SandeepMS Final IRP Report

8/14/2019 SandeepMS Final IRP Report

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INDEPENDENT RESEARCH PROJECT

Energy and the rural poor A study

on the issues related to energy and

its relations with the rural poor with

an emphasis on access issues and itsrole in poverty alleviationSandeep Mysore Seshadrinath

PGDM(RM) II (u307045)

Project Guide: Prof. C. Shambu Prasad

Student Research Committee: Prof. D. V. Ramana

& Mr. Shreekumar

Xavier Institute of Management, Bhubaneswar


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Acknowledgements

I would like to take this opportunity to thank the entire think-tank behind formulating

and setting up the Individual Research Project for it has been a great learning

experience for me in more ways than one. I would like to personally thank Prof. C.

Shambu Prasad, Faculty Guide for his valuable, timely advice which helped shape the

research. I would also like to thank Mr.Sreekumar of PRAYAS Energy group for his

guidance. I also take this opportunity thank Prof D.V.Ramana, Faculty, XIMB for

being a part of the Student Research Committee. Last but not the least I would like to

thank the library staff.

Sandeep.M.S

10th

February, 2009


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Table of Contents

1. Introduction........................................................................................................... 5

a. Statement of the Problem ................................................................................... 6 b. Significance of the Problem............................................................................... 6

c. Purpose.............................................................................................................. 6d. Methodology ..................................................................................................... 7

2. Literature Survey................................................................................................... 8

2.1 Overview of Energy sector in India.................................................................. 8

2.2 Overview of available options for energy in Rural India .................................. 9

2.3 Poverty & Rural Energy, Human Development the nexus ........................... 10

2.4 Relationship between HDI & Energy............................................................. 11

2.5 Understanding Indias Energy Problem.......................................................... 13

2.6 Key Issues related to Rural Energy .......... .................................................. .... 14

2.6.1 Access Issues .......................................................................................... 14

2.6.2 Gender Issues.......................................................................................... 15

2.6.3 Health Issues........................................................................................... 152.6.4 Environmental Issues .............................................................................. 15

2.6.5 Technological Issues.................... ......................................... .................. 15

2.6.6 Role of Credit ......................................................................................... 162.6.7 Management Issues................................................................................. 16

2.6.8 Institutional Issues .................................................................................. 162.7 What do the stakeholders say? ....................................................................... 17

2.7.1 ENERGIA International Network on Gender & Sustainable Energy..... 172.7.2 Access to Energy in India Stakeholder dialogue ............................... .... 18

3.0 Status & Prospect of Energy Access .................................................................. 193.1 The situation of access to energy services ...................................................... 19

3.2 Basic needs of energy in rural areas ...................... ......................................... 20

3.3 The problems of increasing the ability to pay for improved energy services inrural areas............................................................................................................ 20

4.0 Overcoming the Barrier to Energy Access ......................................................... 22

4.1 The role of intermediation.............................................................................. 22

4.2 The role of subsidies...................................................................................... 23

4.3 Pricing ........................................................................................................... 23

4.4 The enabling environment ............................................................................. 24

4.5 The role of the energy regulator .......... ......................................... .................. 24

5. Models for Increasing Energy Services in Rural Areas ........................................ 25

5.1 Market-based models..................................................................................... 25

5.2 Government-led model .................................................................................. 26

5.3 Private company participation........................................................................ 26

5.4 Subsidies ....................................................................................................... 276. Learning from Experiences of other Nations........................................................ 27

6.1 Case of Chile promoting private investments .............................................. 27

6.2 Case of Nepal technological & managerial innovations............................... 286.3 Critical Success factors .................................................................................. 29

7. Policy Suggestions .............................................................................................. 308. Conclusion .......................................................................................................... 32

9. References........................................................................................................... 33


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Title: Energy and the rural poor A study on the issues related to energy and its

relations with the rural poor with an emphasis on access issues and its role in

poverty alleviation

Abstract

Rural India has been time and again excluded from the field of view of policy makers.

It is the consumers of commercial fuels who have been getting all the focus. Non-

commercial energy users, who happen to be poor or near-poor populace in the rural

hinterlands of India, have for long been neglected in the energy debate as it is

reflected in the acts that have been formulated thus far. The reasons for this

discrimination are a plenty & obvious. Ranging from non-affordability, improper

technologies to high transaction costs, people in rural areas have been kept literally, in

the dark. The implications of this can be clearly seen. Inhabitants of rural areas have

been depending on fuel supplies which are locally acquired (timber and other solid

fuels). The efficiency of these fuels is highly questioned. This has implications for the

environment and its bio-diversity as people have become largely dependant on theenvironment for their fuel supplies. With limited or no access to clean energy sources

- all these factors combined, the rural people have been thrown into a cycle of poverty

and neglect. A stunning correlation exists between access to energy and the level ofdevelopment. It has been long established that insufficient access to modern energy

leads to issues of low productivity, non-productive activities, gender issues andhealth-related problems. Some of the policy suggestions given are defining

monitoring mechanisms for energy access, increasing the capacity of the local peopleto handle new technologies, fostering innovative financing mechanisms like CDM,

improving credit delivery in the rural areas, etc. This paper looks at the issuessurrounding energy & the rural poor, with a special emphasis on issues of access to

energy.

Key words: rural energy, poor, poverty alleviation, access to energy


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1. Introduction

Poverty alleviation as we see it is not only the increase of monetary income, but refers

to improved access to education and health-care, credit, increased productivity and

modern sources of energy as well. The rural populace has been for long deprived of

clean energy sources. The problems & issues pertaining to this are a plenty and highlyinter-connected. It therefore becomes important to map the current scenario with

historical inputs and de-lineate the causal factors for a better understanding of the

problem. There are many issues concerning rural energy ones of technology,

management, types of fuel, access to energy etc.

Not having access to energy services is an important barrier to development. The

World Bank has estimated that there are nearly 1.7 billion people without access tomodern forms of energy, such as electricity and oil (World Bank, 1996). The

relationship between HDI and per capita energy consumption gives reason to believethat increases in per capita energy consumption for the poorest countries can lead to

tremendous improvements in the quality of life in these countries (UNDP, 1999).Improving household energy services can result in savings the new source replacing

more costly and less effective supplies. This is largely related to the intra-householddecision making power based on gender. Especially poor women are disproportional

victims of energy scarcity and of poverty in general. On the household level energy is

often not seen as a priority. This is expressed in their poor nutritional status, poor

health because of indoor pollution, and low literacy rates (Duflo et al, 2008). Girls

and women spend a lot of time in gathering wood fuel and cooking. This time could

be used for education or productive purposes. Womens time can be seen as an

important part of the energy crisis in rural areas. Not only because of the time women

spend to collect biomass, but moreover because of the labour that women do. Poor

rural women are a major target group of major poverty alleviation strategies this

mood is also reflected on the various debates (ENERGIA

1

).

But this need is not getting sufficient attention from the policy makers. There is a very

obvious bias towards commercial users of energy. The Electricity Act 2003, for

example has barely any provisions made for rural electrification barring mentions inthree sections (Sections 4, 5, 6). The focus of GoI programs hitherto have been on

Grid Expansion which has poorly fared. There are many other Off-Grid optionsavailable for providing access to energy in remote rural areas, but the existing

institutional support for these programs are minimal. The much hyped RGGVY2

scheme with the aim of electrifying all the villages has made tardy progress. All of

these are not encouraging indicators, especially at a time when energy has gained an

importance to an extent that achieving the Millennium Development Goals becomes

impossible without progress on the energy front.

Section 2 will discuss and summarize the rural energy sector, the nexus between

poverty & energy and some of the key issues with respect to rural energy. Section 3will look into the Status and prospects of energy access, while Section 4 will look at

different ways of overcoming the barriers to energy access. Section 5 discusses some

1International Network on Gender & Sustainable Energy

2 Rajiv Gandhi Gram Vidyutikiran Yojana which promises 1Kwh of electricity to every household


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of the existing models to increase energy services in rural areas. Section 6will presentcase studies from developing countries to look into the critical success factors. FinallySection 7 & 8 contain policy suggestions for developing countries.

a. Statement of the Problem

Rural poor do not have access to modern energy sources which is hampering their progress. There are many reasons attributed to this, but the main problem is the

problem of access, and understanding this problem is vital to formulate policies to

overcome these barriers of access.

b. Significance of the Problem

This problem is not new, access to energy and its role in poverty alleviation has been

long established. There have been many programs which governments around the

world have formulated and implemented, but with limited success. Some countries

have been successful in solving their energy problems while some are still lagging

behind by a huge margin.

More than 1.7 billion people around the world in developing countries how are

deprived of access to modern energy. It has been established that energy plays a huge

role in poverty alleviation. In fact it has been propounded that energy has a role to

play in achieving every Millennium Development Goal that the United Nations has

set for developing nations (reference). This gives us a very clear indicator on theimportance and significance of this study as we are trying to answer the question why

a large chunk of the world population is kept out of the energy pie.

c. Purpose

The purpose of this study is to get a better understanding of the issues surroundingrural energy and how it effects the rural population.

Firstly, the purpose of this study is to try and bring out the various dimensions of the

energy sector its surrounding issues. To explore the role and importance of issues

of access, and the role they play in poverty alleviation. This study also aims at finding

out the perspectives and opinions of the various stakeholders in of this debate,

especially from the point of view of the policy makers and grass-root level

implementers. Further, the voice of the developed countries will also be studied to see

what kind importance is being placed and given to energy issues in developing

countries. This study is also aimed at looking into success stories of other developingnations to analyze the critical success factors so that they could be implemented in

countries which have a poor track record. Las but not the least, this study will give usa sense of what the priorities should be for developing countries to solve their energy

crisis.


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d. Methodology

This study was done mainly using secondary data and previous research findings.

Hence the nature of this research is majorly qualitative analysis. Also, a couple ofprimary surveys which were carried out during the period of study have been used.

To understand the voice and mood of the policy makers many government

documents were consulted The Electricity Act, Integrated Energy Policy

Report etc. Also other discussion forums were scanned through to understand

what other stakeholders had to say about the priorities of the policymakers.

To understand the importance being given by the international community,

many publications of bilateral and multilateral agencies were consulted (UN,UN-ESMAP, UNDP, USAID/SARI etc). This gave an insight into the kind of

priority energy issues are having in the developed countries. Also discussionforums started by these agencies were consulted to understand the current mood

(ENERGIA).

Two surveys, one in Rural Orissa & another in Rural Andhra Pradesh which

were carried out during the period of study by a team of independent researcherswere also consulted to gain some micro-level insight into the issues, and to

corroborate with the macro level evidences which were seen as results of other

research documents.

To get an insight into the academic community and the current researchhappening in this field, journals like EPW and other international, independent

publications were consulted. A major source of research inputs would be fromA.K.N Reddys publications on Rural Energy.

To get a hang of the voice of the grass-root implementers and policy advocacyagents publications of PRAYAS (energy group) were consulted and also

interactions with people in Gram Vikas (an NGO based in Rural Orissa working

on issues of Rural Electrification) were carried out.

Lastly, the success stories of catering to the energy needs of people indeveloping countries will be studied. This will help in studying and knowing the

critical success factors which go into making a successful program. This can helpmake better policy suggestions.

This study had certain limitations, some owing to the kind of research itself. There

have been many studies conducted previously in this field, and hence a lot ofsecondary data sources are available. One of the important features of rural energy is thedependence on locally available biomass resources. Since they are collected at zero cash

cost, data collection on consumption is primarily recall-based. Similarly, local-level

supply and demand is difficult to capture. Hence, there is an inherent problem of dataavailability and authenticity. Micro-level experiences are at times contrary to the macro

assessments provided in many sources. The analysis done in this report has been presented with respect to the macro assessments and the micro-level evidences (specific

surveys and case studies) bringing out the weaknesses in types of data available and

assessments made vis--vis rural energy transitions. Also, there are no systematicapproaches to collecting data on energy access to the poor and the women in any

country. National surveys do not have specific questions to gather such information.

Their aggregated data lacks specificity on supply and consumption patterns in

different parts of a country.


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2. Literature Survey

2.1 Overview of Energy sector in India

India is literally running short of energy. The energy supply has not followed thetremendous demand in India, which has resulted in the fact that India has been

compelled to import a large amount of energy, especially oil and gas1. India stands

with a huge challenge to supply stable energy for its inhabitants for the years to come.

The Government has made strategic plans to supply energy to its power starving

country. In 2002 the 10th

Five Year Plan was made setting a target of adding over100,000 MW of capacity by the year 2012. The 12

thPlan is addition target (2012-17)

to be another 66,500 MW. Therefore the government has to rely on different sourcesof energy to fulfil the plan.

India has huge gap between demand and supply of conventional electricity and hence

renewable energy sources are being exploited. It is an important element of Indiaspower policy to meet the needs of power in an environmentally friendly way and to

provide power to remote areas.

Figure 2Source: Ministry of Power

The target is that 10% of the energy has to be covered by Renewable Energy by 2012.

In the past few years, there has been considerable growth in power generation based

on renewable sources of energy, which also plays a big part in the governments plan

(with the recently established Ministry of New and Renewable Energy). Current

installed capacity based on these sources is about 6,200 MW, of which wind powerconstitutes a major part.


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2.2 Overview of available options for energy in Rural India

Improved/Smokeless Chulhas

Poor families use energy mainly for cooking. The cooking stoves they use are mainlymade of mud and brick, and according to Duflo et al, they are 10-15% efficient. Thus,

the first technology to be considered for improved access in rural areas are moreefficient cooking stoves, called improved chulas (IC) in India, which continue to burn

wood, but have much higher efficiencies, reaching up to 40% (Duflo et al). Today, anumber of low-priced modern wood-fueled ICs have been developed, with

improvements based on enclosure to retain heat, maximization of heat transfer to the pot and improvement in combustion. Aside from being more efficient and thus

enabling women to spend less time finding wood, emissions of indoor pollutants are

also reduced.

Biogas DigestersBiogas digesters also hold great promise in delivering change in rural areas, especially

in India, where there are large amounts of cattle. Biogas is produced from animal and

human waste through a process known as anaerobic digestion, done with organicmatter. The marsh gas, or methane, produced, can be used as fuel, replacingtraditional biomass or even kerosene and LPG. Some of the advantages of biogas are

that there are lots of animals in India, thus it can be produced at low cost, and that the

technology to make biogas can be produced locally as well.

BiomassOther modern uses of biomass are also great alternatives for replacement of traditional

forms, especially in India. Alternative biomass consists mainly of agricultural

residues, like rice and coffee husk, and sugar bagasse. The biggest problem with

agricultural residues for energy is the low energy per volume, which makes it difficult

to handle and transport. One of the main advantages of biomass residues is that they

can replace traditional fuel wood directly.

Solar Energy

Solar Photovoltaic (PV) Panels have recently become a popular solution to targetenergy problems in disconnected areas. PV panels are particularly good for

applications like street lighting, community facilities, or solar home systems (SHS).This is different from hydropower, for instance, where a minimum size is required

and there are expansionary limits based on the size of the river and the capacity of theturbine. Another advantage of PV panels is that most of them have proven to be

reliable, durable, require low maintenance, and last up to 30 years. The main problems with PV panels for SHS are the high capital cost (as well as installation

cost), the need of a battery, which has to be replaced every four to five years thus

increasing operating costs, and the fact that they cannot be produced locally and thatspares are expensive. Larger PV panels can be used for electricity-micro grids,

although the technology might still be too expensive.

Wind EnergyA second technology that has become increasingly popular in the last years for rural

energy supply is wind energy. One of the main advantages of wind turbine generators

is that they can be used for both, a household system, or an integrated grid. In the

same way as PV panels, the more windmills are installed, the more energy is


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generated. One of the problems with wind, however, is its intermittence, and thus they

are not as reliable as other sources. Using wind for electricity might also be too

expensive due to the high replacement costs of batteries. However, for other

applications like mechanical energy for water pumping, wind can be extremely

beneficial. One final advantage of wind power is that the larger part of the structure

can be locally produced, with laminated wood, plastics and welded or galvanized steel

for the tower, and thus communities would only have to import the generator andgearbox.

Micro-Hydropower

For electricity micro-grids, there are two particular technologies that have a greatpotential in India: micro hydropower, and biomass gasifiers

3. The main advantages of

SHP are that hydropower is technologically mature, easy to maintain, reliable (as longas the river has a continuous flow), and has low operating costs. Its main disadvantage

is, similar to other RETs, the high capital costs. SHPs are particularly good for micro-

grids, but they can also be used for mechanical power.

Biomass Gasifiers

Another technology that could be used for production of electricity and has a greatpotential in India is biomass gasification. Biomass gasifiers basically convert biomass

into producer gas through a thermo-chemical process, the producer gas is then

cleaned, and then powers and internal combustion engine for generation of electricity.

This method is particularly good for small capacities in the kW range. Biomass

gasifiers are advantageous because they use local resources in a sustainable manner,

yet they have higher operation and maintenance costs and the technology is not fully

developed yet.

2.3 Poverty & Rural Energy, Human Development the nexus

There are many dimensions to poverty. Poor people live without fundamentalfreedoms of action and choice that the better-off take for granted. They often lack

adequate food and shelter, education and health. In particular in developing countriesthese basic needs are missing for the majority of people. In these countries causes and

results of poverty are difficult to discern. A framework which analyzes rural povertymakes use of the concept of assets as an explaining factor for poverty situations: the

diverse assets that rural people draw on in building livelihoods the ways in whichpeople are able to access, defend and sustain these assets and the abilities of people to

transform those assets into income, dignity, power and sustainability (Bebbington,

1999, p. 2028)4. However, there are different ways in which poverty has been

explained by making use of this concept.

3A biomass gasifier consists primarily of a reactor or container into which fuel (such as wood,

agricultural residues and coal ) is fed along with a limited supply of air. Heat for gasification is

generated through partial combustion of the feed material. The resulting chemical breakdown of the

fuel and internal reactions result in a combustible gas usually called producer gas.

4Bebbington, A. (1999) Capitals and Capabilities: a Framework for Analyzing Peasant Viability, Rural Livelyhoodsand Poverty. World Development 27 (12), 2021-2044.


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First, poverty might be explained by a lack of (access to) assets: even if resources are

present, there are many factors that could keep the poor from using them. Scarcity is

the characteristic of not having enoughit is not the characteristic of there not being

enough. Many other researchers also address the question of access to assets, and

apart from endowments (the rights people have to resources), emphasize entitlements

(the use people can make of these endowments). Entitlement issues are especially

brought to the fore-front in Development Projects (like Dam Constructions, Miningetc) Second, poverty could be explained by the low rewards peasants receive for their

produce, partly because the profits are skimmed by the market, by corruption, and by payments to landlords, partly be-cause the surplus itself is already low. Finally,

poverty could result from difficulties with storage. People might have access toresources and might obtain revenues, but this does not immediately mean their

revenues are safe: a small setback a year of drought, a flood, a war, theft, and adisappointing harvest can start a killing downward spiral. Vulnerability is one of the

keywords here.

Over the decades, many attempts to alleviate poverty have been carried out.

Campaigns against poverty have often bypassed and ignored the perspective of local

governments and the poor themselves. Their critical role continues to be forgotten andthus the effectiveness of poverty programs in reaching the poor continues to be

hampered. To be successful, development interventions should build on the

motivation of the people they target to work with. Also, appropriate interventions are

those that balance the priorities of the people with their assets. The chances of success

are clearly greatest when in addition the government has put in place an appropriate

policy framework, capabilities and resources. Since interventions must be in line with

poor peoples main concerns, it is important that they are consulted and given the

possibility to reflect their choices and the priorities they want to realize. Therefore itis important to take into account the needs of the poorest.

This pro-poor policy has a strong humanitarian argument, focusing attention on the

needs of the poorest. In this approach, GNP is not the main indicator of economicwell-being anymore. Economic growth should be seen as part of a much larger

framework. Poverty alleviation must be approached from a holistic view in which political, economic and social factors are included. This holistic approach makes it

possible to explain poverty through an energy focus: development and povertyalleviation are closely linked with the access people have to energy and the use people

make of energy. For development to be sustainable the access to energy services

should be sustainable, both socially, politically, economically and environmentally.

2.4 Relationship between HDI5& Energy

While the worlds average energy consumption is estimated at 1.54 tonnes of oilequivalent (toe) per person per year in 2004

6, there are wide variations between

industrialised countries and developing countries energy consumption levels. Per

5 The Human Development Index (HDI) is an index combining normalized measures of life

expectancy, literacy, educational attainment, and GDP per capita for countries worldwide. It is claimed

as a standard means of measuring human developmenta concept that, according to the United

Nations Development Program (UNDP), refers to the process of widening the options of persons,

giving them greater opportunities for education, health care, income, employment, etc.6Nation Master Statistics [ URL: http://www.nationmaster.com/ ]
http://en.wikipedia.org/wiki/United_Nations_Development_Programhttp://en.wikipedia.org/wiki/Human_development_(humanity)http://en.wikipedia.org/wiki/GDP_per_capitahttp://en.wikipedia.org/wiki/Educational_attainmenthttp://en.wikipedia.org/wiki/Literacyhttp://en.wikipedia.org/wiki/Life_expectancy


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capita energy consumption in USA for example, is about 7 times that of India and five

times the world average (see Figure 1).

Figure 1 (Source: worldpopulationbalance.org)

In the past 25 years, access to electricity and modern energy services have been

extended to over one billion people around the world. Commercial energy use by

developing countries has also increased at a rate higher than the OECD countries. Ona per capita basis, however, this has not resulted to equitable access to modern energy

services. About 2.5 billion people, mostly in developing countries, still rely ontraditional biomass fuels for cooking and 1.6 billion people lack access to electricity

(Modi et al, 2005) due to reasons of availability and affordability. There are also widevariations between energy consumption levels of the rich and poor.

On average, the poorest 2 .5 billion people in the world use only 0.2 toe per capita

annually while the billion richest people use 5 toe per capita per year, which is 25

times more. In terms of electricity consumption, the richest 20 per cent uses 75 per

cent of all electricity while the poorest 20 per cent uses less than 3 per cent (World

Energy Council, 2002).

Variations in modern energy consumption across countries partly explain the wide

variations in human development, even among developing countries. United States

uses about fifteen times more energy per person than does a typical developing

country. While its share of the worlds population is only 4.6 per cent, it accounts for

24 per cent of the worlds energy consumption and over 30 per cent of GDP. But the

least developed countries (LDCs) with 10 per cent of the worlds population account

for about 1 per cent of energy consumption and a mere one per cent of the worlds


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GDP (Huq, et al. 2003). Pasternak (2000) studied data of 60 most populous countries

in the world (excluding Afghanistan, North Korea and Taiwan for which the HDI is

not calculated) to analyse the relationship between electricity consumption and the

Human Development Index (HDI). The analysis revealed that a threshold of annual

electricity consumption of 4,000 kWh per capita is required to achieve an HDI value

of 0.9 or greater. Of the countries in the study with HDI below 0.6, 19 had annual per

capita electricity consumption of less than 1,000 kWh. Also it was found out that incountries where the HDI was less than 0.6, the main fuel used in the rural areas was

traditional fuel.

AKNR (undated) also studied the relationship between HDI & energy and found thatthe impact of energy on HDI depended on its usage. Also it was found that small

amounts of increase in energy resulted in high growth in HDI indicators, but again itdepended on the usage of energy.

2.5 Understanding Indias Energy Problem

2.5.1 Lack of energy in the rural areas

Although this paper is about energy needs, not necessarily electric connectivity,electrification rates are a good benchmark to measure urban-rural differences.

Currently, there are 1.7 billion people in the world who lack electric connectivity in

their homes, and four fifths of these people, or about 1.3 billion, live in rural areas,

most of them in Africa and Asia.1 It is important to note that even in rural areas where

electricity is accessible, connectivity is often severely interrupted, resulting in high

rate of burnouts of pumps, motors, and transformers as was observed in the primary

survey (Observations in Appendix I).

The main reason for lower electrification rates and higher costs in rural areas

worldwide is that grid extension is more expensive in rural than in urban areas. Thehigh transmission and distribution costs in rural areas make it unattractive, especially

since most people are poor and thus unable to pay for electric services (Haribandhu et

al, 2007). In other cases, when subsidized grid extension does reach rural areas, the

tariffs are too high for people to pay because the existent demand is too low.

2.5.2 Dependence on Traditional Biomass

Poor people lacking adequate energy services in rural areas rely mainly on traditional biomass: firewood, charcoal, and animal dung. Cooking is the main use of energy in

rural households, consuming up to 85% of the total energy use. Currently, about 2.4 billion people, mostly in developing countries, depend on traditional biomass,

representing 40% of the world population.

The use of traditional biomass is more prevalent in rural areas, simply because

biomass is more available and other fuels are harder to get. This number is greater

than the number of people who lack electric connectivity because cooking with

electricity is too expensive, and thus many people who do have electricity access

continue to rely on biomass until they move up to kerosene or liquefied petroleum gas

(LPG).


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2.5.3 Climbing the Energy Ladder

The energy ladder is a concept that describes the resources and end uses of energy

in poor rural areas relative to income, showing how poor people in rural areas meet

their energy needs as their income increases. For household use, the first footstep of

the ladder is biomass, with the second step being kerosene and LPG, and finallyelectricity. It must be noted that for different uses, like agriculture and small

businesses, there are variations to the energy ladder, particularly with the increasedused of animal and human power.

There are three issues of the energy ladder that are of paramount importance: the first

one is that biomass is the hardest footstep to move past because it is regarded asfree families in rural areas simply gather firewood, there is no monetary cost

involved. Thus, the idea of paying for technology, especially renewable energy

technologies (RETs, which have high capital costs), does not make sense for poor

people in rural areas. The second issue is that, as an International Energy Agency

report indicates, there is a widespread misconception that electricity substitutes for

biomass. Poor families use electricity selectively mostly for lighting andcommunication devices. They often continue to cook and heat with wood or dung, or

with fossil-based fuels like LPG and kerosene. Thus, moving up the energy ladder

includes both, innovative technologies for specific end-uses and modern improved

uses of traditional fuels. Finally, the third issue is that there is a misconception that

moving up the energy ladder is completely dependent on affordability (or income),

but it must be noted that availability and cultural acceptance are equally important.

2.2.4 Energy and Rural Development

Aside from cooking, energy could also benefit families in rural communities by providing thermal comfort and allowing them to pump water for drinking and

irrigation. Energy services also enable income-generating activities and micro-enterprise, a topic that will be emphasized strongly in this paper given that the most

effective policies for increasing energy access and electrification rates have to gohand-in-hand with increasing income, creating jobs, and empowering poor rural

communities. Some forms of energy (that are not electricity) for business in poor rural

areas can range from food processing, brick making, pottery and water pumping for

irrigation. In India, most of the energy use in rural areas is for agriculture irrigation,

and this energy is mostly met with animal and human power.

2.6 Key Issues related to Rural Energy

2.6.1 Access Issues

Access to energy is not all about bringing the power-grid to the rural areas, but it is

making energy available to those in need in various forms for a range of services. Theissue of access is perhaps the most long standing issue and also the most long

standing hindrance to poverty alleviation. Access to energy issues will be discussed indetail in the coming chapters.


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2.6.2 Gender Issues

The gender issues surrounding the energy debate are obvious and quite disturbing.

Among the 1.7 billion People who are without access to modern energy services, thehigher number and the most affected are women. Due to non-availability and lack of

access to modern energy around 2.4 billion people rely on traditional fuel wood,

charcoal, and dung, agricultural residues for cooking and heating which form the primary usage of energy in rural areas. Women are the primary energy procurers and

managers. For women, burden of household chores - fuel and water collection,

familial responsibilities -result in missed opportunities of education, livelihood and

other activities. Energy can not only save time for women, but also empower them.

Health risks from indoor air pollution (asthma and other respiratory problems) are

high as the chulhas used for cooking are inefficient.

2.6.3 Health Issues

At the local level, receding forests add to the drudgery of women who have to travellonger distances in search of fuel or, in extreme situations, are forced to switch toinferior fuels such as roots, weeds, leaves, etc. An estimated 84% of rural women

aged 10-59 years are affected by fuel-wood scarcity in India. Inefficient combustionof bio-fuels in traditional cook stoves produces smoke which can cause a variety of

respiratory illnesses (Esther Dufflo et al, 2008).

2.6.4 Environmental Issues

Biomass resources are at present being over-exploited. There is evidence that where

the land is already degraded, fuel-wood extraction can make things worse.

Deforestation and burning of biomass significantly contribute to greenhouse gas

emissions. In India it is estimated that of the 68.3 million tonnes of carbon releasedannually due to biomass burning, fuel-wood accounts for 82.3%.In addition to carbondioxide emissions, wood burning also creates the products of incomplete combustion

(PICs) which have a global warming potential as great as carbon dioxide. The waterretention of the soil is also reduced increasing the need for irrigation. Crop residues

not only maintain the organic content and humus of the soil, but also provide surfaceprotection. Thus a reduction in crop residues makes the soil vulnerable to erosion and

drought.

2.6.5 Technological Issues

There have been many technological innovations aimed at providing better energy for

the rural poor. But many of these initiatives have had limited success (for example

Biogas). This is mostly because of poor understanding of the needs of the local people

Biogas plant at Pura7

is an example (AKNR, 2004). The R&D and industrial set up

in developing countries, seldom promote the development of equipment, products and

technologies for alleviating the problems of the rural people. When such efforts are

made (for example in the case of alternative energy technologies), it is often on the

7 Pura is a village in Karnataka where a community biogas plant was setup during the 1970s.


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basis of a superficial assessment of the vast market potentialin the rural areas whichcould be profitably tapped, with subsidies being provided from government and donoragencies at the national or international level. The result is that such attempts usually

end up as dismal failures, and the blame is then placed on the lack of receptivity of the

rural people instead of on the lack of proper local assessment and planning and of

linkages with rural development programmes. Also, many times people friendly

technologies are not used and hence the interventions become useless. Even if thetechnology is simple and easy to use, there is no capacity building to enable people to

maintain the technology. The approach is predominantly Lab to Land and lacks acoordinated effort in R&D inputs from land to lab.

2.6.6 Role of Credit

Energy does not come free of cost. The role of private sector participation is seen as a

way of bringing in improved services and products. Even though highly subsidized,

they do come at a cost. The problem here is not necessarily that people are unwilling

to pay. Evidence suggests that people will spend a significant proportion of their

incomes on better energy, which improves their quality of life or enables them tobecome more productive (World Bank, 2005). In Bangladesh even the poorest people

are connecting to the grid when the service is available. In rural China, many peoplewithout easy access to cooking fuels are investing in efficient stoves and tree planting.

The problem is that rural customers often cannot get affordable credit. That makes itdifficult for them to pay the high start-up costs of improving their energy supplies.

2.6.7 Management Issues

Rural Energy systems, which are meant to cater to the energy needs of the rural poor,

are often faced with managerial issues when it comes to delivering the services in thelast mile which makes all the difference. Lack of coordination among the different

agencies coupled with ignorance of the beneficiaries result in effective

implementation of schemes and programs. There is a lack of trust among the

beneficiaries due to past history in the government institution. Malpractices by the

implementers have eroded the faith in the system. Lack of representation of the

community in the decision making bodies has hampered the success of programs and

initiatives.

2.6.8 Institutional Issues

For such programs and schemes to run effective a strong Institutional support and backup is essential. If there is anything wrong with the institutional framework, the

probability of success no matter how well the programs are structured are bound ot

fail. Government officials in rural areas frequently do not have training or knowledge

of energy planning and technology assessment or do not have the motivation to carry

out such energy assessment and planning by reaching out to the people. Voluntary

action groups and non-governmental organizations, because of their local presence

and commitment to rural development, can fill this gap by bringing together the

people and the programmes meant for them. However, voluntary agencies and NGOs


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frequently do not join hands with the Government machinery within the framework of

a common programme. Without a suitable coordination mechanism, the work of the

NGOs is often restricted to sporadic demonstration projects, which makes a limited

impact on improving rural living conditions through sustainable rural development.

2.7 What do the stakeholders say?

To know the current debates and issues in the rural energy sector, forums and

conferences focussing on the same were followed and studied. The following sectionis a summary of the opinions & points of views of the various actors in this sector.

2.7.1 ENERGIA International Network on Gender & SustainableEnergy

The energy solutions forum is an online platform for experts to share theirexperiences in the field of energy security and energy policies with respect to gender

and poverty. The creation of the Forum is the result of concerns that progress in

achieving the Millennium Development Goals will be hampered or even reversed

as a result of lack of energy supply in many rural areas in the region, coupled with the

food, fuel and financial crises. The Forum will push forward with new approaches

that will lead to pro-poor and pro-women energy policies and programmes. This e-

group has the potential to be a pressure group to influence policy makers and planners

to bring in appropriate incorporations which are relevant to the context. The value of

this knowledge and experience is invaluable as it adds a very practical dimension of

policy making and planning. The forum enables dialogues and the concerns of various

stakeholders can be addressed in a single place.

The main theme of current discussions is on gender & energy. As research suggests,

women bear the most of the brunt due to skewed access to modern energy. Listedbelow is a summary of the current discussions.

Most countries have made progress in enhancing energy access, especially with rural

electrification. However, per capita energy consumption remains low among the poorand there are significant gaps in electricity access with large numbers of populations

still without electricity8

and many that have access experiencing low quality of

service. High dependence on biomass fuels continues among both rural and urban

poor. Progress with achieving the MDGs has slowed down in most countries. MDG 1

of halving extreme poverty by 2015 is unlikely to be reached in the majority of

situations due to the direct and indirect impacts of high energy prices on living costs.Additionally, the unavailability of supply in many rural areas continues to be achallenge. On the other hand, the situation offers fresh opportunities to reduce fossil

fuel dependence by accelerating efforts to mainstream renewable energy solutions andimprove energy efficiency. In all countries, governments have responded with policies

and programme to enhance energy access. More attention is being paid the energy

8Rajiv Gandhi Gram Vidyutikiran Yojana (RGGVY) which promises 1Kwh electricity per household

has made little progress. There have been many questions raised on its implementation.


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needs of the poor, although financing investments to meet their needs remains a major

barrier. Since many policy initiatives and programmes to enhance energy access

among the poor are relatively new, their impacts are yet to be assessed. To the extent

privatization can improve the energy access of the poor and women it can raise their

incomes, improve their living conditions and social status, and help draw them into

decisionmaking affecting their lives. However, this depends on whether privatization

is able to reduce losses and increase energy supply, whether subsidies are maintained by the state, and whether private energy providers channel subsidies to the poor. As

can be inferred from the discussions, the evidence so far is not encouraging.

2.7.2 Access to Energy in India Stakeholder dialogue

Business, government and other stakeholders discussed ways to provide affordable &reliable energy services for currently underserved populations in India.

Representatives from the private sector, government, and non-governmentorganizations, and multilateral financing institutions came together for a one day

stakeholder dialogue on access to energy in India.

The participants agreed that the key challenges for India are reaching to remote areas,developing financially viable models, and scaling-up the existing pilot initiatives

scattered across the country. The discussion mainly focussed on understanding the

Government of Indias ongoing efforts to reach remote rural areas, on exploring

business models for sustainable energy services and identifying the enabling factors &

incentives to scale up to the successful models. In this regard, panellists stressed the

importance of creating strong entrepreneurial franchise models, carbon credits that

enhance project viability and sharing experiences from various parts of the country

and elsewhere in the world.

The key speakers in the dialogue were representatives from the Ministry of Power,Government of India, the Chhattisgarh State Renewable Energy Development

Agency, the World Bank, the International Finance Corporation, Asian DevelopmentBank, private sector representatives from energy & financial institutions,

representatives from the non-government organization sector such as, the READFoundation, REEEP, and GVEP Foundation etc.

Government Agencies

The representative from the Ministry of Power spoke only about access to gridelectricity, and only electricity as a source of energy. Also, issues of energy

efficiency were discussed in the context of commercial energy users. The bias

towards only grid electricity and the neglect of off-grid power still persisted.

Private Sector

The common thread of grouse running through representatives from the private sector was the present disincentives for private companies to enter the

rural areas.

High degree of political interference and bureaucracy resulted in slow

progress. Policy environment and institutional structure not conducive for private

companies to enter rural areas. No long term political commitment/will to

support private sector there is a sense of missing trust.


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Also, the role of finance and promotion of micro-entrepreneurs to take up

responsibilities in this sector was stressed. It was deliberated that finance played

an important role in bringing about an enabling environment for improved access

to energy. There have been programs started as part of CSR of companies and

other profit making enterprises where energy (bio-gas, solar) and energy

appliances are made available at lower prices.

Non-Governmental Organizations International NGOs

The main theme of presentations of NGOs was on increasing the energy

security and promotion of renewable sources of energy.

NGOs also stressed the role of innovative finance mechanisms9

to promote the

Increase penetration of CDM10

projects in developing countries

Non-Governmental Organizations Indian NGOs

The Local NGOs stressed more on their role in facilitating the initiatives ofgovernment programs. For NGOs, matters of energy used to stop at issues like

bio-gas and chulhas. But with the introduction of programs by Ministry of New

& Renewable Energy (MNRE) and other business models, the role of NGOs is

getting clearer.

3.0 Status & Prospect of Energy Access

From the extensive literature survey it is quite evident that the most looming issue

facing the Indian rural energy sector, and also perhaps in most of the developing

countries is the issue of access. From here onwards we dig deeper into the issue of

access to energy and associated topics.

3.1 The situation of access to energy services

When approaching energy for rural areas many people think of this in terms of

provision of electricity or bringing in the power grid. But energy covers a number

of different forms, for example, direct light, heating, cooling, shaft power as well as

electricity, and for a huge number of different tasks (cooking, lighting, water pumping, refrigeration and communications) and end-users (domestic, businesses,

basic social services, transportation etc.). Because energy is just the ability to work,demand for energy is a derived demand people do not want energy in itself but the

energy services provided. This wide range of services is made possible by differentfuels and technology and can have a major impact in facilitating livelihoods,

improving health and education in rural areas of developing countries and helping toreduce poverty.

9Innovative mechanisms like Carbon credit

10 The CDM allows net global greenhouse gas emissions to be reduced at a much lower global cost by

financing emissions reduction projects in developing countries where costs are lower than in

industrialized countries.


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3.2 Basic needs of energy in rural areas

The benefits deriving from energy services are often diverse and complex. They range

from: The direct benefits of contributing to increased production and reducing

sweat energy The contribution that energy can make to health and human capital, for

example in terms of pumping water or provision of lighting and other servicesto health facilities and schools

More intangible benefits of security (via street lighting, back-up energysupplies, or pumped water reducing risks from drought)

A sense of inclusion in the modern economy (via communications media).

3.3 The problems of increasing the ability to pay for improvedenergy services in rural areas

Large numbers of people in effect suffer from a vicious circle of energy povertywhere they are energy poor because they do not have the means to buy improvedenergy services, even if they have access to them (in the sense of being in close

proximity to a supply). Furthermore, even people who can afford improved energysupplies still may not be able to afford the conversion technology that makes that

energy useful (for example, a stove, radio, light bulb or motor) [Refer Figure 3]

Increased access to money becomes crucial because improved energy services at the

household level frequently necessitate switching to an energy technology that costs

money from one that does not. Even where improvement in lighting results in cash

savings because the new source replaces more costly but less effective supplies (such

as batteries and candles), there is frequently a net increase in money expenditures

because people make more use of the improved energy services.

This means that attempts to reduce energy poverty (particularly using electricity

supply technologies) face a particularly difficult issue in terms of the stated preferences of intended beneficiaries. When rural people express their needs for

improved energy services they often give high priority to lighting, a perfectlyunderstandable position for those forced to live much of their lives in the

semidarkness provided by candles or kerosene. But the most financially sustainabledecentralized electricity supply options are likely to be those which provide power to

productive enterprises that can sell their products/services profitably.


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Figure 3Source: (ESMAP World Bank, 1999).

Generally village wealth will not increase unless goods and services can be sold

outside the village this implies that roads and transport are likely to be necessarycomplementary inputs.

An important conclusion follows from this the cycle of energy poverty will often be

broken only by combining improved energy services with end uses that generate cashincomes. These are likely to be the productive energy end-uses that enhance

production activities, either by increasing productivity, extending the range of outputsor improving output quality. This might be labelled a virtuous circle and is

illustrated in Figure 4.

Clearly the vicious cycle of energy poverty (as with other forms of poverty) can be

broken through the redistribution of wealth by means of grants and subsidies. But the

level of funds available from government, aid donors and non-governmental

organizations is likely to be far less than those required to provide all people with

adequate energy services.

There is a further consideration, that is, when planning pro-poor energy interventions

it is important to consider the means of using the energy to secure cash incomes at an

early stage of the development process, and only subsequently to see how the impact

of improved energy services can be extended to the other aspects of sustainable

livelihoods. It has proven extremely difficult to produce financially sustainable results

with energy projects if they are started with the mind set of social development(akin to feeder roads, clinics and schools) that are free at the point of service. Such projects often fail when the governments, aid agencies and NGOs who finance such

schemes initially cannot sustain their support for recurrent expenditures.


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Figure 4

Source: (ESMAP World Bank, 1999).

4.0 Overcoming the Barrier to Energy Access

4.1 The role of intermediation

There are clearly many ways in which the overall energy supply and use system might

be conceptualized. The most effective method with which to increase energy services

in rural areas is the policy instrument. The approach extends the idea of financial

intermediation, technical intermediation, social intermediation and organizational

intermediation.

Financial intermediation: involves putting in place all the elements of a financial package to build and operate decentralized rural energy supply companies in

place.

Technical intermediation: involves both improving the technical options by

undertaking research and development activities and importing the technology and

know-how down through the development of capacities to supply the necessary

goods and services.

Organizational intermediation: involves not only the initiation and

implementation of programmes, but also lobbying for the policy change requiredto construct an environment of regulation and support in which the energy

technology and the various players can thrive. This involves putting in place thenecessary infrastructure, and getting the incentives correct in order to encourage

owners, contractors, and financiers. Organizational intermediation must includethe development of regulatory support and incentive structures, which can

specifically address the energy needs of the poor in rural areas.


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4.2 The role of subsidies

In addition to overall poverty in rural areas, the number and range of intermediation

tasks, low density of demand and remoteness of location, raises the costs and reducesprofitability of energy supplies to rural areas. Furthermore a certain amount of social

overhead investment11

almost always has to be put in place to support such schemes(training, technical assistance, capacity building within communities). The burden of

these overheads will be particularly high for innovative schemes, though they mayeventually be spread across a large number of enterprises.

If the cost of energy is too expensive for poor people who need it, then the issue of

subsidies and/or grants cannot be avoided. The political acceptability of subsidies has

undergone wild fluctuations in recent years. All governments provide subsidies, and it

is clear that some have done more harm than good (destroying markets and benefiting

people who are already better off). However, the essential question that has emerged

is as to whether a particular form of subsidy is actually likely to achieve its intended

purpose.

The arguments for using money that is supplied at less than full commercial rates ofinterest are overwhelming if large numbers of people are to be given access to

improved energy services. This soft money will be required to enable people with

insufficient purchasing power to gain access to electricity, and to other more

convenient forms of energy.

If the case can be made for subsidies, experience suggests that the use of soft money

can both help the expansion of decentralized energy supply options and harm them.

As always, the devil is in the detail and in the specifics of each context.

Hence the phrase smart subsidies (ESMAP World Bank, 1999) has been coined to

put some distance between current forms of subsidy and the earlier forms, forexample subsidies on grid-based electricity, kerosene and diesel, that have been

shown to stultify innovation, destroy markets and support the already more well off.

4.3 Pricing

Perhaps, one of the most critical issues in rural energy development is the non-

monetized nature of many aspects of the rural economy, in particular, the bulk of

energy supplies in the form of fuel-wood and other biomass fuels. The limited cash

that rural people do have needs to be spent on a variety of goods: because energy hastraditionally been considered a free resource, it may not enjoy the highest priority. At

the same time, the introduction into rural societies of modern energy sources carries acash price.

While the ability and the willingness of rural people to make the transition from

traditional to modern energy sources may be contingent upon their financialresources, their prospects of achieving higher income levels are, in turn, often

11Social Overhead Investments are investments in sectors such as education, health which affect and

support the Directly Productive Activities


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constrained by the extent to which such a transition is achieved. Energy and rural

development may thus find themselves in a state of mutual dependence, and represent

one aspect of the poverty cycle that pervades many rural areas. Breaking this deadlock

is one of the major challenges faced by developing countries in developing their rural

areas12

.

Pricing rural energy services is a dilemma issue. High prices for the services will bebeyond the affordability of rural people and low pricing will result in it being difficult

to induce the necessary investment from commercial banks and private investors. Inmost cases, the immediate priority of dealing with rural energy poverty is to provide a

minimum amount of energy to meet peoples basic needs, irrespective of their abilityto bear the costs of supply and delivery.

So subsidies on prices are one measure used to lower the cost of energy service in

rural area. For example, in the Chinese village solar power programme

implementation, the government proposed a price subsidy, so that the rural people

only pay the operating cost, and the government will pay the investment cost.

4.4 The enabling environment

The local government clearly plays a crucial role in the provision of subsidies, even

where it has been rolled back from direct involvement in providing energy services

to poor people. However, subsidies should not be considered in isolation from other

aspects of government intervention. Although the climate is growing more favourable

to decentralized energy supply options, in most countries the existing regulatory

framework is often the major barrier to such development. It can be hostile,

contradictory or uncertain. Taxes and subsidies still often undermine markets, rather

than encourage them. The supporting infrastructure of training institutions or finance

may be non-existent or inaccessible. Competitors may be able to gain privileged

access to subsidies that enable them to sell their products below cost. Without changesto this policy environment, the flow of private sector finance and innovation will be

restricted. These are the areas currently at the focus of much analysis, innovation and

reform.

4.5 The role of the energy regulator

The overall role for an energy sector regulator in a liberalizing power market is to

ensure a levelled playing field and to overlook the proper functioning of the power

market.

12 Hence a pointer in this regard would be to look at income generating activities which make little or

no use of fuel


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5. Models for Increasing Energy Services in RuralAreas

As the world suddenly entered an era of rising energy prices and unstable petroleum-

based fuel supplies, these factors threatened to accelerate the perceived gradual

environmental depletion associated with rural peoples heavy reliance on fuel-woodand agricultural residues to meet their basic energy needs. As supplies of petroleum-

based fuels became more costly and unreliable, it was believed that people would

have to switch back to traditional or nature energy sources.

Therefore the option in the most developing countries became to increase energyservices by using different business models.

5.1 Market-based models

There are very limited successful stories for increasing energy services in a

sustainable fashion to rural areas using a market-based model, due to the distributedservice and limited profit on investment in this area. However, international aid

agencies have developed several market based business models to increase energyaccess to rural areas. The general implementation flow of most market based models

is shown in figure 5.

Figure 5Source: ESMAP, 1999

Other market-based models could be the concession approach and rental

approach as shown in figure 6.

Figure 6

Source: ESMAP, 1999*VPS means Village Power Supplier


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A concession approach has been demonstrated in Argentina, where an award would

be given to the most qualified RESCO13

bidder to provide the energy services as a

regulated monopoly in a certain areas and over a certain number of years thereby

operating in a controlled free-market environment. The tariffs should be real,

reflecting the actual costs of service, but subsidies for electricity used could be

extended to the poorest (based on household spending for lighting in the absence of

electricity or on household willingness to pay) and then reduced over time during theconcession period.

5.2 Government-led model

A government-led model can take on several forms. For example, for the Mexico

PRONOSOL programme, the government maintained control of the programme and

the private sector only participated as a vendor of goods and services and never as the

owner-operator. A bottom-up approach was taken allowing awareness building on

RE and participation of communities, and this effort has increased the rural

electrification level with over 40,000 solar home system (SHS) disseminated.

Figure 7Source: ESMAP, 1999

In this model, the government is the financial agency and the installation companyand the local service company play a crucial role for supply energy service in the rural

areas. However, the sustainability of this model depends very much on continuinggovernment support.

5.3 Private company participation

Increasingly in developing countries the task of ensuring adequate energy supplies is

being left to the private sector. This is primarily the result of structural adjustment

programmes, central to which is the privatization of publicly owned utilities and the

elimination of costly subsidies. In the absence of carefully defined contractual

13 Renewable Energy Service Companies

Government

Budget

Selecting the

installation

companies by

bidding

Install

systems for

rural areas

RESCOs


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relationships between the new private utilities and the state, reliance on the private

sector to provide energy services to the rural poor may result in their continued

neglect, since potential returns on investment in rural areas may be lower than in other

areas, or non-existent in some extreme cases. Despite this there are examples of

private commercial RE successes in the provision of energy services in rural areas:

SELCO (Solar Energy Light Company), active in India, Sri Lanka and Vietnam, and

SOLUZ are good models, using fee-for-service and customer financing and leasingapproaches.

5.4 Subsidies

Finally, subsidies, which are provided by the central and local governments, are one

of the most popular economic incentives for increasing energy for rural areas in

developing countries. The typical subsidies are as follows:

Management and administration: Governments would finance the agencies,

which manage the energy planning, regulation and price as well as other services forincreasing energy to rural areas, such as IREDA and the Ministry of Non-

conventional Energy Sources (MNES) of India.

Direct cost for R&D: There are some subsidies for rural energy research and

development in many developing countries.

Projects subsidies: In some cases, special financial agencies have been set up for

rural energy project financing, such as IREDA in India, which offers soft term loans

varying at present from 2.514 per cent. Since 1987, IREDA secured international

funding for the solar photovoltaic and thermal, small hydro and wind sectors through

the World Bank and the Asian Development Bank.

6. Learning from Experiences of other Nations

Success stories from across the world where developing nations were able to caterto energy requirements of the poor in a large way had a common thread running

through them political will of the respective governments & innovative practices.Tackling issues of access to energy which are multi-dimensional and interconnected

calls for innovative, out-of-the-box solutions. We look at two cases in particular, oneof Chile in South America and one of Nepal.

6.1 Case of Chile promoting private investments

Chile, one of the earliest and most thorough energy reformers, has also been one of

the more innovative in restructuring its subsidy schemes. It has seen electrification asa key measure in alleviating poverty in rural areasin 1992 about 47 percent of its

rural population had no access to electricity. Its rural electrification program includessubsidies designed to be consistent with the broad principles of energy reform

decentralization of decisions to the regional and community level, competition(between technologies as well as suppliers), and a requirement that all partners in the


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processusers and private companies as well as the statecontribute to the financing

of expansion projects. The short-term result: an increase in rural electrification of

about 50 percent in the first five years of the program.

In the 1980s Chile liberalized its markets, privatized state-owned electricity

companies, and allowed the private sector the key role in investment. Before selling

the electricity companies, the state split them into generation and transmissioncompanies and distribution utilities. The distribution utilities were divided according

to the areas in which they operated, but no exclusive distribution rights were granted.The National Energy Commission was created as the main policymaking and

regulatory body. A new electricity law established free entry and competition ingeneration, a nonexclusive concession system for distribution, and a pricing scheme

based on marginal costs, with generation charges reviewed every six months anddistribution charges every four years. Rural electrification in Chile had traditionally

been the domain of the state-owned power companies, which followed centrally

developed plans and relied on subsidies from the central government or cross-

subsidies from tariffs set above cost in urban areas. Lack of funding and pressure

from other priorities made electrification slow. By the early 1990s more than 1

million people almost half the rural populationstill had no access to any source ofelectricity. By contrast, 97 percent of urban households had electricity supply. The

lack of access was concentrated in a few regions where most of the rural population

lives. It affected mainly lower income families, since the wealthier could usually

afford to install generators or pay for extension of the distribution grid. To increase

rural access to electricity, Chile launched a rural electrification program in 1994. The

design of the program is compatible with the overall electricity sector reformsthat

is, based on competition, private investment and decentralized decision-making.

The program has increased the coverage of electricity systems in rural areas from 53

percent in 1992 to 76 percent at the end of 1999, exceeding the 75 percent target setfor 2000. And it has shown that it is possible to create market incentives that lead to

efficient private solutions to rural electrificationan important lesson at a time whenso many developing countries are reforming their power markets and privatizing their

state-owned electric utilities. Another innovative aspect of the program has been theuse of competition. It has successfully introduced competition at several levels:

among communities, for financing for their projects among distribution companies,

for implementation of their projects and among regions, for the funds provided by the

central government.

6.2 Case of Nepal technological & managerial innovations

Innovations in Rural electrification

Technological InnovationsIn urban areas, electricity is distributed at either 400 V or 11 kV. Beyond about a

kilometer range, 400 V lines have excessive voltage drop. 11 kV lines present

practical problems to supply the low but highly dispersed loads in the rugged hilly

rural terrain. Keeping this in mind, a 1 kV system was used where many line

accessories for 400 V lines were used. This extended the service distance from about


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1 km to about 5 km. Furthermore, a 1 kV system discouraged theft of electricitybecause tapping these lines did not give consumers a usable voltage.

Managerial Innovations

Electricity Users Organizations (UOs)

As mentioned above, building rural electrification networks is expensive. Operating

these networks is also very labour intensive. The UOs, established by the powercorporation, mobilize local resources for construction of lines in the form of labor and

local materials. During maintenance, these UOs carry out simple maintenance of thesystem and collect dues and deposit them in the company offices. For their

contribution to the operation of the network, 10% of the fees collected are refunded tothe UO. The UO uses this fund to pay a serviceman to carry out the tasks. In addition

to reducing the cost of constructing and operating the network, the UOs helpchannelize the social capital in the villages and instil a sense of ownership the

distribution system among the consumers.

Motivators

Motivators are local youths who have been trained to familiarize rural consumers with

various aspects of electrification such as safety, end use promotion, tariff etc. Variousmethods like drama, presentations, house visits, and demonstrations are used as

motivation tools.

6.3 Critical Success factors

The policy makers and the implementers have shown Commitment,

Dedication & Motivation in all the studied programs. Nothing much depends onthe kind of model being followed, but the social, economic, cultural and political

environment which matters along with national resolve

Dynamic process since the nature of the issues in this sector, the policies and

rules should not be rigid and by the book.

In a country as diverse as ours, there should be a National Plan or regional

plan with detailed strategy with priority setting and multiyear targets

Subsidy should be efficient, equitable and effective. However it should not

lead to subsidy dependency syndrome.

As it was reflected in the stakeholders dialogue, the process of village

selection should be transparent and the criteria should be dependent on financial

viability of investment. This will help in reducing political interference

Favourable climate for investors in DG and rural industries

Policies encouraging investment - income tax exemptions, licensingexemptions, single window clearances.

Financing schemes from rural banks and other financial institutions.

Charging the right price is the key to financial sustainability

o Affordability is the issue well targeted subsidy is required. Regulator

plays important an important role in this

o Lifeline rates for the poorest


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o Connection charges sometimes is issue for taking supply

o willingness to pay study is useful in judging peoples capacity and

willingness to pay

o Revenue from customers not from subsidy is necessary

Customer focus

o Consumer grievance redressal mechanismo Easy bill payment procedures

o Credit for connection charges

o Maybe prepaid cards and spot billing

o Awareness campaigns for connections, increasing loads and customermeets involving the communities

Capacity building of the local community and community workers.

Community participation- need for participatory planning

Encourage PPPP - Public, Private, People Partnership

7. Policy Suggestions

Governments and donors need to define specific time-bound targets, allocate

resources and define monitoring mechanisms to address energy access for thepoor as part of their efforts to achieve the MDGs. Countries like Brazil and China

have shown the political will and are succeeding in delivering energy access tothe poor.

Governments, international development agencies and donors need to scale up

investments targeted specifically at decentralised renewable energy systems in

line with the challenge to limit the expansion of energy poverty which will occur

if action is not taken in rural areas. Existing successful examples and expertisearound the world should be leveraged.

Specific support is needed to facilitate the mobilisation of local indigenous

funds to contribute to closing the funding gap of energy for the poor. The

international financial institutions and donors can play a facilitating role and

should support developing countries in this area. The mobilization of these

resources would require appropriate mechanisms and enabling institutional and

legal frameworks not only at national, but also at local levels.

Developing countries need to allocate funding and resources to create localcapacities and promote energy literacy to ensure the effective involvement of

local women and men and their organisations in the energy planning and decisionmaking processes. Capacity and knowledge are the key elements to empower the

poor to participate in the energy debate - and in the production, implementation,

operation, maintenance and use of local energy infrastructure.


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The most important existing financing mechanisms such as the CDM14

, the

GEF15

and the new Clean Energy Investment Framework of the World Bank

should be regularly assessed against their real impact in addressing energy

poverty and ensuring access for the poor. This review process should be inclusive

and should result in the modification of procedures and mechanisms in order to

enable small and non conventional energy programmes targeted to the poor to

receive adequate funding. Likewise the proportion of pro-poor energyinvestments should increase consistently with the magnitude of the current

challenge. This is urgent if the funding gap is to be bridged

As part of a comprehensive international review on energy for sustainable

development by 2010 governments and donors should report on progress made toaddress the energy access agenda -including progress made by multilateral

organisations- specifically in terms of funding for small decentralised solutions,

community capacity building, leverage of local indigenous financing and the

achievement of national energy access targets.

14 Clean Development Mechanism15

Global Environment facility helps developing countries fund projects and programs that protect the

global environment.


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8. Conclusion

A key form of intervention in the bid to increase the access of rural people to energy

services is financing. Many renewable technologies best suited to providing energy

services to remote rural areas use non-monetized fuel, but have a prohibitive initialcapital cost. At the same time, many developing country governments are actively promoting the replacement of fuel-wood by subsidizing other energy sources.

However, the success of such fuel substitution and energy access programmes basically depends on two factors largely beyond government control: economic

growth and the corresponding increase in personal incomes that would permitconsumers to switch fuels. The substitution process in many countries is hampered by

high import costs resulting from the inefficient procurement of small quantities ofrenewable energy technologies.

Subsidies are a conventional means to overcoming the financial obstacles, but this

approach presents various difficulties. The welfare objective embodied in subsidies

for rural electricity, or commonly used fuels such as kerosene, LPG and diesel, canoften fail in its purpose, because of the diversion of these energy sources to

unintended uses, or their disproportionate use by the more affluent, who could

anyway afford the real costs of energy supply.

A reduction or removal of pricing subsidies to overcome this problem is, however, not

straightforward because of its potential adverse impacts on the poor. The partial

withdrawal of kerosene price subsidies in Sri Lanka and Myanmar, for example,

forced people in some rural areas to return to the use of fuel-wood. Both these

countries suffer from deforestation and this could have serious environmentalimplications for them in the long run.

Private sector participation is always the most important option for energy access torural people, and in the most of the developing countries, private investments becomethe crucial measure to ensure the energy supply to rural people.

There is a clear need for planning integration between rural electrification authorities,

ministries and transmission and distribution system operators. An independent or

semi-independent energy regulator, being an essential partner for the national

government in implementing the energy policies, should be handed the mandate and

the resources to coordinate the consultation process.

In summary, rural development/poverty alleviation in general and rural energy

specifically need to be given much higher priority by policy makers and regulatory

agencies rural energy development must be decentralized to put rural peoplethemselves at the heart of planning and implementation and rural energy

development must be integrated with other aspects of rural development & poverty

alleviation. Meeting Indias energy challenges requires a radical scaling-up of access.

This requires improved enabling environment, effective policy and regulatory frame

work, improved management capacity and healthy financially utilities.


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Documents

SandeepMS Final IRP Report