Tuesday, July 12, 2011

Decentralized energy: Let The Little Light Shine


Foreign Policy: Let The Little Light Shine
by Charles Kenny

July 12, 2011
Charles Kenny is a senior fellow at the Center for Global Development
and a Schwartz fellow at the New America Foundation.

After nearly a decade of donor efforts, it is fair to say
Afghanistan's electricity sector remains a mess. This fact was
highlighted in a New York Times op-ed last week by Glenn Zorpette, the
editor of an electrical engineering journal, who chronicled a three-
year U.S. Agency for International Development (USAID) struggle to
build a diesel power plant outside Kabul. Zorpette notes that the
plant, finally completed, often sits idle because the cost of trucking
fuel into the country makes the electricity six times the price of
power imported from neighboring states. Surveys of businesses suggest
that electricity customers in Afghanistan see 20 outages a month on
average and that seven out of 10 firms own a generator because
networked power is unreliable or just unavailable.

But USAID should look on the sort-of-bright side: For once, this is a
problem that has little to do with the particular curses of
Afghanistan or the failings of its occupiers. The electricity sector
is a multibillion-dollar muddle across much of the developing world,
where utilities with limited reach, poor service, and a tendency to
hemorrhage money are the norm. The answer in Afghanistan, as well as
in these other dimly lit places, is to move away from the current
model of provision � that of a centralized government-run monopoly �
toward competitive services by small-scale providers. And with the
help of technology, the latter option is becoming a widespread
reality. Think of it as the "microgrid" model.

Perhaps 20 percent of rural low-income populations in developing
countries have access to electricity, and rates are even worse in
rural and urban Africa. Even for those near a power line, often the
only way to get service is to pay off utility workers. For the average
firm in Eastern Europe and Central Asia, about 10 percent of the money
set aside for paying various bribes goes to keeping the lights on and
the water running. And for those lucky enough to have a supply, the
quality of networked power is grim. Looking at developing countries as
a whole, business surveys suggest that 40 percent of firms see
electricity supply as a major constraint to doing business, each firm
suffers an average of nine power outages a month, and nearly a third
of firms own a generator to provide backup power � or even as their
main source of electricity.

Behind these statistics lies a political calculus. The lucky few who
are already connected to power grids � as you might guess, they tend
to be the rich elite � would rather not pay very much for their power.
And under the status quo they don't have to: Prices are often set very
low to favor current customers, if they pay at all. In Bangladesh,
only about 55 percent of generated power is paid for. Of the missing
45 percent, perhaps 15 to 18 percent is accounted for by what the
industry calls "true technical" losses; the rest goes to illegal
connections or underbilling accounts. A 1994 survey suggests that
electricity revenues in developing countries average only about 60
percent of costs. Starved of financing, state electric utilities can't
roll out decent service to the bulk of the country. About a third of
utilities in Africa and South Asia can't even keep up with their own
basic operations and maintenance.

That means that 80 percent of Africans, for example, are left relying
on more expensive, less efficient, and unhealthier alternatives. Poor
people overwhelmingly use wood or dung for cooking and candles or
kerosene for lighting. They waste time collecting fuel and money
buying kerosene, suffer respiratory conditions and burns, produce far
more greenhouse gas emissions per unit of heat or light than more
efficient technologies, and get dim lighting and unreliable cooking
heat � all at a far, far higher price per unit of energy than the most
expensive electricity.

But where the state utility is too beholden to an urban elite, private
providers can fill the gap. A World Bank survey of 49 countries from a
few years ago found that 7,000 small-scale private companies, serving
communities of less than 50,000 people, were already responsible for
meeting the electricity needs of between 10 million and 50 million
households. In Bangladesh, the Philippines, and Cambodia, they
accounted for more than a third of all electricity connections in the

Private providers usually charge far more than the state-run utility
for electricity. In Cambodia, for example, the government utility
already charges some of the highest tariffs in the world, averaging 16
cents a kilowatt-hour � but the small-scale providers charge double
that or more. On the other hand, they actually deliver what they
promise, providing power to homes that would otherwise be unconnected.
Given time and a friendly business environment, some small-scale
providers could even grow big enough to benefit from economies of
scale that still exist for traditional power plants (larger fossil-
fueled plants are more efficient than small ones). But even if they
don't, they'll still be lowering the real cost of energy for the
people who need it most.

And technology is making small-scale provision, and even self-
provision, an ever more attractive option. As the prices for solar
panels drop � they are down 60 percent since 2009 � it becomes
possible for many households to be electrically self-sufficient. In
India, a panel costs about $300, the same as a year's supply of
kerosene for a lamp. One panel can provide lighting; add another and
you can power a TV. Off-grid solar might be generating as much as 200
megawatts in India by 2013, enough to power more than 30 million
standard LED light bulbs. And India is part of a worldwide trend:
According to a recent U.N. report, developing countries as a whole
spent $72 billion on renewable energy in 2010, more than developed
countries invested. And about a third of worldwide renewable
investments were small-scale.

It is true that private participation in the electricity sector has a
decidedly mixed record in developing countries. In some cases, public
utilities have contracted with private firms to build plants and
generate power, deals that have often proved financially ruinous and
been tainted with corruption. But an approach that bypasses government
altogether, with private firms or even individual households
responsible for both generation and distribution, should be able to
steer clear of these problems. And an exhaustive 2009 study carried
out by staff at the World Bank found that private-sector participation
in electricity has led to an increase in quality of services, in part
because private providers have the incentive to ensure they get paid
for the services they deliver.

All in all, giving poor people the opportunity to pay full price for
electricity through local provision will be good for poverty, the
economy, and the environment. People will get reliable, modern power
that extends working and studying hours, and that power will be safer
and cleaner than energy produced from a range of technologies that
involve burning stuff invented between the Stone Age and the 1850s.
Donors like USAID would do well to support the new microgrid model �
and leave the unreformed and perhaps unreformable state power
behemoths to their fates.

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