Across the developing world, there is an increasing realisation that expanding electricity access cannot be achieved through grid extension alone. There is also a growing recognition that national policies, regulations, and targets play a pivotal role in determining the investment and financing models that become prevalent in distributed renewable energy markets.38 As a result, more and more countries are integrating off-grid energy solutions into broader rural development policies and frameworks.39 Increasingly, governments are moving away from top-down approaches and towards frameworks that are broad-based, support local private sector participation in the development and management of energy systems, and provide environments conducive to new investment.
Thus far, most policy frameworks developed for improving energy access have emphasised electrification, with only limited focus on clean cooking, heating, and cooling. Policies that promote renewable energy and address barriers to their use have played a critical role in accelerating deployment and attracting investment to this sector. Programmes also continue to advance as institutional, legal, and regulatory frameworks evolve.40 For example, in response to favourable government policy combined with rising consumer demand, Bangladesh has been installing more than 1,000 SHS a day. Similarly, sub-Saharan Africa saw the number of manufacturers selling pico-powered lighting systems increase fourfold between 2008 and the end of 2012.41
Brazil, China, India, and South Africa have taken the lead in developing large-scale, off-grid renewable energy programmes that are making significant inroads into addressing the dual challenges of energy access and sustainability.42 An important success factor for renewable energy initiatives in these countries has been their inclusion in broader long-term rural electrification programmes that are supported politically and backed by substantial and sustained public resource allocations.
For example, Brazil's Light for All programme, completed in late 2013, was a decade-long effort to provide renewable electricity to 15 million people in rural areas. The initiative included an 85% capital subsidy for mini-grids with a focus on renewable energy, allowances for the use of prepaid metering, and the inclusion of rural co-operatives as implementing agencies.43 It was conceptualised and co-ordinated atthe ministerial level and implemented through rural electricity co-operatives, with nearly 75% of funding coming from the federal government and the remainder from state governments and executor agents.44
In China, 36 million people acquired access to electricity through off-grid sources between 1998 and 2012. As part of China's 12th National Five-Year Plan, numerous Chinese local power utilities are expected to install individual off-grid PV power plants by the end of 2014 to ensure the establishment of a long-term operation and maintenance management system for these PV plants before the end of 2015.45
Fiscal incentives—such as loans, grants, and tax reductions— have been used successfully by many countries in their off-grid renewable electricity programmes to address the barrier of high upfront costs. While approaches vary by country, the most common practice is to provide subsidies to encourage operators to adopt renewable energy technologies when developing electrification schemes in remote communities.46 Bangladesh, for example, provides grants that cover up to one-third of the capital costs of renewable energy systems along with long-term, low-interest loans with five-year grace periods.47 Mai and Senegal established rural electrification funds to provide financing for renewable energy concessions, with investment subsidies of up to 80% of the upfront capital costs.48 Thailand provides investment grants of 10-30% for biogas and solar water heating projects, including off-grid village-based projects in remote areas.49 In several Brazilian states and a number of other developing countries, distributed renewable energy markets benefit from tax exemptions.50
Long-term and stable policy frameworks are important to encourage the development of mini-grids, as are regimes in which tariffs allow an attractive return on investment.51 A number of countries now support the development of mini-grids with public financing, usually in the form of capital subsidies. Subsidies can encourage private developers to enter markets in which tariffs alone are not commercially sustaining, consumers cannot support the revenues required, or low population density increases the costs of constructing distribution networks.52 Countries with subsidies for mini-grids include Mali, which offers subsidies of up to 80% of investment costs, India (up to 90%), and Afghanistan (90%).53 An increasing number of isolated communities with mini-grids and stand-alone systems relies on renewable energy resources rather than imported diesel fuel.54 However, not all countries support the development of mini-utilities and mini-grids, and in some countries mini-grids are subject to onerous regulations or tariffs that do not reflect actual costs.55
To finance incentives and programmes that support distributed renewable energy, developing countries rely on a blend of public and private sector resources. The most notable public-private partnership projects—based on the volume of SHS and number of solar kits delivered—are in Argentina, Bangladesh, China, India, Indonesia, Mongolia, and Vietnam.56 They are carried out jointly by national governments and major donor bodies, and focus on replacing kerosene lanterns and diesel generators with portable, sustainable, and affordable alternatives.57 Thailand has a particularly progressive strategy in that renewable energy deployment is financed partly through taxes on fossil fuel-based energy consumption, helping to internalise some of the social and environmental costs of fossil fuels and to level the playing field for renewable energy.58
Formal targets remain a fundamental building block of initiatives seeking to expand energy access using renewable energy. Countries with electrification targets include Bangladesh, Botswana, China, Ethiopia, Ghana, Malawi, the Marshall Islands, Nepal, Rwanda, South Africa, Tanzania, and Zambia. (See Reference Table R20.)
Several countries set new targets for electrification and clean cooking in 2013. For example, China announced plans to provide electricity to the remaining 2.7 million people without access by the end of 2015. Approximately 1.5 million of these people will be supplied with electricity through grid extension, and the others through local solar PV power stations.59 Ghana was the first country to join the SE4ALL initiative, with a goal to achieve 100% access by 2020 (10 years ahead of the SE4ALL target). Currently, 35% of Ghana's population (more than 6.2 million people) still lacks access to electricity.60 In 2013, Fiji also set a target of 100% access to clean cooking fuels and stoves (up from the current 82%) by 2015.61
However, deployment of small-scale subsidised projects has contributed only marginally to increasing energy access—due primarily to high transaction costs, a lack of long-term strategy, and a focus on meeting only basic energy needs.62 Thus, it is now widely accepted that electrification programmes should involve a package of dedicated activities for promoting productive uses of electricity if the goal is to significantly increase the incomes of target populations.63 Further, the active participation of local residents and capacity building of local and national organisations and agencies is now recognised as being crucial for the successful implementation of decentralised energy solutions.64
To this end, several countries are actively engaging local people in energy planning and decision making, promoting energy literacy, and investing in capacity building of local and national organisations and agencies.65 Nepal, for example, has emphasized community mobilisation, sustainable rural energy development, and advancement of institutional and human resources, with efforts to increase public awareness and develop human capacity through micro-hydro-related training and workshops.66
Although the majority of policies enacted to date have focussed on electrification, many developing countries have also adopted programmes focussed on improving cooking and heating systems as part of their efforts to achieve 100% energy access. In Latin America and the Caribbean, where several countries have achieved or are close to full electricity access, emphasis is turning to the cooking and heating sector.67
Honduras, for example, includes the dissemination of clean cook-stoves in its national Scaling up Renewable Energy programme, which aims to transform the clean cookstove market by enabling the development of new business models and strengthening private sector capacity.68 The programme focusses on improving cookstove design and quality, including component durability and performance; developing a combination of standards and rigorous monitoring and supervision; and achieving affordability through a mix of direct incentives, micro-loans, and payments for environmental services.69
Figure 31. Share of Population with Electricity Access, and Rate of Electrification versus Population Growth
Source: See Endnotes 1 and 3 for this section.
India has also supported the dissemination of clean cookstoves, and revisited its programme in 2013. India's National Programme on Improved Cookstoves had some success at the state level, but it faced challenges nationally due to lack of consumer awareness, a dearth of sustainable financing sources, and issues related to stove quality and upkeep.70 The focus was changed from disbursement of cookstoves to a broader programme aimed at delivering health benefits through clean biomass combustion with quality control and monitoring efforts. Use of traditional biomass, charcoal, and coal-fuelled cookstoves can result in severe adverse health and environmental impacts from black carbon and other particulate emissions. These emissions cause as many as 4 million premature deaths globally every year. Further, use of traditional biomass can accelerate rates of land degradation and deforestation.71 Hence, the new initiative has been well received even at the national level.72 Markets and Business Models
Historically, energy access programmes were developed and implemented by national and local governments, international development agencies, and non-governmental organisations. In the last decade, the provision of energy services to rural markets has evolved from a centralised, public sector-led approach to one more focussed on public-private partnerships and private ventures in which renewable energy plays a key role.
With the increasing awareness that off-grid, low-income customers represent fast-growing markets for goods and services—as in the mobile phone market—and with the emergence of new business and financing models for serving them, rural energy markets are increasingly being recognised as potential business opportunities.73 Further, there is a growing awareness that isolated cooking and electricity systems, particularly those based on renewables, are often the most cost-effective options available for providing energy services to households and businesses in remote areas. This is increasingly the case as technologies continue to improve and costs decline.
As a result, a growing number of parties—ranging from international businessestosmall-and medium-scale businesses and initiatives—have established themselves in the distributed renewable energy market.74 Many companies are now active across Africa, Asia, and Latin America, selling household-level energy systems and devices, with several already serving tens to hundreds of thousands of customers.75 Commercial lenders and banks, social venture capitalists, local development banks, philanthropists, governments, and international development agencies are all actively engaged in the financing of distributed renewable energy. However, participation varies from country to country depending on political stability, support policies, broader legal frameworks, and other factors.
Innovative multi-stakeholder business models continue to emerge for providing customised and financially sustainable services based on renewable energy across the spectrum of rural energy needs. Characteristics of these business models include public-private partnerships, pay-as-you-go micro-payment options, one-stop-shops, leasing, franchise, and service models.
The public-private partnership model first gained popularity in the 1990s, when public and private partners collaborated in the implementation and financing of energy access projects. All movable assets were owned by the private sector, while fixed assets, such as power plants and distribution lines, were publicly owned. The plant was managed by the village committee and designed based on customer needs, with customers being allotted energy blocks according to their energy demand requirements and capacity to pay. This model is being replicated in the Philippines, Nepal, and other Asian countries.76
Pay-as-you-go (PAYG) micro-payment schemes have become one of the most popular business models. They are especially effective for solar technologies such as solar-powered charger kits because price levels and schedules are set to match customers' variable cash flows and their energy consumption patterns.77 Under such schemes, customers typically pay a small upfront fee for a solar charger kit, a portable system that includes a 2-5 W solar PV panel, and a control unit that can be used for powering LED lights and charging devices such as mobile phones. They then pay for the energy they need, either in advance or on a regular basis, depending on consumption. Pre-existing distribution systems for mobile phones increase the efficiency of PAYG schemes because customers can make payments in small increments by phone as they do for mobile usage. Usually, solar kits are paid off after about 18 months, at which time customers own the kits and receive the subsequent electricity for free.78
An increasing number of households in sub-Saharan Africa are accessing energy through the PAYG system, paying about half of what it would cost them to get the same services with kerosene.79 Such schemes were also used in India during 2013 to provide off-grid and decentralised solar power. However, some challenges still need to be addressed. For example, companies face severe cash flow constraints when consumers default on payments because the market currently lacks debt-servicing nstruments.80
One-stop-shop models are also expanding in use. Under this model, a single organisation both sells the renewable energy home systems and provides loans to pay for them. This is common in Bangladesh, where one organisation sells SHS with a 15% down-payment, provides customers with three-year loans at 6%, after-sale services, and long-term product warranties. It also provides technical training across rural Bangladesh and trains entrepreneurs, particularly women, to become owners of their own renewable energy businesses.81
Under leasing arrangements, the customer leases the energy system for extended periods of time, or leases it for a fixed period before eventually owning it and so is spared the high upfront costs. In Honduras and the Dominican Republic, companies provide SHS services via either direct lease or lease-to-own arrangements.82
In franchise models, local entrepreneurs in rural areas are trained to run micro-enterprises. Avariation of this model is used for the Lighting a Billion Lives campaign in India, which is helping to set up solar businesses that rent out charged solar lanterns on a daily basis in poorly electrified villages.83
Rural customers can be difficult to reach, particularly in regions where roads are poor or non-existent, or during rainy seasons. Establishing rural supply chains and after-sales service through franchise and other business models, with technicians and engineers living and working near their customers, helps to develop trust in a product and supplier while also ensuring that systems keep operating and that needed repairs are carried out quickly.84
Mini-utilities—small, decentralised businesses that run mini-grids—are also found increasingly in poor rural areas across the developing world. They vary significantly in size, rely on a range of generation technologies, and often provide enough power for productive uses such as water pumping, milling, and grinding, in addition to meeting basic household needs. Many such companies use renewables in mini-grid systems to keep costs down and make them more stable relative to diesel, although renewable-based mini-utilities can have high maintenance requirements.85 Monthly charges can represent significant expenditures for households, but they are attractive in many locations where people are already paying similar amounts for kerosene and appliance-charging services.86
Business models used in the cooking and heating markets also vary. Often, cookstove companies are indigenous enterprises that employ members of the local community to manufacture clean stoves that are adapted to local conditions and norms.87 Increasingly, international players that provide high-quality but generally more expensive products are becoming engaged in the sector. They often work with public sector partners to help market the stoves and to educate consumers about their benefits.88
Crowdfundingi is also starting to play a role in providing energy access. It is a potentially significant source of financing for the distributed off-grid market, which relies on small-scale investments typically of a few thousand dollars per system.89 To date, many mainstream investors have tended to avoid small levels of funding since they carry high transaction costs. Crowdfunding allows individual private investors to make payments to local partners via an online platform; over time, the partner makes repayments to the funder who, in turn, repays investors.90 A recent example is a portal that raised more than USD 15,000 to fund solar kits for lighting and mobile phone charging systems for 19,000 households in Uganda.91
Throughout the developing world, technological advancements and falling prices are enabling renewables to spread rapidly to new markets in rural and remote areas.92 Renewable energy technologies, combined with business models adapted to specific countries or regions, have proven to be reliable and affordable methods for achieving access to modern energy services, advancing quality of life, and improving human and environmental health.
i - Crowdfunding is the mechanism by which small companies and start-ups raise capital from many small investors, in return for an equity stake, structured payments, products, or a combination thereof.
38 Ernst & Young, Renewable Energy Country Attractiveness Indices, November 2012, http://www.ey.com/Publication/vwLUAssets/CAI_issue-35_Nov-2012/$FILE/CAI_issue-35_Nov-2012_DE0372.pdf.
39 World Bank, Designing Sustainable Off-Grid Rural Electrification Projects: Principles and Practices (Washington, DC: 2008), http://siteresources.worldbank.org/EXTENERGY2/Resources/OffgridGuidelines.pdf.
40 C. Mitchell et al., "Policy, Financing and Implementation," Chapter 11 in 0. Edenhofer et al., eds., IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation (Cambridge, U.K.and New York: Cambridge University Press, 2011); Teresa Malyshev, Looking Ahead: Energy Climate Change and Pro-poor Responses (Paris: IEA, 2009); Gabriela Azuela, World Bank, personal communication with REN21, December 2013.
41 Bangladesh data are for achievements by Grameen Shakti, which reached 1 million SHS installed in November2012, per Justin Guay, "Small Is Big: Bangladesh Installs One Million Solar Home Systems," Climate Progress, 18 December 2012, http://thinkprogress.org/climate/2012/12/18/1353791/small-is-big-bangladesh-installs-one-million-solar-home-systems/; Lighting Africa, op. cit. note 5, p.11.
42 Frankfurt School-UNEP Collaborating Centre for Climate & Sustainable Energy Finance (FS-UNEP Centre) and Bloomberg New Energy Finance (BNEF), Global Trends in Renewable Energy Investment 2013 (Frankfurt: 2013), http://www.unep.org/pdf/GTR-UNEP-FS-BNEF2.pdf.
43 Renata Grisoli, MGM Innova, personal communication with REN21, December 2013; GNESD, "Energy access program in Brazil: 'Lighting for all'," http://energy-access.gnesd.org/index.php?option=com_content&view=article&id=104:energy-access-program-in-brazil-lighting-for-all-&catid=3:projects<emid=24, viewed 12 February 2014; R. Deshmukh et al., "Sustainable Development of Renewable Energy Mini-grids for Energy Access: A Frameworkfor Policy Design," Clean Energy Ministerial, March 2013, http://www.cleanenergyministerial. Org/Portals/2/pdfs/Sustainable_Development_of_Renewable_Energy_Mini-grids_for_Energy_Access.pdf.
44 Grisoli, op. cit. note43; GNESD, op. cit. note43.
45 Government of China, National Energy Administration (NEA), "National Energy Board Held a Comprehensive Solution to the Problem of People without Electricity," Electricity Conference, 31 July 2013, translated using Google Translate, http://www.nea.gov.cn/2013-07/31/c_132590749.htm.
46 ECOWAS Centre for Renewable Energy and Energy Efficiency (ECREEE), Baseline Report for the ECOWAS Renewable Energy Policy (EREP) (Praia, Cape Verde: 2012).
47 Francisca M. Antman, "The Impact of Migration on Family Left Behind" (Boulder, CO: University of Colorado at Boulder Department of Economics, 2010), http://spot.colorado.edu/~antmanf/Antman_LeftBehindBookChapter.pdf.
48 Koffi Ekouevi and Reto Thoenen, "Top-Down Concessions for Private Operators in Mali and Senegal," PowerPoint presentation, undated http://siteresources.worldbank.org/EXTAFRREGTOPENERGY/Resources/717305-1264695610003/6743444-1268073476416/3.3. TopDown_concessions_private_operators_Senegal_N_Mali.pdf.
49 IRENA, Financial Mechanisms and Investment Frameworks for Renewables in Developing Countries (Abu Dhabi: December 2012), p.105, http://www.irena.org/DocumentDownloads/Publications/RENA%20report%20-%20Financial%20Mechanisms%20for%20 Developing%20Countries.pdF
50 MIFand BNEF Climatescope data provided by Arnaldo Carvalho, IDB, personal communication with REN21, December 2013.
51 European Union Energy Initiative- Partnership Dialogue Facility (EUEI-PDF), REN21, and Alliance for Rural Electrification (ARE), Mini Grid Policy Toolkit (Brussels: forthcoming 2014); IFC, op. cit. note 10.
53 Mali from IFC, op. cit. note 10; India subsidies, under the Remote Village Electrification Programme, per Hari Natarajan, Indo-German Energy Programme-GIZ (GIZ-IGEN), personal communication with REN21, December 2013; Afghanistan subsidies, under the National Solidarity Programme and the National Area-based Development Programme, per Government of Afghanistan, "National Solidarity Programme," http://mrrd.gov.af/Content/files/MRRD-Brochure.pdf.
54 EUEI-PDF, REN21, and ARE, op. cit. note 51.
55 IFC, op. cit. note 10.
57 World Bank, "Solar Power Lights Up Future for Mongolian Herders," 20 September 2012, www.worldbank.org/en/news/feature/2012/09/20/solar-power-lights-up-future-for-mongolian-herders.
58 IRENA, op. cit. note49.
59 Government of China, op. cit. note 45.
60 UN Foundation, "Country Level Action," viewed 21 January 2014, http://www.energyaccess.org/our-work/country-level-action.
61 Atul Raturi, The University of the South Pacific School of Engineering and Physics Faculty of Science, Technology and Environment, personal communication with REN21, January 2014.
62 UN Industrial Development Organization (UNIDO), "UNIDO Projects for the promotion of small hydro powerfor productive use" (Vienna: 2010), http://www.unido.org/fileadmin/user_media/About_UNIDO/Evaluation/Project_reports/e-book_small-hydro. PDF.
64 World Bank, Towards a Sustainable Energy for All: Directions for the World Bank Group's Energy Sector (Washington, DC: 2013), http://www.worldbank.org/content/dam/Worldbank/document/SDN/energy-secm2013-0281-2.pdf.
65 R. Bellanca and B. Garside, "An approach to designing energy delivery models that work for people living in poverty" (London: CAFOD and International Institute for Environment and Development (MED), 2013), http://pubs.iied.org/pdfs/16551IIED.pdf.
66 Deshmukh et al., op. cit. note 43.
67 D. L. Gazzoni et al., "Science for a Better Life: Developing Regional Scientific Programs in Priority Areas for Latin America and the Caribbean," in ICSU-LAC/CONACYT, Sustainable Energy in Latin America and the Caribbean: Potential for the Future, Volume 3 (Rio de Janeiro and Mexico City: 2010).
68 This is the first clean cook stoves project to be funded by the Climate Investment Funds. Michael Hoffman, Climate Investment Funds, MIF, personal communication with REN21, December 2013. Information based on SREP Honduras Sustainable Rural Energization, 2013, https://www.climateinvestmentfunds.org/cif/sites/climateinvestmentfunds.org/files/ERUS_Parts_I_and_lll_IDB_Submission_with_cover_page.pdf.
70 Dalberg Global Development Advisors, India Cookstoves and Fuels Market Assessment (Washington, DC: Global Alliance for Clean Cookstoves, February 2013), http://www.dalberg.com/documents/Dalberg-india-cookstove-and-fuels-market-assessment.pdf.
71 Global Alliance for Clean Cookstoves, "Health Impacts," http://www.cleancookstoves.org/our-work/the-issues/health-mpacts.html, viewed 21 January 2014.
72 GIZ- IGEN, Ingredients for Sustainable Cookstove Interventions Lessons Learned from the Indian National Programme for Improved Cookstoves (NPIC) (New Delhi: November 2013), http://www.igen-re.in/files/igen-re_2013__ingredients_for_sustainable_cookstove_interventions.pdf.
73 IFC, op. cit. note 10.
76 The model is being replicated with support from the Asian Development Bank (ADB), per Jiwan Acharya, ADB, personal communication with REN21, December2013.
77 Justin Guay, "Clean Energy's Next Big Market: Off-Grid Solar," Greentech Media, 5 November 2013, http://www.greentechmedia.com/articles/read/cleantechs-next-big-market-off-grid-solar; Athena Ballesteros et al., "Implementation Strategies for Renewable Energy Services in Low-Income, Rural Areas," Brief 1, Keys to Achieving Universal Energy Access Series (Washington, DC: World Resources Institute, 2013), http://www.wri.org/sites/default/files/pdf/implementation_strategies_renewable_energy_services_low_income_rural_areas.pdf.
78 David Wogan, "Pay-as-You-Go Solar Energy Finds Success in Africa," Scientific American, 22 November 2013, http://www.scientificamerican.com/article.cfm?id=pay-as-you-go-solar-energy
79 The pay-as-you-go model is being used by start-up company Azuri in Kenya, Uganda, Tanzania, Ethiopia, Rwanda, Sierra Leone, Ghana, South Africa, Zimbabwe, and South Sudan, per ibid.
80 India from Acharya, op. cit. note 76; Africa from Wogan, op. cit. note 78.
81 This is a programme of the Bright Green Energy Foundation, per Ballesterosetal., op. cit. note 77.
82 World Bank, op. cit. note 39.
83 This is a campaign of TERI, per Ballesteros et al., op. cit. note 77
84 Nancy Wimmer, "Clean Energy Access for All: Grameen Installs Over 500 Solar Homes Systems a Day in Rural Bangladesh," Climate Progress, 26July 2012, http://thinkprogress.org/climate/2012/07/26/569071/clean-energy-access-for-all-grameen-installs-over-500-solar-homes-systems-a-day-in-rural-bangladesh/
85 IFC, op. cit. note 10.
89 FS-UNEP Centre and BNEF, op. cit. note42.
90 Emma Wilson, "How Can Business Help Boost Access to Energy for Those Who Need It Most?" NED, 7 June 2013, http://www.iied.org/how-can-business-help-boost-access-energy-for-those-who-need-it-most.
91 Justin Guay, "Solar Crowdfunding's Lessons Learned," Huffington Post, 13 August 2013, http://www.huffingtonpost.com/justin-guay/solar-crowdfundings-lesso_b_3751247.html.
92 "Summaryfor Policymakers" in Edenhoferetal., eds., op. cit. note 40, p.18, http://srren.ipcc-wg3.de/report/IPCC_SRREN_SPM.pdf.