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Does Solving Energy Poverty Help Solve Poverty? Not Quite.

Recent research questions a widely held belief.

(This post is co-authored with Kenneth Lee and Edward Miguel.)

The head of Swedfund, the development finance group, recently summarized a widely-held belief: “Access to reliable electricity drives development and is essential for job creation, women’s empowerment and combating poverty.” This view has been the driving force behind a number of efforts to provide electricity to the 1.1 billion people around the world living in energy poverty.

But does electricity really help lift households out of poverty? We set out to answer this question. We designed an experiment in which we first identified a sample of “under grid” households in Western Kenya—structures that were located close to but not connected to a grid. These households were then randomly divided into treatment and control groups. In the treatment group, we worked closely with the rural electrification agency to connect the households to the grid for free or at various discounts. In the control group, we made no changes. After eighteen months, we surveyed people from both groups and collected data on an assortment of outcomes, including whether they were employed outside of subsistence agriculture (the most common type of work in the region) and how many assets they owned. We even gave children basic tests, as a frequent assertion is that electricity helps children perform better in school since they are able to study at night.

When we analyzed the data, we found no differences between the treatment and control groups. The rural electrification agency had spent more than $1,000 to connect each household. Yet eighteen months later, the households we connected seemed to be no better off. Even the children’s test scores were more or less the same. The results of our experiment were discouraging, and at odds with the popular view that supplying households with access to electricity will drive economic development. Lifting people out of poverty may require a more comprehensive approach to ensure that electricity is not only affordable, but is also reliable, useable, and available to the whole community, paired with other important investments.

For instance, in many low-income countries, the grid has frequent blackouts and maintenance problems, making electricity unreliable. Even if the grid were reliable, poor households may not be able to afford the appliances that would allow for more than just lighting and cell phone charging. In our data, households barely bought any appliances and they used just 3 kilowatt-hours per month. Compare that to the U.S. average of 900 kilowatt-hours per month.

There are also other factors to consider. After all, correlation does not equal causation. There is no doubt that the 1.1 billion people without power are the world’s poorest citizens. But this is not the only challenge they face. The poor may also lack running water, basic sanitation, consistent food supplies, quality education, sufficient health care, political influence, and a host of other factors that may be harder to measure but are no less important to well-being. Prioritizing investments in some of these other factors may lead to higher immediate returns. Previous work by one of us (Miguel), for example, shows substantial economic gains from government spending on treatment for intestinal worms in children.

It’s possible that our results don’t generalize. They certainly don’t apply to enhancing electricity services for non-residential customers, like factories, hospitals, and schools. Perhaps the households we studied in Western Kenya are particularly poor (although measures of well-being suggest they are comparable to rural households across Sub-Saharan Africa) or politically disenfranchised. Perhaps if we had waited longer, or if we had electrified an entire region, the household impacts we measured would have been much greater. But others who have studied this question have found similar results. One study, also conducted in Western Kenya, found that subsidizing solar lamps helped families save on kerosene, but did not lead children to study more. Another study found that installing solar-powered microgrids in Indian villages resulted in no socioeconomic benefits.

Nairobi at night. Image licensed under Creative Commons.

Addressing the needs of the world’s poorest citizens is clearly important, and those of us who enjoy 24/7 electricity cannot imagine a life without it. But in a world of limited resources, we need to be focused on the best ways to address poverty. The emerging evidence suggests that electrifying poor, rural households may not be the essential key that we once thought it was. While energy access is potentially valuable, solving poverty will take a whole lot more.

A previous version of this post appeared on Forbes.com.

Catherine Wolfram View All

Catherine Wolfram is the Cora Jane Flood Professor of Business Administration at the Haas School of Business, University of California, Berkeley. ​During Academic year 2018-19, she will serve as the Acting Associate Dean for Academic Affairs at Berkeley Haas. 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.

14 thoughts on “Does Solving Energy Poverty Help Solve Poverty? Not Quite. Leave a comment

  1. Excellent research, Catherine!! I like your integral approach, where access alone does not solve the problem, but factors like reliability, availability and others like sanitary conditions and quality education. Please, keep us posted of new findings. Will you re-evaluate your control and treatment groups in the future? It would be interesting to see if any changes are effected after 2.5 or 3 years, especially if with power comes sanitation and better schools to those villages. As you mentioned, causality is what drives development when it comes to energy, not correlation, therefore it may take a while to see results.

    Prof Mayra Addison
    addison@cua.edu
    mayraaddison@hotmail.com

  2. Poverty or enduring poverty eradication requires a holistic approach that includes remedying the varying causes of poverty. Causes of enduring poverty would include cultural, situational and structural factors. Eradicating electricity poverty may not eradicate poverty but it would release income that would otherwise be spent on alternatives like kerosene into the pockets of the beneficiaries. Besides, it is a cleaner source of lighting to the beneficiaries. There is one thing releasing purchasing power into the pockets of people and another, how the new available purchasing power will be used to help eradicate poverty. Combining the two things may obscure the benefit of eradicating electricity poverty. Eradicating poverty demands much more than free electricity. The fact that eradicating electricity poverty did not eradicate poverty should not prevent the provision of free electricity at all.

    The benefits of having an industry like one that produces solar panels for generating more energy from the sun to be fed in to the locals grids can provide income sources to the youth from these households. Such incomes would help eradicate poverty. The energy generated would help lower the cost of energy in the local grids. Making electricity available to the 1.1 billion poor people is still a fundamental step to help end their poverty not because their free consumption of it would directly end their enduring poverty but because it can attract jobs that would provide income to them.

    Similarly, there is not much benefit having poor people live under the grid without getting connected to it. If solar generation fed into their local grid can help provide near free electricity for them, then the connection fees though not economic, are worth it. It is called development and the benefits of some of these poor people being able to afford refrigerators, fridges etc. in the long run out weighs the connection fees development partners are losing in the short-run.

    It follows that pegging their electricity needs to what they have today could be made better. Researchers could go beyond and estimate what they would need in the long term as the availability of power makes them think of these gadgets in the future. Economic justification of their need in the short run could be restrictive of their development potential.

    Finally, these thoughts are not to show that the researchers were wrong in their economic analysis but to indicate that when it comes to development of the world’s poor, even though economic analysis forms the bedrock and affordability is surely the driving force, development initiative may sometimes have to overlook the economics and affordability concerns in the interim and look forward to long run benefits, which may become economic through nurturing, growth and development.

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