Is off-grid the key to rural development?

Rural electrification and equal access to sustainable energy

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As we focus on renewable energy, the question arises of whether we have the correct energy infrastructure in place to ensure rural electrification and equal access to sustainable energy

Renewable energy (RE) is being championed as a potentially significant new source of jobs and rural growth in many countries, and a means of addressing environmental and energy security concerns. In most countries, governments have invested large amounts of public money to support RE development and are requiring significant quantities of it to be sold by energy providers. But what are the economic impacts of these policies and investments and can RE really help to develop rural economies?

While RE indeed represents an opportunity for stimulating economic growth in hosting communities, it also requires a complex and flexible policy framework and a long-term strategy. RE is not going to create many jobs, rather, it will create some additional employment opportunities in rural areas. Making a positive connection between RE development and local economic growth will require more coherent strategies, the right set of local conditions, and a place-based approach to deployment.

So, what does RE offer rural areas? The global deployment of RE has been expanding rapidly. Rural areas attract a large part of investment related to renewable energy deployment, tending to be sparsely populated but with abundant sources of RE. RE deployment can provide hosting communities with some benefits, including:

  • New revenue sources. RE increases the tax base for improving service provision in rural communities. It can also generate extra income for landowners and land-based activities. For example, farmers and forest owners who are integrating renewable energy production into their activities have diversified, increased and stabilised their income sources.
  • New job and business opportunities, especially when a large number of people is involved and when the RE activity is embedded in the local economy. Although RE tends to have a limited impact on the local labour markets, it can create some valuable job opportunities for people in regions where there are otherwise limited employment opportunities. RE can create direct jobs, such as operating and maintaining equipment. However, most long-term jobs are indirect, arising along the renewable energy supply-chain (manufacturing, specialised services), and by adapting existing expertise to the needs of renewable energy.
  • Innovations in products, practices and policies in rural areas. In hosting RE, rural areas are the places where new technologies are tested, challenges first appear and new policy approaches are trialled. Some form of innovation related to renewable energy has been observed in all the case studies. The presence of a large number of actors in the RE industry enriches the “learning fabric” of the region. Small and medium-sized enterprises are active in finding business niches as well as clients and valuable suppliers. Even when the basic technology is imported from outside the region, the locals involved often adapt it to local needs and potentials.
  • Capacity building and community empowerment. As those involved become more specialised and accumulate skills in the new industry, their capacity to learn and innovate is enhanced. Several rural regions have developed specific institutions, organisations and authorities to deal with RE deployment in reaction to large investments and top-down national policies. This dynamic has been observed both in regions where local communities fully support RE and in regions where the population is against potentially harmful developments.
  • Affordable energy. RE provides remote rural regions with the opportunity to produce their own energy (electricity and heat in particular), rather than importing conventional energy from outside. Being able to generate reliable and cheap energy can trigger economic development.
  • The renewable energy policy is expected to deliver in three areas: energy security, climate change mitigation and economic development (job creation). However, this is not always the case and there can be significant trade-offs among them.

For instance, large biomass heat and power plants can generate new employment opportunities in rural communities, but may have a negative CO2 balance due to land-use change and the transportation of feedstock over relatively long distances. Similarly, RE is, in most instances, a capital-intensive activity and energy as a whole represents a small share of employment in regional economies. Small-scale installations typically source labour and equipment from international suppliers, so the impact at the community level in terms of job creation is rather limited.

Putting renewable energy to work in rural areas

A well-designed framework for the regional policy could offer a real opportunity to reconcile policy trade-offs and identify potential complementarities among the three objectives of energy security, climate change mitigation, and job creation. These findings underline the need for a shift in the approach to the rural development policy in many countries away from a model that emphasises sectoral policy and subsidies, to one that is place-based and grounded in local conditions and opportunities and that focuses on the competitiveness of rural areas.

Specific factors to bear in mind include embedding energy strategies in the local economic development strategy so that it reflects local potentials and needs; integrating RE within larger supply-chains within rural economies, such as agriculture, forestry, traditional manufacturing and green tourism; limiting subsidies in both scope and duration, only using them to induce RE projects that are close to being viable in the market; and avoiding imposing types of RE on areas that are not suited to them. The successful implementation of RE in rural electrification includes:

  • A focus on relatively mature technologies such as heat from biomass, small-scale hydro and wind energy. These proven technologies are not likely to experience big jumps in technology that can make recently completed plants instantly obsolete.
  • Creating an integrated energy system based on small grids able to support manufacturing activities. The policy should take into account the backstop technologies for intermittent power sources. In several regions, the capacity to deploy RE is constrained by grid limitations; however, there are no incentives to improve transmission infrastructure.
  • The recognition that RE competes with other sectors for inputs, particularly land. Poor siting can adversely affect local residents and disrupt tourism, which is typically a much larger source of income and employment.
  • Assessing potential projects using investment criteria, and not on the basis of short-term subsidy levels.
  • Ensuring local social acceptance by assuring clear benefits to local communities and engaging them in the process: this is crucial, as local opposition can slow construction and may increase the difficulty of subsequent efforts to introduce RE projects.

Integrating off-grid solutions into SA’s electrification programme

There are a number of barriers to mini-grids in South Africa, which have slowed its development to date. These barriers include capacity gaps in public energy institutions in a number of key areas, namely; a lack of understanding about which electrification strategy is best deployed for unserved communities in the long term; too few successful mini-grid precedent projects from which to learn; a lack of practical tailored guidance for the local government, municipalities, project developers and communities in South Africa on how mini-grids can easily be adapted to suit different locations, and the best ownership models and financial models to use.

Additionally, there remains a centralised utility thinking concentrated historically on grid extension for electrification, including the policy environment and national funding streams; an internal skills gap and/or an inability to mobilise funding and manage project developers and the supply chain; inexperience in accessing international funding for clean energy projects and feasibility studies; and perceived threats to the public sector revenue model, whereby the introduction of new models, especially those moving away from local government ownership could threaten much-needed revenues.

In terms of energy access, South Africa is atypical for sub-Saharan Africa (SSA), with a unique set of challenges and opportunities. South Africa is an energy-intensive, growing middle-income economy, with an average per capita consumption reported at 4,326kWh and 84% of its total emissions from energy. Only 9% of South Africa’s 45GW of generating capacity is renewable (86% coal). Therefore, there is a big potential for renewable energy to drive the move to a more sustainable energy system. Rural electrification rates are atypically high, at 77% nationally compared to an average of 17% for SSA. Expectations of grid connection and the quality of service are, therefore, high. However, the South African National Energy Development Institute (SANEDI) estimates that this leaves in excess of three million people without electricity in rural areas.

Grid congestion and increasing grid connection costs are major challenges for South Africa. Eskom, the national utility, operates South Africa’s ageing transmission grid infrastructure. There are serious capacity constraints on the network, with around 50% of the feeders in thermal overload. Eskom has been unable to secure a sufficiently high settlement with the National Energy Regulator (NERSA) to make the necessary grid upgrades to relieve all grid congestion in the country. Therefore, many potential generators and consumers are not able to connect to the grid. This includes independent power producers and key industries such as those found in South Africa’s industrial development zones.

Grid-tied mini-grids can be used to ease grid congestion by reducing the demand loads at key points of constraint, and providing services (such as frequency response) back to the grid. Grid-tied mini-grids, also called interconnected mini-grids, utilise a small electrical connection to the national electricity system. Grid-tied mini-grids provide a number of additional benefits over other connection options, including the flexibility to address the local needs, the use of local renewable energy resources and labour, and providing the lowest cost option in many unserved areas. Grid-tied mini-grids are cheaper per connection than both isolated systems, as the grid connection can replace some of the expensive storage needed to balance supply and demand, and main-grid connection.

Mini-grids offer a number of additional community benefits over other off-grid electrification solutions. The electrification of previously unserved communities significantly affects socio-economic development, especially among lower-income households. Electric lighting often replaces the use of kerosene and paraffin, which is used daily by over 17-20 million households in South Africa, and which can cause severe respiratory complications while exhausting a significant proportion of household income. Mini-grids can provide a much higher household energy consumption than solar home systems, however, enabling income generation opportunities through the operation of appliances such as refrigerators and battery charging stations. Mini-grids can also power water pumps, eliminating the need to walk for miles every day to collect water.

Municipalities have a strong business case for developing mini-grids. Municipalities in South Africa have a mandate for service delivery including energy provision and electrification for populations between 75 000 and 5 million people. Mini-grids ease budgetary strain for municipalities by enabling the development of local industries, creating jobs, alleviating poverty and promoting sociological development. Where and when a mini-grid is ultimately connected to the grid, it will be the primary provider of electricity locally. This will reduce the local demand for grid electricity and decrease the budgetary pressure on municipalities to subsidise low-income households beyond 50kWh/household/month. This will also reduce the amount of grid infrastructure that the municipality must build to connect new customers.

Pilot projects will be required to unlock mini-grids as a mainstream energy technology in South Africa. The lack of successful business models and precedents in South Africa means that key stakeholders, including investors, perceive mini-grids as high risk. There is a need to demonstrate key technical, business case and contractual aspects of mini-grid models for South Africa. Successful pilots can then unlock public financing that is currently available for other modes of electrification.

A public-private partnership business model is recommended, with municipalities driving the pilot projects and the private sector subsequently taking a more active role. Municipalities and the South African Local Government Association (SALGA) should be the driver of this model, identifying the local opportunity for mini-grid development (via integrated development plans), bringing together the relevant stakeholders and leading early-stage community engagement and fundraising. The private sector would conduct resource assessments, feasibility studies and deliver the pilot projects under a purchasing power parity (PPP).

South Africa is far from alone on this journey; nearly all countries globally are looking at local energy solutions. Cost reductions, business model innovations and novel technologies are making mini-grids and other decentralised energy systems cost-effective electricity solutions. Mini-grids are able to address the energy challenges of middle-income and developing countries, with isolated systems serving remote, lower-consumption communities and grid-tied systems easing the national grid constraints and providing near grid-level service. Public and private-sector stakeholders worldwide have acknowledged this opportunity, and are acting to integrate mini-grids into national and regional energy frameworks.

Off-grid rural electrification: a brief look at Africa

Access to electricity has grown at 7.5% per year in sub-Saharan Africa since 2010, which is not rapid enough to significantly overcome the current population growth of 2.8% per year in a short period. Consequently, sub-Saharan Africa encompasses the largest number of people without access to electricity: 590 million people. Nigeria, the Democratic Republic of Congo and Ethiopia concentrate one-third of the population currently living without electricity in sub-Saharan Africa, totalling 200 million people.

The International Energy Agency (IEA) projects that investments of around US$49.4-billion per year until 2030 would be needed to achieve electricity access for all in sub-Saharan Africa. If nothing is done and investments in power generation and transmission lines are not ramped up, more than 670 million people will not have access to electricity in sub-Saharan Africa by the end of the next decade.

One of the organisations seeking to improve power supply on the continent is the African Development Bank (AfDB), which has set an ambitious target of adding 160 gigawatts of new generating capacity to achieve universal electricity access by 2025. The AfDB estimates that reaching this goal would require an additional 130 million households to be linked to national power grids as well as 75 million new off-grid connections.

Off-grid power is loosely defined as electricity not associated with a state utility and not part of a national power distribution network. These stand-alone systems typically generate electricity from renewable sources such as wind, solar and micro-hydro. According to the AfDB, off-grid solutions are essential to speed up the electrification of the continent.

The off-grid industry is already gaining traction, particularly the pay-as-you-go solar kits offered by companies such as M-KOPA Solar, Mobisol, Lumos Global and Off Grid Electric. Over the past few years, these operators have provided electricity to hundreds of thousands of households in East and West Africa. Although there are slight differences in their respective offerings, the packages generally comprise a solar panel and battery, with accompanying appliances such as light bulbs, a torch, a mobile phone charger and a radio—some even include a digital television. These companies typically also allow their customers to pay for their solar systems in instalments, often through mobile money.

But off-grid solutions are not only relevant for small-scale or residential users. In African countries that regularly experience power blackouts or load shedding, commercial users are increasingly seeking energy security through the installation of their own electricity generation systems.

Making reliable and affordable energy widely available is critical to the development of a region that accounts for 14% of the world’s population, but only 4% of its energy demand. Since 2000, sub-Saharan Africa has seen rapid economic growth and energy use has risen by 45%. Many governments are now intensifying their efforts to tackle the numerous regulatory and political barriers that are holding back investments in domestic energy supply. However, inadequate energy infrastructure risks putting a brake on urgently needed improvements to living standards.

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