Centralized electricity supply must now end; the dawn of the mini-grids
As the world moves inexorably towards clean energy, and just as steadfastly sheds its dependence on fossil fuels, the pace at which policy makers and actors in the private sector are facilitating this transformation is agonizingly slow for millions in developing countries without access to electricity.But the recognition that the old top-down model or centralized supply of electricity is no longer serviceable is the first necessary step towards solving extant debilitating energy shortages, and building a 21st century energy system. An enlightening article on this topical issue by the Economist is worth taking note of by policy makers and private sector investors alike.
AROUND 1.5 billion people, or more than a fifth of the world’s population, have no access to electricity, and a billion more have only an unreliable and intermittent supply. Of the people without electricity, 85% live in rural areas or on the fringes of cities. Extending energy grids into these areas is expensive: the United Nations estimates that an average of $35 billion-40 billion a year needs to be invested until 2030 so everyone on the planet can cook, heat and light their premises, and have energy for productive uses such as schooling. On current trends, however, the number of “energy poor” people will barely budge, and 16% of the world’s population will still have no electricity by 2030, according to the International Energy Agency.
But why wait for top-down solutions? Providing energy in a bottom-up way instead has a lot to recommend it. There is no need to wait for politicians or utilities to act. The technology in question, from solar panels to low-energy light-emitting diodes (LEDs), is rapidly falling in price. Local, bottom-up systems may be more sustainable and produce fewer carbon emissions than centralised schemes. In the rich world, in fact, the trend is towards a more flexible system of distributed, sustainable power sources. The developing world has an opportunity to leapfrog the centralised model, just as it leapfrogged fixed-line telecoms and went straight to mobile phones.
But just as the spread of mobile phones was helped along by new business models, such as pre-paid airtime cards and village “telephone ladies”, new approaches are now needed. “We need to reinvent how energy is delivered,” says Simon Desjardins, who manages a programme at the Shell Foundation that invests in for-profit ways to deliver energy to the poor. “Companies need to come up with innovative business models and technology.” Fortunately, lots of people are doing just that.
Let there be light
Start with lighting, which prompted the establishment of the first electrical utilities in the rich world. At the “Lighting Africa” conference in Nairobi in May, a World Bank project to encourage private-sector solutions for the poor, 50 lighting firms displayed their wares, up from just a handful last year. This illustrates both the growing interest in bottom-up solutions and falling prices. Prices of solar cells have also fallen, so that the cost per kilowatt is half what it was a decade ago. Solar cells can be used to power low-energy LEDs, which are both energy-efficient and cheap: the cost of a set of LEDs to light a home has fallen by half in the past decade, and is now below $25.
“This could eliminate kerosene lighting in the next ten years, the way cellphones took off in about 13 years,” says Richenda Van Leeuwen of the Energy Access Initiative at the UN Foundation in Washington, DC. That would have a number of benefits: families in the developing world may spend as much as 30% of their income on kerosene, and kerosene lighting causes indoor air pollution and fires. But such systems are still beyond the reach of the very poorest. “There are hundreds of millions who can afford clean energy, but there is still a barrier for the billions who cannot,” says Sam Goldman, the chief executive of D.light. His firm has developed a range of solar-powered systems that can provide up to 12 hours of light after charging in sunlight for one day. D.light’s most basic solar lantern costs $10. But the price would have to fall below $5 to make it universally affordable, according to a study by the International Finance Corporation, an arm of the World Bank. So there is scope for further improvement.
It is not just new technology that is needed, but new models. Much of the ferment in bottom-up energy entrepreneurialism is focusing on South Asia, where 570m people in India, Pakistan and Bangladesh, mostly in rural areas, have no access to electricity, according to the International Energy Agency. One idea is to use locally available biomass as a feedstock to generate power for a village-level “micro-grid”. Husk Power Systems, an Indian firm, uses second-world-war-era diesel generators fitted with biomass gasifiers that can use rice husks, which are otherwise left to rot, as a feedstock. Wires are strung on cheap, easy-to-repair bamboo poles to provide power to around 600 families for each generator. Co-founded three years ago by a local electrical engineer, Gyanesh Pandey, Husk has established five mini-grids in Bihar, India’s poorest state, where rice is a staple crop. It hopes to extend its coverage to 50 mini-grids during 2010. Consumers pay door-to-door collectors upfront for power, and Husk collects a 30% government subsidy for construction costs. Its pilot plants were profitable within six months, so its model is sustainable.
Emergence BioEnergy takes this approach a step farther. Its aim is to provide many entrepreneurial opportunities around energy production, says Iqbal Quadir, the firm’s founder, who is also director of the Legatum Centre for Development & Entrepreneurship at the Massachusetts Institute of Technology (MIT). A cattle farmer in a small village in Bangladesh might, for example, operate a one-kilowatt generator in his hut, powered by methane from cow manure stored in his basement. He can then sell surplus electricity to his neighbours and use the waste heat from the generator to run a refrigerator to chill milk. This preserves milk that otherwise might be spoilt, offers new sources of income to the farmer (selling power and other services, such as charging mobile phones or running an internet kiosk) and provides power to others in his village.
The farmer funds all this with a microfinance loan. It is no coincidence that this is a similar model to the “telephone lady” scheme, pioneered in Bangladesh a few years ago, in which women use microloans to buy mobile phones and then sell access, by the call, to other villagers; Mr Quadir helped establish Grameenphone, now the largest mobile operator in Bangladesh, and hopes to repeat its success in energy. After a pilot project in two villages, Emergence BioEnergy plans a broader roll-out in 2011 in conjunction with BRAC, a giant microfinance and development NGO.
Another project, in India, aims to convert women from gathering wood, which denudes forests, to using canisters of liquefied petroleum gas (LPG). India’s four state-owned regional power companies, including Bharat Petroleum Corporation, will build a national network of thousands of LPG-powered community kitchens. Local entrepreneurs will then provide the LPG and charge villagers to use the kitchens in 15-minute increments.
Harish Hande, managing director of Selco Solar, a social enterprise in India that promotes the adoption of new energy technologies, says the important thing is not so much to deliver energy to the poor, but to provide new ways to generate income. His firm has devised a solar-powered sewing machine, for example. Last year Mr Hande started an incubation lab in rural Karnataka, in southern India, to bring together local customers and engineering interns from MIT, Stanford and Imperial College, London. The lab is currently piloting a hybrid banana dryer that runs on biomass during wet spells and sunlight on dry days to make packets of dried banana—so that farmers no longer have to rely on selling their crop immediately.
Making it pay
Even when new technology and models are available, the logistics of rolling them out can be daunting. The two big challenges are providing the upfront investment for energy schemes, and building and maintaining the necessary distribution systems to enable them to reach sufficient scale. At the moment, most schemes are funded by angel investors, foundations and social venture-capital funds. There is a vigorous debate about whether the private sector on its own can make these models work as technology improves, or whether non-profit groups are needed to fill the gaps in funding and distribution.
Microfinance institutions may seem the natural financial partners to help the poor pay for energy systems, since they are the only organisations with millions of poor customers. But teething problems are formidable and success stories are few, says Patrick Maloney of the Lemelson Foundation, which invests in clean-energy technologies for the poor. A telephone lady could buy a mobile phone for a relatively small sum, and would immediately have a source of income with which to repay the loan. Although a household that buys a solar lamp saves money on kerosene, the investment takes several months to pay for itself, and there is no actual income from the lamp. For bigger energy projects, such as micro-generators, the loan required is much larger, and therefore riskier, than the loan for a mobile phone.
Moreover, microfinance institutions may lack the funds to identify reliable energy suppliers, educate loan officers about clean-energy technologies and build a support network for energy schemes. One way to solve this problem, being pursued by MicroEnergy Credits, a social enterprise, is to plug microfinance institutions into carbon markets. Projects can then be funded by selling carbon credits when a microfinance customer switches from kerosene to solar lighting, for example.
Distribution is also a problem, particularly in Africa and South Asia, where the majority of the world’s energy-poor live. Infrastructure and supply chains are poor or non-existent, particularly in rural areas. Recruiting and training a sales force, and educating consumers of the benefits of switching away from wood or kerosene, must be paid for somehow. Social enterprises are innovating in this area, too. Solar Aid, a non-profit group, specialises in setting up microfranchises to identify and train entrepreneurs. The organisation works with local authorities to identify potential entrepreneurs, who must gather signatures from their local community—providing both the endorsement of their neighbours and a future customer base. They then undergo five days of training with an exam at the end. Solar Aid is also testing a kiosk-based system to help entrepreneurs distribute LED lighting in the Kibera district of the Kenyan capital, Nairobi.
Some hurdles to bottom-up energy projects are more easily addressed. In particular, high import duties on clean-energy products in many developing countries, notably in Africa, hamper their adoption by the poor. Ethiopia, for example, imposes a 100% duty on imports of solar products, while Malawi charges a 47.5% tax on LED lighting systems. Such taxes are sometimes defended on the basis that only the rich can afford fancy technology. But the same was said about mobile phones a decade ago—and look at them now.