Regional : Regional Initiative on Accelerated Energy Transition for the Pacific Small Island Developing States

Energy / Energy sector development and institutional reform

Finance / Finance sector development

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 ADB's 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 ADB's Pacific Approach, 2021-2025 to build and support a more resilient Pacific subregion; and with that of the Pacific Islands Forum's 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 ADB's Country Knowledge Plan and included in the indicative country pipeline and monitoring reports for the PIC 12, PNG, and Fiji.

Negative impact of systemic risks and distortions in achieving energy efficiency and renewable energy targets in Pacific DMCs mitigated.

Pacific DMCs' capacity for AET plan and implementation strengthened

Analyses and research for an AET delivered

Pacific DMC government agencies' capacity to design AET strengthened