Renewable Energy in Developing Countries

Since the 1970s, development agencies have tried to promote small-scale renewable energy technologies in developing countries. Much work focused on technical demonstrations or projects that were narrowly self-sustaining but could not be replicated. Many projects were considered failures because of poor technical performance, lack of maintenance, and/or poor suitability to user needs and local conditions. Projects often did not demonstrate commercial viability or facilitate access to credit. That is, even if user fees paid for ongoing maintenance, new donor aid would still be required to expand and replicate investments.

RE Insider- September 8, 2003 – At the same time, however, several success stories emerged, such as ethanol for transport in Brazil, household biogas for lighting and cooking in China, wind power generation in India, small hydropower in Nepal, and solar home lighting and efficient biomass stoves in Kenya. In addition, over the past ten years, projects by the Global Environment Facility, the leading source of funds for renewable energy in developing countries, started to facilitate approaches to sustained and replicated investments, policies, business models, and local skills. Indeed, the whole paradigm for thinking about renewable energy in developing countries has been changing. The older technology-oriented paradigm, which focused on technology assessment, economic viability, and technology demonstrations, has been giving way to a new paradigm focused on market assessment, policy and institutional issues, and demonstrations of business and social models. Commercial markets for renewable energy are expanding, shifting investment patterns away from traditional government and donor sources to greater reliance on private firms and banks. What are the current states of the markets for renewable energy in developing countries and what past lessons are suggested by experience? We recently examined a growing body of experience with markets and approaches to promoting renewable energy in developing countries in the paper “Renewable Energy Markets in Developing Countries” (by Eric Martinot, Akanksha Chaurey, Debra Lew, Jose Roberto Moreira, and Njeri Wamukonya). This paper appeared in Annual Review of Energy and the Environment 2002 (reprint available from the author’s web site) and is also excerpted in Renewable Energy World July/August 2003. We classified markets for renewable energy into five application categories and provided market indicators in each category: 1. Rural Residential and Community Lighting, TV, Radio and Telephony. Roughly 400 million households, or 40 percent of the population of developing countries, do not have access to electricity. Household and community demand for lighting, TV, radio, and wireless telephony in rural areas without electricity has driven markets for “solar home systems,” biogas-fueled lighting, small hydro mini-grids, wind or solar “hybrid” mini-grids, and small wind turbines. Growing numbers of individual equipment purchases, beyond government-driven programs, point to growing market demand. By the year 2000 in developing countries there were over 50 million households served by small-hydro village-scale mini-grids, 10 million households getting lighting from biogas, 1.1 million households with solar PV home systems or solar lanterns, and perhaps 10,000 households served by solar/wind/diesel hybrid mini-grids. 2. Rural Small Industry, Agriculture, and Other Productive Uses. Although electricity provides improvements in the quality of life through lighting, entertainment, and increased conveniences, it is the productive uses of this electricity that increase incomes and provide development benefits to rural areas. The major emerging productive uses of renewable energy are for agriculture (water pumping), small industry, commercial services (telecommunications), and social services like drinking water (pumping, filtration, and UV disinfection), education, and health care. By the year 2000 in developing countries, there were up to 1 million water pumps driven by wind turbines, over 20,000 water pumps powered by solar PV, up to 60,000 small enterprises powered by small-hydro village-scale mini-grids, and thousands of communities receiving drinking water from solar PV-powered purifiers/pumps. 3. Grid-Based Power Generation. Total world electric power capacity stood at 3,400,000 MW in 2000, with about 1,500,000 MW (45 percent) of this in developing countries. Small hydropower, biomass power, geothermal power, and wind farms are all competitive and viable technologies for grid-based power generation. Grid-connected installations can range in size from a few kilowatts to hundreds of megawatts. By the year 2000 in developing countries, there were about 48,000 MW of installed renewable power generating capacity, most of which was small hydro (25,000 MW), followed by biomass (17,000 MW), geothermal (3,900 MW), and wind (1,700 MW). This 48,000 MW was about half the global total of 102,000 MW installed renewable energy capacity in 2000. 4. Residential and Commercial Cooking and Hot Water. Residential and commercial cooking and hot water in rural areas of developing countries are supplied primarily by direct combustion of biomass — in the form of wood, crop wastes, dung, and charcoal. Driven by public programs, household demand, and declining resources, markets for more efficient biomass stoves and solar cookers are primarily in Asia and Africa. The largest program has been in China, with 180 million improved biomass stoves. In Africa in the 1990s, over 3 million improved biomass stoves were disseminated, with the Kenya ceramic jiko (KCJ) the most notable type. By the year 2000 in developing countries there were 220 million more-efficient biomass stoves, 10 million households with solar hot water systems (most of these in China), and 800,000 solar cookers. 5. Transport Fuels. Biomass-derived liquid fuels power motor vehicles in Brazil, Kenya, Malawi, and Zimbabwe. Markets exist for both pure-ethanol vehicles and those, which run on ethanol/gasoline blends. Market issues relate to ethanol production efficiency, cost-competitiveness with gasoline, the commercial viability and costs of specially designed ethanol-only vehicles, fuel distribution infrastructure, and ratios of ethanol to gasoline in gasohol blending. By the year 2000 in developing countries there were 14 billion liters per year of ethanol vehicle fuel being produced from biomass, primarily in Brazil, and 180 million people lived in countries mandating mixing of ethanol with gasoline. Similarly, we summarized lessons into six categories: 1. Impacts on Rural Development. After decades of renewable energy programs and investments in rural areas of developing countries, relatively little is known about the ability of renewables to deliver services that will raise incomes and provide other social benefits. Lessons suggested by experience are that: (a) social benefits and quality of life, rather than income and economic benefits, have driven markets for renewable energy in rural areas; (b) experience with “productive uses” of renewable energy is still in its infancy and deserves much greater attention from donors, development agencies, and governments; (c) economic benefits from renewables are more likely in rural areas that are already undergoing development and can incorporate the additional energy dimension into existing development activities for water, health, education, agriculture, and entrepreneurship; and (d) published studies of income generation and economic benefits from renewable energy are still limited and call for further research. 2. Affordability, Consumer Credit, and Sales vs. Rentals. Consumer credit, leasing, and rentals are all approaches to improving affordability for poor rural households. Lessons suggested by experience are that: (a) historically, affordability of rural energy has been addressed through government subsidies, donor programs, and private cash sales of small systems; (b) new approaches to affordability are emerging, including vendor-supplied credit, microcredit, and rental models, but are still largely untested; (c) credit risk is a serious concern of both financiers and dealers and makes credit sales challenging; (d) lower income rural households will need long-term credit or rental options; (e) even with credit or rentals, lower incomes groups will only benefit with targeted policies, including subsidy policies, justified by development goals. 3. Equipment Subsidies and Market Distortions. Donors are still undermining markets with large capital cost subsidies and donated equipment. Lessons suggested by experience are that: (a) subsidies are unlikely to lead to sustainable markets unless they explicitly create the conditions whereby they are no longer needed (i.e., “smart” subsidies); (b) subsidies can undermine private investments and business in new markets and should be applied with attention to private-sector conditions in a particular market; (c) subsidies can be used effectively to build up initial market volume, local expertise, user awareness, appropriate technology adaptation, quality standards, and entrepreneurial activities; (d) subsidies are more effective when tied to operating performance rather than investment; and (e) continuing subsidies may always be needed for poorer segments of the population. 4. Rural Enterprise Development, Financing, and Business Viability. Rural entrepreneurship is neglected in much of the literature on rural renewable energy in developing countries. The track record of donor programs in creating and sustaining enterprises is particularly poor. Lessons suggested by experience are that: (a) a few donor programs have effectively assisted rural renewable energy-based enterprises to build a sustainable and viable business; (b) rural energy enterprises face a high-risk, low-margin business with high transaction costs; (c) commercial banks and financial intermediaries are key decision makers, who must understand the technologies and manage risks; (d) demonstration of viable business models that eventually show sustained profits for the enterprise is key to achieving market sustainability. 5. Policies and Financing for Private Power Producers. Ongoing power sector restructuring in many developing countries greatly affects the prospects for grid-connected renewable energy. Developed countries have enacted a number of policies to promote grid-based renewable energy, but most of these policies have yet to be seen in developing countries. Lessons suggested by experience are that: (a) policies that promote production-based incentives rather than investment-based incentives are more likely to spur the best industry performance and sustainability; (b) power-sector regulatory policies for renewable energy should support IPP/PPA frameworks that provide incentives and long-term stable tariffs for private power producers; (c) regulators need skills to understand the complex array of policy, regulatory, technical, financing, and organizational factors that influence whether renewable energy producers are viable; (d) financing for renewable power projects is crucial but elusive. 6. Market Facilitation Organizations (MFOs). Market facilitation organizations are public-private entities that support the growth of particular markets through a variety of means. MFOs may provide networking, partner matching, information dissemination, market research, user education, business-deal identification and facilitation, technical assistance, consulting services, financing, and policy advocacy or advise. Common and historical forms of MFOs are industry associations and government agencies, but in the past decade, a new generation of MFOs has emerged to support renewable energy markets in developing countries. These new MFOs operate with a business interest in the industry, but also with a public interest in seeing the technology widespread for public benefits. Lessons suggested by experience are that: (a) MFOs can be powerful market stimulants but very few exist; (b) public-private MFOs most likely need full public funding to begin, but eventually can become partly self-supporting through private contracts; (c) very few people are thinking about the power of MFOs to stimulate renewable energy market development. Based on our examination of renewable energy markets, we conclude that several markets show promise of greatly expanding. Some national programs are poised to expand solar home systems and solar lantern markets for rural residential lighting. For example, India and China have proposed over 10 million additional systems in the next ten years. Programs and future targets for grid-based power production are also expanding. India has proposed that 10 percent of new capacity additions through 2012 come from renewable energy, which would mean an additional 10,000 MW. Similarly, China proposes to require 5 percent of new power generation from renewables by 2010, which could mean an added 20,000 MW. Finally, applications for income generation and social benefits are growing markedly but remain underreported; for example, solar PV appears poised to increasingly pump, purify, and distribute drinking water in isolated villages. The growth of these markets and others will require increased technical know-how in developing countries — including local capabilities to adapt, install, operate and maintain technologies and to build local manufacturing industries. New sustainable and replicable business models for both consumptive and productive uses of renewable energy in rural areas will also be needed. Even though many donor efforts have not been sustainable or replicable, donor assistance for renewables is still vital for improving environmental conditions and incomes. However, donor projects must avoid an “equipment demonstration” mentality where the main objective is installation and maintenance of a certain number of systems. Governments need to foster the appropriate conditions for viable rural entrepreneurship and grid-based power investments incorporating renewable energy. Commercial banks, multilateral organizations, and other public lenders need to provide business finance to entrepreneurs, credit to consumers, and project finance to power project developers. National governments and international donors should create and support market facilitation organizations. Finally, research is needed on successful experiences and business models, social and income benefits, technology applications meeting user needs, and lessons from emerging sectoral policy successes and failures. About the Author: Eric Martinot is a program manager at the Global Environment Facility in Washington, DC, where he synthesizes knowledge and experience with renewable energy markets, policies, and investments. Author of 50 publications on renewable energy and energy efficiency in countries in transition and developing countries, he received a Ph.D. from the Energy and Resources Group at the University of California at Berkeley in 1995. He has served as a consultant for the United Nations, World Bank, and National Renewable Energy Laboratory, as a senior scientist with the Stockholm Environment Institute — Boston, and as an adjunct professor with Tufts University’s Fletcher School of Law and Diplomacy and the University of Maryland School of Public Affairs.
Previous articleNorthwest Utility Renews Green Contracts
Next articleConsumer Guide for Small Wind Power
Renewable Energy World's content team members help deliver the most comprehensive news coverage of the renewable energy industries. Based in the U.S., the UK, and South Africa, the team is comprised of editors from Clarion Energy's myriad of publications that cover the global energy industry.

No posts to display