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November 08, 2010

Sierra Club India Environment Post: 1.2 billion Reasons to Pursue Micro-Energy (Part 1)

by Justin Guay


Today the world's population is growing at about the same rate as the population gaining access to electricity. According to the International Energy Agency (IEA) this means that in 2030 there will only be a decrease in the un-electrified population of 14% (a drop from 1.4 to 1.2 billion). What's worse, nearly 2.5 billion people today considered "electrified" receive only a few hours of electricity per day. In essence we are losing the battle to light the world.

As a result, the world's poor pay nearly $40 billion for heavily polluting and dangerous fuel based lighting (despite the fact that there are at least 50 ways to end the use of kerosene). While the poor pay about 20% of the global lighting bill they receive only 0.1% of the lighting services produced. Put another way – the poor pay 10,000 times what we pay and they get poor light and poor health in return.

The IEA estimates that a mere 3% (~$33 Billion) of global energy investment is needed annually to rectify this failure. However, according to the organization for economic co-operation and development (OECD), overseas development assistance (ODA) for energy was only $5.6 billion in 2008 and a measly $1.2 billion in 2009. Moreover, this assistance is largely funnelled into an inefficient and ineffective approach to rural electrification that prioritizes large scale centralized generation and distribution of electricity.

This model, unlike like the1920s push for rural electrification as a part of the New Deal in the United States, is largely failing to provide electricity to the world's citizens. High transmission and distribution costs, commercial theft, low population densities in rural areas, large numbers of existing grid-tied but marginally served customers, and remote, difficult to reach areas have all contributed to this failure.

The failure of centralized grid extensions is compounded by the virtual absence of private sector investment in its alternative -- decentralized small scale renewable energy systems. The fact that the market has failed to scale up impressive yet isolated achievements is often taken as proof positive that despite its clear shortcomings, centralized power generation is the only viable means for electrifying the rural poor.

In order to move past this paralyzing debate the global community must address the hurdles social entrepreneurs face in serving this vast market, while diverting scarce public resources away from the unfavourable economics of centralized grid extension. The answer lies in building upon the rapidly expanding micro-energy market thereby enabling local energy systems to build out towards the grid by maximizing the economic superiority of decentralized renewables for rural populations.

The key difference between the feasibility of such an approach today compared to even ten years ago is that trail-blazing pioneers have demonstrated its feasibility in markets from India to Kenya, Laos to Honduras. Whereas ten years ago it would have taken an entrepreneur over 100 separate loans to secure paltry levels of financing, today s/he can get multiple times that amount in a single loan as a result of proven business models. This along with the tireless efforts of those who have educated financial institutions on the profitability and feasibility of micro-energy products has laid the foundations for a dramatic shift in how rural electrification is financed.

The best part is that it won't cost as much as everyone believes. For example, if 250 million households bought a 1.5 watt solar desk lamp that charges a mobile phone it would cost roughly $4 billion. To get 10 watts of power -- roughly $150 per household - for "real" lighting levels it would cost $38 billion. Spread these costs over 10 years, and the costs come out to about $400 million per year or less to eliminate the need for kerosene –- 1% of the total amount the IEA predicts is needed for rural electrification.

Of course energy needs extend far beyond lighting. However, micro-energy investments can be used as building blocks to move rural populations up a revamped energy ladder. At higher rural income levels, a $400 per household budget could secure 30 watts powering a TV, radio, and lights. Scaling such a system would cost $100 billion over the same time frame - or $10 billion per year (This does not include dramatic cost reductions in LED lighting and a continued decline in the costs of solar panels.)

These investments are less than current kerosene expenditure estimates, meaning the poor can pay for these technologies via cash purchases or 1-3 year energy loans from developmental institutions and the private sector. To give us an idea of just how quickly the market for these energy services could grow we need look no further than the historical growth rates of the mobile phone and micro finance markets. Both of which grew at exponential rates of 50-100% early on "slowing down" to around 30% in recent years. In fact, after a mere decade of telecommunications growth 70% of African's own a cell phone. Strategic financial investments can unleash similar growth in micro-energy services for the poor. The only question is when will we extricate ourselves from an outdated debate and deliver innovation for the world's poor?


Photo Credit: Abbie Trayler-Smith for DFID


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