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Are Private Markets Effective for Rural Electrification?

rural energy access and markets

Schemes to galvanize private investment in rural electrification in the world’s poorest countries were launched with much fanfare but have delivered disappointing results. Research by Imperial College London investigates the reasons for the gap between expectation and reality.

Co-authored with Dr. Rob Gross, Director of the Imperial College Centre for Energy Policy and Technology

Almost 600 million people in Sub-Saharan Africa do not have access to electricity[1].  According to the IEA universal energy access could be achieved across the region by 2030, but rural electrification would require investment of around $20 billion per year[2] – almost double current levels of spending across the entire Sub-Saharan electricity sector[3].  Where is this money going to come from?

For the last two decades many have argued that the private sector must hold the solution.  Projects led by the private sector are often considered to be inherently more efficient than those managed by governments, and agencies such as the World Bank and the IMF frequently condition their donor support on reforms to encourage private participation.  Moreover, political appetite to increase public spending on international development has been limited since the financial crisis. 

Yet just 22% of global investments in energy access projects come from private funds at present[3].  And whilst the rich donor nations are prescribing private funding for the poorest, this was not the model they followed themselves; electricity supplies in rich countries were largely developed decades ago, in an era where high levels of state intervention were the norm. Rapidly industrialising nations such as China have broadly followed suit, with extensive state investment in energy infrastructure.  Some advanced countries, notably the UK, are now questioning the ability of liberalised markets to deliver secure electricity supplies whilst meeting environmental goals. Britain’s Electricity Market Reform does not renationalise the power industry, but it does recreate conditions where the government has a much larger role in directing investment.  Does this mean that the privately-led model we are imposing on poorer nations is one that we no longer consider fit for ourselves? 

Senegal is one of the many countries that rely on international assistance to improve its public services.  It has partially privatised rural electrification in order to access funds from international donors.  On paper at least this appeared to be a big success, with Senegal’s ‘Rural Electrification Priority Programme’ being much lauded in early evaluations.  This cleverly-designed flagship scheme encourages private bidders to seek additional third-party funding in order to maximise the number of new rural electricity connections they can offer.  Electricity majors including EDF and Morocco’s ONE have won contracts, bringing with them unprecedented promises of private finance – 49% on average.  Yet our research reveals that in reality the Programme’s impacts on rural communities have been very limited.  It did not connect any new households to electricity supplies during the first decade of operation (2002-2012). 

Imperial College researchers investigated the reasons for this gap between expectation and reality. In-depth interviews with government agencies, donors, businesses and independent consultants revealed a widespread frustration with the lack of progress.  The research points to three clear areas in which serious political and institutional barriers have held the Priority Programme back:

1.       Politicisation

Political support for the Programme has fluctuated considerably, with some officials thought to oppose the premise of privatisation.  Two of the Programme’s directors have been accused of embezzlement and it is alleged that some staff appointments have been decided on political rather than professional merit.  The limited capacity of rural populations to push for change means politicians can get away with making ambitious promises without delivering results.

2.       Tensions with the incumbent national electricity company

Senegal’s national electricity company, Senelec, is funded and managed by the state.  Two failed attempts to privatise Senelec appear to have left a legacy of distrust amongst some of its employees, who perceive the privatisation of rural electricity as a threat.  Senelec seems to have actively blocked the Priority Programme’s progression on several counts, refusing to transfer payments or sign contacts.  Government intervention to resolve these issues has been slow, possibly due to the political power wielded by Senelec’s strong staff union.

3.       Policy inertia

The government has continued to implement major state-funded and state-controlled electrification schemes alongside the Priority Programme, despite its outward support for the private model.  It is alleged that these schemes have been implemented as short-termist vote-winning vehicles in the run-up to elections.  They are seen as regressive and thought to have diverted significant resources from the Priority Programme. In addition the Programme’s development has been stalled by apparent limitations in local technical expertise, prolonging negotiations.

These difficulties mirror the experiences of privatisation-based rural electrification schemes across Sub-Saharan Africa.  Parallels can be found in countries as diverse as Burkina Faso[5], Uganda[6], Tanzania[7], Mozambique[8] and Zimbabwe[9]. Disappointing results are so widespread that CLUB-ER, a consortium of African rural electrification agencies, advocates a return to greater state control.   Although Senegal’s successes in garnering external support are noteworthy, the Priority Programme has not resolved common institutional barriers to delivery. 

What does this mean for privately-led rural electrification?  Inevitably such experiences cast doubt on the wisdom of imposing radical market reforms in countries with limited resources and immature electricity sectors.  However alternative options to finance rural electrification are not obvious.  If reform-based approaches are to be successful they should not be regarded as a policy ‘quick fix’, but a long-term approach that will require significant and ongoing transitional support.

This blog draws on the report ‘Institutional barriers to a ‘perfect’ policy: A case study of the Senegalese Rural Electrification Plan published in Energy Policy (2014, volume 73).


Content Discussion

Bob Meinetz's picture
Bob Meinetz on January 12, 2015

Becky, political instability is the prime enemy of foreign investment, so addressing that is prerequisite.

As a focus on African political instability, last April the UN authorized the establishment of the UN Multidimensional Integrated Stabilization Mission in the Central African Republic (MINUSCA). Babacar Gaye was appointed the special representative of the UN secretary-general in the country, with the goal of protecting civilians and supporting peace efforts. Gaye is a Senegalese national, so he has personal experience with the internal power struggles which have impeded foreign investment in rural electricity there. That’s a promising and important first step.

Thanks for your copious references, and it’s refreshing to read a report which doesn’t suggest that feeble, localized solar electricity systems qualify as “electrification”.

Bas Gresnigt's picture
Bas Gresnigt on January 13, 2015

Of course incumbent utilities in those countries won’t allow a new utility. Neither the politicians who advice those utilities.*)

As same as in Spain**) won’t happen in most underdeveloped countries, those people are best helped by a major research effort that makes PV-solar installations with battery at least 4times cheaper. So people can help themselves.

Technology allows a fast jump towards lower prices. So more research effort will increase the speed of the price decrease greatly.
It’s a far more productive method of development aid!
And developed countries benefit too!
___
*) Similar in USA regarding the senators and the health care companies (from movie “Sicko“; preview at bottom of the page). It’s one of the reasons USA pays ~50% more of its GDP to healthcare than other countries while life expectancy is ~ same as in Cuba.

**) Since ~2010 a new law puts a high recurring “tax/grid-fee/…” to PV-solar owners that generate electricity. The law also forbids going off-grid (high fines if you do).

Spec Lawyer's picture
Spec Lawyer on January 15, 2015

I’m not so sure it is worth doing rural electrification anymore.   If you live out in the middle of nowhere, instead of running miles and miles and miles of transmission lines, it is probably much cheaper and easier to instead create a microgrid with solar PV, wind turbines, batteries, and diesel generator (only for back-up).  

 

And really poor places?  PV charged Li-Ion batteries connected to LEDs for lighting.  

Spec Lawyer's picture
Spec Lawyer on January 15, 2015

Why do you think solar PV is ‘feeble’?  My solar PV system provides a 130% of my home and electric car’s net electricity needs.  The computer I’m typing on doesn’t seem to think the electrons are ‘feeble’.  

Bob Meinetz's picture
Bob Meinetz on January 15, 2015

Spec Lawyer, it sounds like you’re running a bit more than 18 watts. Do you have a grid connection, and what did your system cost? Be sure to add in the 30% the U.S. government  provided, the wind turbine,  the diesel generator, the panel, the inverter, and your lithium-ion batteries.

Then multiply by 620,000,000.

Becky Mawhood's picture
Becky Mawhood on January 16, 2015

Bas, I completely agree that R&D is important to help reduce the price of technology – it’s an important activity to invest in.  However significant cost reductions are also associated with technology deployment – manufacturers and installers learn from experience! I’d suggest here that a two-pronged approach is needed – continue to support R&D, but get on with installations in the meantime, so that we don’t delay urgently-needed rural energy services unnecessarily.

Joris van Dorp's picture
Joris van Dorp on January 17, 2015

Agreed. Rural people actually don’t really care about electricity for lighting a few light bulbs. They want electricity to run irrigation pumps, arc welding equipment, refrigeration units, basic stuff which will allow them to vastly increase their productivity, self-sufficiency and health.

The ideology whereby we attempt to coerce or reward such rural people into accepting feeble, unreliable and expensive energy is nothing but superficial elitist arrogance, which is a hideous scourge getting in the way of actually solving problems.

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