With oil costing close to $100 a barrel, and most imported Asian coal about $120 a ton, fossil energy costs are crippling emerging economies in Asia and Africa. Although renewable alternatives are far less costly than they were even two years ago, they still can't match the cheap coal and oil that Asia and Africa had counted on.
Fortunately, if Asia and Africa embrace bottom-up renewable strategies, they can restrain energy costs, while leapfrogging dirty energy into the emerging post-fossil global economy. What are bottom-up strategies? They vary based on markets and geography. What they share is a realization that not all electrons are equal; some are worth far more than others, depending, in part, on their proximity to markets. To make a renewable revolution low-cost, countries should roll out solar and wind projects, investing first in those locales where fossil fuels are most expensive.
There are 1.4 billion people without electricity, most of whom aren’t expected to have it for decades. These are the world’s poorest. Counterintuitively, they can best afford the most sophisticated lighting — LED lights powered by off-grid solar panels.
The poor already pay a lot for light, mostly from burning kerosene and candles. The bottom 20 percent of the global income pyramid pays from 9 percent to 18 percent of the world’s lighting bill while receiving only 0.1 percent of the benefits. Over a decade, a poor family may spend $1,500 or more on kerosene; meanwhile, a decent home solar system would cost just $300, providing not only light, but mobile-phone charging, fans, computers, televisions — all while saving more than $1,000.
Obviously, the economics are compelling. Access to cheap electricity can increase incomes among the poor by 50 percent, while improving health and educational outcomes. Increasingly, cheap electricity will come from renewables: Global coal prices tripled from 2005 to 2011, and the price of copper more than doubled.
Two outmoded ideas stand in the way of lighting the world. One is the grid myth -- the idea that electrification requires extending a costly grid to every home on the planet. Grid power requires big, remote power plants, typically fired by coal, and miles upon miles of copper wire.
The United Nations estimates that at least half of households lacking electricity will need to be served by off- grid, bottom-up solutions. The government of India says the comparable figure for Indians is two-thirds. Most of the proposed emerging-market investment in renewable energy is nonetheless devoted to big central solar or wind farms — where renewables are least competitive.
The second myth is that renewable electrons are expensive and that the poor need subsidies to pay for them. The two major ingredients in home solar — LED lights and solar panels — have declined in cost even more rapidly than coal and copper have surged.
A huge fraction of the power pumped into the grid never reaches a customer in India or Africa. As much as 40 percent can be lost in transmission. Wiring a remote village in India adds $0.02 a kilowatt-hour for each kilometer, making local solar electrons significantly cheaper than those fired by distant coal plants and transmitted by copper wire.
For the poor, affordability has three dimensions: total cost, upfront price and payment flexibility. That’s why they favor kerosene; they can buy a single day’s supply in a bottle. Solar power comes in a panel that will give 10, even 20, years of light and power. But many cannot afford a 10-year investment or qualify for financing, which requires fixed payments regardless of season. (Of course, the global middle class does not pay for its electricity upfront, either. When I bought my house, I did not get a bill for the power plants and grid that serve it. I pay for power monthly, based on how many kilowatt- hours I use.)
Remote villages are not the only locations suited to low- carbon alternatives. In African and Indian cities, power companies routinely “load shed” -- shutting down power to entire neighborhoods on hot, sunny afternoons when air conditioners overwhelm the local grid. To protect themselves, businesses and the middle class rely on dirty, expensive diesel generators, storing the power in batteries and wasting as much as 25 percent of the energy in the process.
Rooftop solar panels would generate power reliably — even when demand peaks. Moreover, solar power would pay for itself with savings that would otherwise be squandered on diesel fuel and a leaky grid. Rooftop solar could end the curse of load- shedding throughout Asia and Africa — and be profitable. The customers are waiting. What’s needed are suppliers and permission from power authorities for consumers to sell their excess electricity back to the local grid.
Or take irrigation pumping. Farmers lucky (or politically connected) enough to have access to the grid get cheap, or even free, power. They just don’t know when. Consequently, they buy big, cheap, inefficient pumps to flood their fields. Most of the electricity they use is wasted, along with much of the water they pump. Water tables are drained.
Reliable, efficient solar pumps, combined with drip irrigation, can improve crop yields and reduce wasted water and electricity at a fraction of the cost of forcing remote megawatts through an inefficient grid. In much of Africa, the lack of reliable electricity has led to hugely wasteful irrigation technologies — or to no irrigation at all.
Diesel imports are a huge burden in Africa and Asia, with rural mobile-phone towers among the biggest gluttons. By 2015, there will be 1.9 million off-grid towers worldwide, all needing electricity. Replacing diesel with solar, wind or micro-hydro power would save huge amounts on imported fuel and make phone service cheaper and more reliable. For smaller towers, this is an obvious solution. As Joe Madden, principal analyst at Mobile Experts LLC, wrote, “In the end, a 500 W solar array and a set of deep-cycle batteries to last for several days can be roughly the same cost as a diesel generator, allowing for almost instant return on investment.”
The end of cheap coal and oil does not eliminate affordable energy options for emerging economies. It does require them to revamp their strategies and solve a variety of institutional and financing challenges they had not previously grappled with. Bottom-up strategies can be cheap. They can transform living standards in entire villages. But they are rarely simple.
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Copyright 2012 Bloomberg
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