Are We Too Fixated on Rural Electrification?
“Rural electrification” and “energy access” are catchphrases in many energy and development circles. Multilateral lending agencies, many NGOs and the UN are highlighting the 1.3 billion people who currently do not have electricity in their homes. For example, of the UN’s 17 Sustainable Development Goals, number 7 is to “Ensure access to affordable, reliable, sustainable and modern energy for all.” Similarly, the UN and the World Bank launched the Sustainable Energy For All initiative in 2011, whose name basically defines their vision.
Electricity is certainly a vital part of modern life. Without it, people can’t watch TV, refrigerate food and medicine, charge a cell phone, protect themselves from extreme heat, or do many of the things those of us in the developed world take for granted.
I’m concerned, however, that development efforts may be misdirected because of the near singular focus in the energy sphere on this particular goal. I’m worried about two potential outcomes – that we’ll stop short or that we’ll go too far. My concerns may seem contradictory, but I fear that both are made more likely by focusing too exclusively on one binary measurement. (I’ll leave for another blog post the messy ethics of focusing on sustainable energy access – achieving energy access with green sources.)
Perils of Stopping Short
Here’s the potential problem with stopping short. I worry that once a household has a small solar home system, the data collectors will declare it “electrified” and policy makers will put a checkmark in the electricity box and declare victory. But, solar home systems provide very limited services at high per kWh prices and don’t allow people to do many of the things we associate with modern energy access.
For example, mKopa, the leading solar provider in Kenya, sells a tiny 8 Watt system that comes with 3 LED bulbs, a radio and a cell phone charging station. (Unfortunately, this very system was championed in a New York Times op-ed last week.)
The world’s chief energy data collectors at the International Energy Agency recognize that “[a]ccess to electricity involves more than a first supply to the household,” and claim that an appropriate definition of electricity access would include a minimum annual kWh usage level. But, they conclude that:
[t]his definition cannot be applied to the measurement of actual data simply because the level of data required does not exist in a large number of cases. As a result, our energy access databases focus on a simpler binary measure of those that do not have access to electricity…
I am part of a working group at the Center for Global Development that’s advocating for better data and reporting on energy access. A report is due out soon.
Perils of Going Too Far
The dangers associated with going too far are subtler, and may not be empirically relevant, but let me describe my concerns. As the chart below demonstrates, there is clearly a strong positive relationship across countries between GDP per capita and electricity consumption per capita. (The figure plots the natural log of both variables, so you can think of the relationship reflecting percent changes.) The same pattern holds for lots of other development indicators besides GDP per capita.
Let’s assume that we know the relationship in the above figure is causal, meaning that driving up electricity consumption in a country will cause its per capita GDP to grow. What the chart misses is that not all kWh are created equally. A kWh that replaces a kerosene lamp with a CFL for a month may not be the same as a kWh that helps power a factory that employs 10 people for an hour, and one may have a larger impact on development than the other.
What if governments are less likely to electrify schools if they’re focusing on homes? Or, what if utilities that spend more money on building out their electricity systems to reach homes can spend less money on ensuring factories or hospitals get reliable electricity?
None of the Sustainable Development Goals are targeting the number of schools with electricity or the number of industries with reliable electricity supply, and, to my knowledge, we don’t have a firm analytical grasp on whether spending money on rural versus industrial or health sector electrification helps improves people’s lives by more.
I am not denying that rural electrification brings benefits. Nonetheless, any expenditure of public, World Bank or NGO money has an opportunity cost, so spending money on rural electrification means we can’t spend money somewhere else.
This struck me seeing the juxtaposition of a sleek new electricity meter on a Kenyan woman’s mud wall. She liked replacing her kerosene lamp with an electric light bulb and her neighbor liked having TV, but connecting her to the grid is not cheap. What else could the government have done with that money that may have helped this woman more than the electricity connection?
We asked another woman in the compound whether she would prefer her electricity connection or a new motorbike. She said electricity. But when we gave her the choice between better health services or electricity and better education for her kids or electricity, she chose both of those over electricity. If this woman is representative, electrification in rural households is not yet the right priority.
That said, there are reasons to believe I don’t need to worry about going too far. It is entirely possible that building out the electricity grid to reach homes will make countries more likely to connect health centers and schools, and not less likely. Also, there could be a lot of benefits that come from rural electrification that wouldn’t be captured if the kWh were directed at factories – what economists call spillovers. For example, one person interviewed in an NPR story (which features my co-author Ted Miguel) described how getting an electricity connection made him feel, “part of Kenya.” Similarly, introducing this young boy to engineers installing electricity at his home may incite an interest in engineering and make him more likely to go to university. These indirect effects are difficult to measure, but they may be very important.
Governments and NGOs need to figure out how to get the biggest bang for their buck. So, we need more data and more analysis to figure out the best way to improve people’s lives and how big a role there is for rural electrification. It may turn out that rural electrification has high payoffs relative to alternatives, but there are risks to forging ahead without a richer understanding of how electricity drives economic growth, improved quality of life, and other development goals.
Catherine Wolfram View All
Catherine Wolfram is Associate Dean for Academic Affairs and the Cora Jane Flood Professor of Business Administration at the Haas School of Business, University of California, Berkeley. She is the Program Director of the National Bureau of Economic Research's Environment and Energy Economics Program, Faculty Director of The E2e Project, a research organization focused on energy efficiency and a research affiliate at the Energy Institute at Haas. She is also an affiliated faculty member of in the Agriculture and Resource Economics department and the Energy and Resources Group at Berkeley.
Wolfram has published extensively on the economics of energy markets. Her work has analyzed rural electrification programs in the developing world, energy efficiency programs in the US, the effects of environmental regulation on energy markets and the impact of privatization and restructuring in the US and UK. She is currently implementing several randomized controlled trials to evaluate energy programs in the U.S., Ghana, and Kenya.
She received a PhD in Economics from MIT in 1996 and an AB from Harvard in 1989. Before joining the faculty at UC Berkeley, she was an Assistant Professor of Economics at Harvard.
i disagree with one anecdote about a women choosing health and education over electricity as an argument for not having an SDG.
First, the question is misleading. Electricity is necessary for good health care and education. A truth that many rural people may not be aware of. Second, it’s cruel to make the argument that development should hand-pick certain areas and not focus on the complete well-being of society, one that includes economic development, jobs, health care, education, and electricity, and more. The poor shouldn’t have to pick these from a cafeteria menu and rank them, as they are all essential.
While I agree that it’s important to weigh priorities when it comes to the use of limited resources, I strongly disagree that a mother’s desire to provide her children with better health care and education means she is choosing something OTHER than electrification. Kerosene lighting is unhealthy, dangerous, and environmentally harmful. Access to basic electric lighting allows children to study & have greater access to education. The ability to charge a cell phone makes it possible for families to access health care providers without traveling long distances. Replacing kerosene lamps saves rural families money and improves indoor air quality. While I appreciate your concerns for long-term solutions and true economic development, I don’t think putting more resources into areas with existing infrastructure at the expense of providing basic solar lighting to rural families is the answer.
All good questions. Some other tradeoffs to think about in the pursuit of rural electrification:
1. Here in the Philippines, for example, options include:
a. Extending the main transmission grid
b. Extending the off-grid distribution utility networks (which can serve hundreds of thousands of people)
c. More mini-networks for isolated villages (e.g. 20 homes)
d. Separate systems for each home (e.g. “solar houses”)
2. Rural electrification here is heavily subsidized, funded by ratepayers on the main transmission system, thereby contributing to high prices. Does this decrease or increase poverty?
3. To the extent that taxpayers also subsidize “missionary electrification” in the name of poverty eradication, is that cost-effective, e.g. compared to contingent cash transfers (which are working well here)?
4. Sometimes missionary electrification is mandated to be renewable. To what extent does that subtract from the provision of electricity as a basic need?
As much as possible, subsidies should be inframarginal. That may be an attractive feature of the Kenyan 8 watt system (which may not require outright subsidies at all, just government facilitation).
We are absolutely not too fixated on electrification, which liberates the least powerful in the rural economy for advancement in the division of labor — children to go to school and study at night, women to do more productive things, and men to be more productive and even tie into regional economies. Read the literature, electricity is a critical enabler (even the World Bank gets it). Electrification is no longer seen as a light bulb or two, but a hierarchy of needs that must be met to achieve energy justice (television is an important social and political commodity that requires electricity). Electricity not only advances the economic status of rural households, it enables them to participate in broader economic and social activities. Electricity can improve health (including refrigeration); health care does not deliver electricity. The technological revolution in distributed generation has not only lowered the cost, but fosters local self-reliance and utilization of local resources. There is not reason to dither with cost benefit analysis that will never adequate measure the positive economic, social and political externalities of electrification.
Any interesting question is which is more important: the cost per kWh or the total cost of delivering electricity? The problem is that a network connection might be less per kWh (and that’s not immediately obvious given the drop in DG costs recently) but the total cost is probably as large as the annual average income in Kenya. Which is better: to deliver some electricity at a high cost, or only deliver cost-effective electricity? I think there’s a momentum and threshold issue where households may need some minimum amount of electricity for their income to liftoff. Once their incomes accelerate then they can be added to the network.
Disclaimer: We – Lumeter.net sell PAYG technology used by many companies involved in Rural Electrification at all levels of scale.
All your points are good here Catherine, but its a multi-layered topic. First Solar Home Systems (SHS) such as the small solar system you mentioned, are sold by our customers at typically $2/day over two years, i.e. less than the cost of Kerosene/Batteries/Phone Charging. As such its a really cheap way to get people onto the first rung of the energy ladder, reducing the (significant) impact of kerosene on health, and starting to break the inter-generational poverty caused by inability of kids (especially girls) to study at night. In two years, a similar amount of money can double the energy services and so on.
Absolutely, its not the whole story, but getting everyone onto that first rung is a key step towards ending poverty, and more importantly it can be done with about $100-200/family in commercial debt to the supply chain.
While these SHS are now commercially viable, the same cannot be said for any of the larger scale electrification efforts that I’m aware of – for example all the audience at a conference session I chaired recently were claiming that mini-grids needed subsidies. That makes SHS a scalable solution, something we need to scale up without waiting for larger scale solutions to become viable.
Two minor points on your article:
1: Cost/kWH is the wrong metric, we need to start switching to less convenient measures of cost/service. This is crucial because for example you can get a lot more utility/$ out of purchasing a LED light bulb and paying it off over 2 years, than by purchasing subsidised electricity and using it for a incandescent bulb.
2: How governments claim who is electrified is important. India for example is notorious for claiming much higher electrification rates than reality – because if there is a pole in the village that occasionally has the electricity turned on, and is only hooked up to 2 buildings then they’ll claim its electrified.