Rural electricity at the last mile: new markets to the rescue?

When Haiti was hit by a powerful earthquake in 2010, it was hit hard. Hundreds of thousands of people died and the built environment and material infrastructure suffered heavy damage. It also took down much of the already small and unreliable power grid. It had actually never managed to provide more than a third of the population with electricity. Thus, in the aftermath of the disaster, people like Dan Schnitzer (from EarthSpark) pleaded for a wholesale revision of power delivery on the island.

[C]oal and diesel thermal power, and hydropower […] benefit from economies of scale, and their inability to respond quickly to changes in demand means that they also benefit from serving a large number of customers, which smooths out fluctuations in load. But if nothing remains connected to the Port-au-Prince area grid, which itself is in shambles, why bother reconstructing a system that was ill-suited for Haiti and hardly functional to begin with?

In other words: go local!

Seven years later, when Hurricane Maria knocked out Puerto Rico’s electricity grid, leading to the longest power outage in US history, Amory “Mr. Microgrid”* Lovins’ (*not actual nickname) Rocky Mountain Institute came up with a study for the future of energy provisioning in Puerto Rico with a very similar plea. They too (surprise, surprise) called on policy-makers to go local and construct solar powered and battery supported micro-grids.

These ideas have since taken root in policy-making circles. Just a few months ago, the World Bank and Haiti’s government agreed on a stimulus package for off-grid solutions. “Off-grid solutions” include completely unconnected ‘home systems’, like solar lanterns (at its most basic), but they also include mini and micro-grids (the distinction between these two is a bit hazy), which connect several homes (see end of newsletter for Mandelli et al 2016: 1625ff.’s more elaborate typology).

Solar lantern, as sold in India.

The package also explicitly mentions Pay As You Go (PAYG) solutions. PAYG is kind of hot at the moment. The most frequently occurring version is when customers ‘rent to own’ the installation, paying ‘rent’ at variable intervals (days, weeks, months) over the space of a year or two. If they stop paying, the installation is shut down remotely. Usually, PAYG are used for solar home systems, not mini-grids, and mostly for the somewhat more elaborate systems, which include charging and powering some other appliances (Muchunku et al 2018: 6).

Solar Home System, as installed in Morocco by Enviromena

The Grid and the Green New Deal

Why look at these off-grid solutions? First off, they have the potential to bring electricity to those whom the established grid can’t seem to reach. This is called the ‘last mile’ problem of rural electrification. It

encompasses many challenges ranging from poor transport infrastructure and tight product margins all the way through to managing and understanding customer perceptions and demands. (Barrie & Cruickshank 2017: 426)

Those unconnected, meanwhile, tend to spend a wildly disproportionate percentage of their income on cooking and heating (3 to 6%, vs. 0.5 for the average American [Muchunku et al 2018: 6; see also Stojanovski et al 2017]). Secondly, most of the off-grid solutions use renewables, either fully or for a substantial part (many still use diesel generators as part of the mix). Moreover, the proposal for a Green New Deal include international cooperation as one of the goals and projects of its 10-year mobilization:

promoting the international exchange of technology, expertise, products, funding, and services, with the aim of making the United States the international leader on climate action, and to help other countries achieve a Green New Deal (GND, 6)

Off-grid PAYG could be one of the tools worthy of such support. Also, note that this is not merely a matter of energy justice. A global problem needs a global approach. In fact, making sure countries get to develop sustainably may actually be one the single most important tasks we face. As David Roberts notes:

Emission reduction in emerging economies matters most. By 2040, 75 percent of global emissions will come from emerging economies like China and India. […] Advanced economies could flatline their emissions tomorrow and all would still be lost.

(Note that Roberts argues that one of the best ways OECD countries can spend their considerable resources is to invest in R&D, making clean technology more readily available for those countries with fewer resources.)

Successes, limits and prospects

So, what do we do know about these how these new-fangled socio-technical arrangements work IRL? Where are they successful, where do they fail? The social science literature is still quite sparsely populated with studies, but what follows is what I’ve been able to glean. (Everything I’ll say pertains to PAYG + solar, but it bears on mini-grids too.)

PAYG has become a viable business recently because of two developments in particular: the falling prices in photovoltaics and batteries, on the one hand, and mobile technology and mobile payments especially, on the other hand. The first has brought the technology into the reach of more hands, while the latter has allowed businesses to drastically simplify their business operations among a potentially widely dispersed clientele. The clientele consists of those unserved or underserved by an unreliable and/or expensive grid (as in Haiti).

Together, these conditions have allowed for providers to emerge who are exclusively dedicated to this market. This dedication has been crucial, because for these business ventures to succeed – and thus for the market to develop – they need close involvement with their customers: to assess financial capacity, assist them with the technology to ensure successful uptake and prevent damage, and to follow-up on non-payment (see also Barrie & Cruickshank 2017: 426).

Still, there are structural limits to this new market. It has been most successful in “un-electrified areas with high-density populations”, as an evaluation of Kenya’s trailblazing PAYG sector reads (Yadav 2019 et al, 143). Rural populations are more challenging. Also, the poorest of the poor – the so-called Bottom of the Pyramid – are still not being serviced (Muchunku 2018: 6). They cannot muster the kind of instalments that seal the business case for the providers.

M-KOPA Solar is one of the largest (Kenyan) providers of PAYG products.

Is there anything we can do to speed up this clean electrification? Well, there are a few macro-conditions that positively impact the success of these business models: one is tax breaks, for example for PV imports; a second is regulatory ‘clarity’ for the future. A third might be public financing institutions, which can ease cash-flow problems of young businesses (see Muchunku 2018: 7), which only get a return on investment over a long period of customer repayment instalments. (See also Rolffs et al 2015: 2620ff on protecting this ‘niche’.)

Possible pitfalls

Some words of caution are in order too, though. As Cloke et al (2017: 266) argue, precisely the notion of ‘scaling up’ might get you stuck in Trouble Town. Businesses have been successful only in so far as they have been able to work closely with their customers. If you attempt to scale things up beyond what allows this clientele to participate in defining the product, your business proposition is going to meet the sound of monetary crickets (I’m paraphrasing here). Scaling up does not work when this solution always needs to tailoring (as a UK DfID report warns). More concretely, they argue for replicating successful cases in which off-grid solutions were accompanied by a “social orientation” and “complementary services” (training, ICT, transport, micro-financing) that can be “derived from that energy product” (268).

Speaking of complementary services, undoubtedly part of what makes this market an interesting investment (the World Bank expects this market to grow to a few billion in just a few years) is *drumroll* data! Data makes the world go round, baby! So, the payment data that PAYG providers hold can be – and are being – used as credit histories and thus to vet for customers without access to more traditional financial services. Without proper regulation, I see some potential privacy nightmares there.

I’m going to end there. One of the big questions for anyone considering a Green New Deal is: can the market work for everyone? India is an interesting case here, because it is trying to achieve universal coverage with its public power grid. However, because it is having considerable difficulty covering that ‘last mile’ and because its grid is not necessarily the most sustainable, should it not ‘outsource’ some of that electricity provisioning to private-run mini-grids and individual solar hook-ups? For the moment, I think that answer is resounding conditional yes. Yes, because these smaller players can move fast and do so while deploying renewables. Conditional, because governments need be smart about regulating this market – not only should they protect the niche, but also the customer – by setting minimum requirements for service and standards for privacy. Governments from ‘advanced economies’ should put the leash on their own multinational companies too, because these are likely to gobble up infrastructural resources and claim concessions. It’s uncertain if that works out the best for customers (see Sweeney 2018 for a critique of possible Puerto Rican concessions). Therefore, a worthy goal for a global Green New Deal would be to do the legal legwork for all of this.

I know I promised last week to restrain myself, but I love all my darlings equally and I just can’t bring myself to kill any. However, if you made it till here, maybe that means you’re liking this publication? If so, why not forward it to someone who might share your interest!

Sources

Barrie, Jack, and Heather J. Cruickshank. 2017. "Shedding light on the last mile: A study on the diffusion of Pay As You Go Solar Home Systems in Central East Africa". Energy Policy. 107: 425-436. https://doi.org/10.1016/j.enpol.2017.05.016

Cloke, Jonathan, Alison Mohr, and Ed Brown. 2017. "Imagining renewable energy: Towards a Social Energy Systems approach to community renewable energy projects in the Global South". Energy Research & Social Science. 31: 263-272. https://doi.org/10.1016/j.erss.2017.06.023

Muchunku, Charles, Kirsten Ulsrud, Debajit Palit, and Wim Jonker-Klunne. 2018. "Diffusion of solar PV in East Africa: What can be learned from private sector delivery models?" Wiley Interdisciplinary Reviews: Energy and Environment. 7 (3): e282. https://doi.org/10.1002/wene.282

Rolffs, Paula, David Ockwell, and Rob Byrne. 2015. "Beyond technology and finance: pay-as-you-go sustainable energy access and theories of social change". Environment and Planning A: Economy and Space. 47 (12): 2609-2627. https://doi.org/10.1177%2F0308518X15615368

Stojanovski O., Thurber M., Wolak F., and Wolak F. 2017. "Rural energy access through solar home systems: Use patterns and opportunities for improvement". Energy for Sustainable Development. 37: 33-50. https://doi.org/10.1016/j.esd.2016.11.003

Sweeney, Sean. 2018. "Puerto Rico’s Energy Future: Keeping Power With the People". New Labor Forum. 27 (2): 87-92. https://doi.org/10.1177%2F1095796018765772

Yadav, Prabhakar, Anthony P. Heynen, and Debajit Palit. 2019. "Pay-As-You-Go financing: A model for viable and widespread deployment of solar home systems in rural India". Energy for Sustainable Development. 48: 139-153. https://doi.org/10.1016/j.esd.2018.12.005

If you do not have the appropriate credentials to cross the paywall to these articles, maybe you can check out https://sci-hub.tw (just copy past in the doi number), or if you are uncomfortable with that, send me a message and I’ll lend you a copy.