The Social Value of Energy
Electricity can eradicate poverty. You just have to design for it.
Recently, The Economist ran a storyunder the headline, “Electricity does not change poor lives as much as was thought.” The article purported to demonstrate, drawing on a variety of recent academic studies, that bringing electricity and light to a community doesn’t lead to economic improvement in people’s lives.
Unfortunately, the research on which the article is based is flawed and leads to erroneous conclusions like the bold but incorrect proclamation in the article’s subtitle: “Getting a power connection to the poorest of the poor may be the wrong priority for a cash-strapped government [emphasis in the original].”
The problem with the research in these studies is that the researchers made no attempt to differentiate between well designed and poorly designed energy projects.
Anyone who’s had the misfortune to use poorly designed technology or software knows that good design matters in terms of how much value you get from using it. If the user interface is difficult to use, the product is made of low-quality materials that break easily, or the motor doesn’t have sufficient power, then you won’t get much use out of it — and it may not work for what you need at all.
Our experience working with energy projects in a dozen countries around the globe, from Asia to Africa to Latin America, is that there’s little or no opportunity for engineers to learn to design and build projects that will deliver high value for the users of electricity.
Indeed, energy useis almost entirely absent from the planning of most projects. The focus in project design is on three variables: energy supply (how to create enough energy), energy technology design (how to hook up the solar panel and the invertor), and energy cost (how much people will pay for the electricity).
Our work demonstrates that you have to add a fourth design variable: the value the user will be able to create by using the energy.
Will they be able to grow a business? Irrigate and sell more crops? Replace costly other energy supplies? Achieve meaningful educational or health outcomes?
We call this the social value of energy.
This fourth variable is essential because, in simplified terms, the net benefit of electricity to an individual, household, or community is the social value created minus the cost.
Few people are stupid. Most can do a decent job of figuring out whether the energy being supplied to them is worth the cost. If it’s not, they won’t use it. We’ve encountered many communities with grid lines who, for the most part, never use them. Grid electrons cost way too much compared to the value they deliver.
Conversely, if people do find valuable uses of energy, they will often pay very high sums for that energy.
Surprisingly, almost no energy project on the planet attempts to measure how much social value it creates.
From the perspective of the utility or the entrepreneur or the project financier, the primary question is whether their own business model is working. Are the customers paying for the energy delivered? Many don’t care or don’t even think about how much value the customer is getting out of the deal.
It’s an extremely short-sighted perspective. In any business model, especially one that relies on repeat sales to the same customer, the real test of success is whether you’re helping your customer create more value than they are paying to you. If you are, then your model is generative, they’ll get more and more value by buying more and more of your product, and you’ll sell more and more.
It doesn’t work, however, if your product doesn’t create enough value for the customer. Then your business model is extractive. And it quits working as soon as the customer runs out of money.
Unfortunately, there’s an even worse, predatory model, in which companies find ways to coerce their customers into buying more energy than they can afford, especially for trivial, non-productive purposes, and then dragooning energy payments out of them that they can’t afford. Sadly, this model is not uncommon in the energy sector in developing countries.
We’re working to change the way energy project developers approach energy design in low-income communities. Over the past year, through a project sponsored by the Global Consortium for Sustainability Outcomes, we’ve worked closely with companies in Nepal and the Philippines, and we’re launching new partnerships in Uganda and Bolivia.
Our partners are learning to design projects using user-centered methodologies that focus on creating value for their customers. They’re learning how people use energy and how they can use it more effectively. They’re learning community engagement practices that enable them to better understand their customers and better design systems for their use. Not surprisingly, their customers are happier.
They’re also learning to track the social value creation that occurs as a result of their projects. This improves their project reporting to their financers and enables them to learn from their successes and failures.
Perhaps most importantly, our partners believe that their new projects are delivering more value for their community partners. And that means they expect better financial results. Their projects are more bankable. And they can scale faster, both to grow their businesses and to deliver badly needed energy to more communities.
It would be deeply problematic if The Economist led countries to conclude that electrification doesn’t work.
Well-designed energy projects can create the foundations of robust economic and social development, even among the world’s poorest populations.
Governments just need to insist that their investments are helping people get high social value and build generative energy futures.
