Why it’s time to end the myth of the “energy poor”

Friday, 31 March 2017 11:30 GMT

A girl does her homework by candlelight at his home during a power cut in San Cristobal, in the state of Tachira, Venezuela, April 25, 2016. REUTERS/Carlos Eduardo Ramirez

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Electricity is not an unaffordable luxury for rural people - many are willing to pay

1.2 billion people lack electricity in the world today, and that number is set to rise as population growth outstrips new power connections. Nearly 1 in 4 of them are in India. 

Nothing has cursed efforts to provide electricity to these so-called “energy impoverished” than the persistent myth that the poor, particularly the rural poor, cannot afford electricity because it is too expensive.

This fable permitted electric utilities in the United States to deny rural customers connections in the 1920s and early 1930s. It enabled the Soviets to trumpet that only communism could provide universal electrification because communism didn’t require profits. The blind spot it created led post-World War II independence governments to postpone rural electrification on the grounds that it was an unaffordable luxury.

However, there has always been one big problem with this concept – it is demonstrably false.  

Whether rural electricity co-ops in 1930s America, or South Asian or African villages swapping dirty kerosene for less expensive, clean micro-hydro power in recent decades, the rural poor have shown repeatedly — if they aren’t denied finance and are treated as asset creators and not simply consumers — that they can and do pay, as long as there is a good offer on the table.

A MARKET IS EMERGING - FOR REAL

And now, with the rise of new business models, inexpensive solar technology, and increasingly available financing, energy poverty could be on the cusp of extinction as a real market emerges.

This shift is no place more visible than in India, where one company in particular, Solar Electric Light Company of India (SELCO), has been on the forefront of the transformation since its founding in 1995. And it has done so by primarily serving poor households that earn between $1 and $4 a day.

For the past nine years, SELCO has been continuously profitable. It is debt free. Over the last three years it has grown year-on-year at more than 20 percent and in 2016 reached revenues of 400 million rupees ($6 million) making a modest profit of 5 million rupees, and employing 350 people. 

Last year it became the only pure-play rural solar company in the world to offer dividends to its shareholders.

Since its creation, SELCO has installed systems in more than 425,000 households and 8,000 institutions. Importantly, local financial institutions have financed most of its customers; thus the poor have not only got access to reliable energy but they have also become financially inclusive in the Indian banking system. SELCO’s 60 offices for sales and service, what it calls “doorstep service”, are also all run by people from local communities.

Involvement of local banks has required persistence and creativity. For example, a peri-urban migrant slum community on the outskirts of Udupi wanted electricity. SELCO approached 15 financial institutions, and each refused to participate for various reasons: absence of land entitlements or collateral, perceived high risk of the community and transaction costs for a small loan size.

Eventually, however, Hamsa Chaitayanya Cooperative Society designed a loan product using a risk guarantee mechanism and flexible collection model based on cash flow, and 78 residents now have solar lighting systems.

Commented Sudheesh Nayak, founder and chairman of Hamsa Chaitanya, about the project: “It has made us more open to lending to vulnerable customer segments we may have overlooked earlier.”

SELCO is by no means alone. A wave of innovation in the energy access sector over the past five years has resulted in the emergence of dozens of companies and social enterprises in India, greater South Asia, Sub-Saharan African and globally.

They are banking on what SELCO believed from the beginning: that rural electrification is a very good business, because electricity enables communities to climb the ladder out of poverty. Investing in customers who are achieving prosperity is a very good business model. Much better than governments subsidizing dirty kerosene and diesel. 

Carl Pope is a senior adviser to the U.N. Envoy for Cities and Climate and the former chief executive officer of the Sierra Club