Trump government: ending energy poverty will "require fossil fuels"

The new U.S. National Security Strategy (NSS), despite international consensus to the contrary, codified the Trump administration's commitment to pushing a fossil-fuel first strategy overseas for achieving universal energy access, which it claimed is pro-growth.

"U.S. leadership is indispensable to countering an anti-growth energy agenda that is detrimental to U.S. economic and energy security interests," says the NSS, which was released this week. "Given future global energy demand, much of the developing world will require fossil fuels, as well as other forms of energy, to power their economies and lift their people out of poverty."

Further, it says that the United States "can serve as a model to other countries" by reducing "traditional pollution" and greenhouse gases while expanding the economy (which it says must free of "onerous regulation").

The Trump administration was widely criticized at the Bonn climate negotiations last month for promoting what it called “efficient” use of coal, nuclear energy and natural gas as an answer to climate change.

The International Energy Agency (IEA) said in a recent report that "decentralised systems, led by solar PV in off-grid and mini-grid systems, will be the least-cost solution for three-quarters of the additional connections needed" to achieve Sustainable Development Goal 7 (SDG7) by 2030.

 

 

Nigerian Mini Grids Conference Day 2: Overview of Off-Grid Opportunities and Challenges in Nigeria

logo_1.png

The second day of the conference provided several encouraging developments with 600 participants in attendance including: developers, investors, financiers, regulators, policy makers, technicians, geospatial scientists, civil society, and development partners.

The event started with a welcome address by the Minister of Power, Babatunde Fashola, and the Managing Director of the Rural Electrification Agency (REA). The Minister was impressed by the turn out to the event and the large number of mini-grid developers present. He highlighted the cost effectiveness of mini grids in rural areas over grid extensions—as well as for industrial and market clusters and educational institutions. He commended the REA and the World Bank for setting up the event and noted his ministry would provide necessary support for the sector.

An introductory video, highlighting the activities of REA in electrifying market clusters across the country was played, followed by an opening speech by the Managing Director of the REA, Mrs Damilola Ogunbiyi. Mrs. Ogunbiyi provided an overview of the off-grid opportunities and challenges in Nigeria and highlighted the potential of the mini-grid sector— specifically mentioning the following points:

  • Nigeria will need about 10,000 mini-grids across the country
  • Mini-grids will be a cheaper option for consumers as well as more profitable for mini-grid developers/operators
  • The Nigerian Electrification Plan is valued at $350 million with $100 million set out for mini-grids
  • She commended the new mini-grid regulations as some of the best in Africa—emphasizing that the the off-grid market was finally starting to be taken as seriously as the on-grid market
  • Tier 1 solar home systems for households and Tier 2 for MSMES will lead to a 50% reduction in electricity costs
  • Mini-grids being developed will target productive use of electricity particularly agriculture

The Nigerian Country Director of the World Bank also gave an opening speech inviting developers to take advantage of the opportunities and available finance in the sector.

The event then broke into five panel sessions for the rest of the day, including the following topics: creating an enabling regulatory landscape for mini-grid development in Nigeria, the ease of doing business in Nigeria, access to finance, engagement with states on their rural electrification plans, and collaboration with DISCOs.

There was much discussion in response to the panels including: how the new regulations are among the most private sector conducive mini grid regulations in Africa—beyond cost reflective tariffs; the various avenues for access to equity-debt-viability-grant financing, how to collaborate with the DISCOS when the main grid arrives, and incentives to the private sector— specifically the need for a structural framework to improve the ease of doing business in Nigeria.

Closing remarks for the day were given by the Sanusi Garba, the Vice-Chairman of NERC, and Jon Exel of the World Bank.

The Delegation of the German Industry and Commerce in Nigeria also held a stakeholders event on “Enabling Photovoltaic (PV) study in Nigeria”, organized in cooperation with the German-Solar Association, the Renewable Energy Association of Nigeria, and the Nigerian German Business Association, on the sidelines of the World Bank/REA ESMAP conference. The stakeholders event provided in-depth analysis on the potential for solar business in Nigeria. Representatives of the German Solar Association held a presentation on Nigerian-German solar business potential, members of GOPA Intec Nigeria discussed the Nigerian On-grid solar PV market, Solynta Energy representatives explained the success factors, challenges, and opportunities for entering the Nigerian solar market, and the Renewable Energy Association of Nigeria (REAN) examined the potential of solar business cooperation between Nigeria and Germany.

The presentations were followed up by a panel session on the Nigerian PV market with representatives from the Central Bank of Nigeria, GIZ NESP, Pan Africa Solar and the Department of Renewable Energy and Rural Access from the Nigerian Ministry of Power. Some of the outcomes of the event were focused on pre-identified issues facing the solar PV sector in Nigeria, as well as how to help compare and explore the market barriers to Solar development in Nigeria, and the need to encourage a strategic partnership between Nigeria and Germany to encourage growth in both countries. 

The Nigeria Mini Grid event is coordinated by the Rural Electrification Agency (REA),  the Energy Sector Management Assistance Program (ESMAP); through the UK DFID-supported Global Mini Grids Facility and the Climate Investment Funds (CIF).  

Nigerian Mini Grids Conference - Day 1

Screen Shot 2017-12-07 at 1.49.52 PM.png

Today, Power for All attended the Nigerian Mini-Grids Conference in Abuja organized by the World Bank and the Nigerian Rural Electrification Agency. The event began with sessions on scaling mini-grids and cross learning from countries with renewable energy programs—as well as a software demonstration by our partner HOMER Energy. 

Our team also participated in the Annual General Meeting for the Renewable Energy Association of Nigeria (REAN)— a side event held in conjunction with the Mini-Grid Conference. REAN was incubated by Power for All and the Nigerian County Director, Ify Malo, sits on its Advisory Board. 

After the REAN meeting, Power For All held a stakeholders workshop with Nigerian decentralized renewable energy (DRE) distributors and developers—where it shared its year in review of the DRE sector with partners. The team also showcased planned activities and projects for 2018 and long term projections for the Nigerian DRE sector for 2018 and beyond. The workshop had over 30 participants in attendance—cutting across mini-grid developers, clean energy distributors, and entrepreneurs.

The campaign shared its success stories on market acceleration projects, advocacy campaigns targeted at women and faith-based groups, and highlighted key findings on a United Nations Environment Program (UNEP) sponsored project— focused on transitioning Nigeria from kerosene lighting to clean lighting. This discussion was of great interest to participants, who were particularly intrigued by the quality and depth of the data collected on the potential size of the clean lighting market in Nigeria, including Pico solar products and Mini Grid developments.

Considering the data deficiency in Nigeria, the UNEP project presents the most accurate data so far on kerosene lighting and the off-grid lighting market in the country. The importance of the data is not just to entrepreneurs in the off-grid lighting space, but to a broader range of entrepreneurs along the value chain, as well as policy makers—as it provides them a means of determining other market opportunities and development indicators.

Power for All also discussed our upcoming work on Scaling Off Grid Energy (SOGE)—a USAID funded project and in partnership with FHI 360, the  25x25 Campaign, Human Capital Campaign, and Utilities 2.0.

In this interactive session, participants asked if Power For All was applying lessons from other countries in helping to advance the Nigerian DRE markets. Nigerian Country Director, Ify Malo, spoke about the early internal cross learning between the Nigerian program and our campaigns in Sierra Leone and Zimbabwe. Both sister campaigns were particularly helpful in the  formation of the industry association (REAN) in Nigeria, and also provided insight on engaging stakeholders across government and civil society. She added that the new Power For All campaign launched in India, provides the Nigerian campaign with much broader cross-learning opportunities due to the similarities between the two countries politically, economically, and culturally.

In response to the presentation, participants provided numerous suggestions for unlocking affordable capital from banks and other financial institutions for the DRE sector. There were also proposals around prioritization for product and system standardization for clean lighting and other renewable energy components—to ensure trust in the systems and sector as a whole. Noting, increased consumer and regulatory confidence will accelerate the adoption of DRE technologies in Nigeria.

Response to the workshop was overwhelmingly positive, and participants expressed their excitement about the future of the DRE sector in Nigeria.  Attendees suggested regular, future stakeholder meetings on specific issues including: financing, access to markets, business development opportunities and capacity building.

Electricity access: time for smarter subsidy

the-power-cord-1526138_960_720.jpg

Access to reliable, affordable electricity is a public service and worldwide has always been supported by state funds. But over the past decade, in the absence of government awareness or support of decentralized renewable energy (DRE) solutions in Africa and South Asia, innovative private sector companies and civil society organizations have built a market largely on their own, using creative financing, innovative business models and start-up grit to bring power to the 1 billion without it. As a result of their pioneering efforts, the sector is now stronger than ever, with DRE expected to reach at least 99 million households by 2020. But for electricity poverty to be eradicated by 2030,  it is now time for public subsidies to catch up with the global consumer-led transition centered around distributed generation and storage, and give DRE equal footing in our energy future.

Subsidy reform is needed that levelizes treatment of centralized and decentralized grid solutions as well as renewable and fossil fuel (kerosene and diesel) solutions. Reform must also promote public-private partnership (PPP) that applies the best, integrated solution for  the right context.

As we outline in this newsletter, the case is compelling for subsidy reform. Briefly:

  • At current rates, according to a new IEA report, 674 million people will still lack electricity access by 2030. Clearly business as usual approaches are not working. IEA says the overwhelming majority of the $28 billion annual investment needed to achieve universal access within 13 years should go to DRE, while the least-cost option for three-quarters of new connections needed is mini-grids or standalone systems.

  • Yet an analysis by the World Bank shows that subsidies to Sub-Saharan African utilities account for 1.5% of national GDP on average, while just 2 of 39 utilities are able to cover both capital and operating costs . Moreover, there is no correlation between quasi-fiscal deficit (i.e. utility subsidy) and improved energy access, economic development or reduced poverty.

  • In India, meanwhile, new data shows that subsidies for DRE solutions make up an annual average of a mere $98.3 million (less than 1% of total energy subsidies). Most subsidies take the form of foregone government revenue and in particular they support fossil fuels and power transmission & distribution, primarily as price support for artificially low consumer tariffs and for electricity sector bailouts. (For full details and comprehensive data on all fossil fuel and renewable energy subsidies in India, see IISD’s “India's Energy Transition: Mapping Subsidies to Fossil Fuels and Renewable Energy", available from 1 December)

If governments are going to invest precious financial resources in building an energy system of the future, a level playing field is needed that is solution agnostic, and delivers the biggest socio-economic bang for the buck as quickly as possible (for more on that, see our new report with SEforALL: ”Why Wait? Seizing the Energy Access Dividend”, a new framework that shows clear impact of getting access sooner from DRE instead of waiting on traditional solutions).

"We're not seeking new subsidies, but to benefit from subsidies that public utilities already benefit from,” said Sam Slaughter, the CEO of leading mini-grid developer PowerGen. “We want to convince large donors and the governments they support that it is in their interest to subsidize not only the public utilities, which they currently do to a pretty extreme degree, but make that funding similarly available to private utilities to create a more multi-polar power landscape."

SDG target 12c calls to “rationalize inefficient fossil fuel subsidies that encourage wasteful consumption by removing market distortions... in a manner that protects the poor and the affected communities.”

Until that happens, commercial capital will continue to sit on the sidelines when it comes to DRE. Smarter and integrated subsidy frameworks will help mobilize that private finance by sending a clear signal from regulators that they welcome partnerships that leverage private sector innovation, customer-centric business models and operational efficiency.

A strong case can also be made for reallocating fossil fuel subsidies (in particular for kerosene and diesel) to DRE. Power for All partner IISD recently did an analysis in India, finding that savings worth billions of dollars from kerosene subsidy cuts by the central government could go to accelerating the deployment of distributed solar. Given a net cost savings of switching from kerosene to solar, it said, a share of kerosene subsidy savings should be allocated to solar solutions as a first-best response to meet household energy needs.

In Nigeria, kerosene subsidies amount to more than the entire government expenditure on security, critical infrastructure, human capital development, plus land and food security combined, according a 2017 study by Lawrence Berkeley Labs researcher Evan Mills, who estimates total annual national kerosene subsidy expenditure in 2016 of $1.5 billion. Despite this level of spending, the poorest quintile of Nigerian households only receives 13% of total kerosene subsidy, while tens of millions still lack electricity access.

Implementing subsidy reform is only a first step. In some countries like India, where there is already a 30% capital expenditure subsidy in place for mini-grids, for example, private developers have had to wait many months to be paid, or in some cases have never received payment at all, according to practitioners. Enforcement of subsidy regimes is also critical.

Lastly (and perhaps most importantly), in order for subsidy reform to happen, the current political economy that exists within national governments and between those governments and their utilities and donors  requires fundamental reform. The current system incentivizes good money to follow bad, and until that changes and greater state support is allocated to distributed approaches, SDG7 remains in grave jeopardy.

Infographic: Sub-Saharan Africa electric utilities in deficit crisis

A World Bank analysis of power utility performance in 39 Sub-Saharan African countries shows that structural inefficiencies and poor tariff-subsidy distribution keep utilities from being financially viable, and acknowledges the importance of decentralized technologies for meeting rural electrification goals.

Source: World Bank study “Making Power Affordable for Africa and Viable for its Utilities,” which analyzed data from 39 countries in Sub-Saharan Africa to understand financial viability of power utilities. Additional notes:

  • For each country, data on utility capital and operations expenditure, cash payment collected and quasi-fiscal deficit under performance in reference year are provided. We replicate that data here in interactive form.
  • While connecting to the grid is a solution for many Africans, the World Bank study acknowledges that mini- and off-grid electricity, especially from sources like solar, is essential to electrify homes in many rural areas in Sub-Saharan Africa.
  • The database is a publication of the African Renewable Energy Access Program (AFREA), a World Bank Trust Fund Grant Program funded by the Kingdom of the Netherlands through ESMAP.
  • Citation: Trimble, Chris; Kojima, Masami; Perez Arroyo, Ines; Mohammadzadeh, Farah. 2016. Financial Viability of Electricity Sectors in Sub-Saharan Africa: Quasi-Fiscal Deficits and Hidden Costs. Policy Research Working Paper; No. 7788   

Fact sheet: SDG7 and the impact on agriculture

One in 9 people—795 million people—are undernourished, 98% of whom live in emerging economies. Sustainable Development Goal (SDG) 2 targets the end of hunger and all forms of malnutrition by 2030, as well as the doubling of agricultural productivity and incomes of small-scale food producers. Decentralized renewables aid in achieving these goals. They help subsistence and low-income farmers to increase outputs, create savings and allow for increased income for spending on more nutritious food.

Get all the facts.

Download the Fact Sheet: Decentralized Renewables: Boosting Agriculture and Improving Nutrition  (53 kb)