Thanks for the feedback on yesterday’s post – let’s continue this mini-series of posts on energy. A new paper from the energy wonks at the World Bank. ‘The Economics of Renewable Energy Expansion in rural Sub-Saharan Africa‘ asks whether renewables (solar, hydro, wind and so on) are mainly an issue for the rich north, or a potential solution to energy poverty in poor countries.
The authors argue that, whether through carrots or sticks, the pressures on poor countries to decarbonize are likely to grow: “we are moving into an era when zero- or low-carbon renewable energy will command a market premium based on its ability to reduce global greenhouse gas emissions (GHGs) by replacing fossil fuels. This premium may be realized directly, for example through imposition of carbon taxes on fossil energy sources in developed countries, or indirectly, through payments for “offset” emissions due to substitution of renewable for fossil fuel as implemented in the Clean Development Mechanism (CDM) within the UN’s Kyoto Protocol for GHG control.”
What does the report conclude?
Short Version: Accelerating development in Sub-Saharan Africa will require massive expansion of access to electricity – currently reaching only about one-third of households. The authors conclude that decentralized renewable energy will likely play an important role in expanding rural energy access. But it will be the lowest cost option for a minority of households in Africa. Decentralized renewables are competitive mostly in remote and rural areas, while grid connected supply dominates denser areas where the majority of households reside (and urbanization is only likely going to increase). They conclude that there is a need to de-carbonize the fuel mix for centralized power generation as it expands in Africa at the same time as promoting renewables in remote areas.
Slightly longer version: “We have tested the conventional view that renewable power remains too costly for large-scale applications in countries where poverty alleviation is the primary objective. Current power grids draw heavily on fossil power sources and are clustered in densely-populated areas, where fixed costs can be amortized over large numbers of consumers. However, the incremental cost of electric service rises rapidly as the grid is extended to settlements whose population falls along a standard rank-size distribution. In contrast, wind and solar power, exploitable in stand-alone units or minigrids, may be broadly distributed across rural areas. Diesel generator power is potentially available anywhere.
Even if a renewable power source has a higher unit production cost than fossil power, it may be cost-competitive in many areas once its local costs are compared with those from extension of the centralized grid.
In the Ethiopian case, we find that decentralized wind power is already cost-competitive with power from an extended central grid in a 
large share of the country’s area. Estimates for Ghana and Kenya—not discussed in the paper but summarized in Appendix 2—show similar patterns. We also find that solar photovoltaic power may become competitive in large parts of the country.
But our scenarios, based on realistic unit costs, also show that for a majority of households, decentralized power supply is unlikely to be cheaper than grid supplies any time soon. Levelized costs for wind energy are very low, but wind potential is limited to a relatively small share of each country. Solar PV would cover less than ten percent of all households under realistic technical change scenarios over the next 20 years. Furthermore, carbon taxes or equivalent premiums for renewable investments are unlikely to make the difference.
Two more general conclusions are warranted: First, stand-alone renewable energy technologies will be the lowest-cost option for a significant minority of households in African countries. These will be mostly in rural and more remote parts of the country.
Second, the economics of grid-supplied electricity in more densely populated areas remain compelling, especially as the concentration of population in Africa is likely to increase rather than diminish (World Bank 2008b). From a climate change perspective, therefore, our analysis highlights the importance of reducing the carbon intensity of grid-supplied energy generation.” [or as Gordon Gecko almost said, ‘grid is good’….]
John Magrath, our in-house renewables watcher, is a bit mystified by this approach:
“Decarbonising the grid is the big issue for rich, developed countries if they are serious about tackling carbon emissions, hence climate change. Providing energy to energy poor people in rural sub-Saharan Africa right now will add barely a jot to carbon emissions. And even decarbonising SSA’s urban grids, while important, is like the parable about advocating removal of a mote from someone else’s eyes whilst being blind to the beam in your own.
You have to feel glad that the Bank is acknowledging renewable energy has a place. However, campaigners would no doubt wearily ask, so why don’t they put more of their money where their mouth now is? The Bank is still fossil-fuel fixated in its loans, as illustrated in new report from Friends of the Earth US – Capitalizing on Climate: The World Bank’s Role in Climate Change & International Climate Finance.
the other energy issue
And second, this purports to be a paper on Renewable Energy Expansion in Rural Sub-Saharan Africa – so why does it only do half a job? The Bank seems fixated on electricity, as if that is the only form of energy that matters. In rural SSA just as urgent a need is to find energy sources and technologies that will replace biomass and three-stone stoves for cooking, and electricity won’t do that.
It’s also important to think through the different uses of electricity and different ways to provide it. You can distinguish between the small amounts needed for household lighting and how to provide that (e.g. solar lanterns), the larger amounts for schools and clinics (e.g. solar panels/small wind) and the even larger amounts needed to power machinery (for which, frankly, diesel is best). Too many schemes in rural SSA muddle them all up and end up doing nothing very well. (See the new book by Teo Sanchez of Practical Action, The Hidden Energy Crisis, how policies are failing the world’s poor).”