Decoding the elements of universal access to energy

JR, Installation for Arcade Fire (2017)

by Swetha RaviKumar Bhagwat, Pia Lovengreen Alessi, Jessica Dabrowski.

The concept of “access to energy” does not offer a straight forward definition. However in accordance to the International Energy Agency, energy access is about providing modern energy services to everyone around the world. These services are defined as household access to electricity and clean cooking facilities.

The Inevitable Handshake!

Currently, nearly 1.2 billion people, over 17 % of the world population, have no access to electricity and around 2.7 billion people, over 38% of the world population, are without clean cooking facilities. Over 95% of the people without access to modern energy are concentrated in Sub-Saharan Africa or developing Asia and 80% of them live in rural areas. The world distribution of this energy poverty largely coincides with the world distribution of overall extreme poverty.

Until recent years, access to energy was considered under the auspices of charitable and social impact organisations, but now we see mainstream commercial and private players making an entrance with more and more investments being pumped into this sector.

What are the drivers that are bringing about this change?

The framework: The United Nations “Sustainable Energy for All” (SE4All) initiative, launched in 2011, brought to the forefront the importance and relevance of addressing access to energy in conjunction with renewable energy and energy efficiency. This drive for addressing the three pillars together was again picked up in 2015 with the adoption of the UN 2030 Agenda for Sustainable Development, which includes the 17 Sustainable Development Goals (SDGs), among which Goal number 7 aims to: “Ensure access to affordable, reliable, sustainable and modern energy for all”. The systemic approach in addressing access to energy not only unlocks the potential of the sector, but in doing so in terms of sustainable and modern energy forms also shifts the dialogue towards a clean energy transition.

The design reconfiguration: Grid extension was traditionally seen as the only method of electrification. However, the advent of decentralised energy solutions and the plummeting prices of renewable energy solutions are challenging this traditional mindset.

The technology behavioural shift: The fundamental shift in solutions is flipping the shaping of this sector from a top-bottom approach to a bottom-top approach. Those at the bottom of the pyramid are now empowered to drive and direct the growth of this sector. Within this new framework of decentralised access to electricity, the two most popular options that are driving the growth of this sector are the solar home systems and the mini-grids.

Solar home systems have taken off commercially mainly due to innovative business models being engineered in this sector. One such model is the ‘pay-as-you-go’ model. In the mini-grids space, the concept has been in a pilot phase for some years. Recently, commercial players have been trying to crack a viable business model and we already see a few established players in the market.

Bridging the gap

The energy policy and the regulatory frameworks in most developing countries have not yet adjusted to this new energy transition. Policies and rules that were designed for grid extension and operation are often very ill suited for decentralised energy development. It is essential to create a clear policy and regulatory framework that will allow the development and growth of decentralised energy solutions and contribute to new solutions for sustainable access to energy.

The Florence School of Regulation has teamed up with World Access to Modern Energy to explore how to bridge this gap. Follow our Universal Access to Energy page for more updates on our work.


What’s cooking the pot?

Today, approximately 2.7 billion people in developing countries, primarily across Sub-Saharan Africa and South Asia, rely on traditional fuels for cooking. Traditional fuels used for building open fires or running inefficient stoves, consist of a combination of animal and agricultural waste, wood, and charcoal. Reliance on these fuels has grave consequences on health, the environment, and the overall socio-economic development. According to the World Health Organisation, more than 4 million people die prematurely each year because of household air pollution caused by incomplete combustion of inefficient solid fuels resulting in the formation of black carbon. The potential harm does not end here; household air pollution alone contributes to 12% of global air pollution. Moreover, emissions such as carbon dioxide, methane, and other short-lived climate pollutants contribute towards global climate change and ecology by affecting the water and food cycles.

The goal and the need to provide access to clean, modern, efficient, and affordable cook stoves and fuels is advocated strongly in the Sustainable Development Goal 7. However, the clean cooking dimension of universal access to energy does not receive the same attention as the electricity dimension. According to the IEA, the projection for access to clean cooking shows less progress than the in the case of electrification. Population growth will be an added challenge and the number of people without access to clean cooking will only decrease by 200 million by 2030, a reduction of 14% relative to today.

Although the advantages and benefits of clean cooking are well documented, improvements in this sector have barely gained momentum according to the World Bank. This could be due to one or more reasons such as — lack of awareness, insufficient income to switch to cleaner cooking options, lack of incentivising policies and poor regulatory framework and un-established market due to lack of investments or product commercialisation.

If the adoption of clean cooking dimension is addressed rightly the social impacts are diverse such as reducing poverty, driving gender equality, improving educational and employment opportunities. But to ensure these impacts are delivered, the key is to create awareness and develop the regulatory framework.

Awareness: The primary challenge is to educate the masses on the need and importance of adopting clean cooking methods. As most of the affected population are spread in rural areas, dissemination of information can be challenging and age-old habits difficult to change. A systematic and continuous awareness program involving local level initiatives as well as community cooperation is the need of the hour. These awareness plans must help drive decisions from the bottom-up, which will ensure a swift shift towards clean cooking methods. A good awareness plan will drive up demand there by creating business opportunities.

Regulatory framework: The will of the national policy and regulatory frameworks to embrace energy access is of late gaining impetus. However, the lack of a coordinated and holistic policy approach in addressing clean cooking is hindering its development. Therefore, it is vital to strengthen the cooperation across environment, energy, health and education sector to assure complementarity and among national governments, nongovernmental organisations, international development organisations, and the private sector to adapt and develop the suitable policy and regulatory frameworks. A good regulatory framework can unlock the market potential by bringing in the necessary investments flow, setting up quality standards, commercialising clean cooking solutions and providing subsidies and other relevant support mechanisms thereby making it affordability and easier to adopt.

Technology choices

The technological development of clean cooking methods has evolved in the recent years. Based on the usage and affordability convenience a customer can pick and choose the right technology and fuel type. The current options for clean cooking can be split into five categories. The clean and green impact of each of these classes directly increases from class one to five enumerated below. Same can be said in terms of costs and lifetime of these products.

  1. Legacy and basic improved cook stoves offer slightly improved fuel efficiency than traditional baseline technologies while using fuels such as biomass, charcoal and wood. These are typically artisan produced.
  2. Intermediate improved cook stoves make use of rocket style design that offers higher fuel and combustion efficiency.
  3. Advanced improved cook stoves make use of design elements such as fan jets and gasifiers that offer very high fuel and combustion efficiency. These models use fuels such as pellets and briquettes.
  4. Modern fuel stoves have high fuel efficiency and low particulate emissions. They may either use fossil fuels such as LPG, DME, kerosene, natural gas or electricity.
  5. Renewable fuel stoves are stove designs that utilise solar energy or renewable fuels such as biogas, methanol, and ethanol for operation.

DES takes a Selfie

Ifyou were to start putting together the pieces of a puzzle, would you start from the corners, or pick pieces that seem to merge? Well, the logic is dictated by the picture of the puzzle. So, under the framework of access to electrification, how would the decentralised energy picture look?

Why is such a picture even important?

The issue — the incongruous nature of definitions and classifications under the energy access banner complicates this picture composition process. Moreover, this is no different in the case of the decentralised energy system (DES), which is now the front-runner when it comes to energy access solutions.

The need — a common understanding of definitions and classifications will allow us to analyse, plan, design and measure the various technological, policy, economic or regulatory solutions that govern energy access. Additionally, it will help in understanding the DES market and in comparing lessons and solutions from across the globe uniformly.

What goes into the DES picture?

For this, we need to understand the key components such as — where does the supply come from, how is this delivered, for what use and what are the support technologies that enable the provision of energy access.

Under the DES frame, supply is provided by distributed generation (DG).

So, what is DG?

‘Electricity production at or near the point of use, irrespective of size, technology or fuel used for both off-grid and on-grid.’

These systems generate electricity using one or more resources such as — gas, diesel, solar, hydro, wind, biogas, biodiesel and biomass cogeneration. However, we observe a surge of renewable energy (RE) based solutions that are here to stay.

Now the delivery of this electricity to the end-use happens via off-grid systems which could be as small as a stand-alone system for basic lighting or a megawatt size mini grid catering to a larger electricity demand.

So, what are off-grid systems?

‘Off-grid systems have a (semi)-autonomous capability to satisfy electricity demand through local power generation.’

&

‘Not using or depending on electricity provided through main grids (above 11 kilovolts) and generated by main power infrastructure.’

At the consumption side, end use can be at different levels such as household, commercial, community or industrial, which takes care of electrification needs ranging from lighting, mobile charging, TV, fan, power backup, refrigeration, equipment among other.

Therefore, the broad classification of off-grid systems under the energy access banner are Stand-alone systems (SAS) and Mini-grid systems. These can further be broken down into seven classes based on the system sizes, delivery method, application and user type.

It is important to note that while DG caters to only generation, off-grid systems, on the other hand, encompass the supply and demand as one system.

Finally, auxiliary technologies such as energy storage, smart grids, efficient appliances, internet of things (IoT), etc. play a vital role in providing energy access using DES. Energy storage, for instance, allows the user flexible usage, efficient appliance lower the energy demand and IoT aids in understanding user behaviour as well as in delivering the appropriate services. We already see a strong implementation of these auxiliary technologies that are revolutionising the way energy access is delivered. As the DES market evolves, broader concept such as smart grids that combine renewable energy (RE) and energy efficiency (EE) measures will enable effective and efficient management of resources and systems.

To get all these components moving in the right direction, the role of regulation is crucial. Effective regulation will address pertinent issues about policy adoption, technology standards, governance processes and economics that govern DES. Therefore, a cohesive and sound regulation will set the pace for faster spread of decentralised energy systems in the market.

By combining all these various components of DES into one picture we get:


Alpha and Beta in the limelight

Ifyou are even remotely following the news on energy access, you would have come across these two off-grid energy stars1– Stand-alone systems (Alpha) and Mini-grids (Beta) being mentioned in almost every other article. Their entourage is nothing less than that of a superstar in the making. Policy makers, investors, business personnel, regulators and academics are flocking to study them. What did their journey look like and who were supporting them through this?

Their journey began not so long ago and only in recent years have they emerged to the surface thanks to the support from a few key domains. Introducing technology who is their lead manager. As a first pick, technology supported mini-grid, who was closer to home and an extension to the traditional understanding of the energy system, the only major difference being the scale. Despite having a theoretically perfect product, technology was unable to launch mini-grids successfully for many years. There was simply no support from the other key promoter namely, policy. Since policy didn’t find the urgency to address mini-grid’s interest, other stakeholders such as investment, business and regulation fell through. The only one who embraced mini-grids until their recent stardom was academia. Hence mini-grids stuck to practice and trial sessions confined to a piece of paper for many years.

In parallel, technology decided to concentrate on developing stand-alone systems who focused on mastering the art of using the renewable energy resource called solar. This mastery included efficient use of solar panels and at an affordable rate. This unlocked the potential use of stand-alone systems, who started to get offers from across the energy consumption chain for a performance. Naturally, solar based stand-alone systems were presented for use at household levels, commercial levels and industrial levels and in each case got a high recognition. But despite this stellar performance, the cost of solar based stand-alone systems was still too high for those who lacked energy access.

But soon, things changed positively after SE4ALL (Sustainable Energy for All) came into the picture and shined the limelight. Following which Sustainable Development Goals (SDGs) listed their relevance and addressed this in the SDG goal №7 which pushed clean and modern energy to the forefront. Meaning, a majority of the solutions would be powered by renewable energy resources and energy efficient measures. With a strong push from their good friend academia and the SDG 7, both mini-grids and stand-alone systems were noticed and picked up by policy at long last. Few countries started to assess their true potential and went on a fast track mode to give them their due importance, which was noticeable at the COP 21 in Paris.

Seeing this nurturing and enabling environment, business decided to give them a serious shot, following which investment walked in more confidently. Although this created some commotion, without the support of the appropriate measures from regulation, the dream would be short lived. Regulation who is now their enabling agent, should pitch the right set of rules and implement policy’s agenda in such a way that it serves the best interest of all those involved. This means regulation would need to govern and keep a close check on the quality of technology, flow and ease of investments, maintaining the enabling business environment while ensuring the needs and convenience of those who lack energy access. Although the job description for regulation is quite clear, the implementation of it is a bit tricky as the market is still evolving.

Like any good star, both alpha and beta know that they would need to constantly upgrade to be relevant. Their entourage also has duly acknowledged this. Technology took support from innovation and roped in auxiliary technologies such as energy storage, smart grids, efficient appliances and internet of things (IoT) to catapult to the top and to ensure constant interaction with the technology adopters. Investment assisted business and took support from dedicated players such as government, development banks, investment funds and impact investors to fund alpha and beta. Additionally, innovative consumer finance such as microfinance, group loans, community loans, subsidies, grants, instalments, pay-as-you-go and fixed tariff comforted investment and business to expand and provide reliable and affordable energy access solutions. Thus, ensuring a steady growth for both alpha and beta, who are proving to be worthwhile with all this dedicated support from the entourage and acceptance from those that lack access to energy. However, only time will tell for how long will they continue to be in the limelight.

According to the Bloomberg off-grid 2016 status report some key statistics are:

  • Target Population — 1.2 billion people spread across Sub-Saharan Africa and developing Asia.
  • Traction countries — Kenya, Tanzania, Ethiopia and India.
  • In terms of resources used, clearly solar is leading the way. Biomass is soon emerging.
  • Over the last 10 years, more than 100 companies are active in the off-grid space, majority of which offer stand-alone systems and the rest mini-grids.
  • Stand-alone systems are the main product of the market. ~20 mln branded products were sold (mid 2015) and ~89 mln people in the developing world have at least one such product in their house.
  • Solar Lanterns — price ranges from $20 to $5, which account for 59% of sales.
  • Pay-as-you-go (PAYG) firms attract more investments (~ $160 mln in 2015). ~20 companies offer this mainly in East Africa.
  • ~47mln households with no electricity have an annual income $3,650-$18,250, which reflects to $2–10/day per 5 household members.
  • Rapid advancement to off-grid systems for use in Lighting + Mobile + TV/Radio/Fan/Refrigeration. Revenue per unit is higher for larger systems.
  • Likely sales growth rate — 34% CAGR in the next 5 years.
  • Last Mile is key — distribution networks and customer relationships is essential for sustained growth.

This article was originally published on the Florence School of Regulation website in 4 parts for the ‘Topic of the Month’ in May 2017 (May Editor: Swetha RaviKumar Bhagwat)