Thursday
June 29
2017

Sarah Alexander

Energy Solutions Shouldn’t Just Tick Boxes, They Should Transform Communities

A recent research article concluded there was little evidence to suggest positive changes in socioeconomic development by introducing off-grid solar power in the form of a basic solar lighting plus mobile charging systems in un-electrified areas. At SELCO we concur with the findings but believe that some aspects of the related study’s methodology and analysis fall short of adequately providing linkages that affect socioeconomic improvements. For example:

  1. Was the system designed to meet end user needs or to meet an electrification target? It is important to ascertain how the solution was matched to the need. In other words, who made the decision to “give” or “have” electricity? “We would like to provide electricity to the people” is very different from “I want to have four to five hours of lighting because in my house we lack XYZ.” Understanding the demand for the solution is critical. Providing a lighting solution merely because the site was previously un-electrified and assuming that any solution would be an improvement, would have overlooked the specific functions the light could have served for the household. The typical solution among mini-grid models or electrification schemes is to provide a connection to lighting vs. designing systems that meet specific requirements of the household. The latter would have led to different system designs and placement of lights that were more suited to the requirements.
  1. Quality of lighting. Further, it is unclear whether the basic energy unit – a “two light” plus mobile charging – was suitably designed to meet the needs of each household or to simply slightly improve upon the existing kerosene lamp in terms of lumens and fumes. We suspect it is the latter, in which case the quality of lighting improvement is marginal so the household will see only a slight benefit even in terms of security, safety, satisfaction and general well-being – which are important byproducts of lighting.
  1. When do capital subsidies make sense, particularly in the mini-grid model? The study suggests that in order to observe socioeconomic changes some form of subsidy is required, primarily in the form of capital subsidies to allow for larger loads by the service provider. We agree. However, we would take this further to suggest that in a mini-grid model there needs to be a bifurcation between the generation and distribution side. In current models, the same service provider takes on both parts. A capital squeeze is felt because collection periods and amounts do not always match the principal and interest on the loan for the entire model. Thus, both parts require different capital structures. The distribution side has to be financed in a way that enables charges for service plus distribution without a full recovery of the asset cost – like telecom companies (Airtel). The generation side, however, may need more long-term financing in which the capital subsidies make sense. In the study, ill-designed capital subsidies on the overall model might lead to increased affordability for the end user but in the long term it will lead to an unsustainable business model for the service provider.
  1. Who works where and how long? The study asked women, “How many hours do you spend working per day?” The rationale was that men are engaged in agriculture while women have home-based livelihoods. We are unclear if this was an assumption; if it was, it’s a pretty large assumption to make. We think a better approach would have been to first understand if women (or men) are engaged in home-based livelihoods, and then measure the changes in hours spent working before and after the intervention.

Electrification without an ecosystem is not transformative

We would further extrapolate the findings to any form of basic lighting – grid or off-grid. For those four hours post-daylight to facilitate higher social and economic value, there has to be a more mature ecosystem present that opens opportunities for education, livelihoods, health and so on. In many cases, including this context, that mature ecosystem is absent.

SELCO’s experience from the early ’90s reinforces repeatedly that without plugging in suitable linkages there is a tendency to speak of electrification targets measured by number of households. Simple electrification around the world, without the existence of a suitable ecosystem, has not led to transformation. That ecosystem needs to be created and strengthened by a host of local stakeholders to complement efforts of last-mile energy enterprises to transform the lives of the poor.

Taking the study to the next level, SELCO would like to propose further insights that will build on this scenario to enhance the social impact or value of lighting solutions:

  1. Is a system affordable because it is cheaper or due to cash flow-based end user financing? A subsequent article in The Economist proposes that cheap batteries and capital subsidies for larger systems will allow for larger system designs that can more adequately meet the needs of the end users to bring about significant socioeconomic change. It is important to bring down the storage costs to make the system more affordable, but even then it is unlikely that these end users will be able to pay for it upfront. They will still need some form of financing. A larger, higher-quality system (even in the absence of cheap batteries) can be designed with financial products from local financial institutions that are matched to the cash flows of the poor to reduce affordability barriers. However, making something affordable depends on who “demanded” the system; in our experience, financing emerges as an option when end users express specific needs that go beyond upfront cash affordability.
  1. How is socioeconomic development defined within the context of energy access? The community in the study appeared to be very poor with no prior home-based livelihoods or small businesses. Simply placing a light in a household will not magically bring about any meaningful social change. That requires supporting activities such as skills training and subsequent market linkages. Even if higher loads were possible, the technology needs to be suited to local use and be efficient to bring down the costs of the solar powering it. Further, any energy solution is sustainable for the poor only if it includes three key elements: technical, social and financial. The absence of even one of these elements will destabilize the longevity of the solution.
  1. Partnerships to build the ecosystem. Any energy solution is only as good as what it is used for. Without resource support and an active effort to unlock the potential for other socioeconomic benefits – such as newer and more efficient appliances, end-user financing and relevant delivery models – the impact is likely to be limited. Last-mile energy enterprises need support from community partners, financial providers, inclusive investors, local manufacturers, policymakers and others to plug in at different points of the solution.

At SELCO, we’ve completed solar-based interventions in nearly 400,000 individual underserved homes over the past two decades. We believe that current trends of standardized off-grid lighting solutions, in the absence of critical linkages and rapid scale-up of electrification schemes, will serve only to meet an electrification target rather than bring about meaningful socioeconomic change. We need to move away from metrics that capture the number of connections and toward the reliability and quality of those connections. Electrification is a prerequisite for development but does not guarantee that development will follow. For economic benefits to flow, electrification needs to be integrated into a broader development plan. The study provokes important questions that are not simply related to the impact of the solution, but also the conditions under which this impact can truly take place.  We propose a follow-up to the study that plugs in this perspective and thereby provides meaningful insights into how and when energy solutions can bring about transformative socioeconomic change.

 
Sarah Alexander is a senior adviser at SELCO Foundation. Huda Jaffer, lead designer at SELCO Foundation, and Mohan Hegde, COO SELCO India, contributed to this post.  
Photos courtesy of SELCO

 

Categories
Energy, Financial Inclusion, Impact Assessment
Tags
clean energy, economic development, energy, Impact Assessment, Off Grid Energy, renewable energy, solar energy