|Rural Energy and Development: Improving Energy Supply for Two Billion People (WB, 1996, 132 p.)|
Liberalizing energy markets. however important. may not be the complete answer. Despite the progress made in encouraging private investment in the electricity industry since the beginning of the 1990s, for example. private companies have shown little interest in extending electricity supplies to rural areas. They have instead preferred to concentrate on more lucrative contracts to generate electricity and to supply industrial and urban customers There is evidence, in other words. that creating urban-based energy markets by itself will fail to provide rural electricity.
There is one obstacle in particular that discourages companies from providing supplies to rural areas: high start-up costs. Extending an electricity grid to a remote village can be very expensive. especially if only a few households are to be connected. Until more households join the network, the cost of electricity can reach US¢70 per kWh. seven times the typical cost in an urban area. Even setting up a solar electricity system for a single home can cost between US$500 and US$ 1,000. a large sum to spend in one JUMP.
The problem here is not necessarily that people are unwilling to pay. Evidence suggests that people will spend a significant proportion of their incomes on better energy. which improves their quality of life or enables them to become more productive. In Bangladesh even the poorest people are connecting to the grid when the service is available. In rural China. many people without easy access to cooking fuels are investing in efficient stoves and tree planting.
The problem is that rut-al customers often cannot get affordable credit. That makes it difficult for them to pay the high stat-up costs of improving their energy supplies. One solution may be to establish a local member-supported bank to make small loans (such as the Grameen Bank in Bangladesh. which lends mainly to women and poor people). Another is to promote companies that lease basic equipment to consumers, communities, and local energy suppliers (e.g.. LPG distributors and small power companies).
The importance of credit is illustrated by the experience of Mizque and Aiquile, two rural villages in Bolivia that are supplied by local diesel microgrids. When the villagers were first given the opportunity to buy electricity from their local micro-grids. barely a quarter of them could afford the service. The electricity company that runs the microgrids then decided to provide credit for the US$100 to US$125 connection charges. allowing customers to pay back the costs in small monthly installments over five years. As a result more than half of the villages' households were able to purchase electricity. even though the prices of local micro-grid power were fairly steep, at US¢25 to US¢30 per kWh.
Suppliers can also expand their markets in rural areas simply by reducing start-up costs for rural consumers A key aspect of the electrification scheme in Mizque and Aiquile, for example, was that supplies were limited to evening hours. Uniform standards and codes that prevail in many developing countries and that have been designed for industrial and higher-income customers often prohibit such service adjustments.
Technologies such as solar. wind. and small-scale hydropower are often ideal in rural areas and require tat more systematic attention by policy takers than they have hitherto received. Renewable technologies have significant environmental advantages relative to fossil fuels. Sunlight is also in ample supply in many developing countries. Most important of all, the costs of many renewable technologies have come down significantly over the last decade. A combination of improved technology and economies of scale has pushed down the costs of wind power, solar thermal power (sunlight is used to heat air or water), and photovoltaic power (electricity is generated directly from sunlight).
In the 1950s and 1960s, for example, PV cells were only used in the space industry. Their costs have fallen so dramatically since then (figure 3) that they are now used to power tens of thousands of homes in developing countries. Though electricity generated from PVs is still more expensive than electricity generated from fossil fuels. PV modules can be easily installed in remote locations, circumventing the need for large investments in extending the electricity grid. For this reason, PVs often make economic sense for rural households or for water pumping.. In recent years in Kenya, for example. 25.000 rural households have bought (unsubsidized) PV modules - more than have been connected to the electricity grid under the highly subsidized government rural electrification program. Still, both electrification strategies have so far reached only a tiny fraction of Kenya's rural population of 19 million.
The effective exploitation of the new renewable technologies requires a 'leveling of the playing field" - that is, eliminating tax, subsidy, and import distortions that now discriminate against renewables in favor of fossil fuels; initiating national surveys of wind and solar resources; promoting credit schemes to help consumers meet the high first costs of such systems; developing private supply and service infrastructures and associated training; and supporting selected demonstration projects.
Figure 3 Actual (1970-92) and Projected (1993-2015) Costs of PV Modules
Note: The ranges of costs show the PV module costs required to complete with small-scale applications and with decentralizes power generation (assuming supply costs of US¢8 to US¢10 per kWh (at base load) and US¢16.5 per kWh (at peak load. The spread in the points reflects the spread in costs of different technologies Source: Ahmed (1993)
However quickly modern energy spreads in developing countries, dung, crop wastes, and wood will be used by tens of millions for decades to come. Encouraging the use of improved biomass stoves is one step in improving the efficiency and sustainability of the use of biofuels. Relatively simple and inexpensive improved stoves can reduce by as much as 30 percent the amount of fuel needed tot cooking, thus cutting the time needed to gather wood. Moreover. because the improved stoves give off less smoke, they make the domestic environment less damaging to householders' hearth.
Encouraging the use of improved stoves is easier said than done. A number of programs run by governments and donor agencies in the late 1970s and early 1980s "'ailed, partly they were oblivious to local customs and the local economic climate. But lessons have been learned - in particular that schemes should target those who would benefit most. For example, the Chinese National Improved Stove Program (the world's largest stove scheme. which has installed 120 million stoves in rut-al households) wisely concentrated on areas with the greatest fuelwood shortages. In Tanzania a project funded by the International Development Association started up a self-sustaining market that by 1992 had sold more than 60,000 improved stoves. It no doubt helped that production and sales of these stoves wet-e put in the hands of local artisans and shopkeepers.
Farm forestry and natural forest management have long played an Important role in alleviating wood problems in China, India, and many other countries. By providing market incentives for effective management of existing trees and shrubs and limited planting of new ones, these practices significantly increase afforestation rates. Programs that support such market-driven approaches directly address farmers' needs for fuel. fodder. mulch. medicine. and wood. They also l-educe pressure on agricultural residues and can improve soil fertility. Other benefits include curbing soil erosion, improving soil moisture retention, and supplying soil nutrients.
Effective management of existing forest resources requires that local people take active responsibility and that forestry departments must change their role. Success depends on voluntary participation and decision-making as well as on formal transfer of responsibility for forest management to the rural communities.
Perhaps the most important lesson learned by the World Bank and other organizations in recent years is that local input is vital to success. Local people understand their situation and their problems better than outsiders. The village of Pura in south India is a prime example of this. Community biogas digesters. which produce gas from dung and farm residues. have a history of problems in India. Initial attempts to promote this technology failed in Pura too. The aim of the initial schemes was to encourage villages to use biogas as a cooking fuel. even though fuelwood is abundant in Pura. When finally asked, villagers explained they were more interested in getting clean water. So the biogas was instead used as a fuel to generate electricity, some of which was used in turn to power a deep tubewell pump. The result was a double gain for the villagers: clean water and electricity supplies.