can improve its leadership position in the world.
In this conversation, we will be speaking with Mr. Sameer Shukla, who's the head of global energy practice at the World Bank, primarily responsible for Europe and Central Asia. Mr. Shukla's background is in finance and energy, and he has been working for the World Bank for 24 years of his career. Mr. Shukla has been working to support countries in energy security and help them implement reforms through the energy transition, with experience in the regions of South Asia, Africa, and now Europe and Central Asia. In this interview, Mr. Shukla further talks about the global shift towards cleaner forms of energy and the important factors for enabling the integration of such an environment. I hope you enjoy my conversation with Mr. Sameer Shukla.
Thank you, Sameer, for participating in this interview. I really appreciate you taking the time, and I want to ask you to just briefly introduce yourself so that the people who will listen to this episode can get an understanding of what you do to the extent of your involvement in the energy. Can you provide a brief introduction?
02:29 Sameer Shukla
Certainly, certainly, so I work at the World Bank in the energy, global practice energy, and extractives Global practice. I am responsible for the Europe and Central Asia region, which covers pretty much all of Europe, including the Member States. It covers the South Caucasus, Turkey, and Central Asia, and so I have a team of about 35 staff in DC as well as in the field, and yeah, we currently cover we're active in about 22 or 23 countries. So, we have lending and or policy advisory engagements in 2223 countries. My background is in finance and then over time in energy, so I started my career in Price Waterhouse in their corporate finance team in. I really enjoy the World Bank, and I've spent pretty much all my working life since then in the World Bank. I have experience in South Asia, Africa, and now in Europe and Central Asia, and among the things we do at the bank, the main focus, particularly in the European Central Asia region, but also more globally, is to support, you know, countries in energy security reforms and so on that that support energy security, but at the same time that also helped them through the energy transition, whereas, you know, there there's a Pretty massive transition ongoing right now, where the effort is to decarbonize the energy sector in all aspects. But of course, most of the efforts have been in renewable energy, which is primarily electricity, but the focus is also turning to heating, which is a big, big part of the energy sector in Europe and Central Asia, as well as the transport industry. So, so and that's where the real challenges are in terms of decarbonization. Alright, let me stop there. Thank you.
04:11 Karan Takhar
Thank you for expanding on that, and yes, I was viewing a presentation you delivered on why renewable energy is important for use in Pakistan specifically. But in that presentation, you also provided a case study for, like many other countries, and You are too. My question to you is, I saw that in the presentation, you wrote that energy transitions have long lead times, and I'm curious to ask you. Do you personally see that there is a clear global shift towards cleaner forms of energy, and like where in this process do you believe that we are?
04:53 Sameer Shukla
So, you know, it's very hard to say something that applies all over the globe, but generally speaking, particularly after the Paris Agreement, I think you could safely say that there is a growing awareness amongst countries of the importance of the climate and on the importance of the energy sector on the climate, so country after country is, you know, making policies that are more renewable, energy friendly, although there's a really long way to go because, you know, the dilemma is that on the one hand, countries want to make sure that they have good energy supply today, And for the foreseeable future, and very often that the current options you know, the fall back is fossil fuels, You know, coal, if you talk about Africa, they still use a lot of fuel oil and then of course gas where gas is available. So, so those are more tested technologies, easier to develop, and on the face of it, might look cheaper. Of course, you know when you factor in the externalities, the extra negative qualities in terms of emissions, et cetera. Then you see that the real, the real cost is a lot higher, but it's a constant sort of policy debate in terms of the near-term perspectives and the longer term, but I think a large majority of countries, I'm guessing are, you know, moving towards renewables, it still needs a lot more effort because there's still a lot of subsidies and a lot of vested interests in, you know, the traditional forms of energy and if you think about large coal companies or, you know, national oil companies, etc., so there's still quite a bit of political capital, let's say and financial capital invested in these enterprises, so there is a very strong political economy around this transition that by each country is sort of dealing with it in its own way If you think about Russia for instance, in Russia is a major oil and gas major, and it uses oil and gas as a way of conducting foreign Policy as well, But at the same time, they're developing a lot of renewable energy. They're focusing a lot on energy efficiency, trying to make energy consumption more efficient. So even, you know, even oil majors, gas majors realize that there is a finiteness to those resources, but how long it takes and whether we can, let's say, beat back the clock, if you will, in terms of the level of heating that the world can global warming that the world can tolerate is to be seen, you know, the Paris Agreement goes a little some way, quite a long way towards that, But a lot more is needed if you look at any of the airports they say that you have to go well beyond, well beyond the commitments or agreements in the Paris Agreement.
07:37 Karan Takhar
And of course, in order for it to truly take off like a lot of these countries and, as mentioned in the presentation, need to have like enabling environments, and from your perspective, I'm just curious to understand, like, what do you believe are the most important factors a country must integrate in order to create like a stronger enabling environment for renewable energy adoption?
08:01 Sameer Shukla
So, you know, one of the things that's happening and that that makes it a little harder, but at the same time gives you hope as well, is that technology is moving much faster than Policy and regulations can catch up, you know, so if you think about the electric car, Tesla or the battery storage platform that they have or solar if you look at solar PV the way. The prices have gone, and the way it's being, let's say, integrated into the energy systems is it's been very high, and so, policymakers are playing catch up, let's say. So, there's that aspect to keep in mind this technology is moving much faster than the disruption from technology. It is much faster than, and policy responses can cope with it at the same time there. Is there is a lot that's still left undone, or half is done in terms of the fundamentals of the energy sector in many, many countries across pricing is one of the key things, you know, pricing is still subsidized, and it's not transparent that that's one of the biggest issues. I mean, if you look at coal prices, for instance, the price that you see on paper is it hides a lot of subsidies that are completely opaque. You don't even know what kinds of subsidies have gone in to make the price so cheap, and that sort of queries the, let's say, the playing field in favor of fossil fuels. So there's a lot of work to be done still, and a lot of countries are doing quite a bit on moving to, you know, transparent cost-effective prices for oil, gas, electricity, coal. So that is, I think, a big agenda item that has to be put in place. So, if you take the example of Uzbekistan, you know they had prices that were as low as, let's say, 1 cent, one US cent per kWh for electricity. Compare that to, let's say, $0.10 that you and I would pay here, and so that they've been trying to raise prices, of course, in a manner that's still Affordable for the poor and so on. But in a way to, you know, bring in to allow additional forms of energy to come in. So, pricing to me is key, putting in place transparent, let's say regulatory frameworks that enable private investment to flow into, into renewables and so on that, that to me is key as well, and a lot of countries have done very well there, and you can see the results. If you look at India, for instance, you know, when they do their auctions for solar, you see the prices they get or Dubai and some of these other countries. So spec is fine, you know, with support from the World Bank has recent and NFC has recently done, uh, their first tender competitive tender for solar and got pretty good prices. So, you know, she put in place a Framework that, you know, gives credibility to the country programs and, you know, brings in investors or attracts investors that that is a key element to keep in mind, and then you know, the other thing is that ultimately this renewable energy and so on, it has to be integrated into the existing electricity grid, which you know needs to be of a certain quality and a certain standard in order to be able to absorb these, and these are, you know, unlike coal or gas, renewables are particularly solar and wind. They are variable depending on the weather, the wind, and so on. It changes so Great. The electricity grid needs to be able to absorb that variability and, you know, cater for that. So, there's a quite a bit of Policies and regulatory but also technical improvements that need to happen in order for renewables to be integrated at scale. Take the example of Ireland, for instance, or any of the Nordic countries. They're able to, you know, absorb. I mean, there are times when Ireland uses 70% of the entire energy from wind, you know, and they're able to do that because they have these, these very high standards for the grade, etc. So, there's quite a lot of work still to be done. And remember, we're still talking only about electricity. Renewable is mainly primarily for electricity also. Geothermal can be used for heating as well, but when you start talking about decarbonizing, let's say transport, or heating, you know, heating. The big issue in China, Mongolia, and most of Europe and Central Asia, now there isn't a very sustainable, dependable way of using renewable energy for heating. So ultimately, there's a lot of work still to be done there, and that's sort of where we are struggling right now in Europe and Central Asia. And then talking about industry, industry uses a lot of gas, oil, in some cases cold, and to decarbonize them, the industry, is another big challenge.
So, there's still a lot of work left to be done. But I think we go, yeah, we're getting there.
12:31 Karan Takhar
So with regards to the second issue of attracting more private investment into the countries, I've talked to a good amount of people regarding this, both investors as well as like developers and regulators in a common concern, which also was reflected in the PowerPoints like Argentina, for example, provided a solution to this where they had a payment guarantee to backstop obligations because, from my understanding, people are hesitant to invest in these long term projects because they're unsure whether the entity on the other side will oblige to their agreements. So I'm curious from your perspective because you work at the World Bank. Of course, World Bank is mega, and there's a lot of work in terms of like providing more validation to investments in these emerging countries. What are your thoughts around this on the concept? Is this slowly improving, or what would you say regarding that?
13:37 Sameer Shukla
Yeah. No, they did, and it's a great question. You know that sort of preoccupies policymakers across the world, you know, if you just step back a little bit and say, Why do we need private investment? You know, why doesn't the Government just invest as it has in the past? You know, the issue is that many governments, many countries, don't have the fiscal space. You know they're just not the bank balance or their budget is just not strong enough to make such investments and particularly renewable energy or even other forms of generation of electricity, very amenable to private investment. You know, it's a very nice standalone thing. Of course, it's very capital intensive, and the commitment is quite a long-term one, so those are the aspects that, you know, that cause concern to investors, and the few countries have dealt with these in different ways. If you go back all the way to the 90s, you know, in Chile and Peru and others were reforming, there was this. Very sort of, nice sort of contractual structure and, of course, backed by a regulatory framework and so on. That gave investors comfort. Even investors felt confident. In the countries, you know, let's say, their broader law and order situation, their ability to honor Contra, and so investors came in and invested even in very complicated things like electricity distribution or gas distribution. Yeah. But when you come to places like Africa or in Argentina, which is going through a very major macroeconomic crisis, how do you attract investment in these kinds of, let's say, environments where you don't have the track record of decades of investment and new contracts being honored, et cetera. So there, that's where investors will want some kind of a safeguard before they invest and so. Now the so that's one side of it that you know the countries need to provide enough assurance to investors, But the flip side of it is that you don't want these assurances to be so onerous that they become difficult to sustain. And there are quite a few examples of private deals that you just are very expensive. They were, let's say, negotiated, and the Government ends up providing a lot of security to investors, and then that becomes just unaffordable, you know, so, there is. That's the flip side of it. And so our job in the bank mega I have seen you know what we try to do is we try to make sure that so the bank tries to make sure their governments are putting in place adequate framework so that they can get good investment, affordable investment, which is least cost, and the conditions that are not too onerous or unaffordable for the Government, and it's always a trick trying to find that that's a sweet spot. IFC helps with bringing investors in, so they do competitive tenders, they will even finance these transactions, and mega will can provide, let's say, risk assurance from political, lexical risk, and so on to the investor. So there are different ways in which we provide security cover. The bank also has these instruments. We have guaranteed products. The one that we are using is Pakistan, for instance, or in Zambia, as part of the solar scaling approach. So, the bank provides these, let's say we, let's say we provide guarantee to the investor that the Government shall, or the government agencies will abide by their, their commitments. So, we try to find the least amount of, let's say, guarantee that's needed. So, the smallest possible cover that you need in order to get the transaction, so. But ultimately, you know, if you look at, Let's say, thinking of parts of Europe or Western Balkans where now you know investors have confidence in those countries' regulatory and Policy framework, and so they are willing to invest without significant, you know, government guarantees and so on so. In the industry, we call them merchant projects, but projects that are taking the risk of the market and other sorts of. So, you can see renewable energy being developed without much security cover from the Government, and ultimately, if you think about it, Solar is, you know. It's becoming so cheap that the costs are underlying costs are so, so low, and it's a technology that doesn't need a lot of continued investment. You know, once you install the panels and so on, they can pretty much run by themselves. So, these are eminently suitable to migrate into completely commercial transactions here. So that's the hope, and the hope is that when that starts happening, you'll see this massive ramp-up of investment. Sorry, that was a long answer, but it's a big question.
18:05 Karan Takhar
No, it's a really nice, Clarifying answer. From your perspective, what do you believe the key next important challenges are which need to be addressed in order for renewable energy penetration to continue to reach higher levels, particularly in these emerging countries?
18:24 Sameer Shukla
It's a very important question, so to some extent, just riffing off of the answer I gave it to the previous question, you know, ultimately, what you want to do is to be in a place that's just a few years from now, where there's enough of a track record of honoring contracts and so on that investment flows. So, on its own, let's say, I mean, of course, the Government would still row, or some agency would still run an auction, let's say, and so on. But investments start happening without requiring a lot. Of you know security cover, so to me, to me that is key. You know that reaching that point where you can now where investors are confident that they can get into commercial transactions and to some extent, you know, that requires that the, let's say the market that they are entering into is relatively competitive, you know so that they can find their own buyers, etc., or industry, for instance, can set up its own infrastructure and you know to be secure that they will get reimbursed over time. And for that to happen, you need. So currently, if you look around, you'll see that a large majority of energy sectors are run by quasi-public, or you know, explicitly state-owned entities which are still on the path of reform, and they end up being the main counterparty to the private, and that's where a lot of the risk emanates from and to get that in shape, you know that's I well two things. One is to get the utility that's the off taker in good financial condition so that they can, you know, offer comfort to investors on their own, no. That's one aspect of it, and that's why, you know, I'm simplifying it a lot, but as you can imagine, it requires a lot of effort at pricing at improving their governance, making sure that they run like commercial entities, and so on. And the second part of it is the market side of it where you want investors. Basically, renewable energy producers, to be able to compare that if, let's say, a market framework is in place, and these two go hand in hand in a sense because right now the market is basically this one utility or two utilities and that's the market, and you want to diversify away from that and make sure that that other player can participate to be those are the elements of further reforms that are needed and several countries around that path, and that's when you see massive scale-up of renew.
20:52 Karan Takhar
Yeah, just spending time in India for a year and just exploring this industry has really made me appreciate the World Bank's role in terms of because living in the US, yeah, the World Bank's like a very prominent institution. But then, when I was in India, is just like so clear how vast of an impact the World Bank had in helping to develop the renewable energy market there. And yeah, it's been really nice to speak with you. One question I just thought about. I did read a report provided by the World Bank probably a month or two ago that they were talking about. Well, another important function of the world banks is to not only be a provider of capital but use kind of that commitment to facilitate more capital investments. And I wasn't so clear on exactly how this process works. So, could you maybe provide a little clarity around this and this is my final question, and thank you so much, Samir. Sure, sure.
21:57 Sameer Shukla
Yeah, yeah. Not at all, comma. It's been a pleasure. So just talking about this aspect of, How the bank and the bank group more widely, you know, mega, I see how we help countries in maximizing the financing that they can get, you know, from commercial and private sources, and it's about sort of using the limited amount of funds that the bank has to leverage large scale Investments. So let me give you the example of let's take the example of Turkey, where you know I had the privilege of working for some 7-10 years. In fact, when I first moved to Washington, and you know there, I'm guessing the bank put in over 7 or 10 years something like 2.5 or $3 billion of investments, funding for renewable energy investments by private investors directly and also for the enabling environment that we all discussed that we discussed. You know, with the Policy support for strengthening the great, you know, technical assessments, capacity building off the incumbent's sector reform, you know, helping them restructure the utilities, put in place regulatory frameworks. So, it was a very wide range of reforms that we supported and investments. So about 2.5 - $3 billion on the backs of that. If you look at the Turkish market today and so when we started off in 2005, let's say almost all of the Electricity generation was in government hands or backed by Government, you know, commitments, some kind of guarantees. Today, I think less than half of the generation is either by state agencies or back pay, and the rest of it is by private entrepreneurs and a large amount. It is in renewables. In 2005 they had maybe one demonstration wind plant. Today I think they have something like 10 gigawatts. Of variables, and you know this is on the backs of two or three million billion dollars of World Bank financing and Multiples of that were required from the private sector, from commercial sources to get to where Turkey is today. And so that's what we mean by helping leverage financing, you know, everything that the bank does, you know, policy frameworks, regulatory reforms, institutional reform, and then you know, there's some of these targeted investments, the guarantees that we talked about in Uzbekistan, Zambia and several other places. All of this is essentially a very small piece of everything else that's required, you know, and so we help so through creating these markets, through creating the enabling framework, and through preparing the grounds, you basically allow for the private sector to come in and, you know, do the thing that they do best. So that's how we, you know, this is just energy. You can think about other sectors where we do similar things. But this is how we help maximize financing, as they call it now, or mobilizing financing for development.
24:47 Karan Takhar
Thank you so much for your time.
24:49 Sameer Shukla
Not at all. Not at all.
24:54 Karan Takhar
I hope you enjoyed that episode, and do check out the show notes, For more information on my guest. See you next time.
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