Things they have but cannot use: the failure of energy access programs

Electrification programs across sub-Saharan Africa are bringing energy services direct to the homes of an ever increasing number of the world’s poor. However, absent means to buy appliances, many of the potential benefits of these efforts will not be realized and these vulnerable populations will remain drastically under-served.

Rural electrification programs have existed almost from the moment electricity was first harnessed for widespread human use. One of the most successful was in the U.S. in the 1930s. Under the Rural Electrification Act of 1936, and its associated government-funded initiatives, energy access changed the face of life in America. It gave rise to the infrastructure that enabled the country to go from struggling second-tier power to global hegemon and improved quality of life across the income spectrum by orders of magnitude within 20 years. The logic that underpins that transformation is still in use today across the globe, with billions of dollars annually flowing into grid extension, last mile connectivity, and rural electrification programs. However, even in countries with the most aggressive extension efforts, results of these programs have been mixed.

To their credit, Kenya’s government and Kenya Power have had success driving rural electrification efforts; the country ranks in the top 10 in sub-Saharan Africa when it comes to electricity extension, with about 60% of the population connected to the grid. However, this has not translated into tangible benefits for a large number of the recently connected. Of the 3.5 million households connected in the most recent last mile connectivity program, 1 million have not topped up their pre-paid meters within the first year; they have used less than 30 kWh in 12 months, meaning they are not powering anything beyond lighting. These newly connected households contributed to a 110% increase in grid connections between 2013 and 2016, but average domestic consumption per capita fell by 50% during the same period, in large part due to the fact that households simply aren’t using their electricity connections. Without the ability to productively consume energy, newly connected households are essentially no better off than before.

Electrification programs that result in low-usage connections are economically inefficient for all parties; energy providers make too little average revenue per user to recoup their investment and operating costs, governments fail at their goals to improve livelihoods, development agencies sink taxpayer resources into programs that are at best marginally effective, low-income customers are saddled with a connection they need to pay off but can’t use productively, and other users end up paying more for electricity to subsidize the connection cost for inactive households. If a customer is only powering a few small appliances – i.e. a couple lights and a TV – solar home systems are a significantly less expensive and more effective way to deliver basic energy services. Recently, SHSs have even been able to cost effectively power larger appliances like refrigerators. However, SHS currently have limitations on how much energy they can affordably provide; productive use appliances like welders, grain mills, and water pumps often require too much energy, meaning unless a diesel generator or grid connection is available, they are out of reach to the population.

This creates a development case for providing grid-like power to rural communities, but only once they have several energy-using products in their home. Getting there requires programs that provide access to appliances, both for household and productive use. However, little money and few initiatives are targeted at this challenge. Funding flows to appliance development through programs like Global LEAP, but these are largely addressing energy efficiency, and that is naturally more focused on increasing the number of appliances that can be powered by solar home systems. Few efforts exist with the explicit goal to drive energy demand by increasing access to affordable productive use appliances for grid-connected households and businesses.

This leaves it to private enterprise to create the market in a hyper-constrained environment, where regulatory structures present significant barriers to companies trying to develop affordable products for bottom of the pyramid customers. Restrictive trade regulations impose taxes and import duty on finished goods, while local manufacturing lags behind on both cost and quality. Meanwhile, the high costs of rural sales and distribution present barriers to matching affordable access of appliances to rural electrification expansion plans. These all add to the price for the customer, making even basic appliances like TVs, fridges, or electric kettles prohibitively expensive for the newly connected. In light of these barriers and without clear indicators of profitable demand levels for appliances, many companies are deterred from considering entry into this market, where margins are small, and sales and distribution are difficult.

Often forgotten in the story of the success of US rural electrification is the Electric Home and Farm Authority, and the essential role it played in driving rural electricity demand. Electric ranges, refrigerators, and water heaters were just some of the appliances that the EHFA worked to make available in rural areas through local retail outlets. More critically, farmers could access low-cost financing to purchase the appliances, enabling them to start using electricity in volume much faster than if they would have had to save up enough to buy the appliance outright. By helping to provide local distribution and access to financing – i.e. by having a parallel program to galvanize demand alongside the expansion of supply – the government substantially accelerated the uptake and impact of energy services.

A concerted effort to understand the barriers to demand generation is necessary on the part of actors interested in expanding energy access. No economic system can survive with only the supply of goods; in a system free from intervention, supply follows demand. And when intervention artificially inflates supply, suppliers will never be profitable. This gets more difficult when development concerns are thrown into the mix, where there’s a non-financial interest in driving access, further distorting the system and creating misaligned incentives. Too often in emerging markets, “energy access” is being defined as access to energy supply, which feeds an environment where the metric that matters most is the number of people connected, not the impact on people’s lives, the financial viability of the system, or whether economic development is happening to its full potential.

Increasing access to energy supply is critical to development, and governments, development organizations, and NGOs are right to funnel resources and focus into grid extension and minigrid development. However, this is only the first step in the process. Without a paired program to increase access to energy demand, the development goals at the core of energy access programs will remain ineffable.