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Four challenges to powering local economies

Blog by Sarah Best, senior researcher at IIED.

There has been remarkable advances in energy access for rural households. But building the wider economy requires energy services that power new jobs and enterprises.

A rush of innovation in off-grid energy markets linked to falling solar prices and mobile-enabled payment schemes has led to an upsurge in clean and affordable energy access for households in poor or remote communities.

But how can this growth in household energy use be matched by ‘productive uses’ of energy (PUE) – powering local farms and enterprises and helping to build the economy?

Some solutions are emerging, providing energy for irrigating crops and processing food. But experience shows that an economy does not automatically grow by providing rural people with a power line to their village or installing a solar panel on their roof.

Catalysing PUE often requires extra measures to overcome barriers such as a gap in skills or financial resources. IIED’s global research and collaboration with Hivos under the Energy Change Lab in Tanzania is seeking to better understand the opportunities for PUE in rural settings.

Our work so far points to four key elements needed to drive PUE.

In-depth assessments, tailored guidance

Thorough, systematic assessments are needed to fully understand productive use opportunities in specific sectors and sub-sectors, such as small-scale fishing or agriculture.

Yet all too often, assessments do not really get to grips with the local context; a mini-grid developer, for example, may look at activities in the area and survey local people to understand their energy needs and ability to pay.

But to really understand how energy might translate into new jobs and income means exploring the untapped market, identifying where there are opportunities to strengthen existing enterprises or create new ones, and project the cost-benefits to different users (women, men, youth, farmers, shopkeepers, millers…).

Robust assessments also involve understanding non-energy issues such as the bottlenecks preventing swift delivery of goods to market (e.g. poor roads).

Sector-specific assessments can be complicated. For developers and NGOs in Kenyan fishing communities this is proving a steep learning curve.

An energy service might be designed differently if targeting fisherfolk selling into the highly commercialised, formal Nile Perch trade destined for international markets compared with the informal, low-value Omena (sardine-like fish) business for local markets. The role of men and women is different in each chain; negotiating power between different economic actors varies; and the management skills of local fishing bodies differ from one beach to the next.

These more in-depth assessments can be time-consuming – and therefore costly.

But developers and local partners must be prepared to take time to really understand where to direct investment for increased productivity. And, crucially, funders must be willing to allocate budget to help practitioners assess, measure and share data on PUE opportunities.

Limited guidance on how to carry out PUE assessments and support measures is a further challenge. There is some high quality guidance available but these are often geared to large-scale grid-extension by a big power utility, rather than decentralised energy by a start-up or social enterprise; nor do they capture the nuances of local contexts.

During an Energy Change Lab workshop in Dar Es Salaam with 40 energy enterprises, regulators and other stakeholders, participants said that more practical information and guidance on PUE opportunities for specific sectors and regions in Tanzania would really help shape their business models.

Driving demand

One of the biggest barriers to productive use is affordability and productive use technologies are more expensive than those for household use.

Developers need to know an energy service will be economically viable. This hinges on whether customers have enough money to cover the costs of using more power, or buying the energy products and equipment that run off it, such as a welding machine.

There are various ways to build demand. One approach is where energy providers identify an ‘anchor’ client – for a mini-grid, this could be a large tea estate or a local telecoms tower – that will generate enough business for the new energy service to make economic sense.

From here, providers can work outwards, providing affordable energy to smaller local businesses. The Mwenga Hydro project in Tanzania and Smart Power India are two examples.

Another tactic is providing business development services. This can range from local people learning about new tools for productive use – such as drip irrigation techniques – to training on how to run a business or manage financial accounts.

Two NGOs who have experimented with this in Tanzania are CEFA and ACRA, who set up community-run mini-hydro schemes in Njombe region. Again, this takes time and money, and local organisations in remote areas often lack expertise in rural business development.

Improving the affordability of PUE technologies and appliances such as computers or refrigerators is a further approach. This can be done by setting up funds or loans helping people buy products or encouraging energy providers or existing shops to offer these on a flexible payment basis.

A mini-grid operator holding data on customers’ payments could potentially use this as collateral for loans so customers can buy electrical equipment; or a solar pump provider could schedule repayments to coincide with the harvest, when people have more disposable income.

The right environment

Funders such as donors and government must support these two elements – funding PUE assessments and measures that will grow customer demand.

Meanwhile policymakers and regulators must create frameworks to encourage use of PUE technologies. Measures could include setting equipment standards or clarifying tariff-setting rules for mini-grid operators.

Commitment to collaborate

The need for cross-sector collaboration is a recurring theme. An energy developer may have limited knowledge of end-user needs and poor linkages with other non-energy services such as transport, women’s rights, water or information and communication technologies.

Energy developers cannot be expected to become experts on poverty reduction; others need to step in.

We need more joined-up thinking where energy providers work with government agencies, micro finance institutions, business development associations, civil society and the fishermen and farmers themselves.

This requires a major culture shift within the energy sector, lots of practical experimentation and close attention to the incentives and barriers that can help foster more holistic approaches.

With Hivos and the Energy Change Lab, we are designing a programme in Tanzania to support developers and other stakeholders learn and test out different approaches to PUE stimulation, leading to sector-specific guidelines. We are keen to hear experiences and ideas from businesses, researchers, NGOS and others in the field.

It’s an exciting time for innovators and practitioners working on access to energy. Productive use is the next big frontier – and collaborative working is key to moving energy access ‘beyond the household’ and improving livelihoods in poor, rural communities.

Sarah Best (sarah.best@iied.org) is a senior researcher working on energy in IIED’s Shaping Sustainable Markets research group.

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