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March 16, 2012

The World Bank, Rio+20, and Energy Access

Rio-de-janeiroThe issue of energy access is going to be front and center at the United Nations Conference on Sustainable Development (Rio +20) in June. Delivering electricity is a key aspect of achieving this lofty goal.

The problem is our current approach - investing in large scale centralized fossil fuel power plants and stringing power lines to far flung rural areas - is not working. In fact, according to the International Energy Agency (IEA), half of those without electricity today will never be wired to the grid. It’s clear that if energy access is going to be honestly and effectively addressed in Rio, another approach is desperately needed.

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

That's why over-investment in large scale centralized energy production, particularly coal plants, means relying exclusively on the wrong tool for much of the job, and as a result represent an enormous waste of scarce development resources.  That leaves us with 1 billion reasons to invest in the alternative - distributed clean energy access.

Happily enough, there are literally scores of social entrepreneurs paving the way for this cheaper, faster, and more effective approach to rural electrification (see Husk Power, Frontier Markets, Simpa Systems, SELCO-India, GreenLightPlanet, and on and on...). These entrepreneurs are successful because the poor already pay for light in the form of polluting kerosene and candles... and they pay a lot.

The poorest fifth of the world pays one-fifth of the world’s lighting bill - but receives only .1 percent of the lighting benefits. Kerosene can account for 25 to 30 percent of a family’s income - globally that’s $36 billion a year. The problem is the poor do not use kerosene because it is cheap - they are kept poor in significant part because they must rely on expensive, dirty kerosene.

The problem is billions of dollars continue to be dumped into failed grid extension programs - not distributed clean energy markets. This leaves poor rural families dependent on Kerosene because they are still waiting for the grid to come. Social entrepreneurs can provide distributed clean energy alternatives but without financing they are unable to buy equipment, pay for employees, or finance purchases for their customers. All of this conspires to keep families dependent on kerosene.

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

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

That’s where the World Bank and the IFC come in. Both are institutions mandated with alleviating poverty and both have ample amounts of relatively cheap public money to do so. The problem is to date they have not put their money where their mouth is on energy access (though when they have the results have been quite impressive).

At the upcoming Rio +20 conference the World Bank and IFC have the opportunity to make amends.  These institutions can make good on their mandate to alleviate poverty by putting their collective weight behind distributed clean energy. A strong commitment would include:
  1. $500 Million from the IFC for distributed clean energy by 2015 with half of that distributed by the end of 2013.

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

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

-- Justin Guay, Sierra Club International Program

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