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The Multiplier Effect of Energy Access

The World Energy Outlook (WEO, 2016) states that in 2016, about 1.2 billion people (16 per cent of world population) did not have access to electricity and about 3 billion people did not have access to clean energy for cooking and heating, relying mostly on traditional and inefficient methods of using biomass, wood, charcoal or dung cakes.

In India, the NSS 68th Round Report (NSS 2012) reveals that 72.7 per cent of rural households used electricity as primary source of energy for lighting. Most of the remaining households used kerosene. Further, firewood and chips were used by more than two-third (67.3 per cent) of rural households. This is despite national level commitments and schemes such as LPG subsidy, Power for All, universal electrification and decentralised solar power programmes, all of which intend to provide reliable and clean energy to both rural and urban population of India.

Energy as an enabler

While we are aware of the dismal energy access scenario, we do recognise that energy is an enabler to foster economic development, create jobs, facilitate education and health services, empower women, ensure food production and water supply and perform many other actions required for overall development of societies. The relationship of energy with Human Development Index (HDI) is well known and established (HDR, 2016). In essence, energy forms the core of Sustainable Development Goals (SDG) initiated by the UN in 2015 and adopted by countries to end poverty, protect the planet and ensure prosperity for all (SDG, 2015). In fact, SDG 7 targets at ensuring access to affordable, reliable, sustainable and modern energy for all.

Despite the recognition of this catalytic role, energy access projects do not always make an attractive business case and banks and financiers still have barriers in including such projects in their lending portfolios. This is partly because the cost of delivering energy is usually high and the expected returns from the sale of electricity are low, increasing the risks on repayments of loans. The complex logistical and other local factors in most of the low energy access areas account for high project costs. The small quantum of energy delivered and consumed due to the use of energy efficient end-use appliances and limited ability of rural poor to consume and afford electricity, make the revenues small. So the ratio of numerator—overall project costs to denominator—delivered or consumed energy in the levelised cost of energy (LCOE) calculations is high, hence, energy access projects seem unviable.

Social rate of return for energy access projects

However, it would be interesting to compare energy access projects with infrastructure projects which are created as public goods and face the same challenge of being bankable. For instance, projects such as roads and bridges are constructed mainly for mobility and transportation. Their individual rate of return may not be high and may not cover the cost of borrowing funds, but their social rate of return makes these projects high impact or high importance due to multiplier benefits facilitated by mobility and transportation of goods and people. Is there a way to quantify the multiplier effect or positive externalities of energy access to capture the impact on communities and thereby make a better investment case for energy access projects? Can such projects be evaluated beyond the financial and economic rate of return? Can we define a social rate of return as a metric to evaluate energy access projects?

One way of understanding the multiplier effect is to follow Amory Lovins’ logic of negawatts or the positive impact of saving one unit of electricity on the entire electricity input-output flow (Negawatt Power, 2017). The logic of negawatts is basically a unit of power that is not used or saved and hence, it has multiple impacts on upstream (production) as well as downstream (conservation) energy flows. The cost of negawatts is calculated using Cost Effectiveness Analysis (CEA). CEA is a form of economic analysis that compares the relative costs and outcomes (effects) of different courses of action (Cost-effectiveness Analysis, 2017). It is often used in health services. For instance, it is measured as the ratio of gain in health due to certain measure (denominator) to the cost associated with this health gain (numerator).

Xegawatts, a multiplier for energy access

In the context of energy access, can a similar term—Xegawatts, where X stands for the multiplier, be thought of in a reverse manner. For example, how does one unit of energy given to a household trigger the socio-economic development of societies? And how does one energy access project stimulate creation of other allied businesses in the vicinity such as sale and servicing of end-use appliances, microenterprises and cottage industries? Can this trigger and stimulus be captured in the denominator as gain in socio-economic development due to energy access, to neutralise the impact of high numerator (overall project costs) on the ratio of LCOE?

Let us look at the upstream—supply side, and downstream—demand side, linkages of energy access through the lens of some of the flagship schemes of government of India. The National Rural Health Mission (NRHM) for instance aims at providing accessible, affordable and quality health care to the rural population, especially the vulnerable groups (National Health Mission, 2005). One of the key features to achieve the goals is to make the public health delivery system fully functional, which necessarily requires both electricity and thermal energy for providing effective sterilisation, operative and other services. Likewise, National Rural Livelihoods Mission (NRLM), (succeeded by Deen Dayal Antyodaya Yojana in September 2015), which is targeting at generating self-employment through the formulation of self-help-groups, depends on provision of reliable energy for several income generation schemes such as drying and packaging of local farm produce, handicrafts and cottage industries and kitchens for mid-day meals etc. There are innumerable examples from across education, housing, sanitation among other schemes that require energy as a critical input for their effective implementation (Pasternak, 2000; World Energy Outlook, 2004; International Energy Agency, 2010).

Upstream and downstream linkages of energy access

We had conducted a study in 2014 (ITP, 2014) analysing flagship schemes by the Indian government from the energy point of view on health, housing and livelihoods or the downstream linkages as mentioned earlier. The objective of the study was to understand how energy or the lack of it, is impacting these schemes in attaining their said objectives and what could be the possible ways to include energy planning as an integral component. A few field visits undertaken as a part of this study revealed the expected—primary health centres were running without electricity because either they were not connected to the grid or had defunct diesel generators without resources to either repair them or to purchase fuel, whatever the case may be.

We also studied the upstream linkages of energy access through solar schemes that are meant for providing reliable energy to decentralised and mostly rural locations. Poor market penetration and limited usage of solar energy systems in rural domestic, community and enterprise sectors point at unavailability on one hand to an absence of confidence on the other as possible reasons. However, the main findings of the overall analysis revealed the lack of thinking and understanding  at all levels of planning and implementation, on how energy interplays with water-environment-food-livelihoods matrix and acts as an enabler for achievement of all inclusive growth. It also indicated poorly designed energy schemes, unclear policy regulations and inadequate financial support for energy entrepreneurs to provide energy services reliably and viably. Though the study is dated, but the issue that was raised about institutionalising energy access and its multiplied benefits in the planning process of downstream activities, is still relevant. The partnership between energy and non-energy entities holds the key to institutionalising this synergy.

Partnership of energy and non-energy entities

Can we institutionalise the inclusion of energy access as a part of health or education or irrigation infrastructure planning? Can a rooftop solar plant be included in the design/construction process and budgetary estimates of a primary health clinic or rural school? We need to create platforms where the providers of energy, say solar companies and recipients of energy, such as food-processing units jointly identify and implement an energy access project that will maximise the benefits to both the entities and multiply their efforts. Energy access has to be considered as a means to an end and not an end in itself.

Energy access and off-grid renewable energy have become synonymous in today’s scenario where the latter is showing a pathway to sustainable growth of rural communities while addressing the challenges of climate change mitigation as well as adaptation. The off-grid energy, provided mostly by renewable energy technologies such as solar, wind and biomass have the potential to break the nexus of poverty and energy poverty as some successful examples around the world have shown (Yee, 2016).

Endnote

The discussion has pointed at a paradigm shift towards how energy access projects should be evaluated in order to make them strong business cases and scalable. These are
to quantify the multiplier effects of energy access and, to institutionalise the energy and non-energy partnerships for achieving the multiple impacts. There are several other innovative approaches to address the challenges of providing energy access to millions around the world. One of these is energy transition that focuses on ways to increase the energy productivity from a decarbonised, secure and reliable energy sector. An integrated mix of fossil fuel and renewable resources based technologies deployed through centralised and decentralised modes is a channel for this transition.

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