FINANCING OPTIONS - for Renewable Energy - United ...

FINANCING OPTIONS for Renewable Energy

UNDP Regional Centre in Bangkok, Thailand

Country Experiences

The analysis and policy recommendations of this Report do not necessarily refl ect the views of the United Nations Development Programme, its Executive Board or its Member States. The Report is an independent publication commissioned by UNDP. It is the fruit of a collaborative effort by a team of eminent experts, stakeholders and the Regional Energy Programme for Poverty Reduction (REP-PoR) team of the Regional Centre in Bangkok.

Copyright © 2008 UNDP

United Nations Development ProgrammeRegional Centre in BangkokRegional Energy Programme for Poverty Reduction (REP-PoR)UN Service BuildingRajdamnern Nok AvenueBangkok 10200 Thailandhttp://regionalcentrebangkok.undp.or.thhttp://regionalcentrebangkok.undp.or.th/practices/energy_env/rep-por

Design and layout of this revised version: Inís Communication (www.inis.ie)Cover illustration: Doungjun RoongruangOriginal design and layout: Imran Hussain

AcknowledgementsThis Report on Financing Options for Renewable Energy: Country Experiences is part of a set of three policy studies undertaken by Regional Energy Programme for Poverty Reduction (REP-PoR). This report builds extensively upon prior work undertaken for the Policy study on Regional Mapping of Options to Promote Private Investments in Alternative Energy Sources for the Poor. The other two policy studies consist of Overcoming Vulnerability to Rising Oil Prices: Options for Asia and the Pacific and Cross-Border Energy Trade and its Impacts on the Poor. The original study is the result of almost two years of evidence-based research and extensive consultations with experts to review the state of renewable energy options and to ensure that they can contribute to the sustainable economic growth, energy security, and poverty reduction goals of the Asia-Pacific countries. The research study was initiated in mid 2005 and completed by early 2007. The analysis and the discussions in this Report are based on the information that was available then (documented in volume I of the original study). Many people have contributed directly and indirectly to this collaborative effort.

The original research study, including the six national assessments and respective case-studies (documented in volumes II to VII of the original study), was undertaken by Winrock International under a study commissioned by UNDP/ REP-PoR. We appreciate the work of the Winrock International, ably led by the principal researcher, Bikash Pandey. We also acknowledge the contributions of the team that supported the lead researcher, including Jerome Weingart, Soma Dutta, Ellen Bomasang-Son and Chris Greacen. We appreciate the work of the country leads in Bangladesh (Lutfiyah Ahmed, Suman Basnet, Mohammed Khalequzzaman, Hasna Khan and Firoz Mallick), Cambodia (Sierra Fletcher and Curtis Hundley), Indonesia (Conrado Heruela, Bernard Castermans, PELANGI), Nepal (Suman Basnet, Yuba Raj Adhikari, Bharat Poudel, Karuna Sharma), Solomon Islands (Herbert A. Wade and Kenneth Bukehite) and Philippines (Conrado Heruela and Cristina Cayetano) for their data gathering and analysis. We acknowledge the first round of bibliography support by Fay Ellis, Anita Khuller and Mallika Aryl.

We express our appreciation to the individuals who participated in interviews, group discussions and questionnaires as part of the research undertaken for this work. These individuals are too numerous to mention by name, but include employees of government ministries, schools and clinics, energy companies, research organizations and, of course, members of the communities in which the case studies were conducted.

The analytical structure and conceptualization of the report was developed by the REP-PoR team in the UNDP Regional Centre in Bangkok, comprising Nandita Mongia (Team Leader),Thiyagarajan Velumail, Thomas Jensen, Bhava Dhungana and Sooksiri Chamsuk. The report and study underwent several reviews including sessions of technical committee feedback from experts and external partners [the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), the South Asian Network for Development and Environmental Economics (SANDEE) and the Asian Institute of Technology (AIT)], as well as several UNDP in-house consultations. Candid views and constructive suggestions helped to significantly improve the report. In particular, we would like to thank Kamal Rijal, Pranesh Chandra Saha and Ram Shrestha for their timely suggestions.

We acknowledge the advice provided by K. V. Ramani during the start up phase. An additional piece of analysis, a comparison of competitiveness of renewable energy systems and fossil fuels, included in chapter 3 of the Report, was completed by REP-PoR team in November 2007. Data and information of the final version of this abridged Report has been subsequently updated by Conrado Heruela and Sanna Salmela-Eckstein where data found available. Patient editorial support from Fareeda Hla helped us considerably to finalize the Report. The updating of data, compiling the references, editing and design of the Report owes much to the REP-PoR team members, including Imran Hussain, who contributed at different stages of the Report to bring it to fruition. All the above mentioned efforts have made the writing of this report possible.

Nandita Mongia, Ph.D. Chief, Regional Energy Programme

Asia and Pacific Region

IV

ContentsAbbreviations and Acronyms I

Glossary of Financing Terms V

Executive Summary 1

1. Introduction 9Background 9

The global energy-poverty discourse 9

Modern energy services 13

The links among energy and development 16

Scaling up access to modern energy services 17

The UNDP-Winrock study 17

Structure of the document 18

2. Approach and Methodology 21Study approach 21

Global assessment 24

Regional assessment 26

National assessments 26

In-depth case studies 28

Scope and limitations of the study 28

3. Private Sector Investment in Renewable Energy 30Introduction 30

Decentralized renewable energy markets and applications 31

Growth in renewable energy markets 35

Trends in costs of energy produced by RETs 49

Growth trends in renewable energy markets in Asia and the Pacific 54

Emerging RET markets in Asia and the Pacific 57

Patterns of growth in RETs 58

Commercialization models for private investment in off-grid solar home sytems and household biogas 62

4. Barriers to Private Investment in Renewable Energy Technologies and Barriers to Access by the Poor 64Barriers to private investment in renewables 64

Barriers to RET access by the poor 68

V

5. Development drivers, policies and strategies in the markets for renewable energy technologies 76 Drivers and motivations 76

Mapping RET policies in Asia and the Pacific 87

Major renewable energy policy initiatives in the Asia and Pacific region 102

Regional programmes and initiatives to support private-sector investment in RETs 103

6. Experience With Models of RET Dissemination Led By The Private Sector 106Full commercialization models 106

Commercialization supported by civil society 107

Public-private involvement in community-based renewable energy systems 111

Teaming up with large IPPs – innovative public-private partnerships 114

The role of Government and national utilities in building markets for renewable energy through grid access laws and tariff setting 116

Fully subsidized arrangements 116

Financing renewable energy technologies 116

Conclusions on private and public involvement in RET dissemination 123

7. Renewable Energy & Poverty Reduction 126Poverty reduction impacts of RETs 126

Impacts on other MDGs 136

Energy access and energy security for the poor 139

Lessons learned 143

Facilitating the links among renewable energy, private investment and poverty reduction 148

8. Conclusions & Recommendations 156Summary of what is happening 156

Future directions 162

Future role of UNDP 174

Current status of private RET investment initiatives and next steps to increase investment and benefit the poor 176

References 180

VI

List of Tables, Figures and BoxesTablesTable 1-1 The Millennium Development Goals and modern energy services 15Table 2-1 Energy security 22Table 2-2 Questions addressed by case studies on the impact of RETs on MDGs 23Table 2-3 Meeting MDG targets 25Table 3-1 Renewable energy options for productive applications in off-grid areas 31

Table 3-2Small-scale agricultural applications of solar, thermal and biomass combustion systems 32

Table 3-3 Small-scale agricultural applications for PV and wind electric systems 33Table 3-4 Applications of renewable energy systems to community services 34Table 3-5 Electricity supply options for households and other free-standing facilities 34

Table 3-6Renewable, hybrid and fossil fuel options for full-time and part-time electricity supply for off-grid communities 35

Table 3-7 Global capacities for renewable energy in power generation, GW 38Table 3-8 Global use of renewable energy for heating 41Table 3-9 Range of investment and generating costs, 2002 and 2010 48Table 3-10 Estimated decreases in capital costs for various technologies, 2004─2015 48Table 4-1 Key indicators of income and human poverty 70Table 4-2 Share of energy expenditures in household income (Percent) 72Table 4-3 People relying on biomass for cooking and heating in developing countries, 2000 73Table 5-1 Summary of likely scenarios for RET investment in case-study countries 81

Table 5-2Commitments made by case-study countries to RETs in their Initial National Communications to the UNFCCC 86

Table 5-3 Asian countries with renewable energy targets 90

Table 5-4Selected Asian countries with interconnection arrangements for small renewable energy installations 95

Table 5-5Selected Asian countries with interconnection arrangements for small renewable energy installations 96

Table 5-6 Major renewable energy policy initiatives in selected Asian and Pacific countries 98Table 5-7 Summary matrix of energy policies in selected Asian countries 100Table 6-1 Private companies involved in solar PV in Sri Lanka before and after RERED 109

Table 6-2Increase in number of private companies involved in solar electricity in Bangladesh 110

Table 6-3 Elements of the TERI-NTPC model 115Table 6-4 Private companies involved in microhydropower in Nepal before and after AEPC 122Table 7-1 Monetary savings accruing to households from the use of RETs (Dollars per year) 127Table 7-2 Evidence from case studies on RETs and productive uses of energy 129Table 7-3 Summary of electrification benefits for rural Philippine households, 1998 131Table 7-4 Summary of poverty reduction impacts of RETs 136Table 7-5 Energy and rural household applications in India 139Table 7-6 Ownership patterns of RETs 140Table 7-7 Sustainability of RET delivery models 144Table 7-8 Addressing the MDGs with renewables 145Table 8-1 Policy recommendations for case study countries 163Table 8-2 Asian and Pacific countries by energy typology 164

Table 8-3Policy recommendations for Asian and Pacific countries to increase investment in RETs and energy access for the poor 166

Table 8-4Current status of private RET investment initiatives in Asia and the Pacific, future steps and the role of UNDP 177

VII

FiguresFigure 1-1 The modern energy services chain 13Figure 3-1 Global renewable energy installations, end-2006(GW) 37Figure 3-2 RET-based power generation capacity in developing countries, end-2006 37Figure 3-3 Renewable energy power capacity (GW) in developing countries, 2004-2006 38Figure 3-4 Leading countries using renewable energy for power generation in 2007 39Figure 3-5 Solar PV, existing world capacity, 1995-2007 39Figure 3-6 Wind power, existing world capacity, 1995-2007 39Figure 3-7 Biomass heating in developing countries of Asia 41Figure 3-8 Global solar water-heating installations, excluding pool systems, 1998–2004 42Figure 3-9 World ethanol and biodiesel production, 2000-2007 44Figure 3-10 Global fuel ethanol production, 2000 and 2005 44Figure 3-11 Comparison of diesel and biodiesel prices, 2007-2020 44Figure 3-12 Weekly prices for vegetable oils at Rotterdam, January 2006 to May 2007 45Figure 3-13 Projected growth of clean energy, 2006-2016 (billions of dollars) 47Figure 3-14 Cost comparison of off-grid renewable systems versus gasoline gensets,

lower cost trends, 2004-201550

Figure 3-15 Cost comparison of off-grid renewable systems versus gasoline gensets, most probable cost trends, 2004-2015

50

Figure 3-16 Cost comparison of off-grid renewable systems versus gasoline gensets, higher cost trends, 2004-2015

51

Figure 3-17 Cost comparison of off-grid renewable systems versus diesel gensets, lower cost trends, 2004-2025

51

Figure 3-18 Cost comparison of off-grid renewable systems versus diesel gensets, most probable cost trends, 2004-2015

51

Figure 3-19 Cost comparison of off-grid renewable systems versus diesel gensets, higher cost trends, 2004-2015

52

Figure 3-20 Cost comparison of mini-grid renewable systems versus diesel gensets, lower cost trends, 2004-2015

52

Figure 3-21 Cost comparison of mini-grid renewable systems versus diesel gensets, most probable cost trends, 2004-2015

53

Figure 3-22 Cost comparison of mini-grid renewable systems versus diesel gensets, higher cost trends, 2004-2015

53

Figure 3-23 Producer gas compared with other fuels for heating, India, 2004 56Figure 4-1 Linkages between energy and poverty reduction 69Figure 4-2 Global energy poverty 69Figure 4-3 Share of rural and urban population with access to electricity, by region 72Figure 4-4 Fuel for cooking in Phnom Penh 73Figure 4-5 Cooking fuels used in rural areas 74Figure 5-1 Carbon market share by renewable energy technology in Asia, April 2008 83Figure 5-2 CDM market share by country, April 2008 83Figure 7-1 Household income level and annual expenditure on energy 127

BoxesBox 3-1 The Cambodian Fuelwood Saving Project* 36Box 3-2 Future oil price scenarios 50Box 5-1 Rural electrification – a right of citizenship? 91Box 5-2 The electricity feed-in law of Germany* 96Box 6-1 Debt finance for renewable energy projects* 117Box 7-1 Poverty impacts of the Nepal Rural Energy Development 133Box 7-2 Benefits of a microhydropower scheme 133Box 7-3 Himalayan Light Foundation 134Box 7-4 Electricity empowers schools and clinics in the war on major diseases 136Box 7-5 Empowering rural women – lessons from REDP 139Box 7-6 Measures to extend RETs to the poor led by the private sector 141Box 7-7 A flawed renewable energy initiative in the Solomon Islands 145Box 7-8 The private sector and poverty reduction 147

I

AC alternating current ADB Asian Development Bank AEPC Alternative Energy Promotion Center, Nepal AfDB African Development Bank ah amp-hour AIT Asian Institute of Technology AKRSP Aga Khan Rural Support Programme APEC Asia-Pacific Economic Cooperation ARECOP Asia Regional Cookstove Program ARTI Appropriate Rural Technology Institute, India ASEAN Association of Southeast Asian Nations BCSE Business Council for Sustainable Energy, Australia BOS balance of system BRAC Bangladesh Rural Advancement Committee BSP Biogas Support Programme, Nepal BTU British thermal units CDM Clean Development Mechanism CER Certified Emission Reduction CFSP Cambodian Fuelwood Saving Project COGEN EC-ASEAN Programme on Technology Transfer for Energy Cogeneration from

Biomass in ASEAN countries CORE Council of Renewable Energy for the MekongCRT Centre for Rural Technology, Nepal CSD United Nations Commission on Sustainable Development DANIDA Danish International Development Agency DC direct current DEDE Department of Alternative Energy Development and Efficiency, Thailand DFID Department for International Development, United Kingdom EBRD European Bank for Reconstruction and Development EC European Commission EJ exajoule ENCON Energy Conservation Promotion Fund, Thailand EPPO Energy Policy and Planning Office, Thailand ESD Energy Service Delivery programmeESMAP Energy Sector Management Assistance Program EU European Union FAO Food and Agriculture Organization of the United Nations G8 Group of Eight GDP gross domestic product GEF Global Environment Facility GERES Groupe Energies Renouvelables, Environnement et Solidarités GHGs greenhouse gases GNESD Global Network on Energy for Sustainable Development GTG Global Transition Group GVEP Global Village Energy Partnership

Abbreviations and Acronyms

II

GW gigawatts GWEC Global Wind Energy Council GWth gigawatt thermalHDI human development index HIV/AIDS Human immunodeficiency virus/Acquired immunodeficiency syndrome HLF Himalayan Light Foundation hp horsepower HPI human poverty index ICSs improved cook stoves ICTs information and communications technologies IDB Inter-American Development Bank IDCOL Infrastructure Development Company Limited, Bangladesh IDEA Integrated Development Association, Sri Lanka IDS Institute of Development Studies IEA International Energy Agency IFC International Finance Corporation ILO International Labour Organization IREDA India Renewable Energy Development Agency IRR internal rate of return ITDG Intermediate Technology Development Group, Sri Lanka JICA Japan International Cooperation Agency JPOI Johannesburg Plan of Implementation KfW German Development Finance Group (Kreditanstalt für Wiederaufbau) kgoe kilogram of oil equivalentkWe kilowatt electric kWh kilowatt hours kWp kilowatts peak LED light-emitting diode LPG liquefied petroleum gas MDGs Millennium Development Goals MESITA Malaysia Electricity Supply Industry Trust Account MFI microfinance institutionMJ megajoule MRC Mekong River Commission MW megawatts MWe megawatts electric MWp megawatt peak NGOs non-governmental organizations NREL National Renewable Energy Laboratory, United States of America NTPC National Thermal Power Corporation, India OAS Organization of American States ODA Official Development Assistance OECD Organization for Economic Cooperation and Development PPA power purchase agreement PREGA Promotion of Renewable Energy, Energy Efficiency and Greenhouse Gas

AbatementPRSP Poverty Reduction Strategy PaperPV photovoltaic PVPS Photovoltaic Power Systems programme R&D research and development RD&D research, development and demonstrationRE renewable energy

III

REBF Renewable Energy Business Fund, Malaysia RECs Renewable Energy Credits REDP Renewable Energy Development Programme REE Rural Electricity Enterprises, Cambodia REED Rural Energy Enterprise Development REEEP Renewable Energy and Energy Efficiency Partnership REN21 Renewable Energy Policy Network for the 21st Century RERED Renewable Energy for Rural Economic Development REREDP Rural Electrification and Renewable Energy Development Project RESCO Shell/Community Power Corporation Renewable Energy Services Company RETs renewable energy technologies RPS renewable portfolio standards RWEDP Regional Wood Energy Development Programme in AsiaSAARC South Asian Association for Regional Cooperation SAREC South Asia Regional Energy Coalition SARI/Energy South Asia Regional Initiative for Energy SEEDS Sarvodaya Economic Enterprises Development Services, Sri Lanka SEFI Sustainable Energy Finance Initiative SEI Stockholm Environment Institute SELCO Solar Energy Light Company, India SHSs solar home systems SIDA Swedish International Development Cooperation Agency SMB small modular biopower SME small and medium-sized enterprise SMMEs small, medium-sized and microenterprises SNV Netherlands Development Organization SPP small power producer SWERA Solar and Wind Energy Resource Assessment TERI The Energy and Resources Institute, India UNCED United Nations Conference on Environment and Development UNDESA United Nations Department of Economic and Social Affaris UNDP United Nations Development Programme UNEP United Nations Environment Programme UNESCAP United Nations Economic and Social Commission for Asia and

the Pacific UNESCO United Nations Educational, Scientific and Cultural Organization UNFCCC United Nations Framework Convention on Climate Change UNICEF United Nations Children’s Fund UNIDO United Nations Industrial Development Organization USAID United States Agency for International Development VAT Value added taxVSPP very small power producer WEG wind electric generator WHO World Health Organization Wp watts peak WSSD World Summit on Sustainable Development SEI Stockholm Environment Institute SELCO Solar Energy Light Company, India SHSs solar home systems SIDA Swedish International Development Cooperation Agency SMB small modular biopower

IV

SME small and medium-sized enterprise SMMEs small, medium-sized and microenterprises SNV Netherlands Development Organization SPP small power producer SWERA Solar and Wind Energy Resource Assessment TERI The Energy and Resources Institute, India UNCED United Nations Conference on Environment and Development UNDESA United Nations Department of Economic and Social Affaris UNDP United Nations Development Programme UNEP United Nations Environment Programme UNESCAP United Nations Economic and Social Commission for Asia and

the Pacific UNESCO United Nations Educational, Scientific and Cultural Organization UNFCCC United Nations Framework Convention on Climate Change UNICEF United Nations Children’s Fund UNIDO United Nations Industrial Development Organization USAID United States Agency for International Development VAT Value added taxVSPP very small power producer WEG wind electric generator WHO World Health Organization Wp watts peak WSSD World Summit on Sustainable Development

V

Glossary of Financing TermsBondBonds are issued by governments, companies, other entities and individuals in return for cash from lenders andinvestors. The borrower pays interest to the lender or investor throughout the life of the bond. Borrowers seeking funds from the public through bond issues and spell out the details in a prospectus available from stock markets, banks etc. Bonds are generally medium to long-term fixed-interest securities.

Bond marketBond market is the market for trading bonds. Bond trading is carried out by phone and computer by organizations such as professional bond brokers and dealers, banks, investment banks and life assurance companies.

Corporate financingCorporate financing refers to financing a company where lenders would have full recourse to all assets and revenues of that company rather than only the project account. It is also term as balance sheet financing. Lenders in a corporate financing arrangement look to the cash flow and assets of the entire company to service the debt and to provide security.

Consumer financingConsumer financing is a loan made available to individuals, generally through hire purchase, personal loans, credit cards and other similar arrangements. It is also called consumer credit.

DebenturesDebentures are a type of fixed-interest security issued by borrowing companies in return for medium and longterm finance. Debenture-holders’ funds are invested with the borrowing company as secured loans, with the security usually in the form of a fixed or floating charge over the assets of the borrowing company. Debentures are issued for fixed periods but can be sold before maturity at a discount.

Debt financingDebt financing refers to funds loaned to the project company by financiers such as commercial banks, insurance and pension funds and multinational institutions. Financiers receive payments for principal and interest on the loans whether the company makes or loses money.

Equity financingEquity financing refers to funds put into the project company by shareholders of the company. Equity holders are owners of the company and they receive a return on their equity investment based on net profit as dividends as well as capital gains.

VI

Mezzanine financeMezzanine finance is a borrowing that falls between straight debt and equity, such as subordinated debt or equitylinked bond issues. Mezzanine debt generally has a higher risk and potential return than senior debt but a lower risk and potential return than equity. It is often provided by specialist investors in mezzanine finance such as venture capital funds or leveraged buy-out funds.

MicrofinanceThe definition of microfinance covers all mechanisms to provide financial services to the poor that includes microcredit, microsavings, micro-insurance and money transfer.

Preferred sharesShares which rank ahead of ordinary shares for the purposes of claiming dividend payments or any assets of the company should it be liquidated. Preferred shares rank behind debentures.

Project financingProject financing refers to financing for any particular type of project viewed as assets of the project company. In such arrangements, the project’s assets and its cash flow secure the debt and lenders do not have recourse to other assets of the company.

RefinancingRefinancing refers to applying for a secured loan intended to replace an existing loan secured by the same assets. Refinancing may be undertaken to reduce interest costs (by refinancing at a lower rate), to pay off other debts, to reduce one’s periodic payment obligations (sometimes by taking a longer-term loan), to reduce risk (such as by refinancing from a variable-rate to a fixed-rate loan) and/or to liquidate some or all of the equity that has accumulated in real property during the tenure of ownership.

Senior debtDebt ranked ahead of other debt. It has priority if debt has to be redeemed in cases of liquidation.

Subordinate debtA type of debt which ranks behind other debts should a company be liquidated. Typical providers of subordinated debt are major shareholders or a parent company. Subordinated debt offers advantages similar to increased capital but with greater flexibility in that the subordinated debt can be repaid fairly easily.

Venture capitalVenture capital is capital provided by outside investors for financing of new, growing or struggling businesses. Venture capital investments generally are high risk investments but offer the potential for above average returns.

1Financing Options For Renewable Energy: Country Experiences

Executive Summary

Energy is the invisible element in the Millennium Development Goals (MDGs). Although not explicitly discussed in the original formulation of the goals, without access to modern energy services they cannot be achieved. A world in which over a third of the human population lives in poverty is neither equitable nor just, nor is it likely to be sustainable.

Access to reliable, affordable, high-quality energy services makes it possible for the poor to increase incomes and obtain better education and health services. It also provides the energy underpinning of the small and medium-sized enterprise (SME) sector which is the engine of economic development in both developing and developed countries. While the source of the energy service may be unimportant to the poor, renewables are a subset of the options for producing modern forms of the energy that is needed as an input to increased and diversified incomes.

Poverty is a complex human condition, defined in many ways. The human development index (HDI) and the human poverty index (HPI) developed by the United Nations Development Programme (UNDP) provide consistent statistical measures of overall human development. However, some of the central components of poverty are missing from or inadequately captured in the indices. Among these is the lack of or difficulty in gaining access to infrastructure including energy services.

Trying to evaluate the impact on poverty of access to services derived from renewable energy (RE) and to renewable energy technologies (RETs) is very difficult because poverty reduction is the consequence of many factors and many inputs to communities and families and individuals. We show through examples that there are several ways in which availability of RETs and RE-derived energy services results in increased income, better health, improved education and knowledge, and so forth. What is more difficult to demonstrate is a clear causal link between expanded availability and use of renewables and improved conditions among the poor. We know that the relatively better off among the poor have resources that permit some access to modern energy services in many cases, while people living in extreme poverty typically do not, unless they happen to be in communities that help to provide access to vital services to their poorest members. For this reason, scaling up access and scaling up the use of renewables, within the context of expanded access, are considered as separate but related goals by, for example, the World Bank. As noted in a recent study, “...if the primary objective is to meet the energy needs of the unserved and underserved populations, neither the optimal solution nor the most equitable solutions will be found if their energy options are restricted to renewable sources ...” (Ramani and Heijndermans 2003).

This study reviewed the role of private sector investment and financing for renewable energy technologies in meeting the needs of the poor. It was organized along two tracks: (a) the role of renewable energy in enhancing the security of modern energy services for the poor; and (b) the contribution of renewable energy technologies to progress towards achieving the MDGs.

Trends in renewable energy investment were identified both globally and regionally. Policies, programmes and initiatives in the region were examined to assess their effectiveness in increasing investment in renewable energy. Specific studies were carried out in six countries to understand if that investment was able to increase access to modern energy services for the poor and to assess its contribution to reducing income and human poverty, as well as to the environment.

The major findings of this study are that substantial investment is taking place in both production capacity for renewable energy equipment and in renewable energy projects worldwide but mainly in the rich countries of the North and a few large, developing countries such as China and India. The investment is principally focused on grid-based renewables and biofuels and is driven by concerns about energy security, the rising price of oil and, increasingly, climate change. In most developing countries in the Asia and Pacific region, other than in China and India, total investment in renewables

“Poverty is the absence of all human rights. The frustrations, hostility and anger generated by abject poverty cannot sustain peace in any society. For building stable peace we must find ways to provide opportunities for people to live decent lives.”

Muhammad Yunus, founder of the Grameen Bank and Nobel Peace Prize laureate, Nobel Lecture, Oslo, 10 December 2006


has been modest and has not been able to make a significant impact on poverty reduction. However, in recent years there has been substantial new investment in large-scale production of photovoltaic (PV) modules of 50-100 megawatts (MW) per year new capacity in Asia, including in China, India, Malaysia, Philippines and Thailand. None of this investment is explicitly linked with poverty reduction initiatives but the potential for lower costs for PV systems available locally can facilitate production of small, affordable lighting units for relatively poor small entrepreneurs and households.

UNDP has several financial and technical assistance instruments available that can support pathbreaking initiatives which in turn can lead to larger-scale renewable energy production and project investment and lending by the multilateral development banks, host countries, and industry. They include two Thematic Trust Funds, namely Energy and Environment for Sustainable Development, earmarked for US$100 million over four years starting in 2007, and Poverty Reduction which are now available to support the expanded application of renewable energy for poverty alleviation and development.

Several low income countries have been able to increase the number of off-grid renewables, such as solar home systems (SHSs) and household biogas units, quite significantly through public-private partnerships. For the first time outside China, coverage of those technologies has begun to reach tens of thousands of households; in a few cases coverage has reached 5 percent of a country’s rural households. Private-sector companies have developed the modalities for supply and maintenance support to those systems. However, the technologies have not been able to reach the poor or significantly increase the incomes of users. Community-based energy systems, often using microhydropower, have been able to provide energy services more equitably and also provide sufficient power for productive end-uses. Scaling up the community-based model and others that have demonstrated the use of energy for specific livelihood enhancement applications remains a challenge.

In the evolution of off-grid renewables, a range of technological solutions is now sufficiently developed such that reliable and competitively priced energy systems, including packages for specific applications, are widely available. This is the outcome of a development process that started seriously in the 1970s and continues to this day. The commercialization models developed in the last decade have demonstrated how to get systems to large numbers of purchasers through a public-private investment model. The challenge now for development organizations is to integrate the technologies into income-generation and livelihood programmes to reduce poverty and to meet other MDGs. The report suggests how an appropriate agenda might be set for this in the coming years.

Investment trends

At the global level, private investment in RETs is the fastest growing among all energy sectors. Investment in RETs increased by close to 27 percent in 2004-2005, compared with 2-3 percent for fossil-fuel-based power generation and large hydropower projects. In absolute terms as well, investments are large with around US$38 billion invested in RETs in 2005 (REN21 2005). Roughly one dollar in four invested in the power sector in 2005 was invested in a RET. In 2006 and 2007 investments in RETs were around US$55 billion and US$71 billion (REN21 2008). Biofuels represent another area that has seen rapid growth in recent years. Ethanol production from sugar increased 8 percent worldwide in 2005, while biodiesel production grew 66 percent, albeit from a much smaller base. There were around US$16 billion of sales of ethanol and another US$1 billion of biodiesel in the same year.

Much of the increased investment in RETs and biofuels has been concentrated in countries that are member of the Organization for Economic Cooperation and Development (OECD) and in the larger developing countries, mainly China, India, and Brazil. Investments in RETs and bioenergy in OECD countries are driven by concerns about climate change and the need to meet Kyoto targets, as well as a desire to diversify energy supply sources away from overdependence on petroleum fuels. More recently, the high price of petroleum has become an important driver for increased investment in the production and use of RETs and biofuels.

Although the growth in RET investment in developing countries has been at half the global rate, it is at historically high levels. The growth rate could accelerate and catch up with global rates as larger developing countries, particularly China and India, have started investing heavily in the two fastest-growing RETs, wind power and solar PV, in the last few years. So far, investment in developing countries has been dominated by small hydropower and biomass generation projects. Although grid-connected renewables account for much of the investment volume, in China there is large-scale investment in solar-powered water heating and the country is now the largest producer and user of solar water-heaters in the world by far.


The success of the larger developing countries in increasing the percentage of renewable power on their grids is being replicated in a small number of other developing countries in the Asian and Pacific region that have established enabling regulatory and investment environments, such as standard power purchase agreements (PPAs), feed-in tariffs, net metering and the availability of bank financing for both producers and users of RE equipment. However, investment in RETs is very uneven in the region, with many of the smaller and less able countries lagging far behind the leaders in attracting such investment. The same is true for investment in biofuels.

Several renewable energy implementation models introduced in relatively poor South Asian countries have provided successful examples of the scaling up of off-grid RETs such as SHSs, household biogas units and community based microhydropower. In almost all cases, the existing markets are the result of public-private partnerships. Public investments are used to provide a partial subsidy, to enforce standards and to leverage quality control. The private sector provides the technology under warranty, as well as repair and maintenance services. Users typically pay 50-80 percent of the cost of the systems and also bear the cost of repair and maintenance. The models began with household biogas in Nepal and SHSs in Nepal and Sri Lanka, and now Bangladesh, and have been shown to be sufficiently robust to be effective in other countries as well. The challenge is to build on robust technologies and supply mechanisms and to make use of those technologies to reduce poverty.

Poverty impacts of RETs

Renewable energy technologies that are being widely disseminated through market mechanisms as described above have had a positive impact on education and health status, gender issues and on the environment. Yet they are seldom able to increase the incomes of users. This limits their take-up to the more wealthy rural elite for whom their benefits are related to consumption rather than production. For the poor to make use of those technologies, they would have to become affordable by contributing to higher incomes. As some examples below show, access to a small amount of reliable modern energy has allowed some people living in poverty to lease or own small RE systems.

Investment in grid-connected renewables in most Asian and Pacific countries contributes to poverty reduction by supplying power to often overloaded grids. Employment in the region is largely generated by agriculture and by SMEs that require reliable and affordable power from the grid to operate efficiently and profitably. This is one of the most important links between renewable energy technology and increased incomes for the poor.

Adding lower-cost power on the grid from RETs at prices isolated from petroleum prices lowers the risks of higher energy prices and improves availability of power as petroleum prices increase. Most developing countries are perpetually short of investment for grid power. This results in regular brownouts with high costs to SMEs, hurting their profitability and limiting their ability to expand and create employment. Farmers’ incomes suffer when there is insufficient power on the grid to operate pumps for groundwater irrigation during planting and other periods of high irrigation demand. Sufficient power availability on the grid is also a precondition to expansion of rural electrification. A number of studies have shown the positive impacts of access to grid power in terms of poverty reduction and meeting of MDGs.

The poor can often benefit significantly from the manufacture of some of the renewable energy equipment and devices, even if opportunities available to increase incomes from their use are limited. Off-grid renewables tend to be labour-intensive in their production, as well as in their sale and repair. Moreover, many of the skills required for manufacturing, installing, and repairing some of the equipment can be easily mastered by poor people with little training and education. Improved cook stoves (ICSs) are largely manufactured by artisans as a small enterprise, while biogas units are built by masons from within user communities.

Some of the grid-intertied renewables also provide opportunities to increase the income of the poor on the generation side. This is particularly true of rice husk and other biomass-based electricity generation projects where the raw material is often grown by poor farmers. However, despite this potential, farmers have not always been able to take advantage of those opportunities. Examples in Thailand suggest that farmers are receiving no benefits from the newly-found use of rice husks to generate power that is sold to the grid. The high global demand for biofuels in light of higher petroleum prices points to opportunities to increase employment for the rural poor in countries that can grow sugar cane and oil seeds. Here, too, the risk is that the high demand will give rise to corporate plantation farms where farmers will be reduced to selling their labour. Moreover, the need for high efficiency in production, harvesting and processing of sugar cane and oil-seed crops reduces employment opportunities for the poor, as has already happened in the most efficient sugar cane industries in, for example, Brazil and Australia.


Despite the successful models of commercialization leading the way to sales of large numbers of off-grid RETs, few of the purchasers of SHSs and biogas are among the poor. Moreover, only a small number of purchasers have been able to use the systems to increase income and generate employment. Again, were the technologies able to generate higher incomes, they would become affordable for the poor and there have been some examples of successful initiatives where access to RETs has increased the incomes of users. However, adopting those examples on a larger scale has proved to be difficult since some of the other elements in the production value chain differ among communities and are often absent.

It is proposed that UNDP and the development community at large make a concerted effort to link income generation into a broad range of enterprises that span agriculture, SMEs, crafts supported by non-governmental organizations (NGOs) and so on. Renewable energy technologies are now of much higher quality and private sector modalities for supplying systems to large numbers of people are in place so that such a movement can be launched.

Promising avenues for promoting the use of RETs to increase the incomes of the poor could include: (a) promotion of microfinance institutions as on-the-ground integrators of energy inputs into income-generation activities, especially if those institutions are already financing both income-generating enterprises and energy systems; (b) linking up with NGOs, Governments and bilateral and multilateral institutions engaged in initiatives focused on increasing the incomes of the poor to introduce energy services into poverty reduction programmes where they can add value; (c) linking up with SME-promotion programmes to identify where renewable energy might make a contribution; (d) strengthening private sector vendors of RETs to be able to respond to demands for applying RETs to income-generating activities; and (e) extending community-based microhydropower systems as multifunction platforms to many countries in Asia and the Pacific for productive end uses of energy.

Investment drivers

The main drivers for investment in RETs and biofuels in developing countries of the Asia and Pacific region are concerns about national energy security and the recent very high prices of petroleum. The countries that are most linked to global fuel markets have taken the biggest steps on the energy security front by investing in RETs. The supportive regulatory environment they have put in place follows from commitments many of those countries have made for meeting a certain percentage of their energy needs from renewable energy sources. Asian countries with renewable energy targets are Bangladesh, China, India, Indonesia, Japan, Lao People’s Democratic Republic, Malaysia, Pakistan, Philippines, Republic of Korea, Singapore, Thailand and Viet Nam. In addition to energy security, it is likely that concerns about local environmental pollution are also partially responsible for increased investment in renewable energy technologies, particularly in China. Although it cannot yet be considered a major driver, the Clean Development Mechanism (CDM) is increasingly being used to improve somewhat the cost competitiveness of RET investments in developing countries. Through refinements in the programmatic CDM, many small renewable energy initiatives can be combined to reduce overhead costs and to leverage higher emission credit prices than if the projects had to be considered individually. This is an area that is under rapid development but is not yet mature, with methodologies still to be fully agreed upon.

The commitment to achievement of the MDGs has not so far had a major impact on investment in renewable energy in most Asian and Pacific countries. Several countries have targets for universal electrification, which they intend to meet partially with renewables. Other countries have promoted renewables to meet local environmental challenges such as deforestation and pollution. However, the links between renewables and MDGs, while clearly demonstrated in many individual cases, has not been strongly supported in national programmes.

A recent study on the impact of rising oil prices on the poor (UNDP 2007) presents four scenarios for oil prices through the year 20151. Countries that are most linked to the global petroleum economy have already set targets for RETs and biofuels and are encouraging investment in those sectors under the baseline scenario. They are likely to continue to accelerate investment in RETs in all scenarios except if oil prices were to come down drastically and stay at those levels. Among those countries that have been slow to stimulate investment in renewables, some will be prompted into action with the shock in oil prices outlined in the supply shock scenario. However, for other countries where governance problems are significant, such as Cambodia and Solomon Islands, the peak oil scenario will have to occur before countries overcome their paralysis and put in the necessary policies and regulations and take the steps needed to attract investment.

Countries that depend on imported diesel to a large extent to produce electricity, such as many Pacific island economies which are virtually 100 percent dependent on diesel generation and Sri Lanka (56 percent), suffer increases in power tariffs when petroleum prices rise. They should have


the strongest incentives to invest in RETs. The first reaction of countries that have access to other fossil fuels is to invest in exploration of those fuels. Bangladesh and Pakistan will invest in new natural gas fields and they may also move to coal, as Indonesia appears to be doing. Except for Malaysia, countries with fossil fuel reserves have generally been slow in attracting investment into RETs and biofuels. Countries with a large kerosene subsidy burden for rural lighting are likely to invest in scaling up of RET access. They will also look to investment from donor countries for much of the production and use of off-grid RETs.

Barriers to investment in RETs and access for the poor

There continue to be two distinct sets of barriers to the growth of renewable energy in developing countries of the Asian and Pacific region, as elsewhere. The first set prevents sufficient private investment being attracted to RETs. The fundamental barriers in this regard include: (a) lack of awareness of the technologies and their applications among users and policy makers; and (b) lack of understanding of the sustainability aspects of installed systems. An obstacle to private sector investment in pro-poor, renewable-energy-based systems is that earning an adequate profit on that investment is difficult if not impossible. Sustainability requires technical capability to operate, maintain and repair systems but it also requires profitability. This is both an issue of technical knowledge and of having mechanisms for collecting adequate resources from users, as well as from governments and donor partners, to meet operational and maintenance costs.

In most countries there is some understanding of what can be termed “first-generation barriers” and how to overcome them, at least for some of the RETs. Those countries have had successful government-sponsored or donor-funded programmes, which have resulted in sustainable applications of RETs through a number of rounds of trial and error. Most Asian and Pacific countries today have active, private sector RET suppliers of good quality systems that are able to maintain them. However, this is not universally the case, especially among the smaller Pacific island countries, as well as countries such as Cambodia and Afghanistan that are emerging from conflict. In such countries, sustainable energy systems of high quality are hard to find and internal markets remain too small to support a technology base for RETs.

A few Asian and Pacific countries have also been able to overcome “second-generation barriers” that stand in the way of scaling up investment in RETs to supply large numbers of rural users with both equipment and modern energy services. The successful countries have been able to establish private sector suppliers that can respond to a significant increase in demand from users. They have also been able to stimulate substantial demand for RET systems from users. The principal obstacles to scaling up RETs include lack of confidence in the market on the part of suppliers and lack of confidence in product quality and long-term product support on the part of consumers. A shortage of suitable supplier, dealer and end-user financing to support meaningful scale-up is also a handicap. Countries that have been successful in bringing about a substantial scaling up in RET investment have developed modalities for a public-private partnership that typically provides for quality standards, subsidies and financing for off-grid systems.

For grid-connected renewable energy systems, the main barriers to scale-up are the absence of clear government or utility policies on feed-in tariffs and net metering, and standard power purchase agreements which have faced some resistance. Another common barrier is the inability to obtain loans from banks for financing systems. Countries that have been able to attract private investment into grid-connected renewable energy systems, such as wind, small hydropower, biomass-based and geothermal have put in place clear policies and related tariff structures and have also developed mechanisms to provide credit to investors and developers.

Insufficient financing often stands in the way of the poor gaining access to renewables, even in those countries where the first and second generation barriers mentioned earlier have been addressed. The high cost of good-quality renewable energy systems as well as lack of financing stands in the way of the poor gaining access to renewable energy equipment and RE-derived energy services. Furthermore, opportunities for the poor to increase their incomes directly through the use of energy services are limited as they often lack the necessary knowledge and resources to do so. Such obstacles can collectively be thought of as “third-generation barriers” to adoption of renewable energy technologies. There are a number of pilot programmes in countries in Asia and the Pacific that illustrate how to this set of barriers may be overcome. But addressing those issues on a country-wide scale requires focused attention and commitment on the part of both Governments and civil society, aided by development partners.


The way forward

Developing countries in the Asia and Pacific region need support to increase investment in renewable energy for greater energy security and reduced vulnerability to oil price increases, as well as to meet MDG targets. Global trends indicate that much of this investment will come from the private sector, often as the result of public-private partnerships. In light of global experience, including the experience of the larger countries of the region, the way forward for those developing countries might be as follows:

a) Create the environment for increased investment in grid-connected RETs. Most countries in the Asia and Pacific region have largely untapped renewable energy resources. Countries that have achieved the largest investment volumes also have transparent and well-advertised mechanisms, such as feed-in tariffs and standard power purchase agreements, for connecting small generators to the grid. They also have financial organizations that provide credit on a project finance basis. Those are essential elements of an enabling environment for attracting private investment and public-private partnerships.

b) Increase investment in biofuels but with caution. Domestic biofuels production can improve energy security for countries with large agricultural sectors or for landlocked or island states where the supply of petroleum fuels is irregular and expensive. Bioenergy crops can also generate rural employment but developing countries in the Asian and Pacific region need to understand the trade-off between energy farming and food security better. They also need support in developing models for farming bioenergy crops that are beneficial to communities particularly to ensure that local farmers obtain a fair and equitable share of the benefits. The social and environmental impacts of truly large-scale biofuels production are inadequately understood and they can be quite serious.

c) Expand models for the commercialization of RETs for households and make them more accessible to the poor. Government officials and prospective private sector investors need to take lessons from the market-based expansion of RETs such as SHSs, biogas and ICSs in countries such as Bangladesh, Nepal and Sri Lanka that have seen rapid expansion of those markets. While the World Bank has already undertaken significant initiatives in this area, it should consider investing in those models even more widely across the region as could the Asian Development Bank (ADB).

d) Replicate scale-up of community-based energy systems. Although community-based RETs such as microhydropower have been shown to provide reliable and low-cost energy in an equitable manner in a number of countries in Asia and the Pacific, the models have not been scaled up to their full potential. Approaches such as the Renewable Energy Development Programme (REDP) in Nepal and the Aga Khan Rural Support Programme (AKRSP) in Pakistan are slowly being replicated in other countries in the region. This replication needs to be accelerated, ultimately on a vast scale, so that hundreds of thousands of communities that could benefit from those systems can do so.

e) Develop a global alliance to integrate renewable energy for productive end uses. RETs must be used for generating income for the poor, if they are to become affordable. The RET community needs to form a global alliance with the larger development community to integrate energy into non-energy development projects and entry points need to be found to integrate energy into wider poverty reduction programmes. The pioneering efforts of Grameen Shakti and other organizations that have promoted productive end uses alongside sales of RETs need to be replicated widely.

f) Increase the use of renewable energy for high-value public services. There is much room for expanding the use of RETs in powering high-value public services (vaccine refrigeration, telecommunications, distance learning and Internet connectivity). An example is the rural health posts and clinics in the developing world, which are almost all without electricity and therefore limited in the services that can be provided. The participation of the private sector in providing some of those services can be increased in the interests of sustainability. The best examples are telephony and Internet connectivity services provided by the private sector for a fee.

g) Increase availability of RET finance. Banks and microfinance institutions throughout the Asian and Pacific region need to be encouraged and trained to provide financing for RETs. Finance must be made available not just to suppliers of modern energy services but also to the enterprises that will use the energy to generate income and provide employment. Financing institutions need to be encouraged to play a coordinating role to foster integration of energy inputs and income-generating activities at the enterprise and household levels.


h) Strengthen the role of carbon financing for RETs. The CDM executive board needs to be encouraged to provide preferential treatment for RET projects with a high MDG impact by simplifying the baseline and monitoring methodologies. This will reduce transaction costs and make it attractive for many developers to pursue RET projects under the CDM. In order to give priority to projects with high impacts on MDGs, indicators need to be developed to assess this and a methodology for monitoring such projects needs to be developed as well. The use of programmatic CDM initiatives to facilitate establishment of evolving portfolios of small renewable energy projects and programmes should be encouraged by the CDM executive board, the secretariat of the United Nations Framework Convention on Climate Change (UNFCCC) and associated agencies. This will lower the transaction costs for such projects and should result in enhanced prices for carbon emission reduction credits.

i) Changes in project monitoring procedures. In most RET programmes monitoring systems are not designed to capture poverty and gender-specific impacts. Project planning and monitoring protocols that are sensitive to those impacts need to be developed further and their widespread use encouraged. Such protocols could also be used by socially conscious buyers of carbon credits to pay higher prices for Certified Emission Reduction (CER) units from projects that also score high in terms of the MDGs.

Endnotes1The “baseline’ scenario assumes prices remaining at an average of around US$70. A second “supply shock” scenario has oil prices rising to $100 and beyond in the short to medium term and declining to the baseline US$70 in the long term. A third “peak oil” scenario shows oil prices rising gradually to US$100 per barrel as supply peaks and then increasing expo-nentially thereafter. The last scenario, “energy security”, assumes reduced oil demand as a result of energy and environmental concerns with oil prices falling from the baseline value to US$50 per barrel in the medium term, remaining constant thereafter. The scenarios were defined during the study period 2006─2008.

8

1. Introduction


United Nations Millennium Project, available at www.unmillenniumproject.org

Background

On 8 September 2000, the United Nations General Assembly adopted the United Nations Millennium Declaration (A/RES/55/2) and established the Millennium Development Goals.

As a recent report on progress towards achievement of the MDGs in Asia and the Pacific noted, the absolute size of social and economic deprivation remains enormous. Two thirds of Asians or a total of 1.5 billion people are still without access to basic sanitation and the region has nearly three times as many underweight children and people living on less than one dollar a day as sub-Saharan Africa and Latin America combined [United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) 2007].

Even though access to modern energy services was not included as a separate goal, it is widely acknowledged that addressing the energy and poverty linkage is essential if the MDGs are to be attained. Access to reliable, affordable, high-quality energy services helps make it possible for the poor to increase their incomes and benefit from better education and health services. Electricity or wind energy for water pumping, biogas and ICSs, as well as water milling can lessen the drudgery of women in carrying out subsistence chores – carrying water and firewood and milling grain – freeing them to take on more empowering responsibilities.

Moreover, reliable, affordable electricity and high-quality fuels provide the energy underpinning of the SME sector, which is the engine of economic development both in the developing world and in the OECD countries. Most jobs are created by SMEs and to the extent that quality energy services can facilitate expansion of profitability of those enterprises, employment can be extended to many people unable to establish ventures on their own. Consequently the links between modern energy services and reduction of poverty are often indirect. Both direct and indirect links are discussed in this report.

The global energy-poverty discourse

The interest in renewables in the 1970s was driven by the oil price shocks of 1973 and 1979, fears of depletion of fossil fuels reserves and other price-related pressures. Many national Governments launched research and development programmes and projected optimistic scenarios about what renewables could or should contribute in the years to come. There was resurgence in interest in the 1990s, the main drivers being environmental pressures, particularly climate change, and the loss of faith in nuclear energy as a desirable alternative to fossil fuels.

Since publication of the Brundtland Report in 1989, sustainable development2 represents an impor-tant element in the political debate on future environmental, economic and societal development. The work of the Brundtland Commission led directly to the United Nations Conference on Environ-ment and Development (UNCED) held at Rio de Janeiro in 1992. Energy was viewed primarily as an environmental issue, particularly in the context of climate change. It was discussed in the Agen-da 21, one of the principal non-binding intergovernmental outcomes of UNCED, which highlighted the fact that current levels of energy consumption and production are not sustainable, especially if demand continues to increase. Agenda 21 stressed the importance of using energy resources in a way that is consistent with protection of human health, the atmosphere and the natural environment.

1. IntroductionThe MDGs are the world’s time-bound and quantified targets for addressing extreme poverty in its many dimensions – income poverty, hunger, disease, lack of adequate shelter and exclusion – while promoting gender equality, education and environmental sustainability. They are also basic human rights the rights of each person on the planet to health, education, shelter and security.


An important milestone in the development debate took place in 2000 when leaders from across the world adopted the Millennium Development Goals. It initially appeared to be a setback for the energy sector that energy did not feature in the MDGs as a separate goal. The omission has however started a fresh debate on the energy-poverty linkage and it is increasingly being recognized that addressing that linkage is going to be a critical factor in the attainment of the Millennium Development Goals [see Table 1-1 below and Department for International Development (DFID) 2002]. Specifically:

The goal of halving poverty by 2015 cannot be reached without energy inputs to increase production, income and education; to create jobs; and to reduce the daily grind involved in survival;

• Halving hunger will not come about without energy for more productive growing, harvesting, processing and marketing of food;

• Improving health and reducing death rates will not happen without energy for the refrigeration needed for clinics, hospitals and vaccination campaigns;

• Acute respiratory infection, the major cause of infant mortality, cannot be checked until the smoke from cooking fires in rural homes is reduced;

• Universal primary education will remain a distant dream unless children have light in their homes to study in the evenings;

• Clean water will not be pumped or treated without energy;

• Rural women cannot be empowered until such time that they are freed from the onerous tasks of fuelwood and water collection; and

• Poor communities will remain most vulnerable to global warming because they lack the resources to cope with crises resulting from climate change.

Energy, which is a derived demand, provides a wide range of services that can have a positive impact on enhancing the livelihoods of people and reducing poverty. UNDP has been at the forefront of this discussion, and has been advocating the adoption of a new global target for energy as a prerequisite to fulfilling other international development targets of the MDGs. The proposed target is to halve the proportion of people without access to clean and affordable fuels and electricity by 2015 (Ramani 2003).

Increasing interest in the expanded use of renewable energy was also demonstrated in the Group of Eight (G8) Renewable Energy Task Force Report issued in 2001, which stressed the need to give priority to efforts to develop renewable energy markets, particularly in the industrialized countries. The underlying expectation was that this would lead to a decrease in costs and thus open the way for use of renewable energy in developing countries.

The ninth session of the Commission on Sustainable Development (CSD) in 2001 was an important landmark in the energy-poverty debate. With energy as one of the major themes, countries at CSD-9 agreed that stronger emphasis should be placed on the development, implementation and transfer of cleaner, more efficient energy technologies and that urgent action is required to further develop and expand the role of alternative energy sources. The Governments of the world concluded: “To implement the goal accepted by the international community to halve the proportion of people living on less than US$1 per day by 2015, access to affordable energy services is a prerequisite”3.

The follow-up international event, the World Summit on Sustainable Development (WSSD), held in 2002, brought discussions on energy to the centre of the global development debate. The WSSD gave new impetus to global action to fight poverty and protect the environment. The agenda for sustainable development was broadened, emphasizing particularly the linkages among poverty, the environment and the use of natural resources. The following important commitments related to energy and the environment were made at the summit (World Bank 2004):

Access to energy – Improve access to reliable, affordable, economically viable, socially acceptable and environmentally sound energy services and resources, sufficient to achieve the Millennium Development Goals, including the goal of halving the proportion of people in poverty by 2015

Renewable energy – Diversify energy supply and substantially increase the global share of renewable energy sources in order to increase its contribution to total energy supply.


Energy efficiency – Establish domestic programmes for energy efficiency with the support of the international community. Accelerate the development and dissemination of energy efficiency and energy conservation technologies, including the promotion of research and development.

Energy markets – Remove market distortions, including through the restructuring of taxes and the phasing out of harmful subsidies. Support efforts to improve the functioning, transparency, and information about energy markets with respect to both supply and demand, with the aim of achieving greater stability and ensuring consumer access to energy services.

An outcome of the WSSD was the adoption of the Johannesburg Plan of Implementation (JPOI) in which energy was addressed in the context of sustainable development. The JPOI stressed that access to reliable and affordable energy services facilitates the eradication of poverty and made specific recommendations on energy access to facilitate the achievement of the MDGs and established a clear link between energy and the eradication of poverty. The importance of producing, distributing and consuming energy services in ways that support sustainable development is also emphasized in relation to changing patterns of production and consumption as well as protecting and managing the natural resource base. The JPOI aims to promote the integration of the three components of sustainable development – economic development, social development and environmental protection – as interdependent and mutually reinforcing pillars. Among other things, the JPOI calls for action to:

• Improve access to reliable, affordable, economically viable, socially acceptable and environmentally sound energy services;

• Recognize that energy services have positive impacts on poverty eradication and the improvement of standards of living;

• Develop and disseminate alternative energy technologies with the aim of giving a greater share of the energy mix to renewable energy and, with a sense of urgency, substantially increase the global share of renewable energy sources;

• Diversify energy supply by developing advanced, cleaner, more efficient and cost-effective energy technologies;

• Combine a range of energy technologies, including advanced and cleaner fossil fuel technologies, to meet the growing need for energy services;

• Accelerate the development, dissemination and deployment of affordable and cleaner energy efficiency and energy conservation technologies, as well as the transfer of such technologies to developing countries; and

• Take action, where appropriate, to phase out subsidies in this area that inhibit sustainable development.

The WSSD also saw the launch of many partnerships between industrialized and developing countries to promote sustainable development with a focus on energy. In relation to energy, a total of 39 partnerships to promote sustainable energy programmes in developing countries were presented to the United Nations Secretariat for WSSD, 23 with energy as a central focus and 16 with a considerable impact on energy (Goldemberg and Johansson 2004). Some of the key partnerships that have emerged in the energy sector include the Global Village Energy Partnership, the Renewable Energy and Energy Efficiency Partnership (REEEP), the Global Network on Energy for Sustainable Development (GNESD), the United Nations Environment Programme (UNEP) Sustainable Energy Finance Initiative (SEFI) and the Renewable Energy Policy Network for the 21st Century (REN21). REEEP and REN21 have a clear mandate to promote renewables.

At the WSSD, there was a strong effort to reach agreement on a global target on renewable energy, with some proposing that 10 percent of total energy supply should come from renewable sources by 2010, but this ran into stiff opposition and deliberations were complicated by the fact that no clear definition of renewable energy was put forward, especially concerning the role of large hydropower and biomass as sources of energy. However, it was agreed that the contribution of renewables to world energy use should be substantially and urgently increased. Increased use of renewables should be achieved by joint actions and improved efforts to work together at all levels, by public-private partnerships and by deeper regional and international cooperation in support of national efforts.


In the period 1998-2003, there were increased concerns about energy security (both physical security and security of supply), further emphasized by the 11 September 2001 events in New York and Washington, as well as the war in Iraq (Goldemberg and Johansson 2004). A number of countries – including Brazil, Germany and Spain and some states in the United States – adopted successful laws and regulations designed to increase the use of renewable energy sources.

The International Conference for Renewable Energies, held at Bonn on 1-4 June 2004, was attended by over 3,000 participants from 150 countries and hundreds of non-governmental and intergovernmental organizations. The conference led to formal commitments by countries and organizations to renewable energy targets, programmes and initiatives. They are encapsulated in the main outcome of the conference, the International Action Programme, which was adopted by 170 countries, with 200 actions and commitments by Governments, international organizations and non-governmental organizations to accelerate the use of renewable energies. Other outcomes adopted by the conference reconfirmed the commitment to renewables and included a Political Declaration, outlining shared goals for increasing the role of renewable energies and a joint vision of a sustainable energy future; and Policy Recommendations for Renewable Energies, to support the development of new approaches, strategies and partnerships in scaling up those technologies. The financial sector’s position statement after the Bonn conference emphasized that financial institutions, both regional and international, should play an enhanced role in financing and attracting private capital to renewable energy in emerging markets.

Perhaps the most defining development for renewables came with the ratification of the Kyoto Protocol by Russia, and its entry into force on 16 February 2005. The Protocol sets binding targets for developed countries to reduce greenhouse gas emissions by an average 5.2 percent below 1990 levels. With its entry into force, Kyoto’s emission targets become binding legal commitments for those industrialized countries that have ratified it.

Some of the more recent perspectives on renewables include the following [United Nations Department of Economic and Social Affaris (UNDESA) 2005]:

In July 2005, at the Gleneagles Summit, the G8 countries pledged to introduce innovative measures to achieve substantial reductions in greenhouse gas emissions and promote low-emitting energy systems. This pledge was supported by five major non-G8 countries, namely Brazil, China, India, Mexico and South Africa.

Also in July 2005, Australia, China, India, Japan, Republic of Korea and the United States announced the Asia-Pacific Partnership on Clean Development and Climate to promote the development and deployment of existing cleaner, more efficient technologies and practices. The partnership, which has since been joined by Canada, will be consistent with and contribute to the efforts under the UNFCCC and will complement, but not replace, the Kyoto Protocol.

The World Bank, after a five-year retrenchment, pledged to achieve 20 percent average annual growth in renewable energy and energy efficiency in the next five years, starting 2004.

Other organizations such as the Inter-American Development Bank (IDB), ADB, the African Development Bank (AfDB), the European Bank for Reconstruction and Development (EBRD), the Organization of American States (OAS) and Asia-Pacific Economic Cooperation (APEC) showed similar support for renewable energy, including for poverty reduction.

The renewable energy sector saw an emergence of new players including Fortune 500 firms, large international banks, investment houses, venture capital firms, public banking institutions, development banks and foundations investing in renewable energy projects and programmes.

The Beijing International Renewable Energy Conference took place on 7-8 November 2005 as a follow up to the Bonn Conference of 2004. The conference brought together policy makers, NGOs, companies and many others to discuss the current status of renewable energy worldwide, prospects for international cooperation (especially South-South cooperation), and efforts to monitor progress with existing international commitments and programmes. During the conference, host country China announced a target of 15 percent of total primary energy from renewables by 2020. This target includes large hydropower and represents a significant increase from today’s existing 7 percent.


The outcomes of the conference were documented in the Beijing Declaration, which emphasizes increased research and development, financing, technology transfer, technical assistance and international cooperation to enhance policies, markets, technology development, access to finance, entrepreneurship and integration of renewables with energy efficiency and other clean fuels options (Martinot 2005).

The fourteenth session of the United Nations Commission on Sustainable Development which concluded on 12 May 2006 in New York focused on the areas of Energy for Sustainable Development; Industrial Development; Air pollution/Atmosphere; and Climate Change. The CSD deliberations had a major focus on poverty and the outcome document clearly “stressed the urgency of concrete actions to increase access to energy by the poor in developing countries”4. Improving access to modern energy services, particularly by poor women and children, was stressed as critical to meeting sustainable development goals. There was considerable emphasis on renewable energy but it was clearly in the context of improving access for the poor.

Modern energy services

Modern energy services are defined here in analogy with other infrastructure services such as telecommunications, potable water supply and Internet services. The service is the institutional mechanism that provides the physical and financial access to specific forms of secondary energy carriers such as alternating current (AC) electricity, liquefied petroleum gas (LPG) in canisters or natural gas via pipeline. Secondary energy carriers are derived from primary energy sources including fossil fuels such as oil, coal and natural gas; renewable energy sources including sunlight, wind, hydropower, geothermal energy and (sometimes) biomass, as well as nuclear fuels. The “energy chain” for modern energy services is illustrated in Figure 1-1.

Primary Energy Sources

Secondary Energy Carriers

Modern EnergyServices

Energy-EnabledEnd Uses

Fossil Fuels• Coal

• Oil

• Natural Gas

Renewable Energy• Solar

• Wind

• Hydro

• Biomass

• Geothermal*

• Ocean (waves, tidea)

• Ocean thermal**

Nuclear Energy

Electricity

Refrigeration storage facilities

Efficiency and demand management

Energy services include techinal & institutional delivery infrastructure,

access, availability, affordability, reliability,

& quality characteristics

Refined fuels• Gas (e.g.natural gas)

• Liguids (diesel fuela, kerosene, LPG, gasoline, biodiesel, ethanol)

• Solids (pellets, etc.)

Thermal Energy• Steam

• Hot air

• Hot water

• Cold water

Mechanical Energy• Compressed air

• Shaft power

LPG via canister distribution

Natural gas via pipeline

24V DC power

Full-time AC utility powerCookingLighting

Water heatingFood drying

Cold storage for foodGrinding and millingDrilling and mining

MachiningIrrigation

Potable water supplyTelephone

Radio, TV, ElectronicsComputers

Mobility and TransportSterilization of medical

instruments

Note: One or more energy services can support a specific energy-enabled

end use

Figure 1-1 The modern energy services chain

The secondary energy carriers that energize modern societies include AC and direct current (DC) electricity, refined petroleum fuels such as LPG, kerosene, gasoline and diesel fuel, solid, liquid and gaseous biofuels and steam/hot water (for example, for district or process heating). The secondary energy carriers power the devices (cooking or space-heating stoves, lights, motors, engines, computers, air conditioners, and so on) that we use to produce energy-enabled good and services. Service providers include individuals who generate and supply their own electricity from small diesel gensets (and sometimes sell it via crude hookups to a few neighbours), rural energy service companies, electric utilities and natural gas pipeline operators.


For access to modern energy forms to be considered a service, electricity, fuels, thermal energy and mechanical energy must be reliably available, of high quality and affordable. For high-quality electricity service, service characteristics can include 24-hour availability, a very low outage rate, excellent stability in voltage and frequency, high “purity” in the AC power waveform and high power or amperage capacity for end users. The frequent outages, unstable voltage and the frequency and periods of extended unavailability in some urban and rural areas of many Asian and Pacific countries cause significant losses5 in productivity, damage to or destruction of sensitive electronic equipment, among other problems. It is no surprise that in many villages that have had well-maintained PV solar home systems, villagers have often preferred retaining SHS electricity services to switching to erratic poor quality grid power when it finally arrives.

Table 1-1 provides a simple overview of some of the principal ways in which electricity, fuel, and thermal energy services based on renewable energy can facilitate achievement of the MDGs and where the possibilities lie.

UNDP, World Bank, other multilateral development banks, bilateral development assistance agencies, NGOs and others have supported projects and programmes to lower barriers to modern energy access for the poor, whether urban, peri-urban, or rural, and to increase the availability of renewable energy technologies for that purpose. Clean-burning, efficient fuels and electricity are especially important in helping the poor to meet their basic needs and to move out of poverty provided that the means to use that energy productively are available and accessible.

However, over a billion people, primarily in South Asia and West Africa, rely almost entirely on the use of traditional biomass sources, which have low efficiency and high health and environmental impacts. For the poor those are almost always the only affordable and accessible options to address their current major energy need, which is heat for cooking. In general, the least expensive sources of relatively clean modern energy for the poor for cooking are often based on fossil fuels, such as LPG and propane. For electricity supply, the cheapest options are mini-grid and off-grid electricity services from diesel power generation.

The rapid and very large increases in petroleum fuel prices in the last few years have consistently imposed an enormous fiscal burden on those developing countries that are already struggling to pay their fuel import bills. Funds that could have been used to create new income-generating activities and to expand the social services infrastructure have been diverted to pay for fuel imports at high prices. The poor and the lower income segments of society have thus been hit by a double burden from persistent, very high petroleum product prices and from curtailment of the development agendas in many of their countries.

For those among the poor that use petroleum products, the dependence on fossil fuels has increased their vulnerability to price increases and supply interruptions. Ironically, the poorest segments of society, that have little or no access to fossil fuels and traditionally rely on biomass-based fuels such as wood, crop residues and animal dung for cooking along with meagre amounts of kerosene for minimal lighting, are more resilient to the petroleum price shocks. However, the prospects for bringing modern fuels and electricity services to those people are diminished because of the diversion of public funds for petroleum imports and private sector funds for higher fuel and electricity prices.

While modern energy sources are essential in achieving MDG targets, such achievements can be undone if crucial energy services become unaffordable. Alternative investments in electricity and fuel supplies based on renewable energy, where the physical, financial, and institutional resources are available, can support increased attainment of MDG targets while providing increased energy security to the poor. Those options are discussed in this report and assessed in the context of sustained increases in petroleum prices.

However, the increased competitiveness of electricity and fuels based on renewable energy in the wake of fluctuating oil prices is of little comfort to populations with modest means. If fuels and electricity based on petroleum are unaffordable for many people, so will be the alternatives based on renewable energy. This report examines the ways in which modern energy services based largely on renewable energy sources can be made widely available, reliable and affordable. As discussed here, partnerships among the public sector, the private sector and the international development community are essential to the establishment of widespread access to modern energy services that can work for the poorer segments of society. Increasing access to improved and modern energy services for those segments will require massive, sustained investment. Moreover, complementary investments in income-generating activities, especially in agriculture and agricultural processing and in off-farm small, medium-sized and microenterprises (SMMEs) is essential if the availability of modern energy services is to be a potent enabler of growing incomes and improved social conditions.


MDG and target Modern energy linkages1 Eradicate extreme poverty

and hunger – reduce by half by 2015

Energy inputs such as heat from fuels are essential to generate jobs and income, agricultural processing and value added through crop-drying and food preservation, microenterprises using heat such as glass-making, metal-casting, ceramics and commercial food-vending. Lighting permits income generation beyond daylight hours. Post-harvest losses can be reduced through improved preservation, refrigeration, and freezing. Almost all staple foods must be cooked, requiring heat and fuels. Electricity for irrigation helps increase food production and access to nutrition.

2 Achieve universal primary education, to ensure that by 2015 children every-where will be able to com-plete primary schooling

Even with adequate schools, teachers and resources to supply books and materials, many children, especially girls, cannot attend primary schools owing to family fuel requirements entailing their car-rying wood to meet family subsistence needs. Children attending schools in rural areas are often required to forage for fuel wood for the teachers to heat the school itself. Electricity and clean fuels can provide clean water, cooking for school lunches, provide good lighting and operate audio-visual equipment and information and communications technologies (ICTs), and support distance learning. Electricity and modern fuels for staff residences help attract teachers to rural schools.

3 Promote gender equal-ity and empower women, and ensure that boys and girls have equal access to primary and secondary education by 2015

Adult women are responsible for the majority of household cooking and water-boiling activities which take time away from other productive activities. Without modern fuels and stoves for food preparation and processing women often remain in drudgery owing to lack of heat-related energy services. Good lighting facilitates home study and improved security. Public lighting improves women’s safety. Clean cooking fuels minimize indoor air pollution and associated morbidity and mortality of women and children. Modern energy for multifunction platforms, for example, can in-crease agricultural productivity and women’s incomes. Electricity and fuels for lighting, refrigeration, entertainment, and so on permit women to develop small enterprises and increase their incomes and social power.

4 Reduce child mortality by two thirds between 1990 and 2015 for those under five years of age

Disease caused by lack of clean boiled water and respiratory illness caused by the effects of indoor air pollution from traditional fuels and stoves directly contribute to infant and child disease and mortality. Diarrhoeal and respiratory diseases are the leading causes of under-five child mortality. Electricity is essential for integrated water pumping and reliable purification. Rural health clinics are the front line in the war on infectious disease, diarrhoea, and other illness. Electricity and efficient fuels (for example, LPG) are essential for the operation of effective health posts and clinics.

5 Improve maternal health and reduce the maternal mortality ratio by three quarters between 1990 and 2015

Lack of adequate fuels and means of sterilization in health clinics, as well as the daily drudgery and physical burden of fuel collection and transport, all contribute to poor maternal health conditions, es-pecially in rural areas. Many pregnant women continue to carry wood and charcoal long distances, contributing to premature delivery and low birth-weight infants. Indoor air pollution related to poorly ventilated stoves and traditional cooking methods adversely affects pregnant women.

6 Combat HIV/AIDS, malaria, tuberculosis and other dis-eases, halting and revers-ing these scourges by 2015

Health-care facilities and health workers require electricity and clean fuels and the services that they provide (sanitation, sterilization, illumination, pressurized hot water, and so on) to deliver effective health services. Electricity is essential for integrated water pumping and purification. Electrified health centres with lighting and audio-visual equipment can provide education and training as well as medical services to help combat the spread of major diseases.

7 Ensure environmental sus-tainability; stop unsustain-able exploitation of natural resources and halve the proportion of people lack-ing access to clean water between 1990 and 2015

Energy production, distribution and consumption have many adverse effects on the local, regional, and global environment including indoor air pollution and local particulates. Land degradation results primarily from agricultural land clearing and sometimes traditional fuel-use patterns. Cleaner energy systems and sustainable forestry and biomass production are essential to contribute to environmen-tal sustainability. Modern energy can reduce the environmental damages of energy use by introduc-ing renewable energy sources, by supplying modern cooking fuels, by substituting cleaner fuels for dirty ones and by increasing energy efficiency.

8 Develop a global partner-ship for development

The World Summit for Sustainable Development called for partnerships between public entities, development agencies, civil society and the private sector to support sustainable development, including the delivery of affordable reliable and environmentally sustainable energy services. The Global Village Energy Partnership, established with leadership from the UNDP and the World Bank, is forging networks and alliances to support sustainable human development and to integrate energy access issues with development investments.

Sources: Adapted in part from McDade 2004; Goldemberg and Johansson 2004; Saghir 2005a; and Agarwal 2004.

Table 1-1 The Millennium Development Goals and modern energy services


There are challenges to meeting MDG targets through investment in power and fuels supplies based on renewable energy. Improving access of the poor to modest amounts of electricity and modern fuels has been the focus of many renewable energy programmes supported by specialized agencies of the United Nations, multilateral development banks, and bilateral development agencies. Most successful solar PV programmes promoting household systems, for example, tend to be market-driven and cater to the needs of the rural elite, often covering less than 5-10 percent of rural households. Forging effective links between access to modern energy services and achievement of the various MDG goals presents technical, institutional, and financial challenges. Even for renewable energy programmes that have been able to meet the needs of whole communities, including the poor, documenting progress towards meeting MDG targets is non-trivial.

Many approaches have been used to expand markets for renewable energy technologies to address some of the energy needs of the poor. Projects co-financed and supported by the GEF in Asia have focused on overcoming barriers to commercialization of renewable energy technologies. UNDP, ADB and World Bank are among the institutions with lead programmes to promote RETs in the region and during the past 10 years, those technologies have seen robust growth and increasing significance. Total capacity reached 182 gigawatts (GW) in 2005, while annual investment in renewable energy (from both public and private sources) almost quadrupled in the past decade to an estimated US$38 billion worldwide. To a large extent, the achievements are owing to aggressive shifts in national and local policies aimed at addressing the well-documented barriers that have put renewables at a disadvantage compared with conventional sources based on fossil fuels. Private sector-led technology improvements and cost reductions are other major contributing factors in this unprecedented growth in renewables. The main drivers for those efforts, which have been largely in developed countries and the three largest developing countries, Brazil, China and India, have been energy security and environmental concerns, particularly linked to climate change. To a lesser degree, local environmental concerns and rural development needs in the poorest countries have also contributed to the growth.

The links among energy and development

Increased access to modern energy services is a necessary component of initiatives to reduce poverty and increase productivity, improve education and health, support gender equality and improve the human environment. This applies to urban, peri-urban and rural communities. However, we recognize that by itself, access to modern energy services will not be sufficient to facilitate substantial and sustained economic and social development. Energy for the sake of energy is not useful – its utility lies in facilitating human development. Complementary investments in improved community services such as health and education, together with investments in infrastructure and in productive enterprises are necessary if modern energy access is to be a potent element in development. Increasingly, the poverty alleviation and developmental projects of agencies of the United Nations, the multilateral development banks and bilateral development assistance agencies are incorporating the role of infrastructure, including energy, into their designs as part of an overall integrated approach to development.

The lack of basic infrastructure, particularly roads, transport, and water are seen as defining characteristics of poverty. Roads and transportation both increase physical and social connectedness and increase prices obtained for crops and products. Roads even to the next village are seen as expanding people’s options and access to services. In the Philippines and Ghana, villagers often said7 that rather than having PV systems for (entry-level) household electricity, they would rather have improved roads, because with the roads the power lines would come. Access to clean drinking water and water for irrigation frequently emerges as a distinguishing characteristic between the rich and the poor.

Agriculture – crop production, livestock raising, fisheries and forestry – constitutes the dominant economic activity in rural areas of the developing world. Poor access to reliable and affordable energy services in those areas reduces the range of the opportunities available for the development of many economically productive activities, including agro and other non-farm-based enterprises. Many agricultural production and post-harvest processes require electricity, shaft or mechanical energy, and heat. Besides being an important employer in rural areas, providing modern energy services to agricultural production and processing is a way to grow beyond subsistence farming and out of poverty. In addition, non-farm income-generating activities can support poverty reduction efforts and increase wealth in rural areas. The availability of modern energy services is one necessary element in the development of economic activities in rural areas (APERC 2004). Vigorous economic development in all sectors of a country’s economy will continue to require affordable and reliable access to modern fuels and electricity.


In cities, peri-urban areas and in towns, reliable high-quality and affordable electricity and modern fuels are essential for virtually all aspects of enterprise and government operations. Chronic power shortages and poor quality electricity services in many cities in developing countries take an enormous toll in economic development and constrain many of the most crucial social and community services. Unless the non-poor have access to better quality, more reliable electricity and fuels, they will be constrained in their ability to expand employment and contribute to overall economic development. Thus modern energy access, including issues of availability, reliability and quality is a concern for entire nations and not just the poor.

Scaling up access to modern energy services

The International Energy Agency (IEA) has estimated that more than US$16 trillion of investment, or an average of US$550 billion a year, will be required over the next three decades in order for energy supply infrastructure worldwide to keep pace with the growing demand for modern energy services (IEA 2003). More than half of the investment will be needed simply to replace or maintain existing production capacity and to install new capacity. Half the investment will be in developing countries, where production and demand are expected to increase most. However, only marginally fewer people (1.4 billion in 2030 compared with 1.6 billion in 2001) are likely to remain without access to modern energy sources reflecting rapid population growth in much of the developing world, almost all of it in urban areas. Bridging the access gap will require additional investment of US$665 billion over the period, with 80 percent of the incremental investment devoted to South Asia and Africa. Scaling up access to modern energy services facilitates the poverty reduction and economic and social development agenda in developing countries. However, scaling up access to modern energy and scaling up renewable energy use are overlapping but separate objectives.

The UNDP-Winrock study

Against that background, Winrock International undertook this policy study on behalf of UNDP. The objective of the study is to identify the policy and investment actions that will be needed to ensure that environment-friendly renewable energy options can contribute to the sustainable economic growth, energy security and poverty reduction goals of Asian and Pacific countries. Unlike studies that focus on the extent of progress towards achievement of the MDGs, this study examines the current and potential role of modern energy services, especially via RETs, in facilitating such progress. Two energy-related goals are relevant here: (a) expanding access, especially for the poorer segments of society, to modern energy services; and (b) increasing the use of a broad range of renewable energy technologies to provide many of those services.

The report briefly reviews the growth of the renewable energy industry worldwide, examines the extent to which RETs have been applied to the provision of the basic energy needs of the poor, especially in Asia and the Pacific, and identifies business models and practices that have been effective in providing key energy services to those who need them. Expansion of renewable energy industries and installations is important both at the global level, to address the urgent need to slow greenhouse gas emissions, as well as at the local level, where the energy services provided by RETs can serve the economic and social development needs of communities without adequate energy supplies and services, particularly in developing countries.

A specific focus of this report is on the role of the private sector in the expansion of the renewable energy sector and the extent to which, and the ways in which, the private sector is contributing to expanded modern energy access in the Asia-Pacific region. The emerging role of public-private partnerships, with technical and financial assistance from the international development community, is highlighted.

Specific objectives of this study are the following:• To identify and characterize major current and proposed renewable energy policies,

programmes and initiatives in the region against global oil price trends, energy security concerns and socio-economic development and environmental goals, with specific emphasis on achieving the MDGs;

• Within that framework, to identify and catalogue key policies, programmes and initiatives to promote private investment in renewable energy development, highlighting specific instances of successes and failures and their underlying causes, as well as an assessment of the various modalities for policy advocacy at national and regional levels to expand the contribution of renewable energy;


• To evaluate the impacts of the energy-related goals mentioned earlier on the overall energy supply mix and consumption patterns, with special attention to the contribution so far of renewable energy options in meeting the energy needs of the poor and the role of private investment in that regard;

• To assess the qualitative and quantitative impacts of increased deployment of renewable energies on various components of the MDGs, such as incomes of the poor and employment, health, education, gender issues and environmental sustainability, as well as on progress made towards meeting the MDGs by the year 2015; and

• To identify strategic directions and policy options open to Governments of the region to realize opportunities for, and mitigate barriers to, the substantial scaling up of private investment in renewable energy (including what is potentially available under the Kyoto Protocol) with special reference to investment and financing options that cater to the social, economic and energy needs of the poor.

Structure of the document

The report has eight chapters. After introductory chapters on background and methodology, chapter three documents the trends in private sector investment in renewable energy technologies. Specifically, it captures the trends in private investment, capacities created and production levels for grid-connected and off-grid applications, at a global level and for the Asian and Pacific region. For the region, it also outlines the emerging facets of RET markets. The global perspective is important because many of the most important renewable energy technologies are evolving outside developing countries of Asia and the Pacific. Many of those technologies will have broad applicability in the developing world if the policies and investment support of national Governments create an environment conducive to a private sector-led expansion in the provision of crucial infrastructure services to the poor and to SMEs, with a beneficial impact on employment.

The following chapter focuses on analyzing barriers to private investment in renewables as well as the critical barriers faced by the poor in accessing RETs. While much has been written about barriers, the creation of an enabling environment for private sector delivery of modern energy services, including through renewable energy technologies, is the central requirement for effective engagement and stimulation of that sector. In some Asian countries, government policies and ad hoc interventions have seriously damaged the local private sector in the renewable energy industry.

Starting with an overview of the major drivers of the global renewable energy market, chapter five moves on to examine various policies adopted, globally and within the Asian and Pacific region, that promote private sector development of renewables and renewable energy for rural electrification. At the regional level, it discusses major strategies adopted, as well as regional initiatives on renewable energy and poverty. It also maps the various policy measures that are successfully being used to promote renewables in various countries of Asia and the Pacific.

The next chapter is a synthesis of experiences with private sector-led RET promotion in the region in terms of the various models that have been tried in different countries, with the aim of identifying best practices and critical factors for success. We note that many of the models have failed because they have tried to mobilize financial resources from the poor who, by definition, have little money. Another issue is the reluctance, and often the inability, of large electric utility companies in the developing world to address the expensive and difficult requirements of traditional rural electrification. In this regard, agencies of the United Nations, including the multilateral development banks, have been working to expand the role of some of those utilities, both through policy changes and through technical and financial assistance.

Chapter seven assesses the impacts of various policies and other measures on renewable energy markets; on energy access for the poor; on poverty and achievement of MDGs; and on the drivers of investment in renewable energy, such as energy security and climate change. In most cases rural applications of renewable energy systems are driven by a socio-economic development agenda and not by climate concerns. “Energy security” in this report refers not to enhanced national energy security through use of renewables but to increasing the security of energy supply to poor and low-income rural populations in general.


The final chapter contains a summary of the findings with suggested policy directions for UNDP. In this report, we highlight the importance of cross-sectoral approaches to modern energy services delivery. The provision of such services alone almost never results in significant local economic development or even in social progress. By deliberately linking energy services to income-generating activities and to the activities and investments that underpin movement towards the MDGs, UNDP and other specialized agencies of the United Nations could foster a move towards intersectoral development initiatives. Helping local, regional, and national Governments understand and make those links would be a very significant contribution to development.

Endnotes2 The term “sustainable development” refers to development that meets the needs of the present

without compromising the ability of future generations to meet their own needs.3 Commission on Sustainable Development, ninth session, Agenda Item 4, Decision, Energy for

Sustainable Development, Section 6.22, United Nations.4 Chair’s Summary of the second part of CSD 14 session, High-Level Segment, available at http://

www.un.org/esa/sustdev/csd/csd14/documents/chairSummaryPartII.pdf.5 Reference to study of productivity losses in India from power outages.6 Excluding large hydropower projects.7 Jerome Weingart, private communication, October 2006.

2. Approach and Methodology

20


2. Approach and Methodology

Energy securityEnergy security has been defined as the availability of energy at all times in various forms, in sufficient quantities and at affordable prices (Johansson and Goldemberg 2002). In the context of this study, the term energy security is used to describe ensuring access to modern fuels and electricity to populations currently without access or with inadequate access to them, while minimizing their vulnerability with respect to price fluctuations, fuel distribution and other uncertainties in fossil fuel markets. The use of renewable energy systems, with backup or hybrid operation with fossil fueled components (such as propane and diesel gensets) can provide greater reliability than some purely renewable energy systems while minimizing the percentage of energy coming from fossil fuels. Energy supply diversity can provide resilience to uncertainties in the availability of any single energy source, whether renewable or fossil-fuel based.

An initial examination was carried out of the extent to which renewable energy policies, programmes and initiatives have contributed to improving access of the poor to modern energy services and brought about improvements in their standards of living through energy security. Changes brought about as a result of those measures in the energy mix of the country, the level of national and international support and private sector investment in renewable energy were also studied. Table 2-1 below identifies some of the means of verifying the degree of energy security. The past growth of specific RET markets was tracked in terms of number of installations, installed capacity, capacity utilization factor, scale of investment and number of consumers served. An effort was made to determine the extent to which RETs have reached the poor segments of the community, although in some cases data were difficult to access or were not available. A list of indicators and data requirements to assess the sustainability of a private sector-led market in RETs with positive poverty-reduction impacts follows.

(a) Social sustainability(i) Access

• Population below income-poverty line and corresponding energy mix;• Number and share of households with access to electricity and modern fuels;• Households with access to energy services (for cooking fuel, pumped water, electric

lighting, milling);• Level (average electricity use per capita) and rate of electrification;• Commercial energy consumption per capita;• Share of traditional fuels in total energy balance; and• Number and distribution of people cooking with traditional biomass fuels or other non-

commercial energy sources(ii) Affordability

• Share of household income spent on energy (in total and for the poorest households);• Share of household disposable income spent on electricity and modern fuels;• Actual prices paid by final consumers for energy with and without taxes and subsidies; and• Extent to which RETs contribute to enterprise development, employment generation and

productive applications.(iii) Equity

• Household energy use by different income groups and corresponding fuel mix (energy use per household for each income group); and

• Average electricity expenditure as a percentage of total household expenditure of the poor

Study approachA simple approach was adopted for the study, which was organized along two tracks. The first considered the role of renewable energy in enhancing the security of modern energy services for the poor and the second focused on the contribution of RETs to progress in achieving the MDGs. The study reviewed the role of the private sector and financing for renewables in the context of the two tracks. For each track, renewable energy policies, programmes, and initiatives were examined, starting with the use of specific indicators to assess their degree of success or failure. The means of verification of the indicators and the approach to data collection are presented at right.


Evaluation crite-rion Indicator Means of verification Sources of data /

informationAssessment

targeted

Policies conducive to RETs con-

tributing to poverty reduction

a. Policies encour-aging RETs

Subsidy analysis on fossil fuels

Fuel prices; secondary sources

Policies conducive to private sector partici-pation and investment in RE and those that act as barriers

Incentives for RETs (net me-tering, clear PPAs, low interest rates, customs, taxes)

Policy documents; Indepen-dent power producer (IPP) experiences

Portfolio standards for RE for utilities

Utility data

b. Policies to promote energy access for the poor and measures and safeguards adopted for protecting their interests

Analysis of policy instruments like pricing and taxation; analy-sis of financing mechanisms; ownership of RETs (for sub-sistence or productive needs); promotion of energy together with income generation

Policy documents;data from banks;sample surveys through case studies to make esti-mates regarding ownership patterns;existing survey reports and case studies

Effectiveness of RET policies in address-ing poverty-reduction objective

Success of programmes and initiatives

Change in fuel use trends from tradi-tional and fossil fuel to intermediate and modern

Import records of fossil fuels;existing household and indus-try surveys

Gas, oil, and coal supply companies (public and private); economic surveys and census data; forestry departments

Transition from traditional and fossil fuels to intermediate and modern fuels and electricity

Renewable energy mix in electricity supply on the national grid

Proportion and growth of RE-based electricity in grid mix; growth and number of off-grid RE-based power projects

Records of utilities and IPPs; government records; case study reports

Increasing contribu-tion of renewable energy to the energy mix

Renewable energy applications for other applications

Growth in numbers of cooking, heating and motive power ap-plications of renewables such as biogas plants and ICSs

Government records;records maintained by private sector operators

Increasing involve-ment of private sector in the renewable sector

National Govern-ment support

Allocation for RET develop-ment and dissemination

Plan documents Support and initiative provided by national Government for re-newables

Bilateral and multi-lateral support

List of donor-supported pro-grammes and initiatives;level of donor funding

Donor websites;interviews with local donor representatives

Which initiatives have attracted or involved donors

Private sector in-volvement in RETs

List of projects;level of private sector invest-ment;number of systems sold by the private sector

Investment and loans data from investors, banks;sales data from private operators

Attractiveness as an investment sector;consistent growth in private sector involve-ment

Table 2-1 Energy security

(b) Economic sustainability• Consistent growth in contribution of renewable energy to the total energy mix;• Increase in investment on renewables as share of total energy sector investment;• Support for market development costs for renewables (marketing, distribution infrastructure,

user awareness, appropriate technology adaptation, quality standards and training);• Increase in the number of the poor accessing RETs; and• Number of financial institutions financing RETs.

(c) Institutional sustainability• Establishment of strong local partnerships;• Building capacity of partners, suppliers and end users to support and use RETs; • Establishing effective measures for involvement of the poor in planning processes;• Specific measures adopted to protect the interests of the poor and enable low-income

households or entrepreneurs to invest in modern energy services; and• Improvement in cross-sectoral social development indicators such as education and health.


Contribution to MDGs

The second track, which looked at the poverty reduction impacts of renewable energy policies, programmes and initiatives, used MDG targets as indicators against which to measure success or failure. Availability of energy has a direct impact on poverty, employment opportunities, education, the demographic transition, indoor pollution, health and gender equality. At the household level, some of the ways that modern energy services may contribute directly to poverty reduction are as an amplifier of human capacity, by making small enterprises possible and by reducing unit costs. Indirect contributions to poverty reduction may come in the form of free time for other productive activities, improved health and education, improved access to and supply of clean water and reduced local environmental degradation.

This component of the study was carried out through case studies in six countries which documented the contribution that renewable energy has made or can potentially make towards the achievement of the MDGs. This was further supplemented with a literature review of materials available on the subject. Specific questions that the case studies collected data on and tried to address are listed in Table 2-2 below.

Table 2-2 Questions addressed by case studies on the impact of RETs on MDGs

MDG 1 Eradicate extreme poverty and hunger• To what extent do renewable energy services improve access to income-earning opportunities and enable liveli-

hood diversification;• To what extent has the use of renewable energy technologies reduced the expenditure on energy at the house-

hold level;• To what extent has the availability of modern energy services freed up women’s time spent in survival activities

(gathering firewood, fetching water, cooking inefficiently, crop processing by hand, manual farming work) and to what extent is that time being translated into increased productivity and incomes;

• To what extent does lighting permit income generation beyond daylight hours;• To what extent are improved energy services being utilized, if at all, for direct productivity gains in agroprocess-

ing, transport and cooking; • To what extent have rural industries been established, jobs been created and incomes increased as a result of

RET use; and• To what extent has agricultural productivity grown as a result of RETs.

MDG 2 Achieve universal primary education• To what extent has the availability of modern energy services freed children, especially girls, from helping with

survival activities such as fuelwood collection, as reflected in improved enrolments and results, as well as decreased drop-out rates;

• To what extent does lighting permit home study in good conditions beyond daylight hours; • To what extent does electricity enable access to educational media and ICTs in schools; and• To what extent does electricity promote adult literacy centres and night schools.

MDG 3 Promote gender equality and empower women• To what extent, and in what manner, have the initiatives supported gender equity with respect to labour reduc-

tion for women, entrepreneurship and increased incomes of women, increased influence in decision making for women and reduced disparity in the treatment of boys and girls in society;

• To what extent have modern energy services had an impact on human (health, education) and social capital (community level activities) that can empower women;

• To what extent do radio and other communications technologies powered by energy improve access to the outside world for women; and

• To what extent has school attendance increased for girls that have been freed from household chores like fuel-wood collection.

MDG 4 Reduce child mortality• To what extent, and in what manner, have the initiatives had an impact on the health of children with respect to

sanitation, indoor air pollution, safe drinking water, health care and other such factors.


The focus of this track was to study the direct and indirect impacts of renewable energy interventions on poverty reduction and other indicators of quality of life. With this in mind, policies were examined to ascertain the extent to which they supported or impeded access to modern fuels and electricity for the poor and whether they promoted energy service enterprises run by the poor, so improving livelihoods. In addition, whether the policies supported energy needed for social services (education, communication, health), met the specific energy needs of women and contributed to reduced costs and improved quality of energy supplied to low-income households was assessed. At the same time, specific ways in which the policies succeeded in mobilizing governmental and non-governmental actors, particularly in the private sector, to accelerate efforts to bring about universal access to modern energy were reviewed (Table 2.3).

Global assessment

The global assessment documented growth trends in renewable energy markets, highlighting worldwide achievements in terms of private investment in RETs, contribution to increased access, affordability and poverty reduction. An overall assessment of international, bilateral and multilateral renewable energy initiatives covering developing countries of the Asia and Pacific region was also undertaken in order to capture key trends in renewable energy promotion and draw appropriate linkages between them and regional policy developments.

The assessment examined the impacts of traditional drivers of RET investment, such as concerns for the local environment, and gauged how effective they have been in attracting investment to the sector. It also looked at more recent drivers including the high price of petroleum fuel and concern for climate change and documented any trends towards increased investment as a result of these. Special attention was paid to initiatives taken after the 2002 World Summit on Sustainable Development that incorporate a poverty focus and those taken after the entry into force of the Kyoto Protocol in February 2005. Renewable energy investment promotion and financing initiatives by United Nations agencies, multilateral bodies, bilateral donors, subregional groupings (including through South-South cooperation), NGOs and private foundations, as well as in national poverty reduction strategies were also studied.

MDG 5 Improve maternal health• To what extent, and in what manner, have the interventions improved the health of mothers with respect to nutri-

tion, reduction of drudgery, reproductive health, health care, sanitation and so on; and• To what extent has access to energy services improved medical facilities for maternal care, including through

refrigeration of drugs, sterilization of equipment sterilization and other such factors.

MDG 6 Combat HIV/AIDS, malaria and other diseases• To what extent have the interventions created awareness through radio, television and other media against

diseases and have they helped health posts combat these diseases more effectively.

MDG 7 Ensure environmental sustainability• To what extent, and in what manner, have the initiatives helped reduce firewood and fossil fuel use, save forests

and stabilize slopes, among other similar outcomes.

MDG 8 Develop a global partnership for development• To what extent have the interventions established links with international partnerships and created a favourable

impression in those partnerships and alliances.


Table 2-3 Meeting MDG targets

Evaluation criterion Indicator Means of verification Sources of data / information Assessment targeted

Polic

ies

Commitment to universal ac-cess to modern energy

Policy commitments Government documents Comparison of annual targets set for achievement of goals for universal access with achievements so far, with further extrapolation

Time-bound targets for renew-ables-based electricity supply

Government and utility plans

Targets/plans for non-electricity energy services from renew-ables (cooking through biogas or ICSs, milling technologies, water pumping)

National plans and budget allocations for non-electricity renewables

Private sector supply of en-ergy services

Energy sector reform Government documents Reform process encourages private sector supply;increase in number of private sector players in renewables;private sector supplying ener-gy services to poor customers in rural and urban areas

Support of re-gional bodies*

Policies conducive to private sector investments

Government policies and practices on investment, taxes, customs;interviews with private sector players in renewables

Regional policy convergence

Commitments to regional targets and for financing

Organization documents

Prog

ram

mes

and

initi

ativ

es

Increased ac-cess to poor

Private sector supply and financing modalities

Sales data of small systems af-fordable to the poor;income and asset ownership profiles of system owners (to be collected through sample surveys in case studies);number of loans given for small systems and owner profiles (from records of financial institutions)

Contributions to MDGs 1 to 7

Community supply modalities Government reports and statis-tics showing how many of their facilities are supplied by RETs;documented case studies

Income gen-eration from ac-cess to energy

Numbers of enterprises using renewable energy

Before and after studies Impact on MDG1

Household income increased (income from agriculture, livestock and non-agricultural activities)

Before and after studies

Environmental benefits

Firewood savings, change in forest coverage

Case studies Impact on MDG 7

Education benefits

Boys and girls enrolment and drop-out rates in primary school, family education status

Case studies Contribution to MDGs 2, 3 and 7

Health benefits Access to safe drinking water, public health services, decrease in child and maternal mortality rates


Gender benefits Female education, division of work, involvement in social activities


Note: *APEC, Association of Southeast Asian Nations (ASEAN), Mekong River Commission (MRC) and South Asian Association for Regional Cooperation (SAARC).


Existing literature on the subject was reviewed and experts, practitioners and beneficiaries were consulted on the issues. The questions that Winrock developed and used for the consultations were the following:

• What steps need to be taken in order to increase private sector investment in, and financing of, renewable energy? What have been the barriers to private investment?

• In your experience, are ongoing renewable energy programmes having any significant poverty reduction impacts? Can you name specific projects, programmes, initiatives or country policies that have such impacts?

• What are the barriers to and risks faced in marketing energy products and services to the poor? What are the most serious problems and difficulties for the private sector in extending renewable energy services to the poor?

• How can the private sector be encouraged to increase investment in the sector? How can the private sector be encouraged to cater to the needs of the poor better?

• How big a role can RE projects for productive uses play in poverty alleviation?

• What is the role of public sector investment through subsidies and other incentives in leveraging private investment and financing of RETs?

• What policy changes can bring about increased investment in grid-connected renewables? Can you cite examples of success stories in your country or region?

• How crucial a role does credit play in increasing private sector investment in grid-connected renewables? Can you cite examples of success stories in your country or region?

Regional assessment

An assessment at the regional level, of policies, programmes and initiatives to accelerate renewable energy development, with emphasis on private investment mobilization and financing mechanisms, was conducted by the team. It covered South Asia, South-East Asia (with particular attention to the Mekong subregion), North-East Asia and the Pacific island countries. The exercise was carried out through desk research, questionnaires and consultations with national Governments, key regional bodies, and other relevant organizations. The regional assessment included:

• examining policy incentives and barriers to renewable energy development at large;

• reviewing the policy climate for private investment and financing;• assessing the effectiveness of policies in addressing the energy needs of the poor; and• drawing lessons from successes and failures.

The existing literature was reviewed to identify trends in the development of markets for renewables in the Asian and Pacific region, as well as major policy developments, projects, programmes and initiatives at the national and regional levels on renewable energy. Emerging thinking and experience on linkages between renewable energy, poverty reduction and the MDGs were also highlighted. Existing energy policies, particularly for the renewable energy sector, and legislation relating to the policy-making processes in the region were analyzed. Finally, qualitative interviews and consultations with policy makers, researchers, manufacturers and end users of renewable energy technologies were carried out.

National assessments

The national assessments covered Bangladesh, Cambodia, Indonesia, Nepal, Philippines and Solomon Islands. The selection of countries for those assessments was based on the prevalence of poverty and the potential role for RETs in its mitigation, as well on the existence of an investment climate conducive to private sector participation. Subregional balance among Asian and Pacific countries was another factor.


The assessments focused on the following: • Effectiveness of renewable energy policies, programmes and initiatives, with emphasis on

the role of private investment and financing;• Analyzing barriers and opportunities in meeting the energy needs of the poor through

renewable energy options; and• Discussions with policy makers, representatives of industry and financial institutions and

other key stakeholders to understand their differing perceptions and ideas for the future.

Stakeholders representing lending institutions and renewable energy companies provided helpful insights into the obstacles to growth of the RET market from their perspectives, while NGO staff and consultants working in, and on the edges of, the sector shared their experiences and frustrations as well.

At the country level, information collected was structured as follows:

1. Country overview1.1 Country background (including demography, geography, and ecosystems)1.2 Economy [sectors, gross domestic product (GDP), income, balance of payments] and national

development objectives1.3 Brief overview of the energy sector

1.3.1 Country energy sector objectives 1.3.2 Institutional framework 1.3.3 Primary energy sources/energy mix 1.3.4 Energy consumption/demand projections 1.3.5 Electricity policy, generation and consumption 1.3.6 Traditional and fossil fuel usage and projections for future 1.3.7 Sectoral issues (tariffs, subsidies, taxes, etc.)

1.3.8 Key recent developments or dilemmas in energy policy or legislation (regulation, restructuring, private investment, etc.)

2. Energy and poverty linkages2.1 Nature and extent of poverty2.2 Existing energy consumption pattern and categorization of energy needs of the poor

(subsistence versus productive)2.3 Access to electricity and other modern fuels2.4 Barriers to accessing modern energy services2.5 Existing opportunities to provide modern energy services to the poor (overview of prevalent

livelihood strategies, rural business development, microcredit)2.6 Priority concerns for energy and poverty

3. Review of renewable energy policies, programmes and initiatives3.1 Government vision and commitment 3.2 Relevant policies, laws and programmes3.3 Financing sources and mechanisms3.4 Review of market experience, private investment and financing (installations, assessment

of demand for products or services, consumer finance and credit, manufacturing, suppliers and distributors, technical skills, service networks, business models, regulatory frameworks, subsidies and incentives, public investments and market facilitation activities)

4. Past/ongoing public/ private sector initiatives supporting renewable energy4.1 Assessment of the impacts of renewables on rural development and poverty, role of

renewables in meeting energy needs of the poor, categories of need of the poor (subsistence versus productive) that renewables serve

4.1.1 Impact on livelihoods and income generation (poverty reduction focus) 4.1.2 Impact on workloads and living conditions of the poor 4.1.3 Institutional integration 4.1.4 Financial leveraging

5. Past/ongoing/planned donor and donor-funded projects supporting alternative energy


In-depth case studies

An important component of the national assessments was in-depth case studies which focused on specific programmes and projects involving private sector financing and investment. The case studies were carried out through community surveys to assess local impacts of specific private sector-led renewable energy programmes and projects on the poor within the context of MDGs. The technical, economic, institutional, social and cultural factors behind the success or failure of the case study programmes or projects were analyzed and the findings integrated into the national assessments to reach policy conclusions and recommendations to enhance productivity, incomes and livelihood opportunities of the poor, both rural and urban, through private sector renewable energy investments.

Each case study was carried out in an iterative way, feeding into the national-level policy review while itself receiving inputs from that review, in the sense that specific policy instruments had been instituted to meet the energy needs of the poor and hence their effectiveness in the field needed to be ascertained.

The case studies were carried out through a review of the literature, meetings with key stakeholders, field visits to project villages and interactions with communities through focus group discussions and sample surveys. Key stakeholders included private-sector firms, financing institutions, energy consumers in general and poor consumers in particular. Initial results of the case studies were presented during national consultations held in the target countries, with the exception of Cambodia. The consultations were attended by various stakeholders representing beneficiary communities, the Government, the private sector, financing institutions, donors, NGOs and academe and were presided over by the country leads.

Scope and limitations of the study

The study depended to a large extent on secondary sources of information, as well as stakeholder consultations, and several challenges were encountered while it was being conducted. First, the literature proved far more extensive and difficult to access than anticipated within the resources available for the project. Second, data availability, especially on markets and investments at the regional level, proved to be a major challenge. Another challenge encountered was that most RET projects and programmes in the past have been technology-oriented. Assessing RETs on the poverty and MDGs scale is a relatively recent phenomenon and as a result, most projects do not have monitoring mechanisms that track poverty outcomes systematically. Most data available on past energy projects on MDG impacts is anecdotal and not quantified. Finally, the resources available within the project did not permit extensive questionnaire surveys in the field level case studies. Conducting field surveys was also limited by the distances, remote locations, dispersed populations and, quite often, availability of the communities because of their engagement in agriculture and other livelihood operations. For those reasons, the samples covered in the surveys were not statistically significant and the data collected were not amenable to rigorous statistical analysis.

29

3. Private Sector Investment in Renewable Energy


3. Private Sector Investment in Renewable Energy

Introduction

Renewable energy resources include sunlight, wind energy, hydropower, ocean and tidal currents, ocean waves, ocean thermal energy and biomass. Geothermal energy is often characterized as a renewable energy source, in part because it is neither fossil nor nuclear in origin. However, it is es-sentially a depletable thermal energy stock. Renewable energy can be converted to heat, mechanical energy, electrical energy and chemical energy (fuels) to provide energy for the needs of human soci-ety. The practical production of useful energy for modern applications from renewables has emerged largely in the twentieth century, as in the case of hydroelectric power, with some systems such as solar photovoltaics, wind electric power and solar thermal electric power achieving commercial vi-ability only in the past several decades. Systems for the conversion of ocean currents and waves to mechanical and electrical energy are less advanced but under commercialization.

In the past two decades, the private sector worldwide has invested in the development and manufac-ture of a broad menu of renewable energy equipment and in services for the distribution, sale, opera-tion, maintenance and repair of that equipment on a large and growing scale. The principal classes of commercially available systems include wind electric power, solar PV systems, solar thermal units for solar water and air heating, solar thermal electric power, hydropower and biofuels production from a variety of biomass forms. The scale of the output of practical RE systems ranges from watts to gigawatts.

Industry has also invested increasingly in projects that use renewable energy equipment and renew-able/fossil energy hybrid systems to provide electricity to customers ranging from national electric utilities to municipalities and even individuals. IPPs established under clear and transparent rules and regulations, with feed-in tariffs for energy and power sales, have facilitated rapid growth in large-scale, wind electric power plants (“wind farms”) and in minihydropower systems. There has also been rapid growth over several years in the production of modern fuels from biomass, principally ethanol, and biodiesel fuels for use in the road transport sector. Solar water heating is a rapidly growing indus-try, with China dominating world production and use of solar thermal collectors for low-temperature, hot-water applications for residential, commercial and industrial use.

With increasing production scale and ongoing technical development, RE equipment has become progressively less expensive, more efficient, more reliable and more durable, with greater operating life. The same is true of the components needed for RE systems, such as inverters, charge con-trollers and voltage regulators, as well as efficient end-use equipment such as light-emitting diode (LED) lighting fixtures. Consequently, a family in Nepal benefits directly from large-scale PV develop-ment and manufacture in Japan, by being able to use high-quality, affordable, small PV modules for battery-charging to operate LED reading lights. India, Philippines and Thailand are starting to grow jatropha for use by new industries that produce biodiesel from this plant that can be grown on land not well suited to the production of edible crops. Investment directed principally at markets in devel-oping countries has also taken place in companies and projects to build biogas units for family use and to produce charcoal from sustainable forestry, as well as in microhydropower and small-scale PV installations.

This chapter provides a concise overview8 of global trends in production and use of renewable en-ergy systems and highlights activities in the Asian and Pacific region. Next, some renewable energy systems which can support uses of energy that are socially and economically productive are indi-cated. Finally, specific examples of investments in, and applications of, renewable energy options are highlighted and the implications of those activities in facilitating poverty alleviation and increased achievement of the MDGs are explored.


Renewable energy innovations that have created new possibilities

Some innovations that have created new possibilities and opportunities for renewable energy have emerged just in the past decade. They include the following:

• High-efficiency white light LEDs and practical low-power lighting units incorporating them;• Multifunction platforms which can be powered by locally-produced vegetable oil, as well

as by diesel fuel;• Good quality pico-power units for low-cost, small-scale electricity production;• Standardized design and construction of biogas units for households;• Cleaner, high-efficiency biomass cook stoves;• Upgrades of traditional water mills for grinding and milling grain; and• Treadle pumps, which harnesses human power in an effective way for high-value uses.• The innovations are discussed below in the context of specific RET markets and applications.

Decentralized renewable energy markets and applications

A very broad menu of renewable energy and renewable/fossil fuel hybrid systems can support, and are supporting, socially – and economically-productive activities in the developing countries of Asia and the Pacific. Some renewable energy systems, especially microhydropower and minihydropower, and possibly small, modular, biopower systems, can provide electricity and cogeneration services at levelized energy costs that are competitive with or cheaper than fossil-fuel-based electricity or elec-tricity plus thermal energy. For renewables, the levelized energy cost is dominated by initial capital costs and it is those costs that are a barrier to direct purchase of the equipment. Mechanisms to pro-vide low-interest, long-term financing are essential for the large-scale use of renewables to produce energy services that cater to the poor and less well-off members of society. An overview of the many options available for renewable energy and renewable/fossil fuel hybrid systems, together with as-sociated economic and social applications, are provided in Tables 3-1 to 3-6.

Table 3-1 Renewable energy options for productive applications in off-grid areas

Technical options Experience worldwide Commercial status and applications

PV (from tens of watts to several kilowatts)

Extensive, 2,600 megawatt peak (MWp) installed globally by end of 2005; global production in 2004 was around 600 MWp, with growth in excess of 30 per-cent per year

Fully commercial, very wide range of applications including off-grid community uses and large grid-integrated systems. Agricultural uses include water pumping, small-scale irriga-tion, lighting and low-power agricultural processing

Small, wind electric turbines [200 watts – 50 kilowatt electric (kWe)]

Extensive, around 200,000 units world-wide

Commercial and evolving rapidly; well-suited to water pump-ing for small-scale irrigation, battery-charging applications for running lights and communications and for use in hybrid power systems for AC power generation

PV/wind small hybrids (50 – 500 watts)

Extensive use in Mongolia, especially by nomadic herdsmen

Commercial systems produced in China which is the only large market for small hybrids

PV/diesel hybrids [20 – 500 kilowatt hours (kWh) per day]

Extensive, especially for telecommuni-cations

Fully commercial and the preferred option for remote tele-communications; commercially evolving for village power and rural agricultural applications

Wind/diesel hybrids (20 – 2,000+ kWh/day)

Significant, not yet extensive Commercial, often competitive and evolving; especially relevant to island communities; major programme initiated in Chile (Chiloe Islands) for wind/diesel mini-grids

Small modular biopower (SMB) (10 – 100+ kWe)

Commercial prototype installations underway

Commercial prototypes in operation in United States of America and Philippines; first 12 kWe commercial prototype powered mini-grid in Aklan Province, Philippines; SMB system installed in 2003 is powering a coconut processing and products facility in Aklan

Bioenergy systems[0.5 – 20+ megawatts electric (MWe)]

Extensive, in wood and agroprocessing industries worldwide, especially South-East Asia and in most OECD countries

Commercial site-engineered systems, relevant only to the extent that sustainable sources of biomass residue are available locally

Microhydropower (0.1 kWe – 1 MWe)

Extensive, good experience in many developing countries including China, India, Indonesia, Philippines and Nepal

Fully commercial; wide variations in design, performance, reliability and price; huge potential for economic power sup-ply in Asian countries with intact watersheds

Continues...


Table 3-2 Small-scale agricultural applications of solar, thermal and biomass combustion systems

Technical options Experience worldwide Commercial status and applications

Multifunction platforms [1 – 10 horsepower (hp)]

UNDP pilot deployment (250 units) in Mali; to be expanded elsewhere in Africa

Small, engine-driven mobile “platforms” that use belt drive to couple generators, grinders, millers, and other equipment to a rotating shaft driven by a small engine; diesel fuel and biofuels derived from local plants are being used; support women’s groups in rural agriculture

Rice-hull gasification [10 – 100 kilowatt ther-mal (kWth)]

Hundreds of systems used in China and India to produce heat and, in some cases, electricity

Process heat is used for crop drying and fish drying and, in some applications, for refrigeration (via an absorption chiller)

Diesel generators (5 kWe to several MWe)

Extensive, worldwide. Fully commercial at sizes ranging from several kilowatts to tens of megawatts; with high-quality maintenance, diesel gensets can operate reliably for 20,000 hours or more; rural applications are usually for medium – to large-scale irrigation and for village mini-grids, especially for lighting, entertainment and information (television, radio).

Propane-driven gensets Extensive international experience Fully commercial

Cycle-charge diesel systems (battery/invert-er added to diesel or propane-fired genset)

Used in remote power applications and for village power in some countries

Fully commercial; especially applicable when low-power daytime electricity is required for isolated, 24-hour-powered, community mini-grids; the systems serve as a “platform” for adding PV and wind electric components to reduce diesel or propane fuel use while maintaining full reliability

Note: Diesel and propane gensets and cycle-charge systems are included, because these are often used with renewable energy systems in hybrid configurations.

Application System type Temperature, daily heat delivery range

Cleaning, sanitation Solar water heating (flat-plate units) 40–700C

Production of high-value fruits, spices, exotic house plants among others

Greenhouses Around 20–300C

Crop drying (coffee, tea, fruit) Hot air systems such as solar "tents" and dryers, sometimes with electric fans for air movement; often combined with backup propane units for heat production

40–700C

Drying of beef, fruits and vegetables Flat-plate air collectors 40–700C

Poultry processing Solar hot water (flat-plate or concentrating systems for high-temperature water)

40–1000C

Poultry processing Combustion of poultry litter as a source of both process heat and power generation to operate processing facili-ties

High temperature

Coffee drying and processing Coffee husks used as fuel for biomass furnaces to pro-vide heat for drying and processing

100–700 kWth

Rice-paddy drying Rice-hull-fired dryer made by Pasig Agricultural and Industrial Supply Corporation of the Philippines; 230 kg per hour rice hulls dry 8,000 kg per hour of paddy

Seaweed processing (cleaning, dry-ing, chipping)

SMB units for production of electricity, shaft horsepow-er, and heat; rice-hull combustion/gasification systems for drying.

Table 3-1 continued


Table 3-3 Small-scale agricultural applications for PV and wind electric systems

Application Renewable energy systems Typical peak

Water pumping PV and wind electric water pumping are well-established commercial options

0.3–2+ kilowatts peak (kWp) (PV)

Irrigation, especially drip irriga-tion and microspray techniques, sometimes incorporating fertilizer delivery

PV, wind electric submersible and floating pumps, microhydropower generation

1–3 kWp

Livestock watering PV, wind electric submersible and floating pumps, electric or solar heating to prevent water freezing

0.5–1 kWp

Electric fencing for range man-agement, gate opening

High-voltage, current-limited supply from PV, wind electric, with batteries, inverters, transformers

20–100 watts (50 watts/15 kilometres of fencing)

Farm lighting including for security and safety of scattered buildings

PV/battery-system lighting, typically low-voltage DC, fluorescent lamps

50–500 watts

Forced ventilation in green-houses, crop dryers (coffee, tea, sesame seeds)

PV-driven fans 0.1–1 kWp

Chicken egg incubation PV [50 – 75 watts peak (Wp)] with insulated box and heating elements for hatching 60 eggs

50–75 Wp

Chicken raising PV for lights, ventilation 0.3–1.0 kWp

Lighting (poultry, livestock, fish, UNDP pilot deployment (250 units) in Mali; to be expanded elsewhere in Africa

Small, engine-driven mobile “platforms” that use belt drive to couple generators, grinders, millers, and other equipment to a rotating shaft driven by a small engine; diesel fuel and biofuels derived from local plants are being used; sup-port women’s groups in rural agriculture

Aeration for aquaculture (shrimp and fish farms)

PV, wind electric air pumps; 800 Wp, 500 amp-hours (Ah) battery, DC motor, paddle wheel for a 150-square-metre pond.

0.2–1 kWp

Light for night fishing in Indonesia, Philippines per lantern

PV rechargeable fluorescent lanterns 10–20 watts

Pest control (moths) per lantern PV lanterns with kerosene insect traps, electrical traps (Winrock International India)

10–20 watts

Refrigeration for veterinary ap-plications

PV vaccine refrigeration 50–100 watts

Refrigeration (fruit and other crops, meats, fish, poultry, dairy products)

Wind or PV/fossil fuel hybrid-powered refrigeration units (compressor-driven)

0.5–10+ kWp

Decentralized, refrigerated, stor-age units for milk

Wind electric with double wall ice storage, or with fossil backup (experimental)

Ice making (flake ice for fishing) PV/propane hybrid-powered ice maker demon-strated as commercial system in Mexico; wind electric ice makers are not developed for com-mercial use

2–10 kWp

Telecommunication (for example, to permit local fishermen to deter-mine market prices and opportuni-ties in major urban markets)

PV-powered cell phones, PV-powered satellite phone kiosks as operated by Grameen Shakti in Bangladesh

0.2–0.3 kWh

Radio and television information PV – and PV/wind hybrid – powered radio and television sets to provide weather information to farmers and herdsmen and to owners of food shops

Grinding of corn, wheat, and millet, and milling of grain, hulling rice paddy

PV/wind/hybrid powered electric grinders and millers

0.5 kWe–several kWe

Reduction of post-harvest grain losses

PV-powered ultrasound generator to keep rodents away from grain storage; vacuum packing

50–200 watts


Table 3-4 Applications of renewable energy systems to community services

Table 3-5 Electricity supply options for households and other free-standing facilities

Application Renewable energy systems Typical peak

Potable water supply PV and wind electric water pumping and distribution, with filtration and disinfection (drip chlorination, mixed oxidant process, ultraviolet lights)

0.3–5 kWp (PV)0.5–10+ kWp (wind)

Health clinics PV/wind hybrid SMB for operating water pumping/filtration/pressur-ized distribution, lighting, ventilation; solar thermal water heating (propane backup); PV vaccine refrigerators.

0.5–20 kWe

Water desalination SMB or microhydropower systems can provide the power and en-ergy requirements of desalination equipment.

Internet server for telemedicine PV with small genset as backup 0.3–0.5 kWp

Internet kiosks for Internet access, e-mail and computer services

PV with small genset as backup 0.2 kWp

Rural telephones (cellular systems)

PV, PV/wind hybrids, PV recharging of cellular telephone batteries is now starting to be a rural commercial activity.

100 Watts peak (Wp)

Integrated community services (for example, Greenstar Founda-tion)

PV, wind, SMB, hybrids > 1 kWp

Schools and training centres PV/wind/genset hybrids or SMB or microhydropower for extended power (daytime into evening)

1–5 kWp

Community centres PV/wind/genset hybrids or SMB or microhydropower for extended power (daytime into evening)

1–5 kWp

Churches and mosques PV 1–5 kWp

Public lighting (roads, markets) PV integrated street/public lighting 50 Wp–100 Wp

System type Operating hours Characteristics kWh fromRE (percent) Cost of Service

Small gasoline and diesel gensets (0.5 kWe–5 kWe)

Evening only, 3–5 hours typically; not reliable

Individually owned gensets, some-times with informal connections to one or several neighboring houses; dangerous, unreliable, expensive and widely used

0 US$0.50–US$1.00 per lighting fixture per month

Cycle-charge diesel genset

Full-time system Diesel genset runs several hours daily; battery/inverter subsystem permits full-time availability of AC power

0 US$ 0.40–US$ 0.60/kWh

PV systems (50–75 watts peak)

Full-time system availability

50-watt system provides < 200 Wh of DC electricity per day under ideal sunlight conditions

100 US$1–2/kWh

PV/wind hybrid with battery, inverter

Full-time system availability

50 to 100 watts of PV coupled with 100–300 watt small, wind electric gen-erators for locations with good solar and wind resources.

100 US$0.50–US$1.00/kWh

SMB system Full-time system availability

5 kWe (small amount of diesel or propane fuel may be required for startup); suitable for schools, clinics, enterprises among others

95–100 US$0.25–US$0.50/kWh once routine, commercial production is underway


Table 3-6 Renewable, hybrid and fossil fuel options for full-time and part-time electricity supply for off-grid communities

System type Operating hours Characteristics kWh fromRE (percent)

Prime diesel Evening (5 hours) Household lighting and entertainment only 0

Prime diesel Evening (12 hours) Household lighting and entertainment, plus security lights, streetlights, possibly ice wall refrigerators

0

Prime diesel Full-time (24 hours) Diesel gensets must operate full time collectively; multiple diesels essential to maximize fuel efficiency for meeting evening lighting loads and lower daytime loads; community and productive loads can be sup-plied

0

Cycle-charge diesel Full-time (24 hours) Diesel genset(s) operate around six hours per day, charging batteries while providing evening peak power needs; low daytime needs provided by batter-ies plus DC/AC inverters; community and productive loads can be supplied; permits efficiency optimization of diesel operation

0

Wind/diesel Full-time (24 hours) Same as cycle-charge diesel with integrated wind electric power; requires local wind resources of at least 5 – 6 metres per second (m/s) mean annual wind speed

30–80

PV/propane hybrid Full-time (24 hours) Shell/Community Power Corporation’s Renewable Energy Services Company (RESCO) in Aklan Prov-ince, Philippines, demonstrated that this is a very high-quality, high-reliability option but also a very expensive one and not suitable for providing power for most productive uses or for large-load com-munity services

20–50

PV/wind/diesel (or propane) hybrid

Full-time (24 hours) When wind and solar resources are complementary (for example, seasonally), the use of both PV and wind increases availability from renewable energy resources

30–80

Minihydropower Full-time (24 hours) Medium-voltage transmission from nearby minihydro-power facilities to village mini-grids

100

SMB (Partial to full-time (24 hours) SMB systems using woody biomass such as coconut shells are not available for pilot commercial opera-tions; years for village-level power generation, using 5 kWe to 40+ kWe rated generators

100

Improved charcoal cook stoves and charcoal kilns

Charcoal use is widespread in Asian countries, including among the poor. All users would benefit from wider diffusion of improved cook stoves and from the use of more efficient charcoal kilns. The latter would reduce somewhat the pressure on wood supply and might result in lower prices for charcoal. Useful examples come from Cambodia and Thailand. The Cambodian example below (Box 3–1) was a winner of one of the Ashden Awards for Sustainable Energy9 and was included as a case study in the Cambodian national assessment for this report. In Thailand, under a UNDP/GEF project10, farm-ers are using improved stoves and a new method of charcoal production using airtight steel drums as kilns. In this case, the poor benefit through new livelihood opportunities.

Growth in renewable energy markets

Growth trends in global renewable energy investment

Renewable energy accounted for 13 percent of the world’s primary energy supply in 2004 but their share is as high as 32 percent in Asia (IEA 2007). A regional study undertaken by UNDP identified several models introduced in the region that showcase successful examples of scaling up of decen-tralized RETs particularly in poorer countries of the region. Those models include household biogas in Nepal, solar PV home systems in Nepal, Sri Lanka, and Bangladesh, as well as microhydropower in Indonesia, Nepal and the Philippines. In almost all cases, those markets are the result of public-private partnerships.


The Groupe Energies Renouvelables, Environnement et Solidarités (GERES) set up the Cambodian Fuel-wood Saving Project (CFSP) which has developed a cheap charcoal stove, the “New Lao” stove. This uses at least 22 percent less charcoal than the “Traditional Lao” stoves which are commonly used in Cambodia. More than 130,000 New Lao stoves have been produced by 14 entrepreneurs and sold in Phnom Penh, the capital of Cambodia, over the past three years.

About 95 percent of Cambodians cook with biomass fuels. This is costly, has adverse health effects and is bad for the environment. Cambodia’s great natural biodiversity is threatened by uncontrolled wood consump-tion. Much of this demand is for timber and a significant amount is turned into charcoal which is the preferred cooking fuel in cities, used by 40 percent of the population of Phnom Penh. The area of forest is diminishing but the price of charcoal has hardly increased over the last ten years, reflecting a thriving (but largely illegal) trade, and lack of taxes and other constraining factors. One way of reducing the unsustainable wood consumption is by reducing the demand for charcoal. CFSP have worked with stove users and producers to develop a stove which is more efficient and durable than the conventional bucket-type stoves because of better insulation and controlled air flow. More than 130,000 New Lao stoves have now been sold. The 14 producers work to strict quality standards and are currently produc-ing about 7,000 stoves per month. Although a New Lao stove costs about three times as much as a tradi-tional stove, users are willing to pay for one because they recoup the difference in price within two months through savings on the purchase of charcoal. A network of distributors and retailers has been established and a trade organization set up that oversees pricing and quality.

CFSP is concerned with improving the sustainability of fuel supply as well as reducing fuel demand, and is working in a number of different ways to achieve this. One component of the work is the sustainable produc-tion of wood for charcoal through community forests and plantations. It is also undertaking field trials of two efficient charcoal kilns, which produce one kg of high quality charcoal, with energy content of 31 megajoule (MJ) per kg, from 4.6 kg of wood, compared with the current lower quality charcoal (26 MJ/kg) requiring 6.5 kg of wood. CFSP is also working on briquetting charcoal-dust and crop waste as additional sources of fuel.

*From Ashden Awards for Sustainable Energy 2006, www.ashdenawards.org/winners/geres

Box 3-1 The Cambodian Fuelwood Saving Project*

Among renewables, bioenergy supplies about 11 percent of the global primary energy demand of | 50 exajoule (EJ) per year, of which 7-10 EJ a year is consumed by industrial countries while developing countries consume between 40-45 EJ a year. Heating and traditional cooking consume two thirds of all biomass produced. Most of the biomass in the world is produced and consumed in China and India. Biomass is also used to produce electricity. For example, electricity from cogeneration using bagasse from sugar production is one widely used option in many developed countries and in several developing countries, especially in Brazil, China and a few other countries in Latin America and the Caribbean percent (UNDESA 2005).

Investment in renewable energy sources has been growing rapidly recently because of significant oil price fluctuations and increasing concerns about climate change. The investment, which has been mainly in developed countries, coupled with ongoing technology improvements and cost-reduction policies and programmes, has made the cost of modern energy services from RETs increasingly competitive with those from oil-based systems. RETs are often ideal for rural or remote communities, providing them with sustainable energy services for heating, electricity generation, transportation and other mechanical power applications. They have the most potential for addressing the energy needs of the poor while reducing their demand for oil (UNDESA 2005).

(a) Renewable energy for power generation and electrification

Grid-connected renewable energy power generation technologies, such as small hydropower, wind farms and biomass cogeneration facilities, have experienced the strongest growth and now account for the largest shares of RE capacity both globally and in developing countries (figures 3-1 to 3-3). However, the viability and competitiveness of RET-based power generation facilities depend on many site-specific factors such as local renewable resource endowments and policy and programme support. Thus, some of those facilities may be cost competitive with fossil-based systems in one country but not in another. There can also be differences between subregions within a country.


In terms of technology, the fastest growth in investment in RETs is in solar PV and wind power systems (Table 3-7). But other renewable sources have expanded as well, as indicated in Figure 3-4, which shows the leaders in generating power from renewable resources other than large hydropower. In recent years, some of the fastest growth has been in Asia, particularly China and India.

Installed PV capacity has grown from approximately 100 MWp in 1992 (REN21 2006) to estimated 10,500 MWp in 2007, with an annual rate of increase up to 50 percent in recent years (REN21 2008) (Figure 3-5). 2.5 million households in the developing world have basic electricity services from PV units, although this remains a small number compared with some 300 million homes without electricity (REN21 2008). In 1993-2003, off-grid solar capacity grew from 990 MW to 2,200 MW. The off-grid market for solar home systems in developing countries once drove the global solar PV market. This has changed dramatically in recent years with grid-tied PV systems in the IEA countries dominating the market (IEA 2006).

Ocean (tidal) power, 0Solar thermal, 0

Biomass, 21

Wind turbines, 35

Geothermal power, 5

Small Hydro, 35

PV, 4

Biomass, 24

Wind turbines, 11

Geothermal power, 5

Small Hydro, 60

Figure 3-1 Global renewable energy installations, end-2006(GW)

Figure 3-2 RET-based power generation capacity in developing countries, end-2006

Source: REN21 2008

Source: REN21 2008


Figure 3-3 Renewable energy power capacity (GW) in developing countries, 2004-2006

Table 3-7 Global capacities for renewable energy in power generation, GW

60

50

40

30

20

10

0

Small hydro Wind Power Biomass Power Geothermal Power

2004

2005

2006

Source: REN21 2005, REN21 2006, REN21 2008

Source: REN21 2006, REN21 2008

Add

ed 2

004

End

-200

4

Add

ed 2

005

End

-200

5

Add

ed 2

006

End

-200

6

Add

ed 2

007

End

-200

7 (E

st.)

Renewable Power Generation Capacity (GW) 160 ~22 182 ~25 207 ~33 240

Small Hydro 4.5 61 5 66 7 73

Wind turbines 8.1 48 11.5 59 15 74 ~21 94–95

Biomass power 39 2.5 44 1 45

Geothermal power 8.9 0.3 9.3 0.2 9.5

Solar PV, off-grid 0.33 2.2 0.3 2.3 0.3 2.7

Solar PV, grid-connected 0.63 2 1.1 3.1 1.6 5.1 ~7.7 7.8

Solar thermal power 0.4 0 0.4 0 0.4

Ocean (tidal) power 0.3 0 0.3 0 0.3


Note: excludes large hydropower240

180

120

60

0World

Gigawatts

EU-25 China Germany UnitedStates

Spain India JapanDevelopingWorld

Solar PV (grid)GeothermalBiomassWindSmall hydro

12,000

10,000

8,000

6,000

4,000

2,000

01995 1997 1999 2001 2003

Grid–connected

Off–grid

Total

2005 2007(est.)

Megawatts

100

80

60

40

20

01995 1997 1999 2001 2003 2005 2007

(est.)

Gigawatts

Figure 3-4 Leading countries using renewable energy for power generation in 2007

Figure 3-5 Solar PV, existing world capacity, 1995-2007

Figure 3-6 Wind power, existing world capacity, 1995-2007

Source: REN21 2008, “Renewables 2007 Global Status Report” March 03




By the end of 2006, there were 74,000 MWe of installed wind electric capacity (REN21 2008, GWEC 2008) (Figure3-6). Global sales of wind electric power installations worldwide is estimated at US$ 37 billion in 2007 (GWEC 2008)11, reflecting the average cost of about US$1,761 per kWe and the growth of 21,000 MW of installed capacity from end-2006 to end-2007. In 2007, the global capacity reached 94,000 MWe (REN21 2008, GWEC 2008).

Over the past 15 years the small (0.2 – 50kWe) wind turbine industry has registered remarkable growth. At the end of 2004 United States had a capacity of 30MW, of which 14MW was expected to be sold worldwide in 2005 (UNDESA 2005). Those technologies can benefit rural communities, and in wind/diesel hybrid configurations in locations with good wind resources (mean wind speed of 6 m/s and up), they can be a very attractive option for off-grid AC power supply. Wind energy systems are now also feeding main grids. Among developing countries, India has the largest wind-power system installation in Asia at 6,270 MW in 2006 and estimated 8,000 MW in 2007, followed by China at 2,600 MW in 2006. The Chinese wind energy capacity hit 6,000 MW in 2007 (GWEC 2008). The Philippines has the largest in the South-East Asia region at 25 MW and among the Pacific island countries, Fiji’s is the biggest at 10 MW.

Biomass is the third main type of renewable energy source feeding electricity to the main grid. Cogeneration systems using agricultural wastes, such as bagasse, rice husk, wood waste and oil palm empty fruit bunches, can generate heat and power simultaneously with high efficiency and short payback times of only 2-4 years. Indonesia, Philippines, Malaysia, Sri Lanka, Thailand and Viet Nam have all installed such grid-connected biomass power production facilities (Lacrosse and Shakya 2004).12

Small hydropower systems contribute the most among electrification technologies based on renewable energy that feed the main grid. Over sixty percent of the total global installations are in China (REN21 2008). Other Asian countries that have substantial small hydropower plants include India, Indonesia, Nepal, and Sri Lanka. Compared with other renewable systems, small hydropower installations provide AC electricity full time and at greater power. They are usually developed as community-based energy systems and have often been able to provide energy services more equitably while offering sufficient power for productive end uses in rural and remote areas. However, scaling up those community-based models remains a challenge.

(b) Heating based on renewable energy

Renewable energy sources remain the major fuels used for heating, with cooking and space heating being the main applications. Traditional biomass dominates globally but modern biomass heating systems are increasingly being used, while solar heaters are becoming more common and greater use is also being made of geothermal energy (Table 3-8).

Traditional biomass is the main heating source for most developing countries especially in rural areas. It also remains significant in urban areas, particularly for poor households. In the developing countries of Asia and the Pacific, it is the biggest source of energy for heating (Figure 3-7) and is used mainly for cooking, as in the rest of the world. Woody biomass and agricultural wastes are the main biomass fuels for heating. However, biomass may not actually be renewable in places where high commercial demand leads to unsustainable collection. Also, the bulk of traditional biomass energy use involves inefficient stoves that waste energy and fill houses with smoky fumes that are a hazard to health, particularly for women and young children. Dirty, inefficient technologies and unsustainable resource management practices pose problems with continued and expanded use of biomass.

Modern biomass heating systems, coupled with sustainable biomass resource management practices, such as sustainable forest management, integration of fuelwood production in farm systems and use of agricultural wastes, can supplant traditional biomass heating and be competitive with petroleum-fuel-based technologies. Modern biomass energy systems include improved stoves, boilers, kilns and ovens. They also include biogas systems and biomass gasifiers. Biomass heating technologies are used not only in households but also in enterprises and institutions for large-scale cooking and other heating applications.


Table 3-8 Global use of renewable energy for heating

Figure 3-7 Biomass heating in developing countries of Asia

Renewable energy sourceAdded during

2005

Stock at the end of 2005

Added during 2006

Stock at the end of

2006

Added during

2007 (est.)

Stock at the end of

2007 (est.)

Biomass heating n/a 220 GWth n/a 235 GWth

Solar collectors for hot water and space heating,

glazed

Power 13 GWth 88 GWth 18 GWth 105 GWth 18 GWTh 128 GWth

Surface area (sq.m.) 19 million 126 million 25 million 150 million 33 million ~183 million

Number of homes 7 million 46 million n/a n/a n/a n/a

Geothermal heating 2.6 GWth 28 GWth n/a 33 GWth n/a n/a

Biomass cooking stoves in use

Total, all types n/a 570 million

Improved n/a 220 million

Household-scale biogas digesters in use n/a 21 million 25 million

Source: REN21 2006, REN21 2008.Note: n/a = not available; GWth = gigawatt thermal; sq. m. = square metres.

Source: Heruela 2001

Biogas generation is an alternative to burning the biomass, particularly cow dung. Biogas is a gaseous fuel with low heat value, as measured in British thermal units (BTU), and is composed of methane and carbon dioxide. It can substitute for LPG and kerosene for cooking and other heating applications. Three of the most successful countries in biogas applications are China, India and Nepal. They have developed the technology to commercial stages. It has been reported that Nepal provides 40-75 percent subsidies for family-scale biogas plants (Nepal 2008, REN21 2008). By 2006, China had 20 million biogas users but India too is now making biogas a priority and has about four million household-scale plants (Nepal 2008, REN21 2008) and Nepal (2008) reported that as of July 2007 there were 172 500 biogas plants in Nepal.

Gasification, where biomass is only partially combusted to generate producer gas, is another alternative. Producer gas, composed of hydrogen, carbon monoxide and carbon dioxide, is another low-BTU gaseous fuel that can be used for high-temperature heating applications. There has been a revival of biomass gasifiers and their direct use for heating, led primarily by China and India. All types of biomass, including cut twigs and branches, can be used to generate producer gas which means that users need lop off only parts of trees and thus can harvest biomass more sustainably.

100%

80%

60%

40%

20%

0.00

Maldives

Bhutan

Lao PDR

Cambodia

Sri Lanka

Nepal

Myanmar

Bangladesh

Viet Nam

Malaysia

Philippines

Pakistan

Thailand

Indonesia IndiaChina

PercentWood EnergyOther Biomass Energy SourcesOther Energy Sources


(c) Solar thermal systems

Solar thermal systems have also now become cost competitive as a result of high petroleum prices. They include solar driers used in post-harvest and other agroprocessing applications and solar water heaters for household and commercial applications. Solar thermal technologies, which provide heating and hot water for residential, commercial and industrial uses, have a long history of almost a century of commercial applications. The global market for solar thermal collectors grew by 50 percent between 2001 and 2004 (Sawin 2004). About 19, 25 and 33 million square metres of capacity were added in the following three years, bringing global installations for all uses to an estimated 183 million square metres in 2007 (REN21 2006, REN21 2008). In 2004 around 27 percent of installed capacity was used for swimming pools, while the rest is used for water and space heating for 32 million homes worldwide (Sawin 2004).

Trends in global solar water-heating installations are shown in Figure 3-8. With Japan and India, China is one of the largest markets for solar water heaters in Asia and 40 million solar water heaters are currently in operation in the country. China, long the world’s leader in solar thermal equipment production and use, accounted for 65 percent of global solar heating capacity excluding pool systems) by the end of 2006. China continues to be the world leader also in installing new capacity (about 80 percent of or 14 GWth) created in 2005. China has been installing solar water heaters at a rate of approximately 10-20 million sq. m. a year, which is 6 or 7 times the European rate (Palz 2006, REN21 2008).

There are sometimes large variations in adoption of solar water-heating technologies even among neighbouring countries. Over 100 small workshops in Kathmandu, where the technology was first introduced in the early-1970s, fabricate solar water heaters. Many new houses in the Kathmandu Valley build-in solar collectors into their design. However, this technology is not common in other countries in the Himalayan region where it would be equally applicable. Pakistan and Bhutan have very few solar water heaters, perhaps as a result of inexpensive natural gas and hydroelectricity in the two countries respectively. However, solar water heaters are starting to be adopted in the hilly states of India.

Figure 3-8 Global solar water-heating installations, excluding pool systems, 1998–2004

Source: Worldwatch Institute 2005

20

15

10

5

01997

Million Square Meters

1999 2001 2003 2005


(d) Biofuels for transport

Biofuel production and use has accelerated in recent years not only because of rising oil costs and efforts to achieve energy security but also because of concerns over the rise in greenhouse gas emissions from the burning of fossil fuels. Technological advances in the design of automobiles have also significantly contributed to the increased use of biofuels as the transport sector is the main target for biofuel use. Liquid biofuels have potential to displace petroleum fuels around the world and many countries are in the process of establishing policies to promote their use. Biofuels sales reached US$16 billion globally in 2005, achieving a 15 percent increase over 2004 (Makower at la. 2006).

Biofuels consist largely of ethanol to replace gasoline in spark-ignition engines and methyl esters to replace diesel in compression engines. Ethanol (or bioethanol) comes mainly from corn or sugarcane, although it is also produced on a smaller scale from sugar beets and wheat. Biodiesel is presently derived from vegetable oils such as rapeseed, soy, palm and coconut. One of the newer crops being widely promoted for biodiesel production worldwide, including Asian countries, is jatropha. This is a drought-resistant perennial that can be planted even in wastelands, is easy to establish and grows relatively quickly. There have been substantial social and political pressures to promote its use, supposedly as a means of reducing poverty. World trends in the production of ethanol and biodiesel are shown in figure 3-9. Fuel ethanol production reached 39 billion litres in 2006. Output of biodiesel is expanding even more rapidly, though from a smaller base; by 2006 it had reached almost six billion litres. Even so, the 33 billion litres of ethanol produced in 2005 (REN21 2006) were equivalent to only 1.2 percent of the worldwide production of gasoline by volume – and an even smaller proportion, about 0.8 percent, in terms of transport-distance travelled, because of its lower energy content.

Global ethanol production more than doubled between 2000 and 2005 (figure 3-10) and increased by a further 18 percent in 2006. Over 21 countries currently produce fuel ethanol (REN21 2008). Until 2005 Brazil was the dominant bioethanol producer, making the fuel from sugarcane. However, in 2006 it was surpassed by the United States, a corn-based producer. The United States produced 18.3 billion litres of fuel ethanol or 46.9 percent of the world’s total, in that year while Brazil produced 17.5 billion litres or 44.9 percent of the total. Despite the increase in production, demand for imported ethanol increased six-fold in the United States. In Asia, the principal producers are China and India and they are also in the forefront of biofuels development (REN21 2008). Thailand aims to reduce the cost of oil imports while also supporting cassava growers, and has announced mandates for 10 percent ethanol mix in gasoline starting in 2007. For similar reasons, to support coconut growers, the Philippines announced mandates for 2 percent biodiesel and 5 percent ethanol beginning in 2007. In both Indonesia and Malaysia there are plans to expand biodiesel production from palm oil (REN21 2008, Worldwatch Institute 2006).

Fuel ethanol supplies 30 percent of automobile fuel and 41 percent of non-diesel, motor-vehicle fuel sold in Brazil, where the share of increasingly popular “flex-fuel” vehicles in the non-diesel vehicle market reached 70 percent in 2005 (REN21 2006). By way of contrast, ethanol accounts for just 2 percent of transportation fuel in the United States (Worldwatch Institute 2006). The European Union (EU) increased fuel ethanol production by 70 percent in 2005 and around 78 percent in 2006 although production remains at low levels relative to Brazil and the United States.

In addition to Brazil, China and India that were the first countries to enact mandates for blending biofuels into vehicle fuels; at least 14 other countries have enacted similar mandates at the national level in recent years (REN 21 2005, REN21 2008). The Brazilian Government has recognized the need to ensure that economic benefits from biodiesel production also reach poor farmers when the production of biodiesel expands in that country (Worldwatch Institute 2006).

Biofuels generate jobs in deprived communities where there are very few opportunities for work. The high profit margin in biofuels as a result of current petroleum prices allows investors to reinvest in, and expand, their operations.13 The Brazilian sugarcane industry provides work to about 1 million workers in activities related to ethanol production, implying that 20 cubic metres of annual ethanol production is required for each job created (Moreira 2005).


50

40

30

20

10

0

Billion Liters/Year

Biodiesel

Ethanol

2000 2001 2002 2003 2004 2005 2006 2007(est.)

2000 200535

30

25

20

15

10

5

0World

Billion Liters/Year

Brazil United States China EU Canada

180

160

140

120

100

80

60

40

20

0

US¢ per litre of oil equivalent Peak Oil Price Supply Shock Baseline Energy Security

2007 2009 2011 2013 2015 2017 2019

Biodiesel Brazil

Biodiesel other countries

Figure 3-9 World ethanol and biodiesel production, 2000-2007

Figure 3-10 Global fuel ethanol production, 2000 and 2005

Figure 3-11 Comparison of diesel and biodiesel prices, 2007-2020

Source: REN21 2008

Source: REN21 2008

Note: Figure based on original REP-PoR oil scenario study


Figure 3-12 Weekly prices for vegetable oils at Rotterdam, January 2006 to May 2007

900850800750700650600550500450400

Weekly Oil Prices in Rotterdam (US-$/T)

Jan06 Mar06 Jun06 Aug06 Oct06 Jan07 Mar07 May07

From 1 Jan 2006 until 16 May 2007

Rape oil, EU

Sun oil, EU

Soya oil, EU

Crude palm oil, EU

Global biodiesel production amounted to around 6 billion litres a year in 2006, with most of this production concentrated in Germany and Italy, making the EU the leading producer of biodiesel. Germany alone continued accounting for half of global biodiesel production in 2006 (REN21 2008). Production had already increased by 75 percent in the EU and tripled in the United States in 2005. While conventional diesel vehicles can run on 5-30 percent blends of biodiesel and fossil diesel, several European vehicle manufacturers have approved the use of 100 percent biodiesel in their engines. Other supportive countries include Australia, China, India, Republic of Korea, and Japan. (e) Biofuel production costs

Biofuel production costs depend on a large number of factors, including technology, economies of scale, the price of the feedstock materials and competition for land uses. As a result, they vary among producers. For example, the price per litre of oil equivalent ranged from US$30 in Brazil to US$100 in Germany for bioethanol. Biodiesel prices are generally higher, between US$60 and US$80 per litre of petroleum diesel equivalent [Energy Sector Management Assistance Program (ESMAP) 2005].

Figure 3-11 compares the current expected prices, after refining but without distribution costs or taxes, of biodiesel with diesel, using the four oil-price scenarios presented earlier. This shows that Brazil, at US$45 per litre of oil equivalent, would be capable of producing competitive biodiesel under all scenarios but that other countries, whose prices are currently above US$70 per litre of oil equiva-lent, would be competitive only under the “shock’ and “peak oil” scenarios.

There are some concerns that rising biofuels demand will push up the prices of vegetable oils. From January 2006 to mid-2007, there were substantial increases in the prices for soya oil, sunflower oil and especially palm oil, for which the price increased from US$425 to US$775 per ton (Figure 3-12). This could inhibit long-term investments in biodiesel production even as investment in the production of the feedstock crops is increasing.

Nevertheless, it is likely that over time the costs of producing biodiesel fuels will decrease with increased yields per hectare, improved efficiency in harvesting and conversion, improvements in technology and increased scale of production. This was the experience with sugar-cane-based ethanol in Brazil and corn-based ethanol in the United States and is expected to apply to biodiesel production as well.

Source: GTZ 2007


The role of official development assistance in expanding markets for renewable energy

There has been a substantial increase in Official Development Assistance (ODA) support for both production and use of renewable energy systems over the past several years. Multilateral, bilateral and other public financing flows for new renewables in developing countries reached US$600-700 million per year during 2005-2007. Much of those funds were used for supporting training, policy development, market facilitation, technical assistance and other non-investment needs.

The three main funding sources have been the German Development Finance Group (Kreditanstalt für Wiederaufbau or KfW), the World Bank Group, and the GEF. KfW committed US$300 million to renewables in developing countries in 2007. In the same year, the World Bank Group committed US$ 220 million to renewables (excluding US$ 130 million in GEF co-financing and carbon finance) plus US$690 million for large hydropower. In total, the World Bank Group committed US$ 1.2 billion to renewables in 2007, almost double the amount during the two previous years. According to a pledge made in 2004, the Group is expected to keep increasing its funding on renewables and energy efficiency through the year 2009. The World Bank, UNDP, UNEP and several other agencies implement renewable energy projects that are co-financed by GEF. Over several years the GEF allocation on such projects has averaged US$100 million each year (REN21 2008).

In addition, bilateral assistance agencies, other United Nations agencies and ADB finance renewable energy and recipient-country Governments contribute to development assistance projects. The aid from these sources for new renewables is often in the range of US$5 – US$25 million per year. Specific-purpose investment funds and credit lines established by some of the donors aim at attracting additional private financing (REN21 2008). Public sector investment in renewable energy seems certain to increase in the coming years.

Local financing of developing country renewable energy markets

Local financing for renewable energy in developing countries has been expanding. Donors and market facilitators are helping to increase the number of local financing entities for renewable energy and finding ways to mitigate financing risks for private investors. One often cited example is the India Renewable Energy Development Agency (IREDA) that has provided almost US$1.5 billion in financing for 2.5 GW of renewables since its inception in 1987 (REN21 2005).

The Renewable Energy Business Fund (REBF) has been established in Malaysia to support a full-scale model project under the “Biomass-based Power Generation and Cogeneration in the Palm Oil Industry” initiative. The purpose of this Fund is to provide a financing facility to enable palm oil mills to convert residues to generating electricity.

The project, supported by the Government of Malaysia, UNDP-GEF and the private sector, amounts to some US$21 million of which UNDP-GEF is contributing about US$8 million. Key strategies include providing information services and awareness on biomass energy technology and addressing barriers to the adoption of renewable energy by improving institutional capacity, financial support and policy development. However, an unresolved issue is the extent to which expansion of palm plantations at the expense of complex tropical forest ecosystems and habitat is environmentally acceptable, much less sustainable.

The Malaysia Electricity Supply Industry Trust Account (MESITA) provides financial assistance for rural electrification, energy efficiency and renewable energy projects, as well as for relevant research funding. A regular source of funding exists, since power generators are required to contribute 1 percent of their annual audited revenue to the Account [Australian Business Council for Sustainable Energy (BCSE) 2005a].

In Thailand, the Energy Conservation Promotion Act has been in place since 1992 and promotes energy conservation investment in factories and buildings. Under the Act, the Energy Conservation Promotion Fund (ENCON Fund) has been established to provide financial support to sustainable energy initiatives. The support is targeted at government agencies, state enterprises, NGOs, individuals and businesses that are prepared to implement measures to conserve energy. A regular source of funding also exists for the ENCON Fund as it is financed by a levy on petroleum products. APEC reported that the inflow is approximately THB 1,500 million (US$38 million) per year into the fund and that the balance, as of April 2006, was in the ENCON Fund is approximately THB 6,000 million (US$150 million) (APEC 2006).


The Energy Efficiency Revolving Fund was initiated by Thailand’s Department of Alternative Energy Development and Efficiency (DEDE) in January 2003 to support financial sector involvement in energy efficiency projects. The Fund provides capital at no cost to Thai banks to fund such projects and the banks in turn provide low cost loans to project proponents. The ENCON Fund allocated an initial amount of US$50 million to the Energy Efficiency Revolving Fund in Phase 1 and a similar amount was drawn for Phase 2 (APEC 2006).

The Clean Energy Finance Bank opened in Nepal in September 2006 as a private sector bank to make credit available to hydropower and to promote other clean energy projects.

The renewable energy private sector

During 2006 and 2007 large investors began to take an interest in the potential of the renewable energy sector worldwide and they are partly responsible for the aggressive growth in related technologies. By mid-year in 2007 some 140 publicly-traded renewable energy companies or renewable energy divisions of major companies all over the world shared a total market capitalization of more than US$ 100 billion. The number of such investors, who each had a market capitalization of more than $US 40 million, has increased by 65 percent since mid-2006. (REN21 2008, REN21 2006) In 2006, global wind and solar markets reached US$17.9 billion and US$15.6 billion, up 52 percent and 39 percent respectively, from a year earlier. In the same year, the global market for biofuels reached US$15.7 billion, up more than 31 percent from 2005 (Makower et al. 2007).

In addition to growing investments in renewable energy capacity worldwide, the solar PV and biofuels industries made substantial capital investments in new manufacturing plant and equipment in 2006/2007. The solar PV industry investments were about US$8 billion in 2006 and they were expected to reach US$10 billion in 2007. Investment in new biofuels production capacity worldwide was estimated to exceed US$4 billion in 2007 (REN 21 2008).

$0 $25 $50 $75 $100 $125 $150 $175 $200 $225

20062016Biofuels

Clean Energy Projected Growth2006-2016 ($US Billions)

Wind Power

Solar Power

Fuel Cells

TOTAL

$15.6

$226.5

$69.3

$60.8

$80.9

$1.4

$55.4

$15.6

$17.9

$20.5

Figure 3-13 Projected growth of clean energy, 2006-2016 (billions of dollars)

Source: Makower et al. 2007

Investment in local and diverse biomass power and heat industries is often made by the same companies that generate waste biomass resources. They include timber and paper companies and sugar mills. China continues to dominate the market for small hydropower and solar water heaters. European industry is a major exporter to those countries that do not have their own small hydropower manufacturing base. There is also a recently established but growing market within Europe for upgrading and refurbishing existing plants (REN21 2005).

Venture capital and major corporations

Renewable technologies have started attracting funds from venture capitalists and multinational corporations alike (Sawin 2004). BP and Royal Dutch/Shell have been significant investors in renewable energy development, although Shell has since withdrawn from the PV business. GE, which supplied 15 percent of the global wind turbine market in 2003, has also entered the PV market and is participating in one of the largest solar power projects in Asia, a three-megawatt facility being developed at Yong Gwang, Republic of Korea, from which electricity will be transmitted to the national grid. The International Finance Corporation (IFC) with GEF has financed a 1 MW PV facility for use in


tandem with a 9 MWe hydroplant in the Philippines. Citigroup, one of the largest financial institutions in the United States, has announced plans to begin investing in renewable energy (Sawin 2004), while Goldman Sachs has also made major investments in the sector.

Projections for renewable energy markets have been carried out by a number of market research companies, which forsee a positive scenario for renewables, especially wind and solar PV for power generation, as well as for biofuels. One market forecast put the size of the annual wind electric power market at over US$60 billion in 2016 (Figure 3–13). However, the location of this growth and its manufacturing base is set to change. Previously, growth has mainly taken place in Germany, Denmark and Spain in onshore wind. This is expected to shift towards the developing world, as well as the United States, where wind power has been growing over several years now owing to the extension of the production tax credit through 2008 with plans to extend it further to 2012─2013. In Asia, China plans for up to 20 GW of wind electric capacity by 2020. India already has an established wind industry and manufacturing base that appears well placed to expand. In small hydropower, estimates range for a doubling of capacity from 56 GW by 2020; again much of this will be in China.

Table 3-9 Range of investment and generating costs, 2002 and 2010

Table 3-10 Estimated decreases in capital costs for various technologies, 2004─2015

Low investment cost (US$ /kW)

High investment cost (US$ /kW)

Low generating cost (cents/kWh)

High generating cost (cents/kWh)

2002 2010 2002 2010 2002 2010 2002 2010

Small hydropower 1,000 950 5,000 4,500 2–3 2 9–15 8–13

Solar photovoltaics 4,500 3,000 7,000 4,500 18–20 10–15 25–80 18–40

Biomass power 500 400 4,000 3,000 2–3 2 10–15 8–12

Geothermal power 1,200 1,000 5,000 3,500 2–5 2–3 6–12 5–10

Wind power 850 700 1,700 1,300 3–5 2–4 10–12 6–9

Source: IEA 2003.Note: The discount rate is 6 per cent for all technologies; the amortization period is 15-25 years, and operation and maintenance costs are technology specific.

Generating technology Decrease in capital cost (per cent)

Geothermal, biogas, pico/microhydropower, diesel/gasoline genset 0–5

Biomass gasifier 6–10

Solar PV, wind, PV-wind hybrids 11–20

Source: World Bank 2005

Solar power, including modules, system components and installation, is likely to grow from a US$15.6 billion industry in 2006 to US$69.3 billion by 2016 (Makower et la. 2007). According to another report, the PV industry is expected to continue its rapid expansion over the next decade (UNDESA 2005). Most of the growth is expected to be in grid-connected markets driven by PV-targeted subsidies in Germany and Japan, as well as in the United States.

Biofuels are forecast to grow from around US$20.5 billion in 2006 to US$80.9 billion by 2016 (Makower et la. 2007). IEA projects that world biofuels production could nearly quadruple, to more than 120 billion litres by 2020, if supportive policies continue to proliferate (IEA 2005).


Trends in costs of energy produced by RETs

Renewable energy electrification technologies can be cost competitive with conventional large-scale power generation facilities as shown in a recent study (IEA 2002). Based on the experience of developed and developing countries, IEA (2003) estimated the costs of generating electricity using biomass, solar, small hydropower, wind and geothermal technologies. Table 3-9 presents the findings, showing that at the lower end of the cost spectrum a number of sources, such as biomass, small hydropower, wind and geothermal power plants can, under optimal conditions, generate electricity at 2 to 5 cents per kWh. The results show that renewables are on a par with wholesale electricity prices compared with conventional large-scale power generation facilities based on coal, natural gas and nuclear energy. Even at the higher end of the scale, small hydropower, thermal and wind systems produce energy at costs within the retail consumer power price. Off-grid and mini-grid systems are used widely in developing countries as electricity flowing through the national grid does not reach many rural areas, particularly those that are remotely located. In those rural and remote areas, gasoline – or diesel-powered gensets are operated by utilities or local governments and in some cases, also by private operators for local electricity supply. They are standalone systems, typically 5 kW or less in capacity, providing electricity needed for irrigation, agroprocessing such as grain milling and for nearby households. Where electricity demand is higher owing to more extensive agroprocessing and off-farm livelihood activities, the solution is to install bigger diesel generators, providing up to 500 kW to power mini-grids – electricity networks at the village or district level. In addition, nearby households connect to such systems. Even so, few poor rural households can be found connected to these mostly oil-based mini-grids as the electricity generation costs, driven primarily by fuel costs, remains unaffordable.

Most off-grid and mini-grid systems based on renewable energy could be cheaper than gasoline or diesel generators. A recent study made an economic assessment of the relative costs of electricity generation from systems based on both renewable energy and fossil fuels that included off-grid and mini-grid electrification (World Bank 2005). Different operating conditions were considered and the study anticipated that in 2004-2015 the prices of those technologies would fall as a result of technological innovation and mass production – though by differing amounts corresponding to the maturity of each technology (Table 3-10).

In this analysis, capacity factors of renewable energy systems were considerably lower than 100 percent, owing primarily to the intermittent nature of renewable energy, though the solar PV and wind systems include storage batteries. To allow for the range of circumstances in which the technologies could be operating, the costs were estimated for a “low”, “most probable” and “high” cost trend calculated at three different times (2005, 2010 and 2015). On this basis, the study concluded that for off-grid or mini-grid systems, many renewable energy systems can be competitive with petroleum-based systems.

Off-grid renewable energy systems

The competitiveness of off-grid renewable energy systems as compared with systems based on fossil fuels was analyzed under different crude oil price scenarios in a UNDP (2007) study (see Box 2-2). The competitiveness of pico-hydropower14, solar PV, wind power and a solar PV-wind hybrid with gasoline gensets for off-grid electrification was analyzed using assumptions made in the World Bank (2005) study cited above. A ten-year project life span was assumed in analyzing the generation costs of the various technologies.

a) Renewable energy technologies versus gasoline gensets

Using the lower cost estimates, all off-grid renewable energy electrification technologies are cheaper than gasoline gensets under all oil-price scenarios (Figure 3-14).

Using the most probable cost estimates, wind, small hydropower and hybrid systems remain cheaper under all scenarios. But solar PV was more expensive, except under the “supply shock” scenario and in later years, except for both “supply shock” and “peak oil” scenarios (Figure 3-15).

The same results are obtained if the higher cost estimates for renewables are compared with the generation cost for a gasoline genset (Figure 3-16).


A UNDP study analyzing the impact of rising oil prices on poverty eradication considered the following four oil price scenarios:

• Baseline – Oil prices remain between US$65-US$75 per barrel• Supply Shock – A supply crisis suddenly pushes prices beyond $100 per barrel in the short – to medium-

term, but over the long term prices decline to their previous levels.• Peak Oil – This assumes that the world is reaching peak oil production. Prices rise gradually towards

US$100 per barrel and increase exponentially thereafter.• Energy Security – Concerns for both energy and environmental security lead to reduced oil demand, so

prices fall back to a lower equilibrium at around US$50 per barrel

Source: UNDP 2007

Box 3-2 Future oil price scenarios

Figure 3-14 Cost comparison of off-grid renewable systems versus gasoline gensets, lower cost trends, 2004-2015

Figure 3-15 Cost comparison of off-grid renewable systems versus gasoline gensets, most probable cost trends, 2004-2015

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Note: REP-POR estimates based on the World Bank (2005) study Technical and Economic Assessment: Off-Grid, Mini-Grid and Grid Electrification Technologies and regional study, Overcoming Vulnerability to Rising Oil Prices on the Poor and the Implications for the Achievement of the MDGs.

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Figure 3-16 Cost comparison of off-grid renewable systems versus gasoline gensets, higher cost trends, 2004-2015

Figure 3-17 Cost comparison of off-grid renewable systems versus diesel gensets, lower cost trends, 2004-2025

Figure 3-18 Cost comparison of off-grid renewable systems versus diesel gensets, most probable cost trends, 2004-2015

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Figure 3-19 Cost comparison of off-grid renewable systems versus diesel gensets, higher cost trends, 2004-2015

Figure 3-20 Cost comparison of mini-grid renewable systems versus diesel gensets, lower cost trends, 2004-2015

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Biomass GasifiersBiogas

Small-HydroGeothermal

Lifespan Capacity Capacity factor

Micro-hydro 15 years 100 kW 80%

Solar PV 20 years 100 kW 20%

Wind power 20 years 100 kW 30%

PV-wind hybrid 20 years 100 kW 30%

Biopower – biomass gasifier 20 years 100 kW 80%

Biopower – bio-gas 20 years 60 kW 80&

Geothermal 20 years 200 kW 70%

Table 3-11 Seven mini-grid renewable energy systems

Source: World Bank 2005


Figure 3-21 Cost comparison of mini-grid renewable systems versus diesel gensets, most probable cost trends, 2004-2015

Figure 3-22 Cost comparison of mini-grid renewable systems versus diesel gensets, higher cost trends, 2004-2015

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b) Renewable energy technologies versus diesel gensets

The same types of renewable energy technologies were compared with a 15 kW diesel genset for off-grid electrification. As with the gasoline gensets, the results showed that the renewable technologies were cheaper than diesel gensets for all oil price scenarios based on the lower cost estimates (figure 3-17).

Using the most probable cost estimates, wind, pico-hydropower and hybrid systems remained cheaper but solar PV could be more expensive, except under the “shock” or “peak oil” scenarios (Figure 3-18).

Using the higher cost estimates, renewables remain cheaper than diesel gensets with the exception of solar PV, which becomes the most expensive option at the present time (2007). However, solar PV becomes cheaper than diesel gensets in 2009 under the “supply-shock” scenario and, in 2015, it becomes cheaper under both the “supply-shock” and “peak-oil” scenarios (Figure 3-19).

The competitiveness of mini-grid systems based on renewable energy was also analyzed using the same methods as for the off-grid systems – using both lower and most probable estimates of generation costs in the four oil-price scenarios. The renewable energy systems, shown in Table 3-11, were compared with a 100 kW diesel gensets.


For the most probable cost estimates, five of the systems were still cheaper than diesel gensets. The exceptions were solar PV systems and PV-wind hybrids, which were more expensive except in scenarios where the crude-oil price is above US$70 per barrel (Figure 3-21).

For the higher generation-cost estimates, solar PV is expected to remain the most expensive system. Costs using PV-wind hybrids and wind power almost equal the cost for diesel gensets in 2009 under the “peak oil” scenario but the cost is lower than for diesel under the same scenario in the year 2015 (Figure 3-22).

For remote and underdeveloped rural communities of the developing countries of Asia and the Pacific, the results have considerable significance. They underline the viability of renewable energy for use both by households and for income generation. RETs can be used to increase agricultural production by providing affordable energy for irrigation, grain milling and other crop processing activities that can be intensified with the use of electricity. Electricity can also be used for diversifying and increasing rural production by making possible the operation of hatcheries, aerated fish farms and refrigeration systems for storage and preservation of agricultural produce. Electricity can also be available to power small electric motors in rural, off-farm SMMEs, paving the way for rural industrialization. If agriculture and rural economic development programmes are successful in eradicating poverty, that success can be enhanced and strengthened through the use of RETs-based electricity supply.

Growth trends in renewable energy markets in Asia and the Pacific

Grid-connected systems

Grid-connected renewables in Asia are dominated by small hydropower, biomass-based generation and wind power. Grid-connected solar PV systems are still a novelty in much of the region, with installations limited to a few pilots in the 100-1,000 kWp range. China dominates the small hydropower sector with almost 64 percent of global capacity in the end of 2006 (REN21 2008) and the fastest growth in installations Worldwide, small hydropower is growing at about 10-11 percent a year (REN21 2008, REN21 2006). Other countries in Asia with dynamic small hydropower sectors are India, Indonesia, Nepal and Sri Lanka. Modern industrial-scale, grid-connected, biomass cogeneration systems use agricultural wastes such as bagasse, rice husk, wood wastes and oil palm empty fruit bunches as fuel for efficient production of heat and power in the 1-10 MWe range. The systems are commercially very successful in the region, with typical payback times of 2-4 years. Malaysia and Thailand initiated cogeneration projects with the support of the European Commission (EC)-ASEAN Programme on Technology Transfer for Energy Cogeneration from Biomass in ASEAN countries (COGEN programme), managed by the Asian Institute of Technology (AIT) and Carl Bro International AB of Sweden, and have subsequently formulated and implemented their own national programmes.15 Thailand had installed by mid-2006 over 1,500 MW of biomass cogeneration under its small producers programme since 1994 (REN21 2008). Indonesia, the Philippines, Sri Lanka and Viet Nam also have some biomass-based IPPs but the numbers are much smaller than in Thailand owing to the lack of transparent, consistent and financially attractive IPP laws, regulations and feed-in tariffs.

India is the leader in grid-connected wind energy systems in Asia, with an estimated 8.0 GWe of installed capacity in 2007 (GWEC 2008). India overtook Denmark to be the fourth-largest installer of such systems at the end of 2005. China had 2.6 GWe of wind electric capacity in 2006 and has been adding capacity quickly in recent years; 500 MWe were added in 2005 and 1350 MWe in 2006 (REN21 2006, REN21 2008). Chinese wind energy capacity is estimated to have jumped to 6,050 GWe in the end of 2007. China’s on-shore and off-shore wind energy potential is estimated to be 1,000 GWe and 300 GWe, respectively, according to a national research study carried out in 2007 (GWEC 2008). Earlier wind energy resource mapping conducted under the UNEP/GEF Solar and Wind Energy Resource Assessment (SWERA) programme estimated that the potential is many tens of gigawatts,. In 2005 Japan had around 1.2 GW of wind-power systems and was ranked ninth in the world that year (REN21 2006), while a 20 MWe wind farm is under construction in the Philippines and there are plans to develop several hundred megawatts more over the next several years.16 Pakistan has recently taken some steps to develop its wind resources, signing Letters of Intent to develop over 1,000 MW. In the Pacific, Fiji has a small, grid-tied, 10 MWe wind electric power plant. Most other countries in the Asian and Pacific region have yet to see investment in grid-connected wind systems.


Off-grid systems

Solar home systems – More than 2.5 million households in developing countries receive basic electricity services from SHSs. A large number of those systems are installed in Asia and the Pacific (REN21 2008). In India’s rural areas solar PV had increased to 340,000 home-lighting systems and 540,000 solar lanterns by 2005 (REN21 2006). Some 650,000 SHSs have been installed in China. The rural electrification programme in Thailand used such systems during 2003-2006 to electrify about 200,000 households and Bangladesh has over 150 000 households with SHSs (REN21 2008). Nepal and Sri Lanka have all installed close to 80,000 SHSs each. By 2004 in Indonesia there were about 40,000 of SHSs installed through several donor programmes but the continued growth had started slowing down owing to macroeconomic difficulties (REN21 2005).

There are active programmes to promote off-grid solar home systems in Bangladesh, China, India, Mongolia, Nepal, Sri Lanka, and Viet Nam. Two major initiatives have been launched by the World Bank in collaboration with the host countries. One is the Renewable Energy for Rural Economic Development (RERED) project in Sri Lanka, which expanded on the success of the earlier Energy for Sustainable Development programme. The other is the ongoing Rural Electrification and Renewable Energy Development Project (REREDP) in Bangladesh, which has incorporated end-user financing and has expanded the reach of the programme. Most of China’s market has developed in recent years on a commercial basis, mainly in the north-western provinces and autonomous regions of Qinghai, Xinjiang, Tibet, Inner Mongolia and Gansu. In those isolated regions, a fairly well-developed solar industry and infrastructure now exist for installation, distribution and maintenance (REN21 2005).

With the recent emergence of high-efficiency, white-light, LED lighting, it has become feasible to have bright reading lights and flashlights that can use very small rechargeable batteries. While small solar panels are available for charging, they can also be charged through simple hand cranks built into the lights, with a minute of cranking resulting in about 30 minutes of light bright enough for hand work and for reading.

PV water pumping – There are now more than 50,000 solar-PV pumps worldwide, of which a large number is in India. The Solar Photovoltaic Water Pumping Programme of the Indian Ministry of Non-Conventional Energy Sources installed over 4,000 solar pumps (ranging from 200-2,000 W) in the rural areas. Pilot projects in Maldives and Philippines have also introduced solar PV powered pumping and purification (REN21 2005).

Small wind power – China has produced a large number of isolated wind energy systems that have been installed in Inner Mongolia and by pastoral communities in China.

Village-scale mini-grids – Village-scale mini-grids serving tens or hundreds of households are powered by diesel or propane generators, or microhydropower units. Generation from solar PV, wind or biomass, often in hybrid combinations including batteries and diesel generators, provides an additional technical approach that is beginning to be used on a pilot basis, as for example, in China as part of the national “Brightness Program”. In China there are tens of thousands of mini-grids, which are primarily based on small hydropower, while in India, Nepal, Sri Lanka and Viet Nam the numbers of existing mini-grids are in hundreds or thousands. The Township Electrification Program in China, completed in 2004, electrified 1.5 million rural people (or about 300,000 households) in 1,000 townships with solar PV, small hydropower and some wind power. In 2006, China was planning the next programme focusing on electrifying 10,000 villages and 3.5 million rural households with renewables by 2010 which include small hydropower and up to 270 MW of solar PV. It was also reported that full rural electrification is planned in China by 2015 (REN 21 2006, REN21 2008).

Thermal applications

There are several cooking and heating technologies based on renewable energy that are used primarily in developing countries, especially in rural or semi-rural areas, as described below.

Improved cook stoves – Large programmes for improved cook stoves have been implemented in several countries, including Cambodia, China, India, Mongolia, Nepal, Sri Lanka and Viet Nam. The principal approach in the region includes dissemination of artisan-built stoves using fuelwood and charcoal, where artisans and manufacturers are trained to be entrepreneurs, for example, by the Centre for Rural Technology (CRT) in Nepal, the Appropriate Rural Technology Institute (ARTI) in


India and CFSP in Cambodia. Rural households pay for artisans’ services. Governments or NGOs provide technical assistance and market development support to stove entrepreneurs for design development, training and quality control.

This “enterprise” model has proven to be relatively successful and sustainable, as a result of stove makers having an interest in continuing the business beyond the project period, compared with earlier supply-driven models that provided stoves and low or no cost to users. India had a large government-supported programme, in which stoves were provided to rural populations at subsidized rates. However, in the absence of sufficient maintenance, repair support and quality control, a large number of them soon fell into disrepair and were abandoned. Experience suggests that unlike the assumption that fuel saving is the primary benefit, users place a high value on the other benefits of the stoves such as cleanliness, time saved, convenience and aesthetics, among others. Stoves sold in the market have been able to meet those expectations. The element of space heating was incorporated in improved cook stove programmes in China, India, Mongolia and Nepal, especially in high altitude areas.

Electricity

Comparative Energy Cost (in US$) for 17,500 kcl/h useful energy

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Figure 3-23 Producer gas compared with other fuels for heating, India, 2004

Source: Mande 2005 Note: Figure converted to $US [US$ 1 = INR 41] In India, the programme supported by the central government was brought to a close and was handed over to the states. Unfortunately, there is little information on how the programme has been faring since this development. Worldwide there are 220 million improved cook stoves in use, while there are about 570 million households that depend on traditional biomass as their primary cooking fuel. China, with its 180 million existing improved stoves, has by far the largest share of the improved cook stove market (REN21 2005, REN21 2008). Biogas digesters – The number of biogas users continues to increase in China, India and Nepal, with China reporting 20 million existing biogas users in 2006 (REN21 2008). The technology behind the biogas digesters is relatively simple and requires no advanced expertise thus enabling small local companies to produce them locally. Once the framers are trained, they can build the digesters themselves. In China alone it is estimated that over a million biogas digesters are being produced annually in this manner (Martinot 2005). India has about 3.9 million household-scale biogas plants installed by 2006 (REN21 2008). The hallmark of the Indian biogas program has been an active involvement of NGOs in its implementation.

Government-supported commercialization through private companies has been the dominant approach in the Biogas Support Programme (BSP) of Nepal since 1992. By the end of 2005 more than 150,000 units were installed, of which 96 percent were found to be performing well. The programme has provided quality control, financing and market development support for household-scale biogas plants (sized 4 – 10 cubic metres, with the most popular being 6 cubic metres). Nepal


has also provided around 30 percent subsidies for those biogas plants. During the programme, technical and market capabilities of 60 private biogas companies were strengthened, 100 microcredit organizations were been mobilized to provide loans, and quality standards were developed (AEPC 2006, REN21 2005). A permanent market facilitation organization, Biogas Sector Partnership-Nepal (BSP-Nepal), was established to continue the successful model developed by BSP. The approach is now being transferred to Bangladesh, Cambodia, Lao People’s Democratic Republic and Viet Nam. Programme support has been in areas of technology standardization, quality control, training, grants and financing support for users. Biogas plants have been able to bring about significant quality-of-life benefits to users, but have succeeded to a lesser extent in terms of bringing about economic gains and poverty reduction.

Biomass gasifiers – Small-scale biomass gasification is becoming popular as a commercial technology in many developing countries, especially in China and India but also, for example, in Indonesia, Philippines, Sri Lanka and Thailand. In China there are provinces, where producer gas from thermal gasifiers is provided through piped distribution networks for cooking (REN21 2005).

All types of biomass, including cut twigs and branches, can be used to generate producer gas. Thus, users need lop off only parts of trees and biomass can be harvested more sustainably, resulting in a cheap fuel. In India, producer gas is less than one tenth of the price of grid electricity and costs less than logs, coal and petroleum products (Figure 3-23).

Technology transfer and growth in equipment production capacity

Manufacturing technology is already well established in China and to some extent, in other countries of the Asian and Pacific region for “traditional” renewables, namely small hydropower, biomass generation and solar water heaters. However, when it comes to the “new” renewables, such as solar PV and wind, manufacture continues to be dominated by companies in Japan, Europe and the United States. The recent accelerated growth in wind and solar PV installations, at least some of it in developing countries of Asia, has provided the push for technology transfer and additions to manufacturing capability in those countries. China expects to triple its capacity in PV module manufacturing between 2005 and 2008. India is already an important producer of solar PV components and systems. Growth of the installation of wind turbines has also lately resulted in the transfer of technology for manufacture of components to China and India.

Emerging RET markets in Asia and the Pacific

Disparities in investment and manufacturing capacities by regions, by country and by technology

Developing countries account for around 43 percent of renewable power installations, with China and India responsible for 30 percent of the global capacity. In terms of technology, developing countries dominate in small hydropower at 70 percent of global capacity and in biomass-based generation at 49 percent of the global total in 2006. However, in the “new” renewables, such as wind power and solar PV, the share of developing countries is much smaller. In 2003, industrialized countries accounted for 92 percent of the installed capacity in wind power and 88 percent of PV cell production (UNDESA 2005). At the end of 1995, developing countries had increased their share of installed global wind power to a still modest 11 percent. Just six countries – Denmark, Germany, India, Japan, Spain and the United States – account for about 80 percent of global PV and wind power capacity. In 2007, India and China accounted for almost one quarter of global wind power capacity (GWEC 2008).

The fastest growing energy technology in the world is grid-connected solar PV, in which installed capacity grew 60 percent per year during 2000 to 2004 (REN21 2005). During 2005 and 2006 global capacity grew from 3.5 GW to 5.1 GW while the estimate for 2007 is 7.8 GW. The top three in existing and added capacity in 2006 were Germany, Japan and the United States (REN21 2008).

There are large differences among the developing countries of Asia and the Pacific. Reflecting their combined populations, China and India account for over 70 percent of all RET installations among developing countries (REN21 2008). China dominates in terms of absolute investment in renewables, tying with Germany as the largest global investor. It also has the largest manufacturing base in the world for small hydropower and solar water heaters. Within the region, the Pacific island countries, which are most in need of renewable alternatives, are slowest as a group in their adoption.


Despite the current global shortage of solar-grade silicon (Makower et la. 2006), Asia is leading the increase of PV manufacturing capacity worldwide. The total market share of photovoltaic manufacturing companies based in Asia rose to 60.8 percent in 2005. China more than doubled its market share from 4.1 percent for 52 MWp in 2004 to 8.3 percent for 151 MWp in 2005. With the passage of the Renewable Energy Law, China will probably continue to gain market share in the region. Companies in Malaysia and the Philippines have expanded solar-cell manufacturing capacity and Thailand is also intending to set up a solar-module manufacturing plant.

The emerging roles of China and India

China and India are clearly the leaders among developing countries in RETs taken as a whole, with Brazil the leader in worldwide ethanol production. So far, developing countries have shown leadership in the “traditional” renewables. China is the worldwide leader for small hydropower, solar thermal and off-grid small wind electric power and biogas. China and India are now also asserting leadership positions among developing countries in the so-called “new” renewables. India is now the fourth-largest installer of wind energy in the world and both China and India are adding rapidly to their manufacturing capacity for solar PV and wind. The advantages of strong manufacturing bases in those countries accrue not only to them but also to poorer developing countries which will be able to access RETs at lower costs. China is a major exporter today of small hydropower equipment and solar water heaters.

China’s total annual use of renewables surpassed 115 million standard coal equivalent, accounting for 20 percent of the nation’s total energy use in 2004. China has climbed to the top position globally both in total applications of renewables and in the proportion of renewables in overall energy use. The other emerging leader in renewables is India. Government commitment to achieving ambitious targets, a supportive tariff scheme, a strong manufacturing base and excellent resource potential in wind, biomass and solar make India an attractive long-term proposition for investors. India’s rapid growth in energy demand and support for renewable energy technologies is fostering a positive environment for the development of the sector. The Ministry of New and Renewable Energy (formerly Ministry of Non-Conventional Energy Sources) expects renewable energy capacity to double every five years. More innovative solutions are being pioneered in parts of India where grid access is weak and distributed energy generation is necessary to meet much of the energy demand. For example, the largest hybrid solar PV-diesel system in India has recently been launched, comprising a 50 kW PV array acting alongside a base load diesel generator.

Status of other countries

The status of RETs in other countries of Asia and the Pacific is quite mixed. A number of countries have set renewable energy targets which they are on their way to fulfilling, even though the targets may be ambitious as in the case of Malaysia, the Philippines and Thailand. Thailand in particular has been able to attract substantial private investment in biomass-based generation for the grid. Other countries such as Bangladesh, Nepal and Sri Lanka in South Asia are looking to renewables to meet energy access targets. They have commercialization models in place to supply solar PV home systems, household biogas and, in the cases of Nepal and Sri Lanka, community village hydropower systems. Patterns of growth in RETs

Booming wind energy markets in India and China

Asia’s wind energy market is led by India, with 8.0 GW installed capacity at end-2007. This is followed by China (6050 MW), Japan (1538 MW), Australia (824 MW), New Zealand (322 MW), Taiwan (282 MW), the Republic of Korea (191 MW), Philippines (25 MW) and Pacific Islands (12 MW) (GWEC 2008). India’s estimated wind power potential is around 65,000 MW at 50 metres above ground level and wind farms have been installed in more than eleven states (GWEC 2008). More than 95 percent of installed capacity belongs to the private sector and a good number of wind turbine manufacturers are producing wind electric generators (WEGs) of 225 kW to 2000 kW rating. A large number of agencies have been set up to supply components, spares and accessories and to provide services such as installation, operation and maintenance, as well as civil and electrical construction and consultancy (GWEC 2008). Wind-solar and wind-diesel hybrid systems have also been installed at a few places. Suzlon, India’s largest manufacturer and operator of wind turbines, with over 50 percent of the domestic market and about 10 percent of the global market, recently announced plans for a 100MW wind farm in the State of Kerala.17


China is also emerging as a major market for wind energy, with the fastest growth in energy supplied from this source over the past few years. It is hoped that domestic wind turbine manufacturing by subsidiaries of international corporations will bring local benefits and keep costs low (GWEC 2008). At the same time, purely local manufacturing facilities are also emerging as domestic wind-turbine manufacturers have entered the market in recent years. The two main Chinese manufacturers, Goldwind and Sinovel Wind, accounted for 33 percent and 6 percent of the domestic market, respectively, in 2006 (REN21 2008). In 2007, their combined share of new installations was 42 percent. GWEC reports that at the end of 2007 there were 40 domestic wind turbine manufacturers and that their share of domestic equipment installation is expected to increase substantially in future (GWEC 2008).

Solar PV in Asia

(a) Japan, China, India, Thailand

Within Asia, solar PV technology recorded the highest growth rate among various RET applications in the last decade, albeit from a very low base. In 2004, photovoltaic devices manufactured in Japan had a global market share of just over 50 percent; four of the top ten manufacturing companies in the world for such devices are Japanese. A recent study by Credit Lyonnais Securities Asia concluded that despite planned future decreases of subsidies for PV, all 25+ companies interviewed anticipated continuous growth of at least 30 percent per year for the Japanese photovoltaic market (Rogol et al. 2004). Japan had an installed capacity of 860 MWp in 2003. It was followed by Australia (45 MWp), China (45 MWp) India (44 MWp) and the Republic of Korea (6 MWp) [Asia Pacific Energy Research Centre (APERC) 2004].

Besides Japan, China is emerging as a solar PV manufacturer For the first time in 2005, a company from Taiwan Province of China, Motech Industries, reached the top-10 list of producers (Jäger-Waldau 2005). In China, solar PV cell manufacturing more than tripled, from 65 MW to 200 MW, with manufacturing capacity of about 300 MW by year-end. Module production more than doubled, from 100 MW to over 250 MW, with production capacity approaching 400 MW by end of 2005. Three Chinese PV manufacturers announced plans to expand PV production by more than 1,500 MW by 2008-2010 (Nanjing CEEG PV Tech, Yingli Solar and Suntech Power) (Jäger-Waldau 2005).

In 2006, China was again the market leader for PV equipment outside of the International Energy Agency Photovoltaic Power Systems (PVPS) programme countries , with additional capacity of about 15 MW and total installed PV capacity reaching 85 MW (IEA 2007b). Remote and rural electrification including solar home systems, village power and pumping applications accounts for a large share of the market (approximately 50 percent reported in 2005). The target of National Village Electrification Programme is to deliver solar power to 10,000 villages (265 MW) by 2010 and to additional 18,000 villages (1,700 MW) by 2020. The Renewable Energy Law came into effect in the beginning of 2006. It is the principal national policy framework that supports the Chinese Government’s announcement to meet 15 percent of the total primary energy consumption from renewable energy by 2020 (IEA 2006). The preferential area covers all modern forms of renewable energy, such as wind, solar, biomass and biogas energy, for which the Chinese Government has also established specific short – and medium-term targets (IEA 2008). The Law includes support for PV via a feed-in tariff, preferential taxes and loans and specific encouragement of building-related solar (IEA 2006).18

In India, the Ministry of New and Renewable Energy has been supporting PV dissemination and development for over a decade. Of the total installed PV capacity in the country, the Ministry’s programmes account for about 50 percent (IEA 2006, IEA 2007b). Even though PV home-lightning systems are targeted to those villages that are not likely to receive to a grid-electrification, PV home-lightning systems will be installed in some 900 000 households (IEA 2007b).

(b) Malaysia

In 2006, PV growth was low in Malaysia, amounting to only 4,52 kW (IEA 2007b). In 2005, the grid-connected PV amounted to less than 15 percent of Malaysia’s total installed PV capacity of 3 MW. The focus of the domestic PV sector is on the development of grid-connected, building-integrated PV. The Malaysian Building Integrated PV project, worth US$25 million, commenced in 2005 with the aim of supporting and creating a sustainable PV sector in Malaysia (IEA 2006).


(c) Sri Lanka

In Sri Lanka, PV market development have been mainly driven by the RERED project. At the end of 2006 about 3.6 MW or 80,000 units of PV solar home systems were installed under the project. Earlier the Energy Services Delivery Project had installed about 1 MW of 21,000 solar home system units during 1997-2002 (IEA 2007b). The project will provide around US$28 million specifically for solar PV investments along with other renewable energy technologies, energy efficiency and demand side management measures (IEA 2006). Some additional financing to electrify at least 60,000 more households with off-grid electricity services under the RERED project was approved by the World Bank (IEA 2007b).

In the Pacific, a few countries, notably Kiribati and Tonga, have achieved relatively high percentages of rural electrification through solar power through donor support. Kiribati has a successful PV-based rural energy services company that collects fees for service to cover maintenance, repair and replacement of the equipment. In contrast, Tuvalu has moved backward from nearly 40 percent of rural households electrified by solar in 1995 to almost total electrification by diesel in 2000. But with almost one million households not connected to the grid, the few thousand homes with solar power or hydropower represent only a fraction of one percent of the total off-grid electrification needs in the Pacific.

Solar thermal technologies in China

China dominates the market for solar water heaters. Total sales volume in 2006 in China was 19.5 million square metres, a 25 percent increase in existing capacity. China continued to be the world leader in 2006 and installed 78 percent of new global capacity (over 13.5 GWth), with almost 65 percent of global installed capacity (REN 21 2008). Even though there are no explicit policies in place to promote the use of solar hot water technology in multi-storey urban buildings, due to the rising energy costs and an increase in public demand ,developers have already begun incorporating the technology into their building designs and constructions. The government in its efforts to help the industry mature has put in place programmes to establish building codes and technology standards and has set up testing and certification centres to enforce them (Martinot 2005). The Chinese solar-water-heating market is driven mainly by unmet demand for hot water, economics and systems that sell for a small fraction of the prices found in developed countries. Currently, the main use of solar energy in China is the supply of hot water to urban and rural households. The cumulative installed capacity of solar water heaters surpassed in end-2006 97 million sq. m. of collector area in China (REN21 2008). By 2020 the total installed capacity of solar water heaters is expected to reach 270 million sq. m., this figure is expected to nearly double by 2050 to 500 million sq. m. This translates into a potential savings of 81 billion kWh in 2020, reducing the peak power loads by up to 110 GW. While in 2050 the potential savings are expected to reach 150 kWh, reducing peak power loads by up to 200 GW (Martinot 2005).

China’s manufactures lead the world in terms of solar thermal equipment, more specifically solar water heaters, with a production capacity of over 16 million sq. m per year. The top ten brands of solar water heaters including Anhui Liguang, Lianyungang Taiyangyu Company, Nantong Sangxia Company, Guangdong Jiaputong Company, Yunnan Tongle Company and Shandong Sangle Company have combined annual sales of over 100 million RMB. The diversity of the market is highlighted by the fact that the top ten brands account for only 20 percent of the market which consists of over 1,000 manufactures. The industry is not only attracting attention from manufactures within the sector but also from outside recently famous household appliance enterprises Haier, Ocma and Huati ventured into the solar hot water market (Martinot 2005). Backed by supportive policies, India and several other countries are also witnessing a boom in solar hot water installations.

Emerging biofuel markets in China, India, Japan, Malaysia, the Philippines and Thailand

By contributing to transportation fuels and in some cases, power generation, biofuels can reduce the risk many countries face of escalating fossil fuel costs which then translate into higher rates of inflation. Commercial development of biofuels, which was limited to Brazil and had spread to China, India and Malaysia, is now likely to be of interest to many developing countries with large agricultural populations. Several countries including India have mandates for this. In India, the Government mandated 10 percent ethanol blending in nine states starting in 2003. Biofuels are of particular interest to island nations that are already suffering high fuel costs owing to their small size and remoteness. Those islands grow an abundance of palm and coconut which could be turned to biodiesel.


China was the fourth largest producer of fuel ethanol in the world in 2006. Fuel ethanol production in China was estimated at 1 billion litres in 2006 (REN21 2008). Four provinces, Heilongjiang, Jilin, Liaoning and Henan require ethanol to be mixed with gasoline in a 10 percent ratio (Martinot 2005) with five additional provinces slated for a similar mandate in 2005 (UNDESA 2005, REN21 2008). In 2006, China exported about 500,000 tonnes of ethanol produced primarily from corn and cassava and shipments are expected to increase – the country had virtually no ethanol exports for fuel in 2005. China is working to increase the use of biofuels to reduce dependency on imported oil and to secure incomes for hundreds of millions of farmers. The country has plans to reserve 44 million hectares of land for biofuel feedstock production. Over the longer term, the country is looking to develop biodiesel fuels from crops such as jatropha and ethanol from cellulosic products such as agricultural and forest waste. The Government opposes the use of edible grains for production of biofuels.

Commercialization activities are being accelerated in several countries such as India, Japan, Malaysia, the Philippines and Thailand, partly because of the dramatic increase in oil prices since 2005.19 “Gasohol” or gasoline blended with up to 5 percent alcohol (produced from cassava, sugarcane or corn) is now sold at gas stations in those countries. The Government of Thailand is supporting the development of 18 new ethanol plants. Diesel blended with up to 1-2 percent biodiesel – methyl ester produced from vegetable oil from coconut, palm and jatropha, including used cooking oil – is now being marketed in those countries. Japan has expressed an interest in supporting development programmes for the production of biofuels feedstock in neighbouring countries with a view to importing biofuels for its own use. In the Philippines, coconut-derived biodiesel is expected to cut demand for petroleum diesel by 5 percent. There is much room for growth in biofuels use globally, as the world relies for 3 percent of its petrol consumption on liquid biofuels at present (Palz 2006) and demand for transportation fuels is expected to continue to grow.

The Philippines has the largest, continuous-process biodiesel refinery in Asia. The Manila-based facility, owned by Chemrez and dedicated in April 2006, produces 60 million litres per year of coconut methyl ester, a high quality biodiesel fuel produced from refined coconut oil, which has important particulate emissions reduction properties when mixed with automotive diesel and used in older, often smoky vehicles in Asia. Growing small hydropower capacity in China, India, Nepal, Sri Lanka and Viet Nam

More than half of the world’s small hydropower capacity exists in China, where an ongoing boom in small hydropower construction added nearly 6 GW of capacity in 2006. In 2006, capacity increased by 7 GW to total 73 GW worldwide, with 47 GW installed in China alone as the boom in small hydropower investment there continued (REN 21 2008). With the aid of loans from agricultural banks rural entrepreneurs in China have been able to establish and run small hydropower stations. Three years of revenue from the sale of electricity is said to be sufficient to repay the initial bank loan. Interconnection of multiple stations into country-level grids has been facilitated by the fact that the industry has already been put through the process of standardization (Martinot 2005). Small hydropower systems, including pico-, micro – and minihydropower, are being developed by other countries of the region, including India, Nepal and Viet Nam.

There are a large number of projects that have supported mini-grids based on community-managed microhydropower systems. Government and donor support has been in terms of providing social mobilization inputs through NGOs, grants and financing to communities, and training in operations and maintenance, as well as management of systems including the integration of productive uses of electricity. The experience in Nepal with small hydropower has been positive, in terms of market expansion, private investment and increasing access for the poor and 7.6 MW of microhydropower has been developed by 2005. However, other countries, including Indonesia and the Philippines, have had moderate to slow growth in this sector.

Viet Nam has one of the world’s largest markets for small, household-scale pico-hydropower systems for which up to 150,000 generation kits have been sold. Such systems provide between 100 and 1,000 watts. However, with the large, rural, dispersed market, quality remains a problem and often means high maintenance costs which can exceed the initial capital cost. Another problem with cheaper systems is that voltages vary with water flow and can damage electrical appliances. Safety standards are also less than adequate. Viet Nam has a significant internal manufacturing capacity in the hydropower sector. Engineers at the Institute of Materials Science of the Viet Nam National Centre for Natural Sciences and Technology have designed three new types of microhydropower


Endnotes8 Comprehensive reviews of the production and use of renewable energy systems are provided

in the annual reports and periodic updates of REN21, IEA and renewable energy trade journals, as well as by renewable energy industry associations such as the Global Wind Energy Council (GWEC).

9 www.ashdenawards.org/winners/geres10 Project Records HTA-02-04 and THA-00-G29 from the GEF Small Grants Programme (SGP)

project database available at www.undp.org/sgp11 Global Wind Energy Council, February 2006, www.gwec.net12 http://www.cogen3.net/13 Yale Global online, available at http://yaleglobal.yale.edu/display.article?id=6555.14 Pico-hydropower systems are those generating up to 300W and microhydropower from 300W to

100kW.15 http://www.cogen3.net/16 The potential in the Philippines for commercial wind electric power plants is well over 10,000

MWe, as revealed by a comprehensive, high-resolution, wind energy resource assessment by the National Renewable Energy Laboratory (NREL) of the Department of Energy in the United States.

17 http://www.suzlon.com/18 From the IEA PVPS programme web site, http://www.iea-pvps.org/intro/index.htm19 As reported in the Second Biomass-Asia Workshop, Bangkok, Thailand, 13-15 December 2005,

http://unit.aist.go.jp/internat/biomassws/02workshop/about.html20 According to BP (2007) the installed geothermal capacity remained 1930 MW in 2005 and ac-

cording to IEA (2008) Selected 2005 Indicators Electricity consumption in Philippines is 49.73 TWh. Thus geothermal accounts 19 percent of the country total electricity requirements also in 2005.

21 See http://www.doe.gov.ph/geothermal/default.html

systems suitable for different types of water flow. Those are now being exported to New Zealand, Papua New Guinea and the Philippines. Importantly, Viet Nam also manufactures its own mini – and microhydropower components for systems up to 2 MW capacity. Locally manufactured components cover various types of turbines (Francis, Kaplan, Pelton, Crossflow and Propeller) and associated equipment for installations. The experience in the Pacific has been quite negative, with less than 50 hydropower systems installed so far, many of which have fallen into disrepair.

Geothermal power in the Philippines

The Philippines is the world’s second-largest user of geothermal energy for power generation (BP 2007). There is over 1,930 MW of installed capacity, which generated a total of 9,400 GWth of energy in 2003.20 This energy accounts for 19 percent of the country’s total electricity requirements. There are two companies involved in developing geothermal fields in the Philippines, both of which sell their steam to the state-owned National Power Corporation.21

Commercialization models for private investment in off-grid solar home systems and household biogas

Government-supported commercialization through private companies is increasingly becoming a popular strategy for scaling up access to solar home systems. Government support has been in the areas of training, quality control and technical support to pre-qualified private suppliers and distributors of PV systems. Grants and credit financing are provided to users. Such programmes are active in Bangladesh, Nepal and Sri Lanka, as well as certain markets in China, India, Mongolia and Viet Nam. Growth in the number of SHSs is taking place where the affordability problem has been overcome with grants or microcredit and where government and international donor programmes have supported markets and capacity building. Significant innovation is occurring in financing the systems with NGO-based microfinance, dealer-supplied credit and consumer credit through commercial banks.

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4. Barriers to Private Investment in Renewable Energy Technologies and Barriers to Access by the Poor


4. Barriers to Private Investment in Renewable Energy Technologies and Barriers to Access by the Poor

There are barriers to investment by both the private and public sectors in renewable energy projects that specifically target the poorer segments of the population. In addition, there are barriers that the poor face in gaining access to modern energy services, independent of their energy sources. This chapter addresses both of those areas.

Barriers to private investment in renewables

The rapid and widespread diffusion of renewable energy options, especially for off-grid rural applications, is confronted by often substantial and pervasive market barriers. Potential investors and project developers are often dissuaded from investments in those applications because of uneven and often discouraging financial performance of initiatives based on renewable energy directed at providing energy services for poor communities. Although renewable energy applications for rural regions of the developing world have been underway for over two decades, in many developing countries a commercial investment track record is just beginning to be established. Even after all the effort that has been focused on bringing renewable energy solutions to rural areas, very few projects and programmes have yielded commercial returns that would justify large investments by the private sector, either in marketing RETs to the rural poor or to using renewables as the basis for provision of modern energy services. In part, this reflects the widespread lack of sufficient public-private partnerships that can provide the private sector with sufficient opportunities and incentives to earn an adequate return on investment. The outlook is not entirely bleak however. There are notable exceptions to this circumstance, including the commercial diffusion of solar home systems in India and Sri Lanka, residential-scale biogas plants in Nepal and minihydropower plants (with associated local mini-grids for power distribution) in Sri Lanka. Those private sector-led initiatives all received substantial “jump-starting” and risk underwriting to facilitate market entry and development.

Within the Asia-Pacific region there is a broad spectrum of barriers that varies from country to country and, for larger countries, by province or state. The Cambodia and Solomon Islands national assessments and respective case studies (volumes III and VII of this study) provide illustrative examples. Cambodia has one solar supplier, an international donor project for supporting expansion of PV enterprise is several years late and market finance is very difficult to obtain. The Triodos Bank of the Netherlands has invested in the one supplier, who sells just a few hundred systems per year. In the Solomon Islands, the lack of local technology is a major barrier; there are no commercial equipment suppliers and solar water heaters are imported from Australia and New Zealand.

Many of the often-cited barriers to investments in renewable energy projects and programmes have been largely overcome in some countries, including Bangladesh, China, India, Malaysia, Sri Lanka and Thailand. For example, lack of awareness about the technical and financial performance of renewable energy systems was a widespread barrier to investment almost everywhere a decade ago, but this barrier is no longer so pervasive. There remains an ongoing need to demonstrate the reliability of renewable energy systems by further establishing a track record of performance, cost-effectiveness, applicability to rural areas and sustainability through organized professional technical support services (APEC 1998).

Where investors have come to understand the nature of RET investments – coupled with clear supportive policies and programmes – significant investment has often followed. This is evidenced by the rapid increases in investment in the biomass-based IPP sector in Thailand and in the minihydropower sector in Sri Lanka. Growing commercial investments are taking place with off-grid renewables (biogas, SHSs) in Bangladesh, Nepal, and Sri Lanka, where the number of private companies and NGOs operating as private companies has increased rapidly to meet the needs


of the market as the “rules of the game” have become clear. In India, Winrock International India has been conducting awareness-generation programmes on RET lending for the financial sector for many years. As a result of this and the efforts of other early entrants such as the Solar Energy Light Company (SELCO) in India in rural off-grid markets, solar PV has become a popular lending area for commercial banks in India. This, in turn, has facilitated rapid growth in markets for PV systems and services.

Some of the remaining important barriers that persist in some countries of the region are summarized below. They can be characterized as “first-generation” barriers, because they are the initial barriers faced by the private sector, the public sector, NGOs and others in attempting to bring renewable energy applications to the development process. “Second-generation” barriers, discussed below, apply to countries and regions where the first-generation barriers are largely ameliorated. They include the lack of good models for the robust and widespread scaling up of renewable energy investments and applications and inadequate or non-existent financing mechanisms for large-scale renewable energy initiatives for rural areas. The lack of effective “tool kits” for linking modern energy services based on renewable energy with socially and economically productive activities on a large scale constitute what may be considered “third-generation barriers”. The poor have insufficient resources and lack the knowledge to adopt renewable energy technologies as a means to higher incomes and linking microfinance with renewable energy may be the way forward.

First-generation barriers

Uncertain (and typically low) rates of return – When compared to conventional energy projects, the returns on investments for renewable energy projects are often perceived uncertain and low. Predicting the rate of return for renewable energy projects is made even harder by the fact that renewable energy projects have a limited track record in most developing countries, which makes it difficult to accurately forecast sales and expenses. Uncertain government policies and regulations, political instability, changing markets and currency risk have a large bearing on the project’s bottom line, however project developers have only limited control or no control over these variables (APEC 1998). Investors may require higher than usual rates of return and lenders may insist on high equity stakes by investors as well as higher interest rates and shorter payment periods than with more traditional energy projects.

High transaction costs

Projects at rural areas, such as small rural energy projects, usually have relatively small capital requirements. In some cases the transaction costs of undertaking the due diligence process for a small project can however end up becoming a significant portion of the overall financing sough for the entire project (APEC 1998), because transaction costs are relatively inelastic with respect to project size. Consequently, pre-investment costs (including financing, legal and engineering fees, consultants) have a proportionately higher impact on the total costs of RET projects. Bundling of small projects into larger projects can reduce unit transaction costs, and government assistance in fast-tracking such projects can speed investments and reduce risks to investors. Standardized procedures for establishment of small RET projects can contribute to fast-tracking and reduction of transaction costs. This approach has allowed the World Bank, in partnership with the Governments of Bangladesh, China, India and Sri Lanka, to overcome much of the transaction cost barrier.

Unsuitability of conventional credit for financing RETs

Conventional credit is not well suited to the specific conditions for investment in RETs for rural applications. Renewable energy systems are capital-intensive (but with little or no associated fuel costs) and require often significantly larger up-front investments per installed kilowatt of capacity and longer repayment periods than fossil fuel technologies. Investors may therefore prefer to invest in systems with shorter payback periods, thus lowering their long-term risk exposure, even if those systems based on fossil fuels are more expensive and, owing to unknown future fuel costs, have greater financial uncertainties on a long-term, life-cycle basis. Governments, through valuing the greatly reduced future energy cost uncertainties from renewable energy systems over those of fossil fuel systems, could translate such decreased national risk into local incentives for RET projects. However, the capture of such important externalities into national energy policies has been slow to develop. This extends to internalization of external benefits of renewable energy systems including environmental advantages relative to fossil fuel use, minimization of fuel availability and quality risks, as well as reduced foreign exchange loss for renewable energy systems with high domestic value added.


Lack of experience with renewable energy project and equipment lending

The lack of experience on the part of local banks and national development banks has inhibited investment in renewable energy applications that could benefit the poor. Few commercial and development banks in Asia and the Pacific have the training, experience or lending instruments to lend for renewable energy initiatives.

Over the years, barriers to private investment in grid-connected renewables appear to be less formidable than before, as evidenced by significant renewable energy investments over the past five years in China and India, as well as in Nepal, Sri Lanka and Thailand and, to a lesser extent, in Viet Nam. However, those barriers continue to present serious obstacles to investment in many other countries of the Asian and Pacific region that have yet to see established the enabling conditions that would lead to a flourishing of renewable energy IPPs. Private investment in off-grid renewables remains limited in much of the region, although there are markets where targeted public investments have encouraged private investment in household solar PV systems and biogas plants (see chapter 6).

Second-generation barriers and the scale-up challenge

For countries where the first generation barriers have largely been addressed, tackling the second-generation barriers – those that inhibit the rapid and widespread scaling up of renewables – is the principal challenge. Renewable energy technology has advanced to the point where large-scale production of fully commercial, reliable systems is now a reality for PV, small wind, microhydropower and biogas systems. Now we must cross the new energy access frontier and to do so “integrators” that link the energy systems with income generation are needed. Ironically, failed development programmes sometimes leave behind technical expertise that can be employed in scale-up programmes, but there must be a more effective and efficient approach to develop such capacity than expensive failed projects. Moreover the failure of such projects seriously discredits the use of renewable energy systems, even though it is not the equipment but the project and programme design that usually fails. (The use of poor quality equipment and the absence of persistent, competent technical support for its maintenance, repair and replacement also result in unnecessary equipment failure.)

Several conditions are essential for facilitating pro-poor renewable energy investments as well as the scale of investments and applications needed to reach a significant number of poor people. A strong enabling policy and regulatory environment is vital to create an environment conducive to the development of renewable energy; the lack of such policy and regulations is often the principal barrier to the scaling up of renewable energy applications. As this is still the case in many countries, it appears that modern energy services based on renewable energy and access for the poor to such services are still not priorities in most national development programmes. For scale up in applications and access, Government commitment is essential.

There is too little knowledge of models for renewable energy commercial project and programme implementation. Behind successful energy access models are strong and effective local financing institutions.

The urgent need for skilled human capacity in many sectors remains largely unmet. If renewable energy implementation is to be scaled up substantially, a significant reservoir of skilled staff in different sectors will be needed. Building this capacity is not addressed sufficiently in many countries of the region. Moreover, renewable energy projects that have provided strong training to local technicians and engineers are often left with inadequate technical support when those people take jobs in other sectors where their new technical skills are more highly compensated. This domestic drain of skilled people from the renewables sector to other higher-paying sectors remains a problem for many renewable energy projects and programmes.

Projects are necessary to establish successful models for energy access and renewables, but moving from projects to programmes on a broader scale is essential for a meaningful impact on off-grid development. Most rural renewable energy projects are of three – to five-year duration. At the point where effective technical and institutional expertise and sufficient human resources have been established, the projects are often ended without any follow up. Long-term programmes are absolutely essential for building the infrastructure, capacity and services that will enable the use of services based on renewable energy on a meaningful scale for poorer communities, enterprises and households.


There is a need for large-scale, long-term, public-private partnerships that bring capital, technology, management, supportive policies and other resources to facilitate clean energy development and energy access. Such partnerships are also essential to underwriting the long-term programmes that are required. It will take vision and courage for Governments, donors and lenders to commit to such partnerships but the fruit of such initiatives can be greater social and economic development.

Access to financing is vital for establishing an enabling environment for renewable energy development and the lack of adequate financing is one of the main barriers to investment in renewable energy projects for the poor. If developers are to obtain commercial loans, access to financing for renewable energy implementation at a scale required for major scaling up needs to be found. To achieve this, subsidies will often be necessary initially to jump-start and underwrite the investments.

Third-generation barriers: linking energy services with income generation

Just as energy access is the invisible element in the Millennium Development Goals, there is inadequate recognition of the need and opportunity to bring modern energy services together with microenterprise so the poor can use small-scale finance to grow out of poverty. Market-driven, scale-up of renewable energy systems will bypass the poor unless mechanisms exist to link the availability of the energy provided by those systems with the poor who are able to make use of it.

Microfinance has become a major instrument in helping the poor to help themselves and move out of poverty. It is a potent means of connecting microenterprise with access by the poor to renewable-energy-based energy services. According to the United Nations Capital Development Fund:22

• Comprehensive impact studies have highlighted four factors which need to be considered about micro financing and its role in helping the poor. Firstly, microfinance helps very poor households in meeting their basic needs and in protecting themselves against risks. Secondly, it has been shown that the use of such services by low-income households is directly linked with improvements within not only the households’ well-being but also in terms of the enterprise stability and growth. Thirdly, microfinance facilitates women’s economic participation and as such can be seen as a tool for empowering women. Finally, it has been shown that for almost all significant impacts, there is a positive relation between the length of time the recipient had been within the programme and the overall magnitude of the impact.

• Estimates put global demand for microfinance at 400 to 500 million households, 30 million of which had access to sustainable microfinance services in 2002, leaving the majority of the demand unmet. In spite of this, the number of customers making use of microfinance has been increasing by around 25 and 30 percent annually over the past five years.

Millions of people in Asia have benefited from microcredit and from the revolution created by the Grameen Bank . Microfinance institutions help the poor to develop small businesses that can move them above the poverty line, and those institutions can then help to finance access to the energy services that renewables can provide on a small and decentralized scale. Not having microfinance institutions can be a barrier to this. However, there are few examples of microfinance institutions that have made the link between access to renewable energy and income-generation activities. Bangladesh has been able to accelerate the adoption of solar home systems because the country had microfinance systems already in place. Still, only 10 percent of Grameen Shakti customers are Grameen Bank borrowers, the rest are middle-class, rural consumers who borrow to purchase SHSs but do not access microcredit for income generation. While the poor cannot afford solar home systems, they can afford smaller-scale renewable energy equipment such as solar-powered LED lights that are effective for reading and illuminating other tasks. Grameen Bank has pioneered the use of solar-powered phones with solar-powered kiosks operated by women. This is perhaps the one group that has focused strongly on the link between renewable energy and microenterprise for the poor.

Another aspect, illustrated by Grameen Shakti, is that microfinance providers understand both sides of the equation as their primary business is lending for income generation and they are the first to see the links between SHSs and income generation. Microfinance institutions, and Grameen Shakti is among them, sell biogas systems as well as solar home systems but their principal lending is for income generation. Sri Lanka has strong microfinance capacity with the Sarvodaya Economic Enterprises Development Services (SEEDS) programme and 30 percent of the portfolio of this national NGO is in lending for SHSs. In Nepal, there is no tradition of microfinance and such institutions do not exist in the mountain areas. As a result, 75 percent of SHS sales are financed by cash and 25 percent by debt, which is the opposite of the situation in both Bangladesh and Sri Lanka.


In Sri Lanka, SEEDS has been able to transform the market by dealing with solar equipment vendors and getting them to provide sufficient guarantees and warrantees so the systems work reliably for five years and the loans can be repaid.

Barriers to RET access by the poor

At a workshop sponsored by the UN Millennium Project in 2004, an attempt was made to identify possible energy targets in support of the MDGs. It was emphasized that modern energy services are an essential element for creating the enabling conditions that can allow a country to meet the MDGs and that poor access and lack of modern energy services have direct impacts on opportunities for income-generating, productive activities and on health. An attempt was also made to evolve a vision for 2015 comprising a set of energy services that could provide a way forward towards meeting the MDGs. The workshop recommended the following energy targets that were deemed necessary for meeting the MDGs in each country:

• Enable the use of modern fuels for 50 percent of those who at present use traditional biomass for cooking. In addition, support (a) efforts to develop and adopt the use of improved cook-stoves, (b) measures to reduce the adverse health impacts of cooking with biomass, and (c) measures to increase sustainable biomass production.

• Ensure reliable access to electricity to all in urban and peri-urban areas.• Provide access to modern energy services (in the form of mechanical power and

electricity) at the community level for all rural communities (Modi et al. 2005).

The linkages between energy and poverty reduction were also conceptualized by the Global Village Energy Partnership (GVEP) Working Group on Impact Evaluation Methodology and Indicators Development in Figure 4-1.

Regional disparities in energy consumption

Energy consumption patterns are not uniform in different regions of the world (Figure 4-2). In 2005, modern energy (excluding traditional biomass and additional waste) was consumed at an average rate of 1,519 kgoe per capita. While in high-income countries consumption of modern energy was 5,228 kgoe per capita, in low-income countries this amounted closer to 250 kgoe per capita, resulting in a disparity factor of 20. Of the global primary energy supply, traditional biomass and waste make up 10.6 percent (Flavin and Aeck 2005). Use of traditional energy varies between industrialized countries and developing countries, traditional energy use accounting for less than 3.4 percent in industrialized countries while in the developing countries this figure stands at 17.9 percent (Goldemberg and Johansson 2004). This disparity is even more concerning in the low-income countries where on average traditional energy represents 49.4 percent of the total energy use, with some countries relying as much as 90 percent on traditional energy sources (Flavin and Aeck 2005). On the whole, the wealthiest 20 percent of world’s population consumes 58 percent of total energy produced, whereas the poorest 20 percent consumes less than 4 percent (World Bank 2004). Access to energy services, including electricity, is most limited in sub-Saharan Africa and South Asia.

A little over a quarter of the world’s population does not have access to electricity in their homes; which roughly translates to 1.6 billion people. Projections show that in spite of major strides in renewable energy deployment, the situation for the poor is not likely to be vastly different in the future. Projections show that 1.4 billion people, some 17 percent of the world’s population, will still not have electricity in 2030 despite assumptions of more widespread prosperity and more advanced technology (IEA 2002). The number of people without electricity will decline by only 200 million owing to the projected increase in world population (from 6.1 billion in 2000 to 8.2 billion in 2030).

Energy needs of the poor

Poverty is an overriding social consideration for developing countries. Some 1.3 billion people in the developing world live on the equivalent of less than US$1 per day. In 2000, 1.1 billion people were estimated to have incomes below one dollar a day and nearly two thirds lived in the Asian and Pacific region – 432 million (39.2 percent) in South Asia and 261 million (23.4 percent) in East Asia and the Pacific (Ramani 2004). Even though poverty has declined globally, more than 852 million people are still chronically or acutely under-nourished (UN Millennium Project Task Force on Hunger 2005). Most of those people are in Asia, especially India (221 million) and China (142 million), as well as sub-Saharan Africa (204 million). Indicators of income and human poverty for particular groups of countries are given in Table 4-1.


Figure 4-1 Linkages between energy and poverty reduction

Figure 4-2 Global energy poverty

Source: EDFAccess-ADEME 2003

Communication Access to modern energy Productive equipment

Agriculture – Irrigation – Small business

Better quality of life

Saving money

Longer working day Greater productivity

Time saved

Job creation

Increase in income

Reduction in poverty

Limiting rural exodus

Reduction in hunger

Agriculture and economic development

TV / Radio Telephone Light Refrigeration Economicenergy

Easy accessto energy

Cleanenergy

Source: IEA 2002

56 96

28

18

509 575

713223

706

292

8 801

Millions of People Without Electricity

Millions of People Relying on Biomass


Income measurements cannot really capture the misery and the absence of choice that poverty represents. The lack of access to modern energy services is inextricably linked to poverty and to the lack of fulfilment of other needs such as shelter, food, health care, education, secure land tenure, access to agricultural inputs, credit, information, and political power. Poverty in Asia and the Pacific is closely associated with low levels of access to electricity, which in turn is a proxy for limited access to other infrastructure services. Nearly one third of the population, more than a billion, in the region’s developing countries had no access to electricity in 2000, with the average electrification rate in South Asia (41 percent) being less than half of the average for East Asia, including China, and the Pacific (86 percent). The challenge of meeting energy needs for rural populations in developing countries transcends access to electricity services. Electrical, thermal and mechanical energy are all needed for a variety of household uses, such as cooking, lighting, space heating and other appliances; for agricultural uses, such as tilling, irrigation and post-harvest processing; and for rural industry uses, such as milling and mechanical energy and process heat. Sectors such as commerce, education, health, transportation and water supply in the rural areas also require energy inputs. Typically the higher-income group makes use of more convenient and efficient sources of energy such as gas and electricity, while the poor are often left with less convenient and efficient sources of energy such as fuelwood and human energy. (Ramani and Heijndermans 2003). In this section, the key challenges in meeting the energy needs of the poor will be discussed.

Table 4-1 Key indicators of income and human poverty

Rur

al p

opul

atio

n (p

erce

nt o

f tot

al

popu

latio

n) (2

001)

GD

P pe

r cap

ita (U

S$)

(200

1)

Life

exp

ecta

ncy

(yea

rs) (

2001

)

Infa

nt m

orta

lity

rate

(per

1,0

00 li

ve

birth

s)

Adu

lt ill

itera

cy ra

te (p

erce

nt o

f pop

u-la

tion

age

15 a

nd a

bove

) (20

01)

Rur

al p

opul

atio

n w

ithou

t acc

ess

to

impr

oved

wat

er (p

erce

nt) (

2000

)

Trad

ition

al fu

el c

onsu

mpt

ion

(per

cent

of

tota

l ene

rgy

use)

(199

7)

Ele

ctric

ity c

onsu

mpt

ion

per c

apita

(k

wh)

(200

0)

Hum

an d

evel

opm

ent i

ndex

val

ue

(200

1)Least developed countries 74.3 280 50.4 101 46.7 45 75.1 77 0.448

Arab States 46.1 2 341 66.0 53 39.2 24 5.6 1 406 0.662

East Asia and the Pacific 61.2 1 267 69.5 33 11.9 33 9.4 918 0.722

Latin America and the Caribbean 24.2 3 752 70.3 28 10.8 35 15.7 1 528 0.777

South Asia 70.5 508 62.8 69 43.7 19 20.3 376 0.582

Sub-Saharan Africa 65.2 475 46.5 107 37.6 56 62.9 457 0.468

Developing countries 59.2 1 270 74.5 62 25.5 31 16.7 810 0.655

OECD 22.9 22 149 - 11 - - 3.3 7 336 0.905

World 52.3 5 133 - 56 - 29 8.2 2 156 0.722

Source: Ramani 2005


Affordability

People living in poverty expend more time and effort to obtain energy services which are of lower quality than the energy services available to the wealthier populations. They spend a much greater share of their household income on energy than do wealthy people – because their incomes are smaller but also because the fuels they use are less efficient than modern fuels. The share of energy in the total expenditure of low-income households is as high as 15 percent of income (Table 4-2). Energy spending rises with income but generally at a less than proportionate rate. In rural India, poor households spend as much as 8 percent of their very small incomes on energy, most of it on kerosene for lighting (Saghir 2005b). In the Philippines, the top fifth of the population, in terms of income, pays on average US$ 0.66 per kgoe of energy, while the lowest fifth ends up paying more than double that at US$ 1.79 kgoe.

The cost of modern fuels and energy services for the poor is high in absolute terms as well. The average cost of getting a new connection for households in rural areas in Kenya is seven times the national income per capita (Flavin and Aeck 2005). The rural poor have difficulties paying for energy services because of their seasonal, agriculture-dependent, income cycle. Barriers to obtaining credit make it difficult for them to pay the high start-up costs of improving their energy supplies.

The rural-urban divide in energy use patterns

The vast majority of the poor continues to inhabit rural areas with minimum or no access to electricity and can only afford a modicum of modern fuels such as kerosene for essential (albeit poor quality) lighting. Electricity and fossil fuels rely on capital-intensive distribution networks (transmission and distribution grids or pipelines and bulk transport by road or rail) to deliver centrally produced supplies to the rural areas. Rural electrification programmes have typically involved extending the grid incrementally, moving from large demand centres to smaller ones, reaching towns and settlements in order of increasing capital costs. The farther the areas are from the reach of such networks, the greater the technical and economic difficulties faced by energy supply utilities that have to operate on financial sustainability principles in order to remain viable. Under the circumstances, the primary problem for the poor is their inability to access modern energy because supplies simply do not reach them (Pandey 2007). In sub-Saharan Africa only 8 percent of the rural population has access to electricity, compared with 51 percent of the urban population (Figure 4-3). A similar disparity exists in South Asia, where only 30 percent of the rural population has access, compared with 68 pe cent of the urban population. Indeed, four out of five people without access to electricity live in rural areas of the developing world, mainly in South Asia and sub-Saharan Africa.

Unregulated micro-grids based on diesel are a common phenomenon and are a very expensive energy option in rural areas. Any entrepreneur with a power generator can provide service to a local community. For example, a relatively small investment in a US$250 Honda generator set (of around 0.5 kWe) enables recharging services to be provided. In some countries, the cost of a low-cost, Chinese-made, 0.65 kWe gasoline genset23 has fallen to below US$50. The low barriers to entry have encouraged a highly competitive but relatively unprofitable industry to develop. Although the unit cost (in terms of dollars per kWh) of the energy is high, the fees charged by these informal “utilities” on a daily basis are affordable by many rural households.

Continuing reliance on traditional fuels and the question of choice

Because of the primacy of cooking, traditional24 use of biomass continues to account for by far the largest share of total primary energy supply (on a kJ per person basis) in many developing countries. Nearly 2.4 billion people in developing countries still rely on wood, agricultural residues and dung for cooking and heating (Table 4-3). Many developing countries still rely heavily on biomass to meet their total primary energy needs. Biomass is a major source of energy in Africa, Asia and Latin America. In 2001, the share of the total primary energy supply was, 49 percent in Africa, 25 percent in Asia, and 18 percent in Latin America.

In 2000, the average per capita consumption of wood fuels (charcoal and wood) in sub-Saharan Africa was 0.72 tons. This roughly translates to 470 millions tons for the region as a whole, while China’s and India’s combined fuel wood consumption at the time was 340 million tons (REN21 2005). In India, an estimated 220 million tons of firewood is used for cooking in rural areas and about 160 million tons of non-fodder agricultural residues are produced every year (Kishore et al. 2004). Firewood consumption trends suggest that the consumption is, in fact, increasing steadily.


Table 4-2 Share of energy expenditures in household income (Percent)

Figure 4-3 Share of rural and urban population with access to electricity, by region

Uganda Ethiopia India South Africa United Kingdom

Lowest quintile 15.0 10.0 8.5 7.2 6.6

Highest quintile 9.5 7.0 5.0 5.5 2.0

Source: IEA 2002

100

90

80

70

60

50

40

30

20

10

0

Total

Urban

Rural

North Africa Sub-SaharanAfrica

Latin America East Asia South Asia Middle East Developingcountries

World

Source: Saghir 2005a

In sub–Saharan Africa, 94 percent of rural households and 41 percent of urban households depend on wood and crop residues as their primary source of household energy. Four percent of rural households and 34 percent of the urban households in the region use charcoal as the primary energy source. Kerosine is the primary energy source in two percent of the urban and in 13 percent of urban households (REN21 2005). Although some individually collected biomass fuels cost little or no cash, they have huge social, environmental and health costs. Past trends indicate that even though fossil fuels are the fuel of first choice for most poor people, biomass fuels are likely to remain the main fuel of necessity. Projections by the World Bank indicate that the number of people relying on biomass fuels will grow to 2.6 billion by 2030 (Saghir 2005b).

The contrast between rates of change in rural and urban areas of Cambodia in terms of choice of cooking fuel used is demonstrated by Figures 4-4 and 4-5. While consumers in urban Phnom Penh have an increasing number of fuel choices, the choices in rural Cambodia are largely limited to firewood and small amounts of charcoal, except for the highest income households

The gender dimension of energy poverty In most communities women and children account for the majority of the poor people, and it is estimated that up to 70 percent of the 1.3 billion people currently living in poverty are women. Wood and residue fuels account for 80 percent of all household energy use in many developing countries and the task of collecting these sources of fuels is usually carried out by rural women and their children, with long hours being spent on this task alone. Because many of their day-to-day subsistence tasks and home-based enterprises are energy-consuming, the price and availability of energy has a direct impact on the viability of these activities. This gender bias is a further reflection of energy’s largely non-monetized attributes among the poor, since much of women’s work is characteristically unpaid work. Energy scarcity affects poor women and girls disproportionally, which can be seen in terms of their relatively poor nutritional status, health and low literacy rates. Fuel availability affects cooking habits and food availability. Poor women are more exposed to indoor air pollution due to cooking than men. Girls are more likely to assist their mothers in the collection of fuelwood and water than boys.


Table 4-3 People relying on biomass for cooking and heating in developing countries, 2000

Figure 4-4 Fuel for cooking in Phnom Penh

Source: MIME 2007

Country/region of population Millions Percent

China 706 56

Indonesia 155 74

Rest of East Asia 137 37

India 585 58

Rest of South Asia 128 41

Latin America 96 23

Middle East and North Africa 8 1

Sub-Saharan Africa 575 89

All developing countries 2,390 52

Source: IEA 2002

Firewood Charcoal LPG Kerosene Electricity None Other

Cooking fuels used in Phnom Penh100

90

80

70

60

50

40

30

20

10

01993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

% of households


Figure 4-5 Cooking fuels used in rural areas

Source: MIME (2007a) and MIME (2007b)

Firewood

Charcoal

LPG

Kerosene

Electricity

None

Other

Firewood & Charcoal

LPG & Electricity

Cooking fuels used in rural areas100

90

80

70

60

50

40

30

20

10

01993-1994 1996 1997 1999 2003-2004

% of households

Endnotes

22 http://www.uncdf.org/english/microfinance/facts.php23 The very low capital cost of these small gasoline-powered gensets makes them widely ac-

cessible to relatively poor individuals and enterprises, but the overall costs are very high. The energy efficiency is very low (around one third that of high quality but much more expensive small diesel gensets) and they are notoriously unreliable.

24 “Traditional” applications mean primarily burning fuel wood, agricultural and forestry wastes (residues), dung, and other unprocessed biomass fuels for home cooking and heating and other process-heating needs.

75

5. Development Drivers, Policies & Strategies in the Markets for Renewable Energy Technologies


5. Development Drivers, Policies & Strategies in the Markets for Renewable Energy Technologies

This chapter begins with an overview of the major drivers of what is clearly a dynamic global renewable energy market. Next, it examines various policies adopted, globally and within Asia and the Pacific, that promote private sector development of renewables and renewable energy for rural electrification. At the regional level, it discusses major strategies adopted, specific policies used within Asian countries and key regional initiatives on renewable energy and poverty. areas.

Drivers and motivations

Energy security

Energy security is an increasingly important driver for RET investments across the world. Initially, industrialized countries, particularly in the European Union, invested in RETs despite the higher initial costs. However, the desire to reduce dependence on imported fuel, particularly oil, and increase access to domestic renewables is no longer limited to developed countries. A recent study carried out by UNDP demonstrates that the oil price rise which started in 2003 is likely to be sustained into the future since it is supported by a crunch on the supply side concurrently with historically high levels of global demand (UNDP 2007). Global supply of oil appears to be reaching its peak and reserves are declining even as rapid industrialization in large developing countries such as China and India has pushed demand to new heights. It is increasingly recognized that petroleum is going to be a scarce resource in the future and countries that continue to depend on it exclusively to fuel their economic growth do so at their own peril.

A number of key drivers have significantly increased global trade in fossil fuels since 1980, particularly oil and natural gas. They include a doubling of global GDP accompanied by an increase of 50 percent in global energy consumption in the past two decades; relatively low costs of energy in the 1990s; a decline in oil reserves outside the Middle East requiring larger imports; improvements in technology for liquefying natural gas which has reduced costs of transporting gas over long distances; and strengthening of multilateral trading systems that encouraged greater reliance on trade in energy. Fossil fuels accounted for over 80 percent of total primary global energy supply in 2003 of which one third was traded internationally. Until recently oil dominated, at 80 percent of traded energy, but cross-border trade in natural gas is growing rapidly.

Asia-Pacific region has increased its share of global energy trade from 16 percent in 1980 to 23 percent in 2005. The large Asian fuel importers include Japan, Republic of Korea, China, Singapore and India. The growing share of world imports going to the Asia-Pacific region, especially China and India, has been one of the most significant trends in world oil trade in recent years. China’s dependence on imported for crude oil increased from 11 percent of its consumption in 1995 to 61 percent in 2005.

Energy security has become a major concern since 2002 both because of disruptions in supply in the Middle East and the related high prices of petroleum on the global market. The increased reliance on the Middle East is set to continue despite global exploration activities. Oil production in many countries outside the Middle East, including Indonesia and Malaysia in Asia, has begun to plateau and decline. As of 2005, the Middle East was estimated to contain 62 percent of global oil reserves and 40 percent of gas reserves. According to the IEA, by 2030 the Middle East is expected to account for two thirds of global oil exports, up from 40 percent in 2002. The largest trade flow in crude oil in 2030 is expected to be that between the Middle East and developing Asia (UNDP 2008a).

Many of the larger countries in Asia and the Pacific have set themselves targets for increasing the share of renewable energy in their energy mix. Inclusion of renewable energy in a country’s energy portfolio can serve as a hedge to protect against the price volatility of fossil fuels. Renewable energy is capital and engineering intensive and also creates domestic employment and enhances economic


development through backward economic linkages. Some countries had already set targets and made national-level commitments even before the latest round of petroleum price increases. With sustained fluctuations in fuel prices (during the study period), energy security concerns are likely to be an even stronger driver, most likely leading to more ambitious renewable energy targets than those committed to already.

Petroleum prices

The increasingly high petroleum prices since 2003 promised to be an important driver for renewable energy investments globally and in a number of countries in the Asian and Pacific region. Increased oil prices have meant high subsidy burdens on the budgets of poor countries, particularly on diesel for transportation and kerosene and LPG for cooking and lighting. They have also meant high electricity prices in countries where electricity is largely produced using oil or, alternatively, they have resulted in utilities making large losses where prices have not increased sufficiently to cover costs.

In many countries, subsidies have artificially depressed fossil fuel prices reducing incentives to economize on those fuels. As global fuel prices have risen, the budgetary costs of the subsidies have ballooned, jeopardizing the ability of governments to meet other social needs in the areas of health, education, sanitation and so on. Petroleum fuels are consumed disproportionately by urban residents, so that this policy has resulted in further discriminatory treatment of the rural poor. Renewable energy investments that could reduce dependency on petroleum fuels are often sacrificed to meet import payments for petroleum products. From an average of US$20 per barrel in the 1990s, the price for crude petroleum has shot up more than threefold and has remained in the high-US$60s and mid-US$70s in the early 2007, touching US$100 at the time of this analysis. The US$200 billion a year that governments worldwide have been spending to subsidize petroleum use could go even higher if countries continue to hold domestic petroleum prices below international market prices.

Once instituted, fuel subsidies can only be eliminated with care. In some cases, extreme budgetary pressures have forced governments to remove those subsidies very rapidly, leading to severe dislocation in household and business budgets, forcing families to choose, for example, between continued schooling and higher transportation costs. Fossil fuel prices were raised 125 percent overnight by the Government of Indonesia in leading to the closure of several businesses, rising unemployment, reduced economic growth, falling real incomes and worsening poverty (UNDESA 2005).

Another recent study on the impact of rising oil prices on the poor shows that increased oil prices since 2003 have not necessarily had major impacts on Asian and Pacific countries as a whole in terms of GDP growth but that inflationary trends were visible. The perception of limited impact may be a reflection of the exceptionally high rates of GDP growth in Asia in the past few years led by China and India, and the buffers many countries have built up of foreign exchange reserves. However, the study reports that micro-level case studies show that high oil prices have significantly impacted the energy expenditure of the rural poor in India, particularly for transportation and lighting fuel, as well as for cooking fuels among families that were using kerosene or LPG for that purpose. The prices of non-oil fuel substitutes have also gone up significantly. Those impacts have occurred despite the lag between the increase in global prices and local government-regulated prices. With sustained high prices globally, this impact is likely to be substantially larger in the coming months and years as consumers face the full international price of petroleum (UNDP 2007).

The following section analyzes what the four future oil price scenarios (outlined in chapter 3) are likely to mean in terms of private investment in renewable energy in Asian and Pacific countries. The scope of this study allowed for only a cursory analysis for what is a rich and complicated topic. Clearly, deployment of renewable energy is not dependent only on oil prices. It depends on a diverse set of factors that includes a supportive legal and commercial environment, the expansion of the financial services sector to provide resources at favourable terms, local technical and managerial capacity, technology advances and the work (or lack thereof) of advocates and decision makers to champion renewable energy within their country. Nevertheless, oil prices are one important factor and, all other things being equal, oil price scenarios will have different implications for future renewable energy deployment of grid-connected renewable power projects, biofuels and off-grid renewable energy technologies.

(a) Grid-connected renewable power projects

For grid-connected renewables, the current high price of petroleum fuels is already an adequately strong driver in many countries where a large percentage of the power on the grid is generated using diesel and fuel oil. Sri Lanka, for example, generates 56 percent of electricity using oil (UNDP 2007).


At today’s prices diesel-based electricity typically costs between 20 to 30 cents per kWh to generate. This price is easily matched by renewables which run from 5-15 cents for modern biomass, 4-15 cents for small hydropower and 3-10 cents for wind (UNEP 2006). In Sri Lanka, where the Ceylon Electricity Board has linked the standard PPA prices for small hydropower and biomass projects to the avoided cost of fossil-fuel-based generation, increased petroleum prices will provide a further incentive to an already attractive investment. For the power sector in countries like Thailand that rely heavily on natural gas (about 70 percent of electricity generation according to the Energy Policy and Planning Office (EPPO) 2008), oil prices are still important because natural gas and oil prices are strongly correlated.

Many countries in Asia and the Pacific, including Bangladesh, China, India, Indonesia, Japan, Malaysia, Pakistan, Philippines, Republic of Korea, Thailand and Viet Nam, have specific targets for renewable power.25 Although the intent is there, as expressed by those targets, not all countries have active investment portfolios of “green IPPs”. Countries with the most active green IPP investments are China, India, Nepal, Sri Lanka and Thailand. The others have not been able to translate their commitments to actual investments and, as a result, are likely to miss their targets. The existing high oil prices under the “baseline” scenario have encouraged many countries to commit to renewable energy targets. It is likely that both the “supply shock” and “peak oil” scenarios will encourage further investments in active countries and encourage others to overcome the bureaucratic hurdles that stand between expressed intentions and actual investments. The “energy security” scenario is likely to reduce the incentives to change the regulatory environment in the more reluctant countries. However, investments from green IPPs are likely to continue in the more active countries many of whom already had investments even before the current high oil prices.

Attracting investments from green IPPs also requires clear policies and a stable investment climate. Without those enabling conditions, a number of countries that are highly dependent on diesel generation, with correspondingly high electricity tariffs, have very few or no green IPPs. The Solomon Islands Electricity Authority depends 100 percent on imported diesel to generate power and yet does not have any policy to encourage independent power generation . In Cambodia, another country highly dependent on petroleum fuels (87 percent) for electricity supply, lack of a stable investment climate and inability to get project financing has discouraged many IPPs from investing in small hydropower and biomass-based generation.

(b) Biofuels

Governments in Asian countries are strongly encouraging private investment in biofuels under the current high level of oil prices (chapter 3). Those countries have enacted legislation for blending biofuels into gasoline and diesel giving rise to commercial production of ethanol, from sugarcane, corn or cassava, and biodiesel from palm oil, coconut and jatropha. The “supply shock” and “peak oil” scenarios will only accelerate investment in this sector in those countries. The “energy security” scenario would slow investment down as many biofuels are not competitive at prices below the “baseline” level.

In Asia the principal producers are China and India and they are also in the forefront of biofuels development. In India, there have been calls for a wider availability of gasoline blended with ethanol, i.e. E5 gasoline (gasoline with 5 percent ethanol), E10 and later E20 (REN21 2008). Since October 2007 E5 gasoline became mandatory in India’s states and it has been announced that E10 will become mandatory starting October 2008 (IEA 2008). In China, the E10 blending mandates exist in nine provinces (REN21 2008). In Japan, the Government has permitted low-level ethanol blends in preparation for a possible blending mandate, with the intention by 2030 of replacing 20 percent of the nation’s oil demand with either with biofuels or with gas-to-liquid fuels made from natural gas.

In South-East Asia, Thailand and the Philippines, have made efforts to diversify away from the use of oil and have mandates for biodiesel and ethanol. The Philippines has however indicated that it will shift its focus on jatropha as feedstock for biodiesel production. In both Malaysia and Indonesia, an increasing proportion of national diesel fuel requirements are to be met from palm oil, and Malaysia has announced a 5 percent biodiesel mix mandate to take effect by 2008 (REN21 2008).

One of the newer crops being widely promoted for biodiesel production worldwide, including Asian countries, is jatropha. This is a drought-resistant perennial that can be planted even in wastelands, is easy to establish and grows relatively quickly. The seeds have an oil content of 37 percent and this oil can even be burned in a simple diesel engine without being refined. Jatropha could therefore be a very valuable crop for poor communities living on marginal land. Consequently there have been substantial social and political and pressures to promote its use in India and other developing countries in the region, supposedly, as a means of poverty reduction.


Independent of the scenarios is the uncomfortable emergence of barriers to the large-scale production and use of biofuels. They include environmental impacts of primary forest clearance, competition for scarce water resources and the need to preserve grain production for food uses in China and other countries in the region. The consequences of very large-scale and unprecedented development and production of biofuels are only now becoming an important concern in biofuels policy and investment in Asia and the Pacific.

Other countries in the region do not as yet have well-articulated policies on biofuels. This includes the Pacific island countries which are heavily dependent on imported petroleum, both for boat transportation and for power generation, and also have substantial potential for producing biofuels from palm oil, copra and sugarcane in some cases. In addition to already high prices, many of the small island countries have the additional cost of transporting oil to remote islands and could benefit tremendously from production of biofuels both for local consumption and for export. There is potential to increase rural incomes and at the same time reduce the dependency on imported oil. The case study of the Solomon Islands suggests that despite the fact that land is not a constraint, the investment climate in many Pacific island economies is not attractive for the external investment that would be needed to produce biofuels in any significant quantity. Only under the “peak oil” scenario would there be sufficient pressures to change regulations to attract needed investment. The case study concludes that even the “supply shock” scenario is not likely to exert the requisite pressure for long enough, before prices come down again and the momentum is lost, to make those changes. This is compounded by the length of time needed for development of biofuel plantations and biofuel processing facilities, as well as for biofuel crops to mature.

(c) Off-grid RETs

Bangladesh, China, India, Nepal, Sri Lanka and Thailand invested significantly in large programmes at the national level to promote off-grid renewables even before oil prices began their upward trend. In addition to the investment by the public sector, most of these programmes have a strong private investment component as well. Investment is likely to continue to expand under all the four oil price scenarios, “baseline”, “supply shock”, “peak oil” and “energy security” as long as Government and, in certain cases, donor commitments continue.

Wider awareness of successful models to attract private investment in off-grid RETs, coupled with high oil price scenarios, should result in those models being adopted by many other countries in the region, as well as the expansion of the models in those countries where programmes already exist. Extension to other geographical regions and to other RETs is likely to follow. However, in the case of distributed RETs as well, questions of governance and investment climate are key considerations in the minds of investors. An example of this is the more than 600 Rural Electricity Enterprises (REE) in Cambodia which generate almost 60 MW of power using off-grid diesel generators despite the high prices. The REEs have not invested in renewable energy generation to supply their consumers because of problems linked to their uncertain legal status and their inability to get financing for projects from banks. In Cambodia, uncertainty over future markets leads mini-grid operators to favour diesel (low capital cost, high ongoing cost) over renewable fuels such as gasifiers (higher capital cost, lower ongoing cost) even if the fossil-fuel option is more expensive in the long run. Net metering regulations, like the very small power producer (VSPP) regulations in Thailand, could help reduce the uncertainty by giving confidence to Cambodian investors that there would be a market for their renewable electricity if and when the national grid expands to their service territory.

Demand for off-grid RETs will generally increase when oil prices go up. In Nepal, sales of household biogas plants jump in semi-urban areas every time kerosene prices are increased by the Government. The sale prices of biogas digesters stay fairly constant since the construction components, such as bricks and cement, rely on coal for their production. Non-poor rural households that are substantially participating in the fuel economy already will first realize the benefits of solar home systems and biogas plants when petroleum prices increase. But most poor rural households continue to cook with collected firewood and are little affected by the increase in petroleum prices . It is thus not clear how much of a driver higher petroleum prices will be for the very poor to acquire renewable energy systems since the poor, particularly the rural poor, do not use significant amounts of petroleum in the first place. For many of the poor, higher prices for petroleum fuels is likely to mean diminished usage of kerosene for lighting and less frequent travel by bus.

Table 5-1 below summarizes how the four oil price scenarios are likely to impact renewable energy investments in the six countries included in the policy study.


For all six countries, the rural poor appear to be less directly affected than their urban counterparts by energy price increases since their use of imported petroleum is limited to lighting and typically consumes less than 5 percent of their incomes. The urban poor are more seriously affected by increases both in transportation and cooking fuel prices since fuel costs make up a much larger percentage of their incomes. It would seem, however, that indirect effects on the rural poor are stronger. High transportation costs to rural areas, for example, hurt the rural poor in two ways – they pay higher prices for non-local goods, yet receive lower prices for products that they export from their communities. Investment in off-grid renewables for the rural poor are driven not so much by oil prices as by commitments of Governments to rural development and to meet MDGs.

To understand how private sector investment in renewables will be affected as a result of oil price increases, Asian and Pacific countries can be classified under the following typologies:

• China and India are a unique category – mega-countries with fast-growing demand for energy to support high rates of economic growth and advanced technological and industrial capacities, as well as enormous capital resources for investment;

• Middle-sized countries with large urban populations with limited fossil fuel resources of their own compared to their needs (Philippines, Sri Lanka, Thailand, Viet Nam);

• Countries with large urban populations having significant oil, gas and coal resources themselves or in accessible neighbouring countries (Bangladesh, Indonesia, Pakistan, Malaysia and Myanmar);

• Less urbanized, landlocked countries with very limited developed fossil fuel resources but large hydropower resources (Afghanistan, Bhutan, Lao People’s Democratic Republic, Nepal); and

• Countries with small, largely rural, populations with little fossil fuel resources (Pacific island countries; Cambodia might also currently fall under this category because of its limited technical manpower and poor investment climate).

China and India are already home to significant private sector investment in renewables and biofuels even under the “baseline” scenario. The appetite for energy in those two countries is growing so rapidly that they are developing all sources of energy, both renewable and fossil fuel and are also importing substantial amounts of energy. Investment in renewable energy will likely accelerate in both countries under all scenarios except “energy security” where it is likely to stay the same as in the “baseline” scenario as a result of the established investment momentum.

The better organized of the second category countries, particularly Thailand, are following the trend of China and India in creating an environment for aggressive investment in renewables under the “baseline” scenario. Sri Lanka also has an active programme to promote investment in renewables both off and on grid. Viet Nam and Philippines have been slow in attracting investment in renewable energy. The second category countries are likely to accelerate investment in renewables under the “supply shock” and “peak oil” scenarios. International investment is likely to be attracted to those countries for the development of biofuels for both local consumption and export under “peak oil”, and perhaps “supply shock” and “baseline” scenarios as well. The investment will naturally come first to countries with the more favourable policies and business climates.

As a group, countries in the third category have generally been slow to invest in renewables, with the exception of Malaysia. The focus of those countries will be to increase investment in oil and gas exploration under “baseline”, “supply shock” and “peak oil” scenarios for both export and domestic use. The availability of fossil fuel resources in their own countries or at a low price across their borders creates a disincentive to invest in RETs.

The fourth category consists of landlocked countries that are largely rural with low per capita energy expenditure. They also tend to have hydropower resources but often not the investment or technical expertise needed to develop them. They often have neighbours with fast-growing energy needs. Under the “baseline” and “supply shock” scenarios, and certainly under “peak oil”, investment is likely to be attracted to those countries for development of hydropower to export to energy-hungry neighbours. Investment in biofuels for export is unlikely to be attractive in the landlocked countries.

The final category includes Pacific island countries, and possibly Cambodia, which lack the technological capability and effective policies to attract external investment. They also have insufficient domestic resources for developing biofuels, wind energy and hydropower that could reduce their dependence on imported petroleum. The very small size of the markets in the Pacific islands will tend to discourage investment in petroleum alternatives. It is only under the “peak oil” scenario that policies are likely to be changed to attract significant international investment to those countries for investment in biofuels for export.


Table 5-1 Summary of likely scenarios for RET investment in case-study countries

Country Baseline (US$70/barrel)Supply Shock

(US$100/barrel declining to baseline in 2020)

Peak Oil (US$100/barrel,

increasing exponentially)

Energy Security US($50-60/barrel)

Bangladesh Increased investment in natural gas exploration. Investment in renewables and biofuels limited owing to low cost of natural gas. Investment in off-grid RETs to continue through follow-up to REREDP.

Stronger pressure to invest in natural gas for domestic consumption and export. Investment in renewables and biofuels limited owing to low cost of natural gas. Expansion in off-grid investment through follow-up to REREDP.

External investment in natural gas for domestic consumption and export. Possible revenue from export of gas provides incentives to develop biofuels and biomass-based renewables. Expansion in off-grid investment through follow-up to REREDP.

Slow investment in natural gas for national consumption. Continued off-grid investment through follow-up to REREDP.

Cambodia Bureaucratic hurdles – to investment opportunities in biomass-based renewables, biofuels, and wind energy – unlikely to be overcome. Significant off-grid RET investment unlikely.

Extra push to overcome bureaucratic hurdles to investment in biomass-based renewables, biofuels, fair and good wind resources developed. Possibility of conducive government regulations to encourage REEs to adopt RETs.

Best prospects for RET investment. Large-scale investment in biomass-based renewables, biofuels, wind energy; investment in hydropower. Likely conducive government regulations to encourage REEs to adopt RETs.

Bureaucratic hurdles – to investment opportunities in biomass-based renewables, biofuels, and wind energy – unlikely to be overcome. Off-grid RET investment unlikely.

Indonesia Investment in coal-based generation, expanded exploration of oil and gas. Hydropower, biomass-based renewables, biofuels, wind, geothermal limited by weak policies.

Export potential of natural gas and coal may provide incentive for policies to promote renewables for domestic use. Political pressure to bring new (private) investment in hydropower, biomass-based renewables, biofuels, wind, geothermal.

International investment likely in biofuels and other renewables. Export potential of natural gas and coal may provide incentive for policies to promote renewables for domestic use. Political pressure to bring new (private) investment in hydropower, biomass-based renewables, biofuels, wind, geothermal.

Slow investment in renewables.

Nepal Hydropower investment for domestic consumption and some for export. Continued expansion of off-grid renewables for rural areas.

External investment in hydropower possible on a large scale for both export to India and domestic consumption. Acceleration of expansion of off-grid renewables for rural areas.

External investment in hydropower likely on a large scale for both export to India and domestic consumption. Acceleration of expansion of off-grid renewables for rural areas.

Hydropower investment continues for domestic consumption. Continued expansion of off-grid renewables for rural areas.

Philippines Investment in hydropower, biomass-based renewables, biofuels, wind, geothermal limited by weak policies. Investment in off-grid RETs under existing programmes.

Political pressure to bring new (private) investment in hydropower, biomass-based renewables, biofuels, wind, geothermal. Acceleration of investment in off-grid RETs.

International investment likely in biofuels and other renewables for export. Acceleration of investment in off-grid RETs.

Slow investment in renewables. Investment in off-grid RETs under existing programmes.

Solomon Islands

Biofuels investment limited by bureaucratic inertia.Little investment in off-grid RETs.

Increased local investment in biofuels and biomass-based renewables but limited international investment.Income from biofuels could lead to demand for RETs off-grid.

External investment in biofuels likely on a large scale for export of biofuels. Income from biofuels could lead to demand for RETs off-grid.

Little incentive to expand biofuels. Little investment in off-grid RETs.


Global and local environmental concerns including climate change

Climate change poses a serious threat to poverty reduction in countries of Asia and the Pacific. Its effects are likely to be most strongly felt by the poorest people in the least developed countries, who rely on the natural environment for their livelihoods. Worryingly, climate change threatens to undermine global efforts to achieve the MDGs. Substantial resources will be needed to improve the capabilities of vulnerable communities and particularly of the poor to adapt to the impacts of climate change across sectors including agriculture, forestry, water and health. National and local governments in developing countries will need assistance in responding to predicted increases in the incidence of natural disasters resulting from rising sea levels, as well as an increased incidence of extreme weather events and floods from glacial lake outbursts. With some of the fastest-growing emerging economies in the world, the Asian and Pacific region also contains many opportunities to mitigate climate change through reductions in emissions of greenhouse gases (GHGs). As energy use in power generation, transportation and industry, as well as for domestic purposes, is the leading emitter of GHGs in the region, extensive investment in renewable energy technologies could provide many of the mitigation opportunities.

Carbon revenues can be a driver for renewable energy investments. Revenue from the Clean Development Mechanism generally cannot make an unfeasible energy project feasible but it can turn a marginally attractive renewable energy project into an attractive investment. It has been estimated that the internal rate of return (IRR) on a range of CDM projects undertaken by the World Bank would be raised if the price of carbon dioxide was US$4 per ton. For hydropower, wind and geothermal projects, the IRR would rise by 0.5-2.5 percent, while the impact on forest and crop residue projects was greater at 3-7 percent; on projects using municipal waste, the increase was in the 5-15 percent range (UNEP 2006). Recently (as of 1 April 2008) the renewable energy CDM pipeline was dominated in Asia, in terms of CERs, by biomass (6 percent), hydropower (24 percent) and wind (8 percent) energy projects in that order, with smaller amounts coming from biogas (2 percent) and geothermal (1 percent) projects (UNEP Risoe 2008). The impact on the IRR for solar PV projects from CDM revenue is marginal owing to the high capital cost of solar projects in comparison to carbon abatement. It is for this reason that solar PV projects contribute least to the pipeline of renewable energy CDM projects.

Prices for carbon credits have been above US$4 and the expected higher prices in the future could increase the strength of carbon trading as a driver for investment in renewable energy. A total of 427 renewable energy projects were in the pipeline as of May 2006 awaiting validation by designated operational entities or registration with the CDM Executive Board. Between them, the projects have total annual emissions reductions of around 25 million tons of carbon dioxide out of a total pipeline of 142 million tons (UNEP Risoe 2006). This translates to between US$100 million and US$200 million annual carbon revenues for renewable energy projects at 2006 prices. Given annual investment of around US$38 billion a year in renewables worldwide (REN 21 2006), CDM revenue contributed less than 0.5 percent of the capital costs of those investments and slightly more than 1 percent in developing countries where the CDM projects are located. In 2006 and 2007 investments in RETs increased to around US$55 billion and US$71 billion, respectively (REN21 2008). Certified emission reductions (CERs) from developing countries were contracted at prices of US$10.90 in 2006 (World Bank 2007) and US$13.60 in 2007 and early 2008 (World Bank 2008).

The volume of CERs from renewable energy projects like wind and solar energy and power from biomass and hydropower, which abate mostly carbon dioxide, is much smaller compared to the investment required than the volumes created by CDM projects which abate other greenhouse gases such as nitrous oxide, hydrofluorocarbons or methane – gases that have much stronger greenhouse warming potential per mole than carbon dioxide (Willis et al. 2006). More than half of the CDM pipeline of 142 million tons mentioned above, roughly 95 million tons of carbon-dioxide-equivalent abated, comprised of projects relating to those three gases. At the same time, renewable energy projects are at a disadvantage compared with projects that reduce other types of greenhouse gases, for example, landfill methane, in the CDM because their fixed costs are significantly higher per CER (Willis et al. 2006).

A breakdown of the pipeline in April 2008 of renewable energy CDM projects from Asia (Figure 5-1) shows that wind, biomass and hydropower dominate the market. They are followed by biogas and geothermal, while solar energy has only 1 percent of the market. Compared to the pipeline in May 2006, the shares of different types of renewable energy projects have remained almost the same. In terms of host countries for all types of CDM projects, China and India dominate with about 82 percent of the market between them (Figure 5.2). Other active countries in the region are Malaysia (109 projects), Thailand (44), Republic of Korea (44), Indonesia (63), Sri Lanka (13), Viet Nam (18) and Nepal (3), Bangladesh (4), Bhutan (3), and Cambodia (3). Papua New Guinea, Fiji and Lao People’s Democratic Republic have each one registered CDM project (UNEP Risoe 2008).


With some exceptions, CDM is not yet a strong driver for most potentially pro-poor, off-grid renewable energy projects. RE projects that are most likely to increase access by the poor tend to be small, and many small individual projects would need to be aggregated to reduce transaction costs and make a worthwhile CDM project. This presupposes a project with a large number of installations to aggregate and the number of off-grid renewable energy projects that have reached that level of aggregation in the region is still very limited. The transaction costs of monitoring and verifying that the projects are working and abating GHGs for CDM purposes can also be quite high unless those activities are already part of the original project design. Solar home systems have particularly low carbon benefits compared with their capital costs. Solar PV typically substitutes for kerosene used for lighting – a relatively small source of GHGs. Microhydropower systems and other RETs that supply larger amounts of power through mini-grids generally have slightly larger carbon abatement on account of substituting for diesel used for milling in addition to kerosene for lighting. Biogas and improved cook stoves tend to substitute for the largest amount of GHG emissions when they reduce unsustainably harvested firewood and are potentially attractive CDM projects – leading to a situation where payment

Figure 5-1 Carbon market share by renewable energy technology in Asia, April 2008

Figure 5-2 CDM market share by country, April 2008

Biomass 23%

Biogas 9%

Wind 24%

Geothermal 1% Solar 1%

Hydro 42%

Malaysia 5%

Indonesia 3%Philippines 3%

South Korea 2%Thailand 2%

Vietnam 2%

China 44%

India 39%

Source: UNEP Risoe 2008

Source: UNEP Risoe 2008


received for global carbon benefits could pay for the full cost of the investment in some instances. For example, a SHS might typically receive credits for abating 250 kilograms of carbon dioxide annually compared with a household biogas plant which would abate over 5 tons of carbon dioxide per year.

Renewable energy CDM projects that substitute for non-renewable biomass have the potential for significant MDG impacts. They include household energy technologies such as biogas and ICS as well as technologies like biomass gasifiers that can reduce firewood use in rural enterprises. Despite this potential, the only significant household energy projects that have been registered (by May 2006) with the CDM Executive Board are two household biogas projects from Nepal and one from India (UNEP Risoe 2006). In addition to having substantial carbon benefits, household biogas typically provides significant health and social benefits in terms of reduced indoor air pollution and drudgery for women and children in firewood collection, as well as local environmental benefits by saving forests – features that hit multiple MDG targets. The baseline that allowed such projects to be developed was permitted under the “Indicative simplified baseline and monitoring methodologies for small-scale projects, I.C. Thermal energy for the user with or without electricity” that covered renewable energy technologies that supply individual households or users with thermal energy that displaces fossil fuel or non-renewable sources of biomass.26

A decision taken at the twenty-first meeting of the CDM Executive Board, held on 28-30 September 2005, has removed the reference to projects that replace non-renewable biomass from the Small-Scale CDM methodologies I.C (thermal energy for the user) and I.D (grid-connected renewable energy generation).27 The decision of the Board was primarily designed to be consistent with the Marrakech Accords which limit land use, land use change and forestry (LULUCF) projects within the CDM to afforestation and reforestation activities and exclude other activities such as deforestation avoidance. Thus, a channel which allowed renewable energy projects that substitute for unsustainable biomass to qualify under the Small-Scale CDM methodologies was closed. Fortunately, a decision taken at the thirty-seventh meeting of the CDM Executive Board, held on 1 February 2008, has added to the Small-Scale CDM methodologies I.E. (switch from non-renewable biomass for thermal applications by the user).28

The eleventh Conference of the Parties to the Climate Change Convention and the first Meeting of the Parties, held at Montreal on 28 November – 9 December 2005, had advised the CDM Executive Board to give priority to developing alternative baseline methodologies for small-scale project activities that effect a switch from non-renewable to renewable biomass. The call was repeated by the twelfth Conference of the Parties and the second Meeting of the Parties in Nairobi in November 2006, following lack of progress. Development of the new methodology will be crucial for many future household energy CDM projects. Substitution of unsustainable biomass will need to be included among accepted baseline methodologies if the CDM Executive Board wants to give a green signal to the promotion of improved household cooking technologies that can affect the health and well being of some half a billion families around the world. Without a similar baseline methodology, the verifiable greenhouse gas benefits of biogas and ICS programmes will be minimal. The new methodology (mentioned above) is being applied to a household biogas project in India, in which biogas will be used to replace kerosene and non-renewable biomass for cooking and hot water heating (UNFCCC 2008). As of May 2008 the project is at validation stage (UNEP Risoe 2008).

The list of registered projects as well as the pipeline of projects waiting to be validated and registered shows a limited impact of the CDM in reducing poverty and achieving the MDGs. In addition, the CDM project pipeline is dominated by a small number of countries. The poorer countries in the Asian and Pacific region, particularly the Pacific island countries, have largely been unable to develop CDM projects. This results both from limited human resource capacities in those countries and from methodological challenges, as described above, which deter potential CDM projects in the rural biomass sector where the greatest potential exists for projects in less industrialized countries.

UNDP has established the MDG Carbon Facility29 to promote a portfolio of CDM projects that will better meet the MDGs. The Facility strives to improve access to carbon finance in a larger number of developing countries and broaden the range of activities that provide real sustainable development benefits. UNDP supports carbon projects that clearly contribute to meeting the MDGs (for example, through creating employment opportunities; improving environmental quality; and creating marketable offsets locally). Other key objectives are market capacity development for the projects in host countries and bringing about market transformation that leads to an enabling environment for the Facility to operate, while at the same time generating substantial direct investment from the private sector.

UNDP’s focus is on the removal of barriers to direct investment for a range of mitigation technologies, the establishment of well-functioning host-country procedures for the review and approval of CDM and JI projects, as well as the development of such projects together with voluntary sector projects


by the Facility. UNDP’s strengths lie in environmental project development expertise, local presence and understanding of the country-specific sustainable development needs and goals. By February 2008 the first four initial project agreements had been signed between UNDP, Fortis and the project proponents and they will now go through the due diligence process by UNDP and Fortis. The projects include three methane capture projects located in Macedonia, Uzbekistan and Yemen, as well as a renewable energy project in Rwanda (UNDP 2008b).

In their Initial National Communications to the UNFCCC, Governments in Asia and the Pacific have made commitments to reduce greenhouse gases through the promotion of RETs. A summary of those commitments for the six case-study countries included in this report is presented in Table 5-2.

Social and environmental concerns in biofuels development

Among renewables, liquid biofuels have been touted as generating the most economic and social benefits which include:

• Lower imports – successful large-scale domestic biofuels industries will offset petroleum imports and improve the balance of payments;

• Greater energy security – biofuels offer a way not just of diversifying supplies but also of making countries less dependent on oil imports;

• Less greenhouse gases – used on a significant scale biofuels could lower greenhouse gas emissions;

• Less vehicle emissions – liquid biofuels in mixtures with gasoline and diesel will reduce vehicle emissions and help improve air quality in Asian cities;

• More jobs – cultivation of biofuel feedstock creates additional employment and income for rural workers, especially for crops such as jatropha that use land not suitable for food production; and

• Disposal of waste – converting biomass residues, such as forest products, wood waste, grease and used vegetable oil into biodiesel fuels will help dispose of waste.

However, large-scale production of biofuels can have serious economic and social costs, namely:

• Higher food prices – the current modest levels of production have pushed up the prices of many food commodities and this trend is expected to continue. In the United States, for example, corn futures in March 2007 rose to their highest level in 10 years. Several Governments of Pacific island countries have opted to have staple foods such as cassava, taro and yam taken out of fuel markets so that rural people will not be confronted by sharp increases in food prices should the demand for the production of biofuels from those crops expand (Cloin 2007).

• Deforestation and other ecological impacts – already there are signs of environmental damage as higher prices encourage the conversion of tropical forests to monocrops, such as palm oil, with attendant loss of biodiversity and habitat, expanded use of water, nutrient runoff and loss of watersheds. This is already a serious problem in some Asian countries. Indonesia has recently become the world’s third-largest greenhouse gas emitter as a result of its clearing of peat bogs for expansion of plantation agriculture and the use of peat for power generation.

• Water shortages – large-scale production of biofuels will require expanded use of fresh water and the poor are likely to be affected the most.

• Bad working conditions – while many more workers may be employed cultivating feedstock crops on plantations, they can suffer from poor working conditions and low pay.

If the developing countries of Asia and the Pacific are to take advantage of the opportunities afforded by biofuel, they will need to proceed carefully, examining not only macroeconomic and fiscal issues but also the costs and benefits for the environment and for poor communities.


Country National Communication Commitments

Bangladesh Initial National Communication, November 2002Energy sector appeared to be the most important sector for mitigating GHG emissions in the country.Options identified include: • Combined cycle and fuel-cells-based power generation for natural gas-based power;• Reduction in transmission and distribution losses;• Replacement of two-stroke engine vehicles by four-stroke engines in transport sector;• Use of improved cook stoves in rural areas to prevent deforestation; and• Modernization of brick-making industries.

Cambodia Initial National Communication, August 2002:Country has developed energy policies and energy supply projects such as high-voltage power transmissionlines, hydropower development, improvement of mass transit, improved cook stoves, among others. Those policies and projects if implemented will reduce the GHG emissions of the country.

Indonesia Initial National Communication, October 1999:The country has documented the following initiatives in the Energy Sector to mitigate emissions of GHGs:• Gradual removal of energy market distortions, such as fuel and electricity subsidy;• Promote the use and development of renewable energy through incentives such as tax breaks for investors on

the technology, encouraging research and so on;• Encourage public adoption of energy conservation and efficiency by adopting techniques such as public cam-

paigns, while at the same time using economic incentives to promote energy efficiency products and energy conservation practices further;

• Promote clean and efficient energy use for industry and commercial sectors; various technologies, for example, clean production, are available to help the industry and commercial sectors become more efficient; and

• Restructure the prices of various energy sources according to the emissions and externalities that the energy source emits.

Nepal Initial National Communication, July 2004:Policy options to reduce GHGs include promotion of renewable energy, energy efficiency, reduction in use ofconventional biomass in rural area and switching to low-emission energy technologies.To enhance tapping and use of renewable energies, Nepal has constituted an Alternative Energy PromotionCenter, which officially plans and manages the development of renewable energy resources in the country; the sectors of its responsibility include microhydropower, solar, biomass, wind and others. Mitigation options in residential, commercial and industrial sectors include:• Technology upgrading in the residential sector such as from three-stoves and wick lamps to improved stoves,

biogas stoves and lanterns;• Use of electricity for cooking, heating, cooling and lighting in the commercial sector replacing a system based

on fossil fuels;• Switching of fuel to hydroelectricity in the industry and transport sectors; and• Improving energy efficiency through demand management.Mitigation options in the transport sector include vehicle energy efficiency, switching to less emission-intensivetechnologies and increasing the occupancy of public vehicles among others.

Philippines Initial National Communication, December 1999:In response to its commitments to UNFCCC, a number of measures proposed by the country include: • Undertakings related to its pursuit of sustainable development;• Research and systematic observation; • Awareness raising, education and training; and • Adaptation measures and capacity building.Under the Philippine Energy Plan (PEP) 1999-2008, new and renewable energy sources are envisioned tocontribute significantly to the country’s electricity requirements.The Department of Energy (DOE) promotes the commercialization of renewable energy technologies throughsuch initiatives as the Decentralized Energy System (DES).DOE launched the Power Patrol and Road Transport Patrol Programmes to promote efficiency in electricity and gasoline fuel use in the industrial, commercial, residential and transport sectors.

Solomon Islands

Initial National Communication, October 2001:• Government encourages climate-friendly technologies through research and information programmes,

training, public awareness and education programmes. The use of new and renewable energy sources and efficient technologies can limit and reduce greenhouse gas emissions and lead towards a sustainable energy economy.

• Small-scale hydroelectricity generation and other alternative energy technologies have been introduced into rural areas

• The Government Medium-Term Development Strategy 1999-2001 supports microhydropower projects in rural areas as well as explores the possibilities of introducing solar powered energy projects.

Table 5-2 Commitments made by case-study countries to RETs in their Initial National Communications to the UNFCCC


In order for further development of biofuels to be effective and for transport to be sustainable, the following steps need to be taken:

• Undertake comprehensive life-cycle analyses of crops and production processes in Asia in order to assess the relative energy and carbon-emission impacts of each fuel;

• Develop and enforce technical fuel standards critical for large-scale use of biofuels and for vehicle manufacturers to support their warranties for engines;

• Develop a harmonized set of biofuel standards for fostering both trade and investment; and • Develop and implement comprehensive and internationally approved assessment

methodologies which evaluate the social and environmental impacts of biofuel projects.

To sum up, biofuels can, in principle, reduce the GHG footprint of transport fuels by replacing a significant portion of fossil fuels. It will, however require several decades for commercial biofuels to displace more than 20 percent of the growing fossil fuels markets. Expanding the use of biofuels will require that the land-use and environmental impacts associated with large-scale biofuels production be adequately addressed.

Poverty reduction and access for the poor

One set of drivers for investment in RETs is the commitments that countries have made towards meeting Poverty Reduction Strategy Paper (PRSP) and MDG targets. A profile of the Asia and Pacific region in terms of poverty and attainment of MDG goals was presented in chapter 4. Renewable energy projects like microhydropower, biogas, ICS and solar PV have been shown to contribute to a number of MDG targets. Universal supply of electricity in particular is a major political goal for many countries in Asia and the Pacific. In countries with large rural populations renewable energy has often proven to be the most effective way to get electricity to communities that are difficult to supply from the national grid. In practice, however, extensive rural electrification through renewables is rare. Despite expectations, as for example, of the solar home system programme in Thailand, Governments and/or rural electrification utilities have been unable or unwilling to invest in extensive electrification using renewables. Poverty alleviation was a key rationale in Thailand’s programme, which had provided solar electricity to nearly 200,000 homes by May 2006.

Nevertheless, case studies show that with sufficient commitment and investment from Governments and donors a number of RETs can be effective in increasing access to clean energy for at least some of the poor. Examples from Bangladesh, Nepal and Sri Lanka all show that with sufficient quality control, availability of financing and social mobilization access to technologies like microhydropower, biogas and solar PV can be expanded substantially. The methodologies are now available to other countries for market expansion of those technologies given sufficient commitment at the government level.

The experience so far has been that the poor benefit from electrification based on microhydropower and small hydropower since the marginal cost of providing electricity to a poor household is relatively low once the hydropower plant has been built. The two case studies from Nepal show microhydropower and small hydropower can electrify close to 100 percent of homes in communities with such projects.

Between 1997 and 2003, the World Bank approved 22 projects that include off-grid renewable energy components. The total investment in those projects was just over US$2 billion, with Bank loans and credits accounting for about half of the total funding. Governments of client countries, bilateral development agencies, GEF and others provided the balance. Most projects focused on rural electrification, including both grid extension as well as commercialization of off-grid alternatives, especially solar PV (International Resources Group 2003).

Mapping RET policies in Asia and the Pacific

The previous section discussed the motivation and drivers for renewable energy policies. This section describes the policies themselves. Policies span a variety of renewable technologies. In rough order of relevance to poverty alleviation, they can be broken down into: (a) technologies for cooking and/or heating (improved cook stoves, biogas for cooking, solar cooking and water heating); (b) transportation (biofuels); (c) off-grid electricity and motive power; and (d) grid-connected electricity.

Some policy approaches apply to all four categories. They include:

• Targets and timetables;• Mandates;• Investment incentives (direct capital subsidies or tax deductions);• Grants for research, development and demonstration; and• Preferential finance.


Additional policy instruments apply more specifically to grid-connected electricity production. They include:

• Interconnection agreements;• Power purchase agreements;• Net metering;• Feed-in tariffs and production tax credits;• Renewable portfolio standards (RPS); and• Green power programmes.

For each, this section explains the relevant policies, and discusses relevant international and Asian experience. Worldwide, renewable energy promotion policies are increasingly popular. At least 60 countries worldwide, including 23 developing countries, now have some type of renewable energy promotion policy (REN21 2008).

Characteristics of RETs that limit or shape workable policy measures

Renewable energy technologies span a wide range of scales, applications and technological complexity. Policies that work for one technology are not necessarily relevant to others. Before discussing policy measures, a brief discussion of technology characteristics that limit or shape workable policy measures is in order.

Cooking and/or heating technologies are generally household in scale and relatively low cost compared with electrical renewables. It is also excessively expensive to measure individual performance of the systems (calories of heat, litres of water heated) for every household. For that reason, subsidies that lower initial capital costs or provide favourable access to low-interest loans are most common.

Transport fuels (biodiesel, ethanol) are more easily measured (litres), and sellers of liquid fuels are already subject to government regulations (safety, taxes). For those reasons, biofuels are well supported by per-litre subsidies (generally to the seller, in the form of tax breaks) or through mixing mandates that specify that fuel that is sold must contain certain percentages of biodiesel or ethanol.

Off-grid electricity and motive power are generally household or village-scale. High transaction costs of on-site measurement and performance verification augur for subsidies that reduce capital costs (direct payments or tax breaks of one kind or another).

Grid-connected electricity is fairly easily measured and therefore suitable for measures that directly reward production (although capital subsidies are also used).

Renewable energy targets and timetables

Targets for renewable energy are a measure that Governments use to communicate intention and commitment to encourage the development of renewable energy. Often specified before the specific policy mechanisms are decided, targets are usually set as a quantity of units (improved cookstoves installed, square metres of solar water panels), or as percentage of the primary energy, transport fuel, and/or electricity generation mix. Renewable energy targets in most countries are indicative and non-binding.

National targets for renewable energy have been announced in at least 64 countries worldwide, including 22 developing countries and all 27 EU countries. The EU’s indicative targets are to derive 12 percent of total energy consumption and 21 percent of electricity consumption from renewable sources by 2010. In the beginning of 2007, the EU extended binding targets, including 20 percent of final energy and 10 percent of transport fuels from renewable sources by 2020. Developing countries in Asia with renewable energy targets include such as China, India, Indonesia, Malaysia, Pakistan, the Philippines, Republic of Korea, Singapore and Thailand (REN21 2008). Other countries in the region with national or regional targets include Australia, Japan and New Zealand. Japan is targeting RE installations of 17.25 GWp by 2010, which would generate around 17.25 terawatt hour (TWh) per year (REN21 2006).

China’s targets are among the largest in terms of installed capacity. The Standing Committee of the National People’s Congress of China endorsed the Renewable Energy Law on 28 February 2005. At the same time as the law was passed, the Chinese Government set a target for renewable energy to contribute 10 percent of the country’s gross energy consumption by 2020. Those targets were revised recently and China announced a target of 15 percent of primary energy from renewables by 2020, including large hydropower, up from a 7.5 percent actual share in 2005 (IEA 2008). Development planning includes technology targets by 2020 of 300 GW of hydropower, 30 GW of wind power,


30 GW of biomass power, 1.8 GW of solar PV and smaller amounts of solar thermal power and geothermal. For solar hot water the target is 300 million sq. m. by 2020 (REN21 2008). Biofuels would increase to 15 billion litres per year by 2020.

In addition to its short-term target of 10 percent of added power capacity by 2012, India has proposed long-term targets to be achieved by the year 2032 in several categories, including 15 percent of power capacity, 10 percent of oil consumption substituted by biofuels, synthetic fuels and hydrogen, and 100 percent use of solar hot water in all possible applications (with full coverage of users such as hotels and hospitals by 2022). Additional short-term targets include 100 percent use of cogeneration in the sugar and other biomass-based industries; and a significant increase in power use through renewables in a large number of villages starting with 10,000 remote un-electrified villages in 2012 (REN21 2008).

In order to cater to the needs of their large rural populations, many Asian countries have explicit mandates for rural electrification (Box 5-1). They include Bangladesh, China, India, Nepal, the Philippines, Sri Lanka, Thailand and Viet Nam. Some also have a commitment to meeting at least some of their needs with renewable energy. India, for example, aims to establish enough clean energy to electrify all of India’s villages by 2010. The Philippines launched a strategy in 1999 to achieve full village electrification by 2007, including renewable energy explicitly in that strategy. Sri Lanka is targeting 85 percent of the population with access to electricity and has promoted commercial development of solar home systems in rural areas with partial support for market development. Thailand decided in 2003 to electrify 230,000 of the remaining 300,000 off-grid households in the country with solar home systems by the end of 2005, and accomplished nearly 190,000 by May 2006 (REN21 2006).

A EU directive driven by energy security concerns and the Kyoto Protocol requirements set the target of obtaining 5.75 percent of transportation fuel needs from biofuels by 2010 in all member states. In 2006, the EU adopted an ambitious strategy for biofuels with a range of potential market-based, legislative and research measures that aim at increasing the production and use of biofuels.31 France and Germany planned to meet the target before deadline by increasing rapidly both ethanol and biodiesel production (Worldwatch Institute 2006). In 2005-2006, France announced its ambitious biofuels plan, with goals of 5.75 percent by 2008, 7 percent by 2010 and 10 percent by 2015. Belgium set a 5.75 percent target for 2010 (REN 21 2006). Early 2007, EU set a target of 10 percent of transport fuels from renewable sources by 2020 (REN21 2008). Mandates

Mandates are similar to targets in that they set explicit quantities and timetables but, unlike targets, they are obligatory and carry penalties if they are not met. In practice, mandates have generally been applied to biofuels and have been driven most recently by high oil prices. Biofuels blending mandates exist at the national level in at least 17 countries and, at the subnational level, in at least 36 states and provinces (REN21 2008).

Brazil has a long history of promoting biofuels, mandating that ethanol be blended with gasoline since 1975. Gasohol and pure ethanol are available at all filling stations by law and the Government hopes to build on the success of the Proalcool program by expanding production of biodiesel. All diesel fuel is to contain 2 percent biodiesel by 2008, rising to 5 percent by 2013.

In India, the Government mandated 10 percent ethanol blending in nine states starting in 2003. The sugar ethanol program requires E5 blends throughout most of the country but this is set to rise to E10 and E20 depending on ethanol availability (Worldwatch Institute 2003). In 2004, four provinces in China – Heilongjiang, Jilin, Liaoning and Henan – required ethanol to be mixed with gasoline in a 10 percent ratio (Martinot 2005); five other provinces were due to adopt a similar mandate in 2005. In Thailand, a 10 percent ethanol mix in gasoline was mandated to commence in 2007 to reduce import costs and also provide support for domestic sugar and cassava growers (UNDESA 2005). For similar reasons, the Philippines will soon mandate 2 percent cocobiodiesel (cocomethylester or CME) to support coconut growers while reducing particulate emissions from diesel engines and generators, and 5 percent ethanol, beginning 2007.32 Malaysia has one of the most aggressive policies on promotion of biodiesel in the region and the production of biodiesel from palm oil has been promoted by the Government since 2001. The Malaysian Government had stated that all diesel sold at petrol stations must contain 5 percent biodiesel from palm oil from 2007. This move would enable Malaysia to save up to 500,000 tonnes of diesel imports, or about 10,000 barrels per day.


Table 5-3 Asian countries with renewable energy targets

Country Renewable energy targets

Bangladesh 5 percent by 2010 and 10 percent by 2020 (electricity).

China 15 percent of primary energy from renewables by 2020, including 300 GW of hydro, 30 GW of wind, 30 GW of biomass, and 1.8 GW of solar PV, 300 million sq. m solar hot water by 2020 (REN21 2008). In 2008, China doubled its wind power capacity for the fifth year in a row, and reached China’s 2012 development target of 10 GW two years early.

India 10 percent of added electric power capacity by 2012 (expected 14 GW), 10.5 GW total wind power existing by 2012, long term goals by 2032: 15 percent of power capacity, 10 percent of oil use substituted by biofuel and synthetic fuels, enhanced use of solar hot water (REN21 2008).

Indonesia > 5 percent biofuels, > 5 percent geothermal and > 5 percent from renewables by year 2025. 9.5 GW of geo-thermal by 2025.

Japan 1.63 percent of electricity by 2014, excluding large hydropower (REN21 2008). 14 GW of solar PV by 2012 and 53 GW by 2030.

Malaysia 5 percent of electricity by 2005.

Pakistan Primary energy share target of 10 percent by 2012. 10 percent of power generation by 2015 (electricity) (REN21 2008).

Philippines 100 percent increase in renewable energy power capacity by 2011, 4.7 GW total existing capacity by 2013.

Republic of Korea

Primary energy share target of 6.1 percent by 2020 and 11 percent by 2030. 7 percent of electricity by 2010, in-cluding large hydropower, and 1.3 GW of grid-connected solar PV by 2011, including 100,000 homes (0.3 GW).

Singapore 50,000 sq.m. (~35 MWth) of solar thermal systems by 2012.

Thailand 8 percent of total primary energy by 2011 (excluding traditional rural biomass). Increase new and renewable energy share to 9.2 percent by 2011.

Viet Nam 2 percent by 2010 and 3 percent by 2020 (electricity).

Source: REN21 2006.

Investment incentives

Investment incentives provide funds upfront to reduce capital costs of project developers. The incentives are attractive because they are simple and they provide funds when most needed – at the beginning to help with project construction. They are usually most appropriate for household – or village-scale systems in which the costs of monitoring performance (heat or electricity production) and administering production incentives would be excessively expensive.

Investment incentives require some way of ensuring that systems will perform as advertised. An example of such a safeguard is the requirement that equipment of a type which has passed a certification process, such as the Global Approval Program for Photovoltaics (PV GAP) or the Nepal biogas equipment standard, should be used, and that systems should be installed by competent technicians. A capable and vigilant regulator is thus essential in order for subsidy funds to be efficiently allocated and to monitor programmes against abuse. If implemented well, investment incentives can be very effective in leveraging quality control, as in the case of biogas in Nepal.

Investment incentives can take various forms, such as subsidies and tax credits. Direct capital investment subsidies are paid as a percentage of total investment costs or on the basis of rated capacity. Increased subsidies for smaller systems and for remote locations increase the access of poor households to RETs.


A successful example of the use of investment incentives is from Nepal, which has a system of subsidies for solar home systems and for household biogas based on location and remoteness. The subsidies are described at length in chapter 6. On SHSs, the subsidy is a fixed rupee amount with a maximum ceiling not exceeding 50 percent of the total cost. This policy favours smaller system sizes which are more affordable for the poor. Systems installed in very remote and remote Village Development Committees (VDCs), as defined by the Government, have subsidy amounts almost 100 percent higher than for more accessible areas. Similarly, biogas has an additional subsidy for remote areas. Smaller biogas plants, of 4 or 6 cubic metres, receive a larger subsidy than bigger plants to increase affordability for the poor who are likely to purchase smaller systems (Pandey 2000).

Investment incentives have also been used successfully for grid-connected renewables, especially rooftop PV systems. Japan and California use investment incentives in the form of rebates. For example, the California Energy Commission allocated US$540 million in 1998-2002 for a renewables buy-down programme that paid up to US$4.50 per watt for solar PV, fuel cells powered by renewable energy and small wind power systems (10 kW or less). In Japan, capital subsidies of 50 percent for rooftop solar PV in 1994 had declined to approximately 10 percent by 2003, falling further to 4 percent by 2005. The policies resulted in over 800 MW produced in more than 200,000 homes (REN21 2006). Similar to investment subsidies, investment tax credits work by lowering capital costs through allowing developers to reduce their taxes by some percentage of the investment cost of the project. Investment tax credits have the advantage that their administration costs are lower than direct investment subsidies because it takes fewer state resources to lower taxes compared to collecting taxes and then redistributing the funds as rebates.

A key weakness, especially in the context of poverty reduction, is that investment tax credits leave out small project developers that have insufficient profits to absorb the tax credits fully. Another disadvantage of investment tax credits arises because it is difficult to guard against investors who are more interested in maximizing their tax shelter than in producing energy. Lack of transparency has also been cited as a drawback of the credits.

In countries in Asia in which ambitious rural electrification targets have been met, rural elec-trification has occurred through an ideological orientation that sees electricity as a basic right of citizenship and as a foundation for development.30 In practice, extensive grid-based rural electrification is not a profitable enterprise as loads are low and distances long. Rural electrifi-cation, where it has been extensive, is subsidized and lines are extended to rural areas below cost. In some countries progressive block-rate tariffs subsidize usage by providing reduced rates for customers that use small amounts of electricity.

Many rural electrification programmes using renewable energy also cater to the poor through heavy subsidization. Thailand, for example, electrified 200,000 households with solar elec-tric systems with 100 percent subsidy. Microhydroelectric projects by DEDE in Thailand pro-ceeded with capital costs 100 percent subsidized and with tariffs set to cover only ongoing maintenance and repair.

New rural electrification programmes using renewables have been launched in many Asian and Pacific countries. In a programme which commenced in 2006, Pakistan intends to elec-trify 8,000 villages with renewable energy and a pilot has been completed for 400 households using 90-watt solar PV systems. The Integrated Rural Energy Program in India which uses renewable energy had reached 300 districts and 2,200 villages by early-2006. Rural applica-tions of solar PV included 340,000 home lighting systems, 540,000 solar lanterns and 7,000 solar-powered water pumps.

The Township Electrification Program in China had provided electricity to 1.3 million rural peo-ple using solar PV, small hydropower and a small amount of wind at the time of its completion in 2005 (REN21 2006). During 2006, China was planning the next programme which focuses on villages, with plans to electrify 10,000 villages and 3.5 million rural households with renew-ables by 2010, including small hydropower and up to 270 MW of solar PV. Full rural electrifica-tion is planned by 2015.

Box 5-1 Rural electrification – a right of citizenship?


A classic example of investment tax credit problems was in the United States where they were used in the 1980s to stimulate wind energy development. Part of the problem was that the allowable tax credit was too high. Shrewd investors could make profits though tax credits even if the wind generators only actually produced a small fraction of their advertised annual energy generation. Although California wind tax credits helped significantly in the creation of the modern wind energy industry, they became infamous because the nameplate capacity of installations was vastly overrated and operations and maintenance were poor (Gipe 1993).

Similar problems have been experienced in India where investment tax credits were used in the 1990s and spurred the largest wind power industry among developing countries. However, many installations were characterized by low performance caused by using wind turbines not suited for the resource, badly planned and badly sited wind farms, and inadequate transmission and distribution facilities.

In contrast, investment tax incentives have been used fairly effectively for smaller-scale systems, such as rooftop PV systems. Successful programmes provide amounts of tax relief that are not excessive and use technology that is well developed and for which assurances of quality exist (for example, PV modules with long-term power warrantees).

A variety of other investment tax incentives exist including accelerated equipment depreciation, value added tax (VAT) rebates, import duty exemptions or other reductions to lower the cost of imported equipment, and property tax reductions. Tax incentives can be politically advantageous, as it is usually easier to avoid collecting taxes through tax credits than to collect and then disburse them as explicit subsidies. But this convenience must be balanced against the distortions and hazards discussed above.

Nepal offers a 1 percent customs duty facility for renewable energy systems, which has had a significant impact in increasing private sector participation in RETs. China and Thailand also use import tax reductions for qualifying renewable energy equipment. In Brazil, tax preferences have been given to vehicles that run on pure ethanol and, most recently, to “flexible-fuel” vehicles as well. VAT or sales tax exemptions and production subsidies are a popular support mechanism for biofuels, offered in several states of the United States; Canada (production subsidies of 10 CAD cents per litre for ethanol and 20 CAD cents per litre for biodiesel, which decline after the first three years) (REN21 2008); Austria (95 percent exemption for biodiesel) (REN21 2005); Belgium; France; Greece (REN21 2008), Hungary; Italy (100 percent exemption for biodiesel) (REN21 2005); Slovenia; Spain; Sweden; and the United Kingdom. Germany had 100 percent exemption for biodiesel (REN21 2005), but it was abolished in 2007 (REN21 2008).

Grants for research, development and demonstration, outreach and training

Grants for research, development and demonstration (RD&D) play an important role in renewable energy deployment – especially in the initial stages for technologies that are promising but not yet commercial. Careful investment in demonstration projects can help develop experience in installation, maintenance and repair, and can increase the confidence necessary for early market development. Grants for installations arguably also make sense in providing for basic needs (medical clinic lighting, pumping and water purification) for communities that are in dire need, such as refugees and people displaced by war or conflict.

Public funds, or private foundation funding, directly support a variety of essential programmes to lower barriers and develop markets for renewables, as well as develop communities of knowledgeable practitioners through information “clearing houses”, training, matchmaking, quality control, project evaluation and policy support. Training for practitioners is especially important. Throughout the developing world, the capacity to design, install, operate, maintain and repair quality renewable energy equipment is very limited. Similarly, the capacity to manage the “people” side of the projects – community mobilization and governance, economics, activities related to project-related income generation – is also severely constrained. Programmes, including curriculum and certification guidelines, to train and certify renewable energy practitioners have been developed for adoption in local vocational training centres (see, for example, the Institute for Sustainable Power in the United States) but the pace of implementation should be increased.

However, repeated demonstration projects of well-established technologies, for example PV, accomplish little, deplete precious government funds, and can even hurt the market as potential customers refrain from investing in the hope that they will get a demonstration project too. Another disturbing effect of excessive emphasis on government-funded demonstration projects is that equipment suppliers determine that lobbying for an increase in such projects is more lucrative than finding and satisfying customers in the marketplace (Greacen 2005).


Preferential finance

The challenge of raising capital is a major concern, especially for renewable energy power generation projects which involve large initial costs and are perceived as risky and unconventional by banks. Long-term, low-interest, “patient” financing can result in substantially lower costs for renewable energy. “Patient capital” can take the form of both debt and equity finance, and can range from multimillion dollar investments to small-scale end-user finance (see chapter 6 below where the topic is covered in depth).

Interconnection agreements

Interconnection agreements are the first of a number of measures of particular relevance to grid-connected power generation. In every country with significant installed renewable energy capacity there are laws that guarantee that renewable energy generators have access to the grid. The laws do not imply a subsidy; they only require fair treatment by utilities that control the transmission and distribution systems. Interconnection requirements specify the safety equipment and procedural steps necessary for connecting a generator to the grid. The critical principle is that all generators of electricity should have fair and non-discriminatory access to the grid.

Under Danish law, renewable energy generators share the costs of grid interconnection with distribution utilities. Independent generators must pay the cost of connecting to the nearest technically suitable point on the grid. The costs include the line from the plant to the grid connection point, control and metering equipment necessary at the grid connection point, as well as labour. In the event that upgrading the grid is necessary in order to interconnect the generator, or the utility desires that the interconnection be made at some more distant point, the utility must pay these extra costs (Energicentre Denmark 2005). The cost-sharing arrangement is important in that it guarantees that renewable energy generators will be able to interconnect to the grid at a limited and manageable cost that is easily predictable. Germany’s laws are similar – plant operators have to pay for the grid connection, but the grid operator has to bear the cost of grid reinforcement if necessary (IEA 2005).

Based on international experience, fair and non-discriminatory access to the grid requires an independent regulatory authority with:

• The capacity to conduct rigorous independent technical analysis;• The legal authority to enforce utility compliance; and• A perspective that helps balance the needs of small producers and consumers against

the needs of the utilities (Brown 2003).

Power purchase agreements

Electricity generation projects require a reliable, stable, long-term revenue stream in order to obtain finance at a reasonable cost. Reliable power purchase agreements, which are contracts that guarantee a market and a price for electricity generated, are thus critical for a successful grid-connected renewable energy project.

The United States Public Utilities Regulatory Policy Act of 1978 (PURPA) was among the first laws allowing IPPs to sell into the grid. PURPA mandated that utilities purchase all independently-generated power at their avoided cost. Other countries such as China, Denmark, Germany, India, Spain and the United Kingdom of Great Britain and Northern Ireland have all developed explicit (but varying) rules providing guaranteed PPAs for renewable electricity, often requiring payments significantly higher than avoided generating cost (Greacen 2005). Standardized non-negotiable PPAs have been adopted in Indonesia, Malaysia, Mauritius, Nepal, Pakistan, the Philippines, Sri Lanka and Thailand. Selected Asian countries with interconnection arrangements for small renewable energy are listed in Table 5-4 below.

India also has policies that further facilitate grid-connected renewable energy through power transmission “wheeling” (selling power to a third party via the utility’s transmission lines) and “banking” (generating power for later consumption), as well as direct power sales from producers to end users. The Sri Lanka power market opened to third-party minihydropower developers for the first time in 1997 with the announcement of a standard offer. Today a pipeline of around 120 MW of small hydropower plants is set to supply more than 5 percent of the electricity on the Sri Lankan grid. The general perception of renewable energy power developers in developing countries is that they face problems, particularly with financing and with regulatory frameworks that define power purchase tariffs and transmission access (Martinot et al. 2002).


In Nepal, a combination of policies led by standard PPAs for hydropower played a catalytic role in increasing private sector investment in renewables. In 1998, the Government announced that it would buy power from hydropower plants below 10 MW through a standard PPA at a pre-announced purchase price with an annual escalation for five years. Even though the Electricity Act of 1991 provided an income tax holiday and a 1 percent import tax facility to small hydropower developers, it was the 1998 announcement that created a “ready” market for small hydropower and attracted private sector investment in a big way. Over US$100 million has been invested by the private sector and over 58 firms were involved in the sector at the time the study was conducted.

In general, power purchase agreements are most useful in encouraging significant deployment of renewable energy when they provide stable long-term revenue streams and they can be adjusted over time, but the adjustments affect only new generators that come online after the adjustment is made (Greacen 2005).

Net metering

Net metering permits consumers to install small renewable systems at their homes or businesses to offset local consumption and use the grid to absorb any excess or make up for shortfalls. Often regulations require utilities to purchase net excess generation at wholesale rates.

Net metering laws exist in at least seven countries, 39 states of the United States and several Canadian provinces. Net metering laws are being enacted regularly, with six states passing such laws in the United States in 2004. Most recently, a 2005 federal law requires all electric utilities in the United States to provide net metering within three years (UNDESA 2005). In 2003, Thailand adopted net metering for renewable energy generators with power export not exceeding 1 MW (increased to 10 MW in 2006).

Feed-in tariffs and production tax credits

Under “feed-in” laws, electric utilities are obligated to purchase any electricity generated with renewable resources at fixed minimum prices per kWh. The prices are set higher than the prevailing market price and payments are usually guaranteed over a specified period of time.

Production incentives can be superior to investment incentives by eliminating the temptation to inflate initial project costs and by encouraging developers to build reliable facilities which maximize energy production. The production incentive is a policy instrument preferred by many renewable energy project developers because it provides a guaranteed market for renewable energy at a guaranteed price (Greacen 2005).

Production tax credits are similar to feed-in tariffs, but the benefit is accrued through a corporate income tax deduction rather than a cash payment. Compared to production subsidies, production tax incentives have similar advantages and disadvantages as described earlier for investment incentives. The advantage is that they are politically easier to achieve, while disadvantages include complexity and lack of ability of certain (especially lower income) parties to fully absorb the tax credit.

Table 5-4 Selected Asian countries with interconnection arrangements for small renewable energy installations

China All renewables allowed to interconnect.

India Allows “wheeling” and “banking” of power

Indonesia Up to 1 MW per installation

Malaysia Up to 10 MW per installation

Nepal Up to 10 MW per installation (hydropower)

Philippines Up to 10 MW per installation

Sri Lanka Up to 10 MW

Thailand Up to 10 MW per installation (VSPP) and up to 90 MW for SPP programme

Note: Based on information available before 2007.


Furthermore, the usefulness of tax credits is limited because, in order to take full advantage of tax credits, projects must be financed with a greater proportion of high-cost equity and lower proportion of low-cost debt than would otherwise be the case (Redlinger 1998).

By 2007, feed-in policies had been adopted in at least 37 countries, more than half of which were enacted after 2002. By 2007, feed-in policies for were enacted in Asia in China, some states of India, Indonesia, South Korea, Sri Lanka and Thailand (REN21 2008). Feed-in tariffs have stimulated investment in wind power, biomass, small-scale hydropower, PV and solar thermal power generation, spurring interest and innovation particularly in Germany (box 5-2), Spain and Denmark. The feed-in law in Germany resulted in power from eligible forms of renewable energy more than doubling between 2000 and 2004 (REN21 2005).

India was the first developing country to establish feed-in tariffs and it has since been joined by Sri Lanka, Brazil, Indonesia and Nicaragua. In China, a comprehensive law to promote renewable energy was enacted in February 2005 and included feed-in policies. Thailand also instituted feed-in tariffs in December 2006. Feed-in tariffs for renewable energy in selected Asian countries are listed in table 5-5 below (REN21 2005, REN21 2008).

The States of Karnataka, Uttaranchal and Uttar Pradesh in India also adopted feed-in tariffs in 2005, bringing to six the number of Indian states with feed-in policies. Maharashtra also updated its 2003 wind power feed-in policy to include biomass, bagasse and small hydropower generation. In order to boost wind power, a limited feed-in tariff was enacted in Pakistan with a 9.5 cents/kWh tariff established for approved projects. Two further 50 MW projects are to be launched and a competitive selection is underway for project developers (REN21 2006).

Feed-in tariffs provided much of the basis for growth in Denmark’s largely community-owned wind industry. This sets a promising precedent for community-owned renewables in other countries, and ultimately a possible revenue generation opportunity for rural communities with renewable energy resources. Thus far, however, there are few developing country examples.

Denmark also uses production tax credits in a clever way designed to encourage ownership of by local farmer collectives. Individuals who participate in wind energy cooperatives can own up to 20,000 kWh/year worth of shares in them. The first 400 Euros per year of income is tax-free, while the remainder is taxed at 60 percent of the regular tax rate. Because Danes pay very high income taxes (typically around 50 percent of income), the tax breaks for cooperative ownership provide a strong incentive for community involvement.

The United States federal production tax credit has applied to more than 5,400 MW of wind power installed between 1995 and 2004. Starting at 1.5 cents/kWh in 1994, the credit increased through several expirations and renewals to 1.9 cents/kWh by 2005, with expiration now extended until the end of 2008. Longer-term extension of the U.S. production tax credit to 2012-2013 has also been planned (REN21 2005, REN 21 2008).

Renewable Portfolio Standard

A RPS requires that a minimum percentage of electricity generated by electricity supply companies be produced from renewable energy sources. Obligated utilities must ensure that the target is met, either from their own generation, power purchases from other producers or from purchases of Renewable Energy Credits (RECs).

RPS policies are in place at the national, state or provincial level in Australia, Canada, China, India, Italy, Japan, Poland, Sweden, the United Kingdom and the United States. Most RPS policies require renewable power shares in the range of 5-20 percent, typically by 2010 or 2012. (REN21 2008) Few developing countries have moved to renewable portfolio standards. Thailand made early plans to develop an RPS but shifted primary focus to feed-in tariffs owing to the lack of independent regulatory oversight and remaining challenges in developing competitive electricity markets. The Regulator for the Southern Indian State of Tamil Nadu is expected to set a new requirement for distributors to purchase at least 10 percent of their power from renewable energy producers. This mandate resembles an RPS in many ways. Tamil Nadu accounts for more than half of India’s total wind power resources, and this ambitious target, together with an annual increase in energy consumption of 5-6 percent, has helped to create a favourable environment for renewable energy producers.


In the early-1990s, Germany had virtually no renewable energy industry. Within 10 years, it had transformed itself into a renewable energy leader. In the space of a decade and with a fraction of the potential in wind and solar power of the United States, Germany now has more than twice as much installed wind capacity as that country – more than one third of global capacity – and is a world PV leader as well.

The German Government passed an energy law in 1990 that required utilities to purchase the electricity generated from all renewable technologies in their supply areas and to pay a minimum price for it – at least 90 percent of the retail price, in the case of wind and solar power. The “Electricity Feed-in Law” was inspired in part by similar policies that had proved effective in neighbouring Denmark. The preferential payments for renewable energy are in-tended to help internalize the costs of conventional energy and compensate for the benefits of renewables. The pricing law ended uncertainties regarding whether, and at what price, producers could sell electricity into the grid. It also boosted investor confidence, making it easier for even small producers to obtain bank loans and drawing money into the industries. Increased investment drove improvements in technology, advanced learning and experience and produced economies of scale that have led to dramatic cost reductions. The average cost of manufacturing wind turbines in Germany fell 43 percent between 1990 and 2000, and the cost of total PV systems declined 39 percent between 1992 and 2002.

In 2000, the German Bundestag required that the burden of additional costs arising through feed-in tariffs be distributed among all suppliers based on their total electricity sales, ensuring that no one region would be overly burdened. With scientific input and advice from the vari-ous renewables industries, the Bundestag established specific per-kilowatt-hour payments for each renewable technology, based on the real costs of generation. The tariffs are paid for 20 years, while the rate for new projects is adjusted regularly to account for changes in the marketplace and technological advances. Electric utilities also qualify for these tariffs, thus re-ducing utility opposition while further stimulating the renewable energy market. Soon after the first pricing law was established, farmers, small investors and start-up manufacturers started to create a new industry from scratch, and wind energy development in Germany began a steady and dramatic surge. The success of the feed-in law was further strengthened by a host of other supporting mea-sures. Major banks offered low-interest loans, refinanced by the federal government. Income tax credits granted for projects and equipment that met specified standards were provided. In addition, the federal and state governments have funded onshore and offshore renewable resource studies, have established institutes to collect and publish data and have promoted awareness about renewable technologies through publication of subsidies, as well as through architectural, engineering and other relevant vocational training programmes.

*From Sawin 2004.

Box 5-2 The electricity feed-in law of Germany*

Table 5-5 Selected Asian countries with interconnection arrangements for small renewable energy installations

China For biomass

India In six states

Sri Lanka About US$0.09/kWh for biomass. About US$0.06/kWh for all other renewables

Thailand8 baht/kWh subsidy adder (on top of wholesale rate) for solar, 2.5 for wind and municipal

solid waste (MSW), 0.8 for hydropower (under 50 kW), 0.3 for biomass



Green Power programmes

Marketing of Green Power relies on individual electricity consumers voluntarily adding a premium to their electricity bill to cover the extra cost of renewable energy. Green Power programmes are in place in over 700 United States utilities, as well as a number of Northern European countries, Canada, Australia, Japan and New Zealand (REN21 2008). Experience with Green Power programmes has been that a very small fraction (typically 1 percent or less) of all customers sign up and several programmes have been abandoned altogether. There are few Asian utilities with Green Power programmes but Thailand has studied the possibility.

Major renewable energy policy initiatives in the Asia and Pacific region

Several countries in Asia and the Pacific have undertaken major renewable energy policy initiatives (Table 5-6).

The countries listed in Table 5-6 vary in their levels of commitment to renewable energy and in the types of measures adopted. Ignoring, for the moment, important differences between similar-sounding policies implemented in different countries, in general terms renewable energy policies in Asia have included targets for renewable energy deployment, measures that prioritize or integrate renewable energy into national plans and/or national bureaucracy, financial support through subsidies (including tax breaks) and provisions that require utilities to allow grid access for renewable energy generators.

China, India, Nepal and Thailand stand out as countries that have adopted one or more measures in most of those categories (table 5-7). In most countries there is an overall move away from demonstration projects and entitlement programmes and towards greater reliance on market mechanisms to accomplish deployment.

Access for renewable energy generators and targets represent the most common measures adopted – perhaps because they require little or no investment by Governments. However, development of bureaucracies and granting of subsidies require considerable time and expense.

This study strives to deepen understanding of the linkages between renewable energy deployment and poverty alleviation. In this respect, it is noteworthy that no country has developed policies that explicitly link renewable energy deployment with poverty alleviation.

Regional programmes and initiatives to support private-sector investment in RETs

A number of regional initiatives have been launched since the early 1990s to promote renewable energy technologies in the Asian and Pacific region. Promotion of private investment in RETs has been a central theme for some of the more recent initiatives, while earlier programmes focused on awareness raising and capacity building.

Regional cook stove programme

The Asia Regional Cookstove Program (ARECOP)34 was initiated in 1991 as a network to facilitate the development of effective improved cook stoves and biomass energy programmes at the household and small industry levels. For more than a decade, ARECOP has consistently focused its activities on the traditional wood/biomass-energy-using population and the millions of people who depend upon wood and other biomass as their main source of energy for their daily livelihood.

As a network, ARECOP has made a significant contribution towards establishing effective cooperation among diverse stakeholders in addressing improved cook stoves and related energy issues. The network serves as a forum for exchange of information, skills, expertise and resources among diverse sectors including government institutions, NGOs, academic and research institutions, community-based organizations, international agencies and private institutions.


Table 5-6 Major renewable energy policy initiatives in selected Asian and Pacific countries

Cou

ntry

Major policy developments Major programmes

Chi

na

• Subsidies for hydropower initiated in 1950s.• Subsidies extended to include biogas, fuel wood and

coal-saving technologies in 70s. • Further increase of financial grants, loans and subsidies for small hydropower

in 1980s. • RE made part of rural energy and rural electrification in the 1980s. • Recommendations issued for construction and management

of wind farms in 1994. • The Renewable Energy law, endorsed in February 2005 included feed-in tariffs

for biomass. • At present, the Chinese Government is in the processes of formulating its

Medium – and Long-term Energy Development Strategy and Plan to 2020.

• The only country with a separate Ministry (of Non-conventional Energy Sources) dedicated to promoting RETs.

• Indian Renewable Energy Development Agency (IREDA), an autonomous financial institution, created in 1987. IREDA provided market development support by conducting marketing campaigns, offering business training, providing various types of credit and subsidies.

Indi

a

• Cash subsidies for biogas and improved cook stoves as core of target-oriented programmes launched in 1980s.

• Focus on commercialization since 1992. Direct capital subsidies on RETs either removed or drastically reduced, and fiscal incentives provided to users as well as manufacturers.

• Large bilateral and multilateral financial assistance made available. Three technologies – wind power, small hydropower and solar photovoltaic power – targeted for commercialization. Direct project and commercial financing resulted in the commissioning of 360 MW of commercially-operated wind capacity and 65 MW of minihydropower capacity.

• The Electricity Act of 2003 encourages use of RE power. Under this Act no license is required for electricity generation. Besides, an individual having a captive power plant would have open access to the grid (on payment of wheeling charges), for his own end use. The Act also mandates the State Electricity Regulatory Commissions to determine the quota of electricity generated from cogeneration and renewable sources of energy.

• The only country with a separate Ministry (of Non-conventional Energy Sources) dedicated to promoting RETs.

• Indian Renewable Energy Development Agency (IREDA), an autonomous financial institution, created in 1987. IREDA provided market development support by conducting marketing campaigns, offering business training, providing various types of credit and subsidies.

Nep

al

• In early-1990s, legislation adopted for the inclusion of private sector participation in water resources and infrastructure development Electricity Act of 1991 provided income tax holiday and a 1 percent import tax facility to small hydropower developers.

• In 1998 the Government announced standard PPAs for hydropower plants below 10 MW.

• Between 1975 and 1990, subsidies and credit from Agricultural Development Bank of Nepal (ADBN) were provided for biogas plants.

• Subsidy program for PV, biogas and microhydropower pays for 25-50 percent of capital cost. Managed by the Alternative Energy Promotion Center.

• Government approved the Rural Energy Policy in November 2006. This is the first explicit policy of its kind in the region. Policy includes inclusion of women, dalits, indigenous people and others among the poor in renewable energy programmes by providing additional subsidies through the local government and ensuring their participation through social mobilization. Poverty is to be reduced through the use of energy to increase productivity.

• The Eighth Plan (1992-1997) set up the Alternative Energy Promotion Center (AEPC) to take the lead and coordinate activities for research, development and promotion of RETs.

• The Electricity Development Center established as the single window for inviting bidders and clearing proposals on hydropower development.

• Biogas Support Programme (BSP) funded by the Netherlands provides subsidy for household scale biogas

Continues...


Indo

nesi

a

• Ministerial decree on Small-Scale Power Purchase Agreement in June 2002 requires the state-owned power company (PLN) to purchase electricity generated from RE by non-PLN producers for projects of up to 1MW capacity. Institutions eligible to participate are cooperatives, private and government companies. Purchase tariffs will be calculated at 80 percent (for medium voltage) and 60 percent (for low voltage) of PLN’s announced “Electricity Base Price’.

• Currently, the Ministry of Energy and Mineral Resources is working for the revision of the Directive, towards increasing the maximum capacity from 1 MW to 10 MW and set the minimum contract period to ten years.

Mal

aysi

a

• The “Fifth Fuel” policy, in 2001, set a target of renewable energy providing 5 percent of electricity generation by 2005, equal to between 500 and 600 MW of installed capacity.

• Renewable Energy Power Purchase Agreement (REPPA) allows renewable energy projects of up to 10 MW to sell power to the state-owned electricity utility, under 21-year license agreements.

• The Third Outline Perspective Plan (OPP3) is Malaysia’s 10-year development plan (2001-2010), under which the Government will continue to manage both non-renewable and renewable energy resources.

• National Biofuel Policy (also known as Biodiesel Policy) introduced in August 2005. Strategy includes 5 percent blend of processed palm oil with diesel, establishing biodiesel standards, incentives to petroleum retailers to make biodiesel available at pumps.

• The Small Renewable Energy Power Programme (SREP), launched in 2001, encourages the connection of small renewable power generation plants to the national grid. The SREP target is to connect 500 MW of renewable power plants to the national grid

Phili

ppin

es

• Creation of the Renewable Energy Power Program (REPP) in 1993 to commercialize new and renewable energy (NRE). REPP was designed to provide up to P750 million in financing for private power projects using solar, wind, biomass, and small hydropower resources with a capacity of between 200 kWe and 25 MWe. Under the REPP programme, small (<10 MW) power plants can apply to sell electricity to the NPC at a rate negotiated in a powerpurchase agreement.33

• Executive Order 215 (EO 215), issued in 1987, allowed the private sector to participate in electricity production and interconnection to the national grid, and paved the way for IPPs.

• Build-Operate-Transfer (BOT) Law, which allows the Government to assume undertakings specific to IPP projects. The BOT route encourages investments by setting up a minimum level of government regulation for project developers whilst providing a host of incentives to investors.

• The Mini-Hydro Law enacted in 1991 covering hydropower projects up to 10 MW in capacity, which sets out special incentives, privileges and provisions for the sale of small-hydropower-generated electricity to the national grid.

• The Renewable Energy Bill of the Government is pending approval of the 13th Congress of the Philippines. The bill when passed into law would provide for a green pricing mechanism, allocate a minimum amount of RE in power generation, promote the use of hybrid systems, provide financial incentives and conduct a sustained information campaign on RE

• Presidential Decree 1068, promulgated in 1977, was the first official attempt at promoting RETs, and created the Non-Conventional Energy Development Program for research, development, and demonstration of new RE technologies, administered by the Ministry of Energy (now the Department of Energy, or DOE).

• Creation of the Renewable Energy Power Program (REPP) in 1993 to commercialize NRE.

Thai

land

• The Strategic Plan for Renewable Energy Development of 2004 called for an 8 percent target to be met through a combination of ongoing small power producer (SPP) and VSPP programmes and a RPS in combination with incentive programmes and increased funding for research and development (R&D) in RETs.

• The Power Purchase Program from SPPs, launched in 1992, was the first policy instrument to promote RETs The programme includes both cogeneration and renewable energy, with generators limited to 90 MW maximum power export (most are 5 MW or larger).

• The Subsidized SPP Program, established May 2001, allocated Baht 2,060 million (US$47million) from the ENCON Fund and provided an average subsidy of 0.17 baht/kWh for renewable energy small power producers. As of 2004, nine out of 41 renewable energy SPPs were receiving subsidies.

• Regulations on power purchase provisions from Very Small Renewable Energy Power Producers (VSREPP) were approved in May 2002. They allow for net metering and a streamlined interconnection process to minimize VSREPP connecting costs. A VSREPP is defined as a generator with its own generating unit which utilizes renewable energy sources, or agricultural and industrial wastes and residues, and which sells no more than 1 MW of electrical power to a distribution utility.

• In December 2006 the VSPP laws were upgraded to allow generators to export up to 10 MW to the grid. At the same time, feed-in tariffs were introduced for biomass, wind, solar, PV and municipal waste.

Table 5-6 continued

Continues...


Viet

Nam

• The Renewable Energy Action Plan (REAP) launched in 1999 set out a 10-year framework to be delivered in two five-year phases of international assistance to scale up the development and use of renewable energy for rural electrification and grid supply.

• The national energy master plan recommends the establishment of a Small Hydropower Development Authority (SHPDA) to restart investment in the sector, which has been depressed for some years. A key objective of the SHPDA would be to stimulate a pipeline of “bankable” on – and off-grid small hydropower projects by building local human capacity. It is estimated that investment in this least-cost remote power source could reach US$20 million over a five-year period.

Paci

fic Is

land

cou

ntrie

s • Very few of the Pacific island countries have energy policies that have been approved at the national government level. Most do have policy preparation responsibilities but few have actually prepared national energy policies that have been accepted by the Government. Only Cook Islands, Marshall Islands and Tokelau have a fully approved and working national energy policy.

• At the regional level, leaders endorsed the Pacific Plan at the October 2005 Pacific Islands Forum, an effort at cooperative planning and coordination among Forum members that include the 14 Forum island countries plus Australia and New Zealand. The Pacific Plan is a 10-year framework intended to strengthen regional cooperation and integration built around four themes: economic growth, sustainable development, good governance and security.

• Donor-driven and multilateral development bank (ADBand World Bank) programmes that focus on energy policy development and on promotion of renewable energy for rural electrification and in some cases (for example, Fiji) for main power grid electricity.

Note: Based on information available before 2007.Sources: Country case studies, volumes V, IV and VI, Policy Study on Regional Mapping of Options to Promote Private Investments in Alternative Energy Sources for the Poor; and the Australian Business Council for Sustainable Energy country reports for China, Malaysia, Philippines, Thailand and Viet Nam, 2005 (www.bcse.org.au).

Category Policy

Chi

na

Indi

a

Nep

al

Indo

nesi

a

Mal

aysi

a

Phili

ppin

es

Thai

land

Viet

Nam

Target RE target * * * * * * *

Prioritization/integration in national plans

and/or bureaucracies

RE part of national energy and/or rural electrification strategy * * *

Specific RET ministry *

National agency providing assistance, funding * *

Subsidies

Capital subsidies * * *

Feed-in tariffs * * *

Income tax holiday *

Import tax reductions *

Grid access for generators Regulations facilitating access to the grid for generators * * * * * * *

Explicit consideration of link-ages to poverty Specific measures to address energy/poverty

Table 5-7 Summary matrix of energy policies in selected Asian countries


Table 5-6 continued


Throughout its existence, ARECOP activities have helped to shape the direction of improved cookstove programmes in Asia. Specifically, ARECOP has:

• Actively pursued the integration of improved cook stove programmes with other complementary developmental programmes in order to enhance the spread of activities related to improved cook stoves in the absence of resources specifically dedicated to stove programmes;

• Promoted the decentralization of improved stove technical and programmatic skills through a comprehensive training that has now been adopted by institutions in the region. ARECOP has also initiated the adoption of participatory methodology in the improved cook stove programme to address the issue of gender, poverty and sustainability;

• Taken steps to address the issue of indoor air pollution and related health impacts and has put greater focus on the popularization of advanced and modern biomass technology applications; and

• Built capacities to deal with issues at the national level and, through the establishment of Country Contact Points in Bangladesh, Cambodia, Indonesia, Nepal, Philippines, Sri Lanka and Viet Nam, ARECOP has successfully facilitated the creation of nationally-based networks of cooperation dealing with improved cook stoves and biomass energy use.

Development of wood energy in Asia

The Regional Wood Energy Development Programme in Asia (RWEDP)35 was a project executed by the Food and Agriculture Organization (FAO) of the United Nations and funded by the Government of the Netherlands. Its third and final phase was implemented from 1994 to 2001. Fifteen countries participated: Bangladesh, Bhutan, China, India, Indonesia, Lao People’s Democratic Republic, Malaysia, Maldives, Myanmar, Nepal, Pakistan, Philippines, Sri Lanka, Thailand and Viet Nam.

The project was implemented in recognition of the fact that Asian countries faced, and continue to face, the following situation:

• An increasing need for energy services to support their economic and social development and that about 30-80 percent of their overall energy needs was met by woodfuels;

• Biomass for cooking and heating dominated household energy use in the majority of the participant countries; and

• Woodfuels were also used in many types of rural industry (sugar palm or cassava processing, brick and lime burning, and so on), for commercial applications (street food vending, restaurants, hospitals, military camps and the like) and at social or ceremonial events such as cremations or festivals.

Phases I and II (1987 to 1994) of RWEDP contributed to a better understanding of the complex dynamics of woodfuel flows and their interplay with supplies of alternative fuels to meet the energy needs of millions of urban and rural households, rural industries, village applications and commercial sectors. Phase III aimed to promote improved wood energy systems that were more sustainable and could become competitive with alternative energy sources. Project activities were focused on strengthening policy analysis, energy strategy formulation and wood energy assessment in the following technical areas: woodfuel production, woodfuel processing and marketing and woodfuel use. In those fields, the project trained more than 2,000 regional, national and local persons including agency heads and officials, executives, technical officers, extension staff and NGO volunteers. Participants came from the energy, forestry, agriculture, rural development, science and technology and women development sectors. At the end of the project, the role of fuelwood and other biomass fuels was recognized in the policies and programmes of those development sectors.


Promoting renewable energy, energy efficiency and greenhouse gas abatement

Promotion of Renewable Energy, Energy Efficiency and Greenhouse Gas Abatement (PREGA) is a technical assistance initiative of the ADB (ADB 2006). Cofinanced by the Dutch Cooperation Fund for Promotion of Renewable Energy and Energy Efficiency and implemented in 15 developing member countries in Asia and the Pacific, the project seeks to strengthen institutional capacity and technical capability of governments, consultants, academe and other stakeholders to develop and implement clean energy projects. PREGA’s main objective is to promote investments in clean energy projects that will increase access to energy services by the poor, realize other strategic development objectives and help reduce greenhouse gas emissions. PREGA has specifically sought to develop a pipeline of investment projects for the Clean Development Mechanism.

PREGA started in 2002. Under the first phase, PREGA was implemented in 14 developing member countries in coordination with national counterpart agencies, national implementation committees and national technical experts. A large number of workshops, capacity building and outreach events were organized. PREGA provided significant domestic capacity building to participating countries in awareness raising and motivation for promoting renewable energy, energy efficiency and greenhouse gas abatement (REGA) projects. It has helped in creating enabling policy frameworks and programmes at the country level by catalyzing policy dialogue and holding consultations among stakeholders to address institutional and regulatory barriers. Close to 50 pre-feasibility and feasibility studies of specific REGA projects have been identified and developed under PREGA.

Regional research and dissemination programme on RETs

In order to promote selected mature and nearly mature renewable energy technologies, the Swedish International Development Cooperation Agency (SIDA) and the Asian Institute of Technology initiated a regional research and dissemination programme, “Renewable Energy Technologies in Asia” in six countries in 1997.37 The first (1997-98) and second (1999-2001) phases of the programme, which involved photovoltaics, solar drying, biomass briquetting and institutional stoves, addressed the country-specific requirements for those technologies.

Various adaptations to standard/imported and locally-available technologies were carried out by national research institutions (NRIs) in participating countries. Local expertise was built through technology transfers and training programmes. Demonstration systems were installed to educate the public. The activities of the NRIs were coordinated by AIT. The third and final phase (2002-2004) aimed at consolidating the achievements of earlier phases, and emphasized dissemination. Technology packages were identified, developed and demonstrated on a commercial or semi-commercial basis. Studies on the barriers to promotion of the RETs were conducted and measures to overcome them were identified. In addition to capacity enhancement of NRIs, entrepreneurs, technicians and users of the selected RETs, the programme also resulted in dissemination of research results in appropriate forums through publications, workshops and seminars.

The programme led to the establishment of an industry to manufacture lighting systems based on white LEDs in Nepal and the Government of Nepal added solar dryers to its RET subsidy programme. In Bangladesh, solar PV modules were exempted from import taxes and RETs are being included in the National Energy Policy. A provincial government in Viet Nam has collaborated with one of the participating institutions in the programme to promote solar battery charging stations. In Lao People’s Democratic Republic, the programme’s success has resulted in the initiation of a similar project by the Japan International Cooperation Agency (JICA).

Biomass energy programme in ASEAN

The EC-ASEAN COGEN Programme , managed by AIT and Carl Bro International AB of Sweden, has resulted in significant private sector investment in renewable biomass-based generation in ASEAN countries during the ten years from 1994 to 2004 when this programme was active (Lacrosse and Shakya 2004). The programme supported the implementation of proven, clean and efficient biomass cogeneration projects through a combination of business development support and technology transfer. New technologies from Europe were introduced into the rice, sugar, palm oil and wood sectors of ASEAN. Some biogas plants were also implemented with support from the programme.

The COGEN project has coincided with improvements in the institutional frameworks in a number of South-East Asian countries to promote the use of renewable energy in general and biomass-based renewables in particular. Small power producer programmes, such as the one in Thailand, have offered the opportunity to agroindustries to use biomass residues more efficiently and to sell excess power to the national grids after meeting their own energy requirements. Those measures


encouraged industries to replace old, inefficient and polluting energy plants with modern, efficient equipment to optimize the conversion of rice husks, sugarcane bagasse, oil palm wastes and wood residues into useful energy.

South Asia regional initiative for energy cooperation and development

The South Asia Regional Initiative for Energy (SARI/Energy) programme focuses on subregional approaches to meet South Asia’s energy security needs through increased trade, investment and access to clean energy. SARI/Energy is supported by United States Agency for International Development (USAID) and focuses on mobilizing private investment in cross-border clean energy projects in natural gas, hydropower, gas pipelines and transmission line projects. SARI/Energy countries include Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka and SARI/Energy is involved in the following activities:

• Business coalitions – enhances private sector advocacy for government policies that promote regional energy cooperation, integration, and development through the South Asia Regional Energy Coalition (SAREC);

• Regional partnerships – establishes regional partnerships, bringing together key energy sector participants to interact on critical issues in the areas of utility management, regulatory reform and transmission;

• Technical assistance and training – leads technical assistance and training efforts and facilitates overall programme coordination between partners;

• Small grants programme – screens and awards SARI/Energy small grants on a competitive basis to local not-for-profit NGOs to implement initiatives to foster cooperative energy research and outreach

• Energy statistics and data – helps improve regional institutional capacity to design, collect, analyze, and disseminate energy statistics to enhance the effectiveness of the SARI/Energy programme; and

• Renewable energy resource data – the SARI/Energy programme provides critical research data on regional renewable energy sources for dissemination.

Renewable energy for the Mekong subregion

The Council of Renewable Energy for the Mekong38 or CORE is a network of organizations and experts from countries in the Mekong subregion, namely Cambodia, Yunnan Province of China, Lao People’s Democratic Republic, Thailand and Viet Nam, working through local, national and regional institutions in the renewable energy sector. CORE provides a framework for linking governments, the private sector, researchers and experts at all levels, within each country and throughout the region. CORE promotes international cooperation not only in the Mekong subregion but also with other countries, regional entities and international bodies. CORE initiates, supports and encourages activities to develop capabilities in the subregion in solar energy, biogas, other biomass technologies, wind, mini/microhydropower, and energy conservation. CORE is also involved in facilitating regional linkages for commercialization of technologies in the region.

The School of Renewable Energy Technology39 (SERT) of Naresuan University, Phitsanulok, Thailand, provides secretariat support to CORE. With advice from CORE, the School also conducts research and development for renewable energy technologies to help the region gain self-reliance and achieve widespread applications of those technologies. SERT also supports applications of renewable energy and efficient energy technologies in industries. As an autonomous state centre, SERT is able to work flexibly to develop renewable energy technologies for the energy needs of developing countries in South-East Asia.


Endnotes

25 See the discussion on targets and timetables below.26 Available at http://cdm.unfccc.int/EB/032/eb32_repan27.pdf27 Available at http://cdm.unfccc.int/EB/Meetings28 Available at http://cdm.unfccc.int/EB/037/eb37_repan06.pdf29 www.mdgcarbonfacility.org30 Often this has occurred in times or areas where State power was in question. In Thailand, for

example, much rural electrification took place under a series of communist counter-insurgency programmes known nationally as “water flows, lights shine, good road”. The common village term for rural electrification, “fai luang”, is etymologically linked to the word for the King, “nai luang” – the personification of State power and Thai national identity.

13 http://ec.europa.eu/agriculture/biomass/biofuel/com2006_34_en.pdf.32 http://palmnews.mpob.gov.my/palmnews/palmnews.php?cmd=paparpenuh&idnews=3275.33 The Philippines National Power Corporation (NPC) has suspended the REPP programme in

part owing to the NPC’s reluctance to acquire additional take-or-pay liabilities given the pending power sector restructuring and lack of demand for new capacity. This programme design flaw has obviously deterred serious private sector investment in renewable energy projects, and only two minihydropower projects have reached the point of accreditation and construction under the scheme.

34 www.arecop.org35 www.fao.org/sd/egdirect/egre0001.htm and www.rwedp.org. 36 http://www.retsasia.ait.ac.th/37 http://www.sari-energy.org38 http://www.core-mekong.org39 http://www.sert.nu.ac.th/

105

6. Experience With Models of RET Dissemination Led By The Private Sector


6. Experience With Models of RET Dissemination Led By The Private Sector

Renewable energy dissemination in developing countries covers a wide spectrum, from completely unregulated, fully commercial models to various forms of private-public partnerships and state-subsidized markets, to fully subsidized programmes. Success, defined in terms of sustainability and wide coverage, particularly with regard to the poor, appears to be attributable in significant part to arrangements that harness public resources, such as subsidies, and private sector competition in ways that build on the relative strengths of each without undermining the contributions of either. This chapter reviews a variety of dissemination experiences with a focus on Asia and the Pacific to identify factors that have led to relative success, as well as specific causes of failures.

Full commercialization models

Kenya, where the solar electricity industry is unregulated, is the global leader in the number of solar power systems installed per capita (but not in the number of watts added). More than 30,000 very small solar panels, each producing only 12 to 30 watts, are sold in that country annually. For an investment of as little as US$100 for the panel and wiring, the system can be used to charge a car battery, which can then provide enough power to run a fluorescent lamp or a small black-and-white television for a few hours a day. In Kenya, adopting solar power is more popular than connecting to the country’s electric grid (Kammen 2006). The industry serves Kenyan consumers largely through a cash-and-carry model with limited extended services for finance or after-sales service.

Two other fully commercial PV dissemination programmes in place are the Global Transition Group (GTG), based in the United States, which includes the charitable NGO, Enersol, and the for-profit energy service company Soluz, and SELCO. The Enersol/Soluz model, based largely on microfinance, operates in the Dominican Republic and in Honduras and serves more than 10,000 customers, including those on low incomes, through unsubsidized cash, credit and rental schemes. SELCO started its operations in India and Sri Lanka. SELCO India provides infrastructure solutions to underserved households and businesses in India and the rest of the developing world. SELCO has provided solar electricity to 55,000 homes and businesses through its centres located in India since 1995. SELCO provides a complete package of product, service and consumer financing.40 SELCO’s business operates on a doorstep financing and service model, making both readily available to potential customers, even in remote locations. SELCO, which operates largely in South India, works together with banks such as the Syndicate Bank and the Malaprabha Grameen Bank41 to provide loans for solar home systems to its customers. The solar lighting schemes of those banks offer 3 – to 5-year loans to customers for 90 percent of the cost of the solar system at an interest rate of 12-12.5 percent, which is the priority-sector lending rate.

Both of the models were based on the assumption that people living in off-grid areas are already paying large sums of money for energy (kerosene, candles, dry cell batteries and charging of lead-acid batteries at the market centre). If high-quality solar lighting could be provided, many of those people would be prepared either to purchase systems or pay a fee for lighting services. A financial model for such a system was presented in the Village Power 2000 programme of the United States Department of Energy’s National Renewable Energy Laboratory, where modules of 5,000 systems each were promoted as a mini-utility.

Commercial services powered by renewable energy

High-value public services powered by RETs (solar-powered refrigeration, solar PV or microhydropower for telecommunications, distance learning and Internet connectivity) can reach large numbers of people, including the poor, using small amounts of power. A growing cohort of commercial projects for solar-PV-powered drinking water, including both pumping and purification, has appeared in recent years, notably in India, the Maldives and the Philippines. A commercial pilot project recently launched


in the Maldives hopes to achieve sales of 1,000 litres per day with a delivered price of water to households of around 0.2-0.5 cents per litre in the long-term. In Cebu in the Philippines, filtered, chlorinated water is delivered to 10 villages using a 3 kW solar PV water pump at a price of 3 pesos for 20 litres or 15 centavos a litre, one tenth the cost of bottled water. Villagers use prepaid debit cards to purchase the water and the revenues collected are used to repay a 10-year bank loan which was obtained on commercial terms (REN21 2006).

Lessons learned from full commercialization models

While the fully commercial model has been successful in terms of reaching a large number of rural customers, it is faced with two challenges. First, the number of people that can afford the systems at full cost is limited hence the model almost never reaches the poorest segments. The second challenge applies primarily to the “no-holds-barred, free market” Kenyan model. In the Kenyan market, and in similar markets elsewhere, it is difficult to enforce consistent quality in fully commercial models. Consumers seldom have sufficient information to be able to distinguish between good and bad quality products. Many customers make decisions on the basis only of price. Eventually, word gets out about which products are reliable and which are not, but for many the information comes too late (Kammen 2006).

Commercialization supported by civil society

A second model which has gained currency falls into the general category of public-private or, in some cases, civil-society-supported private enterprise models. In this model, the private sector markets the product in a competitive market environment. Public funds are used to increase awareness, control quality and, for the more expensive technologies, to lower capital costs. In recent years this model has been tried out by a number of organizations including the World Bank and some bilateral donors. The model has been applied to household cooking technologies, ICS and biogas and to SHSs and the number of high quality systems that has resulted is encouraging. Although it is unclear whether energy services are available to the poor as yet, the model appears to be able to increase the volume of sales of RETs substantially and is robust enough to work across a number of countries. The impact of the technologies on reducing poverty in the households they serve is unclear. However, significant employment is clearly generated in the resulting RET industries.

Enterprise assistance and market development support for improved cook stoves

Commercialization has worked well in the large-scale expansion of the market for improved cook stoves across a number of countries in Asia and the Pacific. Many of the ICS programmes in the region have focused on providing technical assistance and market development support to artisans and stove entrepreneurs. Notable among private-sector-driven cook stoves programmes are the Chinese cook stove programme, the Anagi stove in Sri Lanka and, more recently, the New Lao Stove promoted under the Cambodia Fuelwood Savings Project.

China has used small rural private companies extensively in achieving its very large numbers of RET systems. The Chinese ICS programme, the largest and arguably most successful in the world, relied on rural private stove companies for its success. Private companies built the 100 million improved cook stoves (and the 16 million biogas plants) in rural China. Stove adopters pay the full cost of material and labour, while the Government helps producers through designs for stove construction, training, administration and promotion support.

The Sri Lankan Anagi stove is another example of commercialization supported by civil society. The market for biomass stoves for the urban poor in Sri Lanka was expanded by the Intermediate Technology Development Group (ITDG) and other organizations in the 1990s through a model that encouraged artisans to get into business as mass producers of stoves and to market them through normal market channels and around two million units have been sold since 1991. Village potters have been trained to manufacture the stoves from clay according to strict standards and the stoves are widely available in the market. The Integrated Development Association (IDEA) has trained around 120 potters in 14 rural districts and they produce approximately 300,000 stoves each year. While small producers living in remote areas sell their products directly in their villages, wholesalers visit production centres to buy the stoves in bulk and then distribute the stoves to retail shops spread over a radius of about 200 kilometres. The wholesale price of the stoves is in the SL Rs 65-95 range whereas the retail price is between SL Rs 90 and SL Rs 200. The stoves save 30 percent of fuelwood costs for the user and are estimated to have a pay-back period of two months. Production of 1,000 stoves per month can provide a monthly turnover of around SL Rs 50,000 and full-time employment for 1 potter and 3 unskilled persons (Amerasekera 2005).


In Cambodia, the Cambodian Fuelwood Saving Project42 provides technical and business development training to stove entrepreneurs, who then sell the stoves (see box 3-1). CFSP has so far trained 20 stove producers, 14 of whom are currently producing ICSs. The level of investment from end-users in the ICS, at roughly US$2 above the price of the traditional stove, amounts to around US$190,000 based on the almost 95,000 ICS sold in October 2002-October 2005. For each ICS, producers invest an average of US$0.50 more than for a traditional stove, equaling a total estimated investment from suppliers of over US$47,000 in the same time period. CFSP has also created the Improved Cookstove Producers and Distributors Association of Cambodia (ICoProDAC), which facilitates sectoral development, quality assurance, and the long-term sustainability of ICS dissemination.

Enterprise development has been the hallmark of the Nepal improved cook stoves programme as well. In that programme, capacity building inputs are provided by the Alternative Energy Promotion Centre, which has been instrumental in expanding the informal private sector participation in this subsector. The Centre for Rural Technology43 and other NGOs promote stoves in rural areas by training village stove builders, often women, who build improved stoves in people’s homes for a fee. The construction of the improved stoves is carried out exclusively by trained masons and in 2005 there were about 1,700 trained technicians to carry out ICS installations in Nepal .

The Appropriate Rural Technology Institute44, an Indian NGO, has done pioneering work in developing and commercializing ICSs in Maharashtra State. As part of its strategy, ARTI identifies traditional potters and trains them in the construction of the stoves. In addition to that training, ARTI imparts other skills necessary for running a cook stove business to the self-employed workers. The skills include market surveys, costing, inventory control, quality control, preparation of project proposals for financial institutions, tax and labour laws, salesmanship and advertising. ARTI also encourages producers to set up their own businesses and operate as independent entrepreneurs, providing them with financial and other necessary support. Entrepreneurship in ICSs makes economic sense when it is promoted as a complementary activity with other traditional trades such as pottery.

Using public funds to leverage quality in the Nepal household biogas market

Household biogas is a more complex technology than improved cook stoves and appears to be best promoted not through individual masons but through private companies that employ masons. Companies are able to provide warranties and after-sales service, something individual masons often cannot do. The Nepal Biogas Support Programme45 has 60 companies installing biogas plants. To date, the companies have sold over 150,000 household biogas plants and are constructing between 15,000 and 20,000 plants each year. Roughly 5 percent of rural households in Nepal cook on biogas. BSP has provided technological innovation, financing, engineering and market development for household-scale biogas plants. BSP only allows one design of a biogas plant in its programme, the 2047 GGC (designed by the Gobar Gas Company), which comes in different sizes of 4, 6, 8, and 10 cubic metres, the most popular size being 6 cubic metres. All companies must build to the exact specifications of the approved design and BSP carries out spot checks on up to 15 percent of the plants under construction each year to ensure adherence to quality. Warranties are provided by the companies through a process that has now been ISO 9000 certified. As of July 2006, more than 150,000 biogas plants had been installed in Nepal and strict quality control has ensured that over 97 percent of the biogas plants were still working well after three years.

BSP is able to enforce quality on the biogas digesters because it also approves subsidies that are given to participating companies. The subsidies range from NRs 5,500 to NRs 11,500 (US$75 to US$160) per plant. To maximize subsidy benefits for poor and remote households, the relative subsidy depends on the plant size and location within the country with smaller and more remote digesters receiving higher subsidies. Participating companies sign an agreement with BSP at the beginning of each year agreeing to build to a common design and to a set standard. They also agree to random checks on their plants and to pay penalties if they are found to be delinquent in following all quality standards. Every two weeks, companies are required to submit evidence for the biogas plants they have constructed to BSP and apply for the subsidy payment.

One challenge of a programme based on subsidies such as BSP is sustainability. The programme depends on continued financial support being available from donors and the Government. The high performance of BSP has meant that donors and the Government of Nepal have so far provided grant support to run the programme and to provide household subsidies since 1992. It is not clear that they can continue to provide the subsidies after the current Phase IV of the programme ends in 2009. As a way to secure sustainable funding for the continuation of the programme, BSP was developed into a Clean Development Mechanism project in 2005. Two activities were registered with the CDM Executive Board, each of around 9,400 plants, to stay within the 15 MW limit under the small-scale methodology. The 18,800 plants are expected to abate 93,883 tons of carbon dioxide and to generate around US$675,000 for the programme each year. CDM registration of the remainder of the plants


that are being built under Phase IV could generate sufficient resources to continue the programme sustainably into the future.

The success of BSP has prompted the Netherlands Development Organization (SNV)46, which launched the programme in Nepal, to start up similar projects in Bangladesh, Viet Nam, Cambodia and Lao People’s Democratic Republic. An initiative along the same lines is also being contemplated for Sub-Saharan Africa.

Using public resources to leverage quality and quantity of solar homes systems

The scaling up of solar home systems through subsidized commercialization has now been achieved in a number of Asian countries. Vibrant commercial markets for SHSs exist today in Bangladesh, Nepal and Sri Lanka. After unsuccessful attempts by the World Bank to launch a market-based, solar PV promotion in Indonesia in 1997-2003, the recent successes after 2000 have demonstrated a basic model that works and is robust enough to be replicated across borders. In its essence, the commercialization model consists of the following elements:

a. A national programme provides subsidy support and quality control. It encourages private sector or NGO partners to market systems under a certain warranty and quality guidelines. The national programme routes the subsidy through the supplier.47 The companies are pre-qualified to participate in the programme and sign an agreement to follow its quality control guidelines. The subsidy is designed to prime the pump and establish the market and is reduced gradually.

b. The role of private enterprise is essential in the sustained expansion of markets for solar home systems. As long as a company or individual is making a profit by expanding the business, the installations will continue beyond the project period.

c. The national programmes also provide consumer financing for the purchase of systems either through microfinance institutions or through the vendors themselves. In Sri Lanka, under the RERED project, financing is provided through independent microfinance organizations such as SEEDS. In Bangladesh, where the vendor is the Infrastructure Development Company Limited (IDCOL), it is provided to customers through participating NGOs in the form of vendor finance and installment payments.

d. The national programme conducts consumer awareness campaigns. In Sri Lanka, to address the lack of awareness, the RERED project executes a generic promotion campaign on SHSs and village hydropower schemes, educating the public on the advantages and limitations of the systems, informing them about service and warranty arrangements, as well as available loan schemes. A variety of communication channels are used, including workshops and demonstrations in villages. The promotion targets end-users, government authorities, community-based organizations, microfinance institutions and the general public.

Table 6-1 Private companies involved in solar PV in Sri Lanka before and after RERED

Category FunctionNumber of companies

Before RERED Now

Credit institutions

Licensed specialized banks 0 3

Commercial banks 0 4

Leasing companies 0 2

Solar electric companies Marketing, installation, technical support n/a 13


Table 6-2 Increase in number of private companies involved in solar electricity in Bangladesh

CategoryNumber of companies

Before RERED Now

Installation 1 (Grameen Shakti) 16

Supply of solar components > 6 13

The RERED (2002-2007) project in Sri Lanka follows on the Energy Service Delivery (ESD) programme supported by the World Bank in 1997-2002. Its major components are grid-connected small hydropower, solar home systems and off-grid village hydropower. Project targets include provision of electricity access to 100,000 households through SHSs. The most popular business model that has emerged includes a solar company that is responsible for marketing and technical support, while a separate institution handles consumer financing (Table 6-1).

The Grameen Shakti Solar Home Systems Program in Bangladesh sells SHSs on credit. It is implemented in several districts of the country and had an initial target of installing 8,000 systems in three years. Since the systems are expensive for rural people Grameen Shakti, part of the microfinance organization Grameen Bank, has introduced soft financing options for the customer. Grameen Shakti has also linked the technology to some income-generating activities as well.48 Individual SHS capacity ranges from 30Wp to 128Wp and Grameen Shakti offers several credit modes to fit ability to pay of those who want to buy the system on credit. Customers use PV systems mainly for lighting and for recreational purposes (watching television). By June 2005, Grameen Shakti had installed 42,000 SHSs with an installation capacity of 2.15 MW.

Based on the Grameen Shakti experience, the World Bank and GEF launched the Rural Electrification and Renewable Energy Development Program in Bangladesh in 2002. Under this programme, IDCOL, a state-owned entity, had planned to disseminate 50,000 SHSs and another body, the Rural Electrification Board, an additional 14,000 systems within five years. REREDP is based on a commercialization model being implemented through some 15 partner organizations, most of whom are NGOs. Grameen Shakti has also joined the programme and is the largest supplier of systems among IDCOL’s partners. IDCOL provides loans at 6 percent interest to partner organizations for a period of 10 years with a grace period of three years. The NGO partners sell SHSs to their customers either for cash or in installments that can be spread out up to a maximum of five years. In case of installment payments, customers usually have to make a down payment, the rest being paid in equal monthly installments over the scheduled time. The NGOs charge their customers an interest rate in the 8-15 percent range. The programme also offers a subsidy on the systems, which has been declining over the years. The first 20,000 systems installed were provided at a reduced rate and the project organizations were given an additional US$90 subsidy for each system. This subsidy was reduced for the next 20,000 and 10,000 systems to US$70 and US$50 respectively.

IDCOL’s initial plan was to finance 2.44 MWp or 50,000 SHSs between 2003 and 2008. However, the project encountered great demand for the systems, as a result of which the target was reached three years ahead of schedule, in August 2005; it is to be expanded to meet the high demand for SHSs in Bangladesh. In addition to expanding the SHS programme, IDCOL is entering into new ventures in renewable energy, including launching a household biogas project, based on the Nepal model, with the support of SNV. Agreements have already been signed to provide some 60,000 systems in the next five years.

The Bangladesh SHS market has seen significant participation by the private sector (Table 6-2). Rahimafrooz, a leading private sector battery manufacturing company in Bangladesh, provides deep-cycle solar batteries for the majority of solar home systems sold in the country by Grameen Shakti and subsequently promoted through IDCOL. The company provides a five-year warranty on its solar batteries. This is rather unique among solar battery suppliers and has resulted in high confidence among customers about the longevity of systems. One reason the company is able to provide such a warranty without incurring large transactions costs in fulfilling it is that it has an extensive network of retailers throughout the country selling its automotive batteries. The retailers can take back any battery that fails within the warranty period. Rahimafrooz, which has now specialized in solar batteries, also exports them to Nepal and other neighbouring countries for use with SHSs.49


Lessons learned in subsidy-supported commercialization

The cook stove, biogas and PV commercialization experiences discussed above suggest a number of lessons learned.

a. Commercialization creates supply chains and market networks. Supply chains that include workshops, wholesalers, retailers, repair capability and microfinance have been created in both the biogas and SHS examples above.

b. Commercialization can be a powerful mechanism not only to install a large number of systems on the ground but also to build a private sector delivery mechanism alongside that can keep supplying new systems to meet demand from consumers. The confidence of rural customers that the systems supplied are of high quality, backed by post-installation maintenance service, is necessary to this.

c. The provision of a government subsidy makes it possible to enforce quality control by creating an incentive for private sector players to follow certain standards. This is as important, if not more so, than the fact that the subsidy also makes systems more affordable to rural users.

d. Commercialization does not automatically deliver services to the poor or help them get out of poverty. It matches energy supply with ability to pay. Where microfinance is available, the ranks of those that are able to purchase systems are deepened and those that can pay for systems in installments can also have access. Nevertheless, there is little evidence that existing programmes are reaching the poorest people even with microfinance. Some of the NGOs participating in the larger national programmes have launched their own projects to increase the incomes of the poor through energy provision.

e. There is some evidence that the same market networks set up in the commercialization process can also be used to provide lower-cost systems that can be more affordable to the poor. An example of this is where solar companies have diversified to selling low-power, solar PV systems based on white LEDs for the lower end of the market. The initial sunk cost in establishing market networks can be available to supply the poor at small additional expenditure.

Public-private involvement in community-based renewable energy systems

One concern of a commercialization approach based on selling RET systems to the individual household is that the public and private investment results in few benefits to the collective community. While household-scale renewable energy systems provide much-appreciated power for lighting and small appliances, there may be other, larger-scale energy solutions which, if adopted, could have greater benefits to the community or to the subregion as a whole. Community projects can not only meet domestic energy needs but can also provide power for irrigation pumps, mills and electric motors, energizing rural livelihood activities and thus helping to reduce poverty. At the same time, those systems can be more effective at providing services to the poorer households in the community. Community-based systems are generally set up to be operated as rural-based commercial enterprises that meet operations and maintenance costs through tariffs collected every month.

In many countries of the region, village-scale mini-grids have been serving populations in remote areas and on islands. They have typically been powered by diesel generators, occasionally with supplementary solar photovoltaics or windpower, or small hydropower.

Microhydropower provides substantial power at relatively low cost to rural communities. The projects are generally large enough to provide power not only for lighting but also for milling services and for electric tools, refrigeration, and other uses that enable development of small industries. This reduces drudgery and creates employment. Microhydropower projects have the added advantage that with sufficient social preparation they tend to be inclusive, providing services to the poor as well. This is a major advantage over expensive household-based energy systems such as biogas and solar PV which generally end up being unaffordable to the poorer households in the communities. Poor households have to contribute to the construction of community microhydropower projects as do their more wealthy neighbors. One common solution is to allow low-income households to contribute labour in the construction of the projects in lieu of cash payments. Another common practice involves voluntary cash contributions from each house towards construction, where the better-off households are expected to contribute significantly more than others thus partially covering the costs to the poor. When compared with household-scale systems, an attractive feature of community projects like microhydropower is that tariffs can easily be structured to include a cross-subsidy in the form of low “lifeline” rates that provide basic service at low cost to poorer households that use little electricity.


Renewable energy community grids as an entry-point for integrated rural development in Nepal and the Philippines

In practice, another positive feature of community-scale projects is that the collective endeavour of planning, building and operating the project can build trust and social capital that is ultimately the foundation for rural development dynamics that goes far beyond electricity provision. This, in turn, can provide the impetus for economic development that stretches beyond the reach of the wires of the mini-grid itself. The flip side of the coin is that successful development of the project and accompanying social capital requires additional investment – especially of time, by a skilled facilitator agency, usually an NGO, that assists members of the target community in organizing themselves and acquiring technical capacity to own and manage the village-level energy facility. The NGO typically provides assistance in project feasibility studies, assembling financing for the project and accessing available grant funds, start-up operation of the facility, marketing the produce of the community and coordinating with government authorities and other entities whose support and cooperation are crucial to the success of the project.

UNDP’s Rural Energy Development Programme pioneered this type of work in Nepal starting in 1996. REDP views microhydropower as an entry point for economic development and poverty alleviation. It currently supports community-based microhydropower projects in 25 of 75 districts in Nepal. The programme stresses community mobilization, bottom-up participatory planning and decentralized decision-making. It uses a holistic approach to development considering the energy projects as one of many inputs that are required. The approach includes income generation, environmental protection, gender equality and watershed protection. Productive income-generating activities are supported to make use of the energy supplied, and skills-training is provided to promote agricultural and home-based businesses. The programme has a major emphasis on building the capability and social capital in the community. The process of building the microhydropower project enhances social capital on which any number of future development activities can be built.

REDP in Nepal also reflects a multi-stakeholder partnership, including both the public and community sectors. The central government counterpart agencies of the REDP, which are responsible for policy formulation, include the Ministry of Local Development, National Planning Commission, Water and Energy Commission Secretariat and the Alternative Energy Promotion Center. REDP projects are also strongly linked to district government decision making. The Rural Energy Development Section is established under the umbrella of the District Development Committee (DDC) for the implementation of district-level activities. For coordination purposes, a District Energy Committee is formed under the chairmanship of the DDC Chairman. A consultative forum of practitioners represented by the manufacturing companies, installers, owners, NGOs and others has been formed as a network that promotes best practice. The project operates through community organizations and microhydropower functional groups formed by women and men from the communities. Formation of community organizations and decision making are done with the participation of at least one male and female member of each beneficiary household.

Important lessons from the REDP experience are:

• With social mobilization and technical support, communities themselves come up with creative ways to be inclusive;

• The nationwide approach adopted by REDP ensures a consistent methodology throughout the country, as well as the ability to influence national policy to support community energy projects; and

• By working through district governments and local NGOs, support to community-owned microhydropower projects continues beyond the construction period and REDP has been able to influence national policy to be supportive of community-owned energy investments.

The Andhi Khola Project (5.1 MW) in Nepal operated by the private Butwal Power Company50 exemplifies the role that a considerably larger project can have in regional development. The locally-developed project provides power to over 100,000 people in four districts in West Nepal. The project set up an enterprise support unit to help establish enterprises in the area to make productive use of the energy supplied. The unit helped entrepreneurs develop business plans, choose appropriate equipment and technology and also to get loans from the local bank. Electric mills, milk chilling units, noodle manufacturing factories and poultry farms were some of the enterprises that resulted from this support.


Afghanistan, China, Pakistan and Sri Lanka provide other examples in the region of country-wide programmes to support community microhydropower projects. Afghanistan launched such a programme in 2002 with support to over 500 communities to install microhydropower systems below 25 kW. In Pakistan, a number of NGOs are investing in community-based minihydropower in different parts of the country. One strong example is the Aga Khan Rural Support Programme51 that has installed over 240 projects in Northern Pakistan generating close to 10,000 kW and serving over 100,000 inhabitants living in a harsh mountain environment.

A significant challenge is that the community-scale projects can present “common property” problems. The system performance can be strongly affected by the collective action of users. In stand-alone systems, the electricity available is limited in quantity by the capacity of the power plant. Once users are connected to the electricity lines, however, it is difficult to restrict access to consumption of the resource. Anyone with an electricity outlet can plug in appliances. Over-consumption by some individuals pursuing their own short-term interest can degrade the resource for all. The challenges can be addressed with properly designed tariffs, metering arrangements and enforcement – an area that receives inadequate attention in many projects. In addition to the common property issues in distributing yields from village power systems, an equally important set of issues arises with respect to allocation of maintenance and repair responsibilities and/or collecting funds for those activities.

The GEF Small Grants Programme52, implemented by UNDP, has provided funding for community-owned microhydropower and watershed management projects in many countries in the region, including the costs of social mobilization through the help of a local NGO. In the Philippines alone, the programme has provided support to over 20 community-based microhydropower projects. Polocón, a small farming community of around 100 households located in the southernmost part of the Philippines, provides an illustrative example. Here, a 15 kW microhydropower plant managed by a community cooperative has helped alleviate poverty through increased agricultural productivity and through supplementary community income. Electricity is used to grind corn and hull coffee beans for local farmers as well as residents of surrounding non-electrified communities. Outsiders also purchase battery-charging services. Tariffs for corn milling and other uses are set at a level to cover maintenance costs and the salaries for plan operators, as well as community development projects. Funds have been invested in the local school and in a bakery run by the community women’s group (UNDP-GEF 2003).

Less common, but promising, is the example of village microhydropower selling electricity to the national grid. This is occurring on a limited scale in Indonesia and Thailand, but needs the prior existence of regulations that require utilities to purchase power from (very) small power producers.

“Walking on two legs” – China’s extensive microhydropower mini-grid story

China pioneered approaches to comprehensive integration of off-grid energy supply and rural development. By adopting a policy of “walking on two legs”, China has had a State-endorsed policy since the early-1950s of supporting decentralized energy development concurrently with the growth of central grid systems. China is a world leader today in terms of having the largest installed capacity of RETs and the largest population served by RETs by far because off-grid systems have been part of a national strategy for over 50 years. Local mini-grids, often based on micro – or minihydropower, are the backbone of the power supply on which China’s strategy of rural industrialization was built. Those systems were suited to the needs of the local economy and have supported the burgeoning Township and Village Enterprises.

Rural energy systems were able to grow during the period of transformation in the country, when significant changes were being made in the rural economy through the introduction of market reforms. This was the time farmers were being provided the needed technical and budgetary assistance to encourage them to adopt an entrepreneurial approach to agricultural production away from collective farming systems. Agricultural reform and modernization of rural areas meant intensification and diversification of crop production, modernization of post-harvest and other crop-processing activities, development of other off-farm enterprises and establishment of rural services such as education, health and telecommunication facilities, thus creating a ready market for energy services. Counties were able to invest in new power generation to respond to significant increase in demand for modern energy services as a result of reforms in agriculture and other sub-sectors of the rural economy. As a result of the integrated approach, 98 percent of farmer households in the counties targeted by the programme are supplied with electricity.

The local government in particular played a key role in integrating energy into the economic development plans of rural areas. Mini-grids would connect up with expanding regional grids and eventually with national grids. Today a third of the counties in China rely on a local small hydropower


as their main source of power. Recently China has also had a large programme of promoting household-level solar and wind systems to reach those households that are beyond the reach of local grids. Efforts were made to adopt a market-based approach in the dissemination of RETs. This was possible as income levels of the rural population had increased as a result of the intensification of agricultural production and the increase in productivity of other sectors of the rural economy. They could thus afford to pay for the RET equipment and devices, albeit with some financial assistance provided for the poorest counties by local governments. Also, RET equipment and devices were manufactured by local companies that have also received support from the government. The example provided of the role of government, particularly local government, in integrating energy into economic development in China to achieve poverty reduction while, at the same time, using the private sector to actually deliver the systems can be a lesson for other countries in Asia and the Pacific.

The mass manufacture of micro – and minihydropower equipment in China, facilitated by cheap labour, has lead to equipment prices that are considerably less expensive than those in other developing country markets. This, in turn, further enables conditions in which small hydropower is competitive with other forms of commercial energy [Hanzhou Regional (Asia-Pacific) Centre for Small Hydro Power 2003].

Mini-grid experience with microhydropower in Pacific island countries

Successful implementation of microhydropower is not as widespread as it could be in the Asian and Pacific region. In particular, the technology has not done very well in the Pacific island countries. The Solomon Islands country study presents an unfortunately common example of an unreliable microhydropower project which requires more effort to maintain and operate than the benefit it delivers. There are some indications that earlier experiences have informed and improved more recent installations. The experience in the Pacific islands underscores the need to launch a regional initiative to transfer best practices in community-managed microhydropower.

Public-private participation in non-hydropower mini-grids – biogassifiers and solar PV

Though microhydropower is the most common power source for renewable energy mini-grids, significant experience has been gained with biogassifiers and solar PV/diesel as well. In the Sagar islands of West Bengal in India, the State renewable energy development agency has implemented several community-based solar power plants to bring electric power to villages from solar electricity distributed through local mini-grids. The power is mainly used for lighting and the running of small appliances and machinery, as well as operating radios and televisions. A significant feature of the project is that during the day, when the grid is not being used to supply power, the solar electricity is used to run low-cost conventional 3 hp water pumps which supply clean drinking water from underground aquifers. The mini-grids themselves are operated by local cooperative societies formed by people using the grid. The first system was established in 1996 and had a capacity of 12.5 kWp. This system served 117 customers. Between 1996 and 2003, no less than 11 solar power stations were established, serving nearly 2,000 families. In climates where it is easy to grow biomass, community-based electricity generation from biomass gasification shows particular promise for large-scale expansion.53

Teaming up with large IPPs – innovative public-private partnerships

A recent and novel phenomenon is the partnership between the public sector and private companies to achieve electrification of rural communities. In the Philippines, the Government has invited large private IPPs, often thermal, to contribute to its target of 100 percent Barangay electrification by 2008. The Mirant Corporation which operates as an IPP providing power to Manila and other urban centres has adopted several hundred Barangays to electrify as part of its commitment to corporate social responsibility. The choice of technologies is generally RETs, typically household solar PV or microhydropower.54

As part of a recent initiative, The Energy and Resources Institute (TERI)55 and the National Thermal Power Corporation (NTPC) have come together to provide energy to remote villages in India, through distributed generation.56 This is aimed at assisting the Government of India in its mission of “Electricity for all” through developing a self-sustainable business model for DG (distributed generation) projects in rural areas for the integrated growth of villages. A number of technical options are being tested, including biomass gasifiers with gas engines, solar PV and microhydropower. In addition to standard energy planning activities, the cornerstone of this approach is a focus on the involvement and commitment of local communities. In addition, several innovative measures have been put in place including:


• Ownership responsibility for revenue collection, operations and maintenance rest with the Village Energy Committee (VEC);

• Integrated growth of villages with increase in income levels, employment and commercial activity;

• Advanced revenue collection techniques (smart cards);• Identifying additional services to increase the incomes of the VEC and the operator;• Linking specific (existing and new) livelihoods programmes with electrification, in

particular targeting families below the poverty line in order to raise their demand for, and affordability of, electricity;

• Tariff rationalization for commercial and domestic consumers in order to make the services competitive to existing alternatives while improving financial viability of the project;

• Project support network of village-level operators, cluster-level mechanics and region-level technicians; and

• Majority or totality of female members in VECs to manage the project.

The TERI-NTPC model has a tripartite structure, resting on technical, social and financial elements.

This approach offers several advantages, as compared with the traditional single party, government-led electrification model.

a. TERI, as the project manager, has been instrumental in pooling the range of expertise and competence required to ensure quality implementation, especially important in remote locations, with poor access and inadequate operations and maintenance support.

b. TERI, in its capacity as a large international organization, has taken the lead in scaling up the initiative, through developing implementation models.

c. NTPC, with its extensive electrification experience, has brought technical rigour, through quality norms for technical aspects and periodic technical audits necessary for the technical soundness of the project. For NTPC, a public sector organization, involvement in a poverty-oriented initiative provides an exposure to poverty and social issues hitherto absent in its electrification approach. This is likely to have an impact on government electrification policies in the long run.

Table 6-3 Elements of the TERI-NTPC model

Technical Social Financial

• Feasibility study for tech-nological and commercial viability

• Renewable technology suit-able for rural environment

• Dedicated tree plantation for sustainable supply of biomass in case of gasifier

• Annual maintenance contract to original equipment manu-facturer for five years

• Unencumbered village land for installation of plant

• Technology upgrading and innovation

• All major decisions endorsed by the village governing body

• Custody of plant with VEC • Support for social engineer-

ing• Auditing and monitoring by

Project Support Unit (PSU) for five years

• Training and capacity build-ing of VEC

• Integrated growth of village through income-generation activities

• Capital expenses funded entirely through grants

• Financial contribution by villagers

• Operations and maintenance expenses to be borne by villagers

• Capital expenses funded entirely through grants

• ncome-generation activities for financial viability

• No return on investment • Penalties for defaulters• PSU to assist VEC in rev-

enue compliance• Affordable electricity charges


The role of Government and national utilities in building markets for renew-able energy through grid access laws and tariff setting

Government policy has been central in the fastest-growing market for many RETs – investment in grid-connected power generation. RETs have flourished where a government or national utility has announced a feed-in tariff or a standard power purchase agreement and made provisions for interconnection of customer-owned generation. The establishment of a guaranteed market for renewable energy has been crucial to the rapid expansion of private investment by renewable energy IPPs in India, Sri Lanka and Thailand.

Fully subsidized arrangements

Purely government-led dissemination programmes for scaling up access to RETs have largely fallen short of expectations, with a few exceptions. The RET scale-up process, especially in rural areas, is based on getting small distributed systems to large numbers of households and communities. Public sector institutions, which have strength in building large systems with central generators and extending distribution networks, are generally not well suited to expanding the market for those types of systems, and in some cases when they have tried, they have seriously undermined local private sector businesses providing RET products and services.

Thailand stands out in the “100 percent subsidized” category for having repeatedly implemented large renewable energy rural electrification projects fully paid for by the Government with the private sector serving as contractor. The projects include over 1,000 village solar battery-charging stations, over 400 solar pumping stations and, most recently, over 200,000 solar home systems. Lack of a local repair network, lack of warranty awareness and lack of user training, as well as equipment problems, have led to significant unresolved failures in these systems. It is not clear that the “100 percent subsidized” characteristic of the programme is completely to blame. Many systems would be more functional had more vigilance been applied in system design and in technical training for local recipients, and had more time been devoted to learning from early mistakes. Perhaps the most fundamental challenge in the Thai case is that feedback loops from system recipients back to equipment suppliers and government decision makers are very weak. (Greacen and Green 2001; Lynch et al. 2006) It is significant that the “client” who pays for the systems is a Bangkok-based government office, far removed from the day-to-day experience of remote system users. It is conceivable that a government-funded deployment of renewable energy technology could work fairly effectively in the same way that, for example, state-run railways in Thailand appear to function. What is required is some way of strengthening accountability to end-users. While commercialization and market forces can, under proper circumstances, provide this strengthening, their existence does not preclude the possibility of other options.

The Thai case brings up a question yet to be addressed: what role can the private sector play in salvaging similar projects initiated by the public sector? In the Thai case, the glass is “half full” in the sense that the Government has spent hundreds of millions of dollars installing SHSs in remote areas, and the solar PV modules have few failures. However, the balance of system (BOS) components, such as inverters and batteries, are in need of significant attention. What scope is there for the private sector – subsidized by the Government perhaps – to keep the systems sustainable by installing quality equipment and providing post-installation service? One particular challenge in such cases is that the asset itself often remains public property even if it is no longer functioning. This presents very significant barriers to private sector entry.

Financing renewable energy technologies

Financing mechanisms for RETs including those for the poor

Because most renewable energy systems are capital intensive, availability of suitable financing is essential to the proliferation of private sector investment in RETs in Asia and the Pacific. In the private sector, financing generally falls into three categories: equity and debt financing on the project or business finance side, and consumer financing to increase affordability on the demand side. The Asian and Pacific region is experiencing the development of a number of emerging financing mechanisms that point the way to greater investment and increased affordability, while also indicating where further intervention will be needed in the future.

Debt finance

The weak capital markets usually found in developing countries can have particularly serious consequences for renewable energy projects which by their nature are highly capital-intensive. If


finance can only be had at high interest rates, with short maturities and low debt-to-equity ratios, the resulting increase in capital costs will raise the price per kWh produced using renewable energy relative to fossil-fuel-based technologies, discouraging investment in the former, at least in the short-term. What is required is long-term financing from “patient” investors with some allowance for the social benefits, in terms of the environment and energy security, that renewable energy provides reflected in interest rates. This would certainly lower cost per kWh making renewable energy projects more competitive. Debt finance for renewable energy project is examined further in Box 6-1.

The bulk of the financing provided to a project is usually in the form of senior debt, which can be structured as on-balance-sheet corporate finance or off-balance-sheet project finance. Non-recourse financing, where the project is the only collateral, is seldom available in emerging markets, however. Neither are loan terms long enough to spread out the cost of capital over the life of the project. Some innovation in debt financing instruments is reportedly in progress in developing countries to address some of the barriers to financing renewable energy infrastructure projects. The World Bank, KfW (together with its private sector financing subsidiary) and other development finance institutions are putting in place a variety of instruments to improve access to long-term financing. They include currency swaps to reduce foreign exchange risk, two-step bridging mechanisms to allow project refinancing, lease-financing arrangements to reduce offtake risk and various other approaches.

Some countries in Asia and the Pacific have recognized the shortage of commercial debt funds for RETs and have established specialized institutions to provide loans in response. Some of those initiatives have had significant results. The Indian Renewable Energy Development Agency has approved over 1,700 loans for a range of projects in wind energy, biomass power, solar energy and small hydropower development. IREDA, which is coordinated by the Ministry of Non-Conventional Energy Sources, had a budget of US$137 million for the year 2005, of which over 35 percent was earmarked for electrification of rural villages based on renewable energy. Since its establishment in 1987, IREDA has invested almost US$1 billion in over 2,500 MW of power from renewable energy and has a pipeline loan commitment of another US$1.5 billion.

World Bank/GEF projects have started to invest in RETs through financial institutions in Bangladesh and Sri Lanka. The Development Finance Corporation of Ceylon (DFCC) in Sri Lanka has been active in financing small hydropower, solar PV, village hydropower and biomass systems under World Bank credit programmes (ESD and RERED). DFCC provides credit to intermediary financing institutions, at present a total of nine participating credit institutions including microfinance institutions. It has a pipeline of 120 MW of small hydropower projects and a fast-growing solar PV market with over 70,000 systems installed. Similarly, IDCOL in Bangladesh is active in financing renewable energy, primarily SHSs, supported by a credit line of US$20 million from the World Bank. IDCOL operates through intermediaries such as Grameen Shakti and the Bangladesh Rural Advancement Committee (BRAC) to deliver financing to end-users of the systems.

*From UNDESA 2005.

Box 6-1 Debt finance for renewable energy projects*


Grameen Shakti has sold and installed over 65,000 solar home-systems in rural Bangladesh and brought major benefits to users of the systems. Nearly 70 percent of households in Bangladesh are not connected to the electricity grid and depend on kerosene for lighting. This includes most rural areas and extends as far as the fringes of Dhaka. There are plans to extend the grid, but there is little prospect of substantial change in the foreseeable future. By selling SHSs, Grameen Shakti has provided lighting, communications (especially mobile phone charging) and television, and increased employment opportunities. It is the largest single installer of SHSs in Bangladesh. This has been achieved by providing microfinance with support from IDCOL drawing on World Bank/GEF funds. IDCOL provides Grameen Shakti with a subsidy as well as with concessional loans for the systems, which allow it to sell SHSs to customers on microcredit at affordable installments spread out over two or three years as well as a small down payment. This generates a cash pool, which is recycled to make further loans and which will enable the scheme to continue when the subsidy is phased out by 2008. Grameen Shakti has started a network of technology centres throughout the country to manage the installation and maintenance of SHSs locally. It emphasizes the importance of technicians who know local customs and work through local branches, and has trained 2,000 (mainly female) technicians. It aims to install one million systems by 2015.57

Equity finance

Even in markets where the private sector has invested in power, perceptions of greater risk, lack of clear power purchase agreements and lack of financing have resulted in less than optimal levels of private investment in the renewable energy sector. With a few exceptions, the business community in most countries does not yet see investment in renewables as a mainstream investment activity. Those alternative investors that are interested cannot in general access sufficient funds to expand operations.

A number of budding international social and environmental venture capital funds have emerged that provide seed capital and are moving towards providing “patient” capital to help prospective energy investors and service providers. One of those organizations is E+Co, which is based in the United States. Building on earlier experience within the programmes of the Rockefeller Foundation, E+Co was established in 1994 as an independent company of entrepreneurs, investors, strategists and mediators to bring together technology, people and funding to create viable local enterprises that deliver affordable and clean energy to those in need. Operating in Latin America, Africa and Asia, E+Co provides business development services and modest loans or equity investments to fulfill this mission. The company’s strategy is to demonstrate to public and private sector investors that the establishment of local clean energy enterprises represents a win-win, market-based solution to the twin problems of meeting the unmet demand for energy services and protecting the environment. Ultimately, the new enterprises and access to energy offer opportunities for education, employment, and improved livelihoods, thereby breaking the cycle of poverty.58

One example of an energy investment supported by E+Co’s Bangkok office is anaerobic digestion for biogas production using the waste biomass at one of Thailand’s largest cassava processors. This project was developed by the Clean Energy Development Company (Thailand) Limited (CleanThai) with technical support from Waste Solutions Limited of New Zealand. Project financing was obtained from Al-Tayyar Energy of Abu Dhabi and the Korat Waste to Energy Company was established to implement the project and operate the plant. By converting a waste stream into a resource, the factory is displacing 8 million litres of heavy fuel oil as well as generating 30,000 MWh of electricity each year. E+Co has invested US$197,500 in this enterprise with leveraged co-financing of US$3.4 million from equity investors and banks.

E+Co’s investments are typically structured as senior debt, subordinated debt, preferred shares, common equity or a combination. E+Co sometimes also invests in seed capital to support pre-investment activities. The maximum investment is limited to US$250,000 per project. This general model of supporting energy enterprises and entrepreneurs is catching on. E+Co has raised US$40 million from several sources since the Bonn Conference on Renewable Energies, held in June 2004, to expand this model worldwide.

UNEP, the United Nations Foundation and E+Co are experimenting with approaches to financing small – and medium-scale renewable energy enterprises through the Rural Energy Enterprise Development (REED) programme in Africa, Brazil and China. The Triodos Renewable Energy for Development Fund provides seed capital, loans, and business development support for renewable energy entrepreneurs in Asia and Africa. It provides equity and mezzanine finance to local financial intermediaries that focus on providing financial services to projects and small and medium-sized enterprises in the clean energy sector. The Fund’s investments are aimed at attracting local commercial investors in the clean energy sector. The Fund is managed by Triodos International Fund


Management BV and counts among its funders the Dutch Ministry of Foreign Affairs, the World Bank and the Hivos Foundation. The Fund has made investments in a number of leading solar energy companies including Khmer Solar in Cambodia, Mambruk Indonesia and Lotus Energy in Nepal.59

The Renewable Energy Project Support Office (REPSO) of Winrock International in India and Nepal and its network members in Indonesia and Philippines have provided seed capital for pre-investment support and cost-share investments. The programmes all recognize asymmetry in terms of high perception of risks by investors at the pre-investment stage of project development and work to reduce those risks. With inadequate information and sector experience, investors are often unwilling to invest in good quality feasibility studies and interaction with co-financiers and banks early on in the investment cycle. Winrock’s REPSO Nepal programme has, for example, been able to leverage more than US$5 million in equity investment in the small hydropower sector since 1998 through technical support and conditional grants provided for carrying out feasibility studies. The programme has also supported the recent establishment of a dedicated Clean Energy Finance Institution in Nepal in the private sector with equity finance of US$4 million with the objective of financing small hydropower and other clean energy projects as well as providing wholesale loans to microfinance institutions.

The private sector arm of the World Bank, the IFC, and the Asian Development Bank provide funding for mainstream renewable energy projects, including wind farms and geothermal power plants. They have come into markets where the private sector was already active.

Small, medium-sized and microenterprises play an important role in developing countries by providing technology and services to niche energy markets that are poorly served by a centralized utility and so complement such centralized services. Conventional bank financing is seldom available to renewable energy SMMEs, especially those in the early innovation stages that need seed and risk capital to develop a new product or service offering. In those contexts, new finance intermediaries are needed that can provide appropriate forms of capital and the management support that entrepreneurs need to develop and grow a new business activity.

There has been increasing interest in the early stage risk/seed capital subsector, with a number of post-REN 2004 Bonn Conference commitments which, although not significant in absolute terms, are catalytic given the follow-on leverage potential this form of investment has with the mainstream energy investment community. Nevertheless, there exist in many countries, specific funds for technological innovation that can be used to develop or introduce new renewable energy products in the market.

New types of mezzanine finance instruments are also now available in various regions. Typically, mezzanine finance comes in the form of quasi-equity, which can combine some form of preferred shares with subordinated debt and the option to be bought out later, either progressively or in one bullet payment (called a put option). Quasi-equity is most useful in illiquid markets, where a lack of exit options makes equity investments less attractive. Mezzanine finance is an appealing option for public sector participation. Public funds can buy down the risks for commercial investors and/or lenders and, by helping close the debt-equity gap, buy up returns for project developers. The potential to leverage private capital is also significant.

End-user finance

Financing for end-users plays an important role in the scale-up of renewable energy technologies as well as in improving access for the poor to such technologies which generally require significant outlays. End-user finance at the household or community level can take the form of installment financing provided by the retailer or loans from commercial banks and microcredit organizations, as well as other arrangements such as leasing. Credit operations require specific management expertise which retailers often lack, and can also be a significant drain on costly working capital, which has resulted in banks and microcredit institutions playing the most important role in the provision of this type of credit. However, conservative banking practices have tended to raise costs to consumers and the initially limited demand for renewable energy financing has resulted in the sector not receiving the sort of attention that is given to other consumer durable purchases (UNDESA 2005).

Consumer finance is a rapidly growing sector in many developing country markets. Banks are making loans in unprecedented numbers for household appliances, motorcycles, cars and homes across many countries in Asia and the Pacific, largely in urban areas to salaried employees. Mainstream banks have not, however, included RET financing in their standard list of items for consumer finance. While microfinance organizations have proliferated in rural areas, few have begun lending for solar home systems or biogas. The exceptions are microfinance loans available for solar home systems through Grameen Shakti and BRAC in Bangladesh and SEEDS in Sri Lanka. Those organizations receive lines of credit from the World Bank/GEF-funded national renewable energy projects in their


countries. More than 75 percent of the SHSs in Bangladesh supported through IDCOL are purchased through financing and more than 30 percent of the SEEDS loan portfolio is for SHSs.

In most other countries without a long tradition of microfinance, however, RET systems are generally not financed. It is in those new markets that organizations such as the Triodos Bank of the Netherlands have broken ground by providing loans to microfinance institutions to on-lend to their customers for energy systems. Triodos International Fund Management manages three funds that provide finance, both debt and equity, to more than 50 microfinance institutions in approximately 25 developing countries: the Triodos-Doen Foundation, the Hivos-Triodos Fund Foundation, and the Triodos Fair Share Fund. All funds have similar objectives but different risk profiles and funding structures. As a representative on the boards of directors of several specialized microfinance banks in several developing countries, Triodos Bank contributes actively to governance by sharing its expertise in sustainable banking and specifically in microfinance.

For renewable energy sectors that are already commercialized on a cash-sales basis, but where growth is constrained by a lack of end-user finance, credit enhancement programmes can help local banks build new consumer loan portfolios, either by reducing risks for the lending institution or by facilitating increased demand for their loans. Extending loan durations, guarantees and collateral support can all be useful support mechanisms, depending on the context.

The Development Bank of Uganda provides rural microcredit with support from the Shell Foundation. In 2003, two of the largest commercial banks in India, Canara Bank and Syndicate Bank, together with their regional associate banks, started to provide thousands of loans for rural households to use renewable energy that were offered through 2,000 participating bank branches in two states.60

While microcredit has demonstrated an important role in supporting commercialization particularly of household RETs, only a few examples were found where the poor had been able to improve their access to energy through financing. Where successful, almost always the access for the poor was improved by combining financing with income generation activities. One such example is Wahan Dharak, a rural cooperative society in Maharasthra, India, engaged in rural banking, which provides solar lanterns to microenterprises at a daily fee.61 Microfinance institutions have a key role to play as on-the-ground integrators, linking provision of energy services with SMMEs. They have a natural advantage both in understanding where energy services can add value to microenterprises and in being able to accept payment for energy services from the earned income. This role of microfinance institutions needs to be targeted for scaling up as a key strategy for increasing access for the poor. Carbon finance

Renewable energy projects have been given a financial boost from the emerging carbon market and the CDM as new revenues are added to their income streams. The upward trend in carbon prices will ensure greater impacts in future. Projects to reduce emissions of gases with global warming potential (such as hydrofluorocarbons from industrial processes, nitrous oxide from agriculture and methane from landfills) tended to dominate the CDM. However, the CDM is gradually shifting towards renewable energy projects, which had a 39 percent share of all projects and a 41 percent share of total carbon reductions in the CDM pipeline as of April 2008. At that date, the CDM pipeline, in terms of renewable-energy-based CERs, consisted of biomass (6 percent), hydropower (24 percent) and wind (8 percent) energy projects in that order, with smaller amounts coming from biogas (2 percent) and geothermal (1 percent) projects. Solar had a pipeline of fifteen projects but produces negligible CERs. Asian and Pacific developing countries account for 75 percent of the total CDM project pipeline with 881 projects from India alone and around 1,104 projects from China out of a total pipeline of 3188 projects in the developing countries in April 2008 (UNEP Risoe 2008) .

The investments required at the early stages of project development (pre-feasibility, feasibility and initial project development) carry substantial risks which can create major barriers to the development of CDM projects for host countries. Many small renewable energy projects also have the challenge of aggregation to generate substantial Emission Reduction Units to make it worthwhile for buyers. Buyers typically purchase a minimum of 30,000 tons of carbon dioxide per year. A solar home system typically generates 0.250 tons of carbon dioxide per year. Thus it would need a project with 120,000 solar home systems to make it worthwhile to develop into a CDM project. Other key barriers are the inexperience of entrepreneurs in CDM financing and the fact that many of the rules and conditions are not completely and clearly fixed at this initial stage.


Dedicated institutions and funds for RET promotion and investment

Some countries, states or provinces have established renewable energy funds that are used to finance investments directly, provide low-interest loans, or facilitate markets in other ways, for example through research, education, standards and investments in public facilities. The largest such funds are the so-called “public benefit funds” in 14 states in the United States. The funds, often applied to energy efficiency as well as renewable energy, are collected from a variety of sources, with the most common being a surcharge on electricity sales. The 14 funds, all initiated between 1997 and 2001, collect and spend more than US$300 million per year on renewable energy. It is expected that they will collect upwards of US$4 billion for renewable energy through 2012.

India and Nepal are two examples of countries where specialized institutions dedicated to the promotion of renewables have been able to make a difference. The India Renewable Energy Development Agency provides loans and other project financing, as well as technical support for the promotion of renewables. IREDA has been able to bring about significant investment into the renewable energy sector particularly in wind energy, small hydropower for the grid and solar home systems for rural areas.

The Renewable Resources Development project, co-financed by the World Bank and other donors in 1993-2001, provided valuable experience in directing the Indian renewable energy programme towards the path of commercialization. Apart from encouraging investment in the sector, the initiative was instrumental in the emergence of various institutional models, which demonstrated ways to address the issue of offsetting the high front-end cost of solar PV systems.

The different models have enabled financial packages to be designed that are suitable for different types of end-users, based on ability and willingness to pay for energy services. Developing partnership with local organizations such as rural cooperative societies, microfinance institutions, rural development banks, NGOs and so on has been enormously beneficial for solar PV project developers, ensuring quality sales and service, cost-effective maintenance and management, as well as collection of revenues. For consumers this has resulted in innovative mechanisms to reduce the initial cost burden.

The Alternative Energy Promotion Center, an autonomous government organization under the Ministry of Environment Science and Technology, was established in 1996 in Nepal for the development and promotion of RETs. AEPC has been implementing sector support activities such as subsidy disbursement, human resources development, monitoring, as well as undertaking studies and providing policy support to the Government. The Danish International Development Agency (DANIDA), under the Energy Sector Assistance Programme provides support for AEPC’s organizational development and also technical support to the microhydropower, solar PV and ICS subsectors.

Interviews with representatives of the private sector revealed that AEPC has been instrumental in increasing private sector participation in the renewable energy sector. According to the private sector representatives, AEPC provides them with the following advantages:

• A one-stop shop for all stakeholders, including the community, entrepreneurs, suppliers and consultants, reducing uncertainty for companies, a major consideration for the private sector;

• Specialized knowledge of the sector and effective intermediation between the rest of the government bureaucracy and the private sector;

• Concrete guidelines and standards, which reduce gray areas regarding quality of studies and installations and prevent unscrupulous suppliers entering the sector;

• Subsidy administration and tax exemption recommendations; • Confidence-building measures for the private sector by increasing awareness through its

regional service centres and also the media; and • By carrying out extensive site identification, it has helped to dramatically increase the

demand for microhydropower systems.

There has been a significant increase in private sector participation in the microhydropower sector after AEPC came into being (table 6-4). This has been most marked in the number of consulting companies doing feasibility studies. The private sector has the capacity to install about 2 MW each year.


A number of countries have set up dedicated funds for financing renewables, such as MESITA in Malaysia and the ENCON Fund of Thailand. In the latter country, the public sector has been set the task of using government mechanisms to encourage and promote energy conservation with consumers, as well as to foster the development and utilization of renewable energy. The money for the fund is collected from premium rates imposed on petroleum products of 0.04 baht per litre and in 2003-2004 the ENCON Fund had US$300 million with annual revenue of US$23 million. To access funding from ENCON, proposed projects must be able to achieve an IRR of more than 9 percent. Project owners must be one of the following: a government agency, a state enterprise, an educational institution, a non-profit organization or a private entity joining as a project participant.

The ENCON Fund was also used to subsidize (a minority of) renewable energy small power producers. In 2002, candidate renewable SPPs were invited to submit bids for the amount of subsidy that they would be willing to accept. Bids were sorted lowest-to-highest and lowest bids were accepted. Because bids were only solicited once prior to the bid evaluation in 2002, all projects after this cutoff date have not been eligible for the subsidy. SPPs received a subsidy averaging 0.17 baht per kWh sold to the Electricity Generating Authority of Thailand (EGAT) for the first five years of operation. Nine out of 41 (22 percent) SPPs currently operational were awarded subsidies (Amatayakul and Greacen 2002).

Table 6-4 Private companies involved in microhydropower in Nepal before and after AEPC

Function RangeNumber of companies

Before AEPC Now

Manufacturing and installationUp to 5 kW 1 3

Up to 100 kW 13 17

Installation onlyUp to 5 kW 0 2

Up to 100 kW 1 5

Consulting (studies) Up to 100 kW 4 27*

*Five companies are also installers.

In 2004, Cambodia has also established the Rural Electrification Fund (REF), a financing mechanism designed under the World Bank/GEF to promote rural electrification projects with special attention to renewable energy technologies.

Difficulties encountered by investors in accessing some of the funds are well illustrated by the Nepal experience (country case-study). Nepal has two funds dedicated to RET development: the Power Development Fund (PDF) supported by the World Bank and set up to finance private sector development of small and medium-sized hydropower projects; and the Biogas Credit Fund (BCF), which is Euro 2.4 million grant fund provided by KfW for providing wholesale funds to microfinance institutions to on-lend to farmers seeking credit for installation of biogas plants. However, both funds are not used optimally. According to the private sector, PDF has complex procurement provisions that are difficult to meet and a higher interest rate than the market rate. In the case of BCF, strict eligibility criteria, which AEPC says are essential to ensure repayment of loans, and complex procedures have been two of the major barriers to this fund being utilized to a greater extent.

Public-private partnerships and the role of public and private investments

There are several examples of public-private partnerships within the region. One of the most successful examples is the Indian biogas programme, in which government, civil society and the private sector come together to meet the energy needs of the rural poor. Recognizing the inadequacies of rural energy markets, the biogas programme was designed with a target-oriented, technology “push” approach, the annual target being limited by the aggregate subsidy for the programme. Under the National Project on Biogas Development (NPBD), families opting for a biogas plant are provided an investment subsidy, which varies according to the socioeconomic status of the recipient, geographical location and plant size. Subsidy levels vary between 25 percent and 50 percent of the investment. The diffusion of biogas technology to rural households has followed a technology


development path where cooperation among government agencies, private firms and NGOs has been a vital factor. Initially the biogas construction was directly handled by government agencies but soon thereafter NGOs working on other rural development projects found themselves strategically placed to undertake the biogas programme. Their mass contacts, field experience, committed and skilled personnel, and their ability to integrate the advantages of biogas technology with the aims of other rural development programmes contributed to lower cost, reliable service and enhanced external benefits. Private firms responded as suppliers of construction materials and appliances.

In Sri Lanka, the World Bank and the Sri Lankan Government supported the Energy Services Delivery Project between 1997 and 2002. The objective of the credit component of the project was to provide medium – and long-term financing to private sector firms, NGOs, microfinance institutions and community cooperatives for grid-connected minihydropower projects (typically <10 MW), off-grid village hydropower schemes, solar home systems and other renewable energy investments, as well as energy efficiency and demand side management investments. As a result of the success of the ESD project, the Government and the World Bank launched RERED. In keeping with the new policies of the Government and the Bank, there is an added emphasis on rural economic and social development.

Conclusions on private and public involvement in RET dissemination

Public resources are especially effective where they can be used to leverage quality (through quality standards, minimal warranties and the like).

Public resources, either government or NGO, are often useful in integrating renewable energy into wider rural development processes such as is done by UNDP’s Rural Energy Development Programme using microhydropower. The social capital generated can extend far beyond the pipes and wires of a community energy project, and serve as the basis for institutionalizing practices such as improved local democratic decision making, gender equality, and development of local managerial and technical capacity.

Policies to support grid-connected renewable energy, adopted in an increasing number of developing countries, provide important opportunities for commercial renewable energy development – with the potential to stimulate increased rural employment and economic growth far more than centralized fossil-fuel plants. Fully subsidized programmes can be very effective at reaching the poor, albeit at high public expense, but they have tended to emphasize equipment installation and neglected the essentials for sustainable operation.


Endnotes

40 www.selco-india.com41 Malaprabha Grameen Bank is a rural development bank with one

of the highest recovery rates in the country.42 http://www.geres-cambodia.org/cfsp/index.html43 http://crtnepal.org/new/44 http://www.arti-india.org/45 http://www.bspnepal.org.np/46 http://www.snvworld.org/en/Pages/default.aspx47 The purpose of the subsidy is to increase affordability for consumers. Another important function

of the subsidy is to support market expansion for the supplier and establish the supply chain, something the market alone will often not do. Perhaps the function of the subsidy that is most frequently overlooked is that it provides an incentive to the supplier to remain inside the national programme and supply systems to set standards. It is this element of consistent quality that gives the programmes their high credibility and allows for their expansion. The subsidy has to be at least large enough to cover the transaction costs of the supplier and the consumer to stay within the system. It should not be so large as to create market distortions. Once there is a com-petitive market and customers have sufficient information about available products, the subsidy can be removed.

48 Grameen Shakti has been able to link the provision of solar PV lighting with increased income of vendors who can sell their products at night and even the establishment of a micro-utility where more than one family can share the benefit of a single solar panel.

49 Renewable Energy Information Network, Bangladesh, available at http://www.lged-rein.org; and the joint UNDP-Bangladesh Sustainable Development Networking Programme, available at http://www.sdnbd.org/rahimafrooz.htm

50 http://www.bpc.com.np/index.php51 http://www.akdn.org/index.html52 http://sgp.undp.org/index.cfm53 West Bengal Renewable Energy Development Authority, available at http://www.wbreda.org/

index.html.54 Alliance for Mindanao Off-Grid Renewable Energy Program, available at http://www.amore.org.

ph/html/partners/partners_main.html55 http://www.teriin.org/press_inside.php?id=1723356 TERI has entered into a similar partnership with the Rural Electrification Corporation, another

public sector undertaking, for rural electrification, primarily through extension of the grid. 57 http://www.ashdenawards.org/technical_summary06_bangladesh58 http://www.energyhouse.com/about_intro.html59 Tridos Bank, available at http://www.tridos.nl60 Funding profiles from the HEDON Household Energy Network, available at http://www.hedon.

info/goto.php/FundingProfiles61 www.nrel.gov/villagepower/vpconference/vp2000/vp2000_conference/bundled_pavankumar_

siddhi.pdf

125

7. Renewable Energy & Poverty Reduction


7. Renewable Energy & Poverty Reduction

Barriers to private investment in renewables

Renewable energy services address human development needs on many levels. Those needs include support for energy for basic subsistence and energy access for facilitating economic empowerment and social transformation. Greater access to electricity, modern fuels and clean, efficient technologies such as improved stoves for cooking and high-efficiency electric lights can enable people to benefit from both short – and long-term advances in their quality of life. Impacts can be considered on at least two levels, including access to minimum basic energy services and ensuring that energy services contribute towards poverty reduction.

The last four chapters have discussed the many ways in which commercially available renewable energy technology options can support income-generating activities and social services, both vital to decreasing the number of people in poverty and to moving towards attaining the MDGs. They also show how barriers are being overcome such that basic energy services are now increasingly available to large numbers of the rural poor through the use of renewable energy technologies. But unless their incomes increase, the poor cannot afford many of those technologies directly nor, in many cases, the energy services they could provide. For PV systems, for example, the customers are the rural non-poor with some exceptions. The same is true for purchases of pico-hydropower units such as the PowerPal, which can provide 200-1,000 watts of capacity with a small self-contained unit in a strong stream.

The private sector has a clear role in expanding the market for RETs to large numbers of rural people currently without access. However, it is not generally well placed to reduce poverty through the use of energy services. This chapter discusses how the larger developmental community might build on the successes of increased availability of renewable energy technologies to help the poor climb out of poverty. It attempts to lay out the beginning of an international agenda for a global push to integrate the renewable energy community with the larger poverty reduction community.

Poverty reduction impacts of RETs

Access to energy services provided using renewable energy technologies can contribute towards poverty reduction and economic development in many ways, as discussed earlier. In the following sections, starting with charting the potential that renewables can offer for poverty reduction, we summarize the results from the case studies conducted for the report. This is followed by a summary of evidence collected from a literature review and from past project experience.

A central conclusion of this work is that for there to be large-scale programmes in which the private sector provides both energy services and social and economic development support for the poor, there must be a clear opportunity for the private sector to be profitable. In many cases this will require a commitment by the public sector, through its own funds as well as the funds and technical support made available through ODA, to create an environment that will attract private sector investment for pro-poor initiatives.

Evidence from case studies on the poverty reduction impacts of savings from RETs in expenditure on energy

Rural households spend a much larger proportion of their incomes on energy than do urban households that are connected to power grids and to fuel services (natural gas pipelines, LPG canisters), and poorer households spend an even greater proportion of their income on energy services (figure 7-1). This is supported by data from the case studies as well as other studies. Income data collected from Bangladesh show that households below the national poverty line spend more than 20 percent of their incomes on energy, while those above the poverty line spend about 10 percent. In all of the study


Figure 7-1 Household income level and annual expenditure on energy

2000

1800

1600

1400

1200

100

800

600

400

200

0

Nepal

7.8% 2.4%20%

10.1%

Bangladesh

Below National Poverty Line

Above National Poverty Line

Average annualexpenditure on energy Average annual income

Source: Country case studies, volumes II and V, Policy Study on Regional Mapping of Options to Promote Private Investments in Alternative Energy Sources for the Poor

countries, household energy expenditures are primarily for kerosene and dry cell batteries, with some use of automotive batteries that are periodically recharged (for a fee) and that provide electricity for lights, radios, audio cassette players and small television sets.

Table 7-1 Monetary savings accruing to households from the use of RETs (Dollars per year)

CountryExpenditure on energy (percent)

Below poverty line Above poverty line

Solar home systems¹

Bangladesh 30 21

Nepal 80 73

Philippines - -

Microhydropower²

Indonesia 16 28

Nepal 49 42

Rural electrification based on small hydropower Nepal 3³ 45

Source: Country case studies, volumes II, IV-VI, Policy Study on Regional Mapping of Options to Promote Private Investments in Alternative Energy Sources for the Poor

Notes: 1 The figures do not take into account the amounts paid towards monthly installments for SHSs (esti mated to be in the range of Tk 500-700 or US$ 7-10 in the case of Bangladesh). 2 The figures take into account the reduction in expenditure on kerosene, candles and dry cell bat teries, as well as the monthly tariffs paid for microhydropower. They do not indicate the much higher value of light from efficient electric lights compared with light from candles or kerosene lanterns, nor do they reflect the superior health and safety attributes of electric lights and other electric appliances. 3 The operating cost of replacing bulbs is quite high, as a result of which the ultimate saving is not significant.

For the case studies, data on the extent of monetary savings accruing from the use of various RETs were collected and are summarized in Table 7-1.


The monetary gain from energy savings resulting from the use of RETs varies widely from one case study to another and from one technology to another. In Nepal, up to 50 percent reduction in expenditure on kerosene and dry cells has been observed after microhydropower-based electricity was introduced. If small (AA and AAA) rechargeable batteries become widely available in developing countries, the ongoing cost of purchasing non-rechargeable batteries can be bypassed. Hand-cranked LED flashlights, radios and other low-power appliances permit the user to generate electricity to recharge batteries in those appliances. For example, one minute of simple cranking of an LED flashlight permits 30 minutes of bright light and battery purchase is eliminated. The flashlights retail for under US$10 each and bulk purchases would probably make them available for a few dollars.

At the other end of the spectrum are the solar home systems in Indonesia, where monthly installments paid for a system are much higher than the savings accruing from reduced kerosene usage, the commonly used fuel for lighting, leading to an overall increase in expenditures on energy after the adoption of SHSs. However, potential savings in kerosene expenditures do not drive purchases or leasing of solar home systems – it is the vastly superior quality of lighting, coupled with the elimination of fire hazards and toxic fumes from incomplete kerosene combustion that people want and are willing to pay for.

Among various income groups, there are preliminary indications that the extent of savings is higher for the relatively better-off households above the national poverty line. This is primarily because households on higher incomes have substantial expenditures on dry cells in the absence of electricity, which the poorest do not, resulting in relatively large savings. Even though the data collected as part of the case studies are not amenable to statistical analysis because of small sample sizes, there are some indications that renewables help reduce household energy expenditures.

Additional income generation through productive uses of RETs within households

In the case study locations, the direct impact of renewable-energy-based household lighting on income generation has not been significant. Very few households started businesses as a direct result of improved lighting. However, the indirect benefits of superior lighting – better information and education, improved health due to absence of kerosene combustion fumes, access to radio and some television – all contribute to the ability of people to be economically productive (Cabraal et al. 2005).

There are specific cases where enterprises have experienced savings as a result of switching to an RET-based energy source from diesel fuel. In Lwangghal, Nepal, there are three agroprocessing mills that run on diesel. The annual average turnover of each mill is about NRs 30,000. With electricity from the microhydropower plant, the mills are able to operate at a lower cost than with the diesel they used before. Earlier, a mill used about 35 litres of diesel per month at a cost of about NRs 1,700; after the introduction of microhydropower, this expense has fallen to a few hundred rupees per month (approximately NRs 400).

There are very few households that use electricity directly in home-based microenterprises and those that do are, not surprisingly, not the poorest households according to case study data (table 7-2). For example, in the Nepal case study, the most common productive use in households using electricity from microhydropower was for sewing and extension of business hours of shops, but 80 percent (16 out of 20 households which were involved in some kind of productive application of energy) were above the poverty line. The ability of poor households to use RETs for productive uses is limited by a lack of capacity to acquire the necessary appliances, as well as other inputs such as investment capital and access to markets. Some NGOs are helping to bridge this gap by providing capital and tools to local artisans and craftspeople and marketing their products worldwide through the Internet.

Other empirical evidence on the impact of renewables on poverty reduction

(a) Impact of RETs on time and effort saved

Around 80 percent of the expenditure on energy services by poor people is on fuel for cooking. Studies show that the majority of the developing world’s poor spend 20 percent or more of their monthly income to obtain wood and charcoal. There is ample evidence that the introduction of technologies such as biogas and improved cook stoves brings about significant reductions in workload in the collection and processing of fuelwood, as well as in cooking, and saves time. The extent of time saved in fuelwood collection is in the 40-50 percent range, and can amount to as much as 4 to 8 hours per day. The health benefits of using stoves with greatly reduced particulate emissions are also substantial, as discussed earlier. Time saved in cooking seems to be the highest reported benefit from improved stoves. Cooking time is saved because of factors such as the ability to use two pots at the same time and to raise the cooking temperature quickly, as well as greater heat efficiency among other factors. The use of biogas plants has also been associated with time saved in cleaning.62


Table 7-2 Evidence from case studies on RETs and productive uses of energy

Case study Technology Scale of interven-tion

Number of households with productive applications of RETs

Sample sizeHouseholds below pov-

erty line

Households above pov-

erty line Remarks

Nepal Microhydropower Two schemes of 12 kW and 15 kW power output, covering 278 households in Raipur/ Firfire; 218 households covered by a 44 kW plant

102 4 16 Sewing and weaving at night, shops open after dark. Three agro-processing mills switched from diesel to electricity

Nepal Rural electrifica-tion based on small hydropower

17,000 rural house-holds

72 4 12 Mainly for agro – processing

Nepal Solar home systems 2,000 units in Madi 22 5 Sewing and shops open after dark

Nepal Biogas plants 500 in Madi; 50 in Raipur/Firfire

13 2 Vegetable farming with biogas slurry

Indonesia Microhydropower 69 kW project 12 3 Sewing machines, chicken hatchery (using light bulbs), kiosks open at night, woodworks with electrical machinery

Indonesia Solar home systems 8,054 units, serving about 35,000 people

13 1 Sugar packing and selling bulbs at night

Philippines Solar home systems Information col-lected through rapid rural appraisal

None reported

Cambodia Improved cook stoves

95,000 stoves cover-ing 10 percent of potential users

420* Profits made by stove producers and retailers on sales of ICSs (US$0.50 per stove) are more than four times those made on traditional stoves (US$0.12 per stove).

Cambodia Solar home systems From 1997-2005, Khmer Solar sold ap-proximately 85 kWp to over 320 custom-ers.

12 in-depth survey ques-tionnaires administered*

A few instances of selling groceries or electrical equipment, and hairdressing.

Solomon Islands

Small hydropower 30 households 29 14 3 Initially electricity used for a bakery, agricultural produce preparation, furniture making and sewing, but discontinued when plant stopped working.

Solomon Islands

Solar home systems 46 homes and a school

73 9 3 Sales of handicrafts

Note: *Income-wise disaggregation not available for the sample.

Source: Country case studies, volumes III-VII, Policy Study on Regional Mapping of Options to Promote Private Investments in Alternative Energy Sources for the Poor


Time saving has also been reported as an important benefit arising from microhydropower plants in Nepal (Mahat 2004a), where women reported a reduction in labour and time spent in processing activities and more time for rest and leisure. Time is also saved by not having to fill kerosene lanterns up and move lights from room to room. Electricity also saves women’s time in domestic food processing, which is traditionally done manually. However, women’s work has increased in the evenings and nights with the availability of electric lights but information on microenterprises and small-scale industries operated by women and the role that energy plays in them is almost non-existent.

(b) Impacts of RETs on household expenditures through fuel savings

Reduced expenditures of 20-50 percent through fuelwood savings resulting from the use of improved cook stoves and biogas plants have been reported in many studies.63 In Kenya and Rwanda, monthly monetary savings brought about from reduced fuelwood consumption after the introduction of improved cook stoves was in the US$8.41 to US$15.3 range (Barnes et al. 1994). In the hills of Nepal, the decrease in daily fuelwood use in households with biogas was six kilograms and more, both in summer and winter. Other work has shown savings of 2-4 metric tons of firewood per household per year as a result of the biogas option.

Electricity services reduce and can virtually eliminate expenditures for kerosene lighting, dry cell batteries for sound equipment, and car batteries for televisions. Solar home systems may be used for running lights, televisions and radios for a few hours every day, usually replacing kerosene, candles and dry cells, as well as lead-acid batteries externally charged from locally-owned small gensets. In Bangladesh, monthly expenses on kerosene in electrified households were only Tk 28.3 while they were around Tk 65 (about US$1.50 at the time) in non-electrified households (Barkat et al. 2002).

A study of rural electrification in the Philippines made an attempt to quantify the monetary benefits of electrification, summarized in table 7-3 below. It estimated the total benefit of providing domestic electricity to a typical, non-electrified Filipino household at US$81–US$150 per month, mainly from time saved collecting fuel and improved productivity of home businesses.

Other anecdotal evidence supports the view that renewable energy increases the quality and quantity of energy services rather than decreasing costs – some households continue to use kerosene for lighting so that the electricity from SHSs can be conserved for watching television. In Inner Mongolia, a socioeconomic assessment of small household-scale wind turbines found that energy services motivated households to buy appliances such as refrigerators, washing machines, rice cookers, irons and electric heaters to improve living conditions and save time, particularly for women (Modi 2005). The study found that television and radio provide language instruction and information on commodity prices and the weather, as well as new farming methods and practices. Electricity also increased income-generating activities, adding up to US$30–US$150 per month to incomes.

RETs and income generation – productive uses of energy

Productive uses of energy consist of all direct energy inputs into employment, income generation and wealth creation activities. They include fuels and electricity for agriculture and allied activities, off-farm microenterprises, community and village small and medium-sized industries and enterprises, as well as larger scale rural industries such as those for agroprocessing. The addition of non-farm income to family agricultural-based incomes can decrease the incidence of poverty for small farmers. Specific applications include the following:

• Energy inputs in irrigation can improve agricultural productivity, often by factors of two to three, and diversify crop choices;

• Agricultural productivity can be improved through efficiency improvements in agricultural tasks, thereby increasing incomes, and electricity can be used to reduce post-harvest losses (for example, through vacuum packing and sealing);

• Access to reliable energy improves income from non-agricultural activities, including small trades like carpentry and blacksmithing for local markets and services, such as repair centres, battery-charging centres, restaurants and shops; and

• Lighting permits income generation beyond daylight hours so that small enterprises can employ more people, and the products are often of much higher quality than can be obtained using manual labour only (for example, sewing, tailoring and woodworking).

There are many documented examples from renewable energy projects that show how RE-based electricity supports both direct and indirect income generation. Here are a few:


Table 7-3 Summary of electrification benefits for rural Philippine households, 1998

Benefit category Benefit value Unit Total per month (mil-lions)

Less expensive and higher levels of lighting US$36.75 Per household per month US$147.50

Less expensive and higher levels of radio and television use

US$19.60 Per household per month US$77.50

Adult education and electricity wage income returns US$37.07 Per wage earner per month US$296.60

Time savings for household chores US$24.50 Per household per month US$97.50

Improved productivity for home business • Existing home business • New home business

US$34.00US$75.00

Per business per month US$24.70

Improved Health None N/A N/A

Improved agricultural productivity resulting in increased irrigation

None N/A N/A

Feeling of securityNot quantified in monetary terms

N/A N/A

Public good benefits Not quantified N/A N/A

Note: N/A = not applicableSource: ESMAP 2002

a. Energy services for new economic activities – Electricity favours the development of home-based economic activities, including handicrafts and textiles, embroidery and garments, food processing and woodworking in Indonesia, clove-nut processing, wrapping local cigarettes (beedies), making joysticks (“magic” candles made locally for children’s birthdays) and weaving in Sri Lanka (Matly 2003). In Nepal, solar PV lighting enabled women to undertake handicraft work at night, weaving baskets, mattresses and so on (Mahat 2004b). Productive work such as weaving and sewing has also been carried out at night with the help of electric light (Barkat et al. 2002; Bryce and Soo 2004; Chakrabarti and Chakrabarti 2002; Khan 2001). In a preliminary community assessment conducted in Cambodia in October 2001, it was learned that in some villages, battery-powered lanterns are used not only for everyday lighting in the home but also outdoors for frog hunting – a significant source of income (Cecelski 2002). Solar lanterns are used by fishermen in Sumatra, Indonesia, to attract and catch fish at night. Slurry from biogas plants is known to produce high quality organic manure, which has been used for a variety of purposes ranging from vegetable gardening to crops, and fish ponds. In Kavre district in Nepal, after the installation of a microhydropower plant men recognized the possibility of income-generating activities through establishing saw mills and poultry farms, using hydropower.

As the Nepal case study indicates, the private-sector-led rural electrification from the 5 MW Andhi Khola small hydropower project facilitated the creation of a large number of enterprises. However, what was instrumental in the emergence of those enterprises was the Enterprise Support Program funded by USAID, which provided technical support and training to a number of them. This illustrates the importance of co-investments (with energy) in technical assistance, training and capital equipment. Most of the enterprises are agroprocessing units, but there are also significant number of other kinds of enterprises in activities such as poultry production, saw mills, noodle production and so on.

b. Quality improvements in output – An impact that is observed through the use of some renewable energy technologies is improvement in output quality. In India, over 150 cardamom growers in the north-eastern State of Sikkim have increased the value of their produce by using biomass gasifiers for drying. Cardamom dried in this way conserves its natural color, contains 35 percent more oil and does not have the burned smell characteristic of the traditional method. It therefore fetches higher prices (10-20 percent higher) in local trading centres. The technology also provides a healthier working atmosphere for the farmers and more efficient combustion of fuelwood, resulting in savings of 50-60 percent.


Low-cost gasifiers similar to those used in Sikkim can potentially be used in other niche activities, for other rural produce such as tobacco, ginger and cashew nuts.

c. Increasing employment opportunities – An indirect impact of many renewable energy projects is that improved energy services, by freeing time spent on domestic chores of fuelwood and water collection and agroprocessing, enable women to make use of available employment opportunities, including wage labour (Barkat et al. 2002; Nathan 1997; Ramani 2005; and Dutta et al. 1995). In Bangladesh, grid electricity has increased the employment opportunities for women in electrified households, which translates into greater control over their incomes (Barkat et al. 2002). The same study showed that the women in electrified households as compared with those in non-electrified households are involved more in home-based activities for income generation and demonstrate better reallocation of time for remunerative employment.

d. Extension of working hours – As frequently reported, RET-based lighting can help extend working and business hours. The most widely experienced benefit of lighting in terms of income generation is the extension of working hours and the ability to keep shops and businesses open until late at night (IDS 2001; Khan 2001; Madon and Gardiner 2002; and Wilkinson 2002). In Sagardweep Island in India, where a PV power plant supplies electricity to households for lighting, cultivators of betel leaf have benefited from the power supply as a significant part of their work, such as arranging leaves, watering the fields and so on, can be done at night. The supply of power has also helped commercial establishment to continue their activities at night for a longer period and to provide more services to the people. In another case in India, Winrock International teamed with Don Bosco, an in-country NGO, with support from USAID to create a revolving fund to finance PV systems on a commercial credit basis. Women in the village of Pavur had a market for large baskets that they weave but kerosene lighting was not adequate to permit weaving. SELCO and Don Bosco installed PV systems on a commercial basis. Don Bosco markets the baskets and deducts monthly installments from basket sales proceeds. It is also working with residents to develop a self-managed cooperative to handle distribution of the baskets in more distant markets. Average household income increased from US$19.50 per month to US$32.15 per month with some portion of that increase being used to pay school fees for an increase in enrollment (GEF-FAO 2002). The supply of solar power has also helped, though on a small scale, to run a video hall as well as a battery charging centre, among other activities (Chakrabatri and Chakrabarti 2002).

e. Facilitating information inputs into businesses – Facilitation of information and communication technologies through renewable energy systems can allow farm and non-farm sectors to receive accurate and current market prices. In India, the e-Choupal initiative66 has succeeded in providing farmers with access to Internet-enabled computers, which helps them obtain current information on market prices and good farming practices and allows them to order agricultural inputs. This initiative has resulted in improvements to the quality of their produce and also ensures that they receive better prices for their produce.

While there are many instances of RETs being used for productive purposes, there is still inadequate information on which segments of the communities are really benefiting from them.


Box 7-2 Benefits of a microhydropower scheme

In village Harichour, Baglung district, Nepal, an enterprising microhydropower entrepreneur has been operating a 25kW plant for over 15 years. The mill serves around 380 households during the daytime and electricity is provided to 215 households in the evenings for about five hours. The accessibility of the electrically-driven mill has made a big difference to women’s lives. Previously, women had to walk about an hour to grind grain in the traditional water mill; that time has been now reduced to a five minutes. In Hira Gauchan, a user pointed out that they have more time now than they had before, as at least 4-8 kg of grain has to be ground every morning, and the time saved has allowed them to work in other productive activities. Time is equated to money and often women preferred to work and earn rather than to rest. Women also felt that the television has become an important medium for gaining access to information about political, social, cultural and economic issues. This has helped them widen their understanding, particularly because they do not travel out of the village (Rai 2000).

Employment through RET industries

Some decentralized RET systems provide substantial employment in their manufacture and installation. Biogas systems and improved cook stoves that use mostly local materials and local artisans and masons have the largest employment component. Employment is also generated for manufacturers of components. BSP Nepal has generated jobs for around 11,000 people. ARTI in India and the CRT improved cook stove programme in Nepal have also employed large numbers of people. ARTI is a 2006 Ashden Awards winner for its contribution to renewable energy for development.67

Microhydropower is mainly based on local manufacture with the generator and controller often the only imported components. Solar PV has less but still significant local value added. Bangladesh has a major lead-acid battery manufacturer, Rahimafrooz, which supplies the deep-cycle batteries needed for the SHS market. The batteries are also supplied to Nepal. Bangladesh, India, Nepal and Sri Lanka all have industries to manufacture electronic battery charge controllers for SHSs. Indonesia has a large export-oriented solar PV manufacturing base that makes the DC lights, controllers and other balance-of-system components. Tata BP Solar in India makes both PV panels and balance-

Box 7-1 Poverty impacts of the Nepal Rural Energy Development

An example of RETs being used for income generation comes from the REDP project in Nepal, where villagers are increasingly engaged in income generation activities, such as tea stalls, poultry, piggeries, vegetable production, carpentry, weaving, knitting, thangka (tradi-tional Nepalese paintings) production, public telephone service and computer institutes. The outputs are gradually being translated into positive changes in the capacity of all concerned stakeholders and ultimately, in the enhancement of rural livelihoods. The changes encom-pass: (i) increased income from off-farm and non-farm activities; (ii) improved health owing to a reduction in drudgery, labour and smoke inhalation, as well as improved sanitation; (iii) bet-ter education of children owing to the availability of brighter lights at night to do their homework (extension of study hours); (iv) increased awareness among the rural people about global activities via telecommunications and computers (thereby helping to reduce the digital divide); and (v) an increased capital base from savings and credit operations and the establishment of infrastructure such as microhydropower, schools, potable drinking water and microenter-prises.

An ongoing study on the MDG impacts of REDP by Winrock Nepal, which covered a sample of 1,503 households in 10 different districts, shows that there has been a significant growth in household income. While average annual household income in 1996 was NRs 48,000, aver-age income in 2005 was NRs 73,000. The poverty level in the project locations decreased from 59 percent in 1996 to 54 percent in 2005. Specifically, the poorest of the poor (house-holds with annual incomes below NRs 10,000) had dropped from 15 percent to 12 percent of all households. The share of households with annual income over NRs 100,000 had increased considerably from 9 percent to 24 percent.


of-system components for the Indian and regional markets. China also has rapidly expanding solar PV manufacturing activities. Studies show that the value added to solar home systems can be quite high even in countries that do not make solar panels from manufacturing controllers and installing systems.

Renewable energy is being used for productive activities in an initiative of the Himalayan Light Foundation, a non-profit, NGO working in Nepal. Under its Home Employment Lighting Program (HELP), dissemination and use of solar electricity technology is combined with income generation. HELP assists villagers set up and run income-generating activities such as weaving and thangka painting to maximize the benefits of extended evening hours made possible by renewable energy lighting systems.

Villagers participating in HELP are offered a skill-training programme, the tools to set up an income-generating activity such as knitting, weaving, handmade paper products or thangka painting and a solar electricity system, which extends the working day. Marketable products are made in the home in spare time after agricultural pursuits. HLF acts as a link65 between those producers and international buyers, enabling the workers to find a market for their products. The villagers can repay the cost of the solar lighting system with handicraft items made in their home. Under one arrangement, each household that receives a solar home system has to make a payment of one bag of handicrafts each month for the system, after which additional bags fetch income for the household.

HLF also works with village entrepreneurs to establish village charging stations for small batteries. Disposable dry cell batteries that power flashlights and radios consume a surprising 10 percent of family earnings. Rechargeable batteries are much less expensive for families in the long term and, at the same time, a village solar battery-charging station provides an income-generating opportunity within the community, so money stays in circulation in the local economy.

Box 7-3 Himalayan Light Foundation

Increased rural employment and incomes through biofuels and inputs to grid-connected RETs

Increased production of biofuels has prospects for increasing employment and income in rural areas. One frequently cited benefit of biofuel manufacture closely linked to rural development is job creation. In 2004, 700,000 direct jobs and about 3.5 million indirect jobs were created through the production of 350 million tonnes of sugar cane. However, there is an important caveat when pointing to biofuels as a potential large-scale employer. The most advanced and largest of the sugar producing countries such as Australia and Brazil are moving to much more labour-efficient practices, both in the production of sugar cane and in its processing. Labour-intensive sugar industries will not compete internationally, either in the production of sugar or co-products such as ethanol. The experience of Thailand shows that with the advent of rice-husk-based IPPs, the price of rice husk has tripled in rural Thailand. The considerable amount of employment generated is an important benefit.

There are however several issues with respect to the employment generation impacts of biofuel projects. The most basic danger relates to the replacement of food grains and subsistence crops by biofuel crops, which can jeopardize livelihoods of the poorest farming communities. In Thailand, the benefits of higher prices for rice husk have gone only to the rice mills and not to the paddy farmers because the rice mills, which are very large, control most of the husk. Mills owned by farmer cooperatives are small and have not so far ventured into the IPP sector with the rice husk they produce.

Another issue that is being raised in Brazil is that of sustainability of the employment created. In the harvesting of sugar can many jobs are created but they are very low wage and are vulnerable to displacement by mechanization. Thus, in the long-term, permanent jobs with stable incomes may not be created in large numbers. In fact, cane harvesting in Brazil has become increasingly mechanized despite a large pool of unemployed and underemployed workers. Furthermore, there have been reports that pastures and food crops have been displaced by sugar can and that subsistence farmers have been evicted in the process. Outcomes such as these should to be monitored carefully before similar programmes are implemented in other countries.


Biofuel development to benefit the poor?

Biofuels are very promising if delivered in the right manner; but with the ever-increasing demand for transport fuels, there are genuine concerns that biofuels may create greater competition for limited land and biodiversity, water and food. From the point of view of benefits for the poor, biofuels present a number of challenges and opportunities which have to be examined carefully.

The rapid growth in the demand for and production of liquid biofuels and its impact on food security, rural development, land use and the environment, in particular, can be negative if not designed and implemented with care. The development and expansion of existing liquid biofuels policies and programmes, particularly to make the sector more effective in eradicating poverty, should be evaluated and assessed taking into consideration the following aspects:

• Attention to biofuels should not be limited to sugar and starch crops for the production of ethanol and vegetable-oil plants for the production of biodiesel. A comprehensive sustainable bioenergy programme should cover all sources including sustainable production of trees and other woody biomass from forests and non-forest areas for solid biofuel production; agricultural residues for heat and power generation through direct combustion, cogeneration, biogas generation and gasification; and cellulosic sources available for second-generation biofuel technologies from the agriculture and forestry sectors.

• All end uses of those bioenergy sources, such as heat and electricity, should be considered including non-transport uses of liquid biofuels. Policies and programmes for liquid biofuels are currently too focused on private urban transport use.

• The linkages between bioenergy development and food prices, food security, rural economics, trade, employment, biodiversity and climate change should be clearly established. Such linkages need to be assessed at the local, national and global levels.

• The active entry of small-scale farmers into bioenergy conversion stages and their upward movement in the market supply chain should be promoted.

• The engagement of SMEs in seeking production models of varying scales should also be promoted so as to allow them to be more competitive, for example, by using cooperatives.

The exercise in expanding and strengthening biofuels programmes in order that the poor should get a greater share of the benefits should start with an evaluation and assessment of current experiences and policies. This should include an examination of models and practical tools being used in national, regional and international organizations in areas such as land use planning, biofuels potential and impacts on food security and commodity prices. In most developing countries there is a need to strengthen decision-making capacities so as to tap into the opportunities presented by biofuels while avoiding potentially important negative impacts on rural livelihoods, equitable economic development and the environment.

Energy as a vehicle for empowerment and contributor to social transform+ation

Renewable energy technologies contribute to improvements in social capital and quality of life, which can be an instrument for poverty reduction in the long run. Electricity through renewables brings about improvements in social capital in a number of ways, including through better health from reduced exposure to indoor air pollution, improved literacy and children’s education, access to television, more leisure time, convenience through use of appliances, reduction in fires and accidents, as well as confidence building and participation in community activities. Access to television and media seems to be the most appreciated benefit (Barkat et al. 2002; Everts and Schulte 1997; Mukhopadhyay 2004). Electricity also frees people from social isolation by making it possible to socialize in the evenings and adding to safety for women through streetlighting. It also permits women to be involved in community activities (ESMAP 2004; Wilkinson 2002). In Nepal, an assessment of the impact of the Gandruk hydropower plant suggested that the advent of television had a significant cultural impact in that women said that they could see that they did not have to remain second-class citizens (Barnett 2000).

Villages with electricity tend to be more attractive and prosperous and electricity is known to bring about lifestyle changes in people’s lives (Ramani and Heijndermans 2003). It enables households to use labour-saving devices such as electric kettles, electric drills, freezers and so on (Bryce and Soo 2004; Madon and Gardiner 2002). Using electricity is safer than using kerosene wick-lamps, candles and lanterns (Ratnayake 2000; Madon and Gardiner 2002). However, electricity presents its own dangers, and users must be informed about safe usage of electricity and electrical appliances. While the potential of RETs to reduce poverty is high, this has not yet been realized widely. Table 7-4 presents a summary of the impacts on the poor.


Source: REN21 2008, “Renewables 2007 Global Status Report” March 08.

Impacts on other MDGs

MDG 2 – Education

A number of linkages have been drawn between the use of RETs and improved learning and educational facilities. In rural areas where conventional fuels and electricity are not affordable or available, RETs can make important contributions to education by providing electricity to schools and by creating a more child-friendly environment that improves attendance. A survey in Nicaragua illustrates the relationship between education and household electricity use (Saghir 2005b). It was found that the percentage of a family’s children that attend school is highly correlated with the availability of electricity. Among rural households in Nicaragua, 72 percent of children living in a household with electricity attend school, compared to 50 percent of those living in a household without electricity.

Lighting also helps schools retain teachers, especially if their accommodation has electricity. There is similar experience for rural health posts. A World Bank-GEF Teacher’s Solar Lighting Project in Papua New Guinea provides a modest financing package, making the purchase of solar lighting kits affordable for teachers. The project is intended to improve delivery of education in rural Papua New Guinea through longer retention of teachers posted to remote areas.

Access to educational media (overhead projectors, computers, printers, science equipment) and communications increases educational opportunities and opens up the possibility for distance learning via radio and through satellite television. Having a reliable electricity supply in schools directly influences the quality of education at all levels. In addition, the ability to keep schools open at night can greatly encourage adult education programmes. In Cambodia, an NGO (privately funded from the United States and Japan) has put PV in over 200 schools to power lights and computers. This

Table 7-4 Summary of poverty reduction impacts of RETs

RET

Potential for poverty reduction

Time and effort saving

Saving in energy expenditure

Improvement in quality of

life

Direct income generation

benefits

Extension of working hours

Solar PV lighting

Low Low (typically the savings in kerosene and batteries are more than offset by initial and installment payments)

High Low High

Small hydropower

High (through agro-processing)

High, especially in cases where batteries are being replaced

High High Limited (the level of energy service typically provided caters primarily to house lighting)

Biogas plants Very high (through time saved in fuelwood collection and cooking)

High, especially in areas where fuelwood is scarce

Very high Limited (some productivity gains reported from use of biogas slurry)

Medium (biogas often provides lights that extend working hours)

Improved cook stoves

High High High Limited None

Box 7-4 Electricity empowers schools and clinics in the war on major diseases

The technical means for using renewables to improve schools and health facilities dramatically are commercially available, but the institutional and financial means are still lacking. Because schools and health posts are in the front line in the global war on malaria, tuberculosis, polio and HIV/AIDS, upgrading facilities, including the lodgings for education and health workers, is crucial to improving global health and reducing the very high mortality and morbidity rates from those diseases.


needs to be done for schools and health facilities on a scale of hundreds of thousands of installations throughout the developing world.

A benefit that is widely perceived of the use of electric lighting at home is increased study and reading hours for children; there is also anecdotal evidence of improved school enrolment. In fact, in many areas, this is a frequently reported benefit of electrification. Studies have also found improved school performance by children in Fiji and Solomon Islands, and Bangladesh (Sauturaga 2004; Barkat et al. 2002). All the case studies (that provided improved lighting through microhydropower or through SHSs) carried out for this study reported that children were able to put in an additional 1-1.2 hours of study at home, once light was available.

An important benefit reported by most users of electricity, especially teachers was that because of access to television, they were able to keep themselves better informed. The number of television sets was found to increase dramatically in all the case study locations after the advent of electricity. In Manikganj district of Bangladesh where Grameen Shakti has been selling solar home systems on credit, the number of radios and black-and-white televisions increased by 55 percent and 76 percent respectively after SHSs were introduced (Bangladesh country case study).

MDG 3 – Gender equity

When women gain access to energy services, it can have a marked effect on their lives, particularly with respect to freeing up their time by relieving then of some of the unending drudgery that characterizes the daily lives of poor families. Therefore, it contributes to improved literacy among women, greater income generation by women and more community activities led by women. Many microenterprises, typically run by women, become viable when there is access to a reliable modern energy source. Public lighting improves women’s safety and encourages evening community and commercial activities. Clean cooking fuels minimize indoor air pollution and the associated morbidity and mortality of women. Women are at greatest risk from indoor air pollution because of their gender roles, household responsibilities and behaviour (for example, cooking and spending a lot of time indoors).

When women participate in energy projects and develop more confidence through training or through gaining income, this can give them a greater voice in the household and even the community. Either through training, and thus increasing their skills, or by actively involving then in the project, women can take up new roles, get more of a say in households and communities, and may even take up leadership positions (Bryce and Soo 2004; Khuller 2002). In the Solomon Islands, women were trained in microhydropower technology, which gave them a feeling of pride from knowing how electricity was generated and distributed. They also participated in the village hydropower management committee and began to collect and bank the monthly electricity tariff. As a result, they gained the respect of village men as well as their encouragement to take up new initiatives (Bryce and Soo 2004).

In some cases, energy services even contribute towards changing gender relations within households and the community. This is observed especially in cases where women earn income as a result of new energy access and become co-providers for the family, and men become more involved in domestic tasks (Berthaud et al. 2004; Lao Women’s Union 2001). Income opportunities for women in a PV-lamp cooperative induced their husbands to share household duties (ESMAP 2004). In a microhydropower project in Nepal, men became involved in household tasks such as carrying grain to the nearest mill or looking after babies while women were being trained (Mahat 2004a; Rana-Deuba 2001). Sharing of household chores such as ironing became more acceptable to men in Sri Lanka after the households were electrified (Masse and Ratnayake 2003). In the Nepal case study, it was seen that once biogas plants were used for cooking, men and other family members became more willing to lend a hand in kitchen tasks.

With electrification, major time savings occur in grinding and milling activities. In Nepal, it was reported that after the installation of a microhydropower plant, the total time spent in milling and grinding, including travel and waiting time, fell (Mahat 2004a). The waiting time was drastically reduced because processing was speedy unlike the traditional water mill.

The evidence shows a rather mixed picture of the impact that improved energy services have on gender equality and women’s empowerment. Electrification and other modern fuels do not appear to lead immediately to increased leisure time for women. In most of the studies reviewed, women extended their working hours or used time saved to improve their productive or reproductive work outputs. There is some evidence that women in electrified households do spend more time watching television and listening to the radio and in several studies this was found to result in their increased empowerment. Insufficient research has been done on energy access and women’s reading and literacy, to draw firm conclusions.


MDGS 4, 5, and 6 – Health

The 570 million households that continue to depend on traditional biomass for their energy needs are exposed to high levels of indoor air pollution. Conservative estimates of global mortality from indoor air pollution caused by solid fuels show that between 1.5 and 2 million deaths were attributed to this cause in 2000. The deaths are concentrated among women and children in poorer households and rural populations. Improving access to clean, modern fuels, such as biogas, can lead to fewer deaths from this cause. There is abundant evidence that cooking with improved cook stoves can reduce the incidence of devastating airborne respiratory infection in children below five years of age. Increasing energy supplies to rural clinics, generally heat, lighting and refrigeration, improves the quality of health services delivery as, for example, vaccines can be refrigerated and lighting allows medical emergencies after sunset to be treated. Where babies are now delivered by the light of kerosene wick lanterns, use of bright electric lights will contribute to reduced infant mortality and mortality to women from childbirth. As discussed earlier, energy also improves literacy and this in turn has a significant impact on health issues. Public communication remains an integral part of the fight against major diseases, especially HIV/AIDS, malaria and tuberculosis.

In Indonesia, some 5,500 clinics have replaced refrigerators powered by kerosene and diesel with those that are solar powered; globally, the Cold Chain Program has provided solar-powered refrigerators in remote areas of Africa and Asia; the USAID programme on solar light for Africa has provided power and light to 1,500 facilities in rural East Africa. Those installations permit preservation of vaccines because of high reliability and eliminate the need for kerosene and LPG for refrigerators. However, it has to be recognized that there are many factors besides refrigeration that determine the success of vaccination campaigns, and no studies were identified that linked the availability of power directly with increased numbers of immunized children.

At the household and community levels, electrification appears to work in a variety of ways to improve health, including through increased food production resulting from irrigation and income from other activities enabled by electrification. A study based on a large sample survey in Bangladesh found that households with electricity were more likely to seek assistance from medically competent persons and more likely to have ante-natal and post-natal check ups and receive vaccinations (Barkat et al. 2002). Infant mortality in electrified households was 42.7 per 1,000 live births compared with 53.8 for non-electrified households in electrified villages and 57.8 for households in non-electrified villages. This is 25 percent less than the national infant mortality rate and 35 percent less than the rural average.

MDG 7 – Environmental sustainability

Renewable energy systems produce little or no air or water pollution and their use can prevent or reduce land degradation and habitat destruction from mining and traditional fuel gathering. Regarding water, improved energy access, especially from renewable energy, can improve the quantity of water available by allowing the use of electrified pumps that can access hitherto untapped water supplies. In addition, improved energy availability can enhance the quality of the water supply by treating the available water resources (for example, through boiling and filtering) to make them safe for drinking.

One of the RET projects that has quantified environmental benefits is the CFSP in Cambodia. Market analyses and sales figures of ICS producers show a total of more than 70,000 ICS-using families in the third year of the CFSP programme. The estimated fuelwood saved is more than 900 tons per family per year, so on average each family using the ICS saves about 0.46 kg of charcoal, the equivalent of 2.5 kg of wood per day. Over the three years of the programme, a total of 110,000 tons of wood was saved along with 100,000 tons of carbon dioxide. The areas of charcoal supply are not necessarily where ICS users live, so the benefits of reduced deforestation are not felt directly by them. CFSP is assessing the feasibility of establishing energy plantations to further reduce cutting of the national forest.


Box 7-5 Empowering rural women – lessons from REDP

The Rural Energy Development Programme of Nepal, initiated in 1996, aims to enhance rural livelihoods through the installation of microhydropower systems. Expansion of sustainable rural energy systems is seen as an entry point for economic development and poverty alleviation. The programme stresses community mobilization, bottom-up participatory planning and decentralized decision making. Productive income-generating activities are targeted as the intended end uses of the energy supplied, and skill training is provided to promote agricultural and home-based businesses. The project ensures equity and empowerment of both women and men from every target household through the establishment of separate women’s and men’s community organizations, which form the basic functional unit of the programme.

The equal opportunities offered have had a visible and positive impact in mobilizing women and integrating them into mainstream activities. The women in community organizations have a distinct voice in local affairs and their capability for independent and collective action has increased. Two out of the five microhydropower schemes in a remote district in the far west of Nepal (an area where women have the lowest social status) are chaired by women. The project has directly resulted in reduced drudgery in household tasks and an increase in productive and community roles (Rana-Deuba 2001).

Energy access and energy security for the poor

In this section, we discuss the issues of meeting subsistence-level energy needs. The renewables that have been widely utilized to meet the basic needs of the poor include:

• Home lighting and communications through solar PV lanterns and home systems and solar PV and small hydropower micro-grids; and

• Cooking and home lighting through biogas plants and improved cook stoves.

Table 7-5 presents an estimation of the quantities of energy required for various applications by rural households in India.

For the case studies, the issue of energy access was examined in terms of how effective the various policy measures and financing mechanisms have been in terms of improving energy access for the poor. This was assessed by studying:

Table 7-5 Energy and rural household applications in India

Category Type of requirement Impacts Approximate en-ergy requirement

Subsistence Electricity for lighting and other domestic requirements, particularly for entertainment

Improved living standard,educational status, fostering lighting-based income generating activities

150 W/h

Water for drinking Meeting the minimumrequirement for drinking and hygiene

3.75 kW/village

Productive Water pumping for crop irrigation Increased food productionwith increased income

7.00 kW/village

Small-scale industry Increased income 5.0 kW/village

Empowerment and quality of life

Street lighting Meeting requirement of safety, health and social interaction

0.5 kW/village

Primary health care 150 W/h 250 W

Source: TERI 2005


• The ownership pattern of RETs to establish whether RETs are really reaching the poorer segments of the communities or not;

• Whether the availability of RETs has reduced the vulnerability of the poor with respect to price fluctuations and other uncertainties in fossil fuel markets, namely kerosene and diesel; and

• The sustainability of markets for RETs in those areas.

Table 7-6 Ownership patterns of RETs

CountryTotal

sample size

Number of systems owned by ( percentage in brackets)

Below national

poverty line

Households with incomes below US$1

per day

Households with incomes above US$1 per day

Solar home systems

Bangladesh 33 0 (0) 26 (79) 7 (21)

Indonesia 13 0 (0) 0 (0) 13 (100)

Nepal 22 1 (4) 14 (64) 7 (32)

Philippines 5 0 (0) 5 (100) 0 (0)

Solomon Islands 73 0 (0) 68 (93) 5 (7)

Small hydropower

Indonesia 12 7 (58) 2 (17) 3 (25)

Nepal 42 9 (21) 23 (55) 10 (24)

Solomon Islands 29 0 (0) 21 (72) 8 (28)

Rural electrification based on small hydropower

Nepal 60 16 (26) 31 (52) 13 (22)

Source: Country case studies, volumes II, IV-VI, Policy Study on Regional Mapping of Options to Promote Private Investments in Alternative Energy Sources for the Poor

Some renewable energy systems, especially microhydropower and minihydropower and possibly small modular biopower systems can provide electricity and cogeneration services at levelized energy costs that are competitive with or cheaper than fossil-fuel-based electricity or electricity plus thermal energy. The levelized energy cost is dominated, for renewables, by the initial capital costs, and it is those initial costs that are a barrier to direct purchase of the equipment. Mechanisms to provide low-interest long-term financing for energy services that use renewables can make the energy services affordable and are essential for the large-scale use of renewables to serve the poor and less well-off members of society.

Access to RETs

Data collected in the primary surveys show that while small hydropower systems did improve the access of the poor to energy services, solar home systems are being accessed only by the relatively better-off households (table 7-6). The only case study on improved cook stoves in Cambodia indicates that ICSs were being accessed by relatively better-off households. In Madi, in the district of Chitwan in Nepal, where the only case study covering biogas plants was conducted, incomes of households using biogas was found to be almost three times higher than incomes of non-user households.


Box 7-6 Measures to extend RETs to the poor led by the private sector

In Nepal, private sector operators have taken on the responsibility for including the poor among the beneficiaries of their projects. In the Andhikhola Hydel and Rural Electrification Project (AHREP) in western Nepal and in the Jhankre Rural Electrification and Development Project (JREDP), which are both minihydropower schemes, out of 60 electrified households in the sample, 20 or one third were found to have incomes below the national poverty line. Clearly, AHREP’s and JREDP’s rural electrification efforts have succeeded in reaching those most in need. To make the electricity affordable to even the poorest of the poor, a cut-out system (fixed charge) was adopted. The cut-out system is made up of different capacities starting from 25 watts, and works out to be much cheaper than the metered tariff for very low income consumers. This tariff is designed to allow the very poor to pay for only one bulb at prices below what they were paying for kerosene. The cost to the company is limited by not having to read the meter every month.

Tariff system of AHREP and JREDP for the cut-out system

Cut-out capacity (watts) 25 50 100 250 400

Rate per month (NRs) 19 39 66 116 179

Additional measures are the availability of tayari wiring or a ready-made wiring harness that can be assembled at a workshop and fitted into the house. This provides basic but safe house wiring in katcha or not strongly-built houses where it is not possible to have properly installed house wiring. The cut-out is also much less expensive than installing a meter. An employee of AHREP claimed that they have provided electricity to the poor with a total expenditure of NRs 680, inclusive of all services and materials. This is quite small compared with Nepal Electricity Authority’s connection cost of about NRs 2,500. As no meter reading is required, such systems also help reduce the utility’s monitoring and administrative costs.

JREDP has provided energy meters at subsidized rates affordable to even the poor. Butwal Power Company has demonstrated that if initial costs can be reduced and the basic minimum charge per month can be brought down to allow just one bulb subscription, even the poorest households find that their electricity costs are lower than when they were using kerosene for lighting.

In the Nepal case study, while the average income of microhydropower users was found to be NRs 71,197, many of the user households had annual incomes as low as NRs 10,000.68 Seventy-seven percent of the respondents who had access to power from microhydropower plants had incomes of less than US$1 per day, while 21 percent had incomes below the poverty line. Two factors made it possible for the poor to access electricity: first, the poor participated in the project by contributing labour – “sweat equity” – and smaller monetary contributions, and the tariff was only NRs 60 per month, equivalent to the cost of 1.3 litres of kerosene; and second, in some villages, the community instituted “inclusive” cost-sharing mechanisms such that families with higher incomes invested a larger amount than poorer households. The mechanisms to ensure inclusiveness have to do with community cohesiveness and governance systems rather than with renewables.

The Bangladesh case study revealed that the incomes of SHS owners were significantly higher than others. Even though those households obtained microcredit from Grameen Shakti to pay for the systems, their higher incomes helped them to put down the initial down payment. The main source of income for SHS-owning households appeared to be business, followed by agriculture, while the primary source of income for non-electrified households continued to be agriculture.

In Cambodia, Triodos Bank of the Netherlands is providing financing for household purchases of solar home systems through Khmer Solar, the nation’s leading RET retailer. Khmer Solar is passing on its US$100,000 loan from the Triodos Renewable Energy for Development Fund by offering a credit programme on SHS purchases by residents of Battambang Province. Under the programme, customers may pay in full for the 40-85 Wp systems within six months at no interest, or in one year at 5 percent annual interest. There are two indictors that the loans are being accessed by the relatively well off. Firstly, by design, the project is being implemented in Battambang, a rice-growing area; the credit programme allows people to purchase an SHS prior to the harvest. Secondly, Khmer Solar records show that most people pay the full amount back within the first six months. The loan seems to


have been very effective in drawing people in to purchase an SHS, but those using it are still mostly able to pay the full cost relatively quickly.

The Cambodian case study focused on improved cook stoves, which are costlier than traditional ones. Even though income disparities could not be captured, a difference was observed in the asset ownership, between ICS owners and others. ICSs can be purchased for US$2-US$4 depending on the size, and an average family spends about US$7 per month on charcoal. Since the use of ICSs can help reduce fuel costs by an average of 22 percent, approximately US$1.50 per month can be saved by ICS users, paying back their initial investment in 2-4 months. In general, users of ICSs tend to be concentrated in urban and peri-urban areas, while traditional stove users are mainly in rural, un-electrified areas. As a result, the use of diesel gensets is higher among non-users. In contrast, the use of rice cookers is higher among ICS users as the cookers needs reliable (grid) electricity. More ICS users own cars, motors, gas stoves and rice cookers, while the ownership of television sets and other less valuable assets like bicycles is about the same. The survey revealed that in spite of the higher cost, ICSs are desired by the poor, though this group is still limited in what it can afford and finds loans difficult to access owing to high interest rates.

Energy security

One of the common advantages of RETs, encountered in all the case studies, is a lowering of dependence on fossil fuels and imported energy sources, especially kerosene and dry cells. This is particularly significant in places such as the Pacific island countries which are heavily dependent on imported petroleum. Because of rapidly increasing costs of petroleum products, the replacement of a few litres of kerosene for lighting can save significant amounts of money in households, and more importantly, reduce the uncertainties involved in procuring kerosene oil. The same situation prevails in remote mountain communities in Nepal where the cost of kerosene is much higher than in the cities because of the added cost of transportation. Furthermore, there is no reliability of access especially during the monsoon season when roads are blocked and bridges washed away. The field survey in Nepal indicated that after electrification, each household saved on average 4 litres of kerosene per month (or approximately NRs 200 per month).

The vulnerability of the poor with respect to uncertain supplies relates not only to quantity shortages but also to the failure of the public distribution system, which is the primary means of supplying kerosene oil to the poor, to reach the poorest. Because kerosene is considered to be the fuel of the poor, many Governments keep its taxation low so that it remains affordable. In reality, what ensues in most cases is quite different from the intended consequences. Apart from distorting economic signals to consumers, the large price differential between kerosene and vehicular fuel makes adulteration an attractive proposition. Furthermore, the benefit of lower kerosene prices is often not confined to the poor. It has been estimated that almost half of the subsidized kerosene in Nepal is used by hotels and restaurants in urban areas rather than going to the rural areas for which it was meant. In such situations, a saving of a few litres of kerosene every month can mean a lot to poor households.

With the availability of smaller RETs like solar lanterns or white LED lights, a number of experts have proposed that the subsidy being provided for kerosene might be used to provide RETs instead. This seems to be an attractive proposition since a one-time subsidy for an RET can provide relief from recurrent subsidies for kerosene. TERI has proposed this for India. Recently the Government of Nepal set aside some funds to provide white LED lighting powered by small 3-watt panels to all households in the remote Karnali Zone which suffers from high prices and unreliable supplies of kerosene.

Sustainability of the markets for renewable energy products and services

There are major challenges in the sustainability of rural energy markets created and served by the private sector. Because of typically remote and dispersed locations, the costs of investment as well as routine maintenance are high for PV, microhydropower and biogas systems. Many RE projects have received significant donor financing for the investment costs. Yet the tariffs charged to the rural poor often cannot cover even the operation and maintenance costs. Profitability is elusive unless government agencies provide the financial, institutional and policy incentives for the private sector to act on behalf of the Government in extending infrastructure services to the poor.

Within the Asian and Pacific region, a wide range of measures have been put in place to ensure the sustainability of renewable energy projects. One commonly adopted strategy is to establish community-based management systems that oversee the operations and maintenance, as well as tariff collection. The Jhankre Rural Electrification and Development Project in Nepal has constituted a six-member management committee (all elected from among VDC members) that decides the rural


electrification and community development plans and priorities in coordination with the project. Local participation has been commendable in performing project activities. Technical know-how, materials and skilled personnel are provided from the project side, while the community provides unskilled labour and support, rights of way and so on.

The Nepal case study also demonstrates how the setting up of a strong nodal institution, AEPC, can contribute to the market development process, building the confidence of the private sector, and functioning as an intermediary institution between the operational level (NGOs or private promoters) and the policy-making level.

A good example of a donor-led market development process, leading to a sustainable private sector business, is the case of Rahimafrooz in Bangladesh. An important outcome of the REREDP was the recognition by private sector entities, such as Rahimafrooz, that the renewable energy sector in Bangladesh is a very lucrative one and along with making profits, can meet many of the social objectives of the Government, thus giving more support to such activities. Based on the success of the REREDP programme, Rahimafrooz, on its own initiative, is planning to offer smaller systems (approximately 10 watts), ranging in cost from Tk 5,000 – Tk 7,000 (approximately US$69 – US$107) in an effort to reach a larger audience. In addition to the smaller systems, other products that may be offered include compact fluorescent (CFL) and torchiere fluorescent (TFL) lamps and fixed 6, 10 and 18 watt LED lamps. Rahimafrooz has estimated that there are about 9.2 million households in the country that constitute a market for LED-based lighting systems but will not be able to afford the SHSs promoted under REREDP. At present, the company is exploring financing options, including the possibility of payment through instalments .

A similar approach is being adopted by the Cambodia Fuelwood Savings Project, which provides technical assistance and enterprise development support to private manufacturers to produce and market improved stoves. The programme is, however, facing some bottlenecks in expansion. The primary challenge comes from the stove manufacturers most of whom are reluctant to expand their businesses, as they are reluctant to hire additional staff outside the family, want to avoid unwanted attention from local authorities, and face capital constraints in acquiring new equipment and raw materials. CFSP is trying to address this challenge by setting up a training centre that would train new stove producers and build the financial and managerial capacity of those already producing the stoves. In addition to increasing the number of trained stove producers, the institute will produce an estimated 2,000 stoves per month once running at full capacity. This will increase total ICS production in Cambodia by 50 percent. Quality control is another sustainability issue that the CFSP is likely to face as it expands. Cambodia thus far seems to have this obstacle under control, as production is concentrated in the group of stove builders trained by CFSP and will likely remain so for some time, though this group will grow with the planned training centre.

Under the model of Government-enabled market development (discussed in chapter 6), public funds are utilized to provide a partial subsidy and to leverage high quality systems, as for example, in the case of AEPC Nepal, BSP Nepal, REREDP Bangladesh and RERED Sri Lanka. In all those projects, the objective has been to provide subsidies to “prime the pump” and there is an implicit assumption that the subsidies will be reduced and the market will take over the process. The initial subsidy investments were made as much to support market linkages (company establishment, retail networks) as to buy down the cost. Once the market network is in place and business volume has increased, the cost of supplying new systems is reduced. The project plays a facilitating role, while letting the free market operate. It provides support in the form of generic promotional campaigns, setting technical specifications and warranty and service requirements, but competitors are free to set prices and adopt their own marketing strategies. This should establish a sustainable model for future supply.

The overall performance of RET delivery models led by the private sector has been mixed. The key sustainability elements for various technology delivery models are summarized in Table 7-7.

Lessons learned

Both anecdotal and survey evidence indicates that the use of renewables can help to reduce poverty in many circumstances. However, those kinds of poverty reduction impacts have not yet occurred at truly substantial scales, enough to make a real difference to the overall energy-poverty situation. Important lessons with respect to the contribution of RETs towards poverty reduction are discussed below.


Table 7-7 Sustainability of RET delivery models

Microhydropower-based electrification, with com-

munity

Saving in energy expenditure

Improvement in quality of life

Direct income genera-tion benefits

Access High. Communities have instituted social mechanisms to extend energy services to the poor

Low. Accessed only by the relatively better off.

High. Limited. Restricted to households with a minimum number of cattle.

Affordability High. Low tariff rates charged, typically in line with expenditure on kerosene/candles/ dry cells

Medium. Even with end-user financing, only the better-off segments able to afford the down payment.

High. Available in many models (clay, cement, metal) and affordable for most poor households

Medium. Credit availability can increase affordability.

Financial sustainability

Medium. Operational costs are recovered through monthly fee collected. Capital costs are typically met through grants

High. A wide range of financing models (fee for service, leasing) has been successfully tried on a large scale.

High. Private manufacturers produce and sell stoves in open markets

High.

Institutional sustainability

High. Most small hydropower systems are managed by community groups set up for this purpose. Local people are involved in every aspect of the project. Long-term sustainability however requires the presence of an intermediation agency, such as a local NGO.

Most SHS programmes have strong emphasis on building the capacity of partners, suppliers and end users to support and use systems, and creating service infrastructure.

Few private-sector-led ICS programmes in the field. Donor-supported programmes focus on providing technical assistance, quality control support to stove manufacturers.

High.

Technical sustainability

High. Local people are trained to operate and service the hydropower plants

High. The level of technology is simple to use and maintain with local skills. The technology uses raw materials that are easily available locally

Simple to use and can be maintained with local, semi-skilled workers.

Renewables offer important social and quality of life benefits.

Renewables offer a variety of social benefits from lighting, television and radio powered by solar home systems, mini-grids and biogas, and even some economic benefits from reduced kerosene and candle use. Solar home systems provide benefits that increase household welfare and quality of life, including improved lighting for children’s education, adult study, evening cottage industry, as well as television and radio. However, in a review of its experience, the German international technological cooperation organization, GTZ, said that so far there is little evidence that SHSs have an impact on poverty alleviation. GTZ concluded that rural households do not buy solar home systems for reduced energy costs, but rather for improved services like longer television viewing and better lighting quality. Biogas and improved cook stoves reduce expenditures for fuelwood, either in time or in money, as well as create jobs. The analysis of the benefits of biogas in Nepal shows a reduction in the workload of women and girls of 3 hours per day per household, annual savings of kerosene of 25 litres per household and annual savings of fuelwood, agricultural waste and dung of 3 tons per household (Modi 2005). A summary of the various quality of life benefits accorded by RETs is presented in Table 7-8.


Box 7-7 A flawed renewable energy initiative in the Solomon Islands

The Irri microhydropower system has been in place for the last 23 years in the Solomon Islands in the Pacific.69 The rated capacity of the plant was 12 kW and it provided electricity to 30 households (approximately 400 watts per household). Even though there are no data on actual power usage, the capacity appeared more than sufficient to meet the needs of households, as well as a small saw mill and wood shop that were installed after the power plant was commissioned.

Initially, some households reported using electricity for income production when the hydropower system worked, however there is no evidence that the overall economic development of the village has benefited from the system in the years since it was installed. Indeed, some village elders consider the village to be worse off today than before the hydropower installation. From a poverty alleviation standpoint, there is no compelling evidence that the hydropower installation made any difference one way or the other. The saw mill and the wood shop closed very soon because of lack of markets. Today most households have no access to clean water or proper sanitation and the general condition of the village and of the villager’s lives is said by the villagers themselves to have changed little. Merely having access to energy has not been a significant stimulus to either economic or social improvement for households in Irri though the perception of the villagers is that some benefits have accrued; if nothing else, there seems to be at least a perception of progress that was not present before the hydropower installation. In the two decades following the hydropower installation, there has been almost no investment by the community in either larger appliances or in income-generating activities that depend on electricity. The reason for this lack of development appears to be the result of factors other than energy access including, but probably not limited to, market access problems, unreliability of the power supply, lack of business skills and lack of access to finance for income activity development.

Source: Vol. VII: The Solomon Islands, Policy Study on Regional Mapping of Options to Promote Private Investments in Alternative Energy Sources for the Poor

Table 7-8 Addressing the MDGs with renewables

MDG Supportive actions using RETs Impact

MD

G 2

– E

duca

tion Providing light for reading or studying beyond daylight hours Demonstrated widely in a number of projects, one of the

most reported benefits of RET-based lighting

Providing lighting in schools can help retain teachers Early evidence emerging in World Bank-GEF project in Papua New Guinea

Enabling access to media and communications High. A wide range of financing models (fee for service, leasing) has been successfully tried on a large scale.

MD

G 3

– G

ende

r equ

ality

Freeing women’s time from survival activities, allowing op-portunities for income generation.

The time saving benefit of biogas plants and improved cook stoves has been documented widely

Reducing exposure to indoor air pollution and improving health

The impact on indoor air pollution is well documented, but its linkage with women’s empowerment has not been studied adequately

Lighting streets to improve women’s safety Experienced in a number of projects

Increasing the efficiency of microenterprises operated by women Very limited experience so far.

MD

Gs

4, 5

an

d 6

– H

ealth Providing access to better medical facilities for providing ma-

ternal care. Allowing for medicine refrigeration and steriliza-tion equipment

RETs, especially PV units, have been used for various applications that improve health facilities, but the resultant positive impact on health has not been documented.

Reducing exposure to indoor air pollution and improving health.

One of the most frequently quoted benefits of improved cook stoves and biogas plants


Energy is one of the many complementary inputs that need to be in place for poverty reduction

There are hundreds of documented examples of how access to reliable electricity and other modern energy sources increases economic opportunities for the poor in multiple ways. At the same time, however, there is enough evidence to show that this causal relationship does not always hold, and when it does, it is when certain complementary inputs are present. While access to reliable and modern forms of energy is a pre-requisite for economic development, it is not always a sufficient condition. Energy is only one input to the development process and in and of itself, is not enough to spur rural economic development (Kapadia 2004). The main problems facing efforts for poverty reduction through renewables do not appear to be a lack of access to energy but rather a lack of access to markets, limited capital resources for production investment and a widespread lack of the management skills needed to properly allocate available resources. Certainly energy is a factor but only one of many that need to come together if a poverty reduction programme is to succeed. This has been experienced time and again throughout Asia and the Pacific.

For there to be genuine poverty reduction, a total development package needs to be prepared that includes energy access but also the following (Fishbein 2003):

• Knowledge and skill for small businesses, households and farmers on how to use new-found electrical and motive power for profitable enterprise;

• Technical and financial management capacity of small businesses, households and farmers, including availability of credit and microcredit to finance productive tools and equipment;

• A policy and institutional environment conducive to business development, willingness to promote decentralized services, and so on;

• Access to markets for additional or new goods produced or services offered as a result of new electrical, heat or motive power; and

• Availability of a minimum of other complementary infrastructure services, such as transport, water supply and ICT services.

There are few RET programmes with specific poverty reduction goals and those that exist are largely donor-funded and not commercially sustainable. However, many of them provide models for sustainable widespread application if public-private partnerships can be established that enable the private sector to work effectively. The programmes most likely to be successful are those that work to improve energy service provision for the rural poor using energy sources such as charcoal, wood, batteries or diesel, which are already in use, such as improved cook stove projects. There is a significant information gap, however, when it comes to energy-poverty linkages, and many “energy” projects do not track poverty impacts while “poverty” projects do not tap into the potential contributions of RETs. Nepal is one of the few countries that have a number of large poverty-oriented renewable energy programmes that have strong private sector participation as well. They are the UNDP-initiated REDP, the BSP, the improved water mills programme and the DANIDA-supported Energy Sector Assistance Program

Leveraging and facilitating corporate social responsibility

Private sector initiatives that spring from commitments to corporate social responsibility can contribute to helping the poor to improve their well being and income, but the initiatives are limited by the resources of the individual companies and by their need to remain profitable. United Nations agencies, multilateral development banks, private foundations, international and local religious organizations and others are expanding the reach and impact of those initiatives by supporting companies and NGOs that have such commitments. In some of the most effective larger efforts of this kind, NGOs are the financial intermediaries between the companies offering renewable energy systems and services and the customers, including poor rural families and community organizations. NGOs often establish and support self-help groups that are able to take on collective responsibility for purchases, including bulk buying RE equipment and devices.


(a) Bangladesh – Grameen Shakti and IDCOL

In Bangladesh, Grameen Shakti has sold and installed over 65,000 solar home-systems in rural areas, with important benefits for users. It is the largest installer of SHSs in Bangladesh. These PV systems provide lighting, communications (especially via mobile phone charging) and television, and have led to increased opportunities for employment.

Users purchase their systems on microcredit with affordable terms, tailored to their specific needs. Funding for the microcredit system comes from the World Bank and GEF via IDCOL. IDCOL in turn provides Grameen Shakti with both subsidies and concessional loans. The cash pool from credit repayments will enable Grameen Shakti to continue the scheme when the subsidy, which is being phased out, ceases in 2008.

Grameen Shakti has initiated a network of technology centres throughout Bangladesh to manage the installation and maintenance of solar home systems. Focusing on technicians who know local customs, it has trained 2,000 technicians, most of them women. Grameen Shakti believes that the potential exists to install one million systems by 2015.

(b) India – SELCO and Shri Ksetra Dharmastala Rural Development Project 70

SELCO India is a private company that has designed and sold over 48,000 solar home systems in South India. The company employs over 170 people, 25 at their headquarters in Bangalore and the rest at 25 service centres in South India. SELCO has pointed out that poor people are able to afford modern energy services – and that PV is actually cheaper for the poor in comparison with kerosene lamps and dry cell batteries.

Lack of initial capital is a major obstacle and SELCO does not provide credit or loans, but it has developed good working relationships with local banks and microcredit organizations. This has given finance organizations the confidence to provide credit for PV systems, as well as an understanding of the payment terms which different owners may need. Some users work directly with the finance organizations, others work through self-help groups that provide additional security that a loan will be repaid.

An immediate benefit to users is the provision of clean, good-quality light and electricity for small appliances. Good light improves morale and opportunities in ways that are difficult to quantify but easy to observe. Children and adults have the opportunity to read and to study, domestic tasks are

Profitability is central to private sector activities and market strategies require going after the most profitable markets first. Public sector, donor and NGO support for the private sector can help it to undertake specific initiatives that address poverty alleviation needs explicitly and the private sector can contribute to poverty reduction and to social and economic development while maintaining sufficient profitability. Corporate social responsibility is an important theme for some companies and this can help in terms of private sector contributions to poverty alleviation.

In an address to the World Economic Forum on 31 January 1999, the former Secretary-General of the United Nations, Kofi Annan, challenged business leaders to join an international initiative – the Global Compact – that would bring companies together with agencies of the United Nations, labour and civil society to support universal environmental and social principles. The Global Compact’s operational phase was launched at United Nations Headquarters in New York on 26 July 2000. Today, thousands of companies from all regions of the world, international labour and civil society organizations are engaged in the Global Compact, working to advance 10 universal principles in the areas of human rights, labour, the environment and anti-corruption.

Through the power of collective action, the United Nations Global Compact seeks to promote responsible corporate citizenship so that business can be part of the solution to the challenges of globalization. In this way, the private sector – in partnership with other social actors – can help realize the Secretary-General’s vision of a more sustainable and inclusive global economy.

Source: http://www.unglobalcompact.org/AboutTheGC/index.html.

Box 7-8 The private sector and poverty reduction


done more safely and easily and there are increased opportunities for income generation. Vendors avoid the smell, heat and fire hazards of kerosene lamps.

For both homes and street vendors, the reliability of the PV systems is a major benefit. While there may be a few days each year in the monsoon season where there is insufficient light output, this is in a region where the electricity grids fail for an average of four hours per day.

In the Belthangadi region in Karnataka, SELCO’s principal partner is the NGO Shri Ksetra Dharmastala Rural Development Project (SKDRDP), which runs a network of 5,000 self-help groups. The groups meet to support members in domestic and farming matters and make regular savings. If a member wants a loan, the group decides whether it is an appropriate purchase, and the group as a whole takes out the loan. Although there is great enthusiasm to purchase SHSs in this way, the groups make sure that members have covered more basic needs, such as like wells or farming equipment, before they invest in an SHS. Most of the 3,000 solar home systems that the local SELCO service centre has installed have been for members of self-help groups.

Communities have a key role to play in enabling access to energy services for the poor.

Community-managed small hydropower plants can be quite effective in improving access of the poor to modern energy. The Nepal rural electrification case studies are good examples of how the communities have taken it upon themselves to ensure that their poorer members are able to take advantage of community infrastructure. This type of social cohesion may be one of the most effective ways in which the poor can benefit from renewable energy systems that are accessed by an off-grid community that has a range of income levels.

RET projects should involve local communities and users should be at the centre of the decision-making process. They should be able to choose either the most suitable technology for their needs and financial means or the energy service provider best able to provide quality service for the money. For this to happen, awareness campaigns have to be launched at the community level, including demonstration projects, for potential users to judge the capability of each technology.

Solar PV technologies have provided access to basic electricity services for the poor.

Solar home systems permit replacement of kerosene lamps and of car batteries that are externally charged. Small PV systems provide an entry-level, limited electricity service of good quality. A global study of SHS installations is reported to have calculated that about half of all installations covered in the study fell in the 35-54W range and that 93 percent of the systems installed were used for powering lights alone or for running lights, DC television sets and radios for a few hours every day (Kapadia 2004). SHSs and portable battery or high-efficiency lighting units provide considerable health benefits by eliminating kerosene lights with their harmful emissions and other hazards. They can also facilitate some small-scale, income-enhancing opportunities such as keeping shops open, or carrying out activities such as basket weaving or sewing in the evening, and charging cellular phones for rural communications businesses. Small PV systems can also provide the electricity that can improve the quality of handmade items such as clothing and furniture significantly and, at the same time, reduce the time spent in their production substantially, by providing both the power for small hand tools and electric sewing machines, as well as the light that permits night work and provides focused, bright illumination for hand work. The poorest members of society may be able to afford just a small rechargeable battery or LED lighting unit; the less poor can access larger systems through access to microcredit loans that can support PV units for microenterprises. (A very wide range of PV-powered productive activities that can employ the poor and social services that can benefit the poor was discussed in chapter 3.)

Facilitating the links among renewable energy, private investment and pov-erty reduction

None of the policies related to the production and application of renewable energy technologies in the Asian and Pacific region provide or support explicit linkages with enhancing access for the poor to modern energy services. Specific initiatives are presented here and in chapter 8 that support the explicit linking of renewable energy applications to increased incomes and improved social conditions among the poor, while also sustaining greater gender equality in access and opportunity. UNDP’s project experience, including its support (via ESMAP) of the Global Village Energy Partnership and the Global Network on Energy and Sustainable Development provides substantial evidence for approaches that do make these linkages explicit and effective. Some of the recommendations below and in the following chapter reflect this project experience and growing knowledge base.


The successful commercialization of RETs worldwide has made renewable energy components and systems available in the marketplaces of most countries in the Asia and Pacific region. Universal access to modern energy services from renewables will be paced by increased incomes for the poor and greater affordability of the energy equipment and services. Other pathways to increased energy services access for the poor will be through community-based systems and subsidized systems. A “commercialization plus” approach would include more targeted subsidies for the poor; linking commercialization models with productive end uses; cross-subsidies from the grid or petroleum sales for more sustainable sources of subsidy; or transferring kerosene subsidies to RETs.

While this paper focuses on identifying and making explicit the links between increased use of RETs and measurable progress towards the MDGs, achievement of the MDGs in any particular area will be a collective activity, in which, for example, improvement in access to decent health services and resulting health quality will make it possible for people to learn more effectively and to work with greater energy and efficiency. It is often not possible to identify a unique cause-and-effect link between RET applications and improvement in the conditions reflected in the MDGs because the entire process is collective and systemic.

The following discussion focuses on ways to increase modern energy services access for the poor, through RETs where they are appropriate, and in support of social and economic development.

i. Designing effective subsidies

Well-designed and appropriate subsidies can help economically sound investments become financially viable. Subsidies that are applied inappropriately, such as give-away programmes or equipment have had adverse effects on renewable energy markets in several countries. Such subsidies rather discourage entrepreneurs and raise expectations among consumers that cannot be met. Beneficiaries often have little or no ownership, which results in unsustainable projects. A common failure is the assumption that facilities for the maintenance and repair of installed equipment will be established or exist over the long term after the project ends.

Another challenge is that rural electricity or liquid fuel subsidies, intended to help the poor, may not reach them. They can adversely affect the consumers who use lower-cost, sustainable energy alternatives. Besides, often a general concern of technology-specific subsidies relates to whether it can be ensured that subsidies reach the poor and not just middle-income groups. Based on experience, subsidy schemes that are economically rational, performance-based and time-bound are likely to be effective. Reducing up-front costs is preferable to paying for operational costs, because the funds for subsidizing operating costs in the long-term can be inherently uncertain.

ii. Supporting innovation

Preparing sustainable energy projects often requires additional analytical and policy studies at a preliminary stage, making the preparation costs for “first-off” projects in a country high. These have then declined through experience. Consequently, trust funds and GEF assistance to cover project preparation expenses have been utilized in many World Bank projects. Because additional investments are crucial to developing a broad range of energy alternatives and the costs are outside the Bank’s normal business operations, partnerships with donors facilitate this work (World Bank 2004). Specific recommendations regarding scaling up support for innovation in renewable energy applications for poverty alleviation and increased gender equality in access to opportunity are given in chapter 8.

iii. Strengthening cross-sector linkages with energy services

The fundamental challenge is to integrate energy into non-energy sectors. Rural energy services provision needs to be closely coordinated with income generation, SME promotion, health, education, telecommunicatons and water supply programmes. Also essential are initiatives that help provide renewable energy equipment to microenterprises, with resulting increased incomes. While there are many individual examples of this (for example, sewing and tailoring using PV-powered sewing machines in Bangladesh and India), they are rarely the result of coherent programmes that address the needs of microenterprises, including for energy services. One exception that is notable by its relative rarity is the promotion of PV-powered telecommunications kiosks that are profitable and owned by women. Although initiated by Grameen Shakti in Bangladesh, this particular type of PV-powered microenterprise has been appearing elsewhere in Asia, as well as in Africa and Latin America.

In most of the Asian and Pacific region and, indeed, worldwide in the developing countries, there is inadequate operational knowledge as to how to incorporate energy (and other infrastructure


investments) into agricultural, health, water and other similar sector projects. Most development practitioners do not understand the full range of energy options available to them in rural areas. It is a challenge for the renewable energy community to help the larger development community, which is committed to poverty reduction, integrate energy products and services into their programmes.

The broad alliance that needs to be created to make this happen must include those actors that are best at cross-sectoral linkages on the ground. The most important categories of these integrators include the following:

a.Microfinanceinstitutions(MFIs).Microfinance institutions have a globally recognized role in reducing poverty. They are already financing millions of poor people around the world to invest in microenterprises. More recently SEEDS in Sri Lanka and other innovative MFIs have begun to finance the purchase of solar home systems and other renewable energy technologies. Their knowledge of the enterprise sector – particularly the microenterprises that are of most interest to the poor – makes them uniquely knowledgeable about the best points to integrate energy products into income generation for the poor. While the renewable energy community has begun to approach MFIs to provide credit facilities for rural consumers to purchase RETs, it has yet to invest significantly in increasing their capabilities to integrate energy into a broad range of productive, income-generating activities. Grameen Shakti in Bangladesh has the rather unique position of being a renewable energy provider with its roots in microcredit through its parent company, Grameen Bank. It has shown how the poor can use energy services to increase their incomes through microenterprises as vendors of phone services, fruit sellers, tailors and barbers.

b. Agencies promoting SMEs. There is a large community of development organizations including the United Nations Industrial Development Organization (UNIDO), the International Labour Organization (ILO), development banks, bilateral donors, and NGOs, that are supporting SMEs to increase their productivity. A few efforts have started along the lines of cleaner production and energy efficiency to improve the long term sustainability of those enterprises. SMEs are widely recognized as being the way employment will be created in developing countries. There is an opportunity to expand on this engagement and in a methodical way integrate energy options (including the role of RETs such as solar thermal, biomass cogeneration, self generation of wind and hydropower) into programmes that support SMEs. Those options can increase the energy security of SMEs and improve their productivity enabling them to expand production and employ more people.

c.Promotion of microenterprise with renewable energy. Some microcredit institutions provide technical and financial help to individual entrepreneurs among the poor, as well as to small community groups (largely to women) to assist them in developing microenterprises that can increase their incomes. UNDP has established an extensive system in West Africa, starting in Mali, to enable groups of rural women to lease or own multi-function platforms that allow them to expand their agricultural production, reduce time required for formerly manual tasks such as grain grinding, and to achieve new social status through their incomes. Biomass-based cogeneration of heat and electricity provided the power for a small farmers’ rural coconut cooperative in the Philippines, powering the production of high-value goods from coconuts and employing members from over 120 very poor rural families. This is another type of multi-function platform with potential for wide replication and diffusion. The approach is one that UNDP could help to replicate among the poor (Weingart 2003).

d. NGOs.Many NGOs have the experience, capacity and direct contact with local communities to bring rural infrastructure services to them while developing community ownership of the facilities. Many of the most effective NGOs are small, with ten to thirty staff members, often including volunteers. They represent a crucial pool of knowledge, know-how, experience and community connection. Many of them work in an inherently cross-sectoral manner, working to bring electricity, clean fuels, potable water, health and educational services, as well as communications options to communities. New ways to empower such NGOs further and broaden their reach need to be found and this must be done in concert with the NGOs themselves as well as the communities they serve, to ensure that the efforts of the international donor and lending community will really contribute to a broadened and accelerated impact of NGO engagement.


e. Renewable energy vendors. Private sector vendors of RETs have sprung up in response to market expansion. The vendors are the first point of contact for both consumers and development organizations that wish to purchase energy systems. As a result they are on the front line as integrators of energy products with the energy needs of a diverse range of sectors. Very often creating packages of products that can meet the needs of a particular community of users, for example, in the tourism, information technology or agriculture sectors, requires skills that private companies may not have and investment in research and development that they cannot afford in the face of uncertain returns. Support to vendors to improve their skills and investment support to develop their product line to include full packages of products is likely to have high returns in terms of a significant expansion of the uses to which RETs can be put.

f. Community-based energy projects. Community-based RETs, such as microhydropower, provide an entry point for holistic development that integrates energy supply with income generation as well as with improvement in health, education and the environment. In addition, those systems also provide energy access to the full community including the poor. Despite their proven performance in a number of countries in Asia and the Pacific, the models have not been scaled up to their full potential. Approaches such as the Renewable Energy Development Prgramme in Nepal and the Aga Khan Rural Support Programme in Pakistan are only slowly being replicated in other countries in the region. This needs to be accelerated so that hundreds of thousands of communities that could benefit from those systems can do so.

g. Local and national governments. Governments have a clear role to play as integrators. Government agencies working in industry, agriculture, health and education need to better their understanding of the range of options that RETs provide them in making their programmes more effective. Local government can plan energy investments to provide good integration with other economic activities. Central government has a role at the policy level.

h. Development banks. The World Bank and ADB invest large sums of money into a range of rural development projects – including SMEs, industry, agriculture and forestry. Both of those banks have exceeded their recent commitments to increase investments in RETs since the Bonn 2004 renewable energies conference and they are working to expand the linkage of RETs into their non-energy projects.

i. Other United Nations agencies.United Nations agencies work in many of the areas discussed such as agriculture (FAO), industry (UNIDO, ILO), health [World Health Organization (WHO), United Nations Children’s Fund (UNICEF)] and education [United Nations Educational, Scientific and Cultural Organization (UNESCO)]. In most cases, these agencies have had and still have active programmes that use renewables to support their mission objectives. Broadening their work and using it as a basis for training and wider information dissemination will be useful in expanding cross-sectoral energy and development initiatives.

iv.Improvingthequalityandavailabilityofinformation

Improved and more comprehensive information is needed at all levels about renewable energy resources, technologies, their costs and effectiveness for relevant stakeholders including potential investors in grid-connected plants, communities and households, financiers and Governments. Improved analytical tools for valuing distributed power supply, intermittent energy resources such as wind, externality benefits and costs and energy portfolio risk, for example, are also needed. Better information on energy efficiency potential and market data would be valuable but too often are not readily available (World Bank 2004).

v. Expanding the Engagement of NGOs

Elements of this strategy will include the following:

• Expansion and expanded regionalization of such innovative programmes as the Development Marketplace of the World Bank71, including increasing substantially the number and amount of awards for energy-centric, cross-sectoral initiatives and organizations;


• Development of documentation and guidelines on a set of best practices for integration of modern energy services with community services and economic development investments and operations; and

• Support for training programmes in the region to permit NGO staff to expand and deepen their capacities, including programmes to train new staff members of the NGOs.

vi. Capacity building and training

The development community needs to expand its support for capacity building and training activities to contribute to establishing solid, sustainable bases of local capacity for expanding energy services. Support should also be extended to establishing the enabling environment needed for sustaining and scaling up renewable energy applications.

Internationalalliancespromotingrenewableenergyforpovertyalleviation

International alliances that work to integrate RETs into non-energy development programmes with potential for poverty reduction and empowerment of women need to be expanded, strengthened, and replicated. Such alliances and organizations include the Global Village Energy Partnership and the Global Network on Energy for Sustainable Development, a UNEP-facilitated knowledge network72 of developing country centres of excellence and network partners. GVEP is an established “platform” for expanding investments in effective use of modern energy services for social and economic development. Creation of a new global fund that mirrors the GEF, but that is focused on the energy-poverty-gender nexus could facilitate substantial scaling up in the application of RETs to poverty alleviation and gender equality. GVEP is presented in more detail below because of its global reach and its strong roots in programmes of UNDP, World Bank, NGOs, industry and Governments.

Although funding of those alliances is growing, it remains uncertain for the long term and it is inadequate given the scope of their missions, limiting the extent to which they can facilitate vital linkages among renewables, gender and poverty reduction. New institutional approaches and mechanisms may be needed as well. Institutions that are best placed to be the integrators between the energy sector and potential income-generating sectors for the poor need to be supported by Governments and donors and their capacity built up. The most promising integrators are microfinance institutions, institutions charged with strengthening SMEs, NGOs and community-based organizations working at the community level, as well as private sector vendors of RETs.

Encouraging innovation in renewable energy applications for development

Encouragement of innovation and increased awareness of the best models for integrating energy with poverty reducing applications could be accomplished through establishment of national annual award programmes as conducted by the Ashden Trust in the United Kingdom at the global level. The World Bank’s Development Marketplace programme is now being replicated in a few developing countries and regions (Philippines, Morocco and West Africa), but needs further replication and broader financial support. The Development Marketplace is a competitive grant programme that funds creative, small-scale development projects that deliver results and have the potential to be expanded or replicated. Awards have been made in over 60 countries to innovative projects that have lasting benefits for the poor. The winning programmes, projects and organizations include those applying renewable energy to poverty alleviation and development activities, but energy-related awards are a small fraction of the overall awards.

World Bank toolkit for scaling up rural energy access

The World Bank’s Energy Unit has developed a roadmap to scale up energy access. It builds on past experiences to develop and implement rapidly scalable service delivery models that have the potential to increase access to electricity in client countries by several orders of magnitude. A toolkit has been developed for scaling up rural energy access and a preliminary version is available on the GVEP web site (Cabraal and Wang 2005). Both grid-connected and off-grid power systems are included, and the initiative incorporates both non-renewable and renewable energy options. The project complements the development of the roadmap by creating the tools necessary to assist Bank staff and member country personnel in improving the design and implementation of energy access projects.


The Global Village Energy Partnership

In 1993, a workshop was convened at the United States National Renewable Energy Laboratory (NREL) with 33 representatives from the private sector, government agencies, development organizations, non-government organizations and research institutions to discuss the issues of applying renewable energy in a sustainable manner to international rural development. One of the summary recommendations was that NREL could assist in the renewable energy for rural electrification effort by developing and supplying six related activities: resource assessment; comparative analysis and modeling; performance monitoring and analysis; pilot project development; Internet-based project data; and communications and training.

In 1994, in response to this recommendation, NREL launched its Village Power Program consisting of those activities that cut across NREL technologies and disciplines (Flowers 1998). By 1998, NREL was active in 20 countries, with pilot projects in 12 of those countries. At this time the technologies included PV, wind, biomass and hybrids. The rural applications include home lighting and communications, water pumping, schools and health posts, battery-charging stations, ecotourism and village systems. The pilot projects are central to the renewable energy village power development through the demonstration of three aspects essential to replication and implementation of the projects on a significant scale. The three aspects are technical functionality, economic competitiveness and institutional sustainability. It is important to note that the pilot projects from which NREL’s experience has been gained were funded and, in many cases, developed by other organizations and agencies. NREL’s roles included technical assistance and/or project management. Village Power conferences were convened by NREL in 1994 and 1997. The first meeting had less than 50 participants but by the year 1998 the programme had expanded significantly (Flowers 2000). The World Bank and UNDP (through ESMAP) and others co-sponsored the next two international village power conferences, held in 1998 and 2000 at the World Bank, with over 600 participants at each.

After the Village Power 2000 Conference, organizations including the World Bank and UNDP through ESMAP, bilateral donors, NREL, Winrock and private companies collaborated to set up a 10-year programme to increase modern energy access, the Global Village Energy Partnership, and an E-Village consultation was carried out involving over 100 organizations worldwide to gain input on the objectives and work programme of the Partnership. In 2004, the hosting of the Partnership was taken over by Practical Action, based in Rugby in the United Kingdom, with ESMAP remaining as one of GVEP’s most active Partners. In 2005, the GVEP Partnership Board created a new legal entity called GVEP International to increase funding opportunities and in July 2006, with a new management team taking over the tasks of the former technical secretariat, GVEP’s offices were relocated to London. In 2006, GVEP added a new dimension to its activities by providing financial support, capacity building and technical assistance to energy SMEs in developing countries. With funding from the Russian Government, GVEP intends to set up two Regional Funds in West and East Africa to build local energy supply chains and foster economic development from the bottom up. Those activities will then be linked into the policy level work that GVEP has traditionally carried out. GVEP also intends to work with private sector companies to support energy SMEs in India. GVEP has initiated activities in Asia in six countries including Cambodia, Indonesia, Lao People’s Democratic Republic, Mongolia, Philippines and Viet Nam. In May 2005, delegations from those countries gathered together in Phnom Penh to learn from each other and interact with experts from the finance community. During the discussions they presented a number of interesting project notes on energy for poverty reduction. As a result of this event, several promising investment opportunities were identified and follow-on commitments of support were made by the World Bank, UNDP, IFC, ESMAP and others.

GVEP has a wide range of Partners (over 1,500 organizations registered by 2006), from global development agencies (especially the World Bank and UNDP) to Governments from both developed and developing countries. The backbone of the Partnership consists of energy SMEs and NGOs in developing countries who are meeting the challenges on the ground every day and pushing forward innovative and dynamic programmes with access to little funding and few resources. GVEP’s main objective in 2007 was to provide targeted support to its smaller Partners to build local energy supply chains and to enable small energy businesses to operate in a commercial, sustainable manner, generating local economic development, creating jobs and contributing to poverty reduction and gender equality.


Endnotes62 Barnett et al. (2002) reported an average time saving of 0.16 hours from the use of ICSs in India;

Keizer (1993) reported a time saving of 2.5 hours from use of biogas; Maharjan (2005) reported a time saving of up to 3 hours by use of biogas plants in Nepal; Eastconsult (2004) reported time saving of almost an hour in the hills of Nepal from use of biogas plants; Ratnayake (2000) reported time saving of up to 3.5 hours from use of biogas plants in Sri Lanka; Barnes and Sen (2003) reported no fuelwood had to be collected after the use of biogas plants. Savings are especially high in fuel-scarce areas where women are forced to spend as much as 8-10 hours foraging for fuelwood in the absence of modern energy services. In the fuelwood-scarce area of Rupandehi in Nepal, the average time saved in collecting fuelwood was as high as 5.6 hours per day (Keizer 1993). If one adds to this the time saved in cooking and cleaning, total time savings brought about by use of biogas plants amounts to 6 to 7 hours per day. Anderson (1992), Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP) (2003) and Liu (1993) reported on time saved in cooking; Opdam (1997) and Ratnayake (2000) reported on time saved in cleaning through the use of biogas in Nepal and Sri Lanka, respectively.

63 See Anderson (1992); Ali (2002); Barnett et al. (2002); Dang (1998); Dutta et al. (1997); ESMAP (2003); Himalayan Light Foundation (HLF) (2001); Halim (2004); Institute of Development Stud-ies (IDS) (2001); Maharjan (2005); and Shailaja (2000).

64 HLF (2001); Bryce and Soo (2004); Laksono and Subagya (2003); Masse and Samaranayake (2002); and Sauturaga (2004).

65 NGOs are increasingly using the Internet to facilitate their roles as intermediaries between small-scale local producers of handicrafts and buyers internationally. As the Internet becomes globally available, this activity will expand and will contribute increasingly to household in comes in coun-tries where such NGOs are present.

66 www.echoupal.com67 http://www.ashdenawards.org/media_summary06_india_arti68 To put this in perspective, according to the Cental Bureau of Statistics, a person is said to be poor

if his or her daily income is below NRs 25 equivalent to NRs 9,125 per year.69 The system, after being damaged by a flood, has not been operational for the last five years.70 www.selco-india.com.71 www.worldbank.org/developmentmarketplace. 72 GNESD has convened regional workshops on the role of RETs on poverty alleviation and achiev-

ing the MDGs, and has recently published reports focused on nine countries or regions, includ-ing India, Western China, and Thailand, together with a synthesis report aimed at policy makers (http://www.gnesd.org/)

155

8. Conclusions & Recommendations


8. Conclusions & Recommendations

Electricity is just one of a suite of infrastructure services needed by the poor if they are to be able to move out of poverty. Most of the poor in Asia and the Pacific are in rural areas and, in South Asia in particular, economic development and social progress are passing them by. This section includes specific recommendations for United Nations agencies and partners for actions and initiatives that can expand and deepen the connection between renewable energy options and poverty alleviation, including empowerment of women.

This study sought answers to the following research questions:

• How have renewable energy policies, programmes, and initiatives evolved within the Asian and Pacific region over the past two decades? What have been their motivating factors and how has the relative significance of those factors shifted over time?

• What are the reasons prompting Governments of the region and bilateral and multilateral agencies to enhance the role of private investment in renewable energy development? To what extent do these reasons recognize and emphasize the extension of renewable energy services to the poor?

• What have been the direct and indirect impacts of deployment of renewable energies on various economic sectors such as agriculture, transport, industry and commerce (with particular focus on SMEs), as well as on physical infrastructure and social sectors such as health and education over the past two decades?

• What have been the direct and indirect impacts of deployment of renewable energy sources on various targets and indicators of the MDGs (both on income and human poverty)? Which renewable energy sources and technologies have received the most private investment? Does the pattern of investment represent a fair balance between (a) fuels and electricity; (b) on-grid and off-grid technologies; (c) rural and urban consumers; and (d) poor and non-poor consumers?

• Which policies, programmes and initiatives to mobilize private investment in renewable energy have succeeded? In what ways and with what potential for replication?

• Which policies, programmes and initiatives to mobilize investment in renewable energy have failed? In what ways and why?

• To what extent have successful examples of private investment in renewable energy catered to the poor? What lessons could be drawn from them for the future?

• In the light of global oil price uncertainties and environmental developments (crucially, the coming into effect of the Kyoto Protocol), what new opportunities have emerged to enhance private investment in renewable energy as a whole and with specific reference to the poor?

• With what policy instruments should regional countries respond to different scenarios for oil prices in the coming years?

A summary of global and regional trends in private investment in renewable energy and any linkages supporting access for the poor and poverty reduction are listed in the following section. The subsequent section discusses the way forward including recommendations for the case study countries. The recommendations are further elaborated for the different oil price scenarios generated by the recent UNDP study (see chapters 3 and 5) as well as for other developing countries in the Asia and Pacific region. The specific roles for UNDP in supporting regional developing countries to implement those recommendations are discussed in the penultimate section, while the last section presents an overall summary on the development of RETs in the region. Summary of what is happening Renewable energy technologies, other than large hydropower73 and traditional uses of biomass, produce less than 1 percent of total primary global energy consumed. This belies the historically unprecedented growth in investment in the production and use of RETs over the past decade. Annual private investment in production facilities for renewable energy equipment and in RE projects was


at significant levels even before the dramatic increase in the prices of petroleum after 2003. The investment has more than doubled since the price increases, and sustained high fuel prices can be expected to maintain the high growth rates in RET investment in the coming years. Roughly one dollar in four invested in the power sector in 2005 was invested in a RET. Investment in RETs increased by close to 27 percent in 2005 from a year earlier compared with 2-3 percent growth for investment in fossil-fuel-based power generation and large hydropower. In 2006 and 2007, investment in RETs had increased by close to 45 percent and 29 percent from a year earlier. Biofuels represent another area that has seen rapid growth in recent years. Worldwide ethanol production from sugar cane increased by 8 percent in 2005 while biodiesel production grew by 66 percent, albeit from a much smaller base (about 5 percent of ethanol production, by volume).

The focus and major concern of this report is to map the options for private sector investment in alternative energy projects and programmes to meet the MDG goals of countries in Asia and the Pacific. Developing countries account for around 44 percent of renewable power capacity worldwide. Although the growth in RET investment in developing countries is only half the global rate, it is at historically high levels. The rate will increase as the lead developing countries, particularly China and India, have begun to invest heavily in the last few years in the two fastest-growing RETs – wind power and solar PV. Grid-connected renewables account for much of the investment volume. The success of the lead developing countries in increasing the percentage of renewable power on their grids is being replicated in a small number of other developing countries in the Asian and Pacific region that have established enabling regulatory and investment environments that include such features as standard power purchase agreements, feed-in tariffs, net metering, and the availability of bank financing. Investment in RETs is very uneven, however, with many of the smaller and less able countries far behind the larger lead countries in investing in renewable energy. The same is true for biofuels.74

The main drivers for investment in RETs and bioenergy in Asian and Pacific countries are concerns about energy security and the very high recent prices of petroleum. The larger developing countries that are most linked to global fuel markets have taken the biggest steps on the energy security front by investing in RETs. The supportive regulatory environments that they have put in place follow from commitments that many of those countries have made for meeting a certain percentage of their energy needs from renewable energy sources. In addition to energy security it is likely that concerns about local environmental pollution are in part driving investment in renewable energy technologies Although it cannot yet be considered a major driver, the Clean Development Mechanism is increasingly being used to improve the cost competitiveness of RET investments in developing countries.

Investment in grid-connected RE systems contributes to countries of Asia and the Pacific meeting their MDGs and reducing poverty. Employment in most countries is largely generated by SMEs. Efficient and profitable operation of SMEs requires reliable, high-quality power from the grid. Adding lower-cost power on the grid from RETs at prices isolated from petroleum prices increases the probability of higher availability of power. Not to be discounted is the fact that most developing countries are perpetually short of investment for grid power. Grid-intertied RETs, particularly those based on small hydropower, wind and biomass, have proven to be attractive for private investment – thus providing additional investment and more power availability on the grid. Sufficient power availability on the grid is also a pre-condition to expansion of rural electrification. A number of studies have shown the positive impacts of access to grid power in terms of poverty reduction and meeting of MDGs.

Where grid power is available, it generally provides electricity at the lowest price for rural users, especially in countries where lifeline tariffs are available for consumers purchasing less than a fixed low amount of energy (kWh) each month. However, it may not be the least-cost option, since rural access to grid extension is typically subsidized and power reliability and quality are often compromised. Availability of grid power has resulted in expansion of ground water irrigation, increased agricultural production and productivity and the powering of many productive uses. Given suitable ongoing incentives, the private sector has shown that it will invest in RETs and provide additional power for the grid, which can then be distributed through rural electrification.

The poor are often unable to access or benefit from rural electrification efforts and some of the reforms in the power sector appear to have reduced access for the poor. This has been documented in studies by GNESD and other global studies (although this is not the focus of the present report). A number of private sector and community-based models, which provide options for increasing access for the poor, are now available for cost-effective expansion of grid-based rural electrification. They deserve to be scaled up but this study has not explored those options.


Despite rapid urbanization taking place in countries of Asia and the Pacific, the majority of the poor continue to live in rural areas Off-grid distributed energy services represent the only realistic options for the majority of this population to access modern energy services in the near to medium term. Distributed energy services are being extended to the rural poor, in particular, by private sector investment. However, private sector investment that could potentially increase energy access for the poor and help in meeting MDG targets is a small fraction of the total global private investment going into the renewable energy sector, with most such investment destined for grid-intertied applications.

In the past decade there have been a number of initiatives led by the private sector that are increasing access to energy for unserved rural populations through market-based models. The most successful involve private companies supplying RETs at the household level within an enabling market environment created with public sector support. Examples of this model are household biogas systems promoted by the BSP in Nepal and dissemination of solar PV home systems through RERED in Sri Lanka and REREDP in Bangladesh. Public sector funds are typically used to increase awareness, standardize technology, provide subsidies for systems and to enforce quality control.

The models, which are based on commercialization and enterprise promotion, have led to tens of thousands of systems and, in some cases, more than 100,000 systems being installed in those countries. For the first time, the technologies are having national-level impacts with 4 percent of the rural population in Nepal being served by household biogas plants and 3 percent of households in Sri Lanka supplied with solar lighting. Promotion through private sector markets has also worked well for improved cook stoves with hundreds of thousands of systems being installed in some urban and peri-urban markets, such as Sri Lanka and India and now also starting in Cambodia and Nepal. Artisans have been encouraged to manufacture stoves as a means of livelihood. In some markets, the penetration of the fuel efficient stoves has been close to 100 percent. NGOs supported some of the early training, standardization and quality control.

Commercialization models have some intersections with poverty. The manufacturing and marketing networks of household systems have created employment. In the case of improved stoves, the number of those employed is substantial. In Nepal, BSP estimates that some 11,000 jobs have been created in the construction of household biogas plants. Solar home systems have less value added in-country than biogas and ICS but still create a significant number of local jobs in terms of local manufacture of some components and especially in the sales network and repair of systems.

In general, the poor are rarely first adopters of new energy services as they are less able to take risks than the non-poor and less poor. When the equipment is affordable and returns are attractive, the poor will adopt new energy technologies when the costs are sufficiently low to permit outright purchase or financing is available for them. Improved cook stoves provide high returns on investment to users and in the better-developed markets the urban poor have purchased them (Cambodia, Sri Lanka) to reduce costs of cooking fuels – charcoal, firewood and kerosene. The poor have been much less able to afford the more expensive household-level RETs like solar PV and biogas. Microfinance has helped to deepen the reach of those technologies to some extent. There is also evidence that market expansion and competition among suppliers is bringing prices down. A report on BSP Nepal calculated that prices of household biogas digesters in Nepal had come down by 30 percent in real terms in 10 years. Increased manufacturing volumes and supply are steadily bringing down the prices of solar home systems, except for a negative trend in 2004 when solar-grade silicon wafers were in short supply.

The poor would derive the greatest benefit from those RETs if they could be used to increase their income and hence reduce their poverty. There is anecdotal evidence that in a number of cases, solar PV lighting is being used to increase incomes by allowing shopkeepers to keep their shops open longer and helping kiosks carry out business in the evening with solar lanterns. There is also evidence that extended lighting hours have been used to increase production of handicrafts for the market. Pure commercialization models are, however, generally weak in helping the poor integrate energy into their livelihoods.

Entrepreneurs with ongoing enterprises, who are likely to have already been thinking about how additional hours of lighting could be used, are most able to use solar PV lighting for increasing their incomes. Similarly, many such entrepreneurs know what they would do to improve the quality and quantity of production and services if electricity was available to them. Vendors do not take responsibility for supporting buyers to generate income from the use of their purchases. Under the market-based models, vendors sell systems to those that can afford them, leaving out the poor who cannot immediately afford the systems without having their incomes enhanced. Innovative vendors such as Grameen Shakti in Bangladesh have put in the extra effort to support purchasers of solar lighting systems integrate them with their livelihoods. This comes more easily to organizations like Grameen Shakti, which as a result of its links with the Grameen Bank has a very strong understanding


of microenterprises that are within the reach of the poor, as well as the opportunities to integrate energy into the value chain of those enterprises. Helping to expand this model is an area where increased support from United Nations agencies could be effective. A model that shows promise for providing energy access for the poor is based on community participation. Examples include a large number of community-based microhydropower projects supported by the Small Grants Programme of GEF/UNDP in a number of countries in Asia and the Pacific. Those models have demonstrated that energy services can be provided in an inclusive manner to all community members. Examples from Indonesia, Nepal, Pakistan, Philippines and Sri Lanka all show that where resources exist, community-based microhydropower and small hydropower systems can provide reliable power at low cost to rural communities. These mini-grids are generally large enough to provide not only lighting but can power small industry needs such as grain grinding and milling, lumber milling and other activities, as discussed in chapter 3. They can also provide electricity for health posts, schools, telecommunications, public lighting and many other services essential for social development and achieving the MDGs. Many of the projects reduce the time and effort taken by women and children and create new employment opportunities in rural areas. The holistic approach that characterizes them has been found to be effective in integrating energy interventions with income generation, livelihood opportunities and gender considerations. The approach thus shows promise in meeting the MDGs. Promotion of community-based projects requires social cohesion, community mobilization and support to communities to be successful, which will require additional investment.

The major trends that point the way to increased investment in developing countries in RETs and greater access for the poor are listed below.

Feeding in renewable electricity to the grid

The countries where renewable-energy-based electricity is being integrated with existing power grids include China, India, Malaysia, Nepal, Philippines, Sri Lanka and Thailand and in those countries green IPPs have been encouraged by policies supporting feed-in tariffs, standard PPAs and net metering. Growth in commercial renewable energy development is helped by commitments made by a number of countries, including in the Asia and Pacific region, to meet a certain percentage of their power needs through renewables.75 Other countries have encouraged green IPPs as a way to reduce dependence on imported fuels, as well as to encourage private sector investment in the power sector. The main renewable energy technologies benefiting from green IPPs so far are small hydropower (China, India, Nepal, Sri Lanka), biomass energy (China, India, Malaysia, Thailand), wind energy (China, India, Philippines) and geothermal energy (Philippines). In Asia, PV rooftop programmes, the fastest-growing renewable energy sector in the world, have been led by Japan and to a small extent adopted in Singapore but not by developing countries in the Asian and Pacific region to date. The progress in grid-connected renewables is very uneven, with most of the investment occurring in a small number of countries where Governments and utilities have established clear regulations and financial incentives for the purchase of power from renewable energy IPPs.

Sustainable development implications of biofuels

Biofuels have gained widespread interest, popularity and investment with the recent sustained high prices of petroleum. By contributing to transportation fuels and in some cases power generation, biofuels can reduce the risk many countries face of escalating fossil fuel costs in transportation and electricity, which then translate into overall increases in inflation rates throughout the economy. Commercial development of bioethanol, which in the developing world was limited to Brazil has spread to China, India and other developing countries in Asia and the Pacific with large agricultural populations (such as Indonesia, Philippines and Thailand). Biofuels are of particular interest to some Pacific island nations from an energy security perspective. Those islands are suffering high fuel costs because of their small size and high transport costs to the more remote islands. They grow an abundance of palm and coconut that can provide oils that can be used as fuels or converted into true biodiesel fuels. Both Indonesia and Malaysia, which together dominate world supplies of palm oil, are expanding production of biodiesel fuels from palm oil.

In addition to contributing somewhat to energy security and mitigating high transportation-cost – induced inflation, biofuels present an opportunity for rural areas to increase incomes through farming fuel-producing crops and becoming exporters of fuel rather than importers. There is however a risk in many countries that conversion of rural land for bioenergy crop production will result in reduced food security for rural residents and will threaten fragile land and watersheds. Unmanaged conversion of forests to biofuel plantations might be happening now. Large-scale expansion of corporate farms can also result in labour conflicts with local residents. The example of the Solomon Islands,


documented in the country study , shows that while production can be expanded on existing plots to produce enough fuel for local needs without encroaching on agricultural land, corporate expansion of plantations can result in labour disputes with destabilizing impacts on the country. The study reported that the importing of large numbers of cheap Malaitan labourers to work on the palm oil plantations of Guadalcanal was one of the main causes of the 1999 ethnic tensions. The remnants of this conflict continue to unsettle the Solomon Islands today. Production of oil crops by smallholder farmers and farmer’s cooperatives might provide a solution to this problem.

Commercialization of household renewable energy technologies

Successful scaling up of markets for solar home systems in Sri Lanka (RERED), Bangladesh (REREDP) and household biogas plants in Nepal (BSP), among other examples, has demonstrated that there are commercialization models that work and that can be replicated across countries. Those models appear to work for different household energy technologies as well. The basic model consists of a national programme that provides initial subsidies, standardizes the technology and enforces quality control; private companies that market the systems in competitive markets; and consumer finance that is made available for cash-poor households. They are based on private-public partnerships, building on the comparative advantage of the private sector to work efficiently within market discipline, and provision of public funds to support the establishment of market networks and to buy down costs to users. The central organization that manages the programme uses subsidies to leverage high quality systems, which in turn ensure the continuity of support for the programme. The subsidy is designed to be decreased over time, an approach referred to as “smart” subsidies. Those successful commercialization models are, by their own admission, not focused on poverty; their aim is market expansion and they are interested in reaching the largest numbers of consumers that can afford the technologies. Governments, with assistance from donors in some cases, can expand the systems to poorer communities and families, through subsidies to the private sector, as was done by GEF in the case of Indonesia.

It is estimated that some 220 million improved stoves are in use compared with a total of 570 million biomass cooking stoves being used worldwide (REN21 2006). The successful commercialization approaches that have worked with ICS programmes in the past can be built upon to reach the remaining households that continue to use solid biomass for cooking in traditional stoves. Programmes that have successfully supported artisans to mass produce efficient ceramic stoves that use charcoal or firewood for urban and peri-urban users and to establish the market network through which the stoves can be sold have worked well in Sri Lanka and Kenya and are now being replicated in Cambodia. The market for biomass stoves for the urban poor in Sri Lanka was expanded by ITDG and other NGOs in the 1990s through a model that encouraged artisans to get into business as mass producers of stoves and to market them through normal market channels. Those models have achieved installation in the millions worldwide. The evidence from Cambodia is that the reduced fuel expenditure can recover the cost of the stoves in a few months. Such high returns on investment will be attractive to the poor. In rural areas of Nepal the approach of empowering women to build improved smokeless stoves in clients’ homes as a microenterprise for a fee has been successful in installing around 160,000 units in five years. This model too has potential for large-scale expansion and replication.

Community-based energy projects

Community-based microhydropower and small hydropower systems provide affordable power to rural communities. Examples are seen in Indonesia, Nepal, Pakistan, Philippines and Sri Lanka. Mini-grids powered by microhydropower and minihydropower can be designed to provide not only lighting but also milling services and power for small industries. Microhydropower projects have the added advantage that with sufficient social preparation they tend to be inclusive, providing services to the poor as well. The project experiences of REDP in Nepal and AKRSP in Pakistan show that with social mobilization and some technical support, communities themselves come up with creative ways to be inclusive. One common solution is to allow low-income households to contribute labor in lieu of cash payments. Another involves voluntary financial contributions from each house towards construction where the better-off households are expected to contribute significantly more than others.

Social mobilization and capacity-building support to communities requires additional investment. This is generally provided by NGOs in microhydropower projects. The GEF Small Grants Programme provides funding for community-owned microhydropower and watershed management projects in many countries. The added advantage of a nationwide approach such as REDP or one that covers a region within a country as with AKRSP in the northern areas of Pakistan is one of consistent methodology throughout many projects and the ability to integrate energy systems into overall rural development in the region. A holistic methodology that includes income generation, poverty


reduction, environmental protection, gender mainstreaming and watershed protection develops not just the microhydropower project but the basis for sustainable development in many communities. Building of the energy project also augments social capital in the community on which can be built any number of future development activities.

Renewable energy for productive end uses

The inability of investment in renewable energy to increase incomes of the poor and reduce poverty is one of the major challenges limiting large scale-up efforts to increase the market for RETs. The successful commercialization models described in this report point the way for rural populations to purchase RETs through an efficient market mechanism. However, the ability of the poor to purchase systems will be limited by lack of resources. The poor have many needs for their limited incomes and making energy services available for purchase will not necessarily increase their access to RETs, even with the availability of some government subsidies or microcredit, if the RETs cannot be used to increase their incomes. Larger energy systems, such as community-based microhydropower or electrification based on biomass gasification, provide sufficient power for mills and small industries and can generate some employment for the poor. Holistic energy supply models such as those promoted by REDP and enlightened vendors such as Grameen Shakti provide support to the poor to use the extended hours of work made possible by electrical lighting to engage in income-generating activities. Microcredit allows the poor to borrow funds for the equipment and raw materials needed for launching or expanding their enterprise. Availability of financing further allows the poor to subscribe to the additional energy they would need to engage in productive activities.

International alliances that work to integrate RETs into non-energy development programmes with poverty reduction potential need to be expanded and strengthened. Such alliances and organizations include the Global Village Energy Programme and the Global Network on Energy for Sustainable Development. Their funding is fragile and uncertain relative to the scope of their missions, limiting the extent to which they can facilitate the vital linkages among renewables, gender and poverty reduction. New institutional approaches appear needed as well. Institutions that are best placed to be the integrators between the energy sector and potential income-generating sectors for the poor need to be supported by Governments and donors and their capacities built up. The most promising integrators on the ground are microfinance institutions, institutions charged with strengthening SMEs, NGOs and community-based organizations working at the community level, as well as private sector vendors of RETs. Encouragement of innovation and increased awareness of the best models for integrating energy with poverty-reducing applications could also be accomplished through establishment of national annual award programmes as done by the Ashden Trust at the global level.

Renewable energy for high value public services

High value public services powered by RETs (solar-powered refrigeration, solar PV or microhydropower for telecommunications, distance learning, Internet connectivity and others as discussed in chapter3) can effectively reach large numbers of people, including the poor, using small amounts of power. The Pacific island countries have a number of well-proven distance-learning programmes which are powered by high-quality solar PV systems. The private sector can provide the power systems and backup support for them. The private sector often provides mobile telephone services for which the towers need reliable power that can be provided by solar PV when they are located off-grid.

Financing of RETs

Supplier Finance – Availability of financing has been shown to boost investment in RETs for households, communities and microenterprises. Larger-scale financing is essential for the private sector to invest in grid-connected RETs or in importing a shipment of solar PV panels. Donor support has been used effectively in many countries by private developers for market development and trail-blazing costs of early pioneers. Those examples are subsequently picked up by the local markets and attract competitors – expanding the market for energy services ever more. Environmental investors such as E+Co have focused on providing debt, equity and creative mezzanine financing to entrepreneurs in many developing countries to help them establish clean-energy-based enterprises. The rapid growth of the grid-connected small hydropower and solar home systems markets in Sri Lanka since 1997 and the solar home systems market in Bangladesh since 2003 can both be attributed to their respective World Bank/GEF-funded projects that provided financing to suppliers and project developers. This has been important to the commercialization approach in both countries. In spite of those activities, most commercial banks and national development banks lack the experience, staff and specific mechanisms to finance renewable energy ventures, both on the production and application sides. Programmes to provide technical and financial assistance (the latter to buy down the initial risks seen by banks in lending for renewables) are needed in order to help local, national, and regional banks develop the capacity to lend in this area.


Consumer finance/microfinance – On the consumer side, availability of microfinance is necessary for many rural consumers to purchase solar home systems. Although financing cannot make RETs such as SHSs and biogas affordable for the very poor who consider them expensive, it can substantially increase the market for those products among households which can afford them with payments spread out over two or three years. Coming from the Grameen Bank family, the birthplace of microfinance, Grameen Shakti in Bangladesh offered microcredit for SHSs right from the beginning. One of the participating credit institutions under the RERED programme, SEEDS, now has loans for SHSs contributing a remarkable 30 percent to its lending portfolio. Microfinance does not happen automatically for RETs. Both Bangladesh and Sri Lanka had a long tradition of microfinance before the growth of the solar market and this existing financing mechanism was able to incorporate RETs as a loan product.

In countries that have a less well established microfinance network, financing for RETS is much more difficult. While some countries have a large number of MFIs engaged in providing microfinance for RETs, others have barely any. In Nepal only 25 percent of the SHSs and biogas digesters are financed. Efforts to get local banks and MFIs to provide financing to RETs have recently increased the percentage of plants financed. In Cambodia the only consumer finance available for solar home systems is through Khmer Solar, the local solar supply company that has a line of credit from Triodos, the Dutch social investment bank which has made investments in a number of microfinance institutions in Asia and Africa to encourage them to provide loans for SHSs and other RETs in their local markets. Finance is also often lacking for rural entrepreneurs that would like to make use of the energy available from RETs, power from microhydropower systems or lighting with SHSs to establish or expand productive enterprises.

Carbon financing for RETs – Renewable energy CDM projects constitute some 62 percent of the pipeline of projects worldwide76, but only 33 percent of the CERs generated. One reason for this is that RETs abate relatively modest amounts of greenhouse gases compared with their high initial costs. Although CDM revenue would not be the dominant source of revenue for renewable energy projects, it is increasingly becoming important in enhancing the return on projects, typically adding 1-5 percent to the IRR for commercial renewable energy projects depending on the technology used and the prices received for the CERs.

In Asia, the market for CDM projects is dominated by China (46 percent) and India (37 percent) with smaller volumes of registered and pipeline projects from Malaysia (5 percent), Indonesia (3 percent), Philippines (3 percent), South Korea (2 percent), Thailand (2 percent), Viet Nam (1 percent), Sri Lanka (1 percent) and other countries (1 percent). Renewable energy CDM projects in Asia and the Pacific largely consist of grid-connected RETs with wind (16 percent), biomass energy (16 percent), hydropower (1 percent) and geothermal (1 percent) being the main technologies of total number of projects in Asia. Off-grid RETs constitute a minority of registered and pipeline projects so far and consist of biogas (6 percent) and solar (1 percent) projects as of 1 April 2008 (UNEP Risoe 2008). Solar PV projects tend to have relatively small CDM revenues as they only substitute for lighting fuel.

Carbon abatement from biogas projects, ICSs or solar cookers can be high when they substitute for unsustainably harvested biomass. This category of renewable energy projects generally has high MDG benefits since the projects directly reduce dependence on solid fuels for cooking – reducing indoor smoke and the time spent by women in children in collecting biomass fuel. At the moment, projects that strongly contribute to MDG targets do not in general receive any preferential treatment by the CDM Executive Board. The mainstream carbon market does not value credits from projects with high MDG benefits sufficiently either, although there is a small but growing voluntary market that will pay higher prices for emission reduction units with higher social benefits. Both situations need to be improved significantly if the CDM is to provide a boost to renewable energy projects that score high on the MDG scale.

Future directions

Developing countries in Asia and the Pacific need support to facilitate increased investment in the production and use of RE equipment and services, and that includes specific initiatives to link renewables with pro-poor development activities. In accordance with global trends, many of those investments will come from the private sector often as the result of public-private partnerships. If carried out effectively, the investments will increase energy security at both national and community levels in the light of stubbornly high petroleum prices.

The key policy recommendations for each of the case study countries to increase investment in renewable energy, increase access for the poor and contribute to poverty reduction are listed in table 8-1.


Table 8-1 Policy recommendations for case study countries

Bangladesh• Enact the National Energy Policy (NEP) (2006), which has fiscal incentives for private invest-

ment in renewables, into the legal framework for adoption and implementation.• In preparing regulations under NEP, link with the Poverty Reduction Strategy Paper (PRSP).• Develop policies to link renewable energy into enterprises in off-grid locations.

Cambodia

• Prepare a target for renewables. Put in place laws for net metering. • Give legal recognition to Rural Energy Enterprises (REEs) and encourage them to invest in

RETs.• Make financing available to users and energy enterprises through the proposed Renewable

Energy Fund (REF) and provide them financing at favourable terms to adopt RETs.• Invest revenues from the fuel tax on RETs rather than on other public investment.

Indonesia

• Put in policies and regulations to realize the renewable energy targets set by the Government. • Institute policies for feed-in tariffs and net metering. • Establish mandates on biofuels.• Power generation plants should be obliged to improve access for the poor.• Mobilize financing for renewables for the poor through a tax on fossil fuels.• Encourage multi-stakeholder participation towards a widely-accepted policy framework.• Integrate energy and rural development projects and programmes.

Nepal

• Turn into an Act the recently announced Rural Energy Policy – with its focus on access to modern energy for women, dalits, indigenous people and the poor.

• Further strengthen and give continuity to the feed-in tariffs for small hydropower and other RETs to supply the grid.

• Channel the subsidies currently going into petroleum products into increasing RET access so as to do away with the need to subsidize kerosene fuel in rural areas for lighting.

• Update subsidy policies so RETs are more accessible to the poor. Remove subsidies from more accessible areas (as indicated in the Policy).

• Expand the REDP holistic approach to rural development through social mobilization to other community-based energy technologies including community rural electrification from the grid.

• Integrate the increasingly available RETs in rural areas with agriculture, tourism and other income-generating sectors in rural areas.

Philip-pines

• Clarify and remove uncertainty in policies and regulations for private investors to invest in RETs. Community projects and those in remote locations should be exempt from registration fees and processing of certificates of compliance.

• Relax pre-development contracting and production sharing by government from RE sources that are not extractive (wind and solar) to encourage small renewable energy investors.

• Assure no political intervention and no rescinding of contracts of energy sector investors.• Allow banking of energy on the grid. • Reduce royalties on geothermal projects. Investment tax credit • Set up clear feed-in tariffs and net metering.• Develop biofuels for powering productive end uses in rural areas producing them.

Solomon Islands

• Require the Solomon Islands Electricity Authority to purchase energy from IPPs generating power using RETs or biodiesel.

• Make financing available for investors in RETs.• Make financing available to consumers of solar home systems and other RETs.• Speed up implementation of the proposed GEF/World Bank project that has a provision for

microcredit and renewable energy enterprise.


In an attempt to extend policy recommendations for increasing private investment in renewable energy, and reducing poverty through its use, for each of the oil price scenarios discussed earlier (chapters 3 and 5), countries in the Asian and Pacific region were divided into five groups (table 8-2):

• China and India are a special category – mega-countries with fast-growing demand for energy to support high rates of economic growth, and with highly developed industrial and advanced technological capacities;

• Middle-sized countries with large urban populations with limited fossil fuel resources of their own compared to their needs;

• Countries with large urban populations having significant oil, gas and coal resources themselves or in accessible neighbouring countries;

• Less urbanized, landlocked countries with very limited developed fossil fuel resources but large hydropower resources; and

• Countries with limited technical manpower and a poor investment climate but a high degree of dependence on imported petroleum fuel.

Table 8-2 Asian and Pacific countries by energy typology

Group I

Mega-countries with high economic

growth

Group II

Industrializing countries with little fossil fuel

resources

Group III

Industrializing countries with

fossil fuel resources

Group IV

Landlocked countries with hydropower

resources but no fossil fuels

Group V

Countries with poor investment climate

and limited technical

manpower

China

India

Philippines

Sri Lanka

Thailand

Viet Nam

Bangladesh

Indonesia

Malaysia

Myanmar

Pakistan

Bhutan

Lao People’s Democratic

Republic

Nepal

Afghanistan

Cambodia

Pacific island countries

Timor-Leste

Group I countries, China and India, are already home to significant private sector investment in renewables and biofuels even under the “baseline” scenario. Both countries had adopted policies favourable to investment in renewable energy even before the oil price increases starting in 2003. The appetite of those two countries for energy is growing so rapidly that they are developing all sources of energy including renewables, nuclear energy and fossil fuels. They are also importing substantial amounts of oil and natural gas. More can be done to accelerate renewable energy investment in those countries, particularly in anticipation of the higher oil price scenarios, “supply shock” and “peak oil”. Even under the “energy security” scenario private sector investment in RETs is likely to continue at current levels as a result of the established investment momentum. Although China is a world leader in increasing access to energy services in rural areas through renewables, there still remain millions of poor without access to modern energy in that country. More can be done in both countries, under all oil price scenarios, to increase energy access for the poor to help them climb out of poverty through the use of renewable energy.

Among Group II countries, Sri Lanka and Thailand are following the trend set by China and India in creating the environment for aggressive investment in renewables, and in some cases biofuels, under the “baseline” scenario. Group II countries are highly dependent on oil imports and renewable energy investment contributes to their energy security. Philippines has invested in geothermal energy and biofuels. It has a Presidential mandate in place for blending of biofuels (2 percent cocobiodiesel with petrodiesel fuel for road transport). Viet Nam has also begun to attract investment in renewable energy. Group II countries can further accelerate investment in renewables under the “supply shock” and “peak oil” scenarios with proper policies and public investment. International investment is likely to be attracted to those countries for the development of biofuels for both local consumption


and export under the “peak oil” scenario and perhaps to a limited extent under the “supply shock” and “baseline” scenarios as well. Much more can be done in Group II countries, under all oil price scenarios, to increase energy access for the poor to help them climb out of poverty through the use of renewable energy. Group III countries, with the exception of Malaysia, have generally been slow to invest in renewables and biofuels. The first reaction of countries that have untapped fossil fuel resources to oil price increases is to invest in exploration of those fuels first. The priority of countries in this group will be to increase investment into exploration for oil and gas under the “baseline”, “supply shock” and “peak oil” scenarios for both export earnings and domestic use. Bangladesh and Pakistan are likely to invest in new natural gas fields in response to high oil prices. In addition to expanding exploration for oil and gas, Indonesia appears to be increasing its use of coal with a recent announcement from PLN soliciting investment in 10,000 MW of coal-based generation in response to oil price increases. The availability of fossil fuel resources in their own countries or at a low price across their borders from a neighbour creates a disincentive in those countries to invest substantially in RETs. Group III countries need encouragement not to wait until the “supply shock” and “peak oil” scenarios to adopt the recommendations for increasing investment in renewables. With the exception of Malaysia, access to electricity and other modern energy sources remains limited for the rural poor in those countries. Renewable energy is often the least-cost option to provide access to energy for the rural poor in most Group III countries. Malaysia provides a good model for countries in the group both in terms of introducing an ambitious biofuels mandate and setting up the MESITA fund for investing in renewable energy as well as rural electrification and energy efficiency. There is room for significant improvement in Group III countries, under all oil price scenarios, to increase energy access for the poor to help them climb out of poverty through the use of renewable energy.

Group IV countries are landlocked and largely rural with low per capita energy use. They also tend to have hydropower resources but often not the investment or technical expertise needed to develop them, while their neighbours often have fast-growing energy needs and the ability to make the necessary investment. Under the “baseline” and “supply shock” scenarios, and certainly under “peak oil”, investment is likely to be attracted to those countries for development of hydropower to export to energy-hungry neighbours. Investment in biofuels for export is unlikely to be attractive in the landlocked countries. The low price of grid electricity often acts as a disincentive to encourage investment in other RETs for both on – and off-grid applications. Both Bhutan and Lao People’s Democratic Republic have seen limited private investment in RETs since the price of grid electricity is below market rates. Bhutan has shown how revenue from hydropower exports can be used to achieve extensive rural electrification and to make social investments benefiting the poor. The example from Nepal shows that the private sector can be attracted for both off-grid and grid-intertied RETs with favourable policies and public investments. As countries with mountainous topographies, off-grid renewables are often the most cost-effective way to increase the access to electricity and other energy services for remote communities in Group IV countries. There is a need for significant improvement in Group IV countries, under all oil price scenarios, to increase energy access for the poor to help them climb out of poverty through the use of renewable energy.

Group V countries particularly the Pacific island countries, but also Afghanistan and Cambodia, lack technological or investment capability and the policies needed to attract external investment for developing biofuels, wind energy and hydropower which could reduce their dependence on imported petroleum. Most of those countries depend on imported diesel to a large extent to produce electricity, such as many Pacific islands that are virtually 100 percent dependent on diesel generation. They suffer tariff increases when petroleum prices increase. This should provide those countries with the greatest incentives to invest in RETs. Unfortunately, it may take the “peak oil” scenario to manifest itself before those countries come out of their paralysis to put in the necessary policies and regulations and take the steps needed to attract investment in renewables. It is only under the “peak oil” scenario that serious international investment might be attracted to those countries for investment in biofuels for export. Countries in this group need the most amount of support to adopt appropriate policies and make the necessary public investment under the “baseline” scenario without waiting for the “supply shock” or “peak oil” scenarios to unfold. Substantial support from UNDP and other donors will be needed to encourage those countries to take the necessary steps to increase investment into grid-connected RETs, off-grid renewables and biofuels to increase energy access for the poor to help them climb out of poverty through the use of renewable energy.

Table 8-3 below provides policy recommendations in countries of the Asia and Pacific region to promote private investment in renewable energy and also to increase energy access for the poor through the use of renewables. The recommendations are ranked on a scale of 1 to 5 in terms of their likely effectiveness and cost to society as follows: 5 – highly effective and low cost; 4 – highly effective but high cost; 3 – medium effective and low cost; 2 – medium effective but high cost; and 1 – ineffective. Recommendations are provided for each of the five groups of countries listed above


for each of the four oil price scenarios. The main policy recommendations are divided into three general categories:

• Policy and regulatory (policies and acts, regulations, targets and timetables, and mandates);

• Fiscal and financial incentives (investment incentives such as direct capital subsidies or tax deductions, reduced duties); and

• Public investment (grants for research, development and demonstration; institutional and human resource development, and preferential finance).

Table 8-3 Policy recommendations for Asian and Pacific countries to increase investment in RETs and energy access for the poor

Policy and Regulatory (policies, laws, targets, timetables and mandates)

Sect

or Recommendations Country Groups

Oil price outlook scenario → I II III IV V

Grid

-inte

rtie

d re

new

able

s

Set national and state level targets and timetables for increasing share of renewables in electricity generation

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Put in place Renewable Portfolio Standards for power utilities to have a minimum percentage of renewable power generation on the grid

5 5 5 5 5 5 5 5 5 5 5 5 3 3 3 3 5 5 5 5

Require utilities to put in place Green Power Pro-grammes as an option to consumers to purchase renewable power on the grid

3 3 3 3 3 3 3 3 3 3 3 3 1 1 1 1 1 1 1 1

Establish feed-in tariffs to fix minimum prices that renewable generators can expect to receive from utilities

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Put in place net metering regulations to allow small renewable energy systems in homes or businesses to off-set electricity purchase from grid

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Standardize fair interconnection agreements for small renewable generators to have guaranteed ac-cess to the grid

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Standardize Power Purchase Agreements to guar-antee purchase of electricity from green IPPs and to simplify procedures

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Require utilities to allow green IPPs to wheel electricity on the grid to third parties on payment of a “wheeling charge” for use of the transmission network and to allow banking of renewable electricity on the grid to allow IPPs to store seasonal or daily surplus to be used when electricity demand is high or production is low

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 3 3 3 3

Require IPPs to use a percentage of generated power to undertake rural electrification in neighbour-ing areas with low tariff to the poor

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Enact laws to share any royalty benefits collected by the central government from renewable energy generators (small hydropower, wind), with residents in the locality – with special provisions for getting benefits to the poor

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5


Policy and Regulatory (policies, laws, targets, timetables and mandates)

Sect



Bio

fuel

s

Implement mandates for blending biofuels into gaso-line and dieselb 5 5 5 3 5 5 5 3 5 5 5 3 5 5 5 3 5 5 5 3

Set standards for biofuels, especially biodiesel, with penalties for non-adherence 5 5 5 3 5 5 5 3 5 5 5 3 5 5 5 3 5 5 5 3

Make legal provisions for investors to lease degraded land to grow jatropha and other biofuel crops 5 5 5 5 5 5 5 5 5 5 5 3 5 5 5 5 5 5 5 5

Require utilities to generate a percentage of their power from biofuels 5 5 5 2 5 5 5 2 4 4 5 2 2 2 5 2 5 5 5 4

Make legal provisions for the poor and landless to lease land to grow jatropha and other biofuel crops under the ‘leasehold forestry’ modelc

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Off-

grid

rene

wab

les

Announce targets and timetables for electrification through off-grid RETs and to increase access to non-electricity RETs such as biogas, ICS, wind and solar water pumping for drinking water and irrigation, solar dryers, solar water heaters, improved water mills

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Require utilities to purchase energy from off-grid renewable energy generators and mini-grids on a net metering basis once the grid reaches

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Prepare targets for universal access to electricity and other modern energy services through RETs 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5


Fiscal and Financial Incentives (subsidies, tax credits, reduced duties and VAT, financial incentives/disincentives)

Sect



Grid

-inte

rtie

d re

new

able

s

Provide direct investment subsidies or investment tax credits to green IPPs 4 4 5 2 4 4 5 2 4 4 5 2 4 4 5 2 4 4 5 2

Provide production tax credits which reward green energy production through reduction in taxes 4 4 5 4 4 4 5 4 4 4 5 4 4 4 5 4 4 4 5 4

Reduce import duties, VAT on generation equipment purchased by green IPPs 4 4 5 4 4 4 5 4 4 4 5 4 4 4 5 4 4 4 5 4

Provide income tax holidays and accelerated equip-ment depreciation for green IPPs 4 4 5 4 4 4 5 4 4 4 5 4 4 4 5 4 4 4 5 4

Provide tax benefits to banks on investments into green IPPs. 4 4 5 4 4 4 5 4 4 4 5 4 4 4 5 4 4 4 5 4

Bio

fuel

s

Provide direct investment subsidies or investment tax credits for firms investing into biofuels production and processing capacity

4 4 5 2 4 4 5 2 4 4 5 1 4 4 5 4 4 4 5 4

Provide production tax credits to reward production of biofuels 4 4 5 4 4 4 5 4 4 4 5 1 4 4 5 4 4 4 5 4

Reduce import duties and VAT on refineries, presses and other equipment needed for biofuels production 4 4 5 4 4 4 5 4 4 4 5 1 4 4 5 4 4 4 5 4

Provide income tax holidays and accelerated equip-ment depreciation for investment into biofuels produc-tion

4 4 5 4 4 4 5 4 4 4 5 1 4 4 5 4 4 4 5 4

Provide tax benefits to banks on investments into biofuels production 4 4 5 4 4 4 5 4 4 4 5 1 4 4 5 4 4 4 5 4

Off-

grid

rene

wab

les

Provide direct investment subsidies or investment tax credits for firms investing into equipment manufacture for RETs

4 5 5 4 4 5 5 4 4 5 5 4 4 4 5 4 2 2 3 2

Provide production tax credits to reward in-country production of RET equipment 5 5 5 4 5 5 5 4 5 5 5 4 4 4 5 4 2 2 3 2

Provide income tax holidays and accelerated equip-ment depreciation for investment into biofuels produc-tion

5 5 5 4 5 5 5 4 5 5 5 4 4 4 5 4 2 2 3 2

Reduce import duties, VAT on RET systems and components 5 5 5 4 5 5 5 4 5 5 5 4 5 5 5 4 5 5 5 4

Provide tax benefits to banks on investments into RET manufacturing and supply 5 5 5 4 5 5 5 4 5 5 5 4 5 5 5 4 5 5 5 4


Public Investment (technology R&D, demonstration projects, institutional/human resource development, standards and quality control)

Sect



Grid

-inte

rtie

d re

new

able

s

Pilot and demonstrate grid-connected RET projects of a range of technologies and sizes; net metering

3 3 3 3 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Prepare standard interconnection agreements and standard Power Purchase Agreements for a range of RET technologies and range of sizes

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Increase awareness of policy makers, utility officials, financing institutions and prospective investors about policies that best encourage investment into grid-connected renewables through visits to countries with policies in place for feed-in tariffs, net metering, standard PPAs and so on

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Technical support and training for developers, consultancy firms, and construction firms to carry out high-quality feasibility studies and to complete projects to high standards

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Train and increase awareness on development of grid-based RET projects into CDM activities

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Pilot and demonstrate projects where benefits of grid-connected RETs are equitably shared with producers of raw materials (paddy rice husk) or with the local community in cases where a local natural resource is being used (hydropower, wind, biomass gassifier using forest resources, geothermal)

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Demonstrate projects where part of the electricity generated by green IPPs is made available to the local population, including poor households, at affordable prices

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Bio

fuel

s

Invest in applied R&D to maximize yields of feedstock including gene tissue to optimize plant selection, plant breeding, cultivation and harvesting methods, optimizing irrigation approaches including use of drip irrigation

5 5 5 5 5 5 5 5 4 5 5 2 3 4 5 2 4 5 5 4

Invest in R&D to maximize yields of jatropha and similar crops which are grown on land not suitable for food crops

5 5 5 5 5 5 5 5 4 5 5 2 4 4 5 2 4 5 5 4

Invest in RD&D of small-scale seed press and filtration equipment for directly using vegetable oil in diesel engines

5 5 5 3 5 5 5 3 4 5 5 2 4 4 5 3 4 5 5 4

Develop and standardize for commercial production small-scale esterification units and micro-refineries for rural production of biodiesel

5 5 5 3 5 5 5 3 4 5 5 3 4 4 5 3 4 5 5 3

Invest in careful examination of the potential impacts of large-scale production of biofuels, starting with the needs for land, water, nutrients, impacts from nutrient run off and so on

5 5 5 5 5 5 5 5 5 5 5 3 2 3 4 2 5 5 5 3

Invest in analysis of food security considerations at the community – and national levels resulting from large-scale production of biofuels

5 5 5 5 5 5 5 5 5 5 5 3 2 3 4 2 5 5 5 3



Sect



Bio

fuel

s

Invest in analysis of food security considerations at the community – and national levels resulting from large-scale production of biofuels

5 5 5 5 5 5 5 5 5 5 5 3 2 3 4 2 5 5 5 3

Pilot local biofuels production in rural areas usage in multi-function platforms including community-based electricity generation, for operating engine pumps or as transportation fuel

5 5 5 3 5 5 5 3 4 5 5 3 4 4 5 3 4 5 5 3

Pilot the growing of biofuel crops by small-scale and poor farmers and refining through a cooperative or community mechanism

5 5 5 5 5 5 5 5 4 5 5 3 4 5 5 3 5 5 5 3

Pilot the participation of the landless poor in collecting seeds to produce biofuels or growing jatropha on unused land

5 5 5 5 5 5 5 5 5 5 5 3 5 5 5 5 5 5 5 5

Off-

grid

rene

wab

les

Map renewable energy resources, including for wind, hydropower and geothermal in all promising parts of the country

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Invest in public-private partnerships for market-based promotion of RETs – public investment in standardization, quality control and subsidies designed for market expansion

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Demonstrate successful models of mini-grid electrification based on microhydropower, biomass gassifiers, biofuels and solar-diesel and wind-diesel hybrids

3 3 3 3 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Train and certify microhydropower operators, installers for solar PV, wind and microhydropower, biogas masons and supervisors

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Provide technology transfer and training for local manufacture of RET equipment 5 5 5 5 5 5 5 5 5 5 5 5 4 4 4 4 4 4 4 4

Standardize and provide quality control of RET installations (biogas, solar PV, microhydropower, wind)

3 3 3 3 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Produce and disseminate guidelines and manuals on design, installation and maintenance of RETs 3 3 3 3 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Train and increase awareness on development of RET projects into CDM activities 3 3 3 3 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Provide additional subsidies for RETs through local government and NGOs to complement the commercialization approach so as to improve access for the poor, women, people living in remote areas and other marginalized groups in society

4 4 5 4 4 4 5 4 4 4 5 4 4 4 5 4 4 4 5 4



Sect



Off-

grid

rene

wab

les

Provide higher percentage support and subsidies for technologies with higher social benefits (biogas ICS) and those which can be made affordable to the poor (smaller biogas systems and solar home systems, solar lanterns, white LED lighting systems)

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Invest in demonstration and scaling up of holistic community-based management of mini-grid electrification systems which will reach the poor and meet a range of MDGs

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Invest in demonstration and scale up of poverty reduction projects by using renewable energy (solar PV, solar dryers, micro-hydropower, wind, biomass, biogas) to add value to agriculture, handicrafts, forestry products and microenterprises through partnerships with on-the-ground intermediary organizations: microfinance institutions, NGOs, local governments, donor-funded development projects, RET vendors and so on

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Fund R&D for small-scale technologies of special interest to the poor, low cost biogas systems, white LED lighting

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Invest in developing project monitoring methodology to measure poverty and gender-specific impacts

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

The highlighted rows at the end of each table give specific recommendations for increasing energy access for the poor and to increase their incomes through access to RETs.

Strategic recommendations

In addition to addressing energy security concerns, ways need to be found for energy investments to contribute to the attainment of a country’s MDG goals. In the light of global experience, as well as experience in lead countries of the region, some future directions for developing countries in Asia and the Pacific could be as follows:

(a) Create the environment for increased investment in grid-connected RETs

Most countries in the Asian and Pacific region have substantially more renewable energy resources that can be commercially exploited under current economic conditions than those they have tapped so far. The experience of countries with a large number of clean-energy IPPs is that the major pre-conditions for significant investment in grid-connected RETs can be quite easily identified and instituted in other countries. Countries that have achieved the largest investment volumes have transparent and well-advertised mechanisms for connecting small generators to the grid. They have financially attractive feed-in tariffs for green IPPs, standard PPAs to reduce transaction costs and net metering to encourage industries to generate surplus power. In addition, those countries have banks and other financial institutions that will provide credit to projects often on a “project finance” basis, where the project itself can act as collateral. In order for grid-connected RETs to contribute directly to poverty reduction those projects need to be mandated to provide some of the power produced to the local community (if there is no access) and to share benefits with local people, particularly in the case of biomass projects (with producers of the raw materials), wind energy and small hydropower (through royalties shared with adjacent communities and local government).


Furthermore, there is a need to level the playing field to allow renewables to compete fairly with conventional fossil-based systems. Higher oil prices are creating major problems for countries that subsidize those fuels, threatening economic growth if the subsidies are kept in place and consumer outrage if they are not. Conventional energy sources also impose external costs on the environment and human health, which can be internalized with levies and taxes, as some countries in Europe are doing through carbon taxes to internalize the cost of greenhouse gas emissions. Just as many of the costs of conventional energy are not internalized, markets and policies often fail to internalize the myriad positive externalities – improvements in healthcare, education, communications and employment – that can result from bringing electricity to underserved areas. Community leaders, local residents, and project developers should seek to explicitly identify such benefits. Identifying the costs and benefits would also improve with reliable methodologies for quantifying externalities.

(b) Increase investment in biofuels, but cautiously

Biofuels, both ethanol and bio-diesel, can be attractive in terms of energy security for those countries that have large agricultural sectors or those landlocked or island nations for whom the supply of petroleum fuels is irregular and transporting petroleum can be quite expensive. An additional benefit of expansion or development of bioenergy crops will be generation of rural employment. Around 1 million people are reportedly employed in all aspects of the Brazilian ethanol industry. Developing countries in Asia and the Pacific will need technical support to understand the trade off better between energy and food security as a result of substitution of grains by bioenergy crops. They might also need support to test out community – or cooperative-based models to farm bioenergy crops that will provide an alternative to the growth of corporate energy farms being seen in a number of countries. If designed well, those models can be more equitable in terms of sharing the benefits of this new commercial crop and avoiding some of the conflicts that often come with corporate farming.

The exercise in expanding and strengthening of biofuels programmes in order that the poor should get a greater share of the benefits should start with an evaluation and assessment of current experiences and policies, including models and practical tools currently used in national, regional and international organizations in areas such as land-use planning, evaluation of biofuels potential and impacts on food security and commodity prices. In most developing countries there is a need to strengthen decision-making capacities so as to tap into the above-mentioned opportunities while avoiding potentially important negative impacts in various fields linked to rural livelihoods, equitable economic development and the environment.

(c) Expand models for commercialization of household-level RETs and make them more accessible for the poor

While market-based supply of household solar home systems and biogas has achieved successes in a number of Asian and Pacific countries, those models are not widely available elsewhere. This can be remedied by increasing awareness among government officials and prospective private sector investors and donor organizations about the business model behind those investments. Expansion of microfinance and vendor consumer finance service mechanisms will help deepen the market to reach customers that cannot afford to pay cash for the systems. The established market networks that are today providing the more expensive systems to the non-poor can begin to market lower-cost products that are more affordable for the poor, for example, solar lanterns and white LED lighting devices. Many countries have subsidies for the larger systems but not for the smaller systems that the poor could find more affordable. Subsidies need to be rationalized to support the poor rather than the non-poor.

Access of the poor to large energy systems, which they can use for increasing income but cannot afford for consumption, must also be increased. This can be done by assisting the poor to take on enterprises and income-generating activities assisted by energy systems. The recommendation below on productive end uses describes this more fully.

In most countries energy is principally a private business, but providing energy access for rural areas has traditionally been considered a government responsibility. Indeed, Governments already subsidize the extension of electricity grids and provide the poor with subsidized petroleum fuels. They could similarly give support for renewable energy technologies – while linking them with wider rural development and poverty eradication initiatives. Governments could also support reliable assessments of renewable resources so as to encourage investment.


(d) Replicate scale-up of community-based energy systems

Although community-based RETs have been shown to provide low-cost energy in an equitable manner in a number of countries in Asia and the Pacific, the Solomon Islands country study presents an unfortunately common example of where communities can receive little benefit from an unreliable microhydropower project that can take more effort to maintain and operate than the benefit it delivers. Best practices for manufacture of equipment by local private firms, and for supporting NGOs to carry out social mobilization at the community level, need to be made widely available so that millions of communities that could benefit from the systems do so.

Support is needed from Governments and the donor community to scale up community-based approaches beyond individual communities to cover larger regions. Not only will this allow standardization of methodology and thus lower transaction costs and better chances of success, it will also permit the integration of the energy systems into the rural economic development of the whole region. Although the REDP approach has been established for 10 years, and has had an impact at the national level, it has not been widely replicated outside Nepal. Similarly, the AKRSP model from northern Pakistan is only slowly being replicated in the other Central Asian countries such as Afghanistan and Tajikistan.

The community-based energy systems model has applications beyond microhydropower. Community participation is now actively being pursued for grid-based rural electrification in Karnataka and Orissa in India, as well as in Nepal. Involving the community has been found to reduce pilferage and improve efficiency of tariff collection. One renewable energy technology on the horizon that could benefit from community ownership and management is electrification using biomass gasification. Thermal applications of biomass gasification have already been commercialized with many small industries using gasifiers to provide process heat. Use of producer gas in modified diesel generators to produce electricity is being developed by a number of private companies and research organizations as an option for community-based electrification. Once the technology bugs are eliminated, biomass gasification for electrification could be ubiquitous in many communities of Asia and the Pacific that are able to grow a surplus of biomass in areas that do not have access to hydropower resources. This is a technology that is being developed rapidly in China and India and is also being tried out in a number of other countries including Cambodia and Sri Lanka. The social mobilization methodology developed by REDP and others would provide an excellent basis to organize communities around the installation and sustainable operation of gasifier-based electrification.

Renewable energy services must be coupled with existing development activities for water, health, education and entrepreneurship, which can also be made more effective through those services. In particular, they should address the needs of women, by offering security and income, saving labour and improving health.

(e) Target new initiatives to utilize renewable energy for productive end uses

Complementary programmes can be added to existing commercialization approaches to increase incomes of users of RETs. The slurry from biogas plants can significantly increase agricultural production, for example. In China it is reported that for many farming communities the major benefit of the biogas digesters is the slurry followed by cooking gas. In Nepal, slurry from biogas has not yet been effectively used to increase incomes. BSP has added a slurry extension component to its project in order to encourage farmers to manage the slurry better both to increase their own agricultural production and also to sell fertilizer to organic farms or city gardeners. Grameen Shakti has been a pioneer in supporting enterprises along with the supply of solar home systems. Solar energy is used to charge mobile phones so earning income for phone ladies selling communications services. It also provides lights for kiosks that can sell their wares until later in the evening as well as for barber shops and tailors who can extend working hours, among others. National programmes that promote SHSs need to be strongly encouraged to add a component of income generation.

Renewable energy technologies can spur the creation of microenterprises by engaging local people, particularly the poor, in harnessing energy and in providing energy services. Renewable energy fights poverty most effectively when linked with income generation in both producing and using the energy – though the energy also has to meet essential human needs for cooking, lighting, heating and water supply.


(f) Increase the use of renewable energy for high value public services

There is much room to expand the use of RETs to power high-value public services (vaccine refrigeration, telecommunications, distance learning and Internet connectivity). The participation of the private sector in providing some of the services can be increased in the interests of sustainability. The best examples are telephony and Internet connectivity being provided by the private sector for a fee.

(g) Increase availability of RET finance

Banks throughout Asia and the Pacific need to be encouraged to provide financing for RETs. This can be done through training bankers to help them understand better how they can manage risks involved in financing clean-energy projects. Similarly, microfinance institutions can be encouraged to add household RETs to their portfolios. Finance must be made available not just for the generation of energy but also to enterprises that will use the energy to generate income and provide employment. Promotion of RETs without support to encourage productive end uses loses the opportunity to increase income and reduce poverty. In the future, productive end uses will need to be financed as part of a total package available for rural energy systems. Microfinance institutions need to be encouraged to play a coordinating role to encourage integration of the energy input and income-generating activities at the household level.

Supplying rural energy services often means dealing with a large number of small transactions dispersed over a wide area. This problem can be addressed with innovative financing mechanisms including microcredit – whether from the energy company, its dealers, microfinance institutions or community-based organizations. The mechanisms can be linked with specially designed credit lines through larger financial institutions, potentially backed by the Government. The new financing mechanisms also include micro-rental or fee-for-service approaches, where all or part of the equipment remains the property of the company and customers make regular payments for its use. One example is a utility-style concession in which a concessionaire owns the system, charges a monthly fee and is responsible for the service.

(h) Strengthen the role of carbon financing for RETs

The CDM Executive Board needs to be encouraged to provide preferential treatment for high MDG-impact RET projects by simplifying the baseline and monitoring methodologies. This will reduce transaction costs and make it attractive for many project developers to pursue RET projects under the CDM. Furthermore, the market for carbon credits from projects with high poverty reduction and local environmental benefits needs to be developed further by bundling a number of small projects with high MDG benefits and marketing them to buyers. In order to give priority to projects with high MDG impacts, indicators need to be developed to determine which projects have a high MDG index and a methodology for monitoring such projects needs to be developed as well.

(i) Changes in project monitoring procedures

In most RET programmes, the monitoring systems typically measure strictly quantifiable information, such as the number of new electricity connections, number of villages covered or number of renewable energy systems installed. They are not designed to measure poverty and gender-specific impacts. Project planning and monitoring protocols that are poverty and gender sensitive need to be developed and tested in a number of large projects within the region and their widespread usage encouraged. Such protocols could also be used by socially conscious buyers of carbon credits to pay higher prices for CER units from projects that also score high on the MDG index.

Future role of UNDP

An important role for UNDP is to assist Asian and Pacific countries put in place regulations and establish a policy environment for attracting private investment in grid-connected RETs. The energy security implications could potentially be quite large, particularly in countries that are heavily dependent on imported petroleum fuels for their existing electricity generation and for new capacity addition. This includes the Pacific island countries. Relatively simple changes in regulations such as establishment of feed-in tariffs, net metering, standard PPAs and facilities such as power transmission “wheeling” (selling power to a third party via the utility’s transmission lines) and “banking” (generating power for later consumption) can result in large mobilization of investment in countries with sufficient resources. Additional support will be needed to increase the capability and awareness of both utility officials and prospective IPPs to implement those changes effectively. Smaller Pacific island countries and countries without depth of experience in renewables, such as Cambodia, will need technical support and pilot projects as well.


UNDP can have a role in assisting partner countries in Asia and the Pacific study the implications of increasing biofuel production on food security and other issues for local communities, to increase awareness of technologies to produce biofuels on a small scale at the community level and to work with communities to establish models for smallholder farming of oil-producing crops suitable for biodiesel production and local processing and marketing.

There is a role for UNDP to broaden the appreciation of the household RET commercialization model. Countries such as Cambodia, where there is currently a small market for solar home systems and credit is available from only one of the vendors, could be ripe for a replication of this commercialization model on a national scale. The model may be suitable for Indonesia, Viet Nam and other countries in Asia as well as for the Pacific island countries. UNDP can also encourage existing and future commercialization programmes to include a pro-poor strategy. This might include increasing availability of microfinance in those markets where consumer finance is not available for RETs, establishing strong links with productive uses of energy, promoting pro-poor technologies such as lower power systems using white LED lights as part of solar PV systems.

Through the GEF Small Grants Programme, UNDP has promoted community-managed, mini-grid systems mostly using microhydropower in a number of Asian and Pacific countries. UNDP also launched the award-winning Rural Energy Development Programme in Nepal. Community-based energy systems have been found to provide access to electricity and motive power for the poor. In a number of instances they have also provided power for productive end uses. UNDP has a role in making those models better known, in scaling them up and replicating them in new countries. REDP’s experience of scaling up community-based energy systems to a national level programme, and integrating the systems with district-level energy planning, is also worthy of replication.

Linking energy supply with productive end uses has proved to be a challenge for RETs worldwide. UNDP might be able to create a critical mass of projects across its energy project portfolio that are linked strongly with productive use applications and track them systematically for their poverty impacts. One possible entry point could be to promote RET usage in women-operated small enterprises and microenterprises. The UNDP-supported multi-function platform initiative in West Africa, though not specifically a renewable energy initiative, has demonstrated how both renewable fuels (vegetable oils and biodiesel) and petrodiesel can be used in focused ways to increase agricultural revenues and to empower rural women in the farming sector. A large number of women in the Asia and Pacific region are found working in sectors concentrated around a narrow range of energy-intensive activities such as food processing and service sector activities with relatively low rates of return.

Because the central economic activity in the rural areas of Asia and the Pacific is in food production via agriculture and fishing, expanding partnerships among UNDP, IFAD and FAO to strengthen the links between modern energy access and productive activities should be pursued.

UNDP can play a role in building up the capacity of microfinance institutions in the Asian and Pacific region and mobilizing funds for them to lend for consumer finance of RETs if necessary. Expanding the role of MFIs to integrate productive and income-generating activities with RET investments, including the provision of credit to both, could be an effective approach. Existing institutions in Lao People’s Democratic Republic, Malaysia and Viet Nam that provide finance for SMEs can also be encouraged to include RETs in their portfolios.

UNDP can play a role in supporting partner country Governments to advocate at the Conference of Parties of the UNFCCC to bring attention to the challenges faced by RETs in competing as CDM projects. In particular, highlighting the sustainable benefits of smaller RETs that provide substantial MDG benefits to rural communities without access to energy services can result in their preferential treatment. TLaunching of the MDG CDM facility by UNDP aims at will increasinge the attractiveness of developing RET projects with high MDG impacts as CDM projects.

An additional contribution that UNDP can make is to establish methodologies and tool kits for better integration of MDG targets into the design of RET projects and to develop indicators for monitoring achievement of those targets. In most RET programmes, the monitoring systems typically measure strictly quantifiable information. They are not designed to measure poverty – and gender-specific impacts. It would be very useful for UNDP to take the lead in developing project planning and monitoring protocols that are poverty and gender sensitive and encourage their widespread usage.


Proposed UNDP activities in countries of Asia and the Pacific can be summarized as follows:

Awareness and advocacy: • to put in place regulations favourable to grid-connected RETs;• to mandate blending of biofuels into gasoline and diesel fuels in countries that have potential;• to replicate more widely successful commercialization models for household energy technologies; • to replicate successful community-based energy system models;• to replicate more widely models such as REDP which have been able to integrate community

energy systems with district economic development; and• to get preferential treatment for CDM projects that have high MDG impacts, in terms of simplified

baseline and monitoring methodologies.

Training and capacity building: • to map renewable energy resources of all countries;• of financing institutions to lend for RETs; and• of planning agencies to understand the trade offs better between fuel security and food security

in the context of large-scale expansion of production of biofuels.

Documentation and dissemination:• of best practices for promotion of community-based RETs (microhydropower plus others).

Development of models and pilots: • for equitable sharing of benefits of grid-connected IPPs with local communities and producers

of inputs (such as rice husks from paddy farmers) in the case of biomass-based generation;• for community or cooperative production and marketing of biofuels to increase equity and avoid

conflict;• for programmes to integrate income generation, consumer finance and preferential treatment of

pro-poor technologies as complementary activities in successful commercialization models for household RETs; and

• for community-based energy models for new RETs such as mini-grids based on biomass gasification, community biogas and hybrid RET systems.

Development of funds and facilities: • development of revolving funds to promote microfinance for RETs in new markets; and• launch of the MDG Carbon facility to mobilize carbon finance towards developing a portfolio of

projects that yield tangible environmental benefits and sustainable development benefits for the poor.

Current status of private RET investment initiatives and next steps to increase investment and benefit the poor

Table 8-4 below summarizes the current status of initiatives to increase private investment in RETs and to increase their MDG impacts. The first column in the table summarizes the major pathways in which private sector investment is taking place in RETs. The second column lists the steps that are needed in the future both to increase private investment in RETs and also increase their impact on MDG targets. Finally, the third column lists the activities UNDP can carry out as part of those future steps.


Table 8-4 Current status of private RET investment initiatives in Asia and the Pacific, future steps and the role of UNDP

Current status Future steps Role of UNDP

1. Feeding renewable energy to the grid: • Green IPPs growing in China, India, Malaysia, Ne-

pal, Philippines, Sri Lanka and Thailand developing wind power, biomass generation, small hydropower and geothermal projects. Green IPPs largely ab-sent in other countries.

• Barriers to widespread adoption in other countries – lack of appropriate regulations, resource maps unavailable, unavailability of financing

• Benefits of sector growth not reaching biomass producers (such as paddy farmers for rice husk)

• Countries to put in place feed-in tariffs, standard PPAs, net metering

• Renewable energy resources to be mapped in countries where this is not available

• Financial institutions to pro-vide loans on project finance basis

• Establish mechanisms to transfer the benefits of IPP sector growth to local resi-dents and producers of raw materials.

• Raise awareness among policy makers and prospective IPPs

• Support mapping of RE resources • Capacity building of financing

institutions• Develop models for equitable

sharing of benefits

2. Biofuels to substitute for petroleum:• Main adopters China, India, Malaysia; other coun-

tries increasing investment• Particularly attractive for landlocked countries and

island nations where petroleum supply is irregular and transportation is expensive

• Barriers to adoption – lack of regulations requiring mixing biofuels with gasoline and diesel, lack of standard technologies for small-scale production

• Risk of conflict as subsistence agricultural land is converted to corporate farms for bioenergy crops

• Put in regulations across countries of the region requir-ing mixing of biofuels into gasoline and diesel

• Improve country-level understanding about trade-offs between fuel and food security.

• Develop and promote ef-ficient small-scale tech-nologies for community-level processing of biofuels

• Develop alternative models for community or coopera-tive marketing of biofuels to increase equity and avoid conflict

• Raise awareness• Capacity building of planning

agencies• Support social mobilization efforts • Develop and pilot such models

3. Commercialization of household energytechnologies: • Model in place for market-based promotion of

household biogas and solar home systems through a public-private partnership. Public funds used to strengthen market networks and subsidize sys-tems, standardizes technology and enforce quality control. Private sector markets systems to users in competitive environment.

• ICS technologies are being promoted through ar-tisans/stove manufacturers who can make a living making and selling stoves, with capacity building and quality control support

• Programmes in place in Sri Lanka, Nepal, Ban-gladesh, India, Cambodia. Millions of ICSs have been installed and tens of thousands of biogas and SHSs installed through those mechanisms.

• Barriers to adoption – insufficient appreciation by Governments of efficiency of market-based approaches to deliver rural energy services; con-sumer finance not available in many countries

• Systems unaffordable to poor – poor cannot afford systems unless the RET can be used to increase their incomes

• Commercialization programmes geared to market expansion rather than reaching the poor

• Increase awareness among regional Governments about success of RET commer-cialization models based on public-private partnership.

• Develop complementary pro-grammes to promote income generation and productive uses strongly

• Strongly integrate microfi-nance into commercialization model.

• Provide higher levels of support for pro-poor systems than for larger systems af-fordable to the non-poor.

• Increase awareness• Develop new approaches and

pilots for complementary pro-grammes to integrate income generation and microfinance

• Preferential support for pro-poor technologies (white LEDs).


Current status Future steps Role of UNDP

4. Community-based energy projects:• Models in place for community-based microhy-

dropower projects that are inclusive in providing access and can power productive end uses

• Holistic approach includes income generation and poverty reduction; social mobilization builds up social capital.

• Programmes in place in Pakistan (AKRSP), Nepal (REDP), UNDP-SGP (Philippines, Indonesia)

• Barriers to adoption – challenging to scale up beyond a few communities, social mobilization is manpower intensive and can seem expensive

• Community-managed microhydropower has not worked well in Solomon Islands and other Pacific island countries

• The community-managed energy mini-grid systems have not been widely applied beyond microhydropower. Limited experience with other technologies based on biomass gasifiers, SPV power plants, community biogas and RET hybrid systems.

• Increase awareness of poverty reduction and equity benefits of community-based energy systems through a holistic approach.

• Increase awareness of the value of approaches that increase social capital of communities

• Document best practices for microhydropower and other community-based RETs – both technology and social mobilization – and make them widely available.

• Extend the model to include hybrid energy systems, com-munity electrification systems based on biomass gasifiers, including biomass planta-tions, community biogas and RET hybrid based systems.

• Encourage Governments and donors to invest in scaling up community-based energy projects beyond a few com-munities.

• Increase awareness of benefits of community-based energy systems

• Produce best practices documen-tation for microhydropower and disseminate

• Pilot similar models for other RET technologies

• Create a critical mass of projects that have very direct (with quantifiable impacts) productive use application, and track them systematically for their poverty impacts.

5. Integration of energy projects into rural economicdevelopment and poverty reduction• China has been very effective in integrating RET

investments in rural areas with economic develop-ment

• REDP in Nepal and AKRSP in Pakistan have achieved similar results, at a smaller scale, through successful scale up of holistic approaches built around community-based energy projects.

• Barriers to adoption – Governments have moved away from integrated rural development models. Governments and donors have yet to invest in scaling up REDP-type model. Lack of capable or-ganizations to competently manage large regional or national programmes that are community based.

• Organizations best suited to be on-the-ground inte-grators of energy into poverty reduction projects do not know all options or do not have the necessary skills

• Increase awareness of REDP-type models that can integrate community energy systems with district or re-gional economic develop-ment

• Encourage Governments and donors to invest in pro-grammes that can effectively integrate RET investments with regional economic development

• Develop a global alliance to integrate investment into RETs with non-energy pov-erty reduction initiatives

• Support the role of integra-tors: microfinance institutions, organizations strengthening SMEs, community organi-zations and NGOs, RET vendors

• Put in place awards for the best examples of poverty-reducing energy applications at the country level.

• Dissemination of the REDP model in a number of other countries.

• Pilot ways to integrate energy into UNDP-supported rural develop-ment, agriculture, environment, health and education projects.

• Launch the needed global al-liance to integrate RETs into poverty reduction projects.

• Support capacity building of the most effective integrators.

• Host such an award in partner countries.

6. Financing RETs • Uneven availability of financing for IPPs or vendors

of RETs in countries of the region • Consumer finance (including vendor or microfi-

nance) widely available in some countries but not in others

• Carbon finance increases returns on larger grid-connected RETs, methodology currently disallows RETs that avoid unsustainable use of biomass

• CDM does not provide preferential treatment for projects with largest MDG benefits

• Increase investment from commercial and development banks into RETs

• Increase availability of con-sumer finance for RETs in all regional countries.

• Increase support for prefer-ential treatment for RETs with largest MDG impacts within CDM.

• Train bankers and MFIs• Launch of MDG CDM Facility• Support to partner Governments

to demand preferential treat-ment for large MDG impact CDM projects


Endnotes

73 Typically greater than 10 MWe, although definitions vary from one country to another, from greater than 10 MWe to greater than 100 MWe.

74 Since 2006, however, there has been a significant increase in the development of biofuels in China, India and several other countries, particularly the expansion of land for growing feed stock. This has led to increasing concern about the adverse impact of such an expansion on food security,as well as the conversion of forests into biofuels

75 Some of those commitments are as follows: China – 10 percent of electric power capacity and 5 percent of primary energy by 2010, 10 percent of primary energy by 2020; India – 10 percent of new power capacity during 2003-12; Malaysia – 5 percent of electricity by 2005; Philippines – 4.7 GW total existing capacity by 2013; and Thailand – 8 percent of total primary energy by 2011.

76 The pipeline is dominated by projects which abate industrial gases such as hydrofluorocarbons with extremely high global warming potential, as well as other projects that abate nitrous oxide or methane from landfill sites, both of which also have high warming potential.


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FINANCING OPTIONS for Renewable Energy

United Nations Development Programme

Regional Centre in Bangkok

3rd Floor, United Nations Service BuildingRajdamnern Nok AvenueBangkok 10200 ThailandTel: (66-2) 288-2129Fax: (66-2) 288-3032Email: [email protected] site: http://regionalcentrebangkok.undp.or.th

UNDP Regional Centre in Bangkok, Thailand

The Asia Pacific Experience