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Focus on Poverty: Why the grid isn’t always the answer

energy off gridBy Sally Murray – SciDev.Net

The World Bank recently announced that between May 2014 and May 2015, Kenya’s national energy utility formally connected 150,000 households in urban slums to the electricity grid, up from just 5,000 previously. This massive jump was largely achieved by subsidising families’ grid connections (connection fees alone are US$400), an approach the NGO Innovations for Poverty Action is now trialling in rural parts of western Kenya.

The electrification of poor settlements clearly improves everyday life for poor families. [1] Safer, cheaper lighting and improved communications through mobile phone charging, radios and TV bring obvious benefits. When it comes to health services, energy can be a lifeline, enabling cold chain storage for vaccines and encouraging health workers to stay long term in electrified villages.

But in most cases the electrification of poor rural settlements has yet to spur the transformational economic growth — in productivity, manufacturing and off-farm employment — that many had hoped for. Evidence suggests that, when it comes to turning around rural livelihoods, targeted government support for off-grid energy often holds greater promise, with farmers reaping the most benefits.

There are several reasons why improved energy access has failed to transform rural economies. Poor entrepreneurs tend to use electricity to operate small, consumption-focused businesses — for example, charging phones, refrigerating drinks, running small cinemas — or to keep small stores open after dark. These service-sector enterprises don’t become much more efficient as they grow, and hence tend to stay small, limiting their potential to create jobs or spark virtuous spirals of productivity growth. Even among firms with more potential to grow, energy is not usually their main barrier — a survey of small enterprises in six developing countries found it represented no more than four per cent of firms’ total costs. [2]

“Governments and donors who are serious about ending poverty and dramatically improving rural lives should make off-grid irrigation support for farmers a far bigger part of their energy portfolios.”

Sally Murray But 70 per cent of the world’s poor depend on a livelihood that is transformed by electrification: farming. An electric irrigation pump can quadruple a farmer’s yields and dramatically improve how stable a crop’s yield is over time. Yet almost all farmers in Sub-Saharan Africa rely almost exclusively on rain-fed agriculture, while many farmers in South Asia depend on canal and flooding methods which are rain-dependent and thus unreliable; just 35 per cent of agricultural land in India is reliably irrigated.

The grid isn’t the solution here, due to frequent and sustained power outages in many countries. For reliable irrigation, many farmers must therefore invest in off-grid pumps, powered by solar energy or diesel/butane. Of the two, the upfront costs are higher for solar, at US$3,000-$7,000 per pump before subsidy versus US$500 for diesel pumps. But solar has the greatest transformative potential: compared to diesel, it saves farmers money in the long run, it saves hundreds of thousands of tonnes of carbon dioxide and it can reduce huge government expenditure on subsidies for imported diesel.

Uptake of solar pumps has been low, however. A lack of information and finance seem to be the main barriers: almost all solar pumps installed in developing countries were promoted heavily, and sold at a highly subsidised price. In Punjab in India, for instance, solar pump purchases dropped from 460 a year in 2000-04 to zero in 2005-13 when the government subsidy was reduced from 90 to 30 per cent. Punjab’s solar pump penetration is low, but still almost the highest in India, with no other state offering such generous subsidies.

The case of agriculture, then, highlights the potential gains from better targeting of energy investments. Currently investments in household electrification and grid roll-outs dwarf investments in off-grid irrigation. Governments and donors who are serious about ending poverty and dramatically improving rural lives should make off-grid irrigation support for farmers a far bigger part of their energy portfolios.

Sally Murray is a country economist at the International Growth Centre (IGC), a research institution based at the London School of Economics and in partnership with the University of Oxford, both in the United Kingdom. She works in Rwanda, overseeing the IGC Rwanda’s research on urbanisation, energy, public sector performance and tax. She can be reached via Twitter: @sally_bm

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