Best Practices

Financing

The cases of Chile, America, Kenya, and Kiribati demonstrate the importance of access to low-cost credit with flexible options for rural households. There are numerous ways in which this can occur- through the government, local creditors, foreign lenders, or through international organizations such as the World Bank. One design that has been effective in the rural setting is establishing a local member supported bank that makes small loans. The case of Kenya exemplifies how hire and purchase agencies that naturally emerged as a result of the PV market allowed households that had been previously excluded entry into the market. Even though many households are willing to spend a significant portion of their income on electricity, the high capital costs eliminate the possibility of electrification for many households. Credit can act as the bridge over the financial gap that hinders the lowest income sector.

Grassroots initiatives

The definitive buzzword but nonetheless true- planning from the grassroots level is essential for sustainability. Outsiders cannot know what will work best for a community. In the case of Kiribati, too much emphasis was placed on the dissemination of photovoltaic systems- how people would react to them seemed to be a secondary concern. Even with what seemed to be a flawless plan, photovoltaic systems sales floundered because the people didn't accept them. This problem was resolved when sales posts turned their focus from pushing sales to maintenance, leading to higher levels of customer satisfaction. Planning from the bottom up will more accurately reflect peoples needs. It also encourages consumer participation, which is crucial for sustainability. When a community plays an active role in an electrification project, the objective will remain in touch with what the people need and the best way to incorporate it into their lives. As demonstrated with the case of rural Mali, generators are only provided to villages that form an organization to finance and manage the endeavor, ensuring ownership and accountability. The ultimate assessment of any rural electrification project must be: how did this affect the peoples' lives? Grassroots initiatives makes certain that this answer is as positive as possible.

Appropriate Technology

Energy can come from numerous possible energy sources- grid extension, electric generators, and various forms of renewable energy. If economics weren't an issue, the ideal solution would be to connect all the 2 billion without access to an electric grid using renewable energy resources to generate the additional power needed, thereby at least partially leveling out the playing field for the underprivileged. Of course, economics is the issue, so choosing the appropriate technology for electrification requires being "technologically neutral" and choosing the least cost option.

Grid Extension

In the cases where grid extension is a viable option for a village, it is usually the best method due to additional benefits it provides in the community for those who can't afford electricity such as public lighting and refrigeration. However, grid extension can be costly for far distances. When distance or other circumstances make an off-grid technology comparatively less expensive, options include electric generators or renewable resources.

Generators

Generators are the traditional alternative to a grid extension for populations in need of an off-grid energy source. They can provide energy for lighting, cooking, water pumps, as well as grinding machines, a virtual lifesaver for some women, as the case of the Multi-Functional Platform machines in Mali demonstrates. Although more efficient than traditional forms of energy such as burning wood or charcoal, generators constantly require gas to run, which can be costly and present problems. In some cases, this cost is enough to make a diesel generator an unsustainable energy source. For Terese in Ethiouar, although her village had a diesel machine, it was not used due to the high operation costs of fuel. However, under the right circumstances and the appropriate dissemination and implementation programs such as the multifunctional platform project in rural Mali, diesel generators can have field success and are considered to be a viable option for decentralized electricity.

Renewable Energies

Renewable energies such as hydropower, solar, wind, and biomass offer the benefit of decentralization that generators offer without the high operational costs, dependence on gas, and pollution. Successful projects have most notably involved wind turbines, which generate electricity from wind, and particularly photovoltaic systems, which generate electricity from sunlight. As the case studies of Kenya and Kiribati demonstrate, photovoltaic systems have become a viable source of off grid electricity.

The problem that has kept photovoltaic systems (as well as other renewable energies) in a niche market is it's high capital cost: a home photovoltaic system costs around US$. The problem is exacerbated by the shortage of affordable credit available to the rural population. Projects involving PV technology must almost always receive funding from international organizations, NGOs, or foreign governments. However, experts predict that vast improvements in efficiency and cost will occur once the technology undergoes the "learning curve", the exponential decrease of cost associated with any new technology, due to the "learning-by-doing" phenomena and economies of scale11.

An exciting future funding possibility — CDM A promising possibility for additional investment in renewable energy for rural electrification could result from the ratification of the Kyoto Protocol, an international treaty for reducing CO2 emissions. Under the treaty, the "annex" (rich) countries would be required to reduce their CO2 emissions by varying quantities. A of the treaty allows for these countries to partially fulfill their abatement requirements by supporting carbon abating initiatives in "non-annex" (poor) countries, called the Clean Development Mechanism (CDM). This would greatly increase funding for renewable energy projects for those without access to the electricity grid. In turn, economists argue that such an influx of funds would lower the cost for the rural population, which in turn would increase demand, leading to increased production levels, further reducing the cost. Unfortunately, the refusal of the Bush Administration to sign the Kyoto Protocol has prevented its ratification. To date, environmentalists, experts, and activists are still fighting for its passage.

Social benefits of renewable energy resources such as not degrading the environment constitute a positive externality- they are not reflected in the market cost. Government policy should therefore try to correct this market failure with laws that encourage investment in renewable technologies to develop these markets. (For further reading on corrective policy for renewable energies, see policy options).

Appropriate Policy

Financing is the trickiest barrier to rural electrification for the obvious reason that it is an expensive endeavor that it's intended consumers cannot afford the cost of the infrastructure and the service. Governments of developing countries have traditionally responded to this problem by funding electrification through public utility and subsidizing service, however these policies have historically led to massive problems with corruption, inefficiency and lack of accountability. These subsidies often disproportionately benefit the wealthiest households and undermine any incentive to improve services or extend the grid. The challenge facing sound policy is to devise a program that helps finance electrification but allows for market mechanisms to ensure efficiency and better allocate resources. Chile's policy is exemplary in that it granted one-time subsidies (on a competitive basis) and created market mechanisms whenever appropriate. The outstanding results of the program confirm the importance of good policy that corrects market failures yet doesn't oversubsidize electricity.

The Role of the International Community

Rural electrification requires multilateral support. Starting from the rural sector, there must be a desire for electricity and a community willing to support a project. The government's job is to implement apropos policy, guiding the process and addressing any market failures. The participation of the international community is vital as lenders, introducers of technology, foreign aid, and perhaps most importantly, as a forum for knowledge sharing. The UNDP website for Energy and Environment states:

"The UNDP helps countries strengthen their capacity to address these challenges at global, national and community levels, seeking out and sharing best practices, providing innovative policy advice and linking partners through pilot projects that help poor people build sustainable livelihoods."12

We must be cautious in not overstepping our boundaries from providing aid to imposing on a countries political autonomy. Unfortunately, once there are profits to be made, the objectives of international aid can shift from apolitical benevolence to a business opportunity. The actions of these agencies reflect the ideology and the interests not of the poor countries they are supposedly helping but the rich countries who decide the agenda.

For example, The United States (as well as other overly developed countries) has zealously pushed the idea of "privatization" and "market liberalization" as the answer to economic growth, which in terms of rural electrification, equates to the privatization of traditionally public utilities. This notion, refered to as the "Washington Consensus" is experienced in the most detrimental form when these ideas are turned into stipulations for receiving aid from the IMF and World Bank in the form of "Structural Adjustment Programs" (SAPs). The ideology behind these ideas is economically deterministic - complete faith in the market as the answer to development. It's supporters argue that publicly owned utilities only lead to inefficiencies and a misallocation of resources, and without competition, these industries lack incentive to decrease costs. In theory, these statements are true, only it fails to address what happens when privatization and market liberalization occur before proper social programs and regulations are put into effect. Often times "privatization" does not mean competition and increased efficiency, it means foreign investors with no concern for social issues buying electric companies, thereby inheriting an effective monopoly. Corrupt government officials would be rewarded heavily by the foreign company into undervaluing electric companies to be sold below their value. With a monopoly, foreign firms with no regard for the social implications of their actions could then hike up prices. What was once poor service would become cutthroat.

This sequence of events is not uncommon. In the Dominican Republic, for example, World Bank funded the construction of a power plant, half of which Enron then acquired in 1995. Four years later, as the Dominican Republic privatized their energy sector, Enron claimed a higher percentage of Dominican Republic's electricity industry. Power rates then skyrocketed, followed by rolling blackouts. After citizens also discovered that Enron and other foreign companies had purchased their public electric company almost $1 billion less than its real value, rioting ensued killing eight people. Riots due to Enron's practices as a buyer of a previously state owned electric company have also occurred in Panama, Columbia, Guatamala, Bolivia, India, and numerous other developing countries13. In fact, this scenario has happened so frequently in developing countries that it's argued that electrification projects funded by development agencies help large, multinational corporations secure business deals and expand to new markets as opposed to helping developing countries. Research from the Institute of Policy Studies shows that nine out of ten World Bank energy projects benefit corporations from a G-7 country (US, Canada, Japan, Germany, France, Britain, and Italy 14.

The support of the international community is crucial for the knowledge, financing, technology it can provide, as well as building capacity. However, empirical evidence suggests that local initiatives are more likely to reflect the desires of that specific population. In contrast, international development projects can often fall into the hands of people who care less about society's welfare and more about the bottom line. As members of the international community, it is our responsibility to hold these agencies accountable for their actions by speaking out against injustice and fighting for those who, due to poverty, can't be heard.