S TAT E O F ELECTRICITY ACCESS R E P O RT 2017 b    S TAT E O F E L E C T RI CI TY ACCES S R EPO RT  |   2 0 1 7 Copyright © 2017 International Bank for Reconstruction and Development / THE WORLD BANK Washington DC 20433 Telephone: +1-202-473-1000 Internet: www.worldbank.org This work is a product of the staff of the World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work and accept no responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this work is subject to copyright. 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Photo Credits Cover: © World Bank Page iv: © Malcolm Cosgrove-Davies | World Bank Page ix: © Sofie Tesson | Taimani Films | World Bank Pages x, 28, 46: © Asian Development Bank (via flickr CC lic) Page xxiv: © Engineering for Change (via flickr CC lic) Page 16: © UN Migration Agency (via flickr CC lic) Page 25: © Aarthi Sivaraman | World Bank Page 66: © DIVatUSAID (via flickr CC lic) S TAT E O F ELECT R I CI T Y A C C E SS 2017 R E P O RT CONTENTS Preamble  vii Overview  xi CHAPTER 1: The Case for Universal Electricity Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction  1 Energy is Necessary to Achieve Sustainable Development Goals   1 How is Electricity Related to Economic Growth?   2 Reliable and Affordable Electricity Services Can Contribute to Poverty Reduction   4 Human Development Can Significantly Benefit from Electricity Services   6 What is the Carbon Footprint of Universal Electricity Access?   7 Conclusion  10 References  12 CHAPTER 2: The Status of Electricity Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Introduction  17 Snapshot of Access to Electricity in 2014   17 Beyond the Numbers   18 Future Outlook of Electricity Access   23 Getting Better Measures of Electricity Access   24 Conclusion   26 References  27 CHAPTER 3: Creating a Better Environment for Transformative Electricity Access. . . . 29 Introduction  29 Grid and Off-Grid: Two Complementary Tracks to Universal Access   29 Expanding Grid-Based Electrification   31 Developing Off-Grid Electrification Schemes   36 Making Electricity Access Programs Transformative   40 Conclusion  43 References  44 CHAPTER 4: “Clean Energy” and Electricity Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Introduction  47 Renewables for Electricity Access   48 Off-Grid Renewable Energy: Mini/Micro Grids   51 Off-Grid Renewable Energy: Stand-alone Systems   53 Challenges and Scaling-up Options   55 Energy Efficiency   57 The Co-Benefits of Clean Energy   61 Conclusion   63 References   64 CHAPTER 5: Emerging and Innovative Business and Delivery Models . . . . . . . . . . . . . . 67 Introduction   67 How Investors Perceive Risks and Challenges   68 Markets, Business Models, and Technology   69 Opportunities for Business in the Off-Grid Markets?   75 Conclusion   80 References   81 ACKNOWLEDGMENTS The development of the State of Electricity Access Report (SEAR) benefitted from advice of a Steering Committee led by the World Bank, Energy Sector Management Assistance Program (ESMAP). The membership of the Steering Group was as follows: African Development Bank (AfDB) Asian Development Bank (ADB) Department for International Development—UK Government (DFID) Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) Food and Agricultural Organization (FAO), Inter-American Development Bank (IDB) International Network on Gender and Sustainable Energy (ENERGIA) Kreditanstalt für Wiederaufbau (KfW) Practical Action Renewable Energy Policy Network for the 21st Century (REN21) Sustainable Energy for All (SEforAll) United Nations Foundation (UNF) World Bank (WB) World Health Organization (WHO) Members of the Steering Committee were Mr. Anthony Jude (ADB); Mr. Giorgio Gualberti and Mr. Daniel Schroth (AfDB); Mr. Alistair Wray (DFID); Ms. Erika Felix, Ms. Irini Maltsoglou, Mr. Olivier Dubois (FAO); Mr. Ariel Yepez-Garcia (IDB); Ms. Monika Rammelt (GIZ); Ms. Jane Ebinger, Mr. Mohinder GULATI (SEforALL); Mr. Jens Drillisch (KfW); Ms. Christine Lins, Ms. Rana Adib, Ms. Kanika Chawla (REN21); Ms. Richenda Van Leeuwen, Ms. Yasemin Erboy (UNF); Mr. Carlos Dora, Ms. Michaela Pfeiffer, Ms. Susan Wilburn, and Ms. Heather Adair-Rohani (WHO). Mr. Rohit Khanna (ESMAP Program Manager), oversaw the development of the State of Electricity Access Report. The technical team was led by Mr. Koffi Ekouevi (World Bank) and Ms. Elisa Portale (ESMAP). The main contributing authors of the SEAR 2017 were: Mr. Koffi Ekouevi, Ms. Elisa Portale, Ms. Dana Rysankova, Mr. Ivan Jaques, Mr. Morgan Bazilian, Mr. Govinda Timilsina, Mr. Pedro Antmann, Ms. Raluca Georgiana Golumbeanu (World Bank/ESMAP); Ms. Niki Angelou, Mr. Dean Cooper, Mr. Jean Armando Fabiani Appavou, Ms. Rana Adib, Mr. Alan Miller, Mr. Robert W. Bacon; Mr. Ravindra Anil Cabraal, Mr. Benjamin Kenneth Sovacool; Mr. William James Blyth; Ms. Josephine Tioseco; Mr. Javier Castillo Antezana; Mr. Arnaldo Vierra de Carvalho; Mr. Miguel Revolo Acevedo; Mr. Yacob Mulugetta; Mr. Daniel Schnitzer, Mr. Smail Khennas, Mr. Mark Howells, Mr. Fabiani Appavou, and Ms. Laura Williamson. Valuable support in preparation was provided by World Bank/ ESMAP staff and consultants: Mr. Venkata Ramana Putti, Ms. Barbara Ungari, Ms. Lara Born, Ms. Clara Alvarez, Ms. Xuege Lu, Ms. Natsuko Toba, Ms. Sunita Chikkatur Dubey, Ms. Srilata Kammila, and Ms. Connie Smyser.   v  vi    S TAT E O F E L E C TR I CI TY ACCES S R EPO RT  |  2 0 1 7 Special Features were coordinated by Mr. Koffi Ekouevi and prepared by the following lead authors: Mr. Mark Howells, Mr. Marco Hüls, Ms. Emanuela Colombo, Mr. Sameer Akbar, Mr. Matt Jordan, Ms. Soma Dutta, Mr. Diogo Rodriguez, Mr. Olivier Dubois, Mr. Andreas Thulstrup, and Mr. Jem Porcaro. Case studies were coordinated by Ms. Dana Rysankova (ESMAP) and prepared by Mr. Sudarshan Kumar Saini, Mr. Ravindra Joshi, Ms. Sunita Dubey, Mr. Tim-Patrick Meyer, Mr. Jens Drillisch, Ms. Kathrin Kaestle, Mr. Robert van der Plas, Ms. Tomo Tanaka, Ms. Tripta Singh, Mr. Hung Tien Van, Ms. Jenny Tracy, and Mr. Kilian Reiche. Impact evaluation reports were coordinated by Ms. Elisa Portale (ESMAP) and implemented by CIES International SRL (Bolivia); Infotrack Research and Consulting (Kenya); Sengsavang Rural Electrification (Laos); and field work and analysis were conducted by Mr. Hussain Samad and Mr. Voravate Tuntivate, the collaboration of Ms. Wendy Claribel Guerra Navarro, Ms. Lucia Spinelli, and Mr. Rome Chavapricha. Review and Consultation: The World Bank’s internal peer review process was led by Mr. Lucio Monari (Director of Energy and Extractives Global Practice, World Bank), with contributions from Mr. Simon Stolp, Mr. Ashok Sarkar, Mr. Jon Exel, Ms. Sudeshna Banerjee, and Ms. Yabei Zhang. Substantive comments along the process were provided by Ms. Wendy Hughes, Mr. Malcolm Cosgrove-Davies, Ms. Vivien Foster, Mr. Richard Hosier, and Mr. Zubair Sadeque (World Bank); Ms. Naomi Paula Bruck, Mr. Russell Sturm, Mr. Leo Joseph Blyth, Mr. Rahim Kanani (IFC); Ms. Jane Ebinger (SEforAll ); Mr. Jens Drillisch (KfW); Ms. Monika Rammelt (GIZ); Mr. Alistar Wray (DFID); Ms. Yasemin Erboy Ruff (UNF); Ms. Rana Adib (REN21); Mr. Roberto Aiello, Mr. Arnaldo Viera, Mr. Javier Castillo, Ms. Alice Driver, Mr. Lauro Lage-Filho (IDB); and Mr. Giorgio Gualberti (AfDB). Outreach: The communications process was coordinated by Ms. Susan Pleming and Ms. Anita Rozowska (World Bank). Four short video on SEAR were coordinated by Ms. Aarthi Sivaraman and Mr. Andy Shuai Liu. The online platform (http://esmap.org/sear) was developed by Ms. Aarthi Sivaraman and Ms. Barbara Ungari. The report was edited by Ms. Laura Wallace. Graphic design was by Naylor Design, Inc. with production support of Ms. Heather Austin (ESMAP). This work was funded by ESMAP. The authors gratefully acknowledge the financial and technical support provided by the Energy Sector Management Assistance Program (ESMAP). ESMAP is a global knowledge and technical assistance program administered by the World Bank. It provides analytical and advisory services to low- and middle-income countries to increase their know-how and institutional capacity to achieve environmentally sustainable energy solutions for poverty reduction and economic growth. ESMAP is funded by Australia, Austria, Denmark, European Commission, Finland, France, Germany, Iceland, Japan, Lithuania, the Netherlands, Norway, The Rockefeller Foundation, Sweden, Switzerland, and the United Kingdom, as well as the World Bank. PREAMBLE T he World Bank’s Energy Sector Management Assistance Program (ESMAP) committed to delivering the “State of Electricity Access Report (SEAR)” project as part of the Sustainable Energy for All (SE4ALL) Knowledge Hub activities. The SEAR is intended to complement the Global Tracking Framework (GTF) Report series, the work on the Multi-Tier Framework, and the recently launched Regulatory Indicators for Sustainable Energy by serving as a periodical stocktaking of the status and nature of progress on the target of ensuring universal access to affordable, reliable, modern energy services by 2030. The SEAR 2017 begins with an examination of the critical The Report is organized as follows: role of electricity access toward the achievement of the AN OVERVIEW of the main topics discussed in the report, SDGs, then provides a snapshot of the status of electricity highlighting key messages. access based on the recent Global Tracking Framework Data (IEA and World Bank, 2017). It goes on to explore CHAPTER 1: The Case for Universal Electricity Access. The how countries can create a conducive environment for a first chapter demonstrates why energy is important for sus- transformative electricity access roll out, how clean energy tainable development, and how ensuring universal access fits into the picture, and how emerging and innovative ser- to affordable and reliable modern energy services can con- vice delivery models can accelerate progress on meeting tribute to reducing poverty, promoting human develop- the goals. ment, and increasing economic growth. Its objective is to prompt governments, donors, the private sector, civil society organizations, and practi- Chapter 2: The Status of Electricity Access. This chapter tioners to develop interventions to close the electricity provides an updated snapshot of the status and trends of access gap by integrating lessons learned from countries electricity access, highlighting the scale of the challenge that have expanded electricity access to their population, ahead— including measurement issues. It is largely derived with insights drawn from emerging innovative business from the methodology adopted by the 2017 Global Track- and delivery models. ing Report. The SEAR 2017 is articulated around five main ques- tions: CHAPTER 3: Creating a Better Environment for Transfor- • Why is electricity access critical for the achievement of mative Electricity Access. This chapter explores the key the 2030 Agenda for Sustainable Development? factors in designing and implementing successful electric- ity access programs. It covers challenges in expanding grid • What is the status of electricity access? electrification and developing off-grid electrification— • What are the challenges and drivers of transformative along with how to plan for a complementarity of grid and electricity access? off-grid electricity solutions. It also highlights policy, regu- lation, technical, and financing factors. • Why is it important to explore synergies between access, renewables, and energy efficiency? CHAPTER 4: “Clean Energy” and Electricity Access. This • What are the emerging and innovative business and chapter discusses the significant role that clean energy— delivery models? that is, renewable energy and energy efficiency— could play in meeting the electricity access challenge. It focuses on what is unique about clean energy in overcoming energy   vii  vii i    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT  |  2 0 17 poverty, along with when and how clean energy can help policy and regulation instruments have been put in place provide modern energy services more quickly, more reli- to provide energy services. It draws examples from grid ably, in an environmentally safer manner, and at a lower cost and off-grid interventions. It discusses the market oppor- than fossil fuel alternatives. tunity presented by the electricity access challenge and how several stakeholders are meeting it in practice. And CHAPTER 5: Emerging and Innovative Business and it outlines the main risks and challenges perceived by Delivery Models. This chapter illustrates several cases investors and incentives that are necessary to attract where new delivery models, financing mechanisms, and investment. x    S TAT E O F E N E R GY ACCES S R EPO RT   |   2 0 1 7 OVERVIEW KEY MESSAGES • Given current conditions, universal electricity access will not be met by 2030 unless urgent measures are taken. While nearly 1 billion people in Sub Saharan Africa alone may gain electricity access by 2040, due to population growth, an estimated 530 million people in the region will not have electricity access (IEA 2014). • This energy shortfall must be rectified if the international community hopes to meet the 2030 Sustainable Development Goals, in light of the linkages between energy and other sustainable development challenges— notably, health, education, food security, gender equality, poverty reduction, and climate change. • In many countries with low levels of electrification access, both grid and off-grid solutions are vital for achieving universal electricity access—but they must be supported by an enabling environment with the right policies, institutions, strategic planning, regulations, and incentives. • Against a backdrop of climate change, plummeting costs for renewable energy technologies and adequate energy efficiency measures offer a tremendous opportunity for countries to be creative about electricity access expansion—with the emphasis on “clean energy.” • Emerging and innovative energy service delivery models offer unprecedented opportunities for private sector-driven off-grid electrification and accelerating universal electricity access—but only if countries can create the necessary environment for them to be replicated and scaled up. INTRODUCTION W ithout access to electricity, the pathway out of What can be done to get the international community poverty is narrow and long. The current pace of on track to close the electricity access gap? This report— progress is not moving fast enough: 1.06 bil- The State of Electricity Access Report (SEAR) 2017 begins lion people still do not have access to electricity, and 3.04 with an examination of the critical role of energy toward billion people still rely on solid fuels and kerosene for the achievement of the SDGs, then provides a snapshot of cooking and heating (IEA and World Bank 2017). Despite the status of electricity access, based on the recent Global significant progress in recent decades, achieving universal Tracking Framework Data (IEA and World Bank, 2017). It access to modern energy services by 2030 will not be pos- goes on to explore how countries can create a conducive sible without stepped-up efforts by all stakeholders. environment for a transformative electricity access roll out, In September 2011, the Sustainable Energy for All how clean energy fits into the picture, and how emerging (SEforAll) initiative was launched with a call for: (i) universal and innovative service delivery models can accelerate access to modern energy services; (ii) double the global progress on meeting the goals. rate of improvement in energy efficiency; and (iii) double This report is supplemented by a package of other the share of renewable energy in global energy produc- materials: (i) 10 Special Features that delve into topics rang- tion. This call is also one of the 17 UN Sustainable Devel- ing from electricity planning, human capital, gender, water, opment Goals (SDGs), which are part of the 2030 Agenda health, food, and agriculture—including in emergencies— for Sustainable Development, adopted in September to climate change, energy efficiency, and results-based 2015. At root is a recognition that energy is a key factor for financing (they are summarized at the end of this overview); sustainable development and poverty alleviation, and that (ii) 5 case studies; and (iii) 4 impact evaluation reports. it plays an important role in all major development chal- Its objective is to prompt governments, donors, the lenges that the world faces. private sector, civil society organizations, and practitioners   xi  x ii    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT  |  2 0 17 to develop interventions to close the electricity access WHY IS ELECTRICITY ACCESS CRITICAL gap by integrating lessons learned from countries that FOR ACHIEVING THE 2030 AGENDA have expanded electricity access to their population, with FOR SUSTAINABLE DEVELOPMENT? insights drawn from emerging innovative business and delivery models. The SEAR is organized around five main For the international community, there is broad agreement questions: that access to modern energy services is a necessary pre-requisite for alleviating poverty and boosting shared • Why is electricity access critical for achieving the 2030 prosperity. Without energy, it is challenging, if not impossi- Agenda for Sustainable Development? ble, to promote economic growth, overcome poverty, • What is the status of electricity access? expand employment, and support human development. Sustainable energy is the seventh goal of the 17 UN Sus- • What are the challenges and drivers of transformative tainable Development Goals (SDGs), with a call to “ensure electricity access? access to affordable, reliable, sustainable and modern • Why is it important to explore synergies between ac- energy for all.” Its five targets indicate areas where policies cess, renewables, and energy efficiency? can be designed—such as boosting the share of renew- able energy in the global energy mix and doubling the • What are the emerging and innovative business and global rate of improvement in energy efficiency (Box O.1). delivery models? Furthermore, energy can contribute to achieving the The key findings of the SEAR Report 2017 are that urgent other 16 SDGs (Figure O.1). A review of all SDG targets measures are needed to speed up access to modern indicates that energy is interconnected with 125 (74 per- energy services or there will still be several countries in cent) out of the 169 targets, making it crucial for all societ- 2030, mostly in Sub-Saharan Africa, with a significant per- ies to recognize the key interlinkages of energy and the centage of the population going without. Both grid and wider development agenda (Vera, 2016). Thus, planning off-grid approaches will be critical, but they will have to be for universal access to modern energy services should be supported by a conducive enabling environment of the an integral part of national planning efforts to achieve the right institutions, policies, strategic planning, regulations, SDGs. Studies of power outages indicate that lack of and incentives. The good news is that lower costs for energy does lead to a loss of output at a firm level—for renewable energy technologies and adequate energy effi- example, in 2013, the World Bank Enterprise Surveys ciency measures should make it possible for countries to showed that power outages in Tanzania cost businesses be creative in meeting this challenge and put the emphasis about 15 percent of annual sales—and greater availability on “clean energy”—that is, renewable energy and energy of energy has been shown to lead to more income, jobs, efficiency. There is also a growing role for the private sec- and educational benefits at the individual household level. tor to finance interventions, assuming the incentives are in In addition, lack of access to modern energy (especially place for investors to earn returns on their investments. grid electricity) acts as a constraint on economic growth, while access to modern energy services can stimulate growth and employment opportunities. BOX O.1 Targets for Sustainable Development Goal 7 • By 2030, ensure universal access to affordable, reliable and modern energy services • By 2030, increase substantially the share of renewable energy in the global energy mix • By 2030, double the global rate of improvement in energy efficiency • By 2030, enhance international cooperation to facilitate access to clean energy research and technology, including renewable energy, energy efficiency and advanced and cleaner fossil-fuel technology, and promote investment in energy infrastructure and clean energy technology • By 2030, expand infrastructure and upgrade technology for supplying modern and sustainable energy services for all in developing countries, in particular least developed countries, Small Island Developing States, and land-locked developing countries, in accordance with their respective programs of support Source: UN 2016. OVE RVIE W    xiii  FIGURE O.1  Energy is linked to all the remaining Sustainable Development Goals POVERTY SDG GLOBAL PARTNERSHIPS SDG 1 SDG END HUNGER 17 2 SDG SDG 16 PEACE HEALTHY LIVES 3 TERRESTRIAL SDG SDG ECOSYSTEMS 15 4 EDUCATION SDG SDG 7 OCEANS, SEAS, and SDG MARINE RESOURCES 14 5 GENDER ENERGY SDG SDG WATER and CLIMATE CHANGE 13 6 SANITATION SDG SDG 12 SUSTAINABLE CONSUMPTION and PRODUCTION 8 ECONOMIC GROWTH SDG SDG INCLUSIVE and 11 SDG 9 INFRASTRUCTURE and RESILIENT CITIES 10 INDUSTRIALIZATION REDUCE INEQUALITY Countries with the highest levels of poverty tend to nesses suggest that electrification results in higher house- have lower access to modern energy services—a problem hold income, with the magnitude varying considerably that is most pronounced in Sub-Saharan Africa and South among countries. In Bhutan, non-farm income increased by Asia, where a large share of the population depends on 63 percent, while farm income was unaffected (Kumar and traditional biomass for cooking and heating and lacks Rauniyar, 2011), and in India, non-farm income rose by 28 access to electricity. Poor households lack the resources to percent (Khandker et al., 2012). However, recent studies purchase modern energy services (especially when there is also show that the benefits of electrification can be overes- a connection charge to obtain the modern energy source, timated if the endogeneity of a household is ignored—that as with electricity). At the same time, households lacking is, electrification does not only affect income but income access to electricity and other modern energy sources can also determine whether or not a household is electri- have fewer opportunities for income generation (especially fied. For example, higher-income households are more will- from agriculture). These households earn less, spend more ing to get a connection as soon as the grid arrives time collecting biomass and less time on education, and (particularly if the connection fees are not fully subsidized), pay more per unit for the limited amounts of modern and utilities prefer to provide electricity to higher-income energy that they can purchase (such as batteries for light- communities (Bacon and Kojima 2016). ing and phone charging). As for the environment, the link between energy and In addition, households using solid fuels and traditional climate change is twofold. The energy system is a major cooking methods are subject to high levels of indoor air contributor, as it generates greenhouse gas (GHG) emis- pollution, which is associated with high rates of mortality sions through energy production and use, while climate and morbidity, especially for women and children who have change can disrupt the world’s energy system—as the greatest exposure to this pollution. Access to modern extreme weather events, sea level rise, water availability energy services, either through the form of advanced com- changes, and temperature increases affect supply and bustion cook-stoves using biomass, or through a switch to demand of energy. It is particularly challenging to esti- the use of LPG, can substantially reduce the long-term mate future impacts of the energy sector on climate costs to the household from diseases associated with high change, as multiple factors are coming into play. Fortu- levels of indoor air-pollution. Several studies estimating the nately, the goal of achieving universal access to modern benefits of electrification on households or small busi- energy services in itself would result in a negligible x iv    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT  |  2 0 17 increase of carbon dioxide (CO2) emissions if the energy followed by Nigeria and Ethiopia for electricity—and the demand of the affected population is projected to remain 20 highest access-deficit countries for electricity account low. However, as people emerge from poverty, demand for 80 percent of the global deficit (Figure O.2). for energy will increase, and power system planning will Between 2000 and 2014, there were advances in elec- have to account for spillover effects. trification, with the global electricity deficit declining from In sum, there are many opportunities for access to mod- 1.3 billion to 1.06 billion—and the global electrification ern energy services to contribute to achieving the other rate rising from 77.7 percent to 85.5 percent. Progress SDGs if interventions are designed to operationalize the with rural electrification is evident, with the global rural linkages between electricity access and other sustainable electrification rate increasing from 63 percent in 2000 to development challenges—such as health, education, food 73 percent in 2014. Urban areas across the world are security, gender equality, poverty reduction, and climate already close to universal access at 97 percent. Although change. urban access rates have risen relatively little in the past 25 years, this level remains a major achievement when viewed against the rapid urbanization that has brought an WHAT IS THE STATUS OF ELECTRICITY additional 1.6 billion people into the world’s cities during ACCESS? this period. In 2014, 1.06 billion people still lived without access to Among the regions, improvement in access to elec- electricity—about 15 percent of the global population— tricity in the period 2000–14 has been remarkable in and about 3.04 billion still relied on solid fuels and kero- South Asia (rising from 57 to 80 percent), in other regions sene for cooking and heating (IEA and World Bank 2017). growth during the same period has been moderate: for The electricity access deficit is overwhelmingly concen- East Asia and Pacific (from 90 to 96 percent), Middle East trated in Sub-Saharan Africa (62.5 percent of Sub-Saharan and North Africa (from 91 to 97 percent), Latin America & Africa population ) and South Asia (20 percent), followed Caribbean (from 92 to 97 percent) and Sub-Saharan by East Asia and the Pacific (3.5 percent), and Latin Amer- Africa (from 26.5 to 37.5 percent). Trends in population ica (3 percent) and the Middle East and North Africa (3 per- lacking access to electricity are rising in Sub-Saharan cent). In Sub-Saharan Africa, 609 million people (6 out of Africa, where 609 million people still do not have access 10) do not have access to electricity, and in South Asia, 343 to electricity services. (Figure 0.3). million people do not have access to electricity. How much improvement will be needed to get the At the country level, India alone has a little less than world back on track? Progress has fallen consistently short one-third of the global deficit (270 million for electricity), of the population growth rate since 2010, meaning that efforts in the remaining years will need to be stepped up to 0.9 percent for electricity (Figure O.4). At the regional level, Latin America, East Asia, and South Asia will be able to reach universal access by 2030, assuming conditions of FIGURE O.2  India has the world’s largest electricity access deficit constant growth in electricity, constant growth in popula- (Top 20 countries for access deficit in electricity, 2014) tion, and no major changes in political willingness and financial investments in increasing access. However, Access deficit, 2014 Sub-Saharan Africa is falling behind—currently growing at India 5.4 percent annually against the needed 8.4 percent annu- Nigeria ally to reach universal access by 2030. Ethiopia Although the access deficit in 2014 for electricity was Congo, Dem. Rep. overwhelmingly rural, the expected population growth of Bangladesh 1.5 billion by 2030 will be almost entirely urban, reflecting Tanzania rural-urban migration. This implies that the number of rural Uganda households for which access needs to be created will sta- Kenya bilize and not be inflated by population growth. Although Myanmar urban connections may be perceived as lower cost and Sudan therefore easier to implement than rural connections, the Mozambique challenges presented by urban slums require regulatory Madagascar Korea, Dem. People’s Rep. and financial incentives to ensure that universal access is Angola attained. A further challenge is presented by the recent Niger spread of the “rapid growth of households” from devel- Malawi oped countries to developing countries (Badger 2014, Burkina Faso Bradbury, Peterson, and Liu 2014). Chad What is the anticipated price tag for closing the gap? A Mali 2011 study by IEA on comparable estimates of current South Sudan financing trends and future investment needs for achieving universal access to electricity provides a high-level esti- 0 50 100 150 200 250 300 mate of investment needs of $45 billion a year, against Source: IEA and World Bank 2017 actual investment flows at that time of an estimated $9 Note: These countries account for more than 81 percent of the global access deficit. billion a year (IEA 2011). OV E RVIE W    xv  FIGURE O.3  Sub-Saharan Africa is not keeping up with population growth for electricity access (Trends in population lacking access to electricity, 2000–2014) Population (million) 700 600 500 400 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 East Asia & Pacific Latin America & Caribbean South Asia Sub-Saharan Africa Source: Data from IEA and World Bank 2017 The World Bank’s Access Investment Model provides FIGURE O.4  Electricity access falls short of the detailed bottom-up estimates of the cost of reaching uni- pace to meet the 2030 target versal access in each of 15 countries with large electricity access deficits. These countries reflect differences in pop- 1.0 ulation and geography as well as local unit costs, and they Additional progress can be used to give a global estimate of access investment required due to lag 0.1 since 2010: +0.1 needs (IEA and World Bank, 2015). The model, based on 0.8 the Multi-Tier Framework, allows users to choose the tier of access that would be used to meet the universal access target, and illustrates how dramatically this affects the 0.6 costs of electrification. Reaching universal access at Tier 1 (enough to light a few light bulbs and charge a mobile 0.82 telephone) would require investments of $1.5 billion annu- 0.4 0.69 ally up to 2030. By contrast, reaching universal access at Tier 5 (full 24x7 grid power) would require investments of 0.51 $50 billion annually. 0.2 In sum, universal electricity access will not be met by 2030, unless urgent measures are taken. While nearly 1 bil- 0.19 lion people in Sub Saharan Africa alone may gain electricity access by 2040, due to population growth, an estimated 0.0 1990–2010 2010–2012 2012–2014 2014–2030 530 million people in the region will not have access (IEA Historical Target rate 2014). One tool that would help facilitate the effort would reference be a new way of measuring the electricity access target, period beyond the traditional binary metrics—which can be mis- Source: IEA and World Bank 2017 leading because they do not capture the multi-dimension- ality of electricity access. The World Bank and ESMAP are working with partners to promote broader adoption of the Multi-tier Framework as the key monitoring platform for tracking progress toward SEforAll and SDG 7. x vi    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT  |  2 0 17 WHAT ARE THE CHALLENGES AND DRIVERS to address the problems of intermittency. In very remote OF TRANSFORMATIVE ELECTRICITY ACCESS? communities, energy services can be provided by off-grid units, such as PV solar home systems or pico-solar prod- More than 70 countries have been working over the last ucts. These can be deployed faster and more simply than four years to develop action plans, strategies, and projects a mini-grid. to deliver on the goal of universal access to modern energy What is holding up progress? The key hurdle appears services. Their efforts have been supported by partner- to be creating an enabling environment for an electricity ships and initiatives from both the public and private sec- access roll out. While no single recipe exists, the evidence tor that have emerged at the national, bilateral, and points to the need for the right policies, institutions, multilateral levels. strategic planning, regulation, and incentives as vital pre- For electricity, meeting the demand created by requisites. increased access follows two main tracks: (i) grid-electrifi- cation providing connections to urban, peri-urban, and For rapid grid-based expansion, lessons from successful rural areas; and (ii) off-grid electrification through commu- countries suggest the following main drivers: (i) there needs nity level micro- or mini-grid systems, or isolated devices to be a sustained government commitment over a long and systems at the household level. These two approaches period of time; (ii) there should be dedicated institutions to have different capital requirements, serve different popula- plan, implement, and expand electrification programs; (iii) tion densities, and use different technologies. there should be predictable financing mechanisms to sup- The expansion of national electricity grids, which is the port public sector programs and to attract private sector “conventional” method for broadening access, involves initiatives; and (iv) measures should be adopted to ensure adding power plants and extending high-voltage transmis- the affordability of electricity services. sion lines and distribution networks into rural areas. In the past two decades more than 1.7 billion people have been For developing off-grid schemes, mini-grids offer a means added to national electricity networks worldwide, mostly in of supplying “grid-quality” power to communities quickly urban areas. Although progress has also been made in without having to wait many years for the grid-based distri- rural areas, the numbers are not rising as fast, because rural bution network to reach distant communities. However, grid electrification programs involve connecting villages there are challenges to be met in order to ensure that mini- incrementally to the existing grid, with remote areas with grids are the least-cost solution and continue to provide small populations, high line losses, and low usage usually affordable electricity services over the long-run, and that the last to be connected. key risks are mitigated to offer viable business opportuni- The biggest challenges to expanding grid-based elec- ties. High upfront investment requires anticipated load trification and access are the lack of sufficient generation growth to materialize, or else there will be inadequate rev- capacity, poor transmission and distribution infrastruc- enues to cover costs. Mini-grids tariffs are usually higher ture, the high costs of supply to rural and remote areas, than grid-based tariffs (unless there is a significant subsidy the inability of low income households to pay high con- to the mini-grid), which may limit the willingness-to-pay of nection charges, and the weak financial state of the utili- households. ties. The investment needs for a program to expand access to rural areas are large, while the possible receipts Where both grid and off-grid solutions are being devel- are likely to be insufficient to cover costs without financial oped, it is important to ensure complementarity of these support. A very substantial barrier to household access is solutions. For example, if the grid reaches the mini-grid the cost of connection. In Africa, unsubsidized connec- service area, demand for mini-grid services would decline tion costs often exceed the country’s monthly income per sharply and the investment in the stranded assets would person, and households have to pay these plus fees for become unrecoverable, in the absence of special policies inspection and application, security deposits, internal wir- to address this issue. Often, off-grid solutions are devel- ing, and equipment costs. These fees are usually charged oped in geographic areas far from the grid to provide upfront making it difficult for low income households to communities with electricity services sooner than the afford the service. grid. Take the case of Cambodia, where, as a study by Energy services can also be expanded using “off-grid” Tenenbaum et al. (2014) explains, there was a lack of pol- electrification, which involves much smaller grids than in icy on what to do when the grid reached the mini-grids. grid electrification. One approach is “mini-grids”—iso- Eventually, the situation was resolved by the regulator lated groups of generation, distribution, storage facilities issuing licenses to transform the mini-grids into distribu- within a confined geographical space. They are usually tion utilities—but it underscores the need for planning locally managed, have less than 10 MW of installed capac- upfront for the eventual arrival of the grid to give inves- ity, serve small household loads, and serve an area of up to tors more confidence to develop mini-grids in rural and 50 kilometers radius. Another approach is “micro-grids”— remote areas. The study recommends four options for smaller units, typically operating with less than 100 kW of when the grid arrives: capacity, at lower voltage levels, and covering a radius of up to 8 kilometers. • Small Power Distributor (SPD) Option where the Small Both of these can be powered by fossil fuels (diesel) or Power Producer (SPP) operating a mini-grid converts to by renewables (hydro, solar PV, biomass combustion, and distributor that buys electricity at wholesale from the wind). Hybrid systems using renewable energy sources national grid and resells it at retail to its local customers. together with batteries or a diesel generator can be used OVE RVIE W    xvii  • SPP Option where the mini-grid operator sells electrici- renewable power and fuel in developing countries in 2015 ty to the operator of the national grid but no longer to surpassed that in developed countries. Energy efficiency its local customers. and technology reduced the growth of global final energy demand by almost two thirds (0.7 percent increase as • Buyout Option where the SPP sells its distribution grid opposed to the previous decade’s average 2 percent). This to the national grid operator or other entity designated growth has been driven by significant reductions in the by the regulator and receives compensation for the sale costs of renewables. In 2014/2015 the median cost of pro- of the assets. ducing baseload power from residential solar was $200/ • Combined SPP and SPD Option where the SPP MWh—sharply down from $500/MWh in 2010—compared converts to an SPD and also maintains a backup to about $100/MWh for conventional sources. Wind and generator as a supply source to the main grid and re- solar PV costs were lower, and long-term contracts in some tail customers. countries were in the range $60-80 for onshore wind, and $80-100 for utility scale solar PV. As part of the planning process, it is essential to choose As renewable energy continues to gather momentum, the right technology to provide the electricity, whether to grid integration is emerging as a key issue to accommo- urban or remote rural areas, in a cost-effective manner. date a higher share of renewables. One of the biggest That is where geographical information system (GIS) mod- challenges will be coping with the variability and intermit- els—which enable the assessment of the cost of electricity tency of modern sources of renewable energy (such provision and energy cost implications of competing tech- as solar and wind)— given that the current grid infra- nological systems in space and time—fit in (Howells et al., structure in many countries was built on the basis of 2017). In addition, for electricity access programs to be controllable energy sources and organized around the transformative, special attention needs to be paid to pro- generation-transmission-distribution model. The good ductive uses of electricity services—defined as agricultural, news is that renewable energy technologies are flexible, commercial, and industrial activities that require electricity modular, and can be used in various configurations, services as direct inputs to the production of goods or pro- ranging from those that are grid-connected to those that vision of services (EUEI PDF 2011; Short 2015; Contejean are off-grid. and Verin 2017). Rural and remote areas, which are often Mini-grids are emerging as a key player for cost-effective inhabited by low-income households and lack electricity and reliable electrification of rural areas (Figure O.6) . It is supply, may not have opportunities to expand productive projected that one-third of total investments toward uses even if electricity is made available. In those cases, achieving universal access by 2030 will be targeted to complementary initiatives—such as facilitation for micro-fi- mini-grids, with the vast majority (over 90 percent) com- nance and vocational training—may be needed to both ing from renewable energy generation. Hybridization of maximize the benefits of electricity programs and promote mini-grids is increasingly popular, especially in countries long-term sustainability. that have been powering exiting mini-grids with diesel. In sum, while recognizing that each country will have to Moreover, improvements in storage systems will increase decide on its own pathways to universal access, sustain- the use of renewables and decrease the share of diesel able government commitment will be essential, as which would mainly supply evening peaks. Mini-grids occurred in Vietnam (Box O.2 ). Also vital will be making can also contribute to the socioeconomic development modern energy provision part of a broader vision of social of a region. Besides providing basic energy services and economic transformation. In many countries with low (lighting and phone charging), they can fuel productive levels of electrification access, they will need both grid and activities such as pumping, milling, and processing. off-grid solutions—supported by an enabling environment A recent comparison of diesel and hybridized mini-grids with the right policies, institutions, strategic planning, reg- at seven sites in Africa, Asia, and Latin America, showed ulations, and incentives. potential savings ranging from 12 to 20 percent, depend- ing on oil prices. WHY IS IT IMPORTANT TO EXPLORE It is true that the huge potential for electricity access SYNERGIES BETWEEN ACCESS, using mini-grids is hindered by numerous challenges— including inadequate policies and regulations, lack of RENEWABLES, AND ENERGY EFFICIENCY? proven business models for commercial roll-out (notably Meeting the global target for electricity access while for pico-solar systems), and lack of access to long-term achieving the Paris Agreement’s goal of limiting global finance. But many countries are currently developing mini- warming to below 2˚C will require a major shift toward grid policies to address these problems. India has released “clean energy”—that is, renewable energy and energy a draft national policy for mini and micro grids, which, if efficiency. Supply from renewable energy technologies is adopted, will create the proper framework and environ- now growing at an unprecedented rate, while the growth ment for developing 500MW capacity over the coming in the global economy is starting to decouple from ener- decade. Kenya’s Energy Regulatory Commission has gy-related carbon emissions, thanks to the adoption of licensed Powerhive East Africa Ltd. to generate, distribute, energy efficient measures and technologies. and sell electricity—the first private company in Kenya’s Since 2013, the world has added more renewable history to receive a utility concession. Powerhive will energy power capacity (an estimated 147 GW by end develop and operate solar mini grids of a total capacity of 2015) than conventional capacity, while investment in 1MW to power 100 villages. x vii i    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT  |   2017 BOX O.2 Vietnam’s National Drive to Achieve Universal Electricity Access Vietnam’s experience demonstrates that where strong political record investments leveraged from users, communities and commitment exists, the goal of universal access to electricity is local governments. achievable irrespective of the country’s starting condition. This However, there was a trade-off between the pace and the commitment, however, needs to go hand in hand with a willing- sustainability of the electrification efforts. As it turned out, ness to learn from past mistakes and correct one’s course when many new distribution networks were of low technical quality circumstances change. and suffered high losses, and the newly established entities In 1994, when Vietnam started its universal access drive, its did not have sufficient experience nor the financial strength to electrification rate was only 14 percent, comparable to the operate them. The subsequent phases, therefore, prioritized access rates of the least electrified countries in Africa. By 1997, sustainability measures, with a heightened focus on ensuring the rate had jumped to 61 percent, and by 2002, it was over 80 service quality and both technical and financial viability. Grad- percent. Today, the Vietnamese population enjoys the full ben- ually, the dispersed local electrification networks were consol- efits of electricity, with an access rate over 99 percent. idated into larger units and their operators corporatized; most Vietnam’s secret to success was not betting on a particular of them were eventually absorbed by the national utility, EVN. electrification approach, but rather allowing the approaches to While many elements of Vietnam’s electrification approach evolve over time. In the initial “take-off” phase (1994–97), the are unique to Vietnam, its key lessons are pertinent to all elec- goal was to trigger fast access expansion by empowering trification efforts: communities and local authorities to build their own systems. • Vietnam has achieved universal access to electricity largely During this phase, little attention was paid to service quality, due to the government’s unwavering commitment to electri- costs, tariff levels and other regulatory aspects. It was a highly fication, and its willingness to learn and when necessary decentralized approach, with a very limited role for the change course. national utility EVN, which was only selling electricity in bulk to these newly created mini-distribution entities. This was a • Fast progress and a record fund mobilization was possible period of extremely fast electrification, with the rate jumping by making electrification a national priority, engaging cen- from 14 percent to 61 percent in just three years—as well as tral, regional, and local government, along with rural com- munities. • Fast progress is not just a matter of political commitment, it FIGURE O.5  Electrification Becomes a National Priority also requires a strong demand and a willingness to pay from (Vietnam Household Electrification Rate, %) the participating population—when rural income rose, elec- trification took off. 100% • The trade-off between speed and sustainability of electrifi- 80% cation efforts needs to be carefully managed. • Technical standards appropriate for rural areas should be de- 60% veloped and enforced right from the start of the national electrification program. 40% “Take off” phase • Electrification goals should not happen at the expense of 20% the national utility’s financial viability. 0% Source: SEAR Case Study: Vietnam’s national electrification program, forth- 1994 1996 1998 2000 2002 2004 2006 2008 2010 2013 coming. Further, with the rapidly decreasing costs of stand- The stand-alone electricity product market is expand- alone/isolated renewable energy systems, renewable ing rapidly, and Navigant Research estimates the market energy is no longer an expensive solution for electricity for pico-solar products will grow from $550 million in access. Solar lanterns, solar mobile phone chargers, and 2014 to $2.4 billion in 2024. Globally, some 20 million certain solar home systems can provide Tier 1–3 energy households are now powered by solar home systems services (as per the Global Tracking Framework Tier Based and 0.8 million households are supplied by small scale System) for between 4 and 20 percent of the cost required wind systems, according to IRENA estimates. Pico solar for grid extension. Solar Aid, a private solar company, PV systems—which typically provide less than 10 watts which has sold some 1.5 million solar lights (benefiting of power and are primarily used for lighting or powering some 9 million people), estimates that $10 solar lights can electrical appliances (like radios or mobile phones)— help African families save an average of $60 annually, sim- have developed rapidly in recent years, due to the fall in ply by not using kerosene for lighting purposes. price of solar modules, the use of highly efficient LED OVE RVIE W    xix  FIGURE O.6  A growing role for mini grids and renewables (Opportunities for grid extension, mini grids, and distributed renewable energy systems) Unsubsidised electricity retail cost on site [Euro/kWh] National grid extension Solar Home Systems and Pico PV Mini-grid Space rids mini-g Solar/diesel/biomass Hydro mini-grids Large Size of community Small High Density of population Low Close Distance to national grid Far Easy Complexity of terrain Complex Strong Economic strength Weak Source: EUEI PDF/REN21 2014. lighting systems, and the emergence of innovative busi- kets where access is to be increased; (ii) financial con- ness models. straints that tend to favor products with the lowest initial So what are the biggest obstacles that countries face in cost, even though many products with superior energy introducing and scaling up the share of renewables in performance have a lower lifecycle cost despite a higher energy use? They range from the presence of large fossil upfront cost; (iii) a lack of overlap between professional fuel subsidies, the inadequate communication of the advan- communities engaged on electricity access and on energy tages of renewables, unclear government policies, a lack of efficiency; and (iv) a lack of focus on the overall energy good financial options, and insufficient community involve- sector, often because of concentration on solutions involv- ment. Fortunately, these obstacles can be ameliorated by ing increased grid generation capacity. the creation of a pro-renewables policy and long-term gov- Even so, there are many examples of smart practices ernment commitment—sand within this framework, innova- and effective models for incorporating energy efficiency. tive business models are emerging and are leading off-grid Some high-impact programs have prioritized a broader electricity access developments. view on developing electricity access markets looking to Energy efficiency, once overlooked, is being seen commercial and supply-chain management, policy reform, increasingly as a tool in delivering modern and clean and consumer awareness. One relatively simple way to energy services. It reduces the costs of energy supply, improve efficiency is through distribution transformers, therefore making access more affordable. For example, which are an integral part of every grid. Transformers are energy efficient light emitting diodes (LEDs) radically a globally traded product, and at least 16 developed and reduce the size and costs of the solar PV and batteries developing economies (including Brazil, China, India, needed to provide service, making these technologies Mexico, and Vietnam) have either minimum energy per- affordable for vast new market segments. By end-2015, at formance standards or labels in place that regulate or least 146 countries had enacted energy efficiency policies, facilitate the installation of highly-efficient transformers. while at least 128 countries had energy efficiency targets. These existing efforts make the establishment of new pro- There has also been a drop of more than 30 percent in the grams and policies far less burdensome for developing primary energy intensity between 1990 and 2014. economies. What is hindering energy efficiency from playing a big- The success of off-grid technologies for providing ger role? The barriers are many: (i) high tariffs and import energy solutions in recent years is largely attributable to duties on appliances and equipment used in those mar- the availability of energy efficient appliances. For instance, x x    S TAT E O F E L E C TR I CI TY ACCES S R EPO RT  |   2 0 17 FIGURE O.7  Solar home systems are increasingly offering more for less (Retail purchase price for three solar home systems that provide identical levels of service) SHS with Standard Appliances (2009) SHS with Standard Appliances (2014) SHS with Super-Efficient Appliances (2014) SHS with Super-Efficient Appliances (2017) $0 $200 $400 $600 $800 $1,000 $1,200 Retail price by component ($US) Lights Battery PV Balance of system Appliances Source: Phadke, A. et al. 2015. in many countries the use of high efficient LED lamps has WHAT ARE THE EMERGING AND INNOVA- enabled the implementation of various modern lighting TIVE BUSINESS AND DELIVERY MODELS? programs and initiatives in rural and electrified areas. As the Royal Swedish Academy of Sciences put it when A major focus of the universal electricity access push these announcing the 2014 Nobel Prize in Physics: “The LED days is reaching people living in remote areas, but it is lamp holds great promise for increasing the quality of life increasingly clear that the traditional approach to electric- for over 1.5 billion people around the world who lack ity grid extension will not suffice. Grid-based extension of access to electricity grids. Due to low power requirements, electricity supply involves significant upfront investment by it can be powered by cheap local solar power.” utilities, and the connection costs to remote areas—which Energy efficient appliances have helped to reduce the demand less electricity—are high. Consumers cannot energy investment costs required to kick-start electricity afford large upfront costs, so payback to the utilities can be access programs. Shaving a single watt from an off-grid achieved only over an extended period, or is simply not appliance’s load results in lower initial solar package costs, feasible. Until recently, support for non-grid electricity sys- improved service, or both (Van Buskirk 2015). Similarly, tems has been based on funding allocations from public energy efficiency can make larger off-grid solar home sys- programs, but this approach is not sustainable. tems more affordable. According to a recent analysis “the There are good prospects for private sector business upfront cost of a typical off-grid energy system can be applications to supply this market, but there are only a lim- reduced by as much as 50 percent if super-efficient appli- ited number of successful installations. Experience from ances and right-sized solar PV and batteries are used, such approaches to energy service delivery suggest that while delivering equivalent or greater energy service.” the best models have a number of common features (Table (Van Buskirk 2015). Thus, advances in energy-efficient O.1): (i) consideration of the demands, interest, and restric- devices now allow households to reap more benefits from tions of local customers, including the desire to pay with the relatively small amounts of electricity available to them. mobile payments systems; (ii) strong partnerships along Instead of illuminating a single light bulb, CFLS and LED the whole supply chain, from the government and utilities lamps use provide more and better light and consumer to private sector service providers; and (iii) adaptation of less energy, leaving enough energy to power other elec- market dynamics to local conditions to support successful, tronic devices such as fans and low-wattage TVs and appli- sustainable clean energy solutions. ances (Figure O.7). In Tanzania, E.ON has five small-scale rural electrifica- In sum, it is clear that clean energy will play a strong role tion systems operating, with connections to 200–300 cus- in ensuring universal access to energy services. Plummet- tomers. The overall goal is to electrify 1 million people in ing costs for renewable energy technologies and adequate 10 years, or about 250,000 households—which means that energy efficiency measures offer a tremendous opportu- between now and entering the scale-up phase, it must nity for countries to think differently and be creative about develop the ability to standardize. In Nepal, Gham Power, electricity access expansion. a developer of solar micro-grids and commercial off-grid systems, has deployed over 600 projects, including large industries, small businesses, and hundreds of households. OVE RVIE W    xxi  These applications include three micro grids, with the PAYG providers can take one of two approaches to intention to develop at least 100 such projects in the next financing the system to the consumer: few years. The three existing projects have been imple- mented in partnership with N-cell, the largest telecom • An indefinite fee for service in which the consumer nev- company in Nepal, which participates both as an investor er owns the system itself, but rather merely pays for the and as an off-taker (with a PPA) from the micro-grid system. ability to use it. Payments are typically made on the Pay as you go (PAYG) models have become increasingly basis of when the consumer needs power and can af- attractive in many markets. This is based upon experience ford it. suggesting that, even under local conditions in remote • The consumer eventually owns the system after paying markets, the key to a cost-effective stand-alone energy sys- off the principal of the system cost—and the consumer tem business is a finance model that matches affordable must make discrete payments, typically on a daily, pricing for the target consumers with an adequate return weekly, or monthly basis (thereby resembling a typical on investment for the supplier. PAYG solar companies seek financing arrangement). to provide energy services at a price point that is less than, or equal to, consumers’ current spending on kerosene, Lighting Global (a World Bank platform) has estimated that candles, batteries, and other low-quality energy services. there are 32 PAYG companies in 30 countries, many of Providers are incentivized to offer quality after sales ser- them in Africa. They use existing mobile payment systems vice, since a user’s ongoing payments are tied to the sys- or scratch cards for fee collection. Consumers benefit from tem continuing to function. increased affordability, increased confidence in the prod- TABLE O.1  An array of emerging delivery models for mini-grids CURRENT ENERGY COMPANY OUTREACH TARGET COUNTRIES SOURCE SIZE RANGE FOCUS/INNOVATION E.ON 7 systems, 1m people Tanzania Solar, bio- 6–12kW Standardisation for scale; 420 customers in 10 years diesel Establish track record for finance Cellphone payment GHAM POWER 3 micro-grids >100 micro-grids Nepal Solar 1–10kW PPA with N-cell (telecoms) for in 10 years reduced risk revenue stream Rent-to-own agreements HUSK POWER 15,000 house- 75,000 house- India Biomass, 15–250kW Accept >5 year payback holds, several holds, 10,000 Tanzania Solar (biomass); Targeting 8–10 year loans 100 businesses businesses, 20kW (solar) Rural empowerment 125 agro units 3-year expansion plan Inclusive business model INENSUS Supports mini-grid development Senegal Solar, Wind 5–10kW Low-cost smartcard meter in Africa with related management Sale of “electricity blocks” systems and consultancy  “MicroPowerEconomy” delivery system—flexible tariffs & micro- credit M-KOPA 340,000 +500 homes/ Kenya, Tanzania, Solar 5–20W PAYG business model homes (Mar 16) day Uganda,  Small SHS, LEDs & mobile phone charging services POWERGEN 20+ mini-grids 50 mini-grids Kenya & Solar 1–6kW Mini-grids compatible with central (RENEWABLE in 2016 Tanzania, grid standards ENERGY) Zambia POWERHIVE 4 sites, 1500 100 villages Kenya, Solar ~20kW Integrated tech system; people (~300 Philippines Mobile money networks connections) (Africa/Asia for pre-payment expansion) Dedicated software—predict revenue streams; RUAHA POWER 1 pilot project 100 projects Tanzania Solar, biomass 300kW Business model without subsidies (JV with Husk Build Own Operate model Power) Pre-payment meters SPARKMETER 3 Earthspark No fixed target Asia, Africa, Service for 0–500W Metering with mobile payment mini-grids in Latin America all types of system Haiti mini-grids  Cloud-based software “Gateway” usage dbase x x ii    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT  |  2 017 uct, and access to maintenance services. For the supplier, MOVING FORWARD PAYG lowers the transaction costs without the need for a significant rural financial infrastructure, and it reduces the In developing countries, traditional grid supply will be the cost and risk of doing business. M-KOPA Solar is an often- predominant approach for supplying urban households, cited example of a firm with good experience of successful whose number is likely to rise faster than population growth PAYG applications, having connected more than 330,000 because of large rural-urban migration and the downward homes in Kenya, Tanzania, and Uganda to solar power with trend in household size. However, this approach will not be over 500 new homes being added every day (Economist sufficient for meeting the goal of universal access to mod- 2016). ern energy services by 2030. Developing countries will also Increasingly, operators in the off-grid market are deal- need to use mini-grids and off-grid supply to provide access ing strategically with a set of factors that are opening space to the more remote households, whose global population is for business—notably, (i) thinking broader than energy; (ii) predicted to remain roughly constant during this period. seeking a mix of public and private finance; (iii) combining Mini-grids and off-grid solutions to energy supply are investment with assistance; (iv) dealing with affordability experiencing rapid falls in cost, because of technology issues in context; (v) engaging with consumers; and (vi) improvements and scale economies in supplying growing providing after-sales service. markets. Even at the lower hydrocarbon prices of recent The key challenge centers on the need for accessible years, solar- and wind-based generation supply solutions financing models—which are starting to be launched in the are approaching parity with traditional hydrocarbon-based form of new finance and investment companies that focus generation. The very high on-grid distribution costs associ- on mini-grids and solar home systems (SHSs). These firms, ated with connecting remote households in areas of low all established within the past few years, provide several population density will mean that few of these households means of financial support, including early-stage corporate will be able to afford grid-connection—unless there are investment, working capital, asset management, portfolio subsidies available to cover a large fraction of these costs. aggregation, and securitization. One way to offset the Even schemes of spreading repayment of such charges investment risk that arises in this sector has been to allo- over several years are unlikely to be financially viable with- cate short-term public funding. This allows project devel- out subsidies. opers to offset upfront development costs. Recognizing However, even with a cost superiority to on-grid supply, the need for such early-stage support, a range of interna- mini-grid and off-grid electricity will require state support tional development organizations is active in facilitating through a number of channels: (i) a long-term commitment the establishment of new delivery models. However, such by the government to the goal of reaching universal subsidies are difficult to access and other frameworks are access; (ii) the creation of institutions and regulations to being proposed that could be more effective, including facilitate the expansion of new forms of energy supply; and performance based subsidies, and risk-adjusted subsidies (iii) where needed, some financial support either to house- for capital and operating expenditures. holds so that they can afford access, or to firms to reduce In sum, emerging and innovative energy service delivery the high initial costs of developing a new business model mechanisms are encouraging. Innovations in technologies to deliver energy to previously unserved customers. and business models particularly present unprecedented The bottom line is that substantial progress toward new opportunities for private sector-driven off-grid electri- meeting the 2030 universal access to modern energy ser- fication. If countries create the necessary environment for vices goal can be expected in the coming years with the them to be replicated and scaled up, they could acceler- large number of different approaches that are now under ate efforts to achieve universal access to modern energy way to supply off-grid electricity to supplement efforts in services. grid electricity expansion. But this will only occur if coun- tries succeed in creating the enabling environment to de-risk and to attract the much-needed private sector investments. OVERVIE W    xxiii  REFERENCES Bacon, R., and M. Kojima. 2016. “Energy, Economic Growth Khandker, S., H. Samad, R. Ali and D. Barnes. 2012. and Poverty Reduction. A Literature Review.” World Bank, “Who Benefits Most from Rural Electrification? Washington, DC. Evidence from India.” Policy Research Working Paper 6095, World Bank, Washington, DC. Badger, E.. February 14, 2014. “Why we Should be Worried About the Rapid Growth in Global Households.” www. 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Contribution to the Impacts of Rural Electrification: A Panel Data Analysis SEAR. from Vietnam.” Economic Development and Cultural World Bank and IEA. 2014. Sustainable Energy for All Change 61: 659–92. 2013–2014: Global Tracking Framework. Washington, DC: World Bank. http://hdl.handle.net/10986/16537 x x iv    S TAT E O F E NER GY ACCES S R EPO RT   |   2 0 1 7 CHAPTER 1 THE CASE FOR UNIVERSAL ELECTRICITY ACCESS KEY MESSAGES • Universal access to modern energy services is a necessary enabler to achieve the 2030 Agenda for Sustainable Development. It should be dealt with as a matter of urgency to increase the likelihood of achieving the Sustainable Development Goals (SDGs). • Access to electricity is essential to break the vicious circle of poverty and to ensure acceptable basic living standards of populations. It plays a catalytic role in addressing the challenges of job creation, human development, gender equality, security, and shared prosperity. • Without access to affordable and reliable energy services there are limited prospects for the cost-effective delivery of goods and services and therefore few opportunities to develop productive activities needed for the social and economic transformation of rural communities. • Thus, planning for universal access to modern energy services should be an integral part of national planning efforts to achieve the SDGs. • Dealing with the challenge of universal electricity access in a context of increasing awareness of climate change impacts offers an opportunity for countries to explore innovative pathways to develop sustainable and resilient communities. INTRODUCTION W hy is electricity access critical for the achieve- development –particularly health, education, employment, ment of the 2030 Agenda for Sustainable Devel- and women’s empowerment—before concluding with a dis- opment? Certainly, there is a broad consensus cussion of the carbon footprint of achieving universal elec- that access to modern energy services is an essential— tricity access. although not sufficient—pre-requisite for alleviating pov- The chapter finds that planning for universal access erty. Without energy, it is challenging, if not impossible, to should be an integral part of national planning efforts to promote economic growth, overcome poverty, expand achieve the SDGs. Moreover, dealing with the challenge of employment opportunities, and support human develop- universal electricity access in a context of increasing aware- ment. Nonetheless it is important to integrate electricity ness of climate change impacts offers an opportunity for access efforts within other sector-specific policies in order to countries to explore innovative pathways to develop sus- leverage the inter-dependence of different types of infra- tainable and resilient communities. structure and maximize impact through synergies. The objective of this chapter is to demonstrate why ENERGY IS NECESSARY TO ACHIEVE energy is important for sustainable development, and how SUSTAINABLE DEVELOPMENT GOALS ensuring universal access to affordable and reliable modern energy services can contribute to reducing poverty, promot- The development community recognizes energy as cata- ing human development, and increasing economic growth. lytic in achieving the 2030 Agenda for sustainable devel- The chapter starts by showing how energy can contribute to opment. Energy is a key factor for sustainable development achieving the Sustainable Development Goals (SDGs). It and poverty alleviation, and it plays a central role in every then discusses how electricity is related to economic growth major challenge and opportunity that the world faces. Sus- and explores the impacts of energy on poverty reduction. tainable energy is now the seventh goal of the 17 Sustain- Next it examines how electricity access can affect human able Development Goals (SDGs) and aims to “ensure   1  2    S TAT E O F E L E C T RI CI TY ACCES S R EPO RT   |  2 0 1 7 BOX 1.1 Sustainable Development Goal 7 Targets • By 2030, ensure universal access to affordable, reliable and modern energy services • By 2030, increase substantially the share of renewable energy in the global energy mix • By 2030, double the global rate of improvement in energy efficiency • By 2030, enhance international cooperation to facilitate access to clean energy research and technology, including renewable energy, energy efficiency and advanced and cleaner fossil-fuel technology, and promote investment in energy infrastructure and clean energy technology • By 2030, expand infrastructure and upgrade technology for supplying modern and sustainable energy services for all in developing countries, in particular least developed countries, Small Island Developing States, and land-locked developing countries, in accordance with their respective programs of support Source: UN 2016. access to affordable, reliable, sustainable and modern but it remains inconclusive as to the existence and the energy for all”, including 5 targets (Box 1.1). With energy direction of causality. The electricity and economic growth among the SDGs, a series of opportunities are expected to nexus has been studied extensively, but empirical evi- emerge in terms of financial resources as well as technical dence shows conflicting results regarding the relationship assistance, to help countries reach energy-related goals between the two variables, based on four different hypoth- and targets. eses (Box 1.2). Despite the wide range of estimates in the For example, electricity and water resources are inextri- literature, there is no prevailing hypothesis explaining the cably linked. As indicated by the SEAR Special Feature link between energy consumption and GDP growth (ECA Paper on Energy Access and the Water-Energy Nexus 2014; CDC 2016). Moreover, studies typically ignore key (Rodriguez et al 2017), significant amounts of water are variables of the production function (such as labor and needed in almost all energy generation processes, includ- capital or electricity prices), leading to a possible misiden- ing electricity generation and fossil fuel extraction and pro- tification of the causal pattern, and thus cannot provide a cessing. Conversely, the water sector needs energy to reliable assessment of the link between energy use and extract, treat, and transport water. Energy and water are GDP (Bacon and Kojima 2016). also both required to produce crops, including those used Power shortages are estimated to have a significant to generate energy through biofu¬els. Furthermore, Rodri- impact on economic growth and productivity. It is widely guez et al (2017) noted that the energy poor and water accepted that outages adversely impact economic activi- poor are often the same people. But for universal access to ties. Several approaches are being used in the literature to an improved water source to occur, there needs to be inte- estimate the effects of power shortages on the economy, grated energy and water planning. in order to explain the benefits from projects that reduce power shortages—such as more generation or transmis- sion capacity, pricing schemes to reduce peak loads, or HOW IS ELECTRICITY RELATED TO other investment upgrades that improve the quality of ECONOMIC GROWTH? power supply (Bacon and Kojima 2016). Electricity affects economic output by virtue of being part • In Sub-Saharan Africa, the cumulative time of electrical of the production function, along with labor and capital supply interruptions amounts to about three months of (Stern 2011). It is required to both power industrial pro- production time lost per year, and as a result, busi- cesses and to produce goods, equipment, and services in nesses loose about 6 percent of their turnover, while the majority of productive sectors within an economy. The about half of them are using generators, bearing higher use of modern forms of energy can (i) underpin the cre- costs (Karekezi et al. 2012). ation and upgrading of value chains; (ii) facilitate the diver- sification of economic structures and livelihoods; and (iii) • In Tanzania, the World Bank Enterprise Surveys showed reduce vulnerability to multiple stresses and external that power outages in Tanzania in 2013 cost businesses shocks (EUEI 2011). But although energy is a necessary fac- about 15 percent of annual sales (CDC 2016). tor, it is rarely sufficient, as access to finance, markets, raw • At the macroeconomic level, the proportion of GDP materials, technology, and a qualified workforce is also lost to unreliable electricity supply can reach close to 7 necessary for driving economic growth. percent in some countries in sub-Saharan Africa (Foster There is an extensive literature showing a strong cor- and Briceno-Garmendia 2010). relation between electricity consumption and GDP growth, T H E CASE FOR UNIVERSAL ELECT RICIT Y A C C E SS    3  TABLE 1.1  Sustainable Development Goals and key links to energy SUSTAINABLE DEVELOPMENT GOAL HOW ENERGY IS RELATED TO THE SUSTAINABLE DEVELOPMENT GOALS GOAL 1. End poverty in all its forms everywhere Access to energy can increase household income and productivity and reduce disparities in wealth. GOAL 2. End hunger, achieve food security and improved nutrition The availability of energy is a key factor for increasing agricultural and promote sustainable agriculture productivity and ending extreme hunger. GOAL 3. Ensure healthy lives and promote well-being for all at Energy access for healthcare services can enhance maternal health, reduce all ages infant mortality, and help curtail disease and epidemics. GOAL 4. Ensure inclusive and equitable quality education and Energy is a key factor of upgrading educational facilities and of facilitating promote lifelong learning opportunities for all modern quality education. GOAL 5. Achieve gender equality and empower all women and girls Better access to energy can lead to higher gender equality, freeing up women’s time (previously wasted in collecting fuelwood for example) and providing income-generating opportunities. GOAL 6. Ensure availability and sustainable management of water In the energy sector, water is used for generating hydropower, cooling and sanitation for all  thermal power plants, extracting, processing and transporting energy resources, and growing energy crops. Conversely the water sector needs energy to extract, treat and transport water, as well as for irrigation and desalination. GOAL 7. Ensure Access to affordable, reliable, sustainable and modern energy for all GOAL 8. Promote sustained, inclusive and sustainable economic The provision of energy helps to increase GDP and productivity. Modern growth, full and productive employment and decent work for all energy access empowers people. Goal 9. Build resilient infrastructure, promote inclusive and Energy is needed for developing infrastructure and technological sustainable industrialization and foster innovation innovation, including information and communication technologies (ICT). GOAL 10. Reduce inequality within and among countries Access to energy is crucial for sustained income growth of the bottom 40 per cent. GOAL 11. Make cities and human settlements inclusive, safe, Energy facilitates all urban systems, including transport and is needed resilient and sustainable. for improving living standards in urban slums. GOAL 12. Ensure sustainable consumption and production Sustainable energy consumption & production is a key factor in sustainable patterns (SCP) consumption and production patterns including addressing inefficient fossil-fuel subsidies and removing market distortions. GOAL 13. Take urgent action to combat climate change and its Emissions from the energy sector are the leading contributor to impacts anthropogenic climate change. Access to renewable energy and energy efficiency are key to mitigation. GOAL 14. Conserve and sustainably use the oceans, seas and Tidal energy and ocean wind power are important renewable energy marine resources for sustainable development technologies but may impact marine ecosystems. GOAL 15. Protect, restore and promote sustainable use of terrestrial The environmental impacts of energy encompass deforestation, mineral ecosystems, sustainably manage forests, combat desertification, extraction and changes in land use, and this can lead to desertification and and halt and reverse land degradation and halt biodiversity loss land degradation. Sustainable use of energy resources is key to sustainable terrestrial ecosystems. GOAL 16. Promote peaceful and inclusive societies for sustainable Access to fossil fuel resources has historically been a cause for conflict and development, provide access to justice for all and build effective, global price volatility that leads to international instability among and accountable and inclusive institutions at all levels within countries. GOAL 17. Strengthen the means of implementation and revitalize Strengthening the means of implementation involves transfer of energy the Global Partnership for Sustainable Development technologies and capacity building for implementing SDG targets and indicators nationally. 4    S TAT E O F E L E C T RI CI TY ACCES S R EPO RT   |  2 0 1 7 BOX 1.2 Energy Consumption and Economic Growth Hypotheses GROWTH HYPOTHESIS: There is a unidirectional causal link from energy consumption to economic growth. An increase in energy consumption will have a positive impact on economic growth, while limited access to modern energy can limit economic growth. CONSERVATION HYPOTHESIS: There is a unidirectional causal link from economic growth to energy consumption. Economic growth will lead to increased energy consumption, while energy conservation policies (such as energy efficiency and demand management) will not adversely impact GDP growth. FEEDBACK HYPOTHESIS: There are bidirectional causal links between energy consumption and economic growth. Changes in energy consumption will have an effect on economic growth whilst changes in economic growth will impact the demand for energy. NEUTRALITY HYPOTHESIS: There is no causal link between energy consumption and economic growth. An increase or decrease in energy use will not affect economic growth and vice-versa. Source: CDC 2016. Studies investigating the effects of increased energy RELIABLE AND AFFORDABLE ENERGY infrastructure on GDP, show that the size of the power SERVICES CAN CONTRIBUTE TO sector determines the growth and level of GDP, while POVERTY REDUCTION increases in the quantity and quality of infrastructure were Lack of access to modern energy services is correlated to associated with a reduction in inequality. There is a gen- higher levels of poverty. Countries with the highest levels eral consensus that infrastructure is a key contributor to of poverty also tend to have lower access to modern economic growth . Calderón and Servén (2010) analyzed energy services. This is most pronounced in Sub-Saharan the effects of infrastructure (including power, telecommu- Africa and South Asia, where a large share of the popula- nications and roads) on GDP growth, and on income tion depends on traditional biomass for cooking and heat- inequality. Results showed that annual world growth rose ing and lacks access to electricity (Figure 1.1 ). by 1.6 percentage points due to infrastructure increase— There is a two-way causal relationship between the lack of which 1.1 percentage points were due to the accumu- of access to modern energy services and poverty, also lation of infrastructure stocks and 0.5 percentage points called the vicious cycle of energy poverty. People who lack to the increase in quality. The largest contribution was access to reliable and affordable modern energy services made by South Asia. On the other hand, Sub-Saharan are often trapped in a re-enforcing cycle of deprivation Africa experienced an increase of 0.7 percentage points, and lower income. Economic productivity (particularly in of which 1.2 percentage points were due to increasing the agricultural sector), opportunities for income genera- quantity, while falling quality was responsible for a 0.5 tion, and the ability to raise living standards are strongly percentage points reduction. The increase in infrastruc- affected by the lack of modern energy. Malnourishment ture development globally was related to a decline of 3 and low earnings contribute to the poor remaining poor, percentage points in the Gini coefficient, of which 2 per- and perpetuating the lack of access to modern energy centage points were due to quantity and 1 percentage (Karekezi et al. 2012). In addition, the poor use significant point was due to quality. amounts of their limited income on expensive and The existence of complementarities between different unhealthy energy forms that provide weak or unsafe ser- types of infrastructure leads to higher level of economic vices. Plus, low-income households spend a much larger output. Infrastructure should be examined as a whole in share of their income to cover basic energy needs than order to capture the existence of complementarities. For higher income groups (Hussain 2011; Masud 2007). Plus, example, the benefits resulting from electricity access in a the poor pay on average higher unit prices for energy ser- hospital would be greatly increased if such access is cou- vices (such as lighting, phone charging, heating, and cook- pled with availability of paved roads allowing patients to ing), as they often use poorly efficient fuels (like kerosene reach the hospital, availability of clean water and telecom- for lighting) or expensive electricity (like battery-based munication. Because of such complementarities, the link electricity or diesel generators), due to non-availability of between provision of reliable infrastructure and economic grid-based energy sources (like electricity and natural gas) output can be more easily demonstrated (Bacon and or unaffordable connection cost and related appliances. Kojima 2016). Finally, poor households tend to pay higher prices due to poorly efficient appliances, or poorly insulated houses for heating services. T H E CASE FOR UNIVERSAL ELECT RICIT Y A C C E SS    5  FIGURE 1.1 Africa and South Asia are the hardest hit Panel a: Access to electricity and poverty levels (Countries with access <99%) 100 Colombia Paraguay Vietnam Dominican Republic Ecuador Indonesia El Salvador Panama Peru 90 Bolivia Jamaica Mongolia Philippines Sri Lanka Honduras 80 % of population with electricity access in 2012 Bhutan 70 Lao PDR 60 Ghana 50 40 Haiti 30 Cambodia Guinea 20 Uganda Congo, Dem. Rep. 10 0 100 90 80 70 60 50 40 30 20 10 0 % of population living in poverty in 2012 Panel b: Access to non-solid cooking fuels1 and poverty levels (Countries with access < 50%) 100 Malaysia Venezuela Costa Rica Brazil Azerbaijan 90 Armenia Croatia Moldova % of population with access to non-solid cooling fuels in 2012 Panama Jamaica Colombia 80 Romania El Salvador Bolivia Thailand Kyrgyz Republic 70 Peru (with access below 50%) Bhutan 60 Paraguay Indonesia Honduras Georgia 50 Vietnam Philippines 40 Mongolia 30 Sri Lanka 20 Ghana Haiti Cambodia 10 Congo, Dem. Rep. Guinea Lao PDR Uganda 0 70 60 50 40 30 20 10 0 % of population living in poverty in 2012 1 Only primary cooking fuel is considered. Source: GTF 2015; World Development Indicators—Poverty headcount ratio at national poverty lines (% of population): 6    S TAT E O F E L E C T RI CI TY ACCES S R EPO RT   |  2 0 1 7 Fortunately, this vicious cycle can be reversed once the Employment opportunities can be enhanced poor are able to switch to reliable and affordable modern Similar to the relationship between energy consumption energy services. Access to modern energy services con- and economic growth, studies show a strong correlation tributes to creating employment, increasing trade, and between energy consumption and employment—nota- supporting value-adding activities—facilitating the accu- bly through higher household employment following mulation of “surpluses” or savings that will enhance nutri- electrification. However, results differ depending on tion and health, improve housing conditions, and facilitate gender. The majority of the studies show that household access to education, thus contributing to overcoming pov- employment increases only for women. In Nicaragua, erty (Karekezi et al. 2012). women are 23 percent more likely to work while there is Several studies estimating the benefits of electrification no change for men (Grogan and Sadanad 2013). Similar on households or small businesses suggest that electrifica- results can be found in rural Kwazulu-Natal in South tion results in an increase in household income, but the Africa (Dinkelman, 2011) and India (Khandker et al. magnitude varies considerably from country to country. 2012), although one study found the reverse situation for Access to modern energy services results in a wide range India (Van de Walle et al. 2013). Therefore, further analy- of benefits for households and small businesses (Khandker sis is needed to understand the different results (Bacon et al. 2013). Several studies have estimated the effects of and Kojima 2016). electrification on household income—or expenditure. In Five theoretical effects can link increased employment Bhutan, one study reported that farm income was unaf- and energy consumption: fected while non-farm income increased by 63 percent • Demographic effect: A rising population will have a (Kumar and Rauniyar, 2011) In India, a study found that greater demand for energy, while a greater number of non-farm income rose by 28 percent (Khandker et al. workers entering the work force may result in a higher 2012), while in Vietnam, a study showed an increase of 23 level of energy required. percent in total income (Khandker et al. 2013). Consump- tion levels also increased significantly in some studies. • Income effect: A growing economy that drives higher Interestingly, unconnected households in villages where levels of employment, leads to increased incomes, there is access to grid electricity exhibited higher con- which results in growing demand for goods and ser- sumption, although to a much smaller extent (1 percent) vices and thus to higher demand for energy. (van de Walle et al. 2013). • Price effect: External price shocks that affect energy However, recent studies show that the benefits of elec- sources (such as coal and oil) can have an impact on trification can be overestimated if the endogeneity of the economic growth and subsequently, on employment. electrification status of a household is ignored. The electri- fication status of a household may be endogenous—that • Substitution effect: Constraints in energy availability is, electrification does not only affect income but income can lead to substitution through increased labor and can also determine whether or not a household is electri- vice-versa. fied. Higher-income households are more willing to get a • Technological effect: The replacement of old energy connection as soon as the grid arrives (particularly if the technologies with new ones can enhance employment, connection fees are not fully subsidized), but also utilities the extent of which depends on a country’s level of prefer to provide electricity to higher-income communi- development (CDC 2016). ties. These effects lead to an overestimation of the effects of electrification on income, as demonstrated by alterna- Energy infrastructure projects are associated with job cre- tive estimation methods (such as instrumental variable (IV) ation through different channels, including direct, indirect, estimation, propensity score matching (PSM), and panel and induced effects, as well as supply effects. Energy infra- data analysis allowing for heterogeneity between house- structure investments create jobs through different chan- holds) (Bacon and Kojima 2016). nels. On one hand, jobs associated with construction, operation, and maintenance of infrastructure assets are created either directly by the developer or indirectly within HUMAN DEVELOPMENT CAN the supply chain or distribution network that are created as SIGNIFICANTLY BENEFIT FROM a result of the infrastructure asset (for example, a power ELECTRICITY SERVICES plant). Moreover, induced jobs can also emerge through In terms of human development, there seems to be a pos- additional rounds of effects (such as spending of workers), itive correlation between well-being and access to modern resulting in additional employment in other sectors that energy services. Access to modern energy services con- serve household consumption, thus creating a multiplier tributes to human well-being, poverty reduction, and eco- for further demand. On the other hand, second-order or nomic growth. Countries with the highest levels of poverty growth related jobs can be created throughout the econ- and unemployment also tend to be those with the lowest omy as energy constraints to economic growth are access to modern energy. There also seems to be a cor- removed (IFC 2013). In the case of rural Lao PDR, grid elec- relation between the level of human well-being (approxi- trification boosted household per capital incomes, house- mated by the Human Development Index [HDI]) and hold durable assets, and employment of household access to energy services (shown by the level of energy use members (see Box 1.3). per capita) (Figure 1.2). T H E CASE FOR UNIVERSAL ELECT RICIT Y A C C E SS    7  BOX 1.3 Grid Electrification Benefits in Rural Lao PDR Lao PDR experienced a rapid growth in electricity generation and connectivity over the last three decades. Electric power generation increased from 33MW to 2,000MW between 1975 and 2010, and household grid connectivity grew from 16 percent in 1995 to 46 percent in 2004 and to 77 percent in 2015. However, the transmission network has not been fully developed to provide power to all customers nationwide. As such, investments are required to strengthen the network. Two of the major donors that are assisting in the energy sector development are the Asian Development Bank (ADB) and the World Bank. The First Power Sector Policy of Lao PDR was formed in 1990 with multiple objectives that included making tariff affordable and promoting economic and social welfare. The Ministry of Energy and Mines has also been deploying its Power to the Poor (P2P) program to bring electricity to the poor, with a gender focus. Data for this study came from a household survey (September 2015-January 2016) by the World Bank’s Energy Sector Management Program (ESMAP) in 15 provinces, covering the country’s three rural geographic regions. Overall, 3,500 households (1,500 with grid and 2,000 without) were sampled from 200 villages (100 with grid electricity and 100 without). And there was a village survey in each of the survey communities on village infrastructure, development activities, and price alternate fuels. Key Findings KEROSENE CONSUMPTION: Kerosene consumption for lighting decreases by 0.33 liter per month as a result of grid connectivity. ECONOMIC OUTCOMES AND EMPLOYMENT: Grid electrification raises household per capita income by up to 38 percent and per capita expenditure by up to 7 percent. Household durable assets grow by 180 percent because of grid connection. And employment of household members experiences a substantial growth due to grid elec- trification—up to 53 percent for men and 37 percent for women. EXPOSURE TO ELECTRONIC MEDIA: Grid electrification increases listening to radio by household members by about 12 minutes per day, and watching of TV by almost 2 hours per day. Grid electrification also increases the use of mobile phone for conducting income-generating activities—by 9.7 percentage points. WOMEN’S TIME USE: Grid access increases women’s time spent in income generating activities by 43 minutes a day. Women in grid households also spend more time in entertainment and leisure than their counterpart women in non-grid households. EDUCATION: Grid connectivity increases study time in the evening by 30 minutes for boys and 19 minutes for girls. Grade completion by household members also improves as a result of grid electrification. For example, completion of secondary schooling increases by 3.6 percentage points for men and 3.4 percentage points for women because of grid electrification. In sum, about 25 percent of households in rural Lao PDR do not have a grid connection. So, expanding the grid to non-grid households may spread the benefits, unless geographic conditions are prohibitive. Grid connection has its own problems—namely, outages and blackouts—although these can be resolved by increasing genera- tion capacity, for which donor assistance may be required. Source: SEAR Impact Evaluation Forthcoming. Multiple health benefits can be achieved solid fuel use accounted for 3.5 million deaths and 111 In terms of health, air pollution is considered the greatest million disability-adjusted life years (DALYs) in 2010 (Lim energy-related health risk. Dirty fuels and inefficient tech- et al. 2012), and that the resulting outdoor air pollution nologies generate air pollution. Outdoor (ambient) and caused an estimated 370,000 deaths and 9.9 million indoor (household) air pollution are responsible for about DALYs (Chafe et al. 2014). 7 million premature deaths annually, making air pollution Fortunately, modern energy services can greatly one of the largest single causes of premature mortality reduce the burden of diseases associated with indoor air and morbidity worldwide. Women and children bear the pollution, burns, and poisonings. Sustainable use of clean heaviest burden, due to their high exposure (WHO 2014). cooking solutions would reduce the long-term exposure Studies that examined the global burden of disease to health-damaging pollutants created by open fires and caused by air pollution from household solid fuel use for traditional solid fuel cookstoves. These exposure reduc- cooking and heating, found that indoor air pollution from tions would decrease the burden from cardiovascular dis- 8    S TAT E O F E L E C T RI CI TY ACCES S R EPO RT   |  2 0 1 7 ease (ischaemic heart disease) and respiratory disease ism in many developing countries (Gaye 2007). By provid- (such as childhood pneumonia, chronic obstructive pul- ing quality lighting for comfortable night-time studying, monary disease, or lung cancer), as well as stroke. The access to electricity allow children to study longer in the risk for burns, scalds, and poisonings would also be evening (Mapako 2010), which can have a significant reduced. Increasing access to modern heating services impact on learning outcomes, while reducing risks to chil- and replacing polluting and dangerous kerosene lamps dren’s eyesight (WHO 2011). with electric lighting would yield similar results (IEA and Access to modern energy services in schools can World Bank 2015). improve learning and teaching experiences. Energy can Energy also offers multiple health benefits by ensuring contribute to improving basic amenities in schools (such as clean water provision and improving food quality and access to clean water, sanitation, lighting, space heating, nutrition. It can contribute to controlling waterborne dis- and cooling), thus creating a more child and teacher eases (such as diarrhea) through the provision of energy for friendly environment, which helps increase school atten- water pumping, and water treatment and purification. And dance and reduce dropout rates (Bacolod and Tobias it can improve food quality and nutrition through cooking 2006). Lighting allows schools to run in the evening to and refrigeration (IEA and World Bank 2015). (See SEAR’s accommodate more and better-sized classes, and facili- Special Feature Paper on Modern Energy Access and tates lesson preparation and administrative task for teach- Health on these linkages; Porcaro et al. 2017). ers. Students without adequate lighting at home may also Further, reliable energy access in health facilities can stay at school to complete homework. Electricity facilitates significantly enhance health care provision: access to information and communication technologies (ICTs), improving learning experience through audiovisual • Without energy, many life-saving interventions cannot teaching aids and equipment (such as projectors, comput- be undertaken, and essential medical devices and ers, and science equipment). Students can learn computer appliances for prevention, diagnosis, and treatment skills and teachers have more timely access to the latest cannot be powered. information. Distance learning and staff training become • Energy can provide lighting, power medical devices, possible, while administrative tasks are facilitated. Results and enable refrigeration for blood and vaccines. from the SEAR Impact Evaluation in Laos PDR show that grid electrification increased study time in the evening • Electricity access seems to have a notable impact on increases by up to 30 minutes for boys and 19 minutes for some key health service indicators, such as prolonging girls as shown by Box 1.3 (SEAR Impact Evaluation, Forth- nighttime service provision, attracting and retaining coming). Electrification benefits for educational outcomes skilled health workers (especially in rural areas), and are also evident from the solar home system program in providing faster emergency response, including for rural Bolivia. However, compared grid benefits, SHS bene- childbirth deliveries. Every day, some 800 women die fits seem smaller – SHS adoption in rural Bolivia increases worldwide from preventable causes related to preg- evening study time by up 8 minutes for boys and 6 minutes nancy and childbirth (SE4All, 2013). for girls. Moreover, the increase in study hours does not • Access to electricity in health facilities can increase the seem to be enough to influence other intermediate- to number of successful childbirth deliveries, especially at long-term educational outcomes (SEAR Impact Evaluation, night. Forthcoming). Access to electricity can also increase retention of qual- • Electricity access also enables mobile-health applica- ified teachers in rural areas. Rural electrification, particu- tions and facilitates public health education and infor- larly grid extensions to rural schools and teachers’ mation. residences, tends to have a positive impact on the reten- • Thermal energy is also critical for space and water heat- tion of teachers who are much sought in rural areas. Teach- ing, sterilizing medical equipment, and incinerating ers are more willing to relocate to rural schools when living medical waste safely (WHO and World Bank 2015). standards are higher as a result of improved access to elec- tricity (AllAfrica 2004; Cabraal et al. 2005; World Bank Education and learning can be improved 2008; Harsdorff and Peters 2010). Access to modern energy services in the household can Numerous studies have shown that electrification translate into increased time for education of rural children. increases time spent in schooling and on homework. In Rural children, especially girls, are often responsible for Bhutan, access to electricity resulted in an increase in the contributing to household chores, including collection of time spent in schooling by 0.54 year and in the time cooking fuels. One study found a strong association spent on homework by 10 minutes per day (Kumar and between the time children spends on resource collection Rauniyar 2011). In India, there were significant increases and a reduced likelihood of school attendance, especially in enrollment (6 percent for boys and 7 percent for girls), among girls (Nanhuni and Findes, 2003). Access to mod- study time at home (1.4 hours/week for boys and 1.6 ern energy solutions for cooking can reduce fuel collection hours/week for girls), and years of education completed times significantly, and can translate into increased time for (0.3 years for boys and 0.5 years for girls) (Khandker et al. education, encouraging school attendance and reducing 2012). In Vietnam, there were significant increases in the dropout rates (Mapako 2010; UNEP 2008). Also, studies completion rates for education for boys and girls (Khand- report that acute respiratory infections (ARIs), often caused ker et al. (2013)). There is variation among countries as to by indoor air pollution, are the principal cause of absentee- the magnitude of these effects and there is no direct evi- T H E CASE FOR UNIVERSAL ELECT RICIT Y A C C E SS    9  dence within these studies on how increased education the home more than men are, they are to benefit more leads to increased income (Bacon and Kojima 2016). from electricity. Availability of electricity in the household Anecdotal evidence also supports positive correlation enables women to use labor saving appliances. This may between electricity access and academic success, show- well have an impact on women’s time allocation as they ing higher completion rates and lower absenteeism in give up time-consuming drudgery and are engaged into newly electrified schools in Sudan, Tanzania, Kenya and more productive and satisfying activities. According to the Philippines (Goodwin 2013; Kirubi et al. 2009; Valerio SEAR Impact Evaluation findings (see Box 1.3), women in 2014). grid connected households in rural Lao PDR spend more time in income generating activities than their counterparts Women’s empowerment can be enhanced in non-grid households. More specifically, grid access In terms of women’s empowerment, access to affordable increases women’s time spent in income generating activi- modern energy services can reduce both time and effort ties by 43 minutes a day. Grid access also increases their spent in reproductive and productive labor. Women are time spent in entertainment and leisure. SHS adoption also particularly time poor, and the associated drudgery of affects same outcomes in rural Bolivia. For example, their tasks (particularly collecting firewood, fetching because of SHS, women spend up to 62 minutes more water, and processing food) is mainly fulfilled through daily in income generating activities. They also spend their own physical labor, which has implications for their more time in satisfying activities such as entertainment health and the well-being of their children and families. (SEAR Impact Evaluation, Forthcoming). Studies have shown that women, as well as girls, can have longer working days than men, particularly in rural areas, and carry (usually on their heads) more weight WHAT IS THE CARBON FOOTPRINT OF than men (Bardasi and Wodon 2006; Charmes 2006). UNIVERSAL ELECTRICITY ACCESS? Women may suffer skeletal damage from carrying heavy As for the environment, the link between energy and cli- loads, such as fuelwood and water (Waris and Antahal mate change is two-fold, and future impacts are challeng- 2014; WHO 2004.; Geere et al. 2010), and may also be ing to estimate. The energy system is a major contributor exposed to sexual and other forms of violence (Kasirye to climate change as it generates greenhouse gas (GHG) et. al 2009; MSF 2005). emissions through energy production and use, while cli- The good news is that empirical evidence suggests that mate change can disrupt the world’s energy system—as street lighting may reduce the risk of gender-based vio- extreme weather events, sea level rise, water availability lence, although social norms and values can take time to changes, and temperatures increase affect supply and adjust after new technologies are brought in (Doleac & demand of energy. It is particularly challenging to estimate Sanders, 2012). By increasing efficiency and productivity, future impacts of the energy sector on climate change, as better access improves well-being and frees up time for multiple factors are coming into play. leisure and rest. Time spent on fetching water can be The future impact of universal access on GHG emis- sharply reduced through piped water supply, often made sions will depend on the projected level of energy con- possible through fuel-based water pumps. The use of sumption and the expected energy mix of each country. modern cooking solutions can decrease time spent in col- Energy demand is mainly determined by population lecting fuelwood, while reducing indoor air pollution. growth, economic development, and energy efficiency. Access to electric labor-saving appliances, such as food Different tools and methods of a varying degree of com- processors or washing machines, further improves wom- plexity are used to estimate future energy demand (Bazil- en’s quality of life, and may create income-generating ian et al. 2012), making it challenging to compare results. opportunities (IEA and World Bank 2015). Nonetheless, as countries make progress toward achiev- Dissemination of off-grid access solutions can be an ing universal electricity access, the affected populations opportunity for both men and women, expanding eco- are expected to gradually come out of poverty—driving nomic activities for women, diversifying productive higher energy consumption not only in households but options, and creating new sources of wealth and income. also in the industrial and commercial sector. Future CO2 Besides being energy consumers, women can be import- emissions will also depend on the energy mix of each ant energy providers, expanding electricity access to poor country. The future energy supply system will be affected and hard-to-reach customers, individually and through by regulatory and policy efforts aimed at decarbonizing their networks. A growing number of energy enterprises the economy, with renewable energy and energy effi- have begun to employ women as sales representatives to ciency playing a key role. In 2015, the IEA estimated that reach low-income consumers at the base of the pyramid the world’s primary energy demand will increase by 45 with lighting and cooking solutions. Women help ensure percent to 2040 in the Current Policies Scenario, versus a that energy products reflect the priorities of women users, 32 percent increase in the New Policies Scenario and 12 increasing the likelihood of adoption and continued use percent in the 450 Scenario—in which 46 percent of pri- (Box 1.4) (CRT/N 2014; Hamakawa & et al. 2014; Johnson mary energy demand is met through low-carbon energy 2015; Smith 2015). SEAR’s Special Feature on Energy sources (IEA 2015c). Access and Gender: Getting the Balance Right provides a Several studies estimate that achieving universal elec- detailed discussion on energy access and women empow- tricity access by 2030 would only result in a negligible erment (Dutta et al. 2017). Access to modern energy is increase of CO2 emissions, as they project that energy very important to women. Since women are physically in demand of the affected population will remain low. 10    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 BOX 1.4 Solar Sisters and Solar Grannies—Women in the Solar Energy Sector In Africa, Solar Sister, a women-led social enterprise founded in have brought transforming clean energy access to over 700,000 2010, empowers women by recruiting, training and supporting people, and the model is further scaling up. them with a clean energy business opportunity. Solar Sister’s last In India, the Barefoot College in Rajasthan provides training to mile distribution network taps into the potential of women’s older women, most of whom are illiterate, to become solar engi- enterprise to eradicate energy poverty in some of the hardest to neers. This focus is a strategic choice, because these women are reach, energy poorest communities. Solar Sister is creating a embedded in their communities, and play a key role in household chain of local, female clean-energy entrepreneurs that sell and chores, including energy use. They also are less likely to leave deliver world-class solar and clean cookstoves solutions directly their village to work in the city—which would leave the commu- to their rural community’s doorsteps. In 2016, an independent nity without someone to maintain solar panels and lamps—as assessment by International Center for Research on Women occurs with the majority of young men. This social justice approach (ICRW) found multi-level impacts that extend to Solar Sister entre- offers the opportunity to older women, one of the most vulnera- preneurs, their families and communities. Entrepreneurs decrease ble social groups, to raise their social status and influence their their expenditures on kerosene, mobile charging and fuelwood community, thus defying the perceptions of their obsolescence. for cooking, saving on average $200 per year in reduced energy Following a six-month course at Barefoot College, Solar Grannies costs. Income from clean energy businesses allows women to understand how resistors and electrical devises function and can contribute to household earnings, gain confidence, financial handle controllers and advanced converters. Solar Grannies are independence, respect from their families and play a larger role in able to build solar lanterns, install solar panels and link them to decision-making power. Over 2,700 Solar Sister entrepreneurs batteries, and carry out repairs. Solar Sister Business Model: A Complete Value-Chain Innovation. Source: Solar Sister 2016 • In 2010, the IEA estimated that to achieve universal • Pachauri et al. (2012) estimate that the climate impacts access to modern energy services by 2030, global elec- of achieving universal energy access are negligible or tricity generation would be 2.9 percent higher com- might even be negative, even in the case where access pared to the New Policies Scenario (NPS), while oil is provided entirely from fossil fuel sources. This would demand would rise less than 1 percent. As a result, occur because transitioning to modern energy ser- CO2 emissions would be 0.8 higher compared to the vices will displace large quantities of traditional bio- NPS—or around 2 percent of 2010 OECD emissions mass use for cooking and kerosene for lighting, thus (IEA 2010). Although the energy mix used in these pro- improving energy efficiency overall. Nonetheless, the jections is the one of the 450 scenario, these results are study assumes 420kWh of yearly electricity consump- also based on IEA’s assumptions about minimum levels tion per household. of electricity consumption of 250kWh/year for rural households and 500kWh/year for urban households. T H E CASE FOR UNIVERSAL ELECT RICIT Y A C C E SS    11  • The World Development Report (WDR) 2010 states resulting from energy production and use (as emphasized that “increasing access to electricity services and by the agreement reached in the 21st Conference of the clean cooking fuels in many low- income developing Parties of the UNFCCC in Paris in December 2015). countries, particularly in South Asia and Sub- Saharan The challenge is to provide reliable and affordable Africa, would add less than 2 percent to global CO2 energy services for economic development without com- emissions” by 2050 (World Bank 2010). Such esti- promising the climate. Low carbon energy options can mates are based on 170kWh of yearly electricity con- improve energy security by reducing price volatility or sumption per capita. exposure to energy supply disruptions. Such options can also be the least-cost solution for rural electrification in cer- • Chakravarty and Tavoni (2013) show that a global tain areas. However fossil fuels, coal in particular, can pro- energy poverty reduction policy aimed at providing vide a low-cost and secure energy source in many cases 10GJ of energy per capita per year to the global poor (World Bank 2010). would increase energy demand by 7 percent by 2030, It is crucial to include externalities into decision-making and the impacts on climate change will be very small, process of power system planning. Decision-making pro- even with a carbon-intensive energy infrastructure. cesses that focus primarily on expanding energy access Nonetheless, the assumption is that yearly total energy but disregarding externalities run the risk of facing higher consumption per capita would correspond to 750 kWh costs in the future—especially in the case of large, long- and 150 kg of oil, is considered sufficient to ensure lived, and high-emission capital stock (such as coal-fired productive uses of energy. power plants) (Bazilian et al. 2011). Externalities may be However, as people come out of poverty, they will tend both positive (such as contribution of secure energy sup- to consume higher levels of energy, closer to those of plies to welfare and economic development) and negative the developed world. As households come out of pov- (such as CO2 emissions and other adverse environmental erty and enter the middle class, they are likely to pur- impacts). The costs and benefits of these externalities may chase for the first time energy-consuming assets, such as outweigh the direct costs of building and operating spe- vehicles and household appliances (Wolfram et al. 2012). cific energy technologies, but are very difficult to value. Energy is needed to manufacture and use these new Power system planning should use advanced analytical assets, driving energy demand in the industrial and com- tools to evaluate externalities and show the trade-offs mercial sectors as well. Per-capita energy use differs dra- among risks to better inform the decision-making process. matically across countries with different income levels. In (For more, see SEAR’s Special Feature Paper on The Cli- 2010, the average residential yearly consumption of mate Change and Energy Access Nexus; Akbar et al. electricity per capita was 2,652 kWh in high-income 2017). countries, 378 kWh in middle-income countries, and 179 kWh in low-income countries (World Bank 2013). Assum- ing that the 1.1 billion people that lack electricity access CONCLUSION in 2012, will consume low levels of electricity by 2030, This chapter has shown that energy is catalytic for achiev- implies that they will remain impoverished (Bazilian and ing the SDGs. It has also shown that ensuring universal Pielke 2013). access to affordable and reliable modern energy services Energy demand forecasts are critical for future plan- can contribute to increasing economic growth, reducing ning. Models estimating future energy demand in devel- poverty, and improving well-being—while promoting oping countries should consider the process by which human development, supporting health, education, poor consumers move into the middle-class, to be able to employment, and women’s empowerment. For those rea- quantify the implications of poverty reduction on future sons, it is essential that the international community take energy consumption and related CO2 emissions (Wolfram steps urgently to make such access happen as quickly as et al. 2012). Energy forecasts should not understate the possible throughout the world. degree to which the distribution of economic growth How can this be done? It is critical that planning for affects energy demand, as they may undermine the universal access be an integral part of national planning achievement of the SDGs. Energy demand forecasts are efforts to achieve the SDGs. And as much as possible, critical for future planning. In fact, ,underestimating future electricity access interventions should be innovative and energy demand is likely to result in a misinterpretation of designed in a way that they reflect their eventual catalytic the scale of the challenge (Bazilian et al. 2012) and lead to nature within context. Moreover, dealing with the chal- inadequate policies and technologies (Bazilian and Pielke lenge of universal electricity access in a context of increas- 2013; Wolfram et al. 2012). ing awareness of climate change impacts offers an A joint solution is needed to resolve the energy access opportunity for countries to explore innovative pathways and climate change issues. On one hand, there is an imme- to develop sustainable and resilient communities diate requirement to provide reliable and affordable energy to a large population without access, and facilitate economic expansion of emerging economies. But on the other hand, there is a pressing need to limit global warm- ing to an average level of increase of 2°C relative to pre-in- dustrial levels—which implies deep cuts in emissions 12    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 REFERENCES Adelman, J. 2012. “China, India Lack Water for Coal Plant Chakravarty S., and M. 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Lack of electricity access is predominant in rural areas of Sub-Saharan Africa and South Asia, with 20 countries accounting for 80 percent of the global access deficit in 2014. • Latin America and the Caribbean, East Asia, and South Asia will be able to reach universal access to electricity by 2030—assuming conditions of constant growth in electricity, constant growth in population, and no major changes in political willingness or better access to financial investments. • However, there would still be several countries—mainly in Sub-Saharan Africa—with a significant percentage of their population without access to modern energy services by 2030 if urgent measures are not taken to reverse course. • New methodologies to measure electricity access are needed to better spell out exactly where countries stand on the level of energy services to help guide policies and interventions. INTRODUCTION W hat is the status of electricity access? In 2011, the global progress toward the three SE4All objectives (IEA international community launched the Sustain- and World Bank 2017). It then explores how four countries able Energy for All (SE4ALL) initiative, which calls (Morocco, Bangladesh, India, and China) have managed to for (i) universal access to modern energy services; (ii) double secure huge increases in access between 2000 and 2014. the global rate of improvement in energy efficiency; and (iii) And it finishes with a description of efforts to improve how double the share of renewable energy in the global energy. electricity access is measured—focusing on the Multi-Tier Yet despite significant progress in recent decades, achiev- Framework (MTF), which was developed under the ing universal access to modern energy services by 2030 will umbrella of SE4ALL (World Bank 2017)—which would help not be possible without stepped-up efforts. policymakers and other stakeholders track their efforts. In 2014, two out of ten people in the world still lacked electricity access (IEA and World Bank 2017). Although the SNAPSHOT OF ACCESS TO ELECTRICITY global electricity access deficit has declined since 2000, IN 2014 still 15 percent of the world population do not have elec- tricity. Moreover, these numbers may misrepresent the Global Access to Electricity: As of 2014, 1.06 billion peo- scale of the challenge, as they reflect a simplistic definition ple still lived without access to electricity—about three of electricity access that hides several issues—quality, reli- times the population of the United States (Figure 2.1). The ability, affordability, and duration. electrification rate stands globally at 85 percent, with 96 This chapter tries to shed more light on where the percent in urban areas and 73 percent in rural areas (IEA global community stands now on universal access to elec- and World Bank 2017). tricity (measured in a binary way—that is, having, or not having, an electricity connection) and what remains to be Regional breakdown on access to electricity in 2014: On done to reach the SDG7.1 target: “By 2030, ensure univer- a regional basis, the electricity access deficit is overwhelm- sal access to affordable, reliable and modern energy ser- ingly concentrated in Sub-Saharan Africa (57 percent of vices.” It begins with a snapshot of the status and trends of global access deficit—609 million people—six out of ten— electricity access, as presented in the Global Tracking do not have access to electricity) and South Asia (32 per- Framework (GTF), which identifies indicators for tracking cent—343 million people do not have access to electricity)   17  18    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 FIGURE 2.1 Africa and South Asia have the BEYOND THE NUMBERS largest electricity access deficits Between 2000 and 2014, Morocco and Bangladesh were among the fastest growers in terms of improving the electri- Electricity Access Deficit 2014 fication access rate (Figure 2.5), and India and China were Others 3% East Asia & among the countries with the highest number of electrified Pacific 7% people per year. Their stories show a variety of approaches (bottom-up versus top-down) and mixes of technologies (on and off-grid). Morocco Utility-led Rural Electrification Program South In 1990, 49 percent of Morocco’s population had access to Asia 32% electricity, but by 2014, that rate was up to 100 percent— the highest increase in the electricity access rate during that Sub-Saharan period for any country in the world. As a result, 20 million Africa 57% people obtained access, thanks to a utility-led rural electrifi- cation program. The big push began in 1996, when the government Source: Data from IEA and World Bank 2017. launched the Global Rural Electrification Program (known as PERG), with the national utility (Office National De l’Electricité [ONE]) responsible for implementation. The program was aimed at providing electricity access to all rural households, using least-cost technologies. The ONE (Figure 2.1). Electrification rate varies widely across regions: prepared a Rural Electrification Master Plan to determine 37.6 percent in Sub-Saharan Africa, 80 percent in South the total investment required to reach 34,000 villages. Asia, and near-universal access in all the other regions. Data was collected to establish a database of demo- graphic, social, economic, and administrative details for Top 20 access deficit countries: At the country level, each village, and get a geographical picture of the existing India alone has a little less than one-third of the global electricity supply networks (George 2002). Although most deficit (270 million), followed by Nigeria (75 million), and villages were connected to the central grid, decentralized Ethiopia (71 million) (Figure 2.2)—and the 20 highest electrification systems were also installed to help meet access-deficit countries alone account for 80 percent of local demand at least cost (IsDB 2013). Funding came from the global deficit. The access deficit is overwhelmingly local communities (20 percent of the connection cost), rural, at about 87 percent. beneficiary households (about 25 percent), and the ONE (about 55 percent)—and local communities and benefi- Trends in Access to Electricity ciary households were allowed to pay off charges over five Global Trends: Between 2000 and 2014, there were to seven years. Pre-paid meters were also provided to help advances in electrification, with the global electricity deficit consumers monitor consumption and facilitate payment declining from 1.3 billion to 1.06 billion. At the same time, (IsDB 2013; George 2002). the global electrification rate rose from 77.7 percent to 85.5 Three main principles contributed to the rapid rural percent—covering additional 1.4 billion people (Figure 2.3), electrification in Morocco: (i) a clear vision and a continuing mostly in urban areas. political commitment to follow the plan; (ii) an institutional Progress with rural electrification is evident since 2000, framework leveraging the strength of the utility and includ- rising from 63 to 73 percent of the rural population in 2014 ing national and international actors; and (iii) a financing adding access to 4oo million people in rural areas. Urban model that included all stakeholders, including interna- areas across the world are already close to universal access tional financial institutions (Nygaard and Dafrallah 2016). at 97 percent. Although urban access rates have increased Also important was the high level of urban electrification relatively little in the last 25 years, this remains a major that allowed cross-subsidization from urban consumers achievement considering the rapid urbanization that has and Morocco’s high GDP (compared to Sub-Saharan Africa brought an additional 1.6 billion people into the world’s countries). cities during this period (see Box 2.1). Major challenges are in both rural and urban areas. Bangladesh Solar Home System Program Between 2000 and 2014, Bangladesh increased the level Regional Trends: Among the regions, improvement in of electrical access from 32 percent of the population to 62 access to electricity in the period 2000–14 has been remark- percent—an additional 57 million people (IEA and World able in South Asia (rising from 57.2 to 80 percent), South Bank 2017)—driven by a national off-grid electrification Asia (from 57.2 to 80 percent), and Middle East and North program that provided technical and financing solutions Africa (from 90.9 to 97 percent). Trends in population lack- for users (Sadeque et al. 2014). Rural electrification was ing access to electricity is negative for Sub-Saharan Africa, initially led by cooperatives that managed commercial where 609 million people still do not have access to elec- operation of grid-based electricity supply, financed by the tricity services. (Figure 2.4) T H E STAT US OF ENERGY A C C E SS    19  FIGURE 2.2 India has the world’s largest energy deficits FIGURE 2.3: Electrification rising, especially in (Top 20 countries for access deficit in electricity, 2014) urban areas (Trend in population with access for total, urban and rural Access deficit, 2014 population 2000–2014) India Nigeria 7,000 Ethiopia Congo, Dem. Rep. 6,000 Bangladesh Tanzania Uganda 5,000 Kenya Myanmar 4,000 Sudan Mozambique 3,000 Madagascar Korea, Dem. People’s Rep. Angola 2,000 Niger Malawi 1,000 Burkina Faso Chad Mali 0 South Sudan 2000 2002 2004 2006 2008 2010 2012 2014 0 50 100 150 200 250 300 Total Urban Rural Source: IEA and World Bank 2017 Note: These countries account for more than 81 percent of the global access deficit. FIGURE 2.4: Sub-Saharan Africa unable to keep up with population growth for electricity access (Trends in population lacking access to electricity, 2000-2014) Population (million) 700 600 500 400 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 East Asia & Pacific Latin America & Caribbean South Asia Sub-Saharan Africa Source: Data from IEA and World Bank 2017 20    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 BOX 2.1 Access Challenges in Urban Slums UN-Habitat estimates that the number of people living in the slums and appliances dropped in prices, electricity companies found that of the world’s developing regions stands at 863 million and is they were unable to afford their government’s beneficence at the expected to increase to 2 billion by 2030 (UN Habitat, 2014). In expense of paying customers. Low-cost efforts to regularize slums Sub-Saharan Africa, about 60 percent of the total urban population and stem the mounting losses began with mixed results. Fixed lives in slums, and in Asia, about 30 percent, with most of the pro- price services failed when the regularized customers failed to pay. jected increase going to come from Sub Saharan Africa. At the Load limiters were bypassed. Monthly billing was difficult to collect country level, India and Nigeria alone are expected to add 404 and failed as well. million and 212 million people, respectively, to their urban popula- By the turn of the century, urbanization was on a roll, and tions, between 2014 and 2050. Even the Democratic Republic of non-technical losses to electricity companies had mounted some- Congo, Ethiopia, Tanzania, Bangladesh, Indonesia, and Pakistan times as high as 30 percent of served electricity (of which informal are projected to increase their urban population by more than 50 communities often contributed a major portion). Simultaneously, million each. governments were reforming their electricity sectors, often privatiz- In some countries, such as Brazil, Pakistan, and Kenya, there are ing them, and creating regulatory bodies to manage the electricity already more children growing up in slums than non-slums. UN sector in order to reduce the costs that governments had formerly Habitat State of the Cities Report 2012/2013 shows a graphic of borne and passed on to taxpayers. Performance contracts (or par- the proportion of persons in cities without electricity. On a global tial privatization which brought some business rigor to otherwise level it is around 10 percent or by simple math 200 million persons. lackadaisical management) were instituted to spur efficient prac- In Africa, the proportion without electricity in cities is more than 70 tices, and limits were placed on the return that companies could percent. The backstory is that many of expect from billed customers. these light their homes with unsafe, FIGURE B.2.1 Infrastructure coverage by region By 2004, a number of companies had stolen electricity, or worse, with can- Percentage of urban population with electricity managed through pilots and trial-and-er- dles and kerosene. ror to start turning around the losses. Rec- 100 As electrification expanded across ognizing that informal communities and developing countries in the 20th cen- 90 residents were far more marginal than tury, slum electrification began as a way 80 areas where development had been to provide electricity in informal urban 70 controlled, they adjusted their service and peri-urban areas to make them approach to the realities of such areas. 60 safer (from fires), healthier and more liv- Also in 2004, USAID began documenting able. Often service was provided free 50 these successes in Brazil (COELBA, or at very low prices (below cost) as 40 LIGHT), India (Ahmedabad Electricity social support. Few could afford more 30 Company), South Africa (PN Energy), and than a than a lightbulb at that time. the Philippines (MERALCO). In 2005, 20 But as slums grew rapidly and more USAID and the World Bank co-sponsored structures were connected (sometimes 10 a slum electrification workshop in Brazil, by on-selling and/or illegal connection) 0 inviting these successful companies and Africa Asia LAC Developing World countries FIGURE 2.5  Morocco and Bangladesh are among the fastest Rural Electrification Board. But by the early 2000s, the growers in access to electricity pace of electrification was not fast enough (despite (Incremental percentage point in access to electricity, 2000-2014) 400,000–500,000 connections per year), costs were in- creasing, and insufficient generation resulted in frequent Annual growth rate 1990–2014 (%) power outages. Micronesia, Fed. Sts. 1.8 In 2003, in an effort to find a more cost-effective solu- Morocco 1.9 tion for remote households—one that complemented grid Cape Verde 2.0 extensions—Bangladesh’s solar home system (SHS) pro- Botswana 2.1 gram was initiated, providing electricity to 3 million rural Kiribati 2.1 households by 2013 (Figure 2.6). At the same time, 1.3 Congo, Rep. 2.1 million households received grid electricity through coop- Ghana 2.3 eratives. The SHS program opted for the ownership 2.3 approach, leveraging the strong presence of microfinance Bangladesh institutions (MFIs), which were mostly NGOs, in rural areas. Comoros 2.3 The MFIs were responsible for all aspects of the SHS busi- Lao PDR 2.7 ness (technical, commercial, and financial) and led pay- Source: Data from IEA and World Bank 2017 T H E STAT US OF ENERGY A C C E SS    21  governments, interested electricity companies, and NGOs to share • Making payment more convenient and affordable (prepayment, their experiences. The response was so good that a second confer- electronic payment, social tariffs, on-the-spot bill collection, etc.). ence was held in 2007, vastly widening the number and geographic • Investing in a community’s basic needs (such as street and secu- coverage of the cases where lessons learned from slum electrifica- rity lighting, and electrifying essential facilities like shared tion were applied. latrines). UN Habitat, the World Bank’s African Electrification Initiative and Energy Sector Management Assistance Program began pro- • Investing in the communities’ futures (such as pairing up with moting and disseminating these lessons. South-south exchanges water, sewer, roads, and housing improvement efforts). brought experts to work with utilities to understand how to design • A technological approach that makes theft harder and reduces and implement successful slum electrification programs. Case stud- risks from electrocution. ies on India’s TPDDL, LIGHT (Brazil), EPM (Colombia), AES (Brazil), and Kenya Power (KP) were produced. The World Bank’s GPOBA’s The results are in all cases highly encouraging, with millions con- support was instrumental in getting KP to launch its program, but nected legally while losses dropped dramatically and revenues lackluster results were turned around only after exchanges with increased commensurately. Productive uses tended to increase India, Brazil, EPM, ESKOM, and LIGHT helped KP confront the over time with improving economic conditions, and customers are extreme problems it had encountered in its cartel-controlled slums better able to afford electricity, while company and government in Nairobi. images improved. With these lessons, it is now possible to lay out a process with Maintaining the good results of initial pilots when the numbers elements that can help an electricity company turn around its losses of regularizations reaches hundreds of thousands is an ongoing in informal urban areas and to keep them under control going for- challenge. Continuing support from the other service providers and ward. Essential elements include: government brings informal areas up to basic needs and helps electricity companies do their job in an improved environment that • Strong top management buy-in and support. creates a receptive community and empowered new “citizens” • A program management “ownership” approach that puts while reducing the lure of illegal service providers and activities. responsibility on regional managers for success in their region’s As those with stolen electricity are converted to legal connections, slums and responsibility for materials and labor support to cover electricity use goes down to users’ “affordable” level, and electric- an area comprehensively to avoid falling back into a theft ity is used more efficiently. This in turn frees up electricity for others. mode,. In cases studied, such as that of India’s Tata Power Delhi Distribu- tion Limited, the savings are on the order of 40 to 50 percent of the • Effective communication with, and engagement of ,the commu- electricity formerly used. The investment in regularization of elec- nities—in part by locating personnel in the communities, using tricity use in slums thus brings multiple advantages to society, other community leaders to communicate within their entourage, and electricity users, and those living in slums. employing youth for surveys and when infrastructure works are being implemented. Source: ESMAP Urban Poor Program ment collection, maintenance provision, and customer preferred to keep their solar system, given the electricity training. The government-owned implementing agency, grid’s unreliability. Initial subsidies were phased out as IDCOL, provided training in technology, supplier-selec- rural household income increased, and unit cost was tion, and after-sales services. It also offered refinancing at reduced thanks to economies of scale, PV panel price a 6-9 percent interest rate over a 5-7 year repayment reduction, and efficiency improvements. Only a modest period, once installation was verified. subsidy was kept for small systems designed for the poor- The SHSs were made affordable to households through est households. a combination of consumer credit and decreasing subsi- Some aspects of the Bangladeshi SHS program may be dies. Eligible customers were offered microfinance loans, applicable to other off-grid electrification initiatives. They with a 10–15 percent down payment and an interest rate include: (i) strong pre-existing network of competitive MFIs of 12–15 percent over a 2–3 year repayment period. Dif- with deep reach in rural areas; (ii) an entrepreneurial cul- ferent system sizes were available to match users’ energy ture; (iii) high density of the rural population, which fos- needs and willingness to pay. A buy-back guarantee gave tered competition and economies of scale; (iv) rising rural customers an option to sell their system back at a depre- incomes (boosted by remittances from abroad), which ciated price if the household obtained a grid connection stimulated demand; (v) competent implementing agency within a year of purchase—although most customers have with strong management and promotion capacity; (vi) tech- 22    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 FIGURE 2.6 Bangladesh’s successful solar home system program (systems installed each year) 900,000 852,388 Smaller LED Subsidy eliminated 800,000 systems except for systems introduced under 30 Wp 700,000 Buy-back 643,812 scheme 1 million 600,000 introduced solar home systems installed by 500,000 First target 469,572 mid-2011 50,000 Start of reached 400,000 IDCOL Program 324,775 300,000 200,000 169,916 172,761 103,301 100,000 69,562 20,635 27,579 37,151 11,697 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Sadeque et al. 2014 nical and financing solutions tailored to the population’s ticularly in the past decade, to increasing electricity access ability to pay; and (vii) adequate consumer awareness and (Banerjee et al. 2015). In 2005, it launched the India’s rural confidence, which was fostered through comprehensive electrification program, the Rajiv Gandhi Grameen Vidyuti- media campaigns and an emphasis on quality assurance. karan Yojana (RGGVY), with the aim of electrifying all vil- lages and habitations with more than 100 people, installing India’s Energy Sector Reforms and Rural small generators and distribution networks where grid Electrification Program extension is not considered cost-effective, and providing In the period 2000-14, India more than halved the num- free electricity connections to households below the pov- ber of people without access to electricity (from 422 to erty line (Banerjee et al. 2015). This program is comple- 264 people without access)(IEA and World Bank 2017). In mented by the Remote Village Electrification (RVE) 2014, India’s electrification rate reached 79.6 percent, up program, which is being implemented by the Ministry of from 60 percent in 2000—with 70 percent of the newly New and Renewable Energy (MNRE). electrified population resided in rural areas, reflecting In 2014, around 264 million people, or 20 percent of both the country’s focus on rural electrification and the India’s population, remain without access to electricity. In relative saturation already achieved in urban areas. By urban areas, electrification rates are much higher than else- 2012, the national electricity grid reached 92 percent of where, but the quality of service remains very uneven, India’s rural villages, corresponding to about 880 million especially in large peri-urban slum areas (IEA 2015a). The people. (Banerjee et al. 2015). Between 2000 and 2014 sustainability of the RGGVY program is challenged by alone, 400 million people gained access—the biggest underfinanced and unreliable infrastructure providing elec- absolute increase globally. tricity to the village lines, along with an insufficient revenue The energy sector reforms were initiated in the early stream from rural households to secure a financially sus- 1990s, with the unbundling of the State Electricity Boards— tainable electricity distribution system. Exacerbating mat- aimed at forming separate companies for various opera- ters is the difficulty of pricing electricity appropriately while tions (such as generation, transmission, and distribution) ensuring household affordability. Thus, solutions are need- and privatizing the distribution companies. In the late ed to expand electricity access in financially responsible 1990s, central and state level regulators were introduced. ways that encourage investment in the operation and In 2003, the new Electricity Act, which facilitated an influx maintenance of rural systems to minimize supply shortages of private capital into the sector, was implemented to (Banerjee et al. 2015). enhance competition in the distribution sector to ensure an adequate quantity and quality of electricity supply China’s Bottom-up Approach to Electrification (Krishnaswamy 2010). Over the past 50 years, China has succeeded in providing Historically, India’s rural electrification policies have access to electricity to 900 million people—with 165 mil- shifted from line extension to villages in the 1950s, to agri- lion people gaining access between 2000 and 2014 (IEA cultural production in the 1960s and 1970s, to rural devel- and World Bank 2017). The big push began in 1979, driven opment in the 1990s, and, in 2000, to access for the poor. by economic reforms in rural areas (Peng and Pan 2006), The government has emphasized electrification in its and by 1997, the country was providing electricity to over national policies, and allocated substantial resources, par- 95 percent of households (Yang 2003). Electricity access T H E STAT US OF ENERGY A C C E SS    23  increased further, reaching 99 percent in 2009, driven by out electricity in 2030—increasingly concentrated in the modernization of rural infrastructure and the harmoni- sub-Saharan Africa, which will have around 80 percent of zation of rural/urban consumer tariffs. As a result, in 2009, the global total at that time (IEA and World Bank 2017). the deficit was down to 8 million people, out of a total Yet universal access to modern energy services is still population of 1.3 billion (Bhattacharyya and Ohiare 2012). some distance away and will require that countries expand Nonetheless, rural electricity consumption per capita in access more rapidly than demographic growth. Universal 2008 was just 30 percent of China’s average electricity con- access to electricity requires an even higher annual pace of sumption, suggesting that the rural electricity market has growth of 161 million people from 2014 through 2030. not reached saturation. Although the access deficit in 2014 was overwhelmingly China has relied on a bottom-up approach to electrifi- rural, the forecast population increment is almost entirely cation, with local administration responsible for the local urban (Box 2.1) (IEA and World Bank 2017). solution. Each county created a rural electrification com- At the regional level, Latin America and Caribbean, mittee (led by the county governor), which made decisions East Asia, and South Asia will be able to reach universal on rural electrification investments and operation, while access to electricity by 2030, assuming conditions of con- overall program planning was kept at the central level. stant growth in electricity, constant growth in population, The solutions have involved a mix of grid extension and no major changes in political willingness and financial and off-grid options—with rural electrification relying on investments to increase access (Figure 2.8). However, three modes of delivery: local grids, central grid, and a Sub-Saharan Africa is falling behind—currently growing at hybrid system (Pan et al. 2006). Although the central grid 5.4 percent annually, against the needed 8.4 percent annu- remained the main mode of supply, local grids played a ally to reach universal access by 2030. key role in areas with large hydro potential, with county The last figures published by the IEA (IEA, 2011) on water bureaus or small hydropower companies, responsi- comparable estimates of current financing trends and ble for electricity supply. Incentives targeting small hydro- future investment needs for achieving universal access to power, such as a reduced VAT rate and state investment electricity provided a high-level estimate of investment funds, also helped. Stand-alone systems were dissemi- needs of $45 billion a year, against actual investment flows nated through distribution companies that procure major at that time of an estimated $9 billion a year. components from manufacturers directly, small assembly The World Bank’s Access Investment Model provides shops selling directly to installers, and retailers selling rather detailed bottom-up estimates of the cost of reach- directly to end users (ESMAP 2000). Technological flexi- ing universal access in each of 15 countries with large bility has allowed local resource utilization and avoided electricity access deficits. They reflect differences in pop- the highest-cost options for difficult locations. ulation and geography across countries as well as local China has electrified remote areas through a phased unit costs, and can be extrapolated to give a global esti- approach, based on pilot projects and capacity building. In mate of access investment needs (IEA and World Bank, 1996, the Brightness Program started with pilot projects, installing over 5,500 SHS, and over 500 wind and solar hybrid systems at a cost of $50 million (Shyu 2010). In 2002, the Township Electrification Program was launched to scale-up pilot projects to extend electricity access to FIGURE 2.7 Access falls short of the pace to meet the over 1,000 townships in 11 western provinces (Shyu 2010). 2030 target It relied on 13 system integrators, chosen through a com- 1.0 petitive bidding process, who designed, procured and installed the systems, while the service companies were Additional progress required due to lag 0.1 responsible for operation and maintenance. By 2005, over since 2010: +0.1 840,000 people had gained access to electricity (Bhat- 0.8 tacharyya and Ohiare 2012). 0.6 FUTURE OUTLOOK OF ELECTRICITY ACCESS 0.82 The outlook for access to electricity shows that the world is 0.4 0.69 far from being on track to meeting the SE4All goal of univer- sal access to modern energy by 2030 (Figure 2.7). When the 0.51 2030 Sustainable Energy for All objective of universal access 0.2 was announced, it was estimated that the global rate of access to electricity would need to increase by 0.8 percent- 0.19 age points each year throughout 2010–30. But because 0.0 progress has fallen consistently short of this rate since 2010, 1990–2010 2010–2012 2012–2014 2014–2030 efforts in the remaining years need to be stepped up to 0.9 Historical Target rate percentage points. reference period Under the IEA’s latest World Energy Outlook New Poli- cies Scenario, around 780 million people will remain with- Source: IEA and World Bank 2017 24    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 FIGURE 2.8 Latin America and Asia on target for electricity universal and main grid connections), based on the performance of electricity access by 2030 each solution in terms of quantity and quality of electricity supplied. That is why the multi-tier framework (MTF) for 10 measuring electricity access was recently developed in 8.4% partnership with a large number of stakeholders, under the 8 umbrella of SE4ALL. It measures access across five tiers (zero being the lowest and five being the highest) and eight attributes (capacity, availability, reliability, quality, 6 5.4% affordability, legality, convenience, and health and safety), encompassing all energy sources used within households, 4.0% productive uses of energy, and community facilities. Based 4 2.7% on the combination of multiple attributes of energy supply, higher tiers feature progressively higher performance, as 2 1.7% 1.2% 1.3% the energy supply accommodates an increasing number of 0.9% energy applications, or delivers improved user experience 0 (World Bank 2015). East Asia & Pacific Latin America & South Asia Sub-Saharan For policymaking and investment decisions, the Caribbean Africa advantages of the MTF are many: (i) it provides more Electricity growth rate 2000–2014 Projected rate 2014–2030 accurate data on the actual level of services that end users receive, and tracks progress in providing access to reli- Source: Data from IEA and World Bank 2017. able, affordable, and modern energy services at both Note: The estimates assume conditions of constant growth in electricity, constant growth in national and program levels; (ii) it enables a detailed population, and no major changes in political willingness and financial investments to increase analysis of current energy usage and provides other rele- access. vant supply and demand data for both electricity and clean cooking; and (iii) it provides more granular and dis- aggregated data, which facilitates targeted interventions that could move users to higher tiers. As a result, it will be possible to determine the key reasons holding back the 2015). The model, based on the Multi-Tier Framework country from achieving higher tier levels. It can also track (World Bank, 2015) allows users to choose the tier of contributions to access from upstream investments, such access that would be used to meet the universal access as generation and transmission. And it allows setting target, and illustrates how dramatically this affects the country-specific realistic targets for universal access, costs of electrification. Reaching universal access at Tier 1 which account for a country’s initial conditions and the (enough to light a few light bulbs and charge a mobile timeframe for achieving targets. telephone) would require investments of $1.5 billion Take the case of a country that has still needs to sharply annually up to 2030. By contrast, reaching universal step up access to electricity, as illustrated in Figure 2.9. access at Tier 5 (full 24x7 grid power) would require A binary approach would show that about 40 percent of investments of $50 billion annually. the population lacks access to electricity, while 60 percent has it. But the MTF may show a different electricity access level—either higher (if the binary indicator does not GETTING BETTER MEASURES OF account for off-grid solutions) or lower (if grid-connected ELECTRICITY ACCESS households are not receiving a minimum number of hours Currently, electricity access is defined and measured with of supply to qualify for Tier 1, which would be at least 4 binary indicators—that is, yes or no on “having a household hours a day and at least one hour in the evening). It also electrical connection,” “using electricity for lighting,” or sheds light on the key reasons holding the country back “cooking with non-solid fuels” (World Bank and IEA 2013). from achieving higher tier levels. For example, a large This approach was a reasonable first effort on balancing the number of grid-connected households could be moved ideal metric that best captures progress in the energy sector from Tier 0-2 to Tiers 3–5 if the duration of service, espe- with the constraints posed by the need to use data, and it is cially in the evening, could be increased. the one that was used in the SE4ALL GTF reports released Since 2012, the MTF approach has been piloted in sev- in 2013 and 2015 (World Bank and IEA 2013; World Bank eral areas (for example, Kinshasa City) to test the method- and IEA 2015). ology, and by end-2016, the “Global Survey for Multi-Tier Such binary indicators can easily be obtained through Energy Access Tracking” will be launched in about 15-30 household surveys with a very small number of questions, countries that have high access deficits. The results will but they fail to capture the multi-dimensionality of elec- help policymakers determine gaps in the performance of tricity access—and thus misrepresent the scale of the the energy supply, identify types of interventions and challenge. For electricity, they do not provide any insight financial investment requirements required, and set the on the quality, reliability, affordability, or legality of what is baseline to track progress toward ensuring universal being supplied. access. Open-Source Country Energy Databases will be What is needed now are indicators that can capture two accessible after the implementation of the MTF global sur- aspects: (i) all technologies (mini-grid, off-grid solutions, vey by the end of 2017. 26    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 FIGURE 2.9 Multi-tier framework tells much more about electricity access % of population with and without Technology break-down by tier (%) Reasons why grid connections have not electricity access met higher tiers requirements (%) 70 Tier 5 Without any service Tier 5 Day duration 60 Off-grid Evening duration Tier 5 Tier 4 Grid Tier 4 Reliability and quality Tier 4 50 Affordability Tier 3 Tier 3 Tier 3 40 30 Tier 2 Tier 2 Tier 2 20 Tier 1 Tier 1 10 Tier 0 Tier 1 Tier 0 Tier 0 0 No access Access 0 10 20 30 40 0 5 10 15 20 (tier 0) (tier 1–5) Source: Introducing Multi-Tier Approach to Measuring Energy Access https://www.esmap.org/node/55526 CONCLUSION So where does the international community stand on One tool that would help facilitate the effort would be achieving universal access to modern energy services by a new way of measuring the electricity access target, 2030? As the latest GTF binary indicators show, in 2014, beyond the traditional binary metrics—which can be mis- 15 percent of the population still lacked access to elec- leading because they do not capture the multi-dimen- tricity despite some successful initiatives across several sionality of access and thus misinterpret the scale of the technologies. Clearly, the pace of growth has to be accel- challenge. The World Bank and ESMAP are working with erated to achieve universal access by 2030: each year, partners to promote broader adoption of the MTF as the 161 million people need to be electrified from 2014 key monitoring platform for tracking progress toward through 2030. SE4ALL goal and Sustainable Development Goal 7— ensuring access to affordable, reliable, sustainable, and modern energy for all. T H E STAT US OF ENERGY A C C E SS    27  REFERENCES Banerjee, S., D. Barnes, B. Singh, K. Mayer, and H. Samad. Krishnaswamy, S. 2010. Shifting of Goal Posts. Rural 2014. 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IEA (International Energy Agency). 2013. World Energy Universal Energy Access. Fast Facts. New York: UNDP. Outlook 2013. Paris, France: International Energy Agency. World Bank. 2013. Sustainable Energy for All: Global ____. 2014. Africa Energy Outlook: A Focus on Energy Tracking Framework Report. Washington, DC: World Prospects in Sub-Saharan Africa. Paris, France: Interna- Bank. tional Energy Agency. ____. 2015. Beyond Connections: Energy Access Redefined. ____. 2015a. India Energy Outlook: World Energy Outlook Washington, DC: World Bank. Special Report. Paris, France: International Energy Agency. ____. 2014. Rise Readiness for Investment in Sustainable Energy A Tool For Policymakers. Washington, DC: World ____. 2015b. World Energy Outlook 2015. Paris, France: Bank. International Energy Agency. World Bank and IEA. 2013. Sustainable Energy for All IRENA (International Renewable Energy Agency). 2015. 2013–2014: Global Tracking Framework. 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Yang M. 2003. “China’s rural electrification and poverty reduction.” Energy Policy 31: 283–95. 28    LE S TAT E O F E N RGY ECTR I CI ACCES TY ACCES S R EPO EPO S RRT RT     |  1 72 0 17 2 0|  CHAPTER 3 CREATING A BETTER ENVIRONMENT FOR TRANSFORMATIVE ELECTRICITY ACCESS KEY MESSAGES • In successful cases of transformative electricity access, public financing support has played a vital role in the initial stages of grid-based electrification programs. • Best practices for successful grid-based implementation include: sustained government commitment, dedicated institutions, predictable financing mechanisms, realistic measures to ensure affordability and sustainability, and electrification programs that fit into a broader vision of social and economic transformation. • Mini-grids can supply “grid-quality” power to communities quickly, but they must address challenges—such as high upfront investment, regulatory uncertainties, tariff differential issues, the stranded assets problem, manage- ment and operations capabilities, supply and demand mismatch, and the need for productive load. • For the private sector to play an increasing role in financing mini-grid interventions, there must be incentives in place to allow investors to make returns on their investment. • Given that scaling up access is influenced by context, it is critical to carefully weigh regional perspectives and encourage each country to choose its own pathway. INTRODUCTION W hat are the challenges and drivers of transfor- sures and tools to plan for complementarity of grid and mative electricity access? More than 70 coun- grid solutions. And, finally it provides some insights on tries have been working over the last four years how to make access transformative. to develop action plans, strategies, and projects to deliver on the international community’s goal of universal access GRID AND OFF-GRID: to modern energy services—as spelled out in the Sustain- TWO COMPLEMENTARY TRACKS TO able Energy for All (SE4ALL) initiative and the UN’s Sustain- UNIVERSAL ACCESS able Development Goal 7 (SE4ALL, 2016). Their efforts have been supported by partnerships and initiatives from Meeting increased energy demand, which is linked to uni- both the public and the private sector that have emerged versal, basic and affordable energy services can be at the national, bilateral, and multilateral levels. achieved following two complementary tracks: (i) ensuring What is holding up more progress being made? The grid-based electrification, where the grid is extended key hurdle appears to be creating an enabling environ- beyond urban and peri-urban areas; and (ii) ensuring off- ment for an energy access roll out. While no single recipe grid electrification by establishing community level micro- exists, the evidence points to some facilitative ingredients or mini-grid systems, or using isolated devices and systems that are foundational—including the right institutions, stra- at the household level. Each of these tracks operates at tegic planning, strong regulations, and appropriate incen- different scales and provides differing energy services, fea- tives. This chapter tries to provide some entry points to tures varied capital requirements, and serves specific types help energy planners, policy makers, and other stakehold- of customers and population densities (Table 3.1). ers find ways to create the needed enabling environment. It begins with a discussion of the two complementary Grid electrification. The expansion of national electricity tracks to universal access to modern energy services—grid grids is the “conventional” method of expanding access to based and off-grid—followed by the key challenges asso- energy services. It involves adding power plants and electric ciated with each one of them. It then outlines some mea- utilities and expanding high-voltage transmission lines and   29  30    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 TABLE 3.1  Two technological tracks for expanding energy services CHARACTERISTICS GRID ELECTRIFICATION OFF-GRID ELECTRIFICATION Systems Centralized Micro-grids and Mini-grids Stand-alone systems Scale National, regional, and even international Community Household Geographic radius More than 50 square kilometers 1 to 49 square kilometers < 1 square kilometer Number of customers Thousands to millions Dozen to hundreds Usually a dozen or less Installed capacity More than 10 MW 20 kW to 10 MW < 20kW Technologies involved Large-scale and centralized Medium-scale and small-scale Very small-scale Investment required Billions of dollars Millions of dollars to hundreds Thousands of dollars of thousands distribution networks into rural areas, “its tendrils reaching often locally managed, have less than 10 MW of out into the countryside and bringing with it opportunities installed capacity, serve small household loads, and for jobs, communication, improved education, better health cover a radius of 50 kilometers or less. They can be and a host of other welfare improvements.” connected to a national grid, but typically, they operate In the past two decades, more than 1.7 billion people autonomously and are better suited for communities have been added to national electricity networks world- where there is sufficient demand throughout the day wide, mostly in urban areas (Figure 3.1). Although a lot of and year-round. progress has also been made in rural areas, the numbers • Another approach is a “micro-grid.” It typically operates connected are not rising as fast, because rural electrification with less than 100 kW of capacity, has even lower volt- involves connecting villages incrementally to the existing age levels, and covers a three to eight kilometer radius. grid, with remote areas with small populations, high line losses, and low usage levels usually the last to be served. Both of these can be powered by fossil fuels, using diesel National electrification programs in Chile, China, Mexico, generators or fuel cells, or renewable energy sources (like the Philippines, and Tunisia, for example, were implemented micro-hydro dams, solar PV plants, biomass combustion, through grid extension activities that involved operationaliz- and wind turbines). A clean energy technology mini-grid ing large-scale power plants and grid networks. may comprise a single power source (like a small hydro- power plant), or a hybrid system with renewable energy Off-grid electrification. Energy services can also be sources with batteries or a diesel generator. expanded using “off-grid electrification,” which involves When configured properly, mini- and micro-grids can much smaller grids than in “grid electrification.” operate more cost effectively than centralized generation and distribution. That is why diesel-power and small • One approach is a “mini-grid.” It is a localized or iso- hydropowered mini-grids have been used for many lated grouping of electricity generation, distribution, decades. In Indonesia, many of the 6,000 inhabited storage, and consumption within a confined geo- islands are powered by diesel- or small hydro- mini-grids; graphic space. Though definitions vary, these grids are and a few are retro-fitted with solar PV systems to avoid high-cost diesel fuel. In the Maldives, about 200 inhab- ited islands and all resort islands are powered by diesel FIGURE 3.1 A big push in electrification since 1990 mini-grids. Plus, some of these are being converted into (Incremental increases in grid electricity access, 1990–2010) solar-PV-diesel mini-grids, as part of the government’s strategy to transition to 100 percent renewable ener- gy-based economy. Rural 510 In very remote communities, energy services can be provided with “stand-alone” systems, which can be de- ployed usually far faster and with less complexity than a Urban 1,219 mini-grid. Increasingly, small PV systems (called “pico” solar systems), using a few watts of solar PV to tens of watts, provide high value lighting and mobile phone ser- Total 1,718 vices. In directly coupled configurations, they provide motive power for activities like water pumping, grain mill- 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 ing. And stand-alone PV systems with batteries also offer a Population (million) highly reliable electricity supply for telecommunications base stations where reliable grid supply is unavailable. Population with access in 1990 Moreover, in recent years, the stand-alone electricity Population with access in 1990–2000 product market has been expanding rapidly—and is Population with access in 2010 expected to continue to do so. Source: Bazilian 2013. CR E AT ING A BET T ER ENVIRONMENT FOR T RANSFORMAT IVE ENERGY A C C E SS    31  • Navigant Research estimates that the market for solar result in unique power markets and transmission con- PV products will grow from about $550 million in 2014 straints inherent in islands and archipelagos that are highly to $2.4 billion in 2024. vulnerable to natural disasters and climate change-related risks. In the Pacific, the distance between islands and the • Off-Grid Solar Market Trends Report 2016 notes that challenging terrain pose major problems, as most of the this market has shown impressive growth in the past island-countries (like Palau) are made up of large chains of five years, with more than 100 companies having sold coral atolls and islets. about 20 million branded pico-solar products (mainly High customer connection charges. Sub-Saharan Africa portable lights) by 2015 (Bloomberg New Energy has the highest number of countries with connection Finance and Lighting Global, 2016). The report also charges higher than $100 per customer at the lowest con- estimates that about one in three off-grid households nection service rating, as shown in Figure 3.2 (Golumbeanu globally will use off-grid solar by 2020. and Barnes, 2013). In some cases (like Kenya, Tanzania, Central African Republic, and Burkina Faso), the unsubsi- EXPANDING GRID-BASED ELECTRIFICATION dized connection charges even exceed the country’s monthly income per person. Why are the costs so higher What are the key challenges to expanding electricity from for smaller customers? The reasons are many: (i) weak com- the grid? Many reviews have identified key challenges to mitment of utilities to provide electricity access to rural expand electricity from the grid, ranging from insufficient customers, (ii) inadequate electrification planning, (iii) high power generation capacity to high customer connection investment cost for providing electricity connection due to charges (Barnes, 2007; Bazilian et al, 2010; World Bank, overrated technical specifications for low loads, (iv) ineffi- 2010; World Bank, 2011; Eberhard et al, 2011; Sovacool, cient procurement practices, (v) low population density, 2013; Banerjee et al, 2014; World Bank IEG, 2015). and (vi) lack of financing options to make connection Insufficient power generation capacity. Many countries charges affordable. Exacerbating matters are various fees in Sub-Saharan Africa and South Asia often experience for inspection and application procedures, government load shedding in a context of growing demand for electric- taxes, mandatory security deposits, and connection ity services—with power shortages costing Africa 2-4 per charges—and households are responsible for internal wir- cent of GDP annually (Africa Panel Report, 2015). Consid- ing, which can run at least $100. Plus, the utilities often erable load shedding is reported in Nepal (where power charge all these fees upfront, making it difficult for low deficit was 30 percent in 2013), Pakistan (where 42 percent income households to afford the service. of employees faced 4-8 hours power cut daily), and India Poor performance of power utilities. In many countries (where the electricity deficit was 54 TWh and the power where electricity rates are low, power utilities tend to have deficit was 3.4 GW in 2014–15). Poor transmission and distribution infrastructure. Many decades of under-investment, poor governance in the energy sector, and, in some cases, conflicts and civil wars, FIGURE 3.2 Sub-Saharan Africa has highest rates and poorest service are hampering the development of adequate transmission and distribution infrastructure. In a business-as-usual sce- Connection charges and national electriciation rates nario, some rural communities could wait for 20 to 30 years 450 to have access to grid-based electricity. Meeting Africa’s Connection charge for grid electricity—lowest rating (US$) increasing demand for power will require significant and 400 Kenya sustained expansion of the generation capacity—at a rate of 7,000 MW each year—as well as transmission and distri- 350 Rwanda bution systems. This is expected to require mobilizing about $41 billion—roughly 6.4 percent of the region’s 300 Tanzania GDP. Currently, spending is estimated at under $5 billion Central African Republic Burkina Faso per year, mostly focused on operating and maintaining 250 existing infrastructure, leaving a huge financing gap in power sector expansion. 200 Zambia High costs of supplying consumers in rural and remote 150 Benin communities. Many rural communities are characterized Uganda Cote d’Ivoire by a low population density and a very high percentage of 100 Mauritania Lao PDR poor households. Demand for electricity is usually limited Ethiopia Madacascar Tunisia to residential and some agricultural consumers. Many 50 Ghana households consume less than 30 kilowatt-hours (kWh) per Sudan Sri Lanka Vietnam Bangladesh India Thailand month. The combination of these factors results in high Philippines 0 Cape Verde average costs of supply for each unit of electricity con- 0 10 20 30 40 50 60 70 80 90 100 sumed. Often grid extension to these communities is pro- National Electrification coverage rate (%) hibitory expensive and technically challenging due to remoteness—and even geo-physical constraints, which Source: Golumbeanu and Barnes, 2013. 32    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 not only poor technical and financial performance but also involved measures to gradually move from central plan- weak governance. This prevents them from being able to ning to market mechanisms, open up the economy to provide adequate, reliable, and affordable electricity ser- trade and foreign investment, and reform the agricultural vices to their customers and to expand electricity services sector. Similar experiences are recorded elsewhere. In to peri-urban and rural areas. Over the past two decades, Tunisia, rural electrification was rooted in a strong national many countries have pursued energy sector reforms initia- commitment to integrated rural development, gender, tives aimed at improving utility performance issues, but equity, and social equality (Cecelski et al. 2017)—and a the results have been mixed. In a recent paper on the high level of government commitment was also observed financial viability of utilities in 39 Sub-Saharan African in China (Han et al, 2014) and Brazil (Jannuzzi and Golden- countries, it was found that only two countries had a finan- berg, 2014). cially viable electricity sector (the Seychelles and Uganda) and only 19 countries covered operating expenditures Dedicated institutions and adequate human capacity. (Trimble et al 2016). Dedicated and operational institutions in charge of plan- ning, financing, regulating, implementing, and monitoring Principles for Model Grid Expansion Efforts electrification programs are important features of success- Despite these many challenges to expand grid-based ful programs. According to Howells, 2015, the principal electricity, many countries have managed, or are manag- purpose of planning for electrification is to create insights ing, to implement successful programs—including Bangla- on the issues at stake, appraise policy options, and provide desh, Brazil, Chile, China, Costa Rica, Mexico, Morocco, guidance for action, often in the form of an energy plan or Peru, Philippines, Thailand, Tunisia, Rwanda, the United roadmap. Certainly, Rwanda’s leap from single-digit to States, South Africa, and Vietnam. Lessons learned do not double-digit electrification rates, starting in 2009, illus- lead to a single approach, but they reveal some principles trates how strategic planning pays off (Box 3.3). that have contributed to create a favorable environment to Institutions in charge of planning electrification rollout develop and implement successful programs. are responsible for determining what technological approaches are applicable and cost-effective—for exam- Government support and commitment. The rollout of a ple, whether it is cost-effective to expand electrification large scale grid-based electrification program is a process with the grid, or to consider off-grid solutions such as mini- that takes time. It requires high level and sustained govern- grids or isolated systems. The choice of technology ment support and commitment. Almost every country that depends on many factors, including natural resource avail- has achieved universal electricity access has reached this ability of a country, availability of appropriate sites, technol- goal with a strong leadership that established a common ogy output characteristics, and complexity of installation, national vision of social welfare and economic develop- operations, and maintenance. ment with electricity access as a catalytic enabler. In the Rural electrification can be undertaken by different United States, the 1935 Electricity for All program was part types of enterprises (public, private, or community-based), of the New Deal Program, aimed at improving living stan- each with different incentives. Whereas public companies dards and the economic competitiveness of the farm (Box played a significant role in expanding electricity access in 3.1). In Vietnam, the highly successful rural electrification numerous countries (like Lao PDR, Mexico, Thailand, and program was part of the broader Doi Moi, economic reno- Tunisia), private and decentralized electrification compa- vation reforms launched in 1986 (Box 3.2). These reforms nies played an important role in others (like Chile). Several BOX 3.1 U.S. Rural Electrification Transformed Society Historically, one of the most extraordinary experiences of social transformation is the electrification of rural com- munities in the United States. In the early 1930s, while 90 percent of urban households had electricity, only 10 percent of rural ones did. Private companies had not been interested in connecting rural households, because the farmers were too poor to afford electricity. On May 11, 1935, the Rural Electrification Administration was created as part of President Roosevelt’s New Deal Program. He believed that if private enterprise could not supply electric power to the people, then it was the government’s duty to do so. Rural electrification was based on the belief that affordable electricity would improve the standard of living and the economic competitiveness of the family farm. There were opponents of the program on the grounds of waste of federal funding, but there were also supporters who believed it was the right thing to do for moral and eco- nomic reasons. Farmers were urged to create electricity cooperative companies. Electricity fairs were organized to show farmers the uses of electric power at home and on the farm. And low cost financing was made available to farmers to purchase electric powered tools and appliances. Source: Wohlman 2007; Brodoff 2014. CR E AT ING A BET T ER ENVIRONMENT FOR T RANSFORMAT IVE ENERGY A C C E SS    33  BOX 3.2 Vietnam’s National Drive to Achieve Universal Electricity Access Vietnam’s experience demonstrates that where strong political aged from users, communities and local governments. commitment exists, the goal of universal access to electricity is However, there was a trade-off between the pace and the achievable irrespective of the country’s starting condition. This sustainability of the electrification efforts. As it turned out, many commitment, however, needs to go hand in hand with a willing- new distribution networks were of low technical quality and suf- ness to learn from past mistakes and correct one’s course when fered high losses, and the newly established entities did not circumstances change. have sufficient experience nor the financial strength to operate In 1994, when Vietnam started its universal access drive, its them. The subsequent phases, therefore, prioritized sustainabil- electrification rate was only 14 percent, comparable to the ity measures, with a heightened focus on ensuring service qual- access rates of the least electrified countries in Africa. By 1997, ity and both technical and financial viability. Gradually, the the rate had jumped to 61 percent, and by 2002, it was over 80 dispersed local electrification networks were consolidated into percent. Today, the Vietnamese population enjoys the full ben- larger units and their operators corporatized; most of them efits of electricity, with an access rate over 99 percent. were eventually absorbed by the national utility, EVN. Vietnam’s secret to success was not betting on a particular While many elements of Vietnam’s electrification approach electrification approach, but rather allowing the approaches to are unique to Vietnam, its key lessons are pertinent to all elec- evolve over time. In the initial “take-off” phase (1994-97), the trification efforts: goal was to trigger fast access expansion by empowering com- • Vietnam has achieved universal access to electricity largely munities and local authorities to build their own systems. During due to the government’s unwavering commitment to electri- this phase, little attention was paid to service quality, costs, tariff fication, and its willingness to learn and when necessary levels and other regulatory aspects. It was a highly decentral- change course. ized approach, with a very limited role for the national utility • Fast progress and a record fund mobilization was possible EVN, which was only selling electricity in bulk to these newly by making electrification a national priority, engaging cen- created mini-distribution entities. This was a period of extremely tral, regional, and local government, along with rural com- fast electrification, with the rate jumping from 14 percent to 61 munities. percent in just three years—as well as record investments lever- • Fast progress is not just a matter of political commitment, it also requires a strong demand and a willingness to pay from FIGURE B3.2.1  Electrification Rate in Vietnam the participating population—when rural income rose, elec- trification took off. 100% • The trade-off between speed and sustainability of electrifi- 80% cation efforts needs to be carefully managed. • Technical standards appropriate for rural areas should be 60% developed and enforced right from the start of the national electrification program. 40% “Take off” phase • Electrification goals should not happen at the expense of 20% the national utility’s financial viability. 0% Source: SEAR Case Study: Vietnam’s national electrification program, Forth- 1994 1996 1998 2000 2002 2004 2006 2008 2010 2013 coming. countries have adopted the cooperative approach derived small isolated villages in remote areas where it is difficult to from the US experience (like Bangladesh, Costa Rica, and provide services and implement regulation. Regulation of the Philippines). Some others have created Rural Electrifi- rural electrification schemes is successful if it is adaptive to cation Agencies (REAs) to manage multi-year earmarked ensure that a fair playing field is created for electricity ser- resources to support rural electrification projects (like Mali, vice providers to develop cost recovery solutions and for Senegal, Uganda, and Tanzania). This approach is often consumers to be able to afford electricity tariff. accompanied by a rural electrification fund (REF) that is Adequate human capacity is also required to imple- managed jointly or by a separate entity. ment a successful access program. As indicated by the Smart regulation of electrification expansion also mat- SEAR Special Feature Paper on The Power of Human Cap- ters. Successful electrification often requires that the tradi- ital (Colombo et al, 2017), “over the last decade, the tional functions of regulation be performed in simpler, debate on access to energy has tended to lean mostly on non-traditional ways. This is particularly true for off-grid technology, finance, and policy as key drivers. Scaling up electrification, which is characterized by low revenues in the strategies for access to energy requires a different per- 34    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 BOX 3.3 Rwanda’s Speedy Road to Higher Electrification Rates In 1990, there were 17 countries whose electrification get in 2012, rising further to XX percent by 2015 (Fig- rates were still in single digits, but by 2012, this num- ure B3.3.1). EARP II is aimed at an electrification target ber was reduced to three. Among the countries that of 70 percent by 2018, using grid and off-grid solu- made the leap from single to double digits, Rwanda is tions. It calls for a new strategy for off-grid electrifica- an undisputed winner, having demonstrated the fast- tion, mirroring the coordinated approach applied to est electrification progress. the grid rollout—but with greater emphasis on lever- Initially, electrification progress was not very fast. aging private sector investments. The bottom line is Between 1990 and 2008, Rwanda’s electrification rate that better planning, coordination, and new technical only grew from 2 percent to 6 percent—with electrifi- standards have resulted in connection costs dropping cation efforts hampered by high costs per connection from an average $2,000 to $880 under EARP I to an (average $2,000), lack of funding, and uncoordinated average $698 by 2014 under EARP II. electrification efforts. However, the pace picked up in Rwanda’s case demonstrates that even countries 2009, when the government adopted a new Electricity with very low access rate can successfully, and rapidly, Sector Wide Approach (eSWAp), with the aim of reach- scale up electrification rates. The key factors behind ing 16 percent electrification rate by 2013. This Rwanda’s success are: (i) a strong focus on implemen- approach was underpinned by: (i) an ambitious, yet tation— common target and monitoring system for all implementable electrification target; (ii) a geospatial development partners, and adherence to the agreed least cost plan; (ii) an investment prospectus to rally electrification plan; (ii) government leadership and sus- existing and new financiers; and (iv) a joint coordina- tained commitment to the program; (iii) geospatial tion and monitoring system. In addition, technical least-cost planning, which has allowed a cost-effective standards were revised to drive costs per connection prioritization of investments; (iv) an investment pro- down. The SWAp was implemented through the Elec- spectus to help mobilize resources; and (v) affordable tricity Access Rollout Program (EARP), executed by the connections for households, while lowering costs per national utility, and financed by multiple donors. connection for the utility. As it turned out, Rwanda’s electrification rate rose quickly, meeting EARP’s 16 percent electrification tar- FIGURE B3.3.1  Rwanda: Cumulative electricity connections 1,200,000 1,000,000 EARP target 800,000 achieved EARP ahead of time 600,000 starts 400,000 200,000 0 1990 2006 2007 2008 2009 2010 2011 2012 2013 2014 2018 target Source: SEAR Case Study: Rwanda—Sector-Wide Planning for Universal Access, Forthcoming. spective and an innovative approach to capacity building important as electricity access is a long-term process that needs to be put in place. In line with the aim of the Agenda involves many specialized tasks (such as planning, sus- 2030 of “no one left behind” and its focus on people, the tained implementation, operation and maintenance, mon- cross-cutting role of human capital, individually and collec- itoring, and impact assessment). tively, as communities and institutions, becomes crucial both as a catalyst and a booster. Indeed, without the Predictable financing mechanisms. Financing mecha- proper human resources, accompanying and adapting the nisms to support electrification of rural and peri-urban process supported by technology, finance, and policy, no communities vary depending on the electrification progress can be really turned into an efficient and effec- approach adopted. When rural electrification is under- tive, equitable and empowering long lasting transforma- taken by the national utility, resources are channeled tive change for access to energy.” Indeed, adequate through the utility to benefit from lower costs—thanks to human resources are essential for planning, implementing, economies of scale and scope in planning, finance, tender- and monitoring access programs. This is particularly ing, investment, and operation and maintenance (Mostert, CR E AT ING A BET T ER ENVIRONMENT FOR T RANSFORMAT IVE ENERGY A C C E SS    35  BOX 3.4 Using Public Sector Financing for Electrification • CHINA: Strong state support and the ability to • SOUTH AFRICA: Since 2003, electrification under the engage the local communities to create local Integrated National Electrification Program has infrastructure have contributed to the success of been financed by the state budget. Although China’s near 100 percent electrification. Funds for ESKOM initially thought the electrification program rural electrification have flowed from the central could be self-financed, it became apparent that this and local governments, with local residents even was unlikely, prompting the state to take responsi- participating. The decentralized electrification is bility for funding infrastructure development and either fully funded by the central government or subsidizing supply. The improvement in the electri- involves a cost-sharing scheme with the provincial fication rate can be partially attributed to the state government. funding of the program. • BRAZIL: Several programs, with different financing • INDIA: Under the Rajiv Gandhi Rural Electrification structures, have contributed to Brazil’s high rates Program, launched in 2005, the electrification rate of electrification. The electrification program PRO- has risen substantially. The central government pro- DEEM was funded by donor agencies and the vides 90 percent of the funds, and the provincial federal government, while the rural power supply government provides the rest for infrastructure program (LnC) and the Lights for All program (LpT) development. There is also a significant capital sub- were funded by the federal government—with the sidy for off-grid electrification projects. states contributing about 10 percent of the cost. Source: Bhattacharyya 2013. 2008). Over the years, China, Brazil, South Africa, and India cient, effective, and equitable (Barnes, 2007; World Bank, have successfully dedicated public funding to support 2010; World Bank 2011; World Bank IEG, 2015). Many electrification, although each has taken its own approach countries have provided subsidies to support initial capital (Box 3.4). costs of rural electrification infrastructure. These subsidies are used to partially cover the high costs of supply of Affordable electricity services. Determining what is remote communities and to incentivize distribution utilities affordable is a complex calculation, typically involving or other actors to engage in these settings. The capital three interrelated dimensions: (i) affordability by con- subsidy could be determined through competitive bidding sumers for connection fees and consumption costs; (ii) in the case of multiple service providers, or as the differ- affordability by electricity service providers for opera- ence between the unit cost and the willingness to pay of tional and financial viability; and (iii) fiscal affordability of poor households for electricity access. In Bangladesh, a subsidies needed for sustainable supply and expansion system of subsidies that supports the viability of the elec- of electricity access by local and national government tricity cooperatives includes: (i) long-tenor loans, low-inter- (World Bank, 2011). If the electricity tariff is not afford- est rates, and five-year grace periods; (ii) a government able to potential customers, they will not connect to the grant to the Rural Electrification Board, covering one-third service. But if it is too low, the service provider will not of the capital costs; (iii) a low bulk energy tariff; and (iv) be able to collect enough revenues to cover operation cash-flow support to the cooperatives, covering up to five and maintenance costs. years of operation (World Bank 2010). To achieve this balance, some countries (Peru and Connection cost subsidies are used when the connec- Colombia) have implemented mechanisms to transfer tion cost barrier to electricity services is high even when resources from electricity distribution in urban areas to distribution lines are constructed. The connection charge deliver electricity to isolated areas, which meets the condi- is defined as the cost to connect the consumer’s load to tions of providing affordable rates and sufficient income the existent grid. Some connection cost subsidy programs for the service provider, and also funding for the invest- are designed as results-based financing or output-based ment subsidy (IDB,2015). In Chile, the last mile in rural aid (OBA), meaning that subsidy payments are based on electrification is being achieved by incorporating an independent verification of outputs, often metered con- income compensation mechanism for service in remote nection and a number of billing cycles. The World Bank, areas. It supplements the income, earned by applying an the Global Partnership on Output-Based Aid (GPOBA), affordable rate, with a direct government contribution to and other development partners have been piloting vari- total revenue for the service provider that is sufficient to ous subsidy schemes to provide the poor with basic ser- keep the system operating. vices, including electricity (grid, mini-grid, solar home However, regardless of the approach taken, numerous systems) in a number of countries (like Kenya, Ethiopia, studies shows that rural electrification expansion requires Uganda, Zambia, Liberia, Ghana, Mali, Senegal, Bangla- some form of subsidy—and these subsidies must be effi- desh, India, Bolivia, Laos PDR, and Vanuatu). 36    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 DEVELOPING OFF-GRID ELECTRIFICATION Tariff differential issues. Mini-grid tariffs are usually higher SCHEMES than utility provided electricity tariffs, especially for those consuming small amounts of electricity. Unless there is a While grid-based electrification may have a role to play in significant subsidy provided to mini-grids, the tariff achieving universal access to modern energy services, charged will need to fully recover the mini-grid investment there is now enormous interest in renewable energy-based and operating costs. Even when differential tariffs are per- mini-grids, as they offer a means of supplying “grid-qual- mitted, such as in Tanzania or Bangladesh, political realities ity” power to communities quickly without having to wait may prevent charging a vastly different tariff. In Bangla- many years for the distribution network to reach distant desh, the tariff for the first solar-diesel mini-grid on Sand- communities. Nevertheless, there are challenges that must wip Island was set at $0.40 per kWh, six times higher than be addressed to ensure that the mini-grids are the least- the average grid-based tariff of about $0.07 per kWh. Ini- cost solution, that they continue to provide affordable tially, the higher tariff was not an issue, as consumers were electricity services over the long term, and that key risks running their own expensive small diesel generators. But it are mitigated to offer viable business opportunities. Which became an issue after the Rural Electrification Board (REB) are the biggest challenges? They cover a wide range of set up its own diesel generation mini-grid on the same financial, technical, regulatory, and policy issues. island and started charging customers the national aver- age tariff. High up-front investment. Renewable energy mini-grids can have high initial costs. These costs are incurred upfront Stranded assets problem. Another challenge centers to build the capital intensive power plant to meet antici- around assets that become obsolete or nonperforming pated load growth. If demand does not materialize to the well ahead of their useful life—known as stranded assets. same extent or does so at a slower pace, the plant will be The reality is that if the grid eventually reaches the mini- underutilized and the revenues inadequate to cover costs. grid service area, even if the network is built for grid-com- patibility, the investment in generation assets may not be Regulatory uncertainties. Lenders and investors require recoverable. Thus, policies to permit recovering the invest- regulatory certainty in order to invest in and finance mini- ment are needed and some countries have made such grids and provide services over the long term. Larger mini- provisions. grids require regulations to permit third parties to provide electricity services, authorize concessions, adopt tariff set- Management and operations capabilities. The mini-grid ting rules and tariff approval procedures, and to establish is an electric utility business, and as such, requires capable safety and service standards. In Rwanda, the government managers and operators. But skilled manpower may be adopted a regulatory framework in 2015 to facilitate mini- difficult to find and retain in remote locations. grid development (Box 3.6). BOX 3.5 Rwanda’s Regulatory Framework for Mini-grids In 2015, in an effort to overcome the regulatory risks Importantly, it permits differential tariffs and pro- that might inhibit mini-grid development, the Rwanda vides simple required revenue tariff calculation rules: (i) Utilities Regulatory Agency (RURA) issued its “Regula- the reasonable costs of operating the grid, including tion Governing the Simplified Licensing Framework for depreciation charges and fuel costs if any, plus; (ii) a Rural Electrification in Rwanda.” These regulations reasonable return on the net fixed value of the gener- support the government’s commitment to electrify 22 ation and distribution assets, plus; (iii) a reasonable percent of the population using off-grid means by margin to cover the costs of supply activities; and less 2017/18. On the financial side, Energizing Develop- (iv) subsidies or grants received specifically for the pur- ment Rwanda (led by GIZ and financed by donors) pose of lowering tariff levels. The tariffs can be offers up to a 70 percent subsidy on investments in reviewed by RURA if there are customer complaints. privately owned and operated mini-grids of up to 100 However, a complaint based on the fact that the mini- kW installed capacity. grid tariff is higher than the national grid tariff is not an Very small isolated grids under 50 kW are exempt acceptable reason for review. from licensing other than notification to RURA. Increas- Sources: Rwanda Utilities Regulatory Agency, Regulation No. ingly, simplified regulations will apply for mini-grids 01/R/EL-EWS/RURA/2015 Governing the Simplified Licensing with capacities of 100 to 1,000 kW and small mini-grids Framework for Rural Electrification in Rwanda. http://www.rura.rw/fileadmin/docs/RURA-Simplified_Licensing_ in the 50 to 100 kW range. The Electricity Licensing Regulations_FINAL_APPROVED.pdf. Mirco Gaul, Rwanda offers a Regulation of 2013 will apply for large mini-grids strong policy and regulatory framework for mini-grid, Alliance for (above 1 MW). Rural Electrification Hybridisation and Mini-grids Newsletter, October 2015. http://ruralelec.org/index.php?id=678#c9526. CR E AT ING A BET T ER ENVIRONMENT FOR T RANSFORMAT IVE ENERGY A C C E SS    37  TABLE 3.2  Measures to facilitate developing mini-grids KEY ASPECTS ACTIONS AND SOLUTIONS POLICY Establish a clean set of rules for scaling up the central grid. This is critical for assuring mini-grid operators that they will be properly compensated if and when the centralized grid becomes available. Support productive use/enterprise development to increase local abilities to pay for energy, thus increasing demand. Provide risk guarantees, tax cuts, or other market incentives to private mini-grid operators. REGULATORY Regulation should be light-handed and simplified. Establish realistic and affordable quality standards. Standards should address power quality, service quality, and commercial quality to facilitate new connections and accurate billing. Delegate mini-grid regulations to an established rural electrification agency. Allow tariff setting and subsidy levels to account for local circumstances. TECHNICAL Resource assessment and accurate sizing of the mini-grid is key to providing quality power and meeting future load requirements. Adding batteries to hybrid power systems that have variable renewable energy ensures that electric power is available and can provide frequency and voltage stability. Local involvement and training is essential for a successful reliable power system from mini-grids. Training and scheduled O&M services can increase life and reliability of the system. FINANCIAL Encourage cluster-based mini-grid development to ensure bankability and commercial viability. Offer long-term financial support in the form of subsidies, loans, grants, and investment in renewable energy service companies. Consider the long-term investment in renewable hybrid mini-grids— typically the least cost solution among mini-grids for most locations over the long term. Support parallel creation of productive economic services within the project to help ensure financial viability, long-term project sustainability, and revenues. Source: Extracted and adapted from Clean Energy Ministerial 2013. Supply and demand mismatch. Given the seasonality of • In Bangladesh, the potential for productive uses by hydro, solar, and wind, mini-grids powered by these cooperatives is a key factor in increasing revenues and sources will invariably result in under-utilization of the meeting the requirements to qualify for electrification. resource because the system must be sized to meet Thus, cooperatives are encouraged to engage in pro- demand during months where resource availability is low. ductive uses, especially in agriculture (like rice mills and Today, diesels are cost-effective for balancing loads, but tube-wells). they add a high recurring cost. Similarly, batteries are • In Thailand, the Provincial Electricity Authority (PEA) has costly. Some amount of demand management can be successfully promoted replacing diesel motors with undertaken where there are loads that can be discon- electric motors, mostly for rice mills, in villages with nected during times when resource availability is low. How- lower-than-expected consumption of electricity. To this ever, a biomass gasifier-based mini-grid is dependent on a end, it has facilitated financing for villages to purchase year-round availability of fuel at an acceptable price. Thus, electric motors and other equipment. there is a risk that once such a mini-grid is built, fuel prices might rise unless there is a diversity of supply within a rea- • In Cuzco, Peru, there has been a promotional and mar- sonable transport distance from the plants. keting campaign to encourage productive uses of elec- tricity and develop business assistance in rural areas to Need for anchor or productive loads. An important promote economic activities utilizing electrical equip- justification for a mini-grid and its financial viability is ment. This region has up to 800 micro-entrepreneurs anchor customers and productive loads—especially that are being supported in the adoption or the increase daytime loads. They can use the power generated when of electricity for productive uses (mainly milling, coffee, household demand is low and would be willing to pay a cocoa, bakery, dairy products, and carpentry) (Tarnaw- premium tariff (less costly than running their own gener- iecki 2009). ators). But there are two important barriers to the pro- So what can be done to facilitate the development of mini- ductive use of electricity: the lack of technical knowledge grids? The possible measures are many, falling into the and skills of potential users and the financial means to areas of policy, regulatory, technical, and financial (Table acquire relevant equipment (ESMAP 2008). That is why 3.2). One recent study (Walters et al, 2015) that focuses on several countries are taking steps to encourage more case studies of public-private partnerships in Bangladesh, productive uses. Ethiopia, Mali, Mexico, and Nepal, suggests four main 38    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 areas: (i) establishing an enabling policy development for • SPP Option where the mini-grid operator sells electric- planning and coordination with clear rules on detailed ity to the operator of the national grid but no longer to plans for grid extension and identification of off-grid elec- its local customers. trification interventions with regulatory incentives; (ii) cata- • Buyout Option where the SPP sells its distribution grid lyzing finance to encourage private sector operators to to the national grid operator or other entity designated benefit from a reliable and predictable financial mecha- by the regulator and receives compensation for the sale nisms (including subsidies, concessionary loans, and of the assets. reduced taxes and duties; (iii) building human capacity needed at the local level to support interventions; and • Combined SPP and SPD Option where the SPP converts (iv) integrating electricity access with development pro- to an SPD and also maintains a backup generator as a grams to enable access to alleviate poverty and to enhance supply source to the main grid and retail customers. human development. Along the same lines, GVEP (2011) identifies the fol- Case Study: Ethiopia and GIS Models lowing areas: (i) improving policy and regulatory frame- What would need to happen in Ethiopia to provide better work with an alignment with rural development goals, a electricity access and services in a cost-effective manner, reduction of transaction costs by simplifying licensing combining grid and off-grid solutions? A Special Feature and approval schemes, and setting up suitable tariffs and prepared for the SEAR report by Howells et al. (2017) on subsidies; (ii) careful considering technical choices to electricity planning tries to answer this question by using ensure sufficient primary energy resources, design Geographical Information System (GIS) models. These schemes based on local context, and invest in technology models enable analysts to assess the cost of electricity pro- development and manufacturing; (iii) securing predict- vision and energy cost implications of competing techno- able financing to cover operational, maintenance, and logical systems in space and time. The use of GIS-based management costs; and (iv) ensuring that all relevant analyses has increased since the mid-1990s with a clear stakeholders are engaged in the project with provisions focus on using levelized cost (that is, the breakeven cost) for capacity building. for choosing the appropriate technology. The Ethiopia study relies on two tools: (i) the ONSSET– Planning for Complementarity of Grid and GIS-based tool for rural electrification to determine the Off-Grid Electricity Solutions. cost optimal way of providing high levels of electricity In many countries with a low level of electrification access, access; and (ii) the OSeMOSYS tool to determine the cost where both grid and off-grid solutions are being devel- optimal way of expanding grid-based bulk generation. The oped, it is important to ensure complementarity of these combination of these two tools forms a consistent solutions. Often, off-grid solutions are developed in geo- approach to minimizing the cost of electrification (Bekker graphic areas far from the grid to provide communities et al. 2008) while concurrently meeting the economics of with electricity services sooner than the grid. Take the case supplying bulk quantities of low cost, reliable electricity. of Cambodia, where, as a study by Tenenbaum et al (2014) Per capita electricity consumption in Ethiopia is low at explains, there was a lack of policy on what to do when the 52kWh—compared to 13,246kWh in the United States and grid reached the mini-grids. Eventually the situation was 1,743 kWh in neighboring Egypt (World Bank, 2014). resolved by the regulator issuing licenses to transform the mini-grids into distribution utilities—but it underscores the Providing High Levels of Electricity Access need for planning upfront for the eventual arrival of the The least cost configuration of grid, micro-grid, and stand- grid to give investors more confidence to develop mini- alone technologies to meet two rural (50 and 150 kWh/ grids in rural and remote areas. The study recommends capita/year) and one urban electrification target (300 kWh/ four options for when the grid arrives: capita/year) are considered. As Figure 3.3 shows, a higher • Small Power Distributor (SPD) Option where the Small target results in the deployment of grid and mini-grid sys- Power Producer (SPP) operating a mini-grid converts to tems, with remote and low density populations relying on distributor that buys electricity at whole sale from the stand-alone electrification. The change in technology from national grid and resells it at retail to its local customers. high to low is indicated in Table 3.3, with a noticeably large shift to stand alone systems. TABLE 3.3  Optimal split for new connections (Population-based for different rural electrification targets) SPLIT POPULATION (150/300) POPULATION (50/300) CHANGE Grid 65,431,650 62,270,395 ↘ –4.8% Mini Grid 3,958,695 245,825 ↘ –93.8% Stand Alone 656,767 7,530,892 ↗ 1046.7% CR E AT ING A BET T ER ENVIRONMENT FOR T RANSFORMAT IVE ENERGY A C C E SS    39  FIGURE 3.3 Optimal electrification mix in Ethiopia A. Higher target B. Lower target Source: Author’s calculation based on Mentis et al 2016 b. FIGURE 3.4 Higher levels of provision mean lower rural area costs Spatial levelized cost of electricity A. Higher levels of provision B. Lower levels of provision Source: Author’s calculation based on Mentis et al 2016 b. Underlying the shift in technology is how the cost of pared to just diesel stand-alone options. PV stand-alone electricity. Figure 3.4 indicates how the levelized cost of technology would be more viable than diesel stand alone supply on a geo-spatial basis changes in response to the for 22,624,921 people (or 32 percent of the population higher and lower supply targets. With higher levels of pro- that needs to be electrified). If grid extension and mini- vision, the cost per unit is reduced in rural areas. With grid technologies were to contribute to the electrification lower targets, unit costs are higher. Note that costs near mix of the country, only 656,767 people would be electri- the grid in urban areas remain unchanged, following their fied by stand-alone systems (diesel, PV).) constant electrification target. Thus, an optimal deployment strategy would include What would happen if electricity costs increase where extra grid extension and the deployment of micro-grids— there is no systematic deployment of solar and mini- information that could be used to support better poli- grids? As Figure 3.5 (panel A) shows, if the grid is not cy-making. And knowing the cost optimal deployment extended and users only have access to diesel genera- characteristics could be used to develop specific poli- tors, electricity costs are high. But if the PV market cies—ranging from state-led deployment to facilitation of becomes more fluid, or the government helps facilitate market development. At this point, Ethiopia is undergoing investment, the cost of rural electrification drops signifi- rapid expansion in its generation capacity. Consistent with cantly (Figure 3.5, panel B). This occurs because the the most recent eastern African power pool development deployment of PV stand-alone solutions decreases the plan (EAPP/EAC, 2011), the power system grew by 20 per- levelized cost of electricity in some settlements as com- cent between 2013 and 2016, increasing by over 4.7GW. 40    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 FIGURE 3.5 A case for more grids and PV solar (Spatial levelized cost of electricity for the electricity access targets 150-300 kWh/capita/year A. Grid and stand alone diesel B. Grid, stand alone diesel and solar PV Source: Author’s calculation based on Mentis et al 2016 b. Note: Left panel: Population already connected to the grid is grid connected and the rest are electrified by stand-alone diesel. Right panel: Population already connected to the grid is grid connected and the rest are electrified by stand-alone diesel and PV solar. One baseline projection (WB) of electricity growth is MAKING ELECTRICITY ACCESS PROGRAMS around 5 percent per year. TRANSFORMATIVE When designing electricity access programs, it is essential Pinpointing the lowest cost route for grid expansion to ensure that a holistic view on the ultimate developmen- To determine the lowest cost expansion of the grid-based tal outcomes prevails. But it is also becoming clear that for electricity system, the Open Source energy Modeling Sys- these programs to be transformative, special attention tem (OSeMOSYS)—which is driven by demand for “grid” should be paid to productive uses of electricity services— electricity resulting from the ONSSET analysis, as well as a defined as agricultural, commercial, and industrial activi- national projection of other (bulk) demand growth (based ties that require electricity services as direct inputs to the on GDP projections) is used. It captures potential candi- production of goods or provision of services (EUEI PDF, date power plants, fuel costs, and resource availability (fos- 2011) (Box 3.7). sil and renewable) to calibrate the model cost and Often, access to electricity may not automatically performance data relating to existing power plants and enhance productive uses. Enabling activities or business their retirement schedule. A cost optimal system is then development services might be needed. For example, calculated (Howells et al 2011). On the resource front, one study argues that waiting for electrification projects hydropower is expected to form the foundation for Ethio- to generate spontaneous positive effects in rural areas pia’s electricity system (Taliotis et al 2016), although recent appears to be a passive attitude (De Gouvello and Durix, analysis (IRENA, 2014) also indicates relatively high poten- 2008). It suggests a proactive approach to facilitate tials of non-hydro renewables available. Plus, there are lim- expansion of productive uses including: (i) identification ited reserves of crude oil and larger quantities of natural of the productive activities taking place in a project area gas. The model assumes that newly electrified households and the supporting sectors; (ii) assessment of the poten- meet their demand target of 150kWh per capita in rural tial contribution of electricity in the identified activities areas and 300kWh per capita in urban areas. and sectors; (iii) technical and economic feasibility and Results show that generation investment is dominated the social viability studies of the identified activities; and by hydro (Figure 6 panel A), with large quantities used for (iv) a targeted promotion campaign to potential users export—although there are significant new investments in about the gains from the use of electricity for a new pro- capacity required for electrification (indicated hashed lines duction process involving various stakeholders (such as in Figure 3.6 panel B). But if trade in Africa is to reach its electricity service providers, equipment manufacturers, cost optimal potential, Ethiopia will need to join a number financial institutions, relevant local government entities of countries that generate significant quantities of electric- and community organizations). (EUEI PDF, 2011 provides ity for export by 2030 (Figure 3.6 panel C) (Taliotis et al. a manual with a step by step guideline on how to support 2016). productive uses of electricity services.) The promotion of productive uses of electricity in rural areas has the potential to contribute to increasing the pro- ductivity of rural business, as well as achieving a more effi- cient use of the electricity supply infrastructure and CR E AT ING A BET T ER ENVIRONMENT FOR T RANSFORMAT IVE ENERGY A C C E SS    41  FIGURE 3.6 Hydro will dominate in Ethiopia Generation mix Total capacity 80 16 14 60 12 Capacity (GW) 40 10 Generation (Twh) 8 20 6 0 4 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2 –20 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 –40 Generation mix per country, 2030 (%) 100 80 60 40 20 0 Central African Rep. Gambia Djibouti Eritrea Algeria Benin Burkina Faso Burundi Chad Congo Guinea Kenya Liberia Rwanda Somalia South Africa Sudan Swaziland Togo Zambia Zimbabwe Morocco Guinea-Bissau Libya Uganda Gabon Malawi Nigeria Ghana Equatorial Guinea Mauritania –20 Côte d’Ivoire Egypt Tunisia Niger Cameroon Sierra Leone Mali Tanzania, United Rep. of Senegal Mozambique –40 Ethiopia Congo, the Dem. Rep. of the Angola –60 Botswana –80 Namibia Lesotho Coal HFO Wind Hydro Nuclear Dist. diesel Net imports Diesel Gas Solar Geothermal Biomass Dist. solar Electrification Source: (Taliotis et al. 2016) and author’s calculation based on Mentis et al 2016 b. improving the revenues of distribution companies— small businesses through NGOs and developed a market- thereby enhancing the economics of electrification. But ing strategy for the electricity supplier (Fishbein 2003). The there are two important barriers to the productive use of Implementation Completion Report (ICR) of the project electricity: the lack of technical knowledge and skills of (World Bank, 1995) reports that the project created 66,000 potential users, and the financial means to acquire relevant enterprises and 22,000 new jobs in food and beverages, equipment (ESMAP 2008). light engineering, textile, wood products, rice mills and In Indonesia, the rural electrification program imple- other agro-industries, small tools and metal products and mented by the World Bank in the early 1990s, pioneered roof tiles and building materials. However, it is not clear the concept of Business Development Services to facilitate how the information on impacts were collected. productive use of electricity as an integral part of rural elec- In Peru, the BDS concept was used in a rural electrifi- trification program. The project focused on outreach to cation project implemented in 2010, which sought to pro- 42    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 BOX 3.7 Energy Services Support Agriculture and Food Production The provision of modern energy services is essential for and need to be better tailored to local contexts, as food production and food security. An increase in experiences from energy and agricultural mechaniza- access to energy to smallholder farmers would result in: tion have shown. More specifically this means to address the following questions: • Higher productivity and yields via improved effi- ciency of land preparation, planting, cultivation, • What do people want energy for? irrigation, and harvesting. • Which types of equipment are used? • What can people afford? • Lower food losses through improvements in pro- • What about the capacity to run and maintain the cessing, providing better quality and quantity of systems? products, requiring less time and effort (via energy supported cooking, heating, storage, preservation, For poor farmers to reach these goals and achieve or transformation into higher quality products)— higher incomes, there needs to be an improved quality thus adding value. and affordability of energy supplies, an increase in the amount of energy used, and access to a wider range of • Increased earnings from more produce through appliances providing energy services. But since these new market opportunities (such as access to infor- outcomes are interlinked with non-energy factors – mation about pricing). including access to land, water, seeds, knowledge, and In order to scale-up the uptake of sustainable energy market for produce—there also needs to be a holistic solutions, practices and behaviors, it is important to approach to smallholders’ energy needs. align available solutions with local settings. Interven- Source: SEAR Special Feature Paper on Energy Access: Food and tions require a people-centered “bottom-up” approach Agriculture (Dubois et al. 2017) mote productive uses of electricity (Finucane et al. 2012). • In India, Chakravorty et al. (2014) infers that access to Three NGOs were hired to identify the target areas for electricity causes expansion of micro-enterprises that productive use of electricity and potential beneficiaries. create new employment and income opportunities for The role of NGOs was basically to advocate for produc- the rural population. tive use of electricity as they were paid based on their • In the Philippines, Barnes et al. (2002) reports that a performance (for example, MWh sold, and numbers of household survey on rural electrification shows that enterprises that increased productive uses of electricity). electricity access enhances the productive capacity They assisted small-scale producers and cooperatives to through the expansion of small variety stores, tailors define and assess available business opportunities, esti- and dressmakers, food stands and restaurants, hair- mated cash flow, analyzed the profitability of equipment dressers and barbershops, carpentry, goldsmith, laun- and electricity infrastructure investments, and created dry, etc. links with buyers, equipment suppliers, and sources of finance and training. • Enterprises with electricity can benefit not only from However, the literature on the evidence of productive improved lighting, but also from electric appliances, use of electricity is limited. Some empirical studies (Khand- tools and machinery. ker et al. 2012a & 2012b; Khandker et al. 2013) show that • Electric machinery and tools can be expensive, but they electricity access boosted household employment, or are more productive, and at the end their benefits out- income, or both, but they do not identify the actual pro- weigh the costs. SEAR Impact Evaluation in Rural Ban- ductive activities that generated these results. A small gladesh consider three measures of outcomes as number of studies identify some productive activities that defined below. helped electricity access in Sub-Saharan Africa and Asia. – Revenue: Annual receipt from the sale of all prod- • In Kenya, Kirubi et al. (2009) finds that access to elec- ucts and services of the enterprise; tricity extends operating hours of businesses and lon- – Profit: Annual receipt from the sale of all products ger hours for households to produce hand-made and services of the entity minus total operating goods. It also finds that access to electricity enables the costs; and, use of electric equipment and tools by small and micro-enterprises thereby improving their productivity – Profit margin (P/R): Profit as a percentage of the rev- (100–200 percent depending on the task at hand) and enue. the revenue of the enterprises (20–70 percent, depend- It was found that grid electrification raises the revenue ing on the product made). of commercial. It also increases their profit by 24 per- CR E AT ING A BET T ER ENVIRONMENT FOR T RANSFORMAT IVE ENERGY A C C E SS    43  cent and profit margin by about 20 percentage points. CONCLUSION As for industrial enterprises, grid electrification increases In sum, delivering on the challenge of universal access to their productivity too. For example, their revenue goes modern energy services is a tremendous endeavor with up by up to 55 percent, and profit by up to 60 percent significant challenges, but already, many countries have (SEAR Impact Evaluation, Forthcoming). successfully organized to overcome these challenges. Several studies have either provided or implied the expan- While recognizing that each country will have to decide sion of productive capacities as they found electricity on its own pathways to universal access to modern access increased employment, or income, or both. How- energy services, a central message emerging from this ever, they have not identified the actual productive activi- chapter is that of the fundamental role that sustained ties expanded due to the electricity access. While one government commitment plays in the process and how could expect that providing access to electricity would the provision of modern energy services should be part naturally expand productive capacity, especially in situa- of a broader vision of social and economic transforma- tions where such expansions were suppressed due to lack tion. of electricity supply, there is no guarantee that this pro- The fact that many countries have adopted the SE4ALL cess always occurs. Rural and remote areas that are often goal of universal access to modern energy services is inhabited by low-income households and lack electricity indeed an important step forward. These countries should supply may not have opportunities to expand their pro- now be encouraged to create or strengthen the necessary ductive capacities even if electricity is made available— enabling environment for action, consider earmarking possibly due to a lack of finance or skills. Thus, it would be public sector resources over the medium to long term, and more appropriate if some activities to facilitate the pro- facilitate the leveraging of these resources with private ductive use of electricity are launched along with the elec- sector financing. tricity access initiatives—an approach that both maximizes the benefits of the access initiatives and helps long-term sustainability. 44    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 REFERENCES Africa Progress Panel. 2015. Power, People, Planet: Seizing Dubois, O. et al. 2017. “State of Energy Access Report Africa’s Energy and Climate Opportunities: Special Feature: Energy Access: Food and Agriculture.” African Progress Report 2015. Geneva, Switzerland: Africa Background paper prepared as part of this report. Progress Panel. Eberhard, A., O. Rosnes, M. Shkaratan, and H. Vennemo. Asian Development Bank (ADB). 2015. Sustainable Energy 2011. 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Washington, DC: World Bank. FY2000-2014. An Independent Evaluation. Washington, Ritouch, E. 2011. Cambodian Power Development Planning. DC: World Bank. Presentation made at the Jica Seminar, Tokyo. May. Zerriffi, H. 2011. Rural Electrification: Strategies for Distributed Generation. New York: Springer. 46    S TAT E O F E N E RGY ACCES S R EPO RT   |  2 0 1 7 CHAPTER 4 “CLEAN ENERGY” AND ELECTRICITY ACCESS KEY MESSAGES • The cost of electricity from renewable energy has decreased significantly in the past 5 years, becoming increasingly competitive with conventional energy sources. But greater future grid flexibility is now required to allow improved integration of renewables without compromising the quality of supply. • Clean energy mini-grids have huge potential for supplying electricity to remote areas though they still face many challenges, including the need for appropriate regulations, the demonstration of workable business models, and access to long-term finance. Viable policy frameworks are an urgent need, and many countries are achieving good progress. • Energy efficiency can reduce the levels of investment required to increase electricity access and to achieve improved reliability of supply. Appropriate sizing of systems and the use of efficient appliances can significantly reduce the barrier of upfront costs for clean energy technology. • Reduction of costs of renewable energy technologies and adaptive energy efficiency measures offer a tremendous opportunity for countries to think differently and to be creative about electricity access expansion. INTRODUCTION W hy is it important to explore synergies between Since 2013, the world has added more renewable access, renewables, and energy efficiency? energy power capacity (an estimated 147 GW by end- Much of the world now faces the twin challenges 2015 (REN21 2016) than conventional capacity combined of providing modern energy services and mitigating climate (coal, gas, and oil) (Randall 2015). Similarly, there has been change as countries embark on a new development path to a shift in investment patterns: in 2015, global investment in meet the 2030 Agenda for Sustainable Development and renewable energy power was more than double that in the Sustainable Development Goals (SDGs) (SE4All 2015). new coal and gas generation (McCrone et al. 2015b). The provision of basic electricity access to over one billion Moreover, for the first time, investment in renewable power people around the world and the subsequent economic and fuel investment in developing countries surpassed development triggered are likely to lead to a significant investment in developed economies. These positive devel- increase in energy demand. Meeting this demand calls for a opments are major milestones in tackling the energy major energy shift, driven by the adoption of “clean access challenge faced by many developing countries and energy”—that is, renewable energy and energy efficiency— in reaching universal energy access by 2030 as envisioned if we are to also achieve the Paris Agreement’s goal of limit- by the SE4ALL initiative. As the IEA notes: “If the universal ing global warming to well below 2oC (Lima Paris Action energy access goal is to be achieved by 2030, 55 percent Agenda 2015). of all new power between now and 2030 must come from The good news is that clean energy is playing an increas- decentralised energy sources with 90 percent of it being ingly important role in the provision of energy services renewable” (IEA 2011). worldwide. Renewable energy technologies are mush- Energy efficiency measures and technologies have also rooming across the globe at an unprecedented rate, while helped limit the increase in global final energy demand. In the growth in the global economy is starting to decouple 2014, they cut the increase by almost two-thirds, thereby from energy-related carbon emissions, thanks to the adop- holding the growth in final consumption to 0.7 percent, tion of energy efficiency measures and technologies (IEA rather than the past decade’s average 2 percent (IEA 2015a). 2015d). This, in turn, led to a drop of 2.3 percent in global   47  48    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 energy intensity in 2014, more than double the average This chapter outlines the benefits of clean energy for elec- rate over the past decade. In addition, energy efficiency tricity access, such as recent and significant cost declines measures implemented in 1990 in the IEA countries have and technological innovations. It discusses how renewable avoided an estimated 10 billion tons of cumulative emis- energy and energy efficiency can help provide modern sions, as of end-2014 (IEA 2015b). Investments in such energy services quickly, reliably, safely, and at low cost— measures across the buildings, transport, and industrial including the obstacles to scaling up that must be overcome sectors topped an estimated $130 billion in 2012 (REN21 (like inadequate finance options and unclear government 2016b). policies). The report concludes that what is needed are a Clean energy is currently high on the political agenda— better communication of the advantages of renewables and at global and national levels—in both developed and energy efficiency, more certainty on government policies, developing countries, with 2015 featuring many high-pro- public finance mechanisms and innovative sustainable file agreements and announcements: business models, and greater community involvement. • Commitments by both the Group of Seven (G7) and the Group of Twenty (G20) to accelerate access to renew- RENEWABLES FOR ACCESS able energy and to advance energy efficiency. Renewable energy technologies are flexible, modular, and • Adoption by the UN General Assembly of a dedicated can be used in various configurations, ranging from those SDG on Sustainable Energy for All (SDG 7). that are grid-connected to those that are off-grid, whether large, mini/micro, stand-alone, or pico (like solar pico PV • Agreement by 195 countries at the UN Framework systems (Box 4.1). Convention on Climate Change’s (UNFCCC) 21st Con- ference of the Parties (COP21) to limit global warming Grid-Connected Renewable Energy to well below 2oC. For grid-connected, commercial, or larger scale installa- • Commitments by a majority of countries at the climate tions, renewables are a source of energy. Rapid growth, change conference to scale up renewable energy and particularly in the power sector, is driven by several fac- energy efficiency through their Intended Nationally tors—including the improving cost-competitiveness of Determined Contributions (INDCs). Out of the 189 renewable technologies, dedicated policy initiatives, better countries that submitted INDCs, 147 countries men- access to financing, energy security and environmental con- tioned renewable energy, and 167 countries mentioned cerns, growing demand for energy in developing and energy efficiency. Some countries committed to reform- emerging economies, and the need for access to modern ing fossil fuel subsidies. energy. Consequently, new markets for both centralized and distributed renewable energy are emerging in all regions. • Precedent-setting commitments to renewable energy by regional, state, and local governments as well as by • India is planning to add 14 gigawatts of new solar the private sector. energy every year for the next five years—twice the level of what Germany achieved in its record years of • Pledges by over 100 banks from 42 countries to invest solar investment. more in energy efficiency projects. BOX 4.1 Renewable Technologies Come in Various Shapes and Sizes At utility scale, they provide electricity to meet the waiting for grid extension. A clean energy technology diverse needs of grid-connected urban and rural cus- mini-grid can be a single power source—such as a tomers. Grid-connected clean energy technologies can small hydropower plant, or a hybrid system with renew- range from a few kilowatts of roof top solar photovolta- able energy sources with batteries or a diesel genera- ics (PV) systems connected to the low voltage distribu- tor. In the Indonesian archipelago, many of the 6,000 tion network, to 10 to 1,000s of megawatts of large inhabited islands are powered by diesel- or small centralized utility scale power plants. Examples include hydro-mini-grids; recently some are being retrofitted hydropower, solar parks, wind farms, geothermal with solar PV systems to avoid high cost diesel fuel. power plants, or biomass-fueled plants connected to When communities are small or dispersed and elec- medium and high voltage substations. These utility tricity demand is limited, stand-alone systems—such scale renewable energy plants are in place in Ethiopia, as solar home systems (SHS)—can be more cost effec- Kenya, Rwanda, and elsewhere, providing better qual- tive, especially when coupled with new business and ity service to existing customers, as well as widening financial models. Increasingly, small PV systems, known the reach of the grid to those previously without access. as pico-solar systems (ranging from a few watts to tens In mini-grid configurations, clean energy technolo- of watts of solar PV) provide high value lighting and gies can meet the needs of communities sooner than mobile phone services. “ CLEAN ENERGY” AND ENERGY A C C E SS    49  • Jordan passed a new renewable energy law in 2012 announced over four successive rounds. The fourth round, that eased the development of large-scale projects. As held in 2015, resulted in solar PV prices under $0.07/kWh a result, the country recently finalized funding for seven and $0.05/kWh for wind, which is a substantial decline in solar power plants with a combined capacity of 102 comparison with the first round. megawatts—the largest-ever private sector-led solar The cost of producing electricity (LCOE) from solar project in the Middle East, with five more large-scale and wind has decreased significantly in the past 5 years, projects to follow. narrowing the gap with conventional energy sources (Patel 2015). As Figure 4.2 shows, the IEA reports that the • Sri Lanka and Thailand—developing country “pio- median cost of producing baseload power in 2014/2015 neers” that adopted a favorable regulatory environ- from residential solar was $200/MWh (sharply down from ment—are using renewable energy for electricity. Sri $500/MWh in 2010), compared to about $100/MWh for Lanka has small (up to 10 MW), private sector renew- conventional sources (Patel 2015). But the fall in fossil able energy facilities, and Thailand has 3,000 MW of fuel prices during that time period had only a limited small renewable energy power plants, equaling about 9 impact on the power sector’s cost dynamics. The global percent of installed capacity. average LCOEs for onshore wind eased slightly from Renewable energy is no longer luxury and is rapidly mov- $85/MWh in the first half of 2015 to $83/MWh in the sec- ing from niche to mainstream. In many areas, it represents ond half of 2015, and for solar PV, from $129/MWh to the least-cost option to overcome a lack of access to $122/MWh, according to Bloomberg New Energy energy services due to significantly reduced technology Finance (BNEF). Meanwhile, the LCOEs for combined costs—helped by better procurement practices and incen- cycle gas turbine (CCGT) in Europe increased from $103/ tive structures that benefit from the increased competitive- MWh to $118/MWh, and for coal, from $82/MWh to ness of the supply industry and a stronger project $105/MWh (Beetz 2015). developer market. In India, South Africa, and Peru, as Fig- Moreover, many countries have recently announced the ure 4.1 shows, utility-scale solar PV auctions prices have long-term contract prices for renewable energy power, come down sharply since 2010-2011. notably through preferred bidding exercises, power pur- Wind is already often the cheapest form of new power chase agreements (PPAs), and feed-in tariffs (FITs), high- generation capacity. In South Africa, Brazil, India, and lighting that even lower generation costs are possible in Egypt, recent energy auctions have resulted in prices for the coming years. For example, new onshore wind can be solar and wind that are competitive with oil and gas, and in contracted for around $60-80/MWh (in Brazil, Egypt, South some markets they are now competitive with new/green- Africa, and some U.S. states), and utility scale solar PV for field coal. Well-organized tendering processes in some key around $80-100/MWh (in the United Arab Emirates, Jor- developing countries—including India, Egypt, Brazil, and dan, South Africa, and some U.S. states (IEA 2015c). Fur- South Africa—have proven successful in delivering renew- thermore, IRENA estimates that the LCOE of renewable able energy tariffs close to grid parity. Since 2009, South energy options around the world will be at par with—or Africa has successfully tendered 7GW of renewable energy even lower than—the cost of fossil fuels options, with sig- FIGURE 4.1 Utility-scale solar PV auction prices are dropping around the world US$/MWh 350 South Africa 300 India 250 France Peru 200 Morocco Jordan 150 Zambia Germany 100 Brazil China Argentina 50 USA Mexico Saudi Arabia UAE (Dubai) Chile 0 2010 2011 2012 2013 2014 2015 2016 Source: IRENA 2017. 50    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 FIGURE 4.2 Renewables now only about double that of conventional fuels Panel a: (LCOE ranges for baseload conventional technologies, at Panel b: (LCOE ranges for solar and wind technologies, at each each discount rate) discount rate) 160 400 350 140 LCOE (US$/MWh) 300 120 LCOE (US$/MWh) 250 100 200 80 150 60 100 50 40 0 Large, ground-mounted PV Large, ground-mounted PV Large, ground-mounted PV Commercial PV Commercial PV Commercial PV Residential PV Residential PV Residential PV Onshore wind Offshore wind Onshore wind Offshore wind Onshore wind Offshore wind 20 0 CCGT Coal Nuclear CCGT Coal Nuclear CCGT Coal Nuclear 3% 7% 10% Source: IEA 2015. Notes: LOCE refers to levelized cost of electricity. In panel a: CCGT refers to combined 3% 7% 10% cycle gas turbine; fuel prices are region specific for the United States, Europe, and Asia; load factor is 85 percent load factor; CO2 price of $30/ton. nificant decreases expected for some technologies by option, due to their ability to respond quickly to changes, 2025 (Scott 2015). although hydro’s ability is quite often reduced by meteoro- As renewable energy continues to gather momentum logical events like droughts (IEA—RETD 2015). globally, grid integration is emerging as a key issue to be addressed to accommodate a higher share of variable Grid infrastructure. Transforming the grid to allow for a renewables, such as wind and solar. Many countries have larger share of renewables involves: (i) the bi-directional significant shares of power from variable renewable flow of energy, from power plants to users and from users sources—with Denmark leading the pack at about 50 per- to the grid; (ii) the establishment of a smart grid to improve cent—and substantial increases in solar PV and wind responsiveness and reduce peak loads; (iii) the introduction expected by the end of this decade (Figure 4.3) (IEA of technologies for grid stability and control; and (iv) grid 2016a). Experiences in these countries show that, at lower interconnection, where possible (Martinot 2016). It is esti- levels, integration is possible with very little effort (since mated that the grid infrastructure option can be achieved at the additional variability is small compared with the normal a relatively low cost—for instance, changes in the transmis- changes), and that solutions exist to integrate high shares sion network may cost as low as $2/MWh (IEA 2016b). of variable renewables. However, the current grid infra- structure in many countries was built on the basis of con- Storage. Electricity can be stored from variable renewable trollable energy sources and organized around the energy sources when supply for the latter exceeds demand, generation–transmission–distribution model (Denholm et and regenerate when supply is lacking. However, the cur- al. 2016). In particular, countries with a nation-wide, exten- rently high cost of various storage systems hampers their sive grid infrastructure need to adapt their operation to full deployment. For instance, the capital expenditure increase the flexibility of the system. Countries with new (CAPEX) for pumped hydro storage is estimated at $1,170/ and less developed power systems have the opportunity, kW and results in a low benefits/costs ratio when com- to plan, design, and build, from the outset, energy systems pared to other options (Figure 4.4) (IEA 2014). In Europe, and grids that integrate new flexibility concepts and the storage capacity accounts for some 5 percent of total possibility to integrate high shares of variable renewables. energy capacity, 99 percent of which is pumped hydro Flexibility of the power system can be improved mainly (IEA-RETD 2015). through the following four distinct but interconnected channels (IEA 2016a). Demand side integration (DSI). This refers to the ability to use demand management mechanisms—such as financial Flexible power plants. Power plants need to vary their incentives and behavioral change through education—to output to cater for changes in the net load. Variable renew- either shift demand away from peak load times or shed able power can be complemented by dispatchable renew- loads to match supply with demand (IEA-RETD 2015). DSI able power. Gas fueled power plants and hydropower usually exhibits the highest benefit/costs performance plants are the most flexible plants and the least cost (Figure 4.5) (IEA 2016b). “ CLEAN ENERGY” AND ENERGY A C C E SS    51  FIGURE 4.3 Many countries boosting renewable shares, especially in wind (Share of variable renewable energy generation in selected countries, 2014 and 2020) 60% Additional share PV 2020 50% Additional share wind 2020 Share PV 2014 40% Share wind 2014 30% 20% 10% 0% Norway Canada Finland Mexico Japan United France China India Brazil Australia Sweden Italy United Spain Germany Denmark States Kingdom Source: IEA. FIGURE 4.4 Managing demand ranks higher than of renewable based and hybrid (combination of diesel and storage for increasing flexibility renewable) types. (Benefits/costs ratio of selected flexibility options) Mini grids have the unique advantage of flexibility and scale and as such can provide electricity to rural areas at 2.5 2.3 a much lower cost than grid extension in certain regions. 2.2 It is estimated that in Tanzania, the cost of connecting 2.0 rural areas is around $2,300 per connection while with mini-grid it could cost as much as $1,900 per connection (McKinsey 2015). The two main factors affecting the com- 1.5 1.2 petitiveness of mini-grid are usually the distance from the 1.1 1.1 grid infrastructure and the load size required (Figure 4.6). 1.0 The Rocky Mountain Institute (RMI) estimates that mini grids are the least cost option for household consump- 0.5 tion—between 2 to 12 kWh per month and at a distance of approximately 4km from the existing grid (RMI, 2017). 0.0 In addition, mini-grids could be scaled up to meet Tiers 4 DSI + IC DSI IC Storage Storage and 5, although they typically provide energy for Tiers 2 + IC and 3. This would thus further increase the savings made Source: IEA 2014. compared to extending the grid. Notes: DSI refers to demand side integration; IC refers to grid Although the majority of mini-grids currently installed interconnection. are diesel based (mainly due to the low capital cost involved), in recent years, renewable energy based mini- grids have been producing electricity at a very competitive cost—if not cheaper than diesel ones, depending on the OFF-GRID RENEWABLE ENERGY: fuel price. As such, on average a renewable based mini- MINI/MICRO GRIDS grid could cost as much as $0.33 per kWh produced com- Mini-grids are emerging as a key player for cost-effective pared to $0.43/kWh for diesel driven mini-grids (Figure and reliable electrification of rural areas (Figure 5). The IEA 4.7) (APP, 2017). IRENA estimates that by 2035, the cost of estimates that 36 percent of total investments toward electricity generation from a solar PV minigrid will be as achieving universal access by 2030 will be targeted toward low as $0.20/ kWh. mini-grid efforts, or $4 to 50 billion annually, with the vast In Sub-Saharan Africa, South, and East Asia, mini grids majority (over 90 percent) coming from renewable energy are rapidly emerging as a viable option for providing generation (IEA 2011). energy services, thanks to both technological and institu- Mini grids are usually composed of a set of electricity tional innovations and cost reductions (ESMAP and CIF generators and energy storage systems interconnected to 2016). It is estimated that some 5 million households run a distribution network (Climate Change and Development on renewables-based mini-grids (usually powered by n.d.). Traditionally, mini grids were powered by diesel gen- micro-hydro) worldwide with primary markets in Bangla- erators, but the advent of cheaper renewable energy tech- desh, Cambodia, China, India, Mali, and Morocco (Odarno nologies, among others, has contributed to the deployment et al. 2016). In Tanzania, some 180,000 households are 52    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 FIGURE 4.5 A growing role for mini grids and renewables (Opportunities for grid extension, mini grids, and distributed renewable energy systems) Unsubsidised electricity retail cost on site [Euro/kWh] National grid extension Solar Home Systems and Pico PV Mini-grid Space rids mini-g Solar/diesel/biomass Hydro mini-grids Large Size of community Small High Density of population Low Close Distance to national grid Far Easy Complexity of terrain Complex Strong Economic strength Weak FIGURE 4.6 Least cost option for energy access varies FIGURE 4.7 Renewable energy-based mini grids becoming with load size and distance from existing grid very competitive (Cost of electricity generated by mini-grids) High Grid extension 50 (”100kW) • Large loads allow for further extension of grid Minigrids 43 45 • Larger loads justify added added investment in minigrids 40 • Shorter distrance between users reduces cost to interconnect 33 35 Load 1 30 26 US cents Solar Home Systems 25 1 33 • Smaller loads don’t justify interconnection 19 20 17 32 Low 15 Distance to grid 25 8 Close Far (”16km) 10 19 3 Source: RMI 2017. 5 8 6 2 0 Solar PV Mini-wind Biomass Micro- Diesel Gasifier hydro Generator Investment cost O&M cost Fuel cost Source: APP 2017 being served by 109 mini grid systems, while in Mali about grids using biogas produced from gasification of biomass 200 diesel based mini-grids are operating, with a signifi- residues. India’s Jewaharlal Nehru National Solar Mission cant number in the process of hybridization (EUEI PDF has announced the installation of a 2,000 MW PV system 2014; Odarno et al. 2016). In the Indian state of Uttar including pico/mini-grids. And about 50 percent of the Pradesh, a 250 kW solar mini-grid powering 60 streetlights Philippines’s population can best be served using mini- and 450 buildings (homes, schools, and a healthcare facil- grids (Siddiqui 2015). ity) was finished in 2015; another 80 villages operate mini- “ CLEAN ENERGY” AND ENERGY A C C E SS    53  Hybridization of mini-grids is increasingly popular, • In Nepal, 2,600 micro and pico-hydro systems have especially in countries that have been powering their exist- been installed across the country. ing mini-grids with diesel. Hybrid mini grids reduce the • In the Philippines, there are plans to build 150 to 200 generation costs of electricity, leading to potential savings micro-hydropower plants to provide electricity to and a lower fuel price risk exposure (PWC n.d.). Moreover, remote regions, with a goal of increasing hydro gener- an expected decrease in prices of storage/battery systems ating capacity by 50 MW (Harris 2015). will increase the use of renewables and reduce the share of diesel. Renewables will thus be used to cover low loads at Mini grids can also contribute to the socio-economic night, and morning and mid-day loads, with diesel mainly development of a region or community. Besides providing supplying evening peaks (Carbon Tracker Initiative 2014). basic energy services (like lighting and charging), they can A recent comparison of diesel and hybridized mini grids at fuel productive activities (like pumping, milling, and pro- seven sites (three in Africa, two in Asia, and three in Latin cessing (Table 4.1) and provide electricity to community America and the Caribbean) shows potential savings range health clinics and schools. India has announced plans to from 12 to 20 percent, depending on oil prices (Al-Ham- install some 8,960 solar agri-pumps and 500 solar-pow- mad et al. 2015). ered mini grids by 2016 in the state of Maharashtra. The work is being carried out through the state’s Smart Power • In April 2016, Tanzania implemented the first of 30 for Rural Development program, financed by the Rockefel- solar/diesel mini grids to be installed over the next two ler Foundation (Wiemann and Lecoque 2015). years, which should serve about 100,000 people (Afri- But the huge potential for access of mini grids is hin- can Review of Business and Technology 2016). dered by numerous challenges, including inadequate pol- • In the Maldives, its 200 inhabited islands are powered icies and regulations, lack of proven business models for by diesel mini-grids. Some of these are now being con- commercial roll-out (notably for pico-solar systems), and verted into solar-PV-diesel mini grids, as part of the lack of access to long-term finance (PWC Global Power & government’s strategy to transition to a 100 percent Utilities 2016). renewable energy-based economy. • In Africa (Mali, Kenya, and Tanzania) and Asia (Bangla- OFF-GRID RENEWABLE ENERGY: desh and Myanmar), various donors and governments STAND-ALONE SYSTEMS are supporting clean energy mini-grids. It is estimated that the 1.2 billion people living off the grid Micro and pico-hydro stations (1kW) offer a very affordable in the world spend some $27 billion every year on lighting source of electricity for many communities. In Indonesia, 20 and mobile phone charging—using kerosene lamps, kero- percent of the country’s 51 MW installed capacity is from sene generators, candles, and car-batteries that are ineffi- micro-hydro systems, with about 20 percent of its unelectri- cient and damaging to both human health and the fied population now having access to cheap electricity. environment as well as being safety hazards. Renewable TABLE 4.1  Renewables offer a wide range of energy services for productive uses (Population-based for different rural electrification targets) ENERGY SERVICES INCOME-GENERATING VALUE RENEWABLE ENERGY TECHNOLOGIES Irrigation Better crop yields, higher value crops, greater Wind, solar PV, biomass, micro-hydro reliability of irrigation systems, enabling of crop growth during periods when market prices are higher Illumination Reading, extending operating hours Wind, solar PV, biomass, micro-hydro, geothermal Grinding, milling, Creation of value-added products from raw Wind, solar PV, biomass, micro-hydro husking agricultural commodities Drying, smoking Creation of value-added products, preservation Biomass, solar heat, geothermal (preserving with of products that enables sale in higher-value process heat) markets Expelling Production of refined oil from seeds Biomass, solar heat Transport Reaching new markets Biomass (biodiesel) TV, radio, computer, Support of entertainment businesses, education, Wind, solar PV, biomass, micro-hydro, internet, telephone  access to market news, co-ordination with suppliers geothermal and distributors Battery charging Wide range of services for end-users (e.g., phone Wind, solar PV, biomass, micro-hydro, charging business) geothermal Refrigeration Selling cooled products, increasing the durability Wind, solar PV, biomass, micro-hydro of products 54    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 FIGURE 4.8 Many types of solar pico PV systems are available Solar lanterns Solar kits Solar home systems Solar lanterns are single devices Solar kits comprise more than one Solar home systems are a larger PV panel, with an associated PV panel to light offering phone charging, radio permanently installed on a roof or pole, charge them. or additional lights. with various uses. From top to bottom: From top to bottom: From top to bottom: d.light, Kamworks, Greenlight Planet Barefoot power, Duron, Sundaya Tecnosol, SELCO, Sunlabob Source: IFC energy technologies (such as solar lamps and charging lamps they can be purchased on average for $10 making it kits) can offer a reliable, more cost effective, and safe alter- an affordable alternative for lighting and mobile charging. native to the tradition methods of lighting. There are many The use of pico-solar systems can help considerably types of solar pico PV systems available—notably solar lan- decrease the amount spent on lighting. For instance, Solar terns, solar kits, and solar home systems (SHS) (Figure 4.8). Aid, a private solar company, which has sold some 1.5 mil- Solar lanterns, solar mobile phone chargers, and certain lion solar lights (benefiting some 9 million people), esti- SHS can provide Tier 1–3 energy services (as per the mates that solar lights can help African families reduce Global Tracking Framework Tier Based System) for about considerably their lighting expenditure (about $140 per 4-20 percent of the cost required for grid extension (Car- year) and save up to 12 percent ($60) of their total income bon Tracker Initiative 2014b), making them cost effective simply by not using kerosene for lighting purposes (Harri- and quick to implement solutions to the access problem son et al. 2016). The BNEF estimates that for every $1 for basic energy services. spent on solar lighting, savings of $3.15 could be made, The cost of these systems has gone down in part thanks which may help to recover the upfront cost of the latter to the emergence of direct current (DC) end-use appli- within four months’ time. And ODI estimates that the pro- ances, where renewable energy-based off-grid solutions portion of household income spent on lighting as a per- are expanding rapidly. These appliances eliminate the centage of total income has dropped sharply in Kenya, need for inverters and reduce distribution losses, maximiz- Malawi, Uganda, Tanzania, and Zambia thanks to solar ing the use of limited output from small generation units. lighting (Figure 4.9). The increasing adoption of renewable energy off-grid In addition to considerably reducing the health hazards access systems can boost the demand for DC appliances, linked to the risk of fires and burns of candles and kerosene helping reduce their cost (due to economies of scale-in- lamps, solar lighting has proven to help students in their duced market transformation) and opening new markets. education. In Kenya, Malawi, Tanzania, and Zambia, chil- With the rapidly decreasing costs of stand-alone/isolated dren are able to increase their study time from 1.7 hours to renewable energy systems, coupled with energy efficient 3.1 hours with brighter light form solar LED lamps (Africa appliances, renewable energy is no longer considered an Progress Panel, 2017). expensive option for access. If in 2009, solar lanterns could Solar lighting can be considered as one step up the cost as much as $45, nowadays with high efficiency LED energy ladder for the off-grid population in Africa, Asia, “ CLEAN ENERGY” AND ENERGY A C C E SS    55  FIGURE 4.9 Many African households spend a lot ing Association 2015; Solar Aid 2015). India is the market less of total income due to solar lighting leader for solar lighting systems, with just under one mil- (Proportion of household income spending on lighting as a lion solar lanterns installed in the country by end-2014. percentage of total income in selected African countries) SHS have also gained in popularity, with systems rang- ing from pico-systems (1-10 W) to larger systems (up to 14% 250 W). Pico systems are best suited for lighting and pro- viding electricity to run mobile communications devices 12% and radios, while larger systems are used to power health centers, schools, and households. The largest market for 10% SHS is Bangladesh where, by 2015, an estimated 6 million SHS and kits had been installed, with 60,000 new house- 8% holds being connected to SHS every month (Rahaman 2015). The market is also quite active in other Asian coun- 6% tries—namely India, China and Nepal, which together account for 2 million installed systems (Ministry of Statistics 4% and Programme Implementation 2015). The African mar- ket is concentrated in East Africa. M-Kopa, an SHS com- 2% pany, has installed about 300,000 SHS in Kenya, Uganda, and Tanzania (M-KOPA 2016). 0% Solar kits are now an affordable alternative to SHS. In Kenya Malawi Uganda Tanzania Zambia fact, they are the portable version of a SHS that does not Before solar light After solar light need any significant installation or regular maintenance. These systems often sell for half the price of a traditional Source: Overseas Development Institute 2016; Africa Progress SHS and can power multiple lights, charging devices, and Panel 2017 small electrical appliances. Coupled with the explosive growth of companies sell- ing solar pico PV systems across Asia and Africa, is the level of investment in off-grid companies. Investment has increased considerably in recent years, reaching $276 mil- and Latin America, since it offers both the opportunity to lion in 2015 (Figure 4.10) (REN21 2016). The cumulative make savings to purchase other electrical appliances (tele- investment total since 2011 is $511 million (BNEF 2016). vision, radios, fans, and refrigerators) and the basis to upgrade toward larger systems such as solar home sys- tems. The cost of solar home systems together with a tele- CHALLENGES AND SCALING-UP OPTIONS vision a radio and two LED lights is around $350, down So what are the biggest obstacles that countries face in from about $1,000 five years ago (ODI, 2016). introducing and scaling-up the share of renewables in Pico solar PV systems typically provide less than 10 energy use? Keep in mind that clean energy projects are watts of power and are primarily used for lighting or pow- characterized by high initial investment costs and substan- ering electrical appliances (like radios or mobile phones tial risks. The obstacles range from high fossil fuel subsidies (REN21 2016). They have developed rapidly in recent and the inadequate communication of the advantages of years, due to the less costly solar modules, the use of renewables to unclear government policies, a lack of good highly efficient LED lighting systems, and the emergence financial options, and not enough community involvement. of innovative business models. Thus, possible solutions include the following: By mid-2015, about 44 million off-grid pico-solar prod- ucts were sold globally—representing a market of $300 Phase out fossil fuel subsidies. The problem is that these million annually—and by end-2015, about 70 countries subsidies distort the true costs of energy and encourage had some off-grid solar capacity installed, or programs in wasteful spending and increased emissions. They also place, to support off-grid solar applications. The largest present a barrier to scaling up clean energy by: (i) decreas- market for off-grid solar products is sub-Saharan Africa ing the costs of fossil fuel-powered electricity generation, (1.37 million units sold; Kenya and Tanzania are the lead- thereby blunting the cost competitiveness of renewables; ers), followed by South Asia (1.28 million units sold; India is (ii) creating an incumbent advantage that strengthens the the leader) (Bloomberg New Energy Finance 2016). position of fossil fuels in the electricity system; and (iii) cre- Solar lighting systems (solar lanterns) have seen the ating conditions that favor investments in fossil fuel-based greatest development in recent years—and they are now technologies over renewables. Fossil fuel subsidies were considerably cheaper than conventional kerosene-based estimated to be over $490 billion in 2014, compared with lighting systems (depending on existing subsidies). Solar subsidies of only $135 billion for renewables (IEA n.d.). Pol- lanterns, often priced as low as $10, provided lighting to icy design should financially discourage investments in fos- 28.5 million people across the African continent by end- sil fuels and nuclear, while also removing risk from 2014: in Kenya, these lanterns provided lighting to about investments in renewable energy. This is crucial for scaling 12 percent of the population, and in Tanzania’s Lake region, up renewables, which can help close the energy access about 50 percent of the population (Global Off-Grid Light- gap (REN21 2016). 56    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 FIGURE 4.10 Increasing amounts of money being invested in off-grid companies (Capital raised by off-grid companies in 2015 and share of Pay as You Go (PAYG) companies) US$ million US$276 million total in off-grid solar 80 companies in 2015 US$160million total in Pay-As-You-Go 60 companies in 2015 40 70 20 31.5 15 15 12.6 10.7 10 0 abo PAYG companies attracted aboutout 585 of the money m Off-Grid M-Kopa BBOXX Nova Fenix Mobisol Greenlight anies in 2016 raised by off-grid solar companies Electric Lumos International Planet Source: REN21/BNEF Better communicate advantages of renewables. Renew- stop-shop model—are now emerging as leading models ables are still less known and often suffer from a lack of and leading off-grid access developments. understanding about the full cost of a renewable systems, benefits, opportunities, and capabilities—thereby acting Create a clear, stable, and transparent legal framework. If as a barrier to effective deployment of large shares of governments want to attract more private capital, they will renewables into the grid (Bridle et al. 2013). need to establish not only financing mechanisms but also agreements through which the purchase of the power gen- Provide greater consistency in energy policy planning. erated is guaranteed for a long period of time and at an Renewable energy policy changes and uncertainties agreed price. Also, publicly shared and stable electrifica- undermine investor confidence, inhibiting investment and tion plans are fundamental. deployment in some markets. Investors consider all of these factors in their decision making, as do insurers Promote community participation and ownership. This is (demonstrated by the increasing presence of insurance vital for off-grid electrification programs in particular. An addressing climate change risks). Likewise, policy makers underlying principle is that the renewable technology is not should think on a long-term basis in order to increase free-of-charge or unreasonably subsidized. Financial sup- investment in clean energy and advance the energy transi- port of renewable energy projects by communities allows tion in their countries. residents/owners to decide what technology to apply (such as solar PV, wind, or biomass) and how resultant energy ser- Improve financial options. Public finance mechanisms are vices are used; they are not passive consumers, but active needed to leverage private sector investment, overcome a participants and might even be energy producers. That lack of private financial instruments, facilitate high-capacity said, contributions do not have to financial—communities deployment, and mitigate risks. For example, they would and households can donate time (digging a canal), land be especially critical for deploying stand-alone systems, (donating land for the project site), or resources (wood for which are often constrained by a lack of available financial distribution poles). As the World Bank has noted, “partici- resources, high up-front technology costs (including the pation of local communities, investors, and consumers in cost of connections), and reluctance by investors and deci- the design and delivery of energy services is essential”. sion makers. This problem is further exacerbated because the majority of people that lack energy access have limited Build local capacity. This is key to create self-sustaining financial means to pay for energy services (5P and GIFT renewable energy markets for off-grid electrification, which 2014). Thus, the success of rural electrification requires the do not depend on external support or international actors. use of a customised and financially sustainable business Selecting partners that already have networks in rural areas model (PWC Global Power & Utilities. 2016). and building the technical or managerial capacity of Since the 1990’s, innovative business models, often domestic companies and institutions is key. developed in collaboration with private industry, have opened up the off-grid market. Early models included Catalyze high-level support. High-ranking ministerial or micro-credit and fee for service. Innovative business mod- cabinet offices need to help promote the scaling-up of els—such as the pay-as-you-go (PAYG) model or the one- renewables for access. This means raising awareness about “ CLEAN ENERGY” AND ENERGY A C C E SS    57  renewable energy solutions for increasing access, provid- • It prevents the long-run lock-in of inefficient products ing training for current and future decision makers, and and appliances that may hamper the success of clean developing a “marketing strategy” by providing good energy and energy access initiatives (Pachauri et al. data, organizing market players, and outlining the driving 2012). forces that shape policy decisions. Whether access is grid-connected or off-grid, energy effi- ciency offers a two-fold opportunity for improving delivery. ENERGY EFFICIENCY By increasing the efficiency of production, transmission, and distribution processes, it frees up energy resources, Once overlooked, energy efficiency is being seen increas- thus acting as a “virtual power supply” (IEA 2015b). From ingly as a key tool in delivering modern and clean energy the demand side, energy efficient appliances can acceler- services. Energy efficiency offers the unique opportunity of ate the diffusion of modern energy services (Table 4.2). enhancing the deployment of clean energy and pursuing energy access objectives. By end-2015, at least 146 coun- Moreover, from 2010–2015 the World Bank lent over tries had enacted energy efficiency policies, while at least $5.2 billion for energy efficiency projects that brought sub- 128 countries had energy efficiency targets. There has also stantial additional benefits, ranging from improved elec- been a drop of more than 30 percent in the primary energy tricity transmission capacity to higher industrial productivity intensity between 1990 and 2014 (REN21 2016). and lower energy poverty. The attractiveness of energy efficiency are many: By reducing the size of the energy supply infrastructure • It reduces peak loads, lowering the level of investment needed to provide a given level of energy services, energy required to meet high-energy demand at peak hours. efficiency mitigates the costs and the negative social and This reduction in demand allows more people to be environmental impacts from the energy supply. The bene- supplied with energy services with the same power pro- fits of energy efficiency are well documented in industrial- duction capacity. ized economies and experience suggests that efficiency can be a first-order energy access resource. Wherever new • It lowers energy costs, providing households with the energy supplies are needed, energy efficiency—both sup- option to spend less on energy services or move up the ply and demand—can reduce the amount of investment energy ladder. needed. Wherever existing supplies fall short or are unduly • It reduces government expenditure on fossil fuels. expensive, energy efficiency can improve system reliability and performance, and reduce energy costs. TABLE 4.2  Energy access interventions and indicative energy efficiency benefits The EA+EE Opportunity in Context ACCESS TIER TECHNOLOGY OR MODE OF DELIVERY ENERGY EFFICIENCY’S VALUE PROPOSITION TIER 1 Solar Portable Lanterns / Pico PV Energy-efficient light emitting diodes (LEDs) radically reduce the size and costs of the solar PV and batteries needed to provide service, making these technologies affordable for vast new market segments. TIER 2,3,4 Off-Grid Systems Energy-efficient appliances radically reduce energy supply needs, allowing a given off-grid system size to provide greater service and smaller, more affordable systems to provide equivalent service. Micro- and Mini-Grids Energy-efficient appliances and devices can increase the number of connections a mini-grid can support, and can reduce a system’s capital cost requirements, potentially improving financial viability. Industrious / Community Uses Energy efficiency reduces the energy costs and/or extends the run time of motorized products such as mills, grinders, and pumps. Efficient solar LED street lights increase public safety and facilitate after dark commerce. Efficient solar pumping systems for irrigation have been found more cost effective than the average electric pumps. Efficient medical applications operate more reliably in under-electrified rural clinics, or require smaller and more affordable off-grid energy systems. TIER 5 Grid Electrification / Power Supply- and demand-side efficiency improvements can enhance Sector Reform  power sector reliability and financial performance; lowering prices for consumers, and increasing likelihood of energy bills being paid. In sectors with subsidized tariffs, efficiency can lower government costs. Note: SE4All has developed a multi-tier framework for global tracking of energy access. Tier 1 represents very low energy service and Tier 5 includes full grid connectivity with higher power appliances. 58    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 Energy efficiency options for access can complement the availability and reliability of energy service in an energy renewable energy as they permit greater levels of services constrained context”(Jordan et al. n.d.). for the same power levels. Possible options include LED Although the current world average for the electric lighting to replace incandescent and fluorescent lamps, power transmission and distribution losses is estimated at high-efficiency appliances such as TVs and fans, high- 8 percent the amount tends varies widely across countries efficiency motors for community scale industry and agricul- and regions. While the OECD average is about 6-7 per- tural processing, and improved pumps—ideally paired cent, the average for the sub Saharan African region is with processes like drip irrigation that minimize water use. around 12 percent, compared to 15 percent for Latin These options typically have higher initial costs, but these America and the Caribbean, and 18 percent for South costs are offset by the lower costs of the smaller power Asia. Similarly, in Africa while countries like Mauritius, supply system (such as cheaper replacement items like South Africa, or Zambia enjoy electric power losses of less batteries). than 10 percent, others like Togo, Benin and Congo, have a high rate of power losses—87 percent, 61 percent, and Efficiency on the Supply Side 44 percent, respectively. On the supply side, the incentive structure—utilities and These losses mainly stem from technical losses, caused other grid-connected energy service providers typically by inefficient equipment and poor maintenance, and earn revenue for each unit of energy sold (such as kilowatt non-technical loses, usually attributed to theft and the hours)—favors energy consumption and discourages underpricing of electricity. The result is an unstable, energy efficiency, despite the latter’s importance in the sub-optimal, power system that hurts end-users, often energy service business model. impeding the ability of firms to operate efficiently. It also As a background, paper for this report on energy effi- can undercut economic and social development—by low- ciency puts it: “Large-scale deployment of highly efficient ering enterprise productivity, employment, and competi- end-use products reduces peak demand, which in turn mit- tiveness, and creating significant constraints on economic igates load shedding and the need for large new generat- activity and growth. ing supply investments. Reduction in peak demand can Thus, increasing the efficiency of power transmission reduce the need for spot generation and energy/fuel and distribution infrastructure is a key issue that needs to imports, which can be prohibitively expensive and can be addressed. It is often linked to the poor financial perfor- complicate sector and utility financial planning. Wide scale mance of utility companies, which limits the ability of coun- energy efficiency can also improve service and customer tries to improve the efficiency of the electricity infrastructure. satisfaction, which, when coupled with the lower energy In many African countries, the high rate of grid loss and bills, improve customer payment. Supply-side efficiency poor transmission and distribution networks has only gains—like grid rehabilitation in Brazil, China, India, Mex- allowed for the electrification of urban areas only. More- ico, and Vietnam (Box 4.2)—can enhance system reliability, over, the loss in power supply could have been utilized to improve financial performance, and ensure that mega- provide energy access to millions without any significant watts generated are megawatts sold—all of which improve investment in new power capacity (KPMG 2015). BOX 4.2 Renewable Technologies Come in Various Shapes and Sizes At utility scale, they provide electricity to meet the mini-grid can be a single power source—such as a diverse needs of grid-connected urban and rural cus- small hydropower plant, or a hybrid system with renew- tomers. Grid-connected clean energy technologies can able energy sources with batteries or a diesel genera- range from a few kilowatts of roof top solar photovolta- tor. In the Indonesian archipelago, many of the 6,000 ics (PV) systems connected to the low voltage distribu- inhabited islands are powered by diesel- or small tion network, to 10 to 1,000s of megawatts of large hydro-mini-grids; recently some are being retrofitted centralized utility scale power plants. Examples include with solar PV systems to avoid high cost diesel fuel. hydropower, solar parks, wind farms, geothermal When communities are small or dispersed and elec- power plants, or biomass-fueled plants connected to tricity demand is limited, stand-alone systems—such as medium and high voltage substations. These utility solar home systems (SHS)—can be more cost effective, scale renewable energy plants are in place in Ethiopia, especially when coupled with new business and finan- Kenya, Rwanda, and elsewhere, providing better qual- cial models. Increasingly, small PV systems, known as ity service to existing customers, as well as widening pico-solar systems (ranging from a few watts to tens of the reach of the grid to those previously without access. watts of solar PV) provide high value lighting and In mini-grid configurations, clean energy technolo- mobile phone services. gies can meet the needs of communities sooner than Source: SEAR Special Feature Paper on Energy Access: Food and waiting for grid extension. A clean energy technology Agriculture (Dubois et al. 2017) “ CLEAN ENERGY” AND ENERGY A C C E SS    59  Many countries have embarked on, or plan to under- Energy efficient appliances have helped to reduce the take, a grid loss reduction program that complements both energy investment costs required to kick-start energy their energy access objective and their transition toward access programs. Shaving a single watt from an off-grid renewable energy—although large-scale loss-reduction appliance’s load results in lower initial solar package costs, schemes may be expensive and hence difficult to finance improved service, or both (Van Buskirk 2015). Similarly, by poorly performing utilities. Sierra Leone, as per its energy efficiency can make larger off-grid solar home sys- SE4ALL Action Agenda, plans to reduce its grid losses from tems more affordable (Figure 4.11). According to a recent 17 percent currently to 9 percent by 2020 by upgrading its analysis “the upfront cost of a typical off-grid energy sys- grid infrastructure, investing in low voltage distribution, tem can be reduced by as much as 50 percent if super-ef- and improving the monitoring of customer consumption to ficient appliances and right-sized solar PV and batteries are avoid non-technical losses (ECREEE 2015). India, with a used, while delivering equivalent or greater energy ser- transmission and distribution loss of 23 percent, is increas- vice.” (Van Buskirk 2015). ing its efforts to reduce grid losses—in part through a Thus, advances in energy-efficient devices — including planned mandatory labelling of distribution transformers DC appliances as mentioned earlier — now allow house- (Mohan 2014). Rwanda, in line with its SE4ALL objectives, holds to reap more benefits and at a lower cost from the secured financing of $25 million in 2015 from the European relatively small amounts of electricity available to them. Union to improve and upgrade its grid infrastructure to Instead of illuminating a single light bulb, CFLs and LED reduce its power loss from 23 percent to 17 percent in the lamps use provide more and better light and consumer coming years (Bateta 2015). less energy, leaving enough energy to power other elec- tronic devices such as fans and low-wattage TVs and appli- Energy Efficiency on the Demand Side ances, as Figure 4.12 shows. The success of off-grid technologies for providing energy Moreover, the positive impacts of efficient lighting on access in recent years is largely attributable to the availabil- off-grid energy service markets need not remain limited to ity of energy efficient appliances. For instance, in many lighting. The price and service impacts can be replicated for countries the use of high efficient LED lamps has enabled other, more advanced, forms of energy service—such as the implementation of various modern lighting pro- refrigeration, telecommunications, and industrial appli- grammes and initiatives in rural and electrified areas. As ances. Off-grid solar LED street lighting provides commu- the Royal Swedish Academy of Sciences put it when nal lighting and promotes public safety and after-dark announcing the 2014 Nobel Prize in Physics: “The LED social and commercial activity. Similar to solar home sys- lamp holds great promise for increasing the quality of life tems, the use of efficient LEDs reduces the need for more for over 1.5 billion people around the world who lack expensive solar PV and battery configurations. Municipal access to electricity grids. Due to low power requirements, street lighting can account for 20 percent or more of a city’s it can be powered by cheap local solar power.” grid-connected electric load. Retrofitting street lights with FIGURE 4.11 Linking energy efficient appliances and energy access through clean energy ENHANCED SERVICE MORE AFFORDABLE The same system paired with super- Appliances super-efficiency also An energy system with a efficient off-grid appliances providers enables much smaller, more 40 Wp solar panel and greatly enhanded energy services: affordable energy systems to 70 Ah battery will powe 70 Ah battery will powe provide equivalent and even • a 25 W incandescent light superior service. • 2 LED lighting fixtures bulb (250–400 lumens) (=900 lumens) for 5 hours/day • For example, a 10 Wp solar for 5 hours/day • a 13 W TV for 3.5 hours/day panel and a 2–5 Ah battery • a 6 W fan for 4 hours/day can power a LED lighting • a 1 W mobile phone charger fixture (200–300 lumens) for 4 hours/day up to 8 hours/day • a 1 W radio for 5 hours/day Source: Global LEAP Initiative. Analysis courtesy of Humboldt State University’s Schatz Energy Research Center. 60    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 FIGURE 4.12 Solar home systems increasingly offer more for less (Retail purchase price for three solar home systems that provide identical levels of service) SHS with Standard Appliances (2009) SHS with Standard Appliances (2014) SHS with Super-Efficient Appliances (2014) SHS with Super-Efficient Appliances (2017) $0 $200 $400 $600 $800 $1,000 $1,200 Retail price by component ($US) Lights Battery PV Balance of system Appliances Source: PHADKE 2015. LEDs can achieve significant energy savings — reducing Certainly, the global off-grid marketplace will need a energy supply constraints, freeing up energy for other uses, complementary, competitive marketplace of low-cost, and potentially improving grid reliability (Silverspring Net- energy-efficient, high quality, and well-designed off-grid works n.d.). In Guadalajara, Mexico, energy savings from appliances. At this point, such a market does not exist, retrofitting streetlights with LEDs has led to over 50 percent due largely to a lack of familiarity with the off-grid market reduction in energy consumption (Makumbe et al. 2016). opportunity by appliance manufacturers, as well as the With the rapid development of the off-grid energy sec- risks and difficulties of market entry perceived by those tor, the untapped market of direct current (DC) energy effi- manufacturers. Moreover, off-grid companies are ill- cient appliances has received renewed interest. Under the equipped to develop off-grid appropriate appliances of traditional grid-connected model, alternating current (AC) their own, and the market infrastructure to equip off-grid power has become the norm. However, given that solar PV companies to source outstanding appliances is lacking. produce and batteries store DC power, it might be more Against this backdrop, five key challenges stand out: economical to use DC appliances. With DC appliances connected to off-grid energy systems, there is no need for Lowering tariff barriers. Developing countries often im- conversion between AC and DC. There is thus no need for pose high import duties on appliances and equipment, an inverter for the off-grid system as well as a significant usually to protect domestic manufacturing, generate reve- decrease in electricity losses. In addition, with the efficiency nue, or generate income from perceived luxury items (like gain from the use of DC appliances, the size of PV panels a “luxury tax”). Reducing duties for high-quality, highly-ef- needed for a SHS and battery systems is considerably ficient products—possibly benchmarked against an inter- reduced, resulting in a decline in the cost of off-grid energy national or regional standard—will lower downstream systems and dramatically increasing their affordability. The prices for these products and make them cost-competitive availability of DC appliances (namely DC television, radio, with inefficient products, in turn, spurring uptake and fans, and refrigerators) could in the long run prove to be a access to benefits (such as lower costs and reduced load major driver for the off-grid solar market. Already in 2015, shedding). more than 137,000 SHS together with DC appliances have been sold in East African countries (GOGLA 2016). Easing financial constraints. The procurement processes tend to favor products with the lowest initial price, despite Linking Up Energy Efficiency and Access the fact that although many products with superior energy What can be done to better link up energy efficiency and performance have a higher up-front cost, they have a sig- access, given how important they are to each other? Off- nificantly lower life-cycle cost. grid energy access companies around the world are creat- ing a global market to reach billions of consumers—and Encouraging political and market champions. Econo- energy efficiency underpins their success in meeting these mies with energy access challenges often need a strong needs. Conversely, energy access markets hold the poten- and vocal community of efficiency stakeholders. A major tial to drive energy efficiency technology, market, and pol- barrier is that frequently there is little overlap between the icy to leapfrog longstanding challenges associated with professional communities who work on energy efficiency energy efficiency, unlocking untold economic and environ- and energy access; energy access experts are not neces- mental benefits, and transforming the way the world con- sarily energy efficiency experts, and vice versa. sumes energy. “ CLEAN ENERGY” AND ENERGY A C C E SS    61  Enhancing visibility. It is tempting, and politically conve- while energy efficiency can contribute to energy security nient, to just add more generation capacity. But the focus and enhance the reliability of supply, particularly in capaci- needs to be on improving energy efficiency to bolster ty-constrained systems. For instance, energy efficiency energy service and sector performance—which will have a measures in IEA member countries avoided at least 190 longer time horizon, even though it is less visible and Mtoe of primary energy imports in 2014, equivalent to $80 harder to quantify. billion (IEA 2015b). The shift to clean energy also forces a move away from existing, often inefficient infrastructural Creating self-sustaining markets. This is a major chal- systems, often resulting in improved energy security. The lenge given that it requires a level of infrastructure that is use of efficient appliances in low income households can often lacking in countries with low levels of access. But have a significant impact by reducing energy bills, and thus it is vital for ensuring quality, not to mention enforcing freeing up disposable income. It can also keep these standards. households within the consumption blocks for which tariffs The good news is that despite these challenges, and a are lower (e.g. social tariffs) (Sarkar and Subbiah, 2013). general lack of priority on energy efficiency efforts, there are many examples of smart practices and effective mod- A more sustainable clean energy market. Linking off-grid els for incorporating energy efficiency in access activities. energy systems with energy efficiency creates a virtuous In recent years, a slate of high-impact programs have prior- circle for the clean energy market. As Figure 4.13 illus- itized a broader view on developing energy access mar- trates, energy efficient off-grid appliances considerably kets, looking at commercial investment and supply-chain reduce the price of off-grid energy systems needed to management, to policy reform, to consumer awareness. power them, thereby increasing the demand for the latter. Common to these efforts are: The savings made by households through the use of renewable energy off-grid systems allow households to • A thoughtful evaluation of their respective markets’ fun- move up the energy ladder, thereby increasing the demand damentals and barriers. for energy efficient appliances. As a result of economies of • A nimble market-based approach to improving those scale, the price of those appliances decreases, making off- fundamentals and removing those barriers. grid energy more affordable. • An appreciation of the importance of product quality More jobs and higher green growth. The more capital and energy efficiency to sustainable market growth. intensive an energy technology or infrastructural system is, The new programs—such as Global LEAP (the Global the less embodied labor it has. That is why nuclear power Lighting and Energy Access Partnership)—will encourage and fossil-derived electricity, which are the very capital the development, marketing, and quick uptake of energy intense, cause net reductions in regional employment— efficient, off-grid appliances. ratepayers have to lower expenditures on other goods and services to finance construction. In contrast, renewable energy, which is much less capital intensive, creates jobs. THE CO-BENEFITS OF CLEAN ENERGY In 2015, global gross employment in this sector rose by Historically, the reasons for investing in clean energy were an estimated 5 percent, reaching 8.1 million jobs (direct to increase security of supply, reduce greenhouse gas and indirect), with solar accounting for about half of them (GHG) emissions, and provide off-grid access to electricity. (Figure 4.14). The bulk of these jobs were in countries that Investment occurred despite the fact that electricity from are major equipment manufacturers and producers of bio- renewable resources was often more expensive than con- energy feedstock (such as China, the United States, Brazil, ventional generation, especially when technology costs India, and Germany) (REN21 2016). The jobs cover a wide were still high. range of occupations across the value chain—especially, in Today, the rationale for investing in clean energy tends manufacturing, construction and installations (MCI), and also includes its “co-benefits”—that is, the positive side operations and maintenance (O&M)—with big variations in effects, secondary benefits, collateral benefits, or associ- terms of job creation locally and in duration. For example, ated benefits from a particular green policy or clean energy construction and installation created the most jobs, and system (Miyatsuka and Zusman 2010). These benefits can wind offshore jobs lasted the longest (Figure 4.15). be direct or indirect, as well as monetary or non-monetary, Looking ahead, a recent study by IRENA (2016), esti- although challenges remain in quantifying them. mates that global GDP would rise by 1.1 percent if the international community can meet the SE4All objective of Lower emissions and costs. Clean energy promotes avail- doubling the share of renewable energy in the energy mix ability, affordability, technology development, sustainabil- by 2030—thereby improving human well-being and wel- ity, and regulation (Sovacool 2011). Typically, an “optimiz- fare and contributing to the creation of some 16 million ed” level of diversification is achieved when different types additional jobs in the renewable energy sector (both direct of clean energy are promoted at once, or certain portfolios and indirect) (Ferroukhi et al. 2016). of energy systems are arranged to explicitly minimize risk Similarly, in terms of net effect—that is, jobs created in across the entire sector at the lowest cost. Many renewable the renewable and energy efficiency sector less jobs dis- electricity systems can provide hedging against fossil fuel placed in the fossil fuel industry due to investment in clean price volatility and reduce GHG emissions to improve energy—it is estimated that in the short term in the Euro- stakeholder relations and revitalize rural areas (Pater 2006), pean Union, 1 job may be created per GWh of electricity 62    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 FIGURE 4.13 Virtuous circle for clean energy markets 2 Increasing demand for off-grid energy services More households demand energy to power improved, high-quality, off-grid appliances 1 3 Improvements in Energy becomes performance and more accessible availability of appliances Heightened demand Scaling market improves for energy helps off-grid affordability, efficiencies, businesses diversify revenue and value for money, streams and scale, improving making appliances more sector economics accessible 4 This increases the demand for off-grid appliances More households demand appliances to take advantage of improving energy access ecosystem Source: Global LEAP—The State of Global Off-grid Appliance Market, 2016 FIGURE 4.14 Solar and bioenergy create the most jobs (Jobs in renewable energy sector, 2015) Bioenergy (biomass, biofuels, biogas) Geothermal (biomass, biofuels, biogas) Hydropower (small-scale) Solar energy (solar, PV, CSP, solar heating/cooling) Wind power = 50,000 jobs World total: 8.1 million jobs Source: IRENA. saved or generated from clean energy sources (Blyth et al. ing more net jobs per dollar invested (ACEEE 2011). The 2014). India recently estimated that between 2011 and IEA calculates that the 15 percent reduction in energy con- 2014, some 24,000 full-time employment (FTE) jobs were sumption from 1995 to 2010 added 770,000 additional generated in the solar PV industry. If it is to achieve its 2022 jobs—equivalent to a 0.44 percent increase in the overall target of 100 GW of solar, 1 million FTE may be created in employment rate, and $14 billion in additional annual the sector, highlighting the need to build local capacities, wages and salary incomes (Geller and Attali 2005). skills, and expertise in renewables (NRDC 2015). Investments in energy efficiency generate opportuni- Fewer climate change impacts, greater resilience, and ties in industries that are more labor intensive by produc- adaptive capacity. Reducing the energy intensity of agri- “ CLEAN ENERGY” AND ENERGY A C C E SS   63  FIGURE 4.15 Some renewable technologies create more jobs than others (Employment factors by renewable energy technology) CONSTRUCTION CONSTRUCTION + OPERATION + TIMES INSTALLATION MANUFACTURING MAINTENANCE FUEL SUPPLY Years Job years/ MW Job years/ MW Jobs/ MW Jobs/ PJ Hydropower 2 6 1.5 0.1 Wind onshore 2 2.5 6.1 0.2 Wind offshore 4 7.1 10.7 0.2 Solar PV 1 9 11 0.2 Geothermal 2 6.8 3.9 0.4 Solar thermal 2 5.3 4 0.4 Ocean 3 9 1 0.3 Geothermal—heat 6.9 Solar—heat 7.4 Biomass 2 14 2.9 1.5 32.2 Biomass CHP 15.5 2.9 1.5 32.3 Source: IRENA. Note: MW stands for megawatt. culture through better irrigation and reduced fertilization services. Recent developments have dramatically altered can also create farming techniques that are more drought the costs, the risk profiles, and the dynamics of investing in resilient (Economist. 2011). Increasing the efficiency of the renewable energy technologies, which are increasingly space cooling and heating can reduce electricity consump- becoming attractive business propositions for the private tion, while also making cooling more affordable for low- sector, governments, and consumers. er-income groups (Sovacool and Brown 2009). Decreasing Off-grid energy has instilled a new dynamic in energy exploration and drilling for fossil fuels can prevent GHG access and is proving to promote incremental shifts up the emissions from combustion, while diminishing the risk of oil energy ladder. Renewable based off-grid technologies— spills and consequent stress on ecosystems (adaptation) solar lighting products, SHS, and mini-grids—are no more (Moser 2012). Energy efficiency programs can reduce considered as interim measures but rather a viable option energy use and cut consumers’ energy bills, translating into that has the ability to provide energy services across the greater financial resilience to future shocks (Moser 2012) full range of energy access suiting the needs and income of households. Substantial drops in equipment and component prices, CONCLUSION enhanced grid integration protocols, innovative off-grid The continued growth of renewable energy and energy business models, improvements in storage technologies, efficiency—despite the tumbling prices of fossil fuels—is a and other developments are changing the energy land- clear indication that there is a global shift toward the adop- scape—with renewable energy emerging as an increas- tion of clean energy. Countries are rapidly developing their ingly important contributor in both on-grid and off-grid clean energy strategy, as illustrated by the number of power generation investments. SE4ALL Actions Plans developed and the commitments In addition to addressing the twin challenges of provid- made in their respective INDC’s. This stems from the ing modern energy services and mitigating climate change, increasing need to both tackle the issues of climate change clean energy may also bring significant co-benefits— and energy poverty, especially in developing countries. including emission reductions, cost savings, more jobs, It is clear that clean energy will thus play a very strong better health, and a lower risk of climate change. role in ensuring universal access to energy services. As Providing universal access for all involves a complete costs continue to come down rapidly, system innovations rethink of how energy is generated and used. 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Paris, France: REN Secretariat. sells-30000-solar-tvs-in-kenya-and-looks-to-add-internet-access- expanding-to-uganda-and-tanzania REN 21. 2016b. Renewables 2016: Global Status Report. Paris, France: REN Secratariat. http://www.azuri-technologies.com/news/azuri-partners-with-zuku- launches-solar-powered-paygo-tv-and-satellite-service SE4All (Sustainable Energy for All). 2015. “Billions of dollars mobilised under the Sustainable Energy for All.” Website. http://www.se4all. https://medium.com/global-entrepreneurship-summit/want-to-end- org/2015_05_20_billions-of-dollars-mobilised-towards-goal-of-sus- poverty-start-with-electricity-5ff448a03d6c tainable-energy-for-all http://www.plugintheworld.com/mobisol/product/ CHAPTER 5 EMERGING AND INNOVATIVE BUSINESS AND DELIVERY MODELS KEY MESSAGES • The need to balance return-on-investment with customer affordability is increasingly recognized by emerging energy service delivery mechanisms. Public sector support is often necessary to offset upfront private investment costs in capital-intensive renewable energy technology and to attract the finance required for universal access to modern energy services. • Emphasis on appropriate policy measures is an essential requirement for continued innovation and scale-up— enabling a clear framework for regulation and legislation that facilitates the providers of effective and sustainable delivery models. Lack of policy creates too much uncertainty and, therefore, risk that deters private investors. • Clear grid expansion plans must be available to suppliers of alternative off-grid options in order to effectively integrate the roles of grid and off-grid solutions. Provisions and processes are also necessary for the circumstances where the national grid is extended to areas that have previously been provided with off-grid connections. • Training for local service providers is essential to build long-term supply and support structures, but also to allow delivery mechanisms for energy service to be effectively adapted to the unique local conditions. Such capacity building will also contribute to local job creation, economic uplifting, and consequently indirect market creation. • Emerging and innovative energy service delivery mechanisms are encouraging. If countries could create the necessary environment for them to be replicated and scaled up, countries could accelerate efforts to achieve universal access to modern energy services. INTRODUCTION W hat are the emerging and innovative business the majority of new electricity connections in developing and delivery models? A major focus of the countries will be most cost-effective through decentral- international effort to ensure universal access to ized systems—there has been an increasing focus on new electricity these days is reaching people living in remote delivery models for rural electrification (IEA 2011). The areas in developing countries, but it is increasingly clear associated remote-energy-access initiatives for clean that the traditional approach to electricity grid extension energy have not yet created fully receptive market condi- will not suffice. The typical utility-based, centralized tions for private investment, but many new approaches approach to grid extension involves significant upfront are being implemented and may provide the foundation investment in infrastructure to deliver the power required for future scale-up. by customers, whose level of consumption will provide a Until recently, support for non-grid electricity systems payback for the utility over an acceptable timeframe. But has been based upon funding allocations from public pro- the connection costs to remote areas—which demand less grams. But this approach is not sustainable. Based on the electricity—are much higher. Typically, these customers growing experience of rural electrification, there are good cannot afford large upfront costs, so payback can only be prospects for private sector business applications, though achieved over an extended period, or is simply not feasi- still not many successful installations. Grid-expansion ble. Thus, innovative delivery mechanisms are required for efforts will certainly continue to draw on public finance and sustainable electricity supply to remote areas. must be planned in a way that the grid will provide a ser- There are already a range of options for remote electri- vice to customers who are located where the grid can be fication that may have the potential for scale-up and sus- cost-effective. For off-grid applications, there is an urgent tainability. Following the International Energy Agency’s need for more pragmatic business models that can achieve (IEA) World Energy Outlook in 2011—which stated that the sustainable impact required.   67  68    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 Attracting private finance to any venture with high per- For mini-grids, the unknown probability of future grid ceived risk will always be a challenge. But the good news integration is a critical factor. Several mini-grids develop- is that there are a growing number of energy access activi- ers, including PowerGen, Husk Power Systems, and SunE- ties with private sector involvement—such as the UN dison Frontier Power, have identified this as a decisive Foundation Energy Access Practitioners Network , SE4All’s business issue. The case of India is often highlighted, Clean Energy Mini-Grid (CEMG) High Impact Opportunity where the state electricity distribution companies (dis- (HIO) , the U.S. Power Africa initiative , and the Alliance for coms) act with little regard to mini-grid developers and do Rural Electrification (ARE) . As a result, new delivery models not publicize in advance any plans for developing exten- are being developed and adapted to local conditions, sions to the central grid. Investors have proposed several although these adaptations inevitably increase the cost of solutions to safeguard investments in distributed, mini-grid replication and scale-up. solutions. These include: (i) allowing mini-grids to feed The bottom line is that there are still few examples of power into a central grid at a fair feed-in tariff; (ii) permit- commercially viable installations, which offers an enor- ting discoms to enter into power purchase agreements mous market opportunity for private sector suppliers, with with the mini-grid providers; and (iii) allowing the central continued help from public funding sources. This chapter grid utility to purchase the mini-grid upon interconnection outlines the main risks and challenges perceived by inves- subject to a set minimum return on investment, rather than tors and highlights examples of new delivery models that negotiating a feed-in-tariff or purchase power agreement are being implemented—including consideration of the (PPA) (Jha 2015). financing mechanisms introduced, and how policy and Another policy issue is duty exemption. Some govern- regulation and incentives are affecting their development. ments have reduced or abolished customs duties for com- The chapter concludes that the best innovative energy ser- ponents being imported for mini-grid projects, in light of vice delivery models include several factors: (i) consider- the social gains from rural electrification through mini- ation of the demands, interests, and restrictions of local grids. But in practice, developers have found that negoti- customers, including the desire to pay with mobile pay- ating the duty exemption carries significant risk and high ments systems; (ii) strong partnerships along the entire transaction costs, discouraging them from even trying in supply chain, from the government and utilities to private some cases. sector service providers; and (iii) adaptation of market However, the key challenge centers on the need for dynamics to local conditions to support successful, sustain- accessible financing models—which are starting to be able clean energy solutions. launched in the form of new finance and investment com- panies that focus on mini-grids and solar home systems (SHS). These firms, all established within the past few HOW INVESTORS PERCEIVE RISKS AND years, provide several means of financial support, includ- CHALLENGES ing early-stage corporate investment, working capital, The creation of appropriate market conditions for new asset management, portfolio aggregation, and securitiza- delivery models requires a range of steps to help address tion. This increased capacity for financial management the risks perceived by investors. The prospect of invest- when dealing with remote customers has seen rapid ment in often unfamiliar technology in unknown locations growth in the SHS sector, with great potential also recog- with uncertain regulatory requirements and an unfamiliar nized for mini-grids. Business models should therefore customer base creates a risk profile that simply does not always consider policy and financial factors, and recognize compare favourably with other opportunities that may be the link between the two. And the government should not available to investors. Thus, action is required to address only allay investor concerns about the level of risk but also the unfamiliarity of investors with energy access initia- deliver longer-term benefits (including lower technology tives, which would help attract the necessary finance on import duties and VAT). terms that can allow affordable repayments by the target Decentralized electricity options can be successfully end-users. applied in many different locations worldwide, providing For investors, confidence in the stability of market con- that the necessary policy framework is in place. As indi- ditions is paramount to secure their required returns, usu- cated in Chapter 1 of this report, it is also important to ally requiring some evidence of a supportive policy integrate energy access efforts within other sector-specific framework. One of the key factors any investor takes into policies in order to leverage the inter-dependence. It is account is the payback period. For rural energy supplies, widely agreed by investors that the specifics are not as there are likely to be high upfront costs and customers with important as simply having a policy that is clear and actu- low levels of income, suggesting that affordable repay- ally put into practice. ments must be extended over a longer timeframe than One way to offset the investment risk is to allocate normal for similar financial needs. Reducing the perceived short-term public sector funding. This can enable project risk of payment default therefore requires some certainty developers to offset upfront development costs and over the future business environment. The lack of such demonstrate innovative business frameworks for success- clarity for rural electrification conditions in existing policy is ful and sustainable future operation. Recognizing the need often an unsurmountable barrier for any business seeking for such early-stage support, a range of international to attract finance for rural energy applications in develop- development organizations are active in facilitating the ing countries. establishment of new delivery models that are based on grid-connected or off-grid renewable energy technolo- EMERGING AND INNOVAT IVE BUSINESS AND DELIVERY MO DE L S   69  gies. These programs can offer welcome support for included a wide range of support measures (Walters 2015). potential project developers and help to attract longer Government or development program intervention is usu- term private investment. ally evident, as well as training for local microfinance insti- This type of public sector subsidy is widely acknowl- tutions on underwriting, installation, and service, and a edged as being helpful, but many developers have found strong ground presence with teams of loan officers and that it is very difficult to access. That is why some mini-grid technicians. Some form of direct subsidy is also often companies are proposing other frameworks that could be required. In the case of IDCOL, customers had access to more streamlined and effective: government grants that reduced the SHS price, especially low-income ones, for whom the grant offset a significant • Government subsidies to the institution financing the proportion of the cost of smaller systems. debt for mini-grid projects, which would reduce the Getting these pieces to fall into place is a challenge developer’s transaction costs. The subsidy could be that not every market has overcome, and as a result, there used in different ways, from increasing the amount of are still major challenges to the continued sustainability of credit available for a given project, to mitigating cur- these systems. Even in those countries (such as Bangla- rency risk, to reducing interest rates and decreasing the desh) that have achieved good SHS installation rates, a cost of capital. number of tasks must be undertaken to ensure any further • Performance based operating subsidies, which would market expansion, including: (i) developing a competitive help mitigate customer revenue risk. low-cost SHS manufacturing industry locally to reduce dependence on imports; (ii) developing and ensuring qual- • Risk-adjusted capex and operating subsidies, poten- ity standards for these systems; and (iii) creating more sus- tially based on individual customer FICO score equiva- tainable business models (Smart-Villages 2015). lents. A risk-adjusted connection subsidy or ongoing One key factor for success in supplying capital-inten- payment subsidy could function in a way similar to sive equipment to a market with limited payback capacity low-income housing subsidies. is a good financial model. Approaches vary, but companies To date there have been few examples of such facilities typically raise some capital from sources that do not being made available, although public sector funders are demand fully commercial returns (such as public sector increasingly aware of the need to address this constraint. funders or philanthropic/impact investors) to act as a credit cushion against which they can gear up additional com- mercial capital. Some examples of companies raising funds MARKETS, BUSINESS MODELS, AND to finance their plans for scale up in Africa include M-KOPA TECHNOLOGY in Kenya, Mobisol in Tanzania and Rwanda, and Nova The options for energy access expansion need to be tar- Lumos in Nigeria and Guinea (Table 5.1). geted at appropriate markets. In general, the three areas Another key success factor is the establishment of sus- of stand-alone systems, mini-grids, and grid extension are tainable retail, distribution, and servicing channels. For segregated and serviced by different groups of suppliers. companies involved with the supply of electricity genera- tion systems for individual households in remote areas, Markets Serviced by Stand-Alone Systems these channels can be almost as costly to develop and Solar home systems and small-scale solar lights have been maintain as the equipment itself. This explains why the promoted for decades as solutions to energy poverty in prices of equipment in rural areas are usually well above developing countries. Since the 1980s, companies like the international wholesale norms. System suppliers have Soluz in Latin America, microfinance institutions in Asia like different strategies to address this market. Some compa- SEEDS, and the Indian Renewable Energy Development nies (such as M-KOPA, Mobisol, Off Grid Electric) have Agency Ltd. (IREDA) have offered consumers credit to built up their own distribution channels, while others have finance these systems. This model of coupling microfi- partnered with mobile phone companies to adapt existing nance with renewable energy technology became known distribution channels (such as Lumos in Nigeria linking with as “energy lending,” was designed to increase access to MTN). Either way, effective distribution channels cannot be modern energy services. built overnight, and they are a key constraint on how Yet despite the rapid and steady decline in the cost of quickly companies can scale-up. these solar systems, consumers still face the financial hurdle Solar PV systems are the most common power source of high upfront costs. As the CEO of Azuri, Simon Brans- for such individual stand-alone electricity supplies, but the field-Garth has stated, “a typical rural farmer who earns rate of expansion depends upon customer access to $2-3 per day would struggle to pay outright for a basic $70 finance. The off-grid solar market is projected to grow from solar home system.” In addition, these consumers often about $540 million in 2014 to $2 billion by 2024—with incur a small ongoing cost related to candles for lighting Africa and South Asia the major markets. Access to dispos- and local vendors for batteries and cell phone charging. able cash income, credit worthiness of the borrower, and What would it take to create a viable new market? The availability of credit facilities are factors that determine the answer lies with a broad enabling environment. Energy success of this model (Navigant Research 2014). lending has seen the adoption of millions of solar home Pay-as-you-go (PAYG) models have become increas- systems (SHS) throughout the world—such as through ingly attractive in many markets. This is based upon expe- IDCOL in Bangladesh, which financed at least 3 million sys- rience suggesting that, even under local conditions in tems as of 2014)—but examples of success have inevitably remote markets, the key to a cost-effective stand-alone 70    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 TABLE 5.1  Recent capital raising by off-grid electricity companies in Africa COMPANY GEOGRAPHICAL FOCUS DATE AMOUNT KEY SOURCES M-KOPA East Africa, esp. Kenya Dec-15 $15m High Net Worth Feb-15 $12.45m Institutional impact, Dec-13 $20m philanthropic investors Azuri Technologies Sub-Saharan Africa Jul-13 US AID DIV (Development Innovation Ventures) grant Feb-13 $13m Barclays working capital loan Nov-12 Equity, debt & grants—lead VC investor IP Group Plc Off Grid Electric Tanzania, Rwanda Oct-15 $25m DBL Partners Dec-14 $16m SolarCity Early-14 $7m Other institutional and impact investors Mobisol Tanzania, Rwanda Jul-15 €10.7m DEG (loan) Other funding: European Development Fund, Africa Energy Challenge Fund Nova Lumos Nigeria, Guinea Oct-15 $15m OPIC (loan) Other funding: Israel Cleantech Ventures Bbox Kenya, Rwanda, Uganda Mar-15 $3m Private equity (inc. Bamboo Finance) Nov-13 $1.9m Other funding: Khosla Impact, DOEN Foundation Fenix International East Africa Jan-15 $12.6m Corporate: GDF Suez, Schneider Electric, Orange Other funding: VC, Impact investors Greenlight Planet 40 countries; mostly Feb-15 $10m Fidelity Growth Partners Asia and Africa Apr-12 $4m Bamboo Finance Started in India energy system business is a finance model that matches payment has not been made. Under the ownership model, affordable pricing for the target consumers with an ade- the system will automatically unlock permanently once the quate return on investment for the supplier. PAYG solar user has paid off the full amount of the loan. Also in both companies seek to provide energy services at a price point models, users usually make an upfront payment to cover that is less than, or equal to, consumers’ current spending installation costs and to reduce the financial risk exposure on kerosene, candles, batteries, and other low-quality of the provider. energy services. Providers are incentivized to offer quality PAYG finance is quickly becoming a successor to energy after sales service, since a user’s ongoing payments are lending for solar power in developing countries (Box 5.1). tied to the system continuing to function. This is due to early experience of successful implementa- PAYG providers can take one of two approaches to tion, showing very high rates of growth. Lighting Global (a financing the system to the consumer: World Bank platform) has estimated that there are 32 PAYG companies in 30 countries, many of them in Africa (Global • An indefinite fee for service in which the consumer Lighting, 2014). They use existing mobile payment sys- never owns the system itself, but rather merely pays for tems or scratch cards for fee collection. Consumers benefit the ability to use it. Payments are typically made on the from increased affordability, increased confidence in the basis of when the consumer needs power and can product, and access to maintenance services. For the sup- afford it. plier, PAYG lowers the transaction costs without the need • The consumer eventually owns the system after paying for a significant rural financial infrastructure, and it reduces off the principal of the system cost—and the consumer the cost and risk of doing business. M-KOPA Solar is an must make discrete payments, typically on a daily, often-cited example of a firm with good experience of suc- weekly, or monthly basis (thereby resembling a typical cessful PAYG applications, having connected more than financing arrangement). 330,000 homes in Kenya, Tanzania, and Uganda to solar power with over 500 new homes being added every day With either approach, the system “locks” to prevent con- (Economist 2016). sumption if the user runs out of credit or if the financing EMERGING AND INNOVAT IVE BUSINESS AND DELIVERY MO DE L S   71  Markets Serviced by Mini-Grids Companies large and small, new and old, are using a It is widely believed that mini-grids will play an essential wide range of different business models in an attempt to role in meeting the goal of electricity access for all (SE4All release the full mini-grid market potential. Recognizing 2015). Mini-grids can be a viable and cost effective route the cost-effectiveness of delivering power through mini- to electrification where the distance from the grid is too grids, numerous private sector players have sought to large and the population density too low to economically capture the massive opportunity inherent in providing justify a grid connection. Mini-grids provide an enhanced access to electricity. Many different approaches have service level compared with individual household systems been formulated to address the diversity of consumer and, depending upon local resources and technologies ability to pay, consumer location, policy and regulatory employed, can be comparable to a well-functioning grid. environments, and available financing found throughout However, despite advances in technology, and associated the world. These experiences, even those that are unsuc- cost reductions, the pace at which clean energy mini-grids cessful, can offer lessons for future mini-grid market are being developed and financed remains slow due to a development. range of barriers (see Chapter 3). The rationale articulated by mini-grid developers for High upfront costs and long-term payback are particu- focusing their efforts on these systems, rather than stand- lar challenges for mini-grids businesses. The status quo of alone applications, is driven by a “bet on the future.” supplier load control and monthly tariffs for mini-grid sys- Developers are assuming that individuals in communities tems inhibits the quality of service and any potential for (which together can create significant local economies) financial sustainability. However, recent technology inno- will eventually be able to afford TVs, radios, refrigerators, vations on metering and control processes by firms (such and other appliances in their houses. They will also start to as Powerhive, SteamaCo, SparkMeter, and Inensus) are invest in so-called “productive uses”—the engines of enabling equipment to be downsized, thereby cutting the small businesses. On this basis, the demand for electricity costs of providing small village-scale grids. New innova- to power all the associated devices will clearly grow sig- tions are enabling pre-payment, mobile payments, load nificantly in the future. This will quickly surpass the capac- limits, and remote monitoring and control to improve mini- ity that can be offered by stand-alone systems but is grid operations. unlikely to reach the threshold required to justify full grid The cost of data gathering required to establish future extension for some time (sufficient for an acceptable mini-grid markets has also been reduced through access return on investment). to GIS (geographic information system) data on handheld As many developers are discovering, access to 24/7 devices that can be used by local staff. This has helped to “on demand” electricity of unlimited quantities is not nec- lower the level of upfront investment required for project essarily aligned with the realities at both the local and development, facilitating broader aggregation options. national level. Project developers have identified several The pooling of contacts from individual households or specific barriers, including: small businesses in a rural community, while maintaining • Numerous cases of time-consuming or expensive cus- transparent supporting data, is a key ingredient for recently toms processes that are frequently difficult to navigate. established businesses in developing countries. This has triggered the beginnings of scale-up by a number of • Local politics: energy companies and financing organizations that are – One developer cancelled a project in India because dealing with such mini-grid applications. the two opposing clans in the village made clear However, for sustainable scale-up, the mini-grids deliv- that if the solar PV plant was in the other clan’s terri- ery model must reflect consumer preferences and include tory, they would sabotage it. an appropriate financing mechanism. As with grid exten- – Several projects falling into disrepair as a result of sion, the mini-grids model is not constrained by any need communities’ expectations of the impending arrival for consumers to have financial capital available. Instead, of the central grid created by empty promises of the upfront investment is made by the supply company local politicians. and is recovered through sales of electricity. Debt and equity financing is generally from private sources, often • Unwillingness of financiers to provide levels of funding with some funding from credit or technical assistance facil- on the necessary terms to make projects viable. ities set up by donors. But an evaluation of seven micro- Unlike the perspective held by large companies in the grids by the UN Foundation noted that crucial to the energy access space, small developers report that the big- success of a micro-grid business was keeping customers gest barrier to scale is financing. Emerging delivery models satisfied through service and reliability (Schnitzer 2014). must take account of experience to date, which has con- Full revenue collection also requires appropriate tariff cluded that: design, tariff collection mechanisms, maintenance and contractor performance, theft management, marketing/ • Achieving scale and cost-effectiveness is the key chal- promotion for demand growth, load limits, and local train- lenge that will determine how well new delivery models ing and institutionalization. Addressing all of these factors can help to bring universal access to energy by 2030. is crucial to business success in remote areas, and the lack • Demonstration of the commercial viability for remote of such multi-faceted approaches helps to explain the slow energy access solutions is a key target. rate of market development. 72    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 BOX 5.1 Replicating East Africa’s Pay-as-You-Go Success Story East Africa—and in particular, Kenya—has a long history of build- ucts, which have quickly integrated cell phone charging capabili- ing off-grid solar markets. In Kenya, the market for solar PV sys- ties. Kenya is also the birth place of mobile money. The mobile tems began back in the mid-1980s, and by the early 2000s, some platform M-Pesa (“M” for mobile, “Pesa” for money) was 30,000 systems were being installed per year—most of them launched by the Kenyan telecom company Safaricom in 2007 through an unsubsidized free market. Solar was then (and is now and quickly became a standard platform for financial transac- again) the most common source of electricity connections in rural tions. Today, East Africa accounts for 34 percent of all registered Kenya. However, the solar home systems were relatively expen- mobile accounts globally. The high GSM coverage, variety of sive, and without the involvement of micro-finance institutions, smart-metering technologies, and fast spread of mobile money which were driving off-grid solar market expansion in Asia, the gave rise to the pay-as-you-go (PAYG) business model—together market remained very shallow. In addition, there were concerns overcoming the main affordability constraint for solar home sys- about the quality of the systems in the market. tems (SHS) by allowing customers to pay in small increments. It is But in 2010, the market got a new impetus when a new gen- estimated that by end 2016, there were about 700,000 systems eration of pico-PV products emerged—driven by technology installed on the PAYG platform in Kenya alone. advancements (such as new LED lighting, falling solar PV prices, Although the PAYG business model is still very new, and differ- and improved energy storage technologies like lithium-ion bat- ent companies are exploring variations of this business model, teries). Supported by the World Bank Group Lighting Africa pro- certain trends are emerging (based on interviews carried out for gram, which introduced quality standards and provided early the SEAR case study in the first quarter of 2016) market support, off-grid solar product sales in Kenya and neigh- boring East African countries exploded—reaching almost 2 mil- lion in Sub-Saharan Africa in 2016, with Kenya accounting for FIGURE B5.1.1 Kenya leads the way in Africa’s off-grid almost half (Figure B5.1.1). This growth was supported by a solar product sales favorable fiscal policy, as solar products benefitted from the (Off-grid solar products sales in SSA, first half 2016 East Africa Community’s customs duty and VAT exemptions. Total Sub-Saharan Africa 1,956,810 Plus, the East African countries rank well on a favorable general Kenya 561,604 business environment (as in the Doing Business survey), along Ethiopia 231,097 with a favorable off-grid renewable business (for example, Cli- mateScope and RISE). Uganda 190,725 The parallel telecom/IT revolution has added another dimen- Tanzania 187,694 sion to this growth. The rapid spread of mobile phones in rural areas became one of the key drivers of demand for solar PV prod- Source: GOGLA. • There are already a wide range of implementation lem, and thereby maintain system reliability, mini-grid examples from which many lessons (good and bad) can operators have tried numerous methods to limit consumer be learned. load. Typically, this includes: • All applications are different, making them more diffi- • Customer contracts or agreements wherein the cus- cult to replicate directly. tomer agrees to limit their load by, for example, not installing more than the agreed upon number of outlets • A key barrier is the business model—there are few suc- or light fixtures, or not using high-consumption appli- cesses without long-term public finance, though this ances such as incandescent light bulbs or resistive heat- can be limited to a single contribution at the outset of ing devices (like irons and cookers). any new development. • Installation of Miniature Circuit Breakers (MCBs) or Elec- The combination of barriers, and uncertainty over best tronic Load Controllers/Electronic Control Units (ELCs/ practice, means that no clear approach has yet been ECUs) on customer connections. These devices set a defined to ensure the sustainable application of mini-grids. fixed limit on consumer consumption that cannot be Pre-payment alone (such as the PAYG model used success- exceeded as long as they are wired into the circuit. fully with stand-alone systems) is insufficient to solve the problems faced by mini-grid operators. Mini-grids by defi- Neither solution has been found to be effective over time. nition are extremely capacity constrained—they are char- Customer agreements are easily violated in the absence of acterized by just one generation source. As a result, they a strong enforcement mechanism. MCBs and ELCs are eas- are extremely susceptible to brownouts (periods of low ily bypassed. The result can be seen as a “tragedy of the voltage that cause lights to dim and other appliances to commons,” evidenced by mini-grids as disparate as those in not function properly) or even blackouts. Both conditions Haiti, India, Malaysia, and throughout Sub-Saharan Africa. are a result of a total system load that strains the output There are clearly a wide range of barriers to the success- capacity of the generation source. To address this prob- ful application of mini-grids in remote areas but, despite EMERGING AND INNOVAT IVE BUSINESS AND DELIVERY MO DE L S   73  • Off-grid energy companies are moving from cash-sales to • New entrants are less vertically integrated than the early PAYG. The interviewed businesses currently report on aver- entrants. The first PAYG pioneers have typically been verti- age a 50-50 split between cash sales and PAYG. However, cally integrated companies controlling all aspects of the value they forecast a significantly higher growth of PAYG (median chain—from design and manufacturing of PAYG hardware and growth of 300%), which will irrefutably shift the balance in software platforms to system integration, distribution, market- favor of PAYG. ing, consumer awareness, and sales. The vertical integration of early PAYG companies was to some extent a necessity as • Consumer demand for larger systems is rising. In the early the market was new and companies offering specialized busi- years, most PAYG companies focused on launching basic ser- ness-to-business services did not exist. But now there is a vice products, offering lighting and cell phone charging (typi- growing number of specialized companies offering value cally corresponding to SE4ALL Tier 1). Today, 85% of the chain services for PAYG. This reduces entry costs for new companies interviewed either currently integrate a TV in the PAYG companies, which can focus on their business model system or plan to introduce it in near future (products typically and relationship with customers, instead of building technol- corresponding to SE4ALL Tier 2). ogy and systems. • Rent to Own is becoming the predominant PAYG service model. The market research and companies’ experience have Overall, the interviewed companies and investors appear to be revealed that East African customers prefer owning the sys- optimistic about the transferability of the model to other geogra- tem rather than renting or leasing them perpetually, regard- phies. This optimism seems to be justified by the recent emer- less of the automatic upgrades typically offered under the gence of PAYG companies in other countries in Sub-Saharan perpetual lease. Of the interviewed companies, over 90% Africa (such as Nigeria, Ghana, Cote d’Ivoire, and Mozambique). operate under a rent-to-own service model. However, the pace of progress is likely to be influenced by the presence or absence of the factors behind the East African suc- • GSM integration and mobile money are becoming standard cess. For now, it appears that the countries most likely to benefit features. Payments with mobile money, such as M-pesa in are those with a large unelectrified population, mobile money Kenya, tend to be more reliable, easier for the customer to platforms, consumer knowledge of solar products, and a friendly make, and faster for the company to receive. As a result, the off-grid business environment (including the fiscal regime). majority of PAYG companies are relying on mobile money transactions. SEAR Case Study, Forthcoming. these challenges, progress is being made. Ongoing con- Markets Serviced by Grid Extension cerns include the need for continued government support Only 30 percent of the population in Sub-Saharan Africa, for mini-grids in areas where there is no grid expansion and 60 percent in South-East Asia, are connected to an planned for the foreseeable future, financial barriers, and electricity grid (IFC 2012). Even when such grid electricity affordable tariffs for rural consumers. However, the sector is is available, the service experienced by many consumers is still growing rather than retreating. Unlike the historic very unreliable with inconsistent supply and frequent course of private sector participation in the power sector in power outages. As a result, many users, particularly busi- developing countries—where progress was usually defined nesses, must also invest in a back-up generation facility, by centralized agreement with the national utility— mini- which is often diesel-powered, inefficient and therefore grid companies recognize that success entails reaching a costly, as well as damaging to the environment. What is very large number of individual customers, and they are needed are innovative delivery models to enable grid working to implement business models that can provide extension to become a cost-effective option in the future. acceptable returns under these conditions. The large number of potential grid users (usually in A wide range of providers have attempted to introduce urban or per-urban areas) who currently rely on alternative business models for the sustainable supply, maintenance, electricity generation facilities represent a key target mar- and operation of clean energy mini-grids in developing ket for local utilities. However, there are two key barriers countries. There is still no single approach that is recog- that make it tougher to expand to low-income communi- nized as the best option –although effectively responding ties: effective routes for payment and operational effi- to local conditions is a key requirement for success and ciency. These issues are compounded for utilities that demands tailored solutions. There are, however, common would like to extend their services to more rural areas, but features that can be identified by examining different prospective solutions are constrained by policy restric- examples of current business applications from 10 of the tions—such as fixed tariff structures that are unrepresenta- leading operators (Table 5.2). tive of the increased costs of supply. 74    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 TABLE 5.2  A big array of emerging delivery models for mini grids COMPANY CURRENT ENERGY SIZE OUTREACH TARGET COUNTRIES SOURCE RANGE FOCUS/INNOVATION E.ON 7 systems, 1m people Tanzania Solar, bio- 6–12kW Standardisation for scale; 420 customers in 10 years diesel Establish track record for finance Cellphone payment GHAM POWER 3 micro-grids >100 micro- Nepal Solar 1–10kW PPA with N-cell (telecoms) for grids in 10 years reduced risk revenue stream Rent-to-own agreements HUSK POWER 15,000 house- 75,000 India Biomass, 15–250kW Accept >5 year payback holds, several households, Tanzania Solar (biomass); Targeting 8-10 year loans 100 businesses 10,000 20kW (solar) Rural empowerment businesses, 3-year expansion plan 125 agro units Inclusive business model INENSUS Supports mini-grid development in Senegal Solar, wind 5–10kW Low-cost smartcard meter Africa with related management Sale of “electricity blocks” systems and consultancy  “MicroPowerEconomy” delivery system—flexible tariffs & micro- credit M-KOPA 340,000 +500 homes/day Kenya, Solar 5–20W PAYG business model homes Tanzania, Small SHS, LEDs & mobile (Mar 16) Uganda, phone charging services POWERGEN 20+ mini-grids 50 mini-grids in Kenya & Solar 1–6kW Mini-grids compatible with (RENEWABLE 2016 Tanzania, central grid standards ENERGY) Zambia POWERHIVE 4 sites, 1500 100 villages Kenya, Solar ~20kW Integrated tech system; people (~300 Philippines Mobile money networks for connections) (Africa/Asia pre-payment expansion)  Dedicated software – predict revenue streams; RUAHA POWER 1 pilot project 100 projects Tanzania Solar, biomass 300kW Business model without subsidies (JV with Husk Build Own Operate model Power) Pre-payment meters SPARKMETER 3 Earthspark No fixed target Asia, Africa, Service for all 0–500W Metering with mobile payment mini-grids in Latin America types of mini system Haiti -grids Cloud-based software “Gateway” usage dbase SUNEDISON* Pilots (with 20m customers India, Tanzania Solar 1–5kW Set own tariffs; partners— in 5 years Aim for standard banking terms not owned) to finance projects * SunEdison, once the fastest-growing U.S. renewable energy company, filed for bankruptcy protection on April 21, 2016. The good news is that the value of flexible payment national utility) under a power purchase contract at a com- options are increasingly being recognized and have been petitively awarded or negotiated price, or feed-in-tariff successfully introduced in some larger developing econo- agreed in advance. Another business model for grid exten- mies (like Brazil and India). Typical routes to successful sion can be effective when the grid reaches a community financial models have included the installation of prepay- containing households that already have individual sys- ment meters, providing payment flexibility, and offering tems supplying electricity from renewable energy, most financial incentives to consumers using legal connections. often from solar power. The building owners can then sell But payment facilities can only be effective if the supply of electricity back to the utility on a net metered basis. electricity is sufficiently reliable. Thus, local utilities need to In the on-grid power sector, successfully developing become more efficient, which will mean developing more new infrastructure relies on effective partnerships between appropriate business models, infrastructure, and local all of the key stakeholders, which requires lengthy negoti- capacity building. ation. The incumbent utilities, the different layers of gov- The financial model governing the supply of clean ernment, the host communities and households, and energy to any existing grid is often the determining factor private sector firms must all identify common interests and for success. This inevitably requires a balance between complimentary inputs that bring added value from their customer affordability and sufficient margins for the inves- perspectives. For grid extension to remote communities, tor. One option is for a private company to finance and the needs and priorities of all of these players can often supply renewable electricity to the grid-owner (usually the only be aligned following extended interaction over a long EMERGING AND INNOVAT IVE BUSINESS AND DELIVERY MO DE L S   75  timeframe. And once the agreement to initiate is reached, good partnerships between all relevant stakeholders. But there are inevitably differences and tensions that emerge the way in which this takes place will be particular to coun- with respect to ongoing operations, maintenance, and tries’ specific circumstances, development needs, and cul- pricing levels. Cost-effective grid extension to remote tural norms. What is key is that the programs and strategies locations can therefore become an insurmountable chal- include institutional, technical, economic, and financial lenge, with different stakeholders only satisfied with differ- design and implementation arrangements that ensure ent solutions geared more toward their individual needs. their efficient execution and their financial and operational As a result, the best way for developing countries to sustainability. achieve financially sustainable grid extension is to encour- Increasingly, operators in the off-grid market are deal- age private sector suppliers to participate. In many coun- ing strategically with a set of factors that are opening space tries, the national grid operator struggles to maintain the for business—notably, (i) thinking broader than energy; (ii) existing structure to a standard that can provide a satisfac- seeking a mix of public and private finance; (iii) combining tory service at acceptable cost—primarily due to limited investment with assistance; (iv) dealing with affordability financial resources. Given that the existing arrangement issues in context; (v) engaging with consumers; and (vi) often involves a significant government subsidy, the pros- providing after-sales service. pect of grid extension represents a future drain on public funds. Involving the private sector can introduce greater Thinking Broader than Energy efficiencies and new business models that enable the grid For PAYG providers, future opportunities lie well beyond to be connected to areas that may otherwise seem unvi- energy. If they can effectively address the immediate chal- able. However, new approaches require sufficient flexibility lenges and scale up their energy business, they will be able in the governing policy frameworks. This will mean revised to develop mechanisms to manage an ongoing financing tariff structures, appropriate policies to allow grid connec- relationship with lower-income customers that are the tion to informal settlements, and incentives to offset hardest to serve. Once established, there is virtually no upfront investment costs. limit to the products and services that might be offered Take the case of Tata Power Delhi Distribution Limited through this distribution channel, with existing customers (TPDDL), which illustrates how the private sector’s drive for being less costly to serve, and therefore more profitable. efficiency and its ability to innovate can turn loss-making Upon completion of a financed energy purchase, custom- customers in poor neighborhoods into profit centers— ers do more than acquire a solar unit, they also build a while delivering important economic benefits for the poor positive credit history and access an ideal form of collat- (Box 5.2). This was done through a smart adaptation of a eral, which they can then refinance. business model, which put customer needs in first place, There is potential for some providers to make the tran- and an emphasis on engaging and building trust with the sition from energy company to asset finance company. communities. The government, including the regulator, M-KOPA, for example, now offers a self-described “double supported this innovation and allowed modifications of dividend”: (i) the money saved on kerosene when custom- the existing regulatory regime to account for the special ers start paying for their initial solar unit; and (ii) the ability characteristics of slum areas. to “re-finance the unit, once it has been paid off, and take Business model innovation is critical if grid extension is cash out (to a mobile wallet) or purchase another product to provide a means for increasing the rate of electricity or service on credit”(M-KOPA 2015). M-KOPA offers access in developing countries. The mismatch between financing on items such as fuel-efficient cook stoves, water grid expansion costs and affordability to low-income cus- tanks, bicycles, and smartphones, and it has set up a trial tomers needs to be addressed. However, the way in which program in which customers can direct the cash from refi- this takes place will be particular to each country’s specific nancing toward school fees. The combination of a produc- circumstances, development needs, and cultural norms. tive and desirable commodity (energy), digital payments These conditions, particularly in countries with dispersed linked to PAYG technology, and robust service/distribution populations, present a major challenge to national electric- networks makes off-grid solar an ideal entry point for scal- ity providers in developing countries. Even with the best able consumer financing. But caution must be taken: con- intentions, new models are often insufficient to justify fur- sumer financing is a powerful tool, and it is a potentially ther investment in grid extension. This suggests that, par- dangerous one. Responsible lenders and diligent regula- ticularly in Africa, alternatives to further grid coverage tors must work together to ensure that finance is used to need to be developed—as Kenya showed in its Last Mile improve development outcomes, not merely to push prod- Connectivity Program (Box 5.3). uct sales. There is space for further energy-finance innovation. Partnerships with local financial institutions could bring OPPORTUNITIES FOR BUSINESS IN additional financial services to customers that were until THE OFF-GRID MARKET? recently unbanked, while lowering the cost of capital and What are the opportunities for business in the off-grid mar- foreign exchange risk for energy companies. Alternatively, ket? There are a range of factors that can be identified energy companies could follow the lead of durable goods using the experience of rural energy applications to date retailers in Latin America, some of which have transitioned that together form a critical foundation for any successful into full-service retail banks (Winiecki 2015). If PAYG solar intervention. A common underlying theme is that the suc- companies can accurately assess the risk of lending to cessful development of new business relies on establishing unbanked customers while expanding PAYG solar offer- 76    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 BOX 5.2 Slum Electrification in New Delhi: A Private Utility Approach Tata Power Delhi Distribution Limited (TPDDL) is a joint venture • New connections should be affordable. TPDDL under- between Tata Power and the Delhi government, with the major- stood that the upfront payment of $60 for obtaining a new ity stake being held by Tata Power (51 percent). Since 2002, it connection was a challenge. Thus, they advocated with the has distributed electricity in the north and northwest parts of regulator to reduce the cost of a new connection to $25, Delhi, serving a populace of 6 million—including about 1 mil- with upfront payment of only about $5.83, the rest being lion households across 860 slums in urban Delhi. paid in monthly instalments. Billing dates were matched with When TPDDL took over the distribution assets of the former salary/wage dates and varied for different slum clusters as state-owned utility in 2002, only about 5 percent of slum house- agreed upon in consultation with the communities. Some holds had legal connections, and the overall technical and com- customers were also allowed to pay their electricity bills in mercial losses were over 90 percent. The infrastructure was in a easier installments based on individual household circum- dilapidated state, there were no meters, and stealing was com- stances and agreed upon by the TPDDL staff. “Any Time monplace. Legalizing connections in slum areas was a part of Payment Machines” were installed at various locations for TPDDL’s overall drive to reduce losses. After reducing overall easy bill payments, saving travel costs for slum customers. aggregate technical and commercial (AT&C) losses from 53 per- • Additional benefits linked to legal connections. Having an cent in 2002 to 15 percent in 2009, TPDDL began to target individual meter with a proper paper bill not only provided a losses in slum areas. Recognizing that the regularization of slum sense of pride for slum customers but also gave them a doc- connections would require a special “out of the box” approach, ument — their electricity bill — to avail various services pro- it created a new Special Consumer Group (SCG). The group got vided by TPDDL’s CSR initiatives and other government financial and human resources from the company to come up agencies, including TPDDL’s programs on medical health, with a plan to legally connect slum consumers, reduce AT&C vocational training, educational help for children and access losses, and generate revenue. to safe drinking water. TPDDL also provided legal customers The SCG began its engagement with slum communities by with accidental insurance coverage. The premium for this first trying to understand their needs and how electricity can insurance policy was being paid by TPDDL, and was a big help them meet those needs. From this engagement, TPDDL driver for households to apply for new connections. was gradually able to devise a new approach, anchored in the following principles: • Community members are business partners. TPDDL appointed women who were part of their CSR literacy cen- • Electricity is not a starting point for engaging slum dwell- ters as “Brand Ambassadors” to raise awareness about the ers. TPDDL carried out a survey to better understand slum benefits of legal connections and help facilitate new connec- dwellers’ needs. Understanding that electricity was not the tions and bill payments. They also teamed up with the local highest need, it started engaging first through its Corporate community leaders to be their “Franchisees” by creating Social Responsibility (CSR) program to accommodate the incentives for them to increase collection efficiency. Influen- most pressing needs of slum dwellers. These CSR activities tial community leaders were appointed as Pradhans, to help provided TPDDL with a strong foothold in the community TPDDL resolve disputes and pave the way for franchisees and helped them create a trustworthy name for their com- and brand ambassadors to operate in the area. pany, setting the stage for slum electrification. • Slum consumers must be treated with respect. The TPDDL The efforts to win the hearts of slum dwellers paid off. The num- treated slum customers on par with their other urban house- ber of legal customers located in slum clusters doubled from hold customers and provided them with the same quality of 93,000 in 2009 to 175,000 in 2015. Revenues from the slum supply and customer service. The company’s electricity bill areas increased from $3 million in 2009-10 to $18 million in has become a form of an identity card, allowing TPDDL slum 2014-15. The technical and commercial losses were reduced customers to avail themselves of other services provided by from 68 percent to about 23 percent, and collection efficiency TPDDL or the government. increased from 67 percent to 98 percent. In addition, CSR efforts have led to improvements in the living condition of • Getting an electricity connection should be easy. One of 140,000 families and have provided livelihood opportunities to the biggest hurdles to legalizing connections was the require- young men and women. ment of a land title to prove tenancy. To overcome this chal- Thus, TPDDL has proven that slum electrification can be a lenge, TPDDL proposed affidavits signed by slum customers profitable venture. It has not treated this as “charitable work” waiving TPDDL’s responsibility in case of any slum demolition but as a successful business model to bring down technical and or legal action by the government. Such an affidavit would be commercial losses and increase revenue generation in the used in place of land titles to get an electricity connection. In slums—treating slum dwellers as valued customers. It has been addition, by holding camps for new connections in slum a win-win situation, benefitting both the slum population and areas and helping people with the paper work, TPDDL proac- the company. tively reached out to these communities rather than wait for them to come to their offices. This not only reduced meter Sear Case Study forthcoming. installation time but also encouraged more households to seek legalized connections. EMERGING AND INNOVAT IVE BUSINESS AND DELIVERY MO DE L S   77  BOX 5.3 Kenya’s Powerful Last Mile Connectivity Program Kenya is embracing electrification as a flagship access in grid connected areas. Since Kenya’s grid is endeavor, with a focus on the distribution sector almost exclusively concentrated in the central corridor, reaching all Kenyans with energy services by 2020. It where there is the highest population density, this has already emerged as a star in achieving progress approach is considered the least cost way of harness- on electrification—growing from 23 percent in 2009 ing economies of scale in network design with a poten- to about 50 percent in 2016 (Figure B5.3.1)—under- tial of reaching about 70-80 percent of consumers. pinned by huge investments across the sector value Kenya is also leading the way on how to balance a chain. Today, there are about 5 million Kenya Power rapidly growing electrification program with consumer and Lighting Company (KPLC) consumers, with more affordability in a financially sustainable manner. The than 1 million consumers added annually in the past LMCP design encompasses a substantial decrease in two years. the connection fee charged to household customers— The government’s primary grid densification vehi- from KES 35,000 ($343) to KES 15,000 ($147) (to be cle—the Last Mile Connectivity Program (LMCP)— paid in instalments). However, such consumer connec- seeks to connect all consumers within 600 meters of a tion charges are insufficient to cover the connection costs (of $1,000/connection) borne by KPLC. These transformer. It is supported by close to $700 million in donor resources (including the World Bank-financed new households are overwhelmingly low volume con- Kenya Electricity Modernization Project) to speed up sumers paying a lifeline tariff and are cross-subsidized by other consumers in KPLC’s overall revenue require- ment to ERC. Initially, KPLC shouldered the gap with FIGURE B5.3.1. Reaching out to all Kenyans commercial loans, but this imposed an (KPLC customer connections, in millions) increasing burden on the utility’s finances. There is now a two pronged KPLC Customer (in millions) 35% 30% approach: (i) in 2015, a World Bank 19% Guarantee supported KPLC to restruc- 14% 16% 20% ture $500 million of short-term expen- sive commercial debt into a long-term maturity loan; and (ii) concessional debt by the donors to the government is 2009/10 20010/11 2011/12 2012/13 20013/14 2014/15 2015/16 being on-granted to KPLC for electrifi- cation purposes, thereby keeping the Source: KPLC debt off KPLC’s books. ings to whole countries or regions, they will have built the potential market for energy supplies in remote areas will “first scalable model for providing asset financing to be a critical factor. Thus, much work on this issue is being unbanked consumers” (Winiecki 2015). PAYG companies undertaken by a wide range of stakeholders (including ser- have leveraged multiple innovations to reach their custom- vice providers, financiers, and academics). As always, when ers. How they evolve from here will determine their ulti- faced with new approaches for any business, the greatest mate success (CGAP 2016) risk and potential reward will be linked to the front-runners. But there needs to be greater efforts to raise awareness of Seeking a Mix of Public and Private Finance such financing facilities to ensure that such leading project Due to the capital-intensive nature of investments in developers can access the latest tools available. In this energy access, debt financing is critical. Mini-grid project way, the developers of new delivery models can consider developers require project finance to cover the high ini- the latest financial options and use or adapt those that tial cost of building out their grid infrastructure—like gen- best match local conditions. eration and distribution systems—and PAYG solar providers require debt in the form of working capital to Combining Investment with Assistance finance their inventory. New financial firms are bringing While financial support is a necessary ingredient for suc- innovations to the market for energy access to facilitate cess, well-informed investors recognize the value of offer- the flow of debt to mini-grid projects and PAYG solar ing something additional to address the risks presented by companies alike (Box 5.4). new technology, markets, and business models. Thus, These financing mechanisms will dramatically revise the innovative financiers are increasingly making a commit- risk perspective of investors considering support for rural ment to focus on the energy access sector, in effect, energy applications, along with offering excellent opportu- acknowledging the need for accompanying services. The nities for preparing innovative business models. It is well- unique challenges and undeveloped nature of providing known that the financial mechanism used to address a access to energy for low-income households and busi- 78    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 BOX 5.4 How Financial Firms Can Support Innovation in the Off-Grid Marketplace Persistent Energy Capital. A U.S.-Swiss boutique CrossBoundary Energy. “Africa’s first dedicated fund investment bank focused on off-grid renewable energy for commercial and industrial solar” is also working the business estimates that there will be $2-3 billion of standardization solution, but in the specific context of receivables held by energy access businesses by 2020 solar installers and project developers for commercial . Persistent Energy Capital is taking a unique approach and industrial installations in Africa. CrossBoundary’s to meet the working capital needs to fulfill these target system size is between 50 kW and 5MW, and it receivables. In December 2015, it launched a securiti- is bringing PPAs to this under-financed and growing zation of customer receivables called “Distributed sector under its SolarAfrica platform. PPAs are already Energy Asset Receivables”, or “DEARs”. This approach well-understood and widely used financial agreements will be piloted using the receivables of PAYG solar pro- for renewable and non-renewable projects, from small- viders in Kenya, issued by a special purpose vehicle, scale residential installations to the largest generation with additional projects soon after. The aim is “to projects. By developing standard terms and structure, develop a low risk debt instrument that will become it hopes to offer a “PPA in a box” solution to further standardized and rated by rating agencies so that reduce transaction costs to increase installers’ and investors can confidently invest across the energy investors’ capacity to realize projects. In Nairobi, it access sector.” Such an approach touches upon other enabled the Garden City Mall to contract with a solar crucial factors for the investment of debt into the sec- developer for 858 kW of PV for a carport, paid over 12 tor that have been barriers to date, including the lack years, with no upfront cost. of lending by local financial institutions, and the lack of SunFarmer. Like CrossBoundary, SunFarmer is focused credit rating and quantitative risk assessment of end- on the institutional, commercial, and industrial market user customers. for solar power, using long-term debt and PPAs – Lendable. A U.S. company that aims to build technol- rather than the PAYG solar or mini-grid market. In addi- ogy and financial products to attract impact investors tion to reducing transaction costs through deal is addressing the financial barriers for energy access standardization, the U.S. company (whose first project companies through its Lendable Risk Engine. This tool was in Nepal) hopes to encourage local banks to begin applies statistical analysis to data, which is provided by lending to these projects by mitigating risk, both finan- the originators of receivables, to calculate portfolio risk cially and technically. Financially, it structures credit for investors. Another barrier to lending in the sector is enhancements like collateral support and first loss cap- the transaction cost associated with deals. Lendable, ital for the lender. Technically, it provides its due dili- along with others, is looking to solve this problem gence services “to ensure good design, commissioning, through deal standardization and platforms for invest- and the existence of after-sales monitoring and sup- ment. Their Lendable Marketplace “offers aggregated port.” It has also developed a real-time remote moni- receivables across multiple originators, off the shelf toring platform called EnergyX to monitor system and standard documentation, and transaction capabil- performance over time. ities through existing SPEs and local service provid- ers.” The company expects to transact its first three deals in 2016. nesses in developing countries underscores the need for nies and providing them with somewhat generic support this specialization. There are many government grant facil- (like workshops and templates). While helpful, the latter ities, private grant competitions, foundations, family approach is limited compared to the thousands of hours offices, and incubators that offer broad financial support that Factor(E) (a U.S.-based company) offers in advisory for early-stage ventures, but few have the domain knowl- support to their portfolio companies post-investment. This edge to accompany their investment with more than just involvement has facilitated access to key partners in target dollars. Early stage energy access companies are either markets, and it has helped provide follow-on investment to pioneering new technology, new markets, new business those portfolio companies that are ready for growth follow- models, or a combination of these, which means that they ing Factor(E)’s seed-stage engagement. require support across a wide range of activity. Schneider Energy Access Ventures (EAV) recognizes Factor(E) Ventures uses customized engagements with this need in their portfolio companies and takes a similar its portfolio companies that address the unique technical approach. In addition to its investment, which its distribute or commercial aspects of the company that needs to be in the range of $250,000 to $4 million across multiple de-risked. This contrasts with other investment models rounds, the French company believes that providing tech- that are based on hosting a “cohort” of early stage compa- nical assistance is critical to the success of their ventures. EMERGING AND INNOVAT IVE BUSINESS AND DELIVERY MO DE L S   79  Under an agreement with Schneider Electric, EAV can Engaging with consumers request up to 1,000 man-days of pro-bono work from There is a basic condition for any successful business any- Schneider employees per year for its portfolio companies. where in the world—know your customer! It is often stated It can also access facilities and systems—such as overseas that all locations for non-grid energy applications are differ- manufacturing plants or accounting systems—to acceler- ent, with local resources, practices, priority needs, and tra- ate the organizational development and maturity of their ditional customs all varying between different communities. portfolio companies. The solution is often quoted as a “bottom-up” approach in In short, a mix of public and private sector finance is the context of rural development. In fact, this requirement required to establish, maintain, and grow the market in is no different in rural Africa and is well-recognized by those remote areas for clean energy applications. Energy access companies that are making advances in this area. can be seen as a public sector obligation and therefore a Provision for such consumer engagement must be government or donor contribution is justified to offset included in any business model aiming to address energy upfront costs. But private sector finance must be available access in developing countries. Similar to the establish- to cover the full costs of operation, maintenance, and rein- ment of sales teams and special financing arrangements vestment in capital. found in OECD countries for the adoption of residential rooftop solar PV by providers like SolarCity and SunRun, Dealing with Affordability Issues in Context PAYG companies working in Africa are building out vast PAYG companies underscore not only the benefits of using field-based sales teams in addition to their sophisticated their products—improvements to health, safety, and qual- IT-based financing capabilities. These distributors, includ- ity of light—but also the significant savings in expenditures ing market leaders Off-Grid Electric and M-KOPA, employ that customers can recoup. M-KOPA estimates that a typi- a variety of strategies to drive sales—such as door to door cal customer will save $750 in the first four years of using sales, local events, and community meetings. The value of one of its systems. Relative to the approximate $1,100 it close interaction with the target market is well understood. estimates consumers to have spent on kerosene and bat- However, ensuring consumer engagement in remote teries in that time, this represents a saving of nearly 70 rural areas is complicated by the high level of aware- percent (Faris 2015) ness-raising required to inform potential customers of the To ensure affordability, there is a clear need to allow options available. As a result, providers too often impose customer payback over an extended period. The duration externally designed interventions rather than responding and monthly cost of payback must be set at a level that can to customer preferences. The “bottom-up” approach is be justified to the customer, as well as being sufficient for standard business practice worldwide and must be imple- the provider to recoup the cost of its assets. Marketing this mented in order for any company to provide customers balance in a way that attracts the interest of target custom- with sustainable energy access. ers is a feature of most PAYG companies. For example, Azuri’s PayGo rent-to-own model is promoted as allowing Providing After-Sales Service consumers to spread the cost of ownership of a solar home Emerging delivery models for remote energy supplies are system across a period of 18 months. now placing a much greater value on customer service and There is also an inevitable trade-off between the level retention. This is enhanced by the long-term payback of upfront costs and the duration of customer payments. period that is often required and must be effectively man- Off-grid Electric (OGE) prides itself on offering what it aged by the supplier. Historically, recognition of the describes as the lowest down payment and lowest ongo- end-user’s needs, interests, and values has not been a pri- ing payment price point in the industry. However, the cus- ority for energy access initiatives in developing countries. tomer pays for the system as a service over a 10-year These have generally been driven by donor funding, so period. OGE sees this as comparable to a utility model, the customer for the service provider has been the funder and includes ongoing quality assurance over the entire rather than the householders who are expected to use the contract period. This contrasts with the rent-to-own systems installed. But addressing these energy needs model, where the customer achieves full payment for the through private business is leading to greater recognition system over a much shorter period, but will then have to of the end-user as the customer. cover maintenance expenses and equipment replace- Insufficient after-sales service results in system failure, ment costs. market spoilage, and the unsustainable operation of small- Introducing appropriate tariff policies (at the national scale rural energy businesses. The PAYG business model or local level) is another way to address this challenging improves outcomes for consumers not only because it issue of balancing affordability and sufficient revenue to increases adoption through financial access, but also maintain the operational sustainability of the system. Past because it can provide better after-sales service. Unlike analysis by the World Bank (in 2008) indicated that poor cash sales and energy lending models, PAYG providers are consumers are willing to pay for electricity and often at strongly incentivized to ensure a reliable system operation levels that are higher than the long-term cost of supply, on an ongoing basis. Under a standard payback business making a financially sustainable model possible. A model, consumers will not continue to make payments to well-designed tariff policy will ensure the poorest con- use the system if the system is not functioning. sumers can afford to meet their basic needs, while col- Leading companies in the PAYG solar space are partic- lecting sufficient overall revenue to allow operational ularly proactive about after-sales service. For example, sustainability (WBCSD 2012). M-KOPA has integrated a SIM card into its systems— 80    S TAT E O F E L E CTR I CI TY ACCES S R EPO RT   |  2 0 17 enabling it to not only process customer payments via CONCLUSION mobile money and automatically “unlock” systems when Despite increasing efforts to develop commercially viable appropriate but also remotely monitor the health of its cus- operations for the sustainable expansion of clean energy tomers’ systems. As a recent Bloomberg Businessweek technology applications in remote areas, there are still very article noted: “Workers at its call center can already pull up few delivery models that have been successful at scale. This graphs showing how a customer’s battery is charging and presents an enormous market opportunity for private sec- discharging, allowing them to spot duds to either fix or to tor suppliers, though the continued involvement of public swap. They can also look at the performance of the solar funding sources will be required to build business models panels over time, detecting when a panel has been that are feasible under local conditions with an acceptable mounted on the wrong side of a roof or if it’s gathered dust level of risk to investors. The public/private economic and needs to be wiped clean”(Faris 2015). This proactive model that will be required must take full account of approach to customer service is revolutionary in the con- broader needs, such as links to policy, integrated technol- text of energy access. ogy applications, and the building of local capacity to Another option for remote monitoring capabilities is to ensure cost-effective local support structures. Partnerships intelligently manage a user’s system based on usage pat- with local stakeholders—including government, utilities, terns and weather analysis. This is the approach adopted the host communities and households, and private sector by Azuri. As Azuri CEO Simon Bransfield-Garth has firms along the supply chain—are necessary for the suc- described: “In the rainy season, solar home systems have cessful development of any new energy access business. to be effectively over-sized to deal with the poor weather, Based on the innovative energy service delivery models meaning they either need to be more expensive all year that are currently emerging, there are several common fac- round, or that they perform less well at times, to the point tors that must be taken into account to achieve positive, that consumers may have to revert to traditional energy sustainable results. First, there is a need for different sources.” In response to this problem, Azuri is using an approaches in different locations, although the broad prin- internally developed enabling technology called Home- ciples for success can be identified, thereby offering a Smart™ to improve system performance by dynamically framework for effective market development. Second, adjusting the brightness of the system’s lights according to greater consideration must be given not only to the finan- the available power. This eliminates the cost of over-sizing cial model but also the demands, interests, and restrictions the system, while enhancing the customer experience. of local customers—with mobile payment systems required Despite the evident benefits, longer-term customer to provide customer convenience. Third, strong partner- interaction is often not a familiar process in rural areas of ships must be developed along the entire supply chain, developing countries, so training to build local skills and from the government and utilities that set the context, to awareness must be factored in to any delivery model. the private sector service providers, to the communities Local management and operation of an energy access and households that represent the demand. Market dynam- business is necessary to achieve cost-effective long-term ics are as apparent in developing countries as elsewhere, service delivery. International coordination can be justified but they must be carefully adapted to local conditions to to initiate any such intervention, but is usually not viable support successful, sustainable, clean energy solutions. after this start-up period. Thus, building local capacity to support longer-term business operation and develop- ment must be a priority. EMERGING AND INNOVAT IVE BUSINESS AND DELIVERY MO DE L S   81  REFERENCES ARE (Alliance for Rural Electrification). 2011. Rural Electrifica- CGAP (Consultative Group to Assist the Poor). 2016. Digitally tion with Renewable Energy.Technologies, quality Financed Energy: How Off-Grid Solar Providers Leverage standards and business models. Brussels, Belgium: ARE. Digital Payments and Drive Financial Inclusion. Washing- ton, D.C: CGAP. ARE (Alliance for Rural Electrification). 2013. 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