By Erick Ratajczak

Background: Pro-poor public-private partnerships (5P)

Traditional public-private partnerships (PPP) focus primarily on financial return and profits for the private sector. These types of projects are largely commercial and market driven. On the other hand, rural energy initiatives are often fully grant based with financial viability not a strong consideration as projects are framed to deliver a social good. However, public funds are often limited in most developing countries in the Asia-Pacific region, which slows down the development of energy access initiatives for rural communities. Recognizing the need for greater private investment to meet the persistent and large financing gap in the rural energy sector, ESCAP had worked together with the People-Centered Business and Economic Institute (IBEKA) in Cinta Mekar, Indonesia, on a Pro-Poor Public-Private Partnerships (5P) approach to widening energy access with locally available renewable energy resources. 5P aims to identify a blended financing approach where public sector funds are effectively leveraged to attract private sector funds. The 5P approach involves redefining the role of energy project stakeholders and focuses on community participation and ownership. In this context, a pro-poor approach to energy access places empowerment and socio-economic development at the centre of an energy project.

Building upon the pilot project in Cinta Mekar and with the financial support of the International Fund for Agriculture Development (IFAD), ESCAP has further piloted an integrated strategy for rural development by widening access to energy services through private sector investment in small-scale renewable energy-based electrification projects in Nepal and Lao People's Democratic Republic (PDR). The projects are located in three demonstrations sites, two in Nepal and one in Lao PDR. The first project, an 18kWp solar-PV microgrid developed in Baidi, Tanahun District, Nepal implemented by the Alternative Energy Promotion Centre (AEPC) was launched in October 2015. The system is jointly owned and operated by a private sector company, and the local community in partnership.1

Energy as an enabling factor in enhanced rural livelihoods

Lack of affordable, reliable, sustainable and modern energy is a key barrier to the most basic development. For millions of people, not having access to modern energy services means not having access to efficient lights, water pumps and agro-processing equipment (affecting agricultural and economic productivity), and not being able to keep shops open in the evenings. This also results in fear of accidents after dark and, in many cases, ending the productive day at sunset. In 2015, countries committed themselves to the 2030 Agenda for Sustainable Development with 17 Sustainable Development Goals (SDGs). SDG 7 focuses on access to affordable, reliable, sustainable and modern energy for all, with targets addressing energy access, renewable energy and energy efficiency (see Box 1).

The 17 SDGs are interconnected and indivisible; energy, the focus of SDG 7, is not only a goal in itself, but an enabling factor for sustainable development across sectors.

In rural communities across the region, there remains a heavy reliance on fossil fuel or traditional biomass powered applications (diesel, charcoal, fuelwood) and kerosene for energy needs. In fact, in Nepal, rural households can spend around 11 per cent of their monthly income on health-damaging and poor-quality energy sources, such as firewood, charcoal and, to an extent, kerosene. Moreover, households have reported spending 14 to 16 hours per month collecting wood and other biomass for cooking and heating. As an example, widening access to clean fuels and technologies, an often overlooked but important dimension within SDG 7, helps to reduce deadly indoor air pollution and can increase safety by eliminating kerosene lamps and other polluting fuel. This illustrates the clear connection to SDG 3 on good health and well-being, but also SDG 5 on gender equality, as women are often responsible for time-consuming collection of traditional biomass, which in turn limits the potential for other productive activities. With the introduction of the solar microgrid in Dubung, all households stopped kerosene use for lighting. As a result, the time children spent studying increased by an average of 10 hours per household,2 contributing to SDG 4 on quality education. In fact, 125 of 169 targets within the 17 SDGs are linked to energy.3 However, from the energy sector's perspective, SDG 7 is also reliant on other development sectors to enable sustainable development.

Productive end use of energy

The concept of access to energy tracked with a binary (access, no access) metric is the indicator adopted for SDG 7.1. However, measuring whether someone has energy access or not does not help us understand how access to energy impacts socioeconomic development. The development impact of energy services largely depends on other dimensions including availability, reliability, quality and affordability of the services.In this connection, understanding the role of energy in rural livelihood enhancement requires a discussion on the application of productive end use of energy (PEU). For this article, PEU is understood as “agricultural, commercial and industrial activities involving energy services as a direct input to the production of goods or provision of services.5

For example, organically grown opportunities emerge as a result of productive time beyond daylight hours. These activities are facilitated through reliable and modern lighting. During evening hours, handicrafts can be undertaken, to support income. In Baidi, for example, villagers use the light to weave traditional baskets to be sold at market during festival seasons. Another example can be found in poultry farming, nighttime feeding, which requires a few hours of light at night, can generally increase the overall feed intake for chickens, reducing the period from hatching to market from 3 months to 2 months.6 Overall, access to energy can trigger profound social and economic transformation by facilitating the introduction of new income generating potential, increasing economic productivity or adding value to production.7

Access to water is one of the most important factors for agricultural production and can, depending on the context, translate into higher yields as well as the potential for cropping multiple times in one year, including the introduction of high-value cash crops. In this connection, solar based-pumps can be a cost-effective and cleaner solution compared to prevalent fossil fuel powered pump. However, as solar pumps do not require fuel and have a lower operation cost compared to diesel, there can be a risk of unsustainable and excessive water withdrawal. This risk can be largely mitigated through a cross-sectoral approach in system implementation and planning, as well as measures which promote water-use efficiency and technology deployment, such as micro-irrigation.8  Farmers can add value to their crops before going to market through post-harvest processing. This includes milling, grinding, drying of products, such as maize, Job's tears or nontimber forest products (NTFP). Cold storage (refrigeration) prevents spoilage during and after processing of goods. In fact, approximately onethird of food produced for human consumption is lost or wasted globally, and in developing countries more than 40 per cent of this occurs at the post-harvest and processing stages.9 The opportunities are also not limited to the agriculture sector and include opportunities for micro and small business establishment. Ideas proposed by community members to establish businesses in Baidi include a tailor, an ironing-shop, a motorcycle repair shop and a copy-point. Although the potential ideas are endless, the limits of the energy system need to be considered to ensure that benefits are spread out among households, and not a redistribredistribution of wealth benefiting a few households.

Sustainability-led approaches to energy access

Communities have distinct social, economic, geographical and governance contexts, and thus we cannot assume each has the same energy requirement or will use energy in the same way. Energy systems need to ensure the needs of the end users are being met, without negative environmental impact. Ignoring the local context puts the sustainability of energy systems at risk. Energy systems which underperform or fail in the long-term, not only hinder the potential of livelihood improvement but also reduce confidence in clean and renewable energy in rural communities. There are various reasons why energy systems do not produce the intended socioeconomic benefits; these include:

  • Lack of community participation and preparation
  • Technology selection based on kilowatts and not actual need
  • Operation and maintenance of the system 
  • Financial viability of the energy system

Against this background, the 5P pilots emphasized the critical role of collecting the right information to make decisions and ensure the local community is equipped and empowered to harness the benefits of modern energy through community mobilization.

Meeting the needs of end users, requires understanding those needs through data and information collection and local engagement. For the 5P demonstrations sites, various assessments were undertaken in coordination with the local community and authorities. These included: (a) a socioeconomic survey to understand current household income expenditures and ability to pay for energy services; and (b) a feasibility/environmental assessment study which aimed to identify the energy technology most suitable for the ecological context. In the majority of cases, both of these assessments are common practice in developing energy projects; however, in order to have a comprehensive understanding of how energy services can enhance livelihoods a more holistic approach is necessary. For the 5P projects, this came in the form of a “Business Opportunities/Value-Chain Assessment”. This assessment, broadly covered the following categories:

  • Productive end use potential: Determine where sustainable energy could have the biggest impacts on income through market and value-chain assessment. For instance, identify whether there is demand for a certain product (agriculture, handicraft, livestock or NTFP) and the necessary inputs to bring the project to market.
  • Market assessment: Understand the nature of the market structure and agricultural value chain to ensure that farmers are equipped with the information necessary to be equal partners. This also requires identifying who are the stakeholders in the sector, including government agencies, which can provide the necessary support for agricultural production.
  • Cash-crop identification: In connection to the market assessment, identify potential cash crops that can be sold at market, including all the necessary inputs, such as access to seed and irrigation water.
  • SME potential: Identify alternative energy use opportunities. Productive use of energy is not limited to agriculture and various opportunities for small business exist. However, in order to ensure equitable access, business planning is necessary.
  • Source finance (microfinance): Identify sources for financing (microfinancing). With limited surplus capital to buy the necessary technology, lack of access to financing is a key bottleneck in scaling-up income-generating activities.
  • Identify skill and capacity gaps: Includes identifying potential operators and managers for the energy system, as well as entrepreneurs within the community.

Furthermore, lack of community engagement is another key risk to energy system sustainability. Human capital is a critical asset, and energy can be positioned as a tool of empowerment. For example, the outflow of young, enthusiastic and skilled young people from the community to settle in urban areas or abroad deprives a community of potential innovative new business and affects the relative energy demand of the system. However, energy is not enough, as there is a need to address fundamental living conditions in the community. This includes, access to proper hygiene and sanitation, access to health care, and provision of skills training and education.

A “win-win” approach with sustainable energy

The ability to pay for modern energy services in rural communities is a key challenge for decentralized systems. Tariff rates for decentralized energy services are often considerably higher than national grid tariff rates, while the population being served are likely to be situated at the lower levels of income scales. Moreover, it is a paradox that higherincome households tend to pay a smaller portion of household income on energy than their lowerincome neighbours. Therefore, building the capacity of consumers to establish new productive end uses has the dual benefit of increasing incomes as well as creating the demand for electricity.

From the end user's side, affordability of services increases with new income generating activities, and as reliable and modern electricity becomes an integral component of everyday livelihood activities, the overall commitment to maintaining an operational system over the long-term is increased. From an energy provider's perspective, basic household consumption is not enough to ensure a financially selfsustaining energy system. In Baidi, the energy demand is largely household consumption, albeit that a few small businesses, such as a cold storage shop have emerged. Thus, the demand for energy, or peak-load, averages around 9-10 kW. For an 18kWp system, the current demand does not maximize potential revenues. Thus, integration of productive energy-use activities is needed to reduce financial risks on the part of both consumers and the power service provider.

Conclusion and way forward

Governments need to create a policy framework to facilitate more cross-sectoral cooperation between development stakeholders, in particular the private sector, on sustainable energy development at community level. Often done on an ad hoc, project-to-project basis, a more institutionalized approach is necessary in order to reduce transaction costs and more efficiently coordinate the use of limited financial resources. This requires long-term and stable policy, ensuring that both off- and on-grid electrification is well planned and not in conflict. Potential outcomes, including rural development, increased agricultural productivity and poverty reduction serve broader development interests beyond energy production and consumption. Therefore, opportunities exist to collaborate across sectors on a common project that serves multistakeholder interests. Communicating the benefits of collaboration, as well as the lost opportunities or risks of operating in silos is an important step to ensuring that energy access can enhance rural livelihoods.

Ultimately, access to modern and reliable energy services is not a panacea to the challenges rural communities face. However, with a holistic understanding of the needs of local communities and a multitude of inputs, such as infrastructure, knowledge and access to financing, there is potential for profound development impact.

For more information on Pro-Poor Public-Private Partnerships (5P) please contact ESCAP Energy Division at: escap-energy@un.org.
(List of references can be made available upon request)

 

1 More information on the pilot projects is available upon request.
2 Data collected from household survey carried out in Baidi, December 2016.
3 World Bank, State of Electricity Access Report (SEAR) 2017. Available from http://documents.worldbank.org/curated/en/364571494517675149/full-report.
4http://www.worldbank.org/en/topic/energy/publication/energy-access-redef....
5 Definition from Productive Use of Energy (PRODUSE). Available from: www.produse.org.
6 Based on interview with poultry farmers in Baidi.
7 See a case study from IBEKA in separate box.
8 More information on solar-pumping can be found http://www.irena.org/menu/index.aspx?mnu=Subcat&PriMenuID=36&CatID=141&S....
9 FAO, http://www.fao.org/docrep/014/mb060e/mb060e00.pdf.