(Flickr/ESMAP World Bank)
In 2011, the UN established “Sustainable Energy for All”, a global initiative with three goals: achieving universal energy access, increasing energy efficiency, and doubling the renewable energy supply by 2030. The first of these goals seems daunting considering that nearly 1.3 billion people on the planet still lack access to any form of modern energy and around 1 billion people have access to only intermittent electricity.
Work is being done to make these goals a reality: At the recent spring meetings of the IMF and World Bank Group in Washington D.C., environment and development civil society groups and social entrepreneurs came together with World Bank staff to discuss strategies that will achieve universal sustainable energy access.
These conversations often pushed experts who represent international financial institutions, such as the World Bank, to focus on ways to finance energy access through mini- and off-grid solutions. According to the International Energy Agency, these smaller-scale energy systems are the most efficient and cost-effective — and, some argue, the most equitable — way to alleviate rural energy poverty. These systems also tend to use renewable energy instead of coal or fossil fuels, so they help to meet two of the UN’s objectives at once.
During a panel on universal energy access, sustainable energy and climate policy experts discussed different approaches to achieve this objective. Some panelists highlighted that the money spent on distributed renewables — that is, small-scale, mostly solar, wind, and small hydropower projects that can be built where remote families live — currently only represents a small proportion of overall funding for energy access.
Vrinda Manglik, an associate campaign representative for the Sierra Club’s international clean energy access program, advocated for increasing this funding. Distributed renewables are beneficial in that they have lower environmental impacts and deliver a more secure energy supply than centralized large-scale facilities like coal- and gas-fired power plants.
Alex Doukas, a research analyst from the World Resources Institute, added that a key part to achieving universal access goals includes improving regulations — both at the federal and international institutional level — and increasing the amount of finance directly given to energy access projects. Improved regulations would create environments in developing countries that would in turn unlock larger flows of investment therein.
Daniel Schnitzer, founder of clean energy company EarthSpark International, used the example of how energy access to communities in the rural U.S. is provided to argue for improved regulations elsewhere. Success in delivering energy access to rural families in the U.S., Schnitzer argued, was dependent on improving federal regulations and finding investors interested in its financing. The same would be needed now for electrification in developing countries, most especially in finding investors who are looking for social returns — that is, investments that provide societal benefits such as reducing inequality and improving quality of life — in addition to financial ones.
The spring meetings provided some hope that major finance providers like the International Finance Corporation (IFC), the World Bank’s private arm, are changing their outlook on renewable energy.
Reinhard Reichel, Senior Investment Officer from the International Finance Corporation — the World Bank’s private arm — claimed that the financing needs for fossil fuels and renewable energy are different. Fossil fuels have low upfront costs and high operating costs, while renewable energy has high upfront costs but is cheaper long-term. He pointed out that these high upfront costs and “market readiness” requirements make financing inefficient for the renewable energy projects discussed.
Public finance institutions that publically commit themselves to funding energy access should focus their efforts on creating environments in developing countries that support distributed renewable energy and on helping small- and medium-scale entrepreneurs overcome capital investment barriers such as these high upfront costs.
If sustainable universal energy access is going to be achieved, international financial institutions need to be critical of business-as-usual financing schemes — such as continuing to favor dirty energy due to its lower upfront costs — and instead push for greater investment in innovative, renewable energy sources that provide far greater benefits in the long run.