An alliance for renewables: Private sector involvement in rural electrification

Despite massive advances, nearly a third of the world’s population lacks access to electricity, while for many others, the only sources of power are expensive and environmentally damaging. Ernesto Macias from the Alliance for Rural Electrification explains how the private sector is trying to play its part in promoting renewable energy for rural electrification.

Although electrification began in earnest more than a century ago, nearly 2 billion people – representing some 40% of the world’s population – still do not have access to electricity or other non-traditional energy forms. As the global population continues to soar, so the number of citizens without an adequate energy supply will further increase. According to the International Energy Agency (IEA), world electricity demand is expected to double by 2030, with most of the growth occurring in developing countries where electrification rates are not keeping up with the population growth.

Indeed, four out of five people without electricity live in rural areas of the developing world, especially in peripheral urban and isolated rural areas, which are often geographically secluded or sparsely populated. Due to low potential electricity demand in these areas (and sometimes also for political reasons) grid extension is not an option. Consequently, new approaches are needed.

Renewable energies – off grid solutions for rural electrification

Renewable energy sources (RES) capture their energy from existing cycles of energy, from ongoing natural processes and geothermal heat flows. Renewable energy technologies transform these energy flows into usable forms to meet the needs of individuals for heat, electricity and transport.

Renewable energy can be used in on- and off- grid applications to produce electricity, with off-grid being a flexible and easy-to-use solution for rural electrification. In addition to increasing economic activity and lowering poverty, electrification with renewable energy will help promote a more sustainable development, and could help mitigate climate change.

The technologies which are used to power off-grid applications are often affordable, decentralized and environmentally sound – such as solar home systems, wind turbines, biogas digesters and gasifiers, along with micro-hydro power plants and hybrid systems, etc.

By combining energy generation with storage mechanisms, off-grid communities can run a range of equipment using renewable energy sources. In standalone PV systems, for example, the modules are connected to a battery, via a charge controller, which stores the electricity and acts as the main power supplier. An inverter is generally used to provide AC power, enabling the use of normal appliances.

To cater to this market for rural electrification, a wide variety of services and innovative products are currently offered by the private sector for off-grid applications, including plant design, production and supply of system components, operation and maintenance, commissioning, turn key project realization, village electrification, training activities, and so on. As a result, wind, solar and hydro power systems have been successfully installed in different developing areas such as Morocco, China, Senegal, Ecuador, Mexico, and many more. Likewise, hybrid village electrification systems have also been implemented in Ghana, Tanzania, South Africa, and China, among other countries.

The use of electricity in rural areas allows for the provision of key services such as lighting, refrigeration, education, communications, health services and of course, power for income-generation. The provision of such services will contribute to the alleviation of poverty, and the improvement of the economic prospects of developing countries.

Is the private sector investing in renewables in developing countries?

Unlike the majority of conventional energy sources (oil, gas, coal), the cost of producing energy from renewable energy sources will decrease in the future, given the necessary conditions.

Despite this, however, renewable energy is often still perceived as the high cost option, and this limits public and private investment in both on-grid and off-grid applications.

The real truth is that the high capital costs of installing renewable energy systems are often inappropriately compared to the capital costs of conventional energy technologies. In many cases, particularly in remote locations, the low operation and maintenance costs, as well as the nonexistent fuel expenses and increased reliability and life span of renewable energy technologies offset the high initial capital costs. Sadly, this kind of life cycle accounting is still not regularly used as a basis for comparison. Furthermore, the externalities associated with energy systems, especially the environmental costs associated with fossil fuels, are often not properly accounted for.

It is for this reason that international financing institutions and host governments are crucial in order to introduce a level of fair play for renewable energy, and to reduce the initial investment cost through innovative financial mechanisms.

Additionally, the developing world must tackle the distrust of international investors towards their institutions and how they function. It is well known that a number of developing countries lack the conditions to attract private foreign investment, such as a secure environment, economic and political stability and a supranational system for resolving disputes which ensures a fair process for the investors. Without a minimum level of transparency and stability, investment in renewable energy, indeed in any other sector, is not a realistic option.

Alliance for Rural Electrification – a tool for rural development

The Alliance for Rural Electrification (ARE) was created in response to the need for access to sustainable electricity in the developing world, and to facilitate the involvement of ARE members in emerging rural energy markets.

The greatest strength of the ARE is its robust industry-based approach, coupled with the ability to combine different renewable energy sources in order to provide more efficient and reliable solutions for rural electrification. ARE can take advantage of its members’ experience in the rural electrification world in order to provide sustainable technical solutions and support the creation of additional funds and necessary conditions for energy development in developing countries.

To help achieve this, ARE is building up a framework to support and foster the implementation of renewable energy technologies as a feasible and cost effective tool for rural electrification. ARE has gathered experts from across the industry to discuss and debate the role of hybrid systems, including the assessment of different renewable technologies, the development of innovative financing schemes and the production of appropriate business models to enable market penetration.


Decentralized renewable energy schemes are often the least expensive and most feasible solutions for rural electrification . They have proved to be effective in terms of achieving economic, environmental and social objectives by the enhancement of security of energy supply, the reduction of greenhouse gases and other pollutants, and by providing opportunities for employment and increased economic activity.

For its part, the private sector has developed pragmatic approaches with proven results. Although modest when compared with the challenge of poverty alleviation, it has achieved a certain success in reaching rural communities and developing energy security.

In the last few years, a combination of improved technology and increased economies of scale has pushed down the cost of renewable energy, and the continuing maturation of the renewable energy industry in the developed world is likely to continue this trend. However, international financing institutions and governments have a crucial role in reducing capital costs and providing a favourable investment framework for renewable energy sources.

The way forward is still long and challenging, this is why ARE wants to serve as a practical and effective tool to stimulate and support durable rural electrification.

ARE membership is open to all companies and institutions operating within the renewable energy field. Help us to shine a light for progress!

Ernesto Macías is President of the Alliance for Rural Electrification (ARE) and Vice-President European Photovoltaic Industry Association (EPIA)

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