Charging Ahead: Scaling Up Renewable Energy in the Developing World

The renewable energy sector has reached a critical inflection point where costs are competitive with fossil fuels and investment is ramping up in a big way, said more than a dozen experts at a day-long conference co-hosted by ECSP and the U.S. Agency for International Development’s Office of Global Climate Change on October 27.

2014 was the first year in four decades that the global economy grew without CO2 emissions rising in tandem – a monumental achievement and an encouraging sign that the tide may be turning in the battle to avoid the worst effects of climate change.

“Never before have we seen such incredible alignments between the tech costs, the will and wants of even the largest buyers, the motivations of the utilities to actually work with us, and the regulator,” said Alex Perera, acting director of the World Resources Institute’s Global Energy Program. “I’m really optimistic about the opportunities going forward.”

Ahead of the 21st Session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP-21), at least 164 countries have set renewable energy targets, which are seen as key to preventing catastrophic warming.

“I’ve been following the climate change negotiations since…before there was a climate change convention, and for the first time, I have a sense of optimism about where the negotiations are going,” said Charles Feinstein, director of energy and extractives at the World Bank.

Net investment in renewable sources of electricity has outpaced fossil fuels five years in a row, and the trend shows no sign of stopping. An estimated 28 percent of today’s global power generating capacity is powered by renewable sources. Renewable energy will make up almost 60 percent of new generating capacity installed over the next 25 years, and two thirds of the expected $12 trillion in new generating capacity investments, said Carrie Thompson, deputy director of USAID’s Regional Development Mission for Asia.

Finding a way to bring electricity to the 1.3 billion people who don’t yet have access to it while maintaining, and ultimately lowering, current emissions levels is a major development goal. But the proliferation of renewable energy has other knock-on effects that make it a priority as well.

Sustainable Development Benefits

The push for renewable energy is occurring in the context of the United Nations’ 2030 Agenda for Sustainable Development, which lists as its seventh goal to “ensure universal access to affordable, reliable, sustainable, and modern energy” while “increas[ing] substantially the share of renewable energy in the global energy mix.”

“SDG 7 is not just about energy in and of itself,” said Richenda Van Leeuwen, executive director for energy and climate at the UN Foundation, a U.S. nonprofit that supports the work of the United Nations. “We’re really trying to look in terms of driving sustainable outcomes across education, across health, across gender equity, and income increases as well.” The economic benefits of electrification are obvious enough, but the links between clean energy, health, gender, and education are less well known.

90 million children in sub-Saharan Africa go to primary schools without electricity

As Van Leeuwen pointed out, low levels of electrification often correlate with high maternal and neonatal mortality rates. This is in part because women in developing countries with limited electricity have high rates of exposure to smoke from cooking with kerosene and other fuels – both compared to women elsewhere and to men in their own households, who spend less time in the kitchen. The UN Foundation’s Global Alliance for Clean Cookstoves is thus integral to its work on sustainable energy.

In rural areas, lack of electricity at health care facilities also takes a toll on women and newborns. The UN Foundation is ramping up work in Ghana, Malawi, Tanzania, and Uganda to research the relationship between electrical power and the quality of health care, and is also studying more efficient health care appliances.

Without power, it’s also harder for young people to get the education they need. Ninety million children in sub-Saharan Africa go to primary schools without electricity. “We as a world have no excuse for any child being educated and studying at night and needing kerosene or candles,” said Van Leeuwen.

Distributed renewable energy – that is, energy generated by small, decentralized sources as opposed to large-scale plants that deliver conventional power to a national grid –promises to bring light and much more to these places. What’s more, renewable energy can provide these benefits without producing significant air pollution, like fossil fuels do. Some research suggests that renewables combined with efficiency measures can save millions of dollars in health care and mortality costs.

USAID has identified six building blocks for increasing renewable power generation in the developing world, said Allen Eisendrath, managing director of the Office on Global Climate Change. These include everything from competitive procurement processes and smart incentives that evolve over time, to “concentrated resource zones” and the importance of planning for climate change. These building blocks identify what countries need to do to drive large increases in renewable energy. “What are the requirements, other than low prices?” he said. “And what is driving low prices?”

A Grid Revolution

According to USAID, improving how renewable energy sources connect to existing electrical grids is key to continued growth. Unlike conventional power sources, such as coal or natural gas, renewable sources are intermittent, fluctuating based on environmental conditions such as overcast skies or windless days.

Household technologies like solar photovoltaic cells add a further layer of complexity because individual users have the potential to generate excess power that can be fed back into the grid and credited in a two-way billing arrangement known as net metering.

Balancing demand with intermittent availability and transitioning to net metering poses technological challenges for grid managers. China, for example, has struggled to fully utilize the large number of new wind turbines coming online, leading some experts to coin the term “garbage wind.”

However, the rise of distributed energy sources is an enormous opportunity for increasing energy independence. Power generation is no longer the sole dominion of the national grid or major utilities, especially in places not connected to the main grid.

Jake Cusack, a managing partner at the energy investment firm CrossBoundary, said Africa is now adding 10,000 off-grid customers a month. “In some ways, developing countries are now leapfrogging developed countries,” in terms of power supply heterogeneity, he said.

“The days of ‘grid extension or nothing’ are over,” said Mike Eckhart, a 40-year veteran of the energy industry who now serves as global head of environmental finance and sustainability at Citigroup. Solar photovoltaic cells are now available in everything from individual study lights that cost just $2, to small home solar installations able to power small appliances and charge phones, to micro and mini grids that can power small communities and eventually be integrated into the macro grid.

Pay as You Go

One major enabler of this growth in the developing world is innovation in how you pay for electricity. New services like Kenya’s M-PESA have revolutionized microfinance by allowing anyone with a cellphone to send and receive money. This has opened up access to millions of customers who previously might not have been able to purchase solar units because of their lack of credit.

“In some ways, developing countries are now leapfrogging developed countries”

“There’s a strong connection with mobile money and the ability of solar to penetrate all over the [African] continent, and particularly in rural areas,” said Chaim Motzen, co-founder and managing director of Gigawatt Global. Motzen recently led the creation of East Africa’s first utility-scale solar field, an 8.5 megawatt facility in Rwanda.

Ethan Zindler, head of the Americas for Bloomberg New Energy Finance, described how a home solar unit works. For a modest upfront payment, customers receive small solar modules with outlets for charging phones and powering lights and other appliances. Using their cell phones, they purchase access to the module in hourly increments by entering a code from their service provider on their device. Service providers get paid back over time and customers get access to energy without having to pay prohibitive upfront costs.

This model of incremental payments is the general approach for even the largest renewable energy projects in the developing world. Utilities often lack the capital necessary to build major new installations, said Cusack. Development organizations and private investors therefore finance upfront costs, receiving returns on their investments through power purchase agreements that provide steady cash flows over a decade or two.

The falling price of renewable technologies has made clean energy an increasingly attractive profit sector. Development organizations are quick to point out the financial benefits of investing in clean technology to private investors, and in doing so, they are underwriting a renewable revolution.

Falling Costs, Rising Opportunities

“Clean energy has gone from being the ‘right thing to do’ in combating climate change, to being the most cost-effective option for many energy-insecure countries,” said Thompson. “This is as much a bottom-up movement, fueled by open markets and cost-competitiveness…as it is a policy priority for governments around the world.”

Perera cited one company in India that signed a large solar deal for 5.7 rupees per kilowatt-hour rather than pay the grid price of 7 rupees per kWh, and another that opted to produce wind energy at 6 rupees per kWh instead of paying 7 rupees per kWh for natural gas-fired power. Even in Abu Dhabi – capital of the United Arab Emirates, owner of the world’s seventh-largest natural gas reserves – solar prices are now beating natural gas, Perera said.

China’s staggering growth and innovation in renewable technologies over the last six years has been a major driver in lowering the price of solar by more than 80 percent, according to Zindler.

Renewables are especially cost-competitive in developing countries where electricity prices are at $.50/kWh or higher (prices in the United States were about $.13/kWh for residential customers in August 2015, and about $.11/kWh overall). “That’s just not that hard for renewable energy to beat,” said Zindler.

Global investment in renewables rose from $40 billion in 2004 to a record $320 billion in 2011, adding up to a whopping $1.5 trillion in clean energy investments over the past decade, according to Zindler.

Cultivating a Stronger Policy Environment

That’s not to say there isn’t room for improvement. While renewable energy has made inroads in many developing countries, the most successful stories often start with policy support – or at least not an actively hostile environment.

On a level playing field, renewable energy generation can stand toe to toe with conventional power sources in terms of cost in many places, but fossil fuels still receive massive subsidies from policymakers. UN Foundation Senior Fellow and former CEO and Chairman of the Global Environment Facility Mohamed El-Ashry noted that oil, coal, and natural gas receive $550 billion in subsidies every year – more than four times the $120 billion earmarked for renewables.

El-Ashry pointed out that these subsidies also contribute to inequality. Only 7 percent of fossil fuel subsidies currently benefit the poorest 20 percent of households, while 43 percent are captured by the top 20 percent, according to the International Monetary Fund.

To help investors understand where the best opportunities are and to give governments benchmarks, some useful tools are available to assess the policy environment and renewable energy potential.

43% of fossil fuel subsidies are captured by the richest quintile

Bloomberg’s annual Climatescope report, first published in 2012, scores 55 countries in the developing world on their receptiveness and hospitality to private clean energy finance – or “the investment climate for climate-related investment,” as Zindler put it. Data points include local regulations and the prices for conventional electricity, kerosene, and other renewable energy competitors.

The National Renewable Energy Laboratory (NREL) provides maps of the world’s renewable resources overlaid with geo-tagged data on resource strength and accessibility. Renewable technology – and modeling technology – is improving so quickly that a 2014 NREL study of wind power in the Philippines calculated five times the potential as a similar study in 2001, said Nisha Thirumurthy, a senior project leader.

Thirumurthy stressed that this kind of data benefits all players in the renewable ecosystem. It allows policymakers to see the potential for support; provides power system operators with information vital to successful integration into the national grid; and offers project managers and investors the chance to combine technical data about resource strength with other important information like regulatory frameworks and proximity to transmission lines. This vast and interactive resource is available to the public and allows users to upload their own proprietary information to supplement NREL’s data.

USAID recently launched its own global knowledge portal to aggregate data and provide information about its climate change activities, including renewable energy projects. Climatelinks combines links to tools by USAID and other organizations, like the Agriculture, Forestry, and Other Land Use Carbon Calculator and Readiness for Investment in Sustainable Energy map, along with metrics on current USAID programs, a calendar of climate-related events, various training modules, and other resources to assist development practitioners in their work.

The Utility Company: Help or Hindrance?

While there are some examples of large utility companies playing a major role in scaling up renewable energy, such as Kenya’s new 310 megawatt Lake Turkana wind installation, utilities can also be an impediment to progress, said several speakers.

Dennis Volk, a program officer at the International Renewable Energy Association, said that utility companies in the developed and developing worlds alike are heavily invested in continuing business as usual. Getting them to embrace a new paradigm – and renewable energy is just that – requires overcoming a substantial amount of inertia. It took significant intervention by the South African government, for example, to get its national electric utility, Eskom, to increase the share of renewable generation capacity in its planning, said Volk.

Meanwhile, organizations like the World Resources Institute (WRI) are demonstrating that it is possible to make major progress on renewables without the utility companies.

“We’re trying to advance a new model for development”

The biggest lesson developing countries can learn from developed countries is “the role of the large customer,” said Perera. He outlined how WRI is aggregating demand among some of India’s largest industrial power consumers to create financing opportunities for new installations entirely separate from the country’s conventional utility industry. Much of this aggregation has come through WRI’s Green Power Market Development Group, which organizes large corporates buyers to build demand for renewable energy. The group operates in the United States, India, and other markets, and has already achieved several major successes, including a pledge from Infosys – one of India’s largest IT companies – to use 100 percent renewable energy by 2018.

“Putting the African Sun to Work”

As critical as private sector investment is to driving the renewable energy boom in developing economies, it is often public money and NGOs that grease the wheels.

USAID’s Power Africa initiative, launched by President Obama in 2013, is ”helping to put the African sun to work, as well the wind, water, and geothermal resources,” said Thompson.

“This initiative is not typical ‘business as usual,’” said Power Africa Chief of Staff Melanie Vant. “We’re trying to advance a new model for development where Power Africa is leveraging U.S. government resources to mobilize private sector investment.” The goal, according to Thompson, is to remove “the financial and regulatory roadblocks that for too long have stood in the way of power delivery on the continent.”

Power Africa is involved in every aspect of driving clean energy in Africa, said Vant, linking top companies, governments, international organizations, NGOs, and major donors to build what she called “an ecosystem of players to get deals done.” More than 20 full-time transaction and technical advisors are employed by the initiative at any given time, some embedded in energy ministries.

So far, Power Africa has collaborated with more than 100 private sector companies and had a hand in $30 billion worth of deal flow, Vant said. In addition, they’ve garnered substantial assistance from other development organizations, like the World Bank, which committed $5 billion last year.

One advisor recently put together the framework for the 500 megawatt Corbetti geothermal installation in Ethiopia, that country’s first private power purchase agreement. Another is helping Kenya redesign its electrical grid code to enable integration of renewable resources from Lake Turkana and other sites.

Sustaining Momentum and the Road Ahead

These developments in renewables have had a significant impact on access to energy in the developing world, said El-Ashry. They may too portend a much cleaner energy future that will allow us to avoid the worst effects of climate change.

But the challenge of bringing electricity to more than a billion people while simultaneously lowering emissions and adapting to the effects of climate change is enormous.

Demand for resources will rise exponentially

El-Ashry emphasized the myriad threats climate change poses to the developing world. “According to the Fifth IPCC Report, ‘the risks of climate change are so profound that they could stall or even reverse generations of progress against poverty and hunger if greenhouse gas emissions continue at a runaway pace,’” he said. “The poorest people in the world, who had virtually no responsibility in causing climate change, will be the biggest victims.”

A 2014 report from the Asian Development Bank predicted “that the impacts of climate change are likely to result in huge economic, social, and environmental damage in six [South Asian] countries with 1.46 billion people, a third of them living in poverty.” Cuts to the economies of Bangladesh, Bhutan, India, the Maldives, Nepal, and Sri Lanka may be so deep they will create ripple effects around the world.

While certainly encouraging, improvements in cost competitiveness, financing, grid integration, the policy environment, and payment models are still just footsteps on the long path to halting massive global emissions from the energy sector while bringing electricity to everyone.

“As the global population grows from 7 billion to almost 9 billion by 2040, and as the number of middle class consumers increases by 3 billion over the next 20 years, the demand for resources will rise exponentially,” El-Ashry said. “It is only by significant scaling-up of renewable energy that we will enter a virtuous cycle of cost reductions followed by more significant scaling-up.”

Event Resources:

• Photo Gallery

Written by Graham Norwood, edited by Schuyler Null and Meaghan Parker.

Photo Credit: Solar panels in India, courtesy of Abbie Trayler-Smith/Panos Pictures/U.K. Department for International Development.