The lack of access to affordable, reliable energy is a barrier to development, whether that be powering autoclaves and centrifuges in rural clinics to improve health indicators or powering local agricultural processing to retain more of the value of production locally. The African Development Bank estimates that 645 million Africans, nearly 60% of the continent’s population, don’t have access to electricity. The rapid urbanization of Africa also means that the urban/rural divide becomes ever larger, with rural areas often being forgotten in efforts to modernize. The so-called “Bright Light Syndrome,” where the young migrate to cities in search of opportunity, only serves to exacerbate this problem.
So how to address this energy access imbalance when extending the national grid to these rural areas is often seen to be impossibly expensive. The International Energy Agency (IEA) estimates that by 2040, as a result of the falling costs of ever-improving technology, 70% of new rural power supply will be most affordably provided by off-grid technologies and microgrids. Currently, these efforts to electrify rural areas are being carried out largely by international private sector players with little or no support from National Government. Is there a case for subsidizing the private sector to achieve national development goals? Can the domestic private sector be supported to keep more money in-country?
Subsidies for energy access is a disproportionately contentious subject. Researchers estimate that the global fossil fuel industry is subsidized to the tune of US$5.3 trillion (6.5% of global GDP) every year, and yet this staggeringly high sum raises few eyebrows. If implemented correctly, energy access subsidies could be the catalyst that tips the nascent rural off-grid sector into rapid scalability.
To subsidize or not
Our journey starts with what was arguably a failure of subsidies. Brighterlite, a commercial outfit selling solar home systems (SHS) in Myanmar, had planned its sales strategy in close cahoots with the national government and after close consideration of an US$80 million World Bank SHS electrification program. Both were selectively applying subsidies for these systems specifically in border areas of the country and Brighterlite determined to ply its trade in other, non-border areas.
The problems came when the government started blurring the boundaries of where it was applying the World Bank funded subsidies and where it was not. As a result, potential customers in non-subsidized areas became reluctant to purchase a system from Brighterlite, in the hope that the subsidies might soon be extended to their area. Eventually Brighterlite, originally from Norway, had to pull out of Myanmar at a loss of US$2 million that had been invested.
Sam Slaughter, co-founder of the Kenyan-based microgrid company PowerGen, argues that we need to “embrace subsidies” and that “without subsidies the African rural consumer will be unique, they will bear the full cost of their power which has never happened on any other continent in the history of electrification.”
So why the disconnect? How can subsidies be applied in a way that supports the private sector rather than crowding it out?
Lessons from History
“Widespread rural electrification has been held back to date by the financial obstacles to profitable distribution of power in the farming areas… Chief among the financial obstacles are the farmer’s small cash income, coupled with the large unit investment required in distribution systems to serve only a few farms per mile of line.”
As is often the case, there is some value in looking at historic precedents. The quote above, which is entirely applicable to microgrids in rural Africa in the 21st century, is from a 1926 research report put together for the US Congress. In 1935, President Roosevelt established the Rural Electrification Administration (REA). As Gabriel Davis, Head of Energy Access at CrossBoundary, points out, “in its first five years, the REA provided over US$227 million in government subsidised loans (US$3.6 billion in today’s dollars) to connect rural farmers through laying distribution lines, wiring homes, and even building local diesel generation plants.”
Supporting supply or demand?
The majority of rural electrification strategies active or planned in Africa today involve the private sector. A notable exception is the regulation passed by the Nigerian government in 2016 specifically addressing microgrids. This reliance on the private sector reduces the costs to the government but opens a different can of worms. How does one stimulate and subsidize the market whilst maintaining the drives for efficiency and cost effectiveness that characterize private sector projects? The World Bank Group’s ESMAP (Energy Sector Management Assistance Program) argues that this is best achieved through subsidies targeting demand rather than supply. In other words, it is better to pay a subsidy for every unit of energy consumed than paying someone simply for having built a microgrid.
We would tend to agree with this. The problem with targeting only the large, upfront costs associated with building a microgrid is that it delivers all incentives before any services are actually provided, in this case people converting electricity into useful work lighting their homes or grinding their maize for example. In ESMAP’s words: “…demand side-subsidies work better than fuel or supply side-subsidies because they have better targeting properties and provide stronger incentives for expanding coverage and sustaining services.”
The perception among national governments and donors, however, seems to be that demand side subsidies are harder to implement.
It is common practice for utilities to charge customers a connection fee, but these are often too high for poor customers and present a barrier to entry into the market even though they would be able to afford the ongoing electricity prices by offsetting existing energy costs on, for example kerosene. When commissioning early microgrids in poor fishing communities on the shores of Lake Victoria with SteamaCo, we would always charge a nominal connection fee to new customers well below the cost of connecting them. This served more as a mechanism to secure commitment than as a cost recovery fee.
A new era of data-driven subsidies
A less common consumer finance mechanism is the subsidizing of ongoing energy costs. In this case every unit of energy bought and consumed by the user is subsidized. This usually results in lower costs for the user leading to increased uptake and demand, and improved revenues for the operator. Although this is probably the most direct way to stimulate ongoing demand for energy services, it is not widely applied. There are a number of reasons for this, chiefly the technical complexity of subsidizing multiple micro-payments.
These days, however, a great number of rural energy users consume their energy via sophisticated web-enabled smart meters. This not only makes the microgrid business model fundamentally workable, it also means that every watt hour of energy being consumed by each and every customer is being logged in near real time, and crucially, users are able to buy very small amounts of power upfront using MPesa and other mobile phone based payment channels. This means a chapati vendor in rural Kenya can tap a few buttons on her old Nokia phone and a few moments later her smart meter receives the credit and the lights on her chapati stall spring to life.
The emergence of mobile payment
The presence of mobile-based payment services across the spectrum of off-grid energy access routes from SHS to microgrids reduces the burden of complexity enormously.
If users pay for services using their phones and a local mobile money platform, the data on the payment is routed through a third party (the mobile platform operator). This provides a transparent access point for a results-based subsidy. Why then has this not been used as a subsidy mechanism? One problem of course is that not all rural electrification schemes involve digitized ‘Pay-As-You-Go’ mechanisms despite the ubiquity of mobile money platforms in places like Kenya. Another problem with this mechanism seems to lie in the processes of traditional funding organizations. One of the inherent problems of a demand side subsidy, either paying all or part of the cost of connection or subsidizing ongoing energy purchased, is the inability to predict how much will be spent through the scheme. Demand uptake is unpredictable. For an organization with strict spending targets this is a risky undertaking and naturally not a first choice for an intervention.
On the necessity of working together
There is a case for ‘hybrid’ approaches than can exploit the best aspects of, for example, the public and private sector to achieve universal electrification. One example of a hybridized approach is the public private partnership (PPP). A PPP can operate in a number of ways but let us consider the role of concessions. In this context, a concession is the granting, to a private operator of a license to operate their commercial business within the government’s jurisdiction and subject to certain conditions. This is, in other words, state sanctioned (and controlled) private enterprise.
Typically a supply side mechanism, historically, this seems to be an effective model for electrification. A 2009 study by Gassner et al., on 250 electricity companies operating in 50 countries suggested that the greatest electrification rates were achieved by once public utilities, now privatized and operating under a concession model. These utilities typically connected end-users at a rate 29% higher than their publicly owned counterparts.
Key to the success of a concession based model seems to be the careful design and management of incentives. One notable example of this working well comes from Chile, which at the time, had a rural electrification rate of only 50%. To address this, the national government launched a scheme to subsidize private companies for each rural user connection they made. Bidding companies were encouraged to present proposals to regional governments who made the final selection. Regional governments received their fiscal allocation from national government only if electrification targets were hit. In this way, regional governments were incentivized to select only contractors that combined low-connection costs with effective connection rates.
The age-old problem with concessions of course is the risk of undue influence, corruption and collusion on sector-governance decisions and the award of concession contracts. Often, programs like the Chilean example above are funded externally (in this case through concessional loans from the World Bank and the Inter-American Development Bank) and these large sums of money are a tempting target for crooked government officials.
An approach rather than a solution
There is of course no magic bullet or one-size-fits-all solution. All of the approaches discussed have advantages and disadvantages depending on how and where they are applied. This then would seem to suggest that value can be derived from the continued documentation and dissemination of best practice and the development of open-source toolkits. These should be accessible and used across the energy access spectrum, from smart meter developers designing transparency into their systems, to donor-funded projects looking at using satellite imagery and algorithms to map the potential for rural sites for commercial off-grid projects (effectively subsidizing the site selection process for commercial operators). These tools are also useful to governments looking to increase rural electrification rates through cost-effective mechanisms to close the viability gap, paving the way for commercial expansion into rural electrification markets.
The good news is that as the costs of technology (in particular solar PV and storage) continue to fall and stakeholders from across the spectrum get better at designing, implementing and accessing a nuanced range of subsidies, friction points will be eased and barriers will be lifted. All of this, of course, contributing to the ongoing task of connecting the unconnected to clean, modern energy services.
By Sam Duby and Tobias Engelmeier, TFE Consulting GmbH
Tobias Engelmeier, Managing Director and Founder, TFE Consulting GmbH: Tobias is an entrepreneur and advisor with experience in organizational change and growth-oriented business models. He has founded Bridge To India and India Goes Solar, and has worked for investors, technology companies and governments on managing industry transitions. He founded TFE Consulting to provide consulting services on industries that are undergoing rapid transformation.
Sam Duby, Africa Director, TFE Consulting GmbH: With 10 years of field experience and having founded an award-winning IOT energy access company in East Africa, Sam is well aware of what it takes to deliver successful projects in developing countries. He is an expert in appropriate design and implementation, leveraging PAYG, community and cross-sector engagement and financial studies focused on the energy access and frontier technology space.
Mapped: The world’s coal power plants – In a fully updated article, Carbon Brief has mapped all the coal plants in the world between 2000 and 2018, based on the latest data from Global Energy Monitor (formerly CoalSwarm). The figures show the number of coal units operating around the world fell for the first time in 2018, Carbon Brief analysis suggests. This was due to a rapid slowdown in the number of new coal plants entering service in 2018, combined with continued high levels of retirements.
The number of coal-fired power plants being developed around the world has collapsed over the past three years, reports the Guardian, picking up the latest annual report from Global Energy Monitor (formerly CoalSwarm). The number of plants where construction started was 84% lower in 2018 than in 2015, it says. The Sydney Morning Herald also covers the report, under the headline: “‘Peak coal in sight’ as new power stations drop and retirements jump.” Both publications note the report’s warning of a possible coal resurgence in China, where a major electricity industry group has called for a new, much higher cap on coal capacity for 2030. The move could “single-handedly jeopardize global climate change targets”, writes one of the report’s authors, Lauri Myllyvirta, for Greenpeace’s Unearthed. He adds: “The Chinese government has not adopted the industry proposal, but it is under consideration.” China resumed construction of many coal plants last year that had previously been on hold. The report also finds that the pipeline of planned coal plants in India has shrunk by 37 gigawatts (GW) compared to a year earlier, to 94GW in 2018, says the Times of India. AFP also covers the news. Carbon Brief has updated its interactive map of the world’s coal plants and in-depth accompanying article, based on the latest Global Energy Monitor data. Separately, S&P Global Platts reports that Czech utility firm CEZ is to close 1GW of old coal plants by mid-2020, due to tightening air pollution rules.
Democrats in the US House of Representatives have introduced a bill that would aim to keep the US in the Paris Agreement. “While Republicans still hold the White House and the Senate and are unlikely to pass any climate legislation, House Democrats are signaling to their base that they are serious about action,” Vox explains. USA Today and the Hill both have the story.
A day after Senate Republicans blocked a “show vote” on the green new deal, “lawmakers from both parties were still talking about climate change”, notes Associated Press. The New York Times carries a comment arguing that the green new deal is popular with voters and that “Republicans may come to regret their mockery” of the idea.
People Actually Like the Green New Deal: Mitch McConnell’s show vote in the Senate on Tuesday rejected the plan, but Republicans may come to regret their mockery. By Sean McElwee, one of the founders of Data for Progress, in the NYTimes,
Mitch McConnell, the Senate majority leader, brought the Green New Deal to a vote in the Senate on Tuesday. He defeated consideration of the plan 57-0, winning over three Democratic senators and one independent who caucuses with the Democrats. The rest of the Democratic caucus voted “present,” in an attempt to confound Mr. McConnell’s strategy.
For the past several years, environmental, labor and racial justice organizations have been working toward a new framework for climate policies aimed at ensuring that these policies address the needs of front-line communities, while ensuring that workers in fossil fuel industries still have economic opportunities. In Buffalo, local groups organized to keep the closure of a fossil fuel plant from harming the local economy. In California, groups pushed through SB 535, which dedicates funding from the state’s cap-and-trade program to low-income communities disproportionately affected by climate change. In New York, the Climate and Community Protection Act, a law that mandates emissions reductions and investments in affected communities is the product of a multiyear effort. These achievements all predate the Green New Deal, but they are rooted in a similar goal: to fight for clean air, clean water, decarbonization, racial justice and good jobs at the same time.
One advantage of the Green New Deal framework is that it combines immediate concerns about pollution with more abstract discussions about carbon emissions. There are immense political benefits to this approach. Consider West Virginia, where the Republican establishment ran ads criticizing the coal baron Don Blankenship for contaminating local water. Pause for a moment: Among the most conservative voters in one of the most conservative states in the country, the winning message was clean water.
My think tank, Data for Progress, commissioned a series of polls on the Green New Deal. Though Data for Progress is a liberal organization that is supportive of the Green New Deal, we don’t let that cloud our polling. We want accurate results, not convenient ones. (Our surveys show lower support for “Medicare for all” than those of most other organizations, for example.) We are also involved in the process: Last September, Data for Progress released a blueprint for the Green New Deal that has informed policy development.
To get accurate results, we deploy several techniques. First, in our latest polling with Civis Analytics, a data science firm founded by alumni of the Obama campaign, we informed respondents that the Green New Deal is a Democratic proposal. Voters were told that the Green New Deal would “phase out the use of fossil fuels, with the government providing clean energy jobs for people who can’t find employment in the private sector. All jobs would pay at least $15 an hour, include health care benefits and collective bargaining rights.” Many commentators have argued that the Green New Deal would become unpopular when voters were informed of the cost, so we added that the plan would “be paid for by raising taxes on incomes over $200,000 dollars a year by 15 percentage points.”
In addition, we provided arguments for and against the policy: “Democrats say this would improve the economy by giving people jobs, fight climate change and reduce pollution in the air and water. Republicans say this would cost many jobs in the energy sector, hurt the economy by raising taxes, and wouldn’t make much of a difference because of carbon emissions from China.” What we found suggests very little reason for Democrats to worry about backlash: Forty-six percent of likely voters supported the policy and 34 percent opposed it. (The rest were unsure.) Obama-Trump voters narrowly favored the policy (45 percent in support and 39 percent opposed), and moderates supported it 44 percent to 27 percent.
Civis Analytics modeled two-way (that is, they excluded “don’t knows”) support in states and found that vulnerable Republican senators have reason to fear Mr. McConnell’s antics: In Colorado, Cory Gardner’s state, 60 percent of likely voters supported the Green New Deal, and in North Carolina, Thom Tillis’s state, 56 percent did. In Maine, where Susan Collins is likely to face a tough re-election battle, 57 percent of likely voters supported the Green New Deal and in Iowa, a wind-heavy state where Democrats hope to pick up a Senate seat, 54 percent did.
We also asked YouGov Blue to survey the Green New Deal. Our YouGov survey asked, “Would you support or oppose a Green New Deal to end fossil fuel use in the United States and have the government create clean energy jobs? The plan would be paid for by raising taxes, including a tax on carbon emissions.” With this framing,43 percent of registered voters expressed support, with 38 percent opposed and the rest unsure.
Not all parts of the Green New Deal are popular. In our polling with Civis, a full shift to electric cars by 2030 and the phasing out of all power plants by 2035 were both underwater. And there is no doubt that some additional parts will lose support after facing a right-wing onslaught. On the other hand, policies like green jobs, drinking water infrastructure and reforestation were wildly popular. Clean water had net support in every state in the country, and reforestation is underwater in Wyoming only. In other words, there is no part in the country where at least some aspects of the Green New Deal will not be winning issues.
New polling from 350 Action and Data for Progress conducted by YouGov Blue shows that rejecting fossil fuel money is popular (49 percent support their representatives refusing campaign contributions from fossil fuel PACs, with 19 percent opposed and the rest unsure). A “keep it in the ground” approach to energy policy that would phase out fossil fuel infrastructure in favor of renewable alternatives garnered even more support (56 percent in support, 26 percent opposed). “Climate policy might befuddle Democratic leadership, but the grass roots knows what’s up,” Julian Brave Noisecat, a policy analyst for 350 Action, told me.
The core challenge the Green New Deal faces is not so much on the merits of the concept or even its political feasibility; it is that many of its Democratic supporters have met an aggressive and one-sided onslaught from the right with very little by way of response. According to data shared with The Times from Navigator, a progressive polling project, 37 percent of Republican viewers of Fox News had heard “a lot” about the Green New Deal, compared with 14 percent of all registered voters. Only 6 percent of non-Republican, non-Fox viewers had heard “a lot” about the Green New Deal, and 40 percent had heard nothing at all (compared with 14 percent of Republican viewers of Fox News).
Across all registered voters who had heard about the Green New Deal, 32 percent reported seeing mostly negative coverage, 12 percent mostly positive, 42 percent a mix and the rest couldn’t recall. (Among Fox-viewing Republicans, it’s 68 percent, 4 percent, 24 percent and 4 percent.)
We’re seeing in real time the impact of right-wing attacks. When asked simply, “Based on what you know, do you support or oppose the Green New Deal?,” 22 percent of respondents are in support, 29 percent are opposed and 49 percent are not sure. But 74 percent of Fox-viewing Republicans oppose the Green New Deal (65 percent strongly), and only 21 percent have not formed an opinion. Among people who are not Republicans and not Fox viewers, 32 percent support the Green New Deal, 8 percent oppose it and a whopping 61 percent have not formed an opinion. (Navigator polling shows that Fox News viewers are also far more likely to deny climate change.)
Though many components of the Green New Deal are popular, the Republican propaganda machine has already reshaped the narrative, and it has done so with virtually no coordinated pushback from progressives, or certainly nowhere near enough, a worrying pattern. Tuesday’s Senate vote, where Democrats were urged by their leaders to take no stance at all and vote present, however expedient, is indicative of the broader trend — a defensive crouch from Democrats in response to an onslaught from the right.
The Green New Deal is the future of the Democratic Party: Among likely Democratic primary voters in our Civis polling, 71 percent supported the Green New Deal and 14 percent opposed it. Democrats should not be afraid to embrace it, and Republicans who mess with it — despite the temporary success of their aggressive tactics — will do so at their own risk.