Power to the Poor: Provide Energy to Fight Poverty

Morgan D Bazilian. Foreign Affairs. Volume 94, Issue 2. Mar/Apr 2015.

Imagine life without electricity. With no lights, electric stove, or water pump, you must travel miles to fetch water and firewood, running a particular risk of attack if you are a girl or a woman. At home, you cook over a smoky stove or an open fire, raising your odds of getting lung and heart disease. If you are pregnant, you may die in the dark, giving birth at a clinic that lacks air conditioning and modern medical equipment. Without vaccines, which require refrigeration, your children remain vulnerable to deadly diseases. At night, they study by the light of a kerosene lamp, which causes burns when the fuel spills. Earning a living isn’t easy, either. No electricity means no sewing machines or rice mills, no pumps for irrigating crops, and no way to keep drinks cold or keep a store open at night. The lack of power keeps away bigger companies that might have hired you.

Such is the plight of nearly half of the world’s population. Some two billion people lack electricity outright or have poor-quality service, and nearly three billion rely on dirty fuels, such as firewood and animal dung, for cooking and heating. Nearly 90 percent of those suffering from energy poverty, as the problem is known, can be found in South Asia and subSaharan Africa. In Liberia, to take one of the most extreme cases, just two percent of the population has regular access to electricity. And in Tanzania, nearly 50 percent of firms say that poor electricity service is a major constraint for doing business. They face an average of nearly nine power outages every month, leading to lost sales and poor productivity. In this area, the disparity between the developing world and the developed world could hardly be greater: the average American uses about 50 times as much power as the average Bangladeshi and about 100 times as much as the average Nigerian.

The problem has proved stubbornly persistent. Data from the World Bank show that although 1.7 billion people acquired access to electricity from 1990 to 2010, the gains barely outpaced population growth. They also accrued disproportionately to cities: today, about 85 percent of those without electricity live in rural areas far from any infrastructure. In sub-Saharan Africa especially, the scale of the challenge is daunting. Enabling people there to consume as much electricity as those in a middle-income region would require an increase in power generation of more than ten percent a year over two decades-an annual growth rate far greater than the historical two to three percent. Small wonder, then, that the International Energy Agency has forecast that in 20 to 30 years, the number of energy poor may remain close to where it stands today.

Although international donors have many compelling causes to choose from, reducing energy poverty should rank among the top. Energy is a precondition to alleviating many other problems associated with poverty, from poor health to lack of education to unemployment. The issue also reaches beyond the bounds of poverty to foreign policy, since a lack of energy access can foster instability. The good news is that governments, development agencies, and nonprofits have begun to ramp up spending on fighting energy poverty and have unveiled a slew of new initiatives, many of which have produced measurable improvements in the lives of the poor.

At the same time, those groups have tended to focus too much attention on small-scale fixes or incremental improvements. Such approaches can set ambitions too low, implicitly condemning billions of people to meager levels of energy use that will do little to lift them out of poverty. As Kandeh Yumkella, a senior un official, has noted, “The provision of one light does nothing more than shine a light on poverty; the poor then only see more clearly that their floor is made of dirt.”

Donors need to aim instead for the heart of the problem: governments in poor countries that are struggling to undertake effective and widespread energy programs. From the United States in the early twentieth century to postwar Germany and Japan to modern China, people have gained access to electricity and modern fuels thanks to concerted government leadership, massive public investments in infrastructure, good planning, well-trained work forces, supportive regulations, and financially viable institutions. There is no reason to believe that these fundamental ingredients matter less today.

Scaling Up

As governments in the developing world come to grips with the sheer size of the challenge before them, they quickly realize that building energy infrastructure such as large power plants and transmission lines takes years or decades. In the meantime, small companies are stepping in with much-needed services, the most innovative of which often involve solar energy. Taking advantage of the recent plunge in the price of solar panels, companies are working with local banks to provide financing and servicing arrangements that are appropriate for the rural poor, which usually involve small up-front costs, modest monthly payments, and reliable maintenance agreements.

More and more families can now afford low-power systems that can run a television or a few lights and take just a day or two to install. One Indian company, Selco, has sold and maintained more than two million such systems, thanks largely to a sales approach that is tailored to poor customers. A related success story comes from Bangladesh, which has seen the fastest expansion of small-scale, off-grid solar power systems in the world. Over three million such systems were installed by 2014, a figure that is on track to double within the next three years. Credit goes principally to the Bangladeshi government, which created a dedicated agency that provides nongovernmental organizations and microfinance lenders with technical support and grants. Despite these advances, in India, nearly 300 million people still go without electricity. And in Bangladesh, over 60 percent of businesses rely on their own backup generators to keep the electricity flowing.

Although small-scale systems have helped millions of people take their first steps up the energy ladder, they suffer from a number of technical and economic inefficiencies that larger systems can avoid. So-called mini-grids are one way to help make small-scale energy sources more practical. Originally designed for communities not yet linked to the main electrical grid, mini-grids can aggregate a whole village’s infrastructure and power sources, making the system more efficient and easier to maintain than a series of individual systems. Because they often rely on a number of different technologies and can run independently from the main electrical grid, mini-grids are also resilient. As a result, the U.S. Department of Defense has installed them on several military bases from Texas to Hawaii, and hospitals, factories, and other sites that need reliable power are starting to adopt them, too. Those same features make them an attractive option in fragile and conflict-ridden states, where centralized systems can make easier targets for violence and are more likely to face long construction delays.

Still, mini-grids are best suited to specific conditions and have difficulty competing with centralized power systems. Economies of scale explain why centralized power systems became the norm around the world, replacing smaller, isolated systems. Con Edison’s present-day network in New York City, with over 120,000 miles of electrical cables serving some three million customers, is a far more efficient way to meet modern demands than the lighting system that Thomas Edison established on Pearl Street in 1882. Energy systems in developing countries will no doubt take different shapes from those in the developed world, and that is likely a good thing. There will be a bigger role for distributed electricity generation and an opportunity to benefit from advances in information and communications technologies that make systems smarter. Nevertheless, large-scale power plants will almost certainly remain an important part of the mix.

What It Takes

Given the scale of the problem, tackling energy poverty requires bold government action. Historically, the process of expanding rural access to electricity began with the public sector. Consider one of the most successful energy- poverty alleviation programs in history: the U.S. government’s efforts to extend electricity access during the Great Depression as part of President Franklin Roosevelt’s New Deal. In 1930, roughly 65 percent of U.S. households had electricity. As in many poor countries today, most people living in cities had electricity, but only around ten percent of those in the countryside did. Private utilities were not delivering affordable power to farmers and remained uninterested in building the expensive and low-return infrastructure necessary to reach rural communities. In the Tennessee River valley-a region that encompasses parts of Alabama, Georgia, Kentucky, Mississippi, North Carolina, Tennessee, and Virginia-farmers lived without refrigerators and water heaters. With no modern water-management systems, their crop yields suffered from relentless flooding.

Then the federal government acted. In 1933, Congress, invoking “the interest of the national defense,” created the Tennessee Valley Authority, which built several large dams in the region that not only produced electricity but also helped improve flood control. And in 1935, Roosevelt created the Rural Electrification Administration, which within five years helped establish hundreds of rural electric cooperatives to serve hundreds of thousands of customers. The National Academy of Engineering called the electrification of the United States the greatest engineering achievement in the twentieth century. And the Tennessee Valley Authority exists to this day as one of the country’s largest power providers and is a self-funded corporation of the U.S. government employing more than 12,000 people.

Indeed, expanding energy access works best when it is part of a broader development plan. Beginning around 1980, both China and Thailand launched electricity programs that accompanied economy-wide reforms and managed to achieve universal electrification in two decades. In Vietnam, rural electrification formed part of the nationwide doi moi (renovation) reforms, which the government began in 1986. The measures included a gradual move from central planning to market mechanisms and an opening of the economy to trade and foreign investment, which laid a foundation on which the country’s nascent energy sector could grow. Only later did the private sector begin participating.

Likewise, when Rwanda rolled out its energy-access efforts in 2009, it used what it called a “sector-wide approach” that pooled aid from various sources together in a single program, one that was led by the Rwandan government but involved a range of stakeholders. The result: in just four years, the share of Rwanda’s population with electricity roughly tripled. Every year, the country gains 60,000 new electrical connections, up from 1,000 annually before the reforms. Crucially, both Vietnam and Rwanda, like China and Thailand before them, recognized that efforts to combat energy poverty must go beyond the needs of rural households and aim to create wealth across the entire economy.

The Global Agenda

Most of the countries affected by energy poverty have already begun reforming their energy sectors, have developed targets and strategies, and have launched dedicated agencies for expanding access to electricity and modern fuels. Still, they need some form of outside financial-risk mitigation and funding. Estimates for the price tag of expanding energy access globally range from $40 billion to $100 billion per year-big numbers, to be sure, but just a fraction of the total amount of capital spent in the energy sector. While public funding is necessary initially, it will ultimately be insufficient. In the long run, private investors will need to feel comfortable enough to dive into what are now very high-risk markets, if they exist at all. But the enormous demand is clear: a group of researchers led by Vijay Modi at Columbia University has shown that villagers in Mali and Uganda are willing to pay electricity rates that are nearly ten times as high as the rates that prevail in developed countries. It’s hard to overstate the market opportunities that will arise once an additional billion-plus people gain access to energy. Glimpses of this are already apparent in some of sub-Saharan Africa’s vibrant technology centers and in the explosive growth of the region’s economy, which has more than doubled in size since 2000.

In light of the gains to be had, in 2013, the Obama administration unveiled Power Africa, an initiative that provides funding and incentives for U.S. companies to bring their technologies to the region. The U.S. government committed $7 billion initially, and the private sector has since pledged about three times that amount. (The World Bank has also come on board, with $5 billion.) But Power Africa is no panacea. It’s not clear whether it will outlast the Obama administration, and its initial focus on the private sector may be premature in some countries where the groundwork for public-private partnerships has yet to be laid.

Global goals also have a role, since they can help raise money, track progress, and keep hold of the development community’s often wandering attention. In 2012, the un launched Sustainable Energy for All, an initiative that aims to ensure universal access to modern energy services by 2030. The un is also working on a new round of targets, called the Sustainable Development Goals, to replace the Millennium Development Goals. The old goals didn’t mention the eradication of energy poverty, but the new ones include it among the ranks of such aspirations as ending hunger and providing for universal education. The inclusion of energy issues on the list, which required no small feat of diplomacy, suggests that they are finally becoming part of the canon of traditional development economics.

The Geopolitics of Gigawatts

But goals alone won’t trigger government action in the developing world; only hardheaded policies can turn rhetoric into reality. Great powers such as the United States should consider the provision of energy not merely a matter of development but also a tool of geopolitics. Energy poverty counts as what the U.S. military calls a “threat multiplier,” meaning that it can exacerbate existing challenges and contribute to instability. Providing electricity and modern fuels in the poorest countries can lower the risk of internal unrest and reduce the movement of people across borders. Indeed, some African governments have reacted to their increasingly vocal and young populations by unveiling promising new ventures to expand energy access. Since 2010, the Kenyan government has improved the electricity supply in Kibera, the largest slum in Nairobi, as part of a program that targets the areas of greatest social inequality.

Developed countries have all the more reason to act now in the wake of new discoveries of oil and gas in East and West Africa. These finds have boosted government revenues, but the distribution of those revenues has, in some cases, exacerbated deep social and political problems. Take Nigeria, which is both one of the world’s top oil exporters and home to one of the biggest populations without access to energy-90 million people. Decades of oil development in areas that still lack basic services have provided the social, economic, and environmental drivers of violent conflict. Just as the United States has long been entangled in the energy security of the Middle East, it must now pay more attention to parts of sub-Saharan Africa. It should encourage countries there to govern the sector fairly and transparently and support efforts that funnel natural resource bounties toward addressing energy poverty.

Well-intentioned outsiders should remember that governments trying to energize their territories need to take ownership of the efforts. The blueprints governments draw up with donor support need to respond to the specific national contexts and local needs; they should not be force-fed from afar. That’s especially true when trying to balance the sometimes uncomfortable tradeoffs that can exist between addressing energy poverty and combating climate change. Governments in poor countries tend to focus on the former because of its immediacy, whereas wealthy governments are often more animated by the latter, given its global implications. Although clean energy technology has made enormous strides and will certainly play a very large role in the energy systems of tomorrow, donors will have to accept that in some cases, progress in energy access might come at the expense of the environment-as it did during the United States’ electricity drive. That said, they should minimize these impacts as much as possible and make other concerns, such as food and water security, part of their calculus.

The economist Amartya Sen has argued that economic development can be achieved only if the poor come to enjoy a set of freedoms including political participation, safety, and economic opportunity. Access to energy enables each of those fundamental rights, which is why efforts to eradicate poverty cannot afford to ignore it. True, the barriers that impede progress on ending energy poverty are formidable: scarce financial resources, competing priorities, weak institutions, and the sometimes misguided interventions on the part of outsiders. But they are well within the world’s ability to overcome, and they are far less imposing than many of the technical obstacles humanity has already vanquished. The laws of physics operate the same in South Asia and sub-Saharan Africa as they do in Europe and North America. The needed materials are simple things, such as steel, concrete, copper, and glass.