Imagine a world in which Internet service providers connect more and more households to high-speed Internet, giving them the ability to watch all the shows available on Netflix, Amazon Prime, and other content providers. Yet those households lack the televisions, computers, tablets, and smartphones on which to watch any of the content, and don’t have the financial resources to pay for the monthly streaming content subscriptions even if they did have those devices.
That scenario sounds somewhat absurd, but it’s a strikingly apt metaphor for what’s happening with rural electrification in much of sub-Saharan Africa. Development efforts to date have made great strides building more generation and adding more customer connections. Now, the community needs to “close the circuit,” as it were, by stimulating end-use demand.
Bringing Demand Into Balance with Supply
A lopsided market in which supply significantly outweighs demand creates a number of challenges: a) utilities and project developers are left unable to recoup upfront capital and ongoing operational costs for new systems, leading to an increase in per unit costs of electricity, and b) consumers are unable to afford electricity and are unable to put electricity access to economically productive use, so they’re not experiencing the intended benefits of electrification. Governments and development partners need to reset their approach and set their metrics to account for this imbalance in the design of electrification programs. RMI’s latest report, Closing the Circuit: Stimulating End-Use Demand for Rural Electrification, outlines the key barriers hampering increased use of electricity, and provides a succinct set of recommendations on actions that can be taken to complement the current focus on supply-side solutions.
Four Reasons Why End-use Demand is Lagging
There are at least four reasons electricity supply greatly outweighs electricity demand:
- High equipment costs
- High electricity costs
- Unavailability of equipment in some remote areas
- Demand simply isn’t identified, let alone prioritized, as a key component of electrification strategy
Consumers often cannot afford equipment due to high costs and lack of access to credit. For instance, the cost of an irrigation pump may range from hundreds of dollars for a small surface-water pump to tens of thousands of dollars if a borehole is needed. This represents anywhere from 10 percent to 300 percent of the average annual income of a farming household in sub-Saharan Africa.
Even if consumers could afford equipment, they often cannot afford the electricity to use the equipment. Minigrid electricity costs range from $0.50/kWh to $5/kWh in sub-Saharan Africa, depending on design, utilization, size, and other characteristics. A farmer in sub-Saharan Africa consuming 30 kWh per month would incur a monthly bill ranging from $13 to $110, which represents 6 percent to 44 percent of his or her average monthly household income.
Consumers in remote locations often cannot access the right equipment—energy efficient equipment that performs reliably in often dusty and hot conditions. Long distances from city centers and a lack of understanding of rural consumer needs both increase costs and raise uncertainty. Equipment suppliers often prefer to not serve low-income rural markets.
Addressing these challenges requires financing. However, most strategies and programs fail to consider electricity demand as a component of electrification programs. As such, funding agencies do not dedicate enough money toward addressing the barriers preventing end use.
Key Actions to “Close the Circuit” to End-use Demand
A number of actions—from financing mechanisms to overcome first-cost barriers to improving electricity utilization rates to lower electricity costs—can help. Concessional financing can make equipment affordable for consumers by lowering financing costs and reducing the total cost of equipment. Sizing systems to meet but not dwarf demand can reduce electricity costs. Here, various levers can help. Signing customer agreements to commit demand at the design stage can increase accuracy of demand forecasts and system-sizing decisions. Providing access to energy-efficient and soft-start appliances (appliances with motors that require less electricity to start up and to run) reduces peak load and operational costs of the system. Providing incentives—from financial guarantees to awareness campaigns—to pull in providers to serve the rural market for productive-use equipment can ensure that consumers have access to and an appetite for cost-effective, productivity-enhancing equipment that meets their needs.
Although building supply is necessary, assuming that providing supply will generate demand fails to address the demand-side barriers end users face. To ensure successful electrification programs, development partners—as a major source of capital flows for electrification programs—should support end use as a core part of their electrification efforts.
To learn more, download RMI’s new report, Closing the Circuit: Stimulating End-Use Demand for Rural Electrification.
© 2018 Rocky Mountain Institute. Published with permission. Originally posted on RMI Outlet.