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Overview: GSEP’s Commitment to Electricity Access and Recent Progress
from Sustainable Electricity for All: Recommendations to the Global Sustainable Electricity Partnership
by KTD Creative
2. State of Play:
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Over 1.3 billion people, almost all of who live in developing countries, are without access to electricity worldwide.2 In many areas of developing countries, people currently rely on diesel, firewood, candles, kerosene, or an unreliable grid for their lighting and communications needs, income generating activities, and other services. Electrification brings a range of benefits to these communities, including reliable access to lighting, heating, cooking, refrigeration, and water pumping, which in turn affects critical health and livelihood outcomes and drives economic development.
According to a 2012 World bank study on India3 , household access to electricity increases household per capita income by nearly 38.6 percent. The study also found that household electrification increases school enrollment by about 6 percent for boys and 7.4 percent for girls. In addition, electricity in community facilities improves health by providing refrigeration to keep drugs and vaccines intact. As recently as 2007, 151 million vaccine doses were wasted in developing countries because of improper refrigeration.4
Despite these clear benefits, expanding electricity access remains a critical challenge. According to the IEA, based on current policies and future demographics, over 1 billion people will still lack access to electricity
Annual Investment in Electricity Access
Projected Available Funding Energy for All Case 2010-2030
0 5 10 15 20 25 30 35 40 45 50 Average Additional Annual Investment in Electricity Access Required by Region in the Energy for All Case
India Other Developing Asia Sub-Saharan Africa Latin America
0 5 10 15 20 25 30 35 40 45 50
Source: World Energy Outlook 2011, IEA in 2030, of whom over 85 percent will live in rural areas – mostly in sub-Saharan Africa, India and other parts of developing Asia (excluding China).5 As public financing alone will not close this gap, the private sector is increasingly being called upon to finance sustainable solutions.
A. Hurdles to Expanding Electricity Access
There are a number of significant hurdles that need to be overcome to achieve universal electricity access. The hurdles below represent the most pressing areas commonly highlighted. As is evident in this list, the greatest hurdles to electricity access projects are seldom the technologies, but rather the financing and business models, sustainable operations and maintenance, and political and regulatory environments. • Cost of Capital, Access to Capital - For many electricity access projects in developing and emerging economies, there is a fundamental gap between the risk/return expectations of private sector investors and the risk/return profile of these projects. This perception of risk relative to the expected return on investment drives up the cost-of-capital for projects, making it difficult to obtain appropriately structured financing. Private sector investors who are able to offer lower costof-capital financing are often unwilling to take the risk of investing in electricity access projects in developing countries, while those who are willing to invest demand rates of return that make many
2 “Energy for All. Financing Energy Access for the Poor”, OECD/IEA, 2012 . 3 Khandker, Samad, Ali & Barnes. “Who Benefits Most from Rural Electrification? Evidence in India.”, The World bank, 2012. 4 hayford, Kyla, lois Privor-Dumm, and Orin levine. “Improving Access to Essential Medicines through Public-Private Partnerships.” International Vaccine Access Center, 2011. 5 The World Energy Outlook. “Measuring Progress Toward Energy For All.”, IEA, 2012.
investments uneconomical. In addition, many financial institutions – particularly local commercial banks and financial intermediaries who are key project decision makers – are unfamiliar with evaluating renewable energy projects or unequipped to handle the financing, making them hesitant to invest. • Lack of Local Technical Capacity - A range of technical issues – from determining the appropriate combination of generation sources and components, to sizing the systems, to energy efficiency – are critical to the financial viability of electricity access projects in developing and emerging economies. however, many project developers and communities without electricity access in these markets face a lack of technical capacity to address and resolve these issues. In addition, the operations, maintenance and management experience of many developers is limited, and only available at extremely high costs. If these issues are resolved during the planning phases of a project, it can greatly extend the lifetime of the designed systems and improve affordability for end-users. For example, it is estimated with proper maintenance, the lifetime of a mini-grid can be more than 50 years, compared with the average lifetime of around 20-30 years.6 • Uncertain Policy and Regulatory Landscape - The long-term, complex nature of investments in electricity access projects in developing and emerging economies requires a high level of policy certainty to help ensure consistent returns throughout the project lifespan. unfortunately, the policy landscape in many of these markets is often volatile, which complicates project planning and restricts the ability of investors to project revenues. The same is true of the regulatory landscape, where immature institutions, multiple agency jurisdictions, and lengthy project approval, permitting, licensing, and land leasing requirements can add layers of uncertainty and quickly turn electricity access projects unprofitable. long-term, stable, and transparent policies are needed to provide investors and developers with a clear sense of the government’s priorities and timetable for development, and coherent regulatory processes and structures are essential to expedite projects and remove the tremendous uncertainty associated with the planning and approval process. • Lack of Scalable Business Models - low levels of economic activity and high levels of poverty, diffuse populations, limited existing infrastructure, and the lack of local distribution and supplier networks are among the unique issues in many
communities without electricity that make creating replicable business models to address the issue of electricity access at scale a major challenge. While there is no shortage of innovative new business and project models that address these hurdles, there is a lack of available financing and capacity to scale up successful models or pilots. B. Opportune Timing to Engage
Recent technological advances and a growing number of initiatives dedicated to the issue of electricity access offer GSEP the opportunity to build on existing efforts to address the critical gaps that remain.
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0
Jun. 2010 Dec. 2010 Jun. 2011 Dec. 2011 Jun. 2012 Dec. 2012
Source: Bloomberg
Technological Advances Improvements in renewables and utility technologies over the past decade, coupled with reduced manufacturing costs, have made it more cost-competitive to deploy clean and affordable renewable energy solutions to scale up electricity access. • Reduced Costs of Renewable Technology - The price of all major renewable energy technologies has fallen to be competitive with fossil-fuel sources, even without factoring in climate, health, and other benefits. Out of all renewables technologies, PV cells have seen the greatest plunge in price, with the price of $1.40 per watt at the end of 2010, to merely $0.45 per watt by the end of 2012, according to the bloomberg New Energy Finance Monocrystalline Cell Price Index.7 Onshore wind turbine prices have followed a similar downward trajectory; prices for turbines to be delivered in the second half of 2012 were 11% lower than for devices delivered in the first half of 2010, according to the bloomberg New Energy Finance Wind Turbine Price Index.8 lower equipment costs for renewables technologies translates into more projects being commercially viable. For instance, the decline in solar
Demand for electricity in developing countries is increasingly being served by microgrids. For rural electrification especially, microgrids are moving into the mainstream of the power generation and distribution industry.
Electricity Access by Country, % of Population without Access to Electricity (Excluding OECD and Transition Economies)
% of population without electricity
>90 75–90 50–75 25–50 <25
Source: World Energy Outlook (2009, 2012), IEA not available
