Energy Poverty Action -  a joint initiative of the World Business Council for Sustainable Development (WBCSD), the World Energy Council and the World Economic Forum.

Energy Poverty: Impeding Sustainable Development and Growth

Lack of access to sustainable modern energy services and products constrains key aspects of human development and growth. Access to clean water, maternal health, infant mortality, environmental sustainability, gender equality of opportunity and progress against income poverty are al seriously impeded without the services modern energy provides. Across the globe an estimated 3 billion people continue to lack access to sustainable and affordable modern energy. Most remain dependent on traditional fuels, often adding to stresses on natural resources and undermining the sustainability of rural livelihoods. Energy poverty afflicts the poor in every world region but is a particular challenge in Sub-Saharan Africa. In urban areas access to electric power is 25-30% and slowly improving. But in rural areas access has been stagnant at 6% for more than a decade. Three-quarters of Africa’s 700 million people (500m – half the world population of critically poor) live in the rural areas of Africa.

Governments are constrained in their ability to accelerate rural access, and the efforts of public agencies mostly will remain constrained, even under optimistic growth scenarios. Fiscal resources and official development financing will continue to be stretched to meet increasing demands for access in and around urban areas, and to meet pressing development needs in other sectors. To accelerate rural access ongoing efforts need to be complemented – and strongly leveraged – with additional market-based solutions.

Energy Poverty Action

The Energy Poverty Action (EPA) partnership was initiated at the World Economic Forum Annual Meeting in 2005 by British Columbia Hydro (Canada), Eskom (South Africa) and Vattenfall (Sweden). The World Energy Council and the Development Bank of Southern Africa joined as partners in 2007 and the World Business Council for Sustainable Development the following year. The African Development Bank is financing a pilot project in Lesotho. The World Bank Group, Eskom and Vattenfall have seconded senior staff to assist the partnership.

The mission of EPA is to demonstrate market-based solutions to energy poverty which can work at scale. It aims to combine the comparative advantages of international business and development partners to forge new market-based solutions to sustainable supply and ‘smart’ demand in areas that will remain remote from utility grids. EPA aims to contribute towards solutions on three main challenges:

• Development of commercially and environmentally sustainable business concepts for rural energy schemes, able to aggregate individually small projects into bankable packages.
• Access to significant private funding to underpin market establishment and development.
• Dislocations of knowledge and information, and creation of substantive partnerships for action.

EPA’s approach aims to accelerate progress through empowering local entrepreneurs and communities with technical and financial resources for them to lead to establish and operate sustainable community-based energy companies. The business model builds upon global best practice of community-led pilot projects. Public financing provides one-time subsidy of capital costs for non-commercial uses with strong public benefit (water pumping, street lighting, power for health clinics and schools) and to meet ongoing needs for technical assistance and capacity development. With these costs covered, private financing meets investment costs for supply to the core of community economies. This supply to remunerative consumers (which often will displace diesel auto-generation) provides the means to extend service in the community through normal development of the energy enterprise. Supply focuses on renewable energy sources paired with modern end-use and demand management technologies. Individual community schemes are supported by regional companies in joint venture with the concerned government agency. These companies procure and lease equipment for individual community schemes, provide maintenance services, technical assistance and capacity development and aggregate and market carbon sequestration. The clustering of individual schemes combined with support from a regional company enables the business model to achieve programs of bankable size while diversifying performance risk and assuring high standards of financial governance. 

The EPA partnership has reached three important milestones towards its mission:

• Establishment of a not-for-profit company that will jointly identify programs with host governments and development institutions, and provide professional services to assist program development and implementation.
• Implementation of a pilot electrification project in Lesotho and commencement of additional programs in southern Africa in collaboration with development partners.
• Definition of a private-public funding mechanism that can leverage public resources to mobilize significant private financing.

The Scale Opportunity: Uncovering a Market to Sustainable Energy Access

The experience gained through EPA highlights the opportunities to achieve a significant breakthrough and accelerate rural access through transforming this problem into a large and transparent market able to deliver solutions at scale. Work by EPA partners and other groups have demonstrated the possibility to deliver commercial and partly commercial solutions at community level. However, initiatives to date mostly have been small and fragmented – and more than a few have failed for want of ongoing support. Financial institutions and companies – some with longstanding engagement in this area – so far have not been able to reach sufficient scale for market-based approaches to be self-sustaining, replicable and scalable. Four challenges have remained vexing and elusive:

• How to aggregate individually small projects into a size attractive to potential funders while avoiding a need for funders to engage with communities one-by-one (i.e. how to make transaction costs manageable and high standards of financial governance.)
• How to assure satisfactory maintenance of equipment and provide ongoing technical assistance and capacity development for nascent commercial enterprises (i.e. how to assure company viability is sustained.)
• How to leverage public resources to mobilize large volumes of private funding, to avoid reliance on scarce development resources and a ‘zero-sum game’ with other development priorities (i.e. how to use public resources catalytically, to facilitate private market capitalization.)
• How to meet costs associated with providing high value but non-remunerative energy supplies (for example water pumping, supplies to schools and health clinics and street lighting) without reliance on uncertain annual subsidies from public funds (i.e. how to achieve fully commercial business models.)

Solutions to these challenges will uncover the cornerstones of a market structure and open the possibility for normal commercial business to take over this development dead-end. Market opportunity mirrors the size of today’s problem: US$200-300 billion in Africa alone with the current population of the continent. Today, with the above constraints firmly in place African entrepreneurs still manage to import US$600 million of diesel generators annually. Renewable technologies and smart demand can provide supply solutions more cheaply than the US cents 25-35 per kWh generation costs of these units. Easing the constraints will help more entrepreneurs to come forward, more schemes to demonstrate commercial viability and more to get financed and implemented. Although a matter for conjecture it is not implausible there is already bankable demand of US$ several billion annually but for want of the beginnings of market definition. And the hard development reality is that there is simply no other way: the problem of rural energy access has for more than a decade shown itself too big for public resources. That is not going to change. Structuring the market therefore is critical. Good business is needed to deliver stronger progress towards the Millennium Development Goals.