Here's how to power local economies, cleanly

by Sarah Best | International Institute for Environment and Development (IIED)
Thursday, 8 September 2016 13:53 GMT

A woman carries Nile perch landed at Got Kachola, Kenya, where Renewable World, a non-governmental organisation, is establishing community-run energy hubs for fish chilling and other local energy needs. Photo: Sarah Best

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Rural homes have seen remarkable advances in access to clean energy. How can businesses do the same?

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 – those that power local farms and enterprises and help build the economy?

Some solutions are emerging, providing energy for irrigating crops and processing food. But 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.  This requires overcoming barriers such as a gap in skills or financial resources.   

The International Institute for Environment and Development’s work, in collaboration with Hivos, points to a few key elements needed to drive growth of clean energy for business.

IN-DEPTH ASSESSMENTS, TAILORED GUIDANCE

Thorough assessments are needed to fully understand how energy is used in specific 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 assessing the cost-benefits to different users, such as women, men, youth, farmers, shopkeepers or millers.

It’s important also to understand the other bottlenecks, such as bad roads, that keep goods from getting to market.

Sector-specific assessments can be complicated and for solar start-ups in Kenya's fishing communities it 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 so businesses can grow. And, crucially, funders must be willing to allocate budget to help practitioners assess, measure and share data on opportunities.

DRIVING DEMAND

One of the biggest barriers is affordability is that the products that provide businesses with energy are often more expensive than those used in households.

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 to buy 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.

Another tactic is providing business development services where local people learn about new tools– such as drip irrigation techniques – or how to manage their financial accounts. 

Making appliances, such as computers or refrigerators, more affordable is a further approach and can be done through funds or loans to help people buy products. 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.  

COMMIT TO COLLABORATE

The need for cross-sector collaboration is a recurring theme. 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, lots of practical experimentation and close attention to the incentives and barriers that can help foster more holistic approaches. 

It’s an exciting time for innovators and practitioners working on access to energy. Energy to power business in rural areas is the next big frontier   ̶   and collaborative working is key to moving energy access ‘beyond the household’.

Sarah Best is a senior researcher working on energy in IIED's Shaping Sustainable Markets Group.