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Closting the Circuit – Stimulating End-Use Demand for Rural Electrification

Jan. 19, 2019
RMI makes the case for a greatly increased focus on supporting demand, outlines key barriers hampering increased use of electricity, and provides a succinct set of recommendations on actions that can be taken to complement supply side solutions.

Electrification’s ultimate measure of success in developing nations—and its real contribution—is to both meet basic humanitarian needs and underpin economic development. But most electrification programs focus on expanding supply with limited investment devoted to enabling end uses that drive productivity improvements and meet critical needs. For example, from 2000 to 2008, supply expansion represented almost half of the nearly $4 billion the World Bank approved for investment in energy access, whereas investment in productive use represented 0.7%.i In Africa, all investment in productive use financed technical assistance (TA); no such financing was directed to implement productive use investment projects.

Electricity is a system solution that matches supply to demand, so both must be addressed. For example, providing power without access to financing for equipment that can use that power to increase productivity means that the customer cannot fully realize the benefit. The supplier, in turn, has a system with low capacity utilization which leads to higher per-unit energy cost, which in turn reduces customer demand and benefits. Increasing end use improves capacity utilization and so improves system cost recovery and profitability, shortening payback periods and decreasing the subsidy burden.

Furthermore, targets used to evaluate the success of electrification programs often focus on the number of connections made and megawatts (MW) installed rather than the use of that power. Yet building new generation, extending that supply’s reach through expanded transmission and distribution, and growing access to supply by connecting customers risk being a “bridge to nowhere.” Although building supply is necessary, failing to directly address demand-side barriers and needs reduces the benefits of electrification, slows down economic development, and drives up the cost of power.

The current focus on increasing supply to the exclusion of supporting demand also flies in the face of historically successful and rapid electrification programs in the United States, Europe, and elsewhere in the world.  Identifying and committing demand before building systems and providing low-cost loans for equipment were critical components of the United States’ rural electrification program in the 1930s, for example.  These actions ensured that (a) rural electricity systems had enough demand to make systems financially viable, (b) electricity costs were affordable, and (c) electricity met human needs.