Investing in energy access for the poor – a lesson from history in the US?

February 13th, 2014

I and two colleagues have been attending the Second High Level Meeting of the Africa – EU energy Partnership (AEEP) in the grand location of the African Union headquarters in Addis Ababa. The AEEP partnership was set up in 2007 to help the two continents “share knowhow, connect resources and work to better coordinate their respective energy policies”.

Why’s it of interest to Practical Action? Firstly because, amongst other things, the AEEP has set targets to help 100 million people gain access to energy in Africa by 2020 and secondly because Practical Action has been working as a civil society representative to the Partnership.

Finance for energy access has been a big talking point throughout the meeting. There has been a heavy emphasis on the role private sector finance should play in meeting the growing need for energy in Africa (which is expected to grow 6 fold between now and 2040 according to one delegate). Although we don’t dispute the need for the private sector to play a role, we and other civil society actors are worried that more remote rural communities will not be commercially attractive propositions and so this approach will not be a panacea for achieving access for all. For those who are interested in such matters, our intervention on the issue in the conference was as follows:

We’re worried that we can’t track the investments being made in off grid capacity. The 2011 World Energy Outlook estimated that Sub Saharan  Africa will need to invest around $12billion a year in ‘off-grid’ energy  generation (local  generation of electricity through solar panels, micro hydro projects, wind etc.) in order to serve those communities who are  too remote to economically be linked to national grids and to ensure universal access by 2030. We know therefore that the development of off-grid power is going to be critical to the lives of a big chunk of the 570 million people without electricity in Africa today. But it’s very difficult to get a handle on what the current off-grid investment I,s as no one is monitoring the split between investment into grid extension and investment into off grid generation. The suspicion is that the majority of new money is going into the former , improving the quality of the supply to those who already have it as opposed to providing electricity to those who have none.

One of the big issues for AEEP, we believe, is where it’s going to focus its investment efforts in the future. Creating the right conditions for private sector investment is undoubtedly an important part of the strategy of achieving universal access. But it won’t be enough on its own. There will be places where market won’t deliver and we only have to look at the history of infrastructure in the developed world to see that. The US is a great example. At the beginning of the 1930’s only about 1 in 10 rural farms had access to electricity. 20 years later almost all had access and rural electrification had been completed. How was this achieved? Through one of the most successful of President Roosevelt’s New Deal programmes – the Rural Electrification Administration that provided subsidised finance to farmers cooperatives to build, operate and maintain powerlines on a not for profit basis in areas where private power companies would not go because of lack of profitability. Indeed that legacy continues today with over 900 cooperatives providing power to around 42 million people across 47 states and accounting for around 11% of the total kilowatt hours sold in the country.

AEEP needs to achieve a balance between the desire to lever private investments and the need to reach those, like the 42 million in the US today, who are beyond the reach of commercial operations.

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