Sustainable Energy Enables Sustainable Development

Reid Detchon and Yasemin Erboy

Development and access to modern energy services – electricity and clean fuels – are inextricably linked. Energy is necessary for development, and sustainable development depends on sustainable energy.

Yet that linkage has not always been well recognized. The Millennium Development Goals (MDGs) notably failed to include energy, which has sometimes been called “the missing MDG.” To date, the MDGs have focused more on the human building blocks of development, especially health and education.

Energy is essential to providing adequate health services and enabling students to thrive, but it is better understood as a precondition to economic development and poverty eradication. Thus, the United States invested in the Rural Electrification Administration in the Depression years of the 1930s in what proved to be a spectacularly successful attempt to improve the lives of dirt-poor farmers. Recent electrification programs in China and Vietnam have also produced impressive gains.

These examples may have been seen at the time as social welfare programs, but in fact they were long-term investments in economic growth, similar to investments in infrastructure like roads and bridges. A new model for such investment can be discerned from the recent explosion of mobile phone use in developing countries – for, unlike roads and schools, providing access to modern energy services is a viable business that can generate financial returns.

Even the very poor already pay for energy: they pay too much, and receive too little. They pay for charcoal for cooking and kerosene for lighting – about $37 billion annually, according to the International Finance Corporation – and they suffer lung disease and premature death due to these poor-quality, dirty fuels. A recent report from the World Health Organization found that household air pollution is responsible for 4.3 million premature deaths annually, more than malaria and HIV/AIDS combined.

Energy is better understood as a precondition to economic development and poverty eradication.

The poor also pay too much for electricity. In remote areas where the power grid does not reach, electricity is available from diesel generators at costs unthinkable in the developed world – two or three times the level in the EU, which itself is roughly double that of the United States. Where the grid does reach, the tariffs may be lower but the supply unreliable – making it difficult or impossible to sustain a business without a supplemental generator.

However, it appears that mobile phones proliferated in the most unlikely places precisely because the poor are willing and able to pay modest prices for modest amounts of electricity. The amount of money already spent on rudimentary, unhealthy sources of energy represents a substantial and largely untapped market for the private sector to deliver better alternatives.

In 2011 the International Energy Agency estimated that investments will need to average $48 billion per year to provide universal access to modern energy services by 2030 – one of three objectives set by the Sustainable Energy for All initiative, led by UN Secretary-General Ban Ki-moon and World Bank President Jim Kim. If the $37 billion now spent by poor people could be redirected to better options – like solar lamps and propane stoves – combined with the $9 billion now spent annually in aid and investment by multilateral organizations, governments, the private sector and bilateral donors, that annual target becomes eminently achievable.

The IFC reports that the number of mobile phone subscribers in Africa has been increasing at a rate of 30 percent for the past 10 years. On a continent of 1 billion people, of which some 73 percent live on less than $2 a day, the user base was forecast to hit 735 million in 2012. A similar trajectory can apply to stand-alone technologies that are becoming more viable and prevalent every day – as exemplified by members of the UN Foundation’s Energy Access Practitioner Network.

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A non-profit, d.light, which provides solar lanterns priced similarly to a cell phone, has already provided 10 million people with access to clean energy and aims to reach 50 million by 2015. For larger systems, companies are now providing a range of solutions to the challenge of upfront cost. “Grameen Shakti” has reached the poorest of Bangladesh with multiple end-user financing options, from a “pay-to-own” leasing model to sharing one system between two households – providing less energy per household, but higher affordability.

Perhaps the most ingenious innovation in end-user financing is applying the increasingly popular “pay-as-you-go” model to electricity, via mobile money. Mobile phones need electricity to stay charged, so piggybacking energy access onto the mobile phone boom can help the two services reinforce each other.

Such strategies hold the promise of sparking a virtuous cycle of sustainable development from energy access from the bottom up – using solar-powered water pumps to increase farm yields, refrigeration to preserve produce, televisions to provide small-scale entertainment venues. To be sure, this must be coupled with other necessary infrastructure improvements, but as people gain more income, they can participate and invest in their health and education, and begin to achieve increased prosperity.

Ensuring universal access to modern energy services should be part of the new post-2015 Sustainable Development Goals.

Getting the still relatively small-scale market penetration of stand-alone solutions on the same trajectory as mobile phones will require a number of interventions. These include removing or limiting subsidies for charcoal and kerosene; reducing tariffs on imported goods for energy access; complying with global product quality standards; and building local supply chains, maintenance, and service capacity for long-term sustainability. Mainstreaming innovative financing, and familiarizing local banks with lending to small and medium-size enterprises are also crucial components of market development.

Ensuring universal access to modern energy services should be part of the new post-2015 Sustainable Development Goals, along with the other objectives of Sustainable Energy for All – doubling the share of renewable energy globally and doubling the rate of improvement in energy efficiency by 2030. Understanding that providing these services – even to the rural poor – can be a sustainable business, will also facilitate public and private investment and speed economic development for all.

Reid Detchon is Vice President, Energy and Climate, at the United Nations Foundation. Yasemin Erboy is a Senior Associate for Energy and Climate.

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