Energy Poverty: The Hidden Energy Crisis

Teodoro Sanchez and Andrew Scott, Practical Action
Thursday, September 5, 2013

More than 1.3 billion people – almost a quarter of humanity – have no electricity. This means they have no light in the evening, limited access to radio and modern communications, inadequate education and health facilities, and not enough power for their work and businesses.

Worldwide, more than 3 billion people depend on dirty solid fuels to meet their most basic energy need, cooking. At least 2.5 billion cook with biomass (i.e. wood, dung and agricultural residues), and over half a billion cook with coal.

The international community recognizes a number of basic rights: the right to water, the right to food, the right to health, the right to adequate housing, the right to gain a living by work and the right to take part in cultural life. Missing from this list is the right to energy. Yet, everyone needs energy to cook food, to heat the home, to earn a living, to benefit from good health and education services. Energy poverty denies people a basic standard of living that should be available for all.

To fulfill the right to energy for everyone, the biggest challenge lies in providing access to energy for the poorest sectors of the population – those without capital, capacity, knowledge and influence; those whom private sector energy suppliers are not interested in serving. For this reason, and if they are serious about eradicating poverty and meeting the Millennium Development Goals (MDGs), international development agencies, donors and governments in low-income countries need to make energy access for the poor a bigger priority. 

Can't do it without energy

The World Bank and other international development agencies have recognized the strong link between energy access and the MDGs. Most now agree that achievement of the MDGs is dependent on adequate energy access for the poor. However, there has been a complete failure to agree any international targets, strategies, programs or action towards reducing energy poverty globally.

The current dominant development model is focused on achieving macro-economic growth, and investment in large-scale energy infrastructure to provide energy for growth (i.e. large scale coal, large hydro, transmission grid, and pipelines). Much of the infrastructure for energy in developing countries is for the export of energy to industrialized countries or urban centers, not for local use.

Over the past 30 years the international community has continually failed to make headway to reduce the number of energy poor. The approach has either not focused on actually delivering the needs of the poor, so the benefits have gone to wealthier groups, or has been unsustainable and driven by short-term donor requirements.

There is a need for much more attention and investment directed towards the supply of local energy services for poverty reduction. National development strategies need greater emphasis on local energy delivery alongside large-scale infrastructure development.

Funding gap

The energy needs of the poor are small, but small amounts of energy can make a significant difference to their lives. However, the great majority of people without adequate access to energy live on less than US$2 per day, making it difficult for them to access services, including access to modern energy services. Energy access is not without cost and the initial expenditure on electricity connections or better technologies can be high.

There is a large funding gap in providing energy access for the poor that has not been seriously addressed by existing financial mechanisms and financial institutions. Political will and the commitment of donor agencies and governments is urgently needed to prioritize investment in energy as critical for the poorest sectors. An estimated US$435 billion would be required to provide electricity to all of the population presently un-served. An estimated investment of $135 billion would enable about half of the population currently cooking with biomass to switch to other fuels, and provide access to clean cooking for the rest. Compared to current energy sector spending, the cost of delivering energy to meet the needs of poor people is only about 2.85% of total global energy investment. This has to be funded by international aid, multilateral financing, climate change financial mechanisms, governments and local private sector investment.

While the private sector will be a key player in financing energy for development, private investors are not attracted by the idea of providing energy access to the poor – unless financial incentives are in place and clear policies on tariffs and risks are set in advance.

Besides the conventional involvement of the private sector in energy businesses, there are good opportunities for the mobilization of local capital towards increasing energy access for the poor. The private sector includes small businesses, small farmers and local traders looking for investment opportunities in small local businesses. If a level playing field existed, they could consider business opportunities in energy supply, and could reach the poor and the isolated more effectively than conventional private energy investors or government. However, the mobilization of local capital is only possible with strong, long-term commitment from governments and development agencies, enshrined in regulations, incentives (subsidies), and support for local capacity and energy literacy among energy consumers.

Better models needed

Sustainable models for energy service delivery to the poor – that is, the continuous supply of reliable energy services, long after the original energy access program has ended – require a clear focus on capacity building, appropriate technologies and affordable financing.

Poor sustainability of decentralized energy systems has created mistrust from decision-makers, hindering the wider uptake of options that could provide energy access for the poor. In urban areas it is frequently the case that after just a few months of connection to electricity, poor people stop using it. In rural areas, small energy generation systems are too frequently abandoned after a few months. This is caused by the original program not addressing underlying problems of poverty and household cash flow, and a lack of technical capacity and institutional support. 

Simple and effective technologies are available to deliver clean and efficient energy to poor communities in urban and rural settings. Alongside conventional means of rural electrification and fossil fuels (such as LPG or diesel generators), decentralized technologies which use local energy resources – such as micro hydropower, improved cook stoves, wind turbines and solar power – can effectively supply the energy necessary for poverty reduction.  

Reaching the poor with basic modern energy services would increase global commercial energy consumption by about 900 TWh (terrawatt-hour) each year, which is less than 1% of global energy demand. It is not just a question of increasing the quantity of energy produced in a country, but the delivery of that modern energy to the people who need it most.

Way Forward

The main issues to be tackled on sustainable energy promotion for the poor are:

Recognizing the right to energy

Despite the common acceptance that energy is critical for development, energy is not a high enough priority issue in policy debate. Therefore modern energy should be considered a basic right, and should be provided on the basis of justice for the poor. 

Political will from governments

There is sufficient evidence that important changes will only be possible with political willingness at the highest level. The market approach is not the right one for energy access for the poor – governments have to consider it their responsibility.

Closing the funding gap 

It is clear that there is a huge funding gap that cannot be paid by the poor, especially for initial investments. Comparing this with the huge investment on energy security, reducing energy poverty represents less than 3% of the total investment required on energy security by 2030. Yet compared with the real money currently available for energy access, this amount is large. New funding mechanisms and sources must be found.

Clear and specific pro-poor policies and strategies

Neither global nor country strategies have been clear enough to tackle energy poverty. New pro-poor strategies for energy access, linked to the delivery of the MDGs, need to be implemented rapidly.

Sustainability of energy access

To achieve sustainable delivery of energy to the poor, the following should be promoted widely and vigorously:

1. The creation of local capacities (national and local) is the most effective way to ensure affordability, accessibility and sustainability;

2. Mobilization of local capital can contribute to energy access for the poor;

3. Energy literacy can contribute to the sustainability of the systems and improve relations between provider and user of energy.

Alternative climate change mechanisms 

The most important existing financing mechanisms, such as the CDM, the GEF and the climate change funds of the World Bank, should be regularly assessed against their real impact in addressing energy poverty and ensuring energy access for the poor. A new mechanism should be developed which can transfer increasing amounts of the growing carbon market funds toward projects that directly reduce energy poverty.

More information: 

This is an excerpt from Energy Poverty: The Hidden Energy Crisis, first published by Practical Action in 2009.