Classifying the effects of electrification technologies

Evidence of direct, indirect and dynamic effects are examined in this section through a literature review focussed on each of the electrification technologies discussed in Table 3.1.

Pico power systems (solar lanterns)

For pico power systems, the direct utility function of energy is usually limited to its main customers, at an individual, personal use level. The low marginal costs of units mean that the direct effects derived from vendor networks is limited. Solar lantern interventions usually have little interaction with non-energy sectors, apart from manufacture of the units themselves, and therefore little indirect effects. The main business model for solar lanterns is often one of substitution for incumbent technologies like kerosene lamps (Roy & Jana, 1998). As such, the direct effects on household energy expenditure budgets is important, especially in the context of uptake and acceptance of the new technology (Scott, 2017). While upfront costs may be higher, there is often a net decrease in household energy-related expenditure over the longer term (Grimm et al., 2016, Kudo et al. 2017).

A major direct effect arising from the substitution of kerosene, or biomass fuels, with solar lanterns, is improved indoor air quality (Yadama, 2013). Sekyere (2012) outlines the dynamic respiratory health improvements that result from consumers switching to solar lanterns.

Empirical studies aimed at understanding the additional dynamic effects of solar lanterns are scarce. Literature indicates that improvements in the quality of light provided by solar lanterns may lead to little additional dynamic effects. For example, a recent comprehensive study in

Bangladesh showed little improvement in overall student academic performance as a result of solar lanterns (Kudo et al., 2017).

Solar Home Systems (SHS)

Larger-scale solar photovoltaic-panel systems, provided on a household level, offer larger direct effects than solar lanterns. In addition to the increased utility effect of room lighting and communications, SHS appear to generate higher wages and incomes derived from local distribution systems. For example, in India, SHS distributor Selco has established a business model which pays commissions to a large localised salesforce in BoP marketplaces. E-Hands, operating in Chennai in southern India, sells home systems through local flower vendors, which has helped increase their incomes by US$5/day (The Climate Group, 2015). With households and micro-enterprises being the main consumer target, indirect effects are limited to the supporting financial ecosystem often required – fee-for-service models and micro credit schemes are the most common mechanisms for acquiring SHS (Pode, 2013). Highlighting the reliability of SHS, Rao et al.’s (2014) comprehensive study found that communities with SHS had a much higher reduction in kerosene usage compared with communities with micro-grids or unreliable grid access, resulting in longer term changes in household budgeting.

Studies of the dynamic effects of SHS are few, despite it being a very popular electrification option in various African countries (Bernard, 2010). Some studies found marginal benefits: in Sri Lanka, socio-economic impacts were mainly related to longer study hours for children and longer TV watching hours (Wijayatunga & Attalage, 2005), while Mala et al.’s (2009) study on SHS in Kiribati found only marginal improvements in business productivity over time. Studies centred on Bangladesh (Halder, 2016; Samad et al., 2013) have shown increases in children’s study time and health benefits resulting from SHS. In India, Barman et al. (2017) found that SHS produced noticeable increases in mobile phone charging and children’s study hours, although it was found that social awareness of potential livelihood improvements was crucial for the system’s viability. Diaz et al. (2013) note the increasing use of SHS for more commercial applications in Argentina, including for lighting of public infrastructure and water pumping in small villages.

Micro-grids

Micro-grids exist on a community scale, providing enhanced direct effects from a wider operational footprint, including effects from wages, and earnings through direct engagement in the operations of the system, such as maintenance and manufacturing. Being on a community scale, the opportunities for engagement with firms is often pursued, producing larger indirect

effects. For example, Gram Oorja’s micro-grid operations in western India aim to produce 70%

of their energy specifically for business use in income-generating activities (pers. comm., Gram Oorja, 22 March 2017). Thus, the scope for direct and indirect effects combining to produce dynamic effects is much greater than the lower level electrification technologies. Amongst other effects, energy provided by micro-grids can increase drinking water safety, improve communications, and help refrigerate vaccines and sterilise equipment (Ravindra et al., 2014).

Evidence of dynamic effects of micro-grids in Kenya, monitored over 13 years, was presented in Kirubi et al.’s (2009) study. This showed effective and sustained increases in enterprise development, mainly through the available use of electrical equipment and tools by small and micro enterprises, improving productivity and income levels. Social and business services also improved, stimulating positive education and health impacts. Firms generally need access to energy services to thrive and grow (Marquez & Rufin, 2011), and in the case of Kenya, the micro-grid triggered wider economic restructuring over time.

Millinger et al. (2012) found positive dynamic effects on study time and women’s empowerment in their study of micro-grid systems in India, although little change to the area’s enterprise development was noted, possibly due to the size of the technology deployed. Gippner et al.’s (2013) study of micro-hydro systems in Nepal showed dynamic effects in terms of new entrepreneurial activities and the role of women.

A recent study (Aklin et al., 2017) examined the socio-economic effects of micro-grid operator Mera Gao Power in India, through a randomised field experiment. The study found that the presence of the micro grid produced no changes in savings, household business creation, productive work time, and use of lighting for study. The time period of this study was one year, indicating that dynamic effects may take some time to mature within a community.

Grid

Grid power, at the apex of electrification technologies, allows the large direct, indirect and dynamic effects of energy on a community and economy to be realised. The complex supply chain of generation, transmission and distribution means that the grid sector provides vast value connections for direct and indirect effects. For example, at a local level in India, Cabraal et al.

(2005) note that the addition of an electric pump to a typical farm without electricity resulted in average income gains of about ₹11,000 (Indian rupees) annually, compared to the farmers’

electricity expenses of approximately ₹2,000 per year.

Regarding dynamic effects of the electricity grid, a number of papers attest to significant socio-economic changes. Aguirre (2014)’s study in Peru found a direct link between grid connection and children’s study time. Another notable study by Kanagawa & Nakata (2008) showed through an analytical energy-economic model, that improving household electrification rates, correlated with higher literacy rates in Assam, India.

Further diverse effects have been investigated in other studies. Dinkelman (2011) observed trends linking household electrification with increases in micro-enterprise development and employment, allowing women to turn from home services to employment in the workforce.

Khandker et al. (2013) used extensive field surveys in rural Vietnam to show evidence of the grid’s positive effects on household income, expenditure and education levels. In India, Van de Walle et al. (2013) reported long-term benefits from rural electrification through improved earnings and increased levels of female education. However, Aklin et al. (2017) point out a previous study (Aklin et al., 2016) that stresses that socio-economic effects of grid electricity are unable to be realized when the grid is unreliable and of poor quality.

Summary

This section has reviewed electrification technologies from academic literature, with a focus on describing the effects on key stakeholders that contribute to poverty alleviation. This review has been assisted through the development of a conceptual representation (Figure 3.3) that enables classification of effects as either direct, indirect or dynamic. The utility of this conceptual representation has been demonstrated as the review sifted through the literature linking energy (and electrification more specifically) with poverty alleviation. The literature has shown that direct effects occur across all electrification technologies, with higher levels of energy (kilowatts) producing larger utility effects. Those technologies that greatly enhance income-generation activities, such as micro-grids and the electricity grid, are likely to produce higher levels of indirect effects.

Similarly, while all electrification technologies have the ability to produce dynamic effects such as health and education improvements, intuitively such effects might be evident in trends over several years. Again, income-generating electrification technologies, such as micro-grids and the electricity grid, where there is a high economic utilisation in the economy by the non-energy sector, are more likely to generate additional dynamic effects, such as long-term structural changes in an economy. This chapter now turns its attention to the private sector: knowing electrification’s range of effects, firms may be able to use this information to structure their value propositions and maximise their value creation.

3.4 ELECTRIFICATION LINKAGES TO PRIVATE SECTOR VALUE PROPOSITIONS AT