Thursday, February 28, 2008

Renewable Energy in Developing Countries

According to the International Energy Agency (IEA), 13.5 % of the world's total primary energy supply (TPES) is produced by renewable sources of energy. Of this, the main share comes from developing countries. In 2001, developing and transformation countries accounted for 77.5 % of the global renewable energy supply. However, these figures are based on a broad definition of renewable energy (RE). When analysing this data, one finds that developing countries use RE mainly in the form of large hydropower and traditional biomass. Both in Africa and Asia, traditional biomass (basically in the form of charcoal and fuelwood) accounts for over 90 % of energy production from renewable sources of energy. In Africa, the traditional use of biomass for cooking and heating covers around 50 % of the total primary energy supply, rising to around 90 % for some countries of Sub-Saharan Africa.

These figures are impressive, but both traditional biomass and large hydropower produce negative social and ecological externalities which also have to be considered. In the case of traditional biomass, the energy source (in general, this is wood) can often not be classified as renewable, especially in the arid and semi-arid regions of the world. Traditional use of biomass leads to considerable indoor and outdoor pollution and therefore poses a health risk to its users. In the case of large hydropower plants, extensive areas of land often have to be flooded, destroying biodiversity, habitats and forcing the local population to resettle. The so-called "new" renewable energies, such as wind energy, solar energy, geothermal energy, modern biomass, small hydropower and ocean energy, have a much smaller impact on the environment and the social structures and can therefore contribute to a larger degree to a truly sustainable development. However, when looking at the global scale, over 85 % of the energy production from "new" RE takes place in the industrialised countries. At first sight, this is a somewhat paradoxical situation, considering that developing countries have a much larger potential for renewables like wind and solar energy than industrialised countries. There are many obstacles that prevent the adoption of such "new" renewables in developing countries.

Technological Obstacles
Technological Obstacles in the context of this article can be defined as factors that prevent or make difficult the diffusion of RE technologies. We can differentiate between technological, financial, cognitive, and institutional obstacles. Technological obstacles are such obstacles that are related either to geographic and meteorological conditions which determine the RE potential of a region, or to the RE technology itself. Most developing countries are endowed with a large potential for RE. Also, in contrast to the industrialised countries of Western Europe, most developing countries (with a few exceptions like Rwanda or Bangladesh) have vast areas of unused land which can be used for large-scale RE projects. Thus, this obstacle can be considered as relatively unimportant. On the other hand, the poor quality of some RE technologies which are produced and sold in developing countries is a relatively important obstacle. One example for this are solar home systems (SHS) which are often sold and installed without charge controller or with inadequate batteries. Worldwide, an estimated 10 -20 % of all installed SHS are no longer operational. Experiences with RE systems which do not work contribute to a negative image of the technology among the population and can therefore severely impede its wider diffusion. In addition, RE technologies that have been sold in developing countries are often not compatible with social and cultural norms. For example, the dissemination of solar cookers has often failed because the cookers worked only during daylight hours, whereas households were accustomed to prepare meals after dark and indoors. Finally, there are also obstacles which are inherent to some RE technologies. Wind energy and solar energy, for example, deliver an intermittent supply of energy which varies with the time of day, with weather patterns and with the seasons.
FinancialFinancial obstacles are the most important factor hindering the diffusion of RE in developing countries. First of all, many RE technologies are not yet competitive on a cost-basis with conventional forms of energy. In many cases, the advantage of conventional energy is still increased by subsidies. On the other hand, RE systems and their components are often subject to import duties or other taxes. Secondly, the high initial costs for purchasing a RE system are a major obstacle. In most developing countries, only the richest households, if at all, can afford these systems. Credit schemes that could facilitate the purchase of RE technologies are still largely underdeveloped. Of 1.2 million SHS sold world-wide, only around 50,000 have been purchased with a credit.

Cognitive Environment
The cognitive environment for RE in developing countries can also be considered as an obstacle. We can find prejudices against RE on all levels of society, from household, over the private sector, to power utilities and the government. Prejudices on the household level are often reinforced by past experiences with RE systems that have not been installed or maintained properly. Especially in the field of maintenance, there is a widespread lack of information. In all developing countries, one can find the ruins of RE projects that have fallen into disrepair after they had been installed by foreign donors. This is also often due to a lack of skilled personnel in the field of RE technology. In general, awareness on the advantages and characteristics of RE is still rather scarce. Many households do not consider RE when planning their energy provision. Similarly, governments (as much as many international donors) tend to stick to the large-scale, centralised, conventional energy projects they are accustomed to. True, in most developing countries, experiences with RE projects are not very common, and therefore these projects always entail a considerable element of risk and uncertainty. There is also a general lack of reliable and scientific data on the potential of RE in developing countries.

Institutional Obstacles
Finally, there are also important institutional obstacles for RE in developing countries. Here, we use a broad definition of institutions that encompasses both the legal framework as much as the relevant organisations and markets in the energy sector. For example, markets for RE systems are generally underdeveloped in developing countries. There are only a few market actors which often suffer from a lack of capital. On the other hand, the sale of RE systems in rural areas leads to high transaction costs, due to long travel distances, lack of market information, poor infrastructure, difficult access to customers and the lack of skilled personnel. The existing RE companies often do not have the financial means to meet these transaction costs. Secondly, there are few organisations in the developing world that explicitly promote RE through information dissemination or lobbying, both on the non-governmental and the governmental level. On the other hand, there are often strong interest groups like oil or coal companies which lobby against RE. Thirdly, legal frameworks and energy policies can represent an important obstacle to RE. In developing countries, there is little direct government support for RE, due to the lack of financial resources. In many countries, there is still a state monopoly on power production which means that it is impossible for independent power producers (IPPs) in the field of RE to enter the power market. Other developing countries lack rules for the connection of RE systems to the electric grid. In general, the place of RE in national energy policy is often rather unclear which prevents private companies from investing in RE projects. Furthermore, lengthy and bureaucratic procedures for obtaining a license for power production can prevent investors from setting up RE projects.

Success conditions (Technological)
What are the success conditions for the dissemination of RE in developing countries? In principle, a success condition can be defined as the absence of an obstacle. Success conditions can sometimes be created through adequate government policy measures or through social learning processes. As in the case of obstacles, we can also differentiate between technological, financial, cognitive and institutional success conditions. Technological success conditions are generally difficult to create through human intervention. For example, the insolation ratio or the wind regime are factors that cannot be changed through government policy. Nevertheless, the technological potential of renewable energies in developing countries is very high. Another technological success condition is the existence of technical and quality standards for RE technologies that can be fixed either by governments or by the private sector. RE technologies should also be adapted to match the needs and the socio-cultural backgrounds of users ("appropriate technology"). In general, the low population density and dispersed settlement structure of most developing countries are favourable for the supply of electricity through decentralised RE applications (SHS and mini-grids powered by small hydro, biomass or wind), rather than through the extension of the national power grid.

Financial Success Conditions
In regards to financial success conditions, one can mention the existence of credit schemes for RE systems. In the past few years, there have been a number of projects in this field. Many NGOs, like Savordaya in Sri Lanka or Grameen Shakti in Bangladesh, have, with the assistance of foreign donors, set up micro-credit schemes for RE. The Photovoltaic Market Transformation Initiative (PVMTI) of the International Finance Corporation (IFC) has been lending to banks in India, Morocco and Kenya in order to provide financing for loans for solar systems. On the whole, donor financing for RE projects has increased. The World Bank is increasingly willing to support RE. With the creation of the Global Environmental Facility (GEF), new financial resources for RE projects have been made available. RE projects of multilateral and bilateral donors assist in developing RE markets in developing countries. However, much attention has to be paid to the sustainability and replicability of these projects. For example, numerous past projects failed because households got RE systems free of charge and therefore did not feel responsible for maintenance. In the future, the implementation of the Clean Development Mechanism (CDM) could represent a strong incentive for further mobilisation of private capital for RE projects in developing countries. However, there are also national measures that can remove financial obstacles for RE. First, governments should create a "level playing field" through removing subsidies on fossil fuels or at least replacing them with "smart subsidies" which benefit the poor. Secondly, prices of fossil fuels should reflect to a certain degree the negative externalities of these fuels. This can be done through the establishment of CO2-taxes, for example. In the Dominican Republic, revenues from a tax on fossil fuel consumption go to a fund for the promotion of RE. Thirdly, competitiveness of RE should be promoted through abolition of import duties. Tax relief, concessionary grants and subsidies are an important success condition in those developing countries that can afford these measures. For example, India's "accelerated depreciation" policy (together with government subsidies) has led to a rapid increase of wind turbine installations and the creation of the largest wind power industry in a developing country. The same holds true for feed-in tariffs, like the ones that have been recently introduced in Brazil.

Cognitive Success Conditions
Cognitive success conditions are: a population that is aware and informed about the benefits and risks of RE technology, a private sector that has access to adequate information on the market potential for RE as much as to skilled RE technicians, and a government that is open towards the utilisation of RE in the context of its energy policy. These success conditions can be created through information campaigns, and through lobbying by NGOs and RE business associations. Organisations that provide consultancy and advice on RE play an important role. Of equal importance are international projects that transfer technology and know-how from industrialised to developed countries. Other cognitive success conditions are the integration of RE technologies into the national education system (both at school and higher education levels) and the promotion of scientific studies which measure the potential for RE (like wind atlases). Recently, the United Nations Environment Programme (UNEP) has set up the Solar and Wind Energy Resource Assessment (SWERA) project in order to measure RE potential in a number of developing countries.

Institutional Success Conditions
There are a few important institutional success conditions for RE in developing countries. Above all, RE has to be integrated into energy policies. An important incentive can be the establishment of RE targets, as in the case of China (until 2010, 5 % of additional capacity from RE), India (until 2012, 10 % of additional capacity from RE), Pakistan (until 2015, 10 % of electricity production from RE), Tunisia (25 % of energy production from RE by 2010), and some other developing countries. Secondly, energy markets should be opened to provide IPPs with the possibility to invest in RE power projects. Today, only around 25 developing countries allow power production by IPPs. There also have to be clear legal guidelines for the production and feed-in of electricity from RE sources, in order to create security for private sector investment. For example, Thailand has introduced a net metering law, allowing RE producers to feed excess power into the grid. Whenever possible, RE projects should be given preference over conventional energy projects. Especially in the context of rural electrification, RE can play a major role. Countries like Argentina, China, India, Morocco, Philippines, South Africa and Sri Lanka emphasize RE in their rural electrification programmes. The existence of organisations like NGOs, RE businesses, or government agencies, that promote RE constitutes an important success condition. Examples are the India Renewable Energy Development Agency (IREDA) and the Indian Ministry of New and Renewable Energy (MNRE), the Centre for the Development of Renewable Energies (CDER) in Morocco, the Chinese Renewable Energy Industries Association (CREIA), or the Egyptian New and Renewable Energy Authority (NREA). Diffusion of RE also depends on functioning markets.

In developing countries, there is a high and rising demand for electricity. Two billion people word-wide are still waiting to be electrified. However, RE companies in developing countries often lack the capacity to satisfy this demand. In order to facilitate RE market development, government or donor support to RE companies (by means of loans, training, or business advice) represents a very important success condition. For example, the African Rural Energy Enterprise Development (AREED) Programme of UNEP provides financial and technical support to RE companies. In the past, assistance for RE in developing countries has been focused on setting up demonstration projects. For the future, efforts should concentrate on addressing obstacles and creating success conditions.


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