A Billion Reasons to Invest in Distributed Clean Energy Access

Justin Guay
Wednesday, June 6, 2012

Today the world's population is growing at about the same rate as the population gaining access to electricity. According to the International Energy Agency (IEA) this means that in 2030 there will only be a decrease in the un-electrified population of 23% (a drop from 1.3 to 1 billion). What's worse, nearly 2.5 billion people today considered "electrified" receive only a few hours of electricity per day. In essence we are losing the battle to light the world.

Delivering energy access is therefore one of the central issues for world policymakers to grapple with at Rio+20. The problem is, the biggest power players heading to Rio +20 seem to favor our current approach of large, centralized, regional projects such as big multipurpose dams and fossil fuel plants. Investing in large scale centralized power plants with the intention of stringing power lines to far flung rural areas is simply not working. In fact, according to the IEA, half of those without electricity today will never be wired to the grid. It’s clear that if energy access is going to be honestly and effectively addressed, another approach is desperately needed.

A big part of the problem is cost. The main ingredients of conventional grid power (coal and copper) – are soaring. Meanwhile, the cost of solar panels and LEDs, key ingredients of distributed renewable power, are racing down even faster. So it’s pretty clear, if we want to deliver on energy access goals in Rio, and if we want the poor to benefit from electricity, we cannot wait for the grid, and we cannot rely on fossil fuels.

Focusing investments on large-scale centralized energy projects such as big dams and fossil fuel power plants is a waste of scarce development resources. Worse, it means relying exclusively on the wrong tool for much of the job. According to the IEA, getting serious about energy access means getting serious about catalyzing distributed clean energy.

For example, most rural Africans live closer to a river than to the grid. Through preliminary research, the Joint Research Center of the European Commission found that nearly 30% of Africa’s population lives in areas where mini-grids based on mini hydropower projects are the cheapest source of electricity. In less water-rich regions such as the Sahel, Botswana and Namibia, solar photovoltaics are the cheapest source of electricity. In specific locations, wind or geothermal energy may be cheapest. Based on six country case studies, a report by Christian Aid also found that “geothermal, small-scale hydro, solar, wind, tidal and local biomass fuels, including agriculture wastes, all offer significant potential for delivering both basic needs and for unlocking economic growth.”

The situation is similar in India, the biggest hotspot of energy poverty outside Africa. Using conservative cost estimates, Elizabeth Bast of Oil Change International found that in this country electricity from micro hydropower is cheaper than electricity from coal-fired power plants at a distance of less than five kilometers from the grid. Wind-solar hybrid electricity is cheaper than coal at 10 kilometers, and solar photovoltaics, at less than 20 kilometers from the grid.

Happily enough, there are literally scores of social entrepreneurs paving the way to take advantage of this cheaper, faster, and more effective approach to rural electrification. While rural electrification encompasses any number of energy needs including power for mechanical uses, one of the most pressing needs is lighting. Husk Power, Frontier Markets, Simpa Systems, SELCO-India, GreenLight Planet, and dozens of other entrepreneurs are now delivering clean, cheap lighting today because the poor already pay for light in the form of polluting kerosene and candles … and they pay a lot.

The poorest fifth of the world pays one-fifth of the world’s lighting bill – but receive only 0.1% of the lighting benefits. Kerosene can account for 25-30% of a family’s income; globally, that’s $36 billion a year. The problem is the poor do not use kerosene because it is cheap – they are kept poor in significant part because they must rely on expensive, dirty kerosene.

The problem is billions of dollars continue to be dumped into failed grid extension programs – not distributed clean energy markets to rectify the problem. Social entrepreneurs can provide distributed clean energy alternatives to meet many of the energy needs for the poor, but without financing they are unable to buy equipment, pay for employees, or finance purchases for their customers. All of this conspires to keep huge numbers of people dependent on kerosene for lighting; unable to refrigerate vaccines in their clinics and food in their homes, unable to take advantage of modern technologies, and on and on.

As a result, what you hear over and over again from those on the ground is that there is a desperate need for finance at all levels. Solving this issue, access to finance, is job number one when it comes to delivering on the goals of the United Nations Sustainable Energy For All campaign.

While the private sector will bear a large portion of this responsibility in the long run, what are needed today are public funds that catalyze the market. Making cheap public funds available can help get financial institutions throughout the developing world comfortable with this innovative sector enabling social entrepreneurs and rural families to access the financing they desperately need.

That’s where the World Bank and the IFC come in. Both are institutions mandated with alleviating poverty and both have ample amounts of relatively cheap public money to do so. The problem is to date they have not put their money where their mouth is on energy access (though their are sporadic examples of programs delivering important results, like the 30,000 solar home systems deployed every month in Bangladesh).

At the Rio+20 conference the World Bank and IFC have the opportunity to make progress in bridging the energy divide. These institutions can make good on their mandate to alleviate poverty by putting their collective weight behind distributed clean energy. A strong commitment would include:

  • At least $500 million from the IFC for distributed clean energy by 2015 with half of that distributed by the end of 2013.

  • A new World Bank program dedicated to distributed clean energy that helps build the pipeline of projects and social entrepreneurs in this sector (This program can and should build upon Lighting Asia and Lighting Africa).

Other actors must step up to the plate as well. The World Bank admits it is not well equipped to fund small projects with a big administrative overhead, such as small renewable energy and energy efficiency projects. Governments should consider new funding mechanisms for innovative, small projects.

The trickle-down approach has not been effective in reducing poverty in many parts of the world. Infrastructure strategies need to address the basic needs of poor population groups directly. Governments and development finance institutions need to significantly scale up support for decentralized water and energy projects, which offer triple benefits in terms of poverty reduction, environmental protection, and climate resilience. This requires full transparency, ongoing consultation processes and other forms of public accountability.

It’s time institutions mandated to help the poor understand the current approach isn’t working and start getting it right. A commitment to distributed clean energy access on the world stage in Rio is an important opportunity for the World Bank Group and other major players in the energy field. The only question is whether they have the foresight to seize it.

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  • The author works for the Sierra Club’s climate program in Washington, DC.