This paper examines the role of, and opportunities for, energy efficiency in the World Bank＇s electric power sector policy and lending. It finds that the dynamic environment in which the Bank operates provides substantial opportunity for the Bank to more effectively fulfill its mandate through an aggressive effort to develop the energy efficiency market opportunities in its client countries. The paper finds a variety of market conditions that indicate both an opportunity for the Bank in efficiency markets, and a need for Bank influence in the development of these markets. In assessing the Bank＇s current policy and lending practices, the paper finds that the Bank continues to be fundamentally oriented towards the traditional supply-side measures that have long defined the Bank＇s focus. Between 1992 and 1996, less than one half of one percent of the Bank＇s power sector loans financed demand-side efficiency improvements, By neglecting the significant potential for demand-side efficiency improvements, the bank is missing major opportunities to fulfill its mandate in developing countries and capitalize on the investment opportunities in this business in new markets. As the flow of private sector financing to developing country power sectors grows, the Bank＇s continued focus on traditional supply side investments is increasingly inconsistent with its mandate to be a lender of last resort. Yet, more importantly, in neglecting the emerging energy efficiency market, the Bank is missing a strategic opportunity to foster environmentally sound development in developing countries and establish a vital new role for itself in the dynamic power sector. The paper recommends that the Bank take advantage of this opportunity by adopting a new approach to the power sector, one that combines continued pricing reforms with institutional reforms and capital investments in both demand-side efficiency and supply-side expansion. Towards this end, it identifies ways in which the Bank could finance large-scale investments in demand-side efficiency in developing countries, Finally, the paper suggests that only by considering such energy efficiency investments early in the project identification process - rather than as an add-on to projects fundamentally conceived as supply-side projects - will the full potential for such investments be realized.