When it comes to bringing electricity to the developing world, small is beautiful.
- By Charles Kenny<p> Charles Kenny is a senior fellow at the Center for Global Development, a Schwartz fellow at the New America Foundation, and author, most recently, of Getting Better: Why Global Development Is Succeeding and How We Can Improve the World Even More. "The Optimist," his column for Foreign Policy, runs weekly. </p>
After nearly a decade of donor efforts, it is fair to say Afghanistan’s electricity sector remains a mess. This fact was highlighted in a New York Times op-ed last week by Glenn Zorpette, the editor of an electrical engineering journal, who chronicled a three-year U.S. Agency for International Development (USAID) struggle to build a diesel power plant outside Kabul. Zorpette notes that the plant, finally completed, often sits idle because the cost of trucking fuel into the country makes the electricity six times the price of power imported from neighboring states. Surveys of businesses suggest that electricity customers in Afghanistan see 20 outages a month on average and that seven out of 10 firms own a generator because networked power is unreliable or just unavailable.
But USAID should look on the sort-of-bright side: For once, this is a problem that has little to do with the particular curses of Afghanistan or the failings of its occupiers. The electricity sector is a multibillion-dollar muddle across much of the developing world, where utilities with limited reach, poor service, and a tendency to hemorrhage money are the norm. The answer in Afghanistan, as well as in these other dimly lit places, is to move away from the current model of provision — that of a centralized government-run monopoly — toward competitive services by small-scale providers. And with the help of technology, the latter option is becoming a widespread reality. Think of it as the "microgrid" model.
Perhaps 20 percent of rural low-income populations in developing countries have access to electricity, and rates are even worse in rural and urban Africa. Even for those near a power line, often the only way to get service is to pay off utility workers. For the average firm in Eastern Europe and Central Asia, about 10 percent of the money set aside for paying various bribes goes to keeping the lights on and the water running. And for those lucky enough to have a supply, the quality of networked power is grim. Looking at developing countries as a whole, business surveys suggest that 40 percent of firms see electricity supply as a major constraint to doing business, each firm suffers an average of nine power outages a month, and nearly a third of firms own a generator to provide backup power — or even as their main source of electricity.
Behind these statistics lies a political calculus. The lucky few who are already connected to power grids — as you might guess, they tend to be the rich elite — would rather not pay very much for their power. And under the status quo they don’t have to: Prices are often set very low to favor current customers, if they pay at all. In Bangladesh, only about 55 percent of generated power is paid for. Of the missing 45 percent, perhaps 15 to 18 percent is accounted for by what the industry calls "true technical" losses; the rest goes to illegal connections or underbilling accounts. A 1994 survey suggests that electricity revenues in developing countries average only about 60 percent of costs. Starved of financing, state electric utilities can’t roll out decent service to the bulk of the country. About a third of utilities in Africa and South Asia can’t even keep up with their own basic operations and maintenance.
That means that 80 percent of Africans, for example, are left relying on more expensive, less efficient, and unhealthier alternatives. Poor people overwhelmingly use wood or dung for cooking and candles or kerosene for lighting. They waste time collecting fuel and money buying kerosene, suffer respiratory conditions and burns, produce far more greenhouse gas emissions per unit of heat or light than more efficient technologies, and get dim lighting and unreliable cooking heat — all at a far, far higher price per unit of energy than the most expensive electricity.
But where the state utility is too beholden to an urban elite, private providers can fill the gap. A World Bank survey of 49 countries from a few years ago found that 7,000 small-scale private companies, serving communities of less than 50,000 people, were already responsible for meeting the electricity needs of between 10 million and 50 million households. In Bangladesh, the Philippines, and Cambodia, they accounted for more than a third of all electricity connections in the country.
Private providers usually charge far more than the state-run utility for electricity. In Cambodia, for example, the government utility already charges some of the highest tariffs in the world, averaging 16 cents a kilowatt-hour — but the small-scale providers charge double that or more. On the other hand, they actually deliver what they promise, providing power to homes that would otherwise be unconnected. Given time and a friendly business environment, some small-scale providers could even grow big enough to benefit from economies of scale that still exist for traditional power plants (larger fossil-fueled plants are more efficient than small ones). But even if they don’t, they’ll still be lowering the real cost of energy for the people who need it most.
And technology is making small-scale provision, and even self-provision, an ever more attractive option. As the prices for solar panels drop — they are down 60 percent since 2009 — it becomes possible for many households to be electrically self-sufficient. In India, a panel costs about $300, the same as a year’s supply of kerosene for a lamp. One panel can provide lighting; add another and you can power a TV. Off-grid solar might be generating as much as 200 megawatts in India by 2013, enough to power more than 30 million standard LED light bulbs. And India is part of a worldwide trend: According to a recent U.N. report, developing countries as a whole spent $72 billion on renewable energy in 2010, more than developed countries invested. And about a third of worldwide renewable investments were small-scale.
It is true that private participation in the electricity sector has a decidedly mixed record in developing countries. In some cases, public utilities have contracted with private firms to build plants and generate power, deals that have often proved financially ruinous and been tainted with corruption. But an approach that bypasses government altogether, with private firms or even individual households responsible for both generation and distribution, should be able to steer clear of these problems. And an exhaustive 2009 study carried out by staff at the World Bank found that private-sector participation in electricity has led to an increase in quality of services, in part because private providers have the incentive to ensure they get paid for the services they deliver.
All in all, giving poor people the opportunity to pay full price for electricity through local provision will be good for poverty, the economy, and the environment. People will get reliable, modern power that extends working and studying hours, and that power will be safer and cleaner than energy produced from a range of technologies that involve burning stuff invented between the Stone Age and the 1850s. Donors like USAID would do well to support the new microgrid model — and leave the unreformed and perhaps unreformable state power behemoths to their fates.