Challenges and Opportunities for the Diffusion of Sustainable Energy

In principle, the guidelines to creating sustainable energy systems are quite clear:

· improve efficiency of energy use;
· make more effective use and transformation of conventional fuels; and
· use renewable sources of energy more widely.

These goals are interconnected; it would be pointless, for instance, to produce expensive PV electricity and waste it on an incandescent lamp and, while improving the efficiency of electric appliances one would be well advised to look also at the efficiency of the power plant generating the electricity. These guidelines, while widely endorsed, have not yet been effectively used to transform the energy sector into an integrated, cross-cutting, demand-led tool for development because a large number of barriers have stood in the way. To stimulate this transformation, all stakeholders, but particularly policy-makers, must work together to overcome these barriers.

ENERGY PRICING, TAXES, AND SUBSIDIES

One of the most significant hindrances to change is the subsidy given by many governments to conventional forms of energy. Having recognised the importance of energy for development, many governments subsidise electricity or fuels so that their price to all or some of the final consumers is lower than the real cost of production and delivery. In many developing countries, energy prices and tariffs are already much lower than in industrialised countries, while the cost of producing and delivering the energy is by no means lower. This has the effect of both discouraging energy conservation by making interventions to increase efficiency artificially more expensive than the energy which is saved, and creating a barrier to the introduction of new forms of energy, renewables in particular, which are not equally subsidised. It has also been shown that this kind of incentive, originally meant to alleviate poverty, actually favours wealthier customers, who consume much more energy because they can afford to.

As in most industrialised countries, externalities are not reflected in the price of energy. Although there is no clear consensus on the way in which this "internalisation" should occur, and it is agreed that it would not be fair to expect developing countries to precede the North in this respect, it is clear that a gradual introduction of externalities would greatly improve the prospects of increased energy efficiency and of renewable energy sources.

INNOVATIVE FINANCING

Another difficulty inhibiting sustainable energy development, which to some extent is common to industrialised countries, is the dispersion of interventions in energy efficiency and decentralised energy generation, particularly where renewable sources are used. Very large supply-side projects (a gigawatt-sized hydroelectric or coal-fired plant) can find investment capital at much lower interest rates and longer return times than can hundreds of thousands of micro-hydro projects or wind installations of a few kW each, or diverse efficiency improvements. Banks and financing agencies are generally ill-equipped to manage a myriad of microprojects, so aggregation of demand is necessary if a "level playing field" is to be established among the different kinds of interventions.

Several ways of aggregating demand to overcome the dispersion barrier have been proposed and are being tested, some in ACP countries. One way is to create Energy Service Companies (ESCOs), examples of which are discussed in Box 2 of Chapter 2 for the Ivory Coast. Other approaches used in Africa are considered in Box 4. In the case of Jamaica (Box 21), the public electric utility has started a demand-side management (DSM) project, sharing the cost - and benefits - of energy efficiency measures with the customer.

INSTITUTIONAL, LEGISLATIVE, AND REGULATORY ENVIRONMENTS

Many more conditions important for introducing more sustainable energy systems have been identified. Norms, regulations, and the institutional environment itself are rarely adapted to innovations in the energy field. The process of generating electricity in a dispersed or decentralised way (often by renewable energy) is frequently discouraged by the difficulties of obtaining the required permits, for example, which may follow the same procedures as permits for plants that are a thousand times larger. Sometimes this also applies to energy generated to be consumed on-site, while selling electricity to other customers is often illegal, and provisions for selling it to the grid are technically difficult, bureaucratically cumbersome, and economically unrewarding.

Agricultural, land use, and forestry policies also present institutional difficulties. The state ownership of forests in many countries (as opposed to village ownership or private concessions)does not encourage sustainable forestry practices and rational exploitation.

INFORMATION

There is a lack of information available to the public and to existing and potential entrepreneurs about alternative energy sources and more efficient appliances and end-uses. Many solutions are unavailable because equipment is not being distributed by retailers due to the small size of the perceived market, through lack of awareness, or because of inertia (in the case of compact fluorescent lights, for example).

CAPACITY

Another challenge to be overcome is the lack of skills, not only for installation and maintenance, but also for marketing. There are many well known cases of projects financed by cooperation agencies which were technically and economically sound, but which were unsuccessful or even counter-productive because they were soon abandoned for lack of appropriate maintenance, unavailability of spare parts, or even ignorance about operational procedures. Where projects are successful, there needs to be the capacity to replicate and mainstream these successes.