Designing Sustainable Energy1 Policies for Poverty Alleviation and Environmental Protection

¹ Sustainable energy is defined as those energy interventions that support sustainable development.

The central priority for people living in poverty is the satisfaction of basic needs, which could be addressed by increasing the level of energy services. In fact, one of the ways in which energy strategies could be sustainable, that is, meet sustainable development goals, is by introducing specific technologies that would increase energy services for people living in poverty (e.g., efficient lighting technologies, water pumping technologies, efficient cookstoves, modern energy carriers for cooking). Such strategies could also promote job creation in rural areas and thereby help those currently living in poverty acquire the capability to free themselves from poverty. Moreover, the emphasis given to promoting the wide availability of modern energy carriers and inherently clean energy technologies would help improve their nutritional status and reduce their risks of ill-health and resource depletion, while also addressing global and regional environmental concerns.

Policies to promote the implementation of sustainable energy strategies must be sufficiently resourceful, and yet adaptable to local situations, to be able to address the numerous institutional and other challenges listed above. A few general guidelines for the development of policy measures are listed below:

· Promote the creation of favourable legal, institutional and regulatory climates for sustainable energy development and increased involvement of private sector. Privatisation policies must be designed explicitly to improve the access to energy services for people living in poverty, with incentives offered to private power developers to make use of the best suited technology options. In some cases, where grid access is convenient and cost-effective, flat rate, yet low cost, billing can overcome barriers related to costly metering. Similarly, many conventional problems of theft can be avoided by encouraging local, self-governing institutions to manage distribution of energy services, for instance, through bulk sales to co-operatives. The United States Public Utilities Regulatory Policy Act (PURPA) of 1978 provides one such example that significantly enhanced the participation of independent power producers (IPPs). PURPA obliged utilities in the United States to buy electricity generated by qualified IPPs at price equal to their avoided costs (the costs utilities avoided by not having generated electricity themselves). Supported under PURPA includes much of 9,000 MWe of biomass-fueled power plants in the US and wind and solar-thermal power stations in California. Experience has shown that the IPP industry is able to provide electricity at a lower cost than electricity utilities. A second innovative policy measure that has been used to promote renewable energy power generation is the renewables portfolio standard (RPS). Under the RPS, each retail supplier of electricity must provide a minimum percentage (specified by the State or the federal government) of renewable energy in its portfolio of electricity supplies. The RPS is intended to maximise the use of market forces in establishing renewable energy industries in the context of a restructured and competitive electric industry in which retail electricity consumers are free to choose their electricity suppliers and grid owners are required to serve as common carriers for all suppliers.

· Develop policies to phase out energy subsidies by offering to provide improved energy services to end-users such that their net expenditures remain nearly the same. Currently, most energy prices do not reflect externalities such as environmental and social costs due to energy production and supply. Initial measures to increase energy efficiency and introduce renewable energy sources may seem to be too costly in some contexts. Thus, unless all costs are internalised in energy pricing, consumers may find it difficult to justify purchasing cleaner fuels or energy technologies that would also promote sustainable development. Often, subsidies are associated with poor energy services, such as frequent voltage or frequency fluctuations for electricity, because energy suppliers find it difficult to generate revenue streams to allow routine maintenance of their equipment. If combined with appropriate financing schemes, end-users may be quite willing to use more efficient devices and also pay higher per unit prices in exchange for assured quality of energy services that will lower their total energy consumption. Many efficient energy technologies that could improve energy services and benefit the environment (e.g., renewable energy and energy efficiency technologies) without the need for large investments to improve the supply of energy are placed out of reach to poorer households.

· Promote initiatives to overcome high first costs and risks associated with sustainable energy technologies. This could be done by developing innovative financing mechanisms for extending credit to non-conventional borrowers. This is particularly important for people living in poverty because they think primarily in terms of the first cost, rather than the life-cycle cost, which would ultimately result in lower energy prices and improved energy services. Early penetration of such advanced technologies as household lighting systems using photovoltaic technology or efficient biomass or gas stoves will also help bring down costs, thus widening the market even further to encourage new entrants. In many cases, the high initial cost of renewable energy systems requires financial mechanisms to make them affordable to consumers. For example, the PT Sudimara Energi Surya, based in Indonesia, has been successful in selling more than 8,000 solar home systems from 1993-1995, through a network of local service centres that offered consumers energy-related services and credits. This arrangement made the average monthly repayments less than the monthly costs of conventional energy systems. By combining all of the operational and financial functions at a local level, it is possible to open up new markets and also serve the needs of the rural communities. In addition, this type of programme has helped to build capacity and expertise in the country by manufacturing and assembling system components in Indonesia. Because most renewable energy technologies are small and modular, their manufacture can benefit from the economies of producing large numbers of identical units. However, consumers cannot capture the full potential economic benefits of mass production if the market volume per supplier is small and if there are large transaction costs associated with accessing this limited market. The Argentine rural electric development concession is a mechanism that aggregates the market for these small-scale systems, thereby both facilitating the realisation of the economies of mass production and making possible substantial reductions in transaction costs per customer. As a result of a competitive process, it grants to a single supplier exclusive market development rights in a delineated region over a specified period of time in exchange for the supplier's agreement to meet the terms specified in the concession.

· Promote the development of productive uses (e.g., creating an additional income stream) for energy services. This could include developing strategies to fully utilise natural resources in order to create additional economic benefits and possibly the establishment of new industries (e.g. food processing industrial residues for ethanol). New urban industries can be create in value added energy generation activities. Such measures may persuade development aid agencies, governments and entrepreneurs to perceive the direct value in promoting sustainable energy policies. In addition, well-designed demonstration projects may also cause governments to revise obsolete laws and regulations that hinder the development of renewable energy or energy efficient technologies.

In Brazil, large scale generation of ethanol fuel from sugarcane was initiated as early as 1975 to reduce dependence on imported oil, to stabilize sugar production in the face of a volatile international sugar market, and to create employment in rural areas. Ethanol is made from sugarcane for use as a neat fuel (100% ethanol-fueled cars) and for blending with gasoline (up to 22% ethanol). The Brazilian ethanol industry is based on roughly 400 facilities drawing from areas of 5,000 to 50,000 hectares, with cane production carried out by some 60,000 suppliers.

· Support measures to develop indigenous capacity in the area of sustainable energy. This could include training and education to create local manufacturing capabilities, sales, and service industries related to sustainable energy, thus creating new jobs and economic activity. It will be essential to consider both value-added activities directly related to the delivery of energy services (e.g., battery charging stations, bottled gas distribution) and those that are indirectly related (e.g., food processing industry, trade and small scale manufacturing). Training will help build awareness of sustainable energy opportunities, widen skill levels and create a new manufacturing class that could eventually form new lobbies for sustainable energy. Training for government officials and development workers is also essential to help build organisational capability for creating and sustaining energy programmes that promote renewable energy and energy efficiency technologies.

Developing countries not only have the opportunity to employ the most technologically advanced energy systems available on the world market, but also they can consider deploying new, emerging technologies and systems which are not yet in wide use. The adoption of advanced technologies is often referred to as "technological leapfrogging", whereby developing countries leap over the industrialised countries. In general, because of the importance of technological innovation for development and, in particular, of the multiple benefits inherent in many advanced energy conversion and utilisation technologies, energy planning for developing countries should include technological leapfrogging, where appropriate.

· Promote various means to improve the utilisation of modern energy services that will help to improve the living conditions of people living in poverty and promote the delivery of more energy efficient municipal services for urban areas. This might include improved stoves, better ventilation, provision of hot water, improved sanitation, etc. Retrofitting existing structures for energy efficiency improvements would also improve energy services for people living in poverty. Similarly, consideration could be given to the energy services required to provide adequate street lighting, cleaner public transportation, communication infrastructure, water pumping and delivery etc. All such measures would help mainstream sustainable energy strategies by including them in other development initiatives considered by governments, donors and nongovernmental organisations.