Why integrated planning is key to truly transformative electrification

Energy provision is a means to an end: a way to provide the services like cooling, lighting and communication that families, communities and enterprises need. The health and economic crises caused by COVID-19 sharply outline the importance of providing resilient power for critical infrastructure including health centres and medical equipment, but also for building and diversifying income sources to help provide a basic safety net for those who have the least.

Universal electrification has rightly become a rallying cry and global progress has accelerated. Recent accounting suggests that before the current crisis, countries were close to mobilizing the $51 billion needed annually to achieve electricity access for all by 2030. The bulk of this funding has gone to new electricity generation, but there is an increasing recognition of the need for complementary investments in transmission and distribution.

A systemic view of energy planning balances supply and demand to optimize cost-effectiveness. A developmental view seeks to match supply to energy services that generate the greatest social and economic benefits, described for example in Sustainable Energy for All’s Integrated Electrification Pathways. How should we best marry the two?

In order to be cost-effective and truly transformative at local community levels, electrification must be paired with good demand planning. The right solutions are not always evident: low-power solar home systems don’t meet the needs of most income-enhancing (productive) appliances, while high-quality on-grid or minigrid connections for all households may be slow to arrive, unreliable, or cripplingly expensive.

Better demand planning can help reduce costs by over 20%; getting it wrong can mean financial disaster. A growing body of work is addressing areas like demand prediction and identifying users with greater ability to pay; this is already helping governments and utilities direct investments in energy supply to the users who are ready to buy power immediately.

But even the best efforts to predict demand can miss many users. Electrification in rural areas may be the most difficult. Often, this involves reaching cash-poor rural communities, with low population density, in countries with limited financial resources. Subsidies will be needed – as they have been in rural electrification throughout the world – and national governments will be under pressure with their limited financial resources to show impact.

But even then, these communities may struggle to see the full benefit of electrification, at least initially. For example, analysis shows that in Kenya, demand peaks at lower levels among recently added – and hence probably poorer – customers.

Truly integrated electrification planning therefore needs to go beyond predicting demand, to actively engaging consumers and communities at the outset of planning efforts and enabling them to use electricity productively and effectively. This is already recognized in the rapid increase of activity around the ‘productive uses of energy‘, a term used to describe the application of electricity to income-generating activities such as agricultural processing, or essential services such as health and education facilities.

National electrification efforts should be designed together with productive use programmes that address primary challenges:

– Identifying opportunities, value chains and new markets, especially among rural agricultural communities, recognizing that many farmers have both farm and non-farm income.

– Supplying affordable, appropriate appliances with quality standards for consumer protection.

– Providing low-cost, appropriate-duration finance to enable users to access the electricity-enabled equipment they need to increase their income and/or reduce drudgery.

– Recognizing that in some contexts there are highly gendered income-generation activities and opportunities and ensuring that productive use efforts are designed to capture this.

– Supporting communities and enterprises in capturing these opportunities.

Facilitating the uptake and use of modern, efficient, electricity-dependent appliances particularly to increase agricultural productivity and add value in rural areas is crucial. Recent analysis in Ethiopia shows the scale of the opportunity: using electricity to irrigate horticulture and power milk-collection centres can unlock an estimated $2.5 billion in agricultural revenues, while baking bread and injera (Ethiopian flatbread), washing coffee beans and milling grain can add another $1.5 billion per year. For rural smallholders, switching from diesel to electric milling can save 90% of the energy cost and reduce particulate emissions, while the new mills have a manageable 18-month payback period.

More broadly, across developing countries, switching from hand milling to use of electricity, on or off the grid, saves not only time and produces higher output but also reduces backbreaking effort for the mostly women farmers who undertake these laborious tasks.

Utilities and energy providers have a direct interest in demand stimulation; helping smallholders electrify the six value-addition areas above can provide a $22 million revenue stream for Ethiopia’s utility by 2025. For this reason, they have often been on the front line of these activities. In Malawi’s Ndawala programme, the national utility helps fund wiring and appliances for those in newly electrified areas, and the business models for a number of minigrid projects are focused on supplying anchor clients – sometimes owned by the minigrid developer themselves.

These activities will not arise automatically, and today are highly constrained. Without access at local levels – not only in Addis Ababa but also in local towns – to an assured supply of quality electric mills and accessible and affordable financial solutions to buy them, it is hard for a farmer with new access to electricity to replace the diesel systems mostly used today.

Microfinance institutions (MFIs), which represent 98% of the national loan portfolio in Ethiopia, report that they barely finance electrical appliances for agriculture. There are not currently any product standards to guarantee performance and the business models aren’t well understood. Even where MFIs are willing to finance products, demand is weak, because community sensitization around business opportunities is still nascent. And finally, the national supply of appliances numbers in the tens and hundreds, including manufacture and import, which remains a far cry from the many thousands that could help transform rural areas.

In Ethiopia, as in many other countries across Africa, there is still a need for more systemic approaches to achieve sustainable impact from energy-access programmes and to maximize opportunity. In practically every country, resources are already flowing to agriculture, business support, health and education. Aligning these more effectively with electrification planning can provide the funding the sector needs, reduce costs, and provide crucial income for electricity suppliers.

Integrated planning therefore needs to focus not only on supply but on well-choreographed work across ministries and include non-energy sector stakeholders to create and maximize new opportunities jointly, through matching new supply with productive use programming. This can help ensure the maximum social return on investment, while enhancing revenue for electricity providers.