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Why You Don't Need Fossil Fuel to Fight Poverty. (Clean Energy Does it Better!)

Daniel Kammen's picture
Co-Director, Berkeley Institute of the Environment UC Berkeley

Class of 1935 Distinguished Chair in Energy Professor, Energy and Resources GroupProfessor, Goldman School of Public PolicyProfessor, Department of Nuclear EngineeringDirector, Renewable and...

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  • Feb 26, 2014
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fossil fuel poverty

Last year President Obama launched Power Africa, an initiative to double access to power in sub-Saharan Africa, where more than two-thirds of the population is without electricity.  In a parallel move, the House Foreign Affairs Committee leadership introduced the Electrify Africa Act to encourage access to electricity in sub-Saharan Africa.  Since then, there has been quite a bit of debate about how federal agencies can best provide support for sustainable energy access for the region. (See related post: “As U.S. Plans $7 Billion Effort to Electrify Africa, It Faces Challenges at Home.”)

On February 10, in the Council on Foreign Relations’ Energy, Security and Climate blog, Michael Levi posted a thoughtful piece entitled, “Is U.S. Fossil Fuel Policy Keeping Millions Poor?” This question is critical to not only how to most effectively use overseas investment and development funds, but how to transition the energy system at the household, regional, and global levels in a way that addresses the crippling problem of insufficient energy access for the global poor in an environmentally responsible way.  This issue is one where we have done a considerable amount of analysis, and the results should be eye-opening to those looking largely retrospectively at the evolution of energy provision and end use technologies and policies. (See related organizations working on energy access solutions as grantees of the Great Energy Challenge.)

In the post Levi critiques a January 2014 memorandum by the nonprofit think tank, the Center for Global Development (CGD), which calls for weakening the landmark climate and development policy of the U.S. government’s development finance agency, the Overseas Private Investment Corporation  (OPIC). This policy, which requires OPIC to reduce its fossil fuel financing and increase its renewable energy financing, has shifted the agency from providing $131 million in renewable energy projects in 2009 to now around $1 billion annually—roughly 30 percent of total agency financing—to the developing world.  This transition away from fossil fuels to a renewables-intensive portfolio is consistent with both the global imperative to reduce carbon emissions, and the very pressing need that United National Secretary General Ban Ki-moon has identified as a crippling issue for the global poor: energy access. (See related story: “Five Surprising Facts About Energy Poverty.”)

Yet, CGD argues that a revision of OPIC’s climate policy is needed to allow more financing for gas projects that could somehow result in more than 60 million additional people in poor nations gaining access to that electricity. Levi highlights a number of key issues, and in turn makes a set of important critiques, beginning with the finding that that CGD’s analysis is based on dubious assumptions of higher financing leveraging ratios of OPIC support for natural gas projects versus renewables, and that “historical leverage ratios do not tell us that for every additional dollar OPIC spends on gas the private sector will spend four. They actually tell us nothing about how much private investment a dollar of OPIC spending will leverage, because they don’t tell us what happens at the margin, and they don’t tell us anything about causality…It’s entirely possible that public spending on natural gas projects appears to leverage more private capital than spending on renewables does simply because more private capital is already there for natural gas than for renewables.”  Levi also argues that CGD’s cost estimates focus on capital costs for plant construction and omit expensive fuel costs for gas plants over time—a problem that renewable energy does not face.

In fact, the CGD memo contains a number of problematic statements that warrant further exploration, namely:

Obsolete Data:  CGD bases much of its cost estimates on a 2008 Congressional Research Service (CRS) report and a 2010 Department of Energy report on US power plant capital costs.,  However, renewable energy capital costs have plummeted throughout the world since these reports were released.  For example, the 2008 CRS estimates that the average cost of installed capacity of selected solar photovoltaic projects is $6,552 per Kilowatt (or $6.55 per watt).  However, a 2013 report by the Lawrence Berkeley National Laboratory and U.S. Department of Energy demonstrates that by 2012 the median cost of installed photovoltaic projects in the US decreased to between $4.6 and $5.3 per watt , and costs for 2013 and beyond are expected to drop still further. In fact, using the U. S. Department of Energy’s SunShot objectives of $1/watt commercial-scale solar by 2020 (a target most analysts believe that the world will hit based on current R&D and market-based policies), we recently found that solar could reasonably provide one-third or more of the energy for much of the United States. Africa is not removed – in fact it is benefiting greatly on both energy access and price containment–from this global trend. According to a 2013 market research paper by Deutsche Bank, in South Africa solar energy for residential use is already capable of being deployed cheaper than the current price of electricity from the grid. This finding is consistent with the work of the IFC and U. S. DoE supported Lighting Africa program, which find that even in the sort-term, solar beats off-grid and mini-grid based fossil fuels, a finding our own laboratory at UC Berkeley has confirmed in field-studies in East Africa, southeast Asia, and Central America. (See related story: “Solar Energy Brings Food, Water, and Light to West Africa.”)

High Fossil Fuel Operating Costs Over Time:  The 2008 CRS report found that the most variable cost for fossil fuel projects is the cost of fuel, since “it takes years to build a power plant, and plants are designed to operate for decades, generation plans largely pivot on fuel price forecasts. However, fuel prices have been notoriously difficult to predict.”  Also, Levi notes that in Africa the cost of using gas domestically includes forgone gas export revenues.  Higher export prices compete with, and drive up domestic prices, which can be expected in Africa as countries there seek to increases exports.  This high variability and lack of predictability should be of great concern in the context of energy access, since lower income communities may likely not have the financial means to pay for fuel when costs fluctuate to high levels.  Meanwhile, the CRS study states what is perhaps obvious, that fuel prices are “irrelevant to solar, geothermal, and wind power.”

Moreover, the high capital cost of large centralized fossil fuel projects typically result in long-term power purchase agreements, thus locking countries into expensive long-term fossil fuel supply contracts, sometimes over two decades, thus forgoing the opportunity to displace more expensive fossil fuel projects with cheaper renewable energy projects as the costs of renewables drop.  And, large centralized fossil fuel projects can take several years to construct before generating electricity, while renewable energy can be more quickly deployed and does not saddle poor communities with expensive long term fossil fuel supply costs. According to a Baker McKenzie survey of 140 senior business executives from project developers, bank, investors and service providers, “renewables [in Africa] can be installed much more rapidly than conventional fossil fuel generation. Solar PV also has a natural advantage over other renewable technologies in that it can be deployed on a relatively small scale – 85% of survey respondents believe that solar PV’s suitability for rural, off-grid applications is a strong driver for its installation.”

Transmission and Distribution Costs Omitted:  By comparing only the capital cost of power plants, CGD omits one of the biggest and most crucial costs associated with energy access in Africa—the cost of transmission and distribution. According to the International Energy Agency’s Energy (EIA) for All: Financing Access for the Poor, of people without access to electricity globally, more than 95% are either in sub-Saharan Africa or developing Asia and 84% are in rural areas. According to the EIA, due to the high cost of extending the grid to these areas, to achieve universal energy access 70% of these rural areas should be connected either with mini-grids or with small, stand-alone off-grid solutions, and that 90% of mini-grid and off-grid must be provided by renewables. According to the IEA, “mini-grids, providing centralized generation at a local level and using a village level network, are a competitive solution in rural areas, and can allow for future demand growth, such as that from income-generating activities.”  According to Baker & McKenzie, such small scale renewables “are attractive, being relatively quick and cheap to deploy relative to fossil fuels, making them suitable in areas where there is no grid connection, where they can also compete on cost with conventional energy sources.”

Externalized Costs Omitted:  CGD correctly states that pollution from the current use of solid fuels used for lighting, heating, and cooking in Africa contributes to health problems including premature deaths.  However, CGD omits the fact that fossil fuel power projects that it proposes also cause health problems, including cardiovascular and respiratory illness that likewise contribute to premature deaths.  Additional externalities from fossil fuel projects can also lead to damage to community resources and commons, as well as losses to agricultural productivity. 

Through Administration, interagency and international efforts, methodologies to calculate the economic costs of these externalities—called the social cost of carbon—are increasingly common. These methodologies attempt to estimate economic costs associated with carbon dioxide, as well as other pollutants released simultaneously, such as sulfur dioxide, particulate matter, and mercury. While the tragic human toll from this pollution is never simply monetary, the existence of social cost of carbon methodologies demonstrates that there is increasingly mainstream awareness of the economic costs that private fossil fuel projects externalize to the public.  The recently revised U.S. Export-Import Bank Guidelines for High Carbon Intensity Projects require that “subsidies and externalities, such as the social cost of carbon emissions, even if not quantified,” be included in obligatory assessments to determine whether economically feasible alternatives exist for coal plants in the poorest countries. Environmental and developmental NGOs are urging OPIC to also include the social cost of carbon in its financial comparisons of all power generation options.  However, CGD omits any mention of these externalities in its analysis of fossil fuel versus renewable power plant options.  If the goal of increase energy access includes health considerations, these costs must be factored in.

Installed Capacity Does Not Translate to Energy Access:  Perhaps the most startling thing about the CGD analysis is the assumption that increased federal financing for American gas companies doing projects in Africa will result in 60 million poor people in those countries somehow gaining access to the electricity generated by those projects—despite the lack of a grid that connects them. An independent review of past energy projects at major international development financial institutions since 2008 shows an opposite result—over $28 billion to natural gas projects with zero dollars actually targeting energy access for the poor. Meanwhile, the CGD analysis provides no strategy—much less cost estimates—to ensure that access is extended. Foreign investors, seeking the highest profits possible, will naturally gravitate to projects that do not require them to absorb the cost of expensive grid extensions to poor communities. More likely, the CGD approach would result in a shift back to the old days with OPIC clients that pursue centralized fossil fuel projects that will be connected to established grid or projects that extend the grid to industrial projects or urban areas that can pay for higher of electricity—rather than investors in distributed renewable energy projects that do not require massive and expensive grid expansion.

Daniel M. Kammen is Class of 1935 Distinguished Professor of Energy, at the University of California, Berkeley, and an adviser to National Geographic’s Great Energy Challenge initiative. He co-authored this blog with Doug Norlen, policy director for Pacific Environment.

Photo Credit: Fossil Fuel and Poverty/shutterstock

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Paul O's picture
Paul O on Feb 26, 2014

Frankly, I haven’t read anything in this piece that convinces me of suitability or preferabilitty of Renewables to sub-saharan Africa. What I am seeing is a suspisciously ideological message from someone who wants to promote PVs in Africa and has low expectaions for energy use and demands in Africa.

Every one of the points raised in this piece:

Obsolete Data, High Fossil Fuel Operating Costs Over Time, Transmission and Distribution Costs,  Externalized Costs, Installed Capacity Not Translating to Energy Access, every single one of these factors  apply tjust as well to the United States and other developed countries. Let the developed countries prove the feasibility of PVs as primary energy source, before attempting to foist them on Africans.

Could it be that Africans are assumed to be less sophisticated, or deserving of less high quality 24-7  energy supply than folks in Europe and America?

My point Daniel, is that let’s wait until Americans and Europeans convincingly demonstrate how communities may survive on a lean diet of PVs, then and only then should we attempt to foist PVs on Africans.

PVs are inadequate, and they represent an energy straight Jacket that African nations may not want to be lured into accepting. Renewables fans and enthusiasts should quit selling inadequate energy to Africa. If the energy they are promoting is in fact adequate, then let them adopt it for themselves first.

Ed Dodge's picture
Ed Dodge on Feb 27, 2014

Prof. Kammen,

You state in the article that solar can reliably provide one-third of our energy use.  Doesn’t that imply an ongoing need for conventional energy sources even with other renewables in the mix?

 

Nathan Wilson's picture
Nathan Wilson on Feb 27, 2014

One third solar?  That not only implies fossil balancing, but it also requires energy storage or agregation via a large grid; were these costed too?

Don’t forget that village level backup generation will likely be oil based (diesel).  Isn’t it better for poor nations to make their electricity with coal and gas, and export their oil to generate cash? (cash which could help pay for imported Chinese PV panels…)

Clayton Handleman's picture
Clayton Handleman on Feb 27, 2014

Thank you for pointing out that many who compare renewables to fossil fuels in developing countries conveniently fail to include the cost of building out the near non-existant grid infrastructure.  I find it ironic as these are often the same people who paint renewable energy advocates as starry eyed idealists who eschew facts for ideology.

Your point about lower needs for per capita energy are also right on target.  A lamp or two, a laptop, cell phone and refrigeration would be a huge step up for many in the developing world.

Lithium Ion batteries offer vastly superior performance in hot environments and are rapidly approaching lead acid cost on a lifecycle basis.  Recent press about Tesla’s new battery factory suggest cost reduction faster than McKinsey and Navigant’s already exciting estimates.  Lithium ion batteries are far lighter and have much better performance characteristics than Lead Acid.  For lighting alone it has been known, for over a decade, that solar with battery was far more cost effective than the commonly used kerosine lighting.  The up front cost was too high however.  It is a different situation with the collapse of module prices and the rapidly collapsing price of li-ion batteries.  Taking cycle life and performance at high temperature into account, li-ion will be at cost parity with lead acid in 1 – 2 years.

Refrigeration can take advantage of phase change materials so that no batteries are required to carry it through the night and only about $100 of PV is required.  In other words, if the family can afford the grid tied fridge, they can probably afford the PV operated one.   

Laptops, of course already have the battery backup.

And LED lighting is reaching extraordinary efficiency, more than double that of even CFLs thus requiring very little in the way of PV or battery capacity.

 

Clayton Handleman's picture
Clayton Handleman on Feb 27, 2014

Nathan,

I think your post makes sense in the developed world. However in the developing world, they don’t even need microgrids to make huge strides in standard of living as well as small scale manufacturing.  Intermittency is much more manageable. 

 

Bob Meinetz's picture
Bob Meinetz on Feb 27, 2014

Todd, you’ll have to excuse me for pointing out that your implication that Africans use less than 50 watts per person by choice is ridiculous.

Do you really believe that Africans as a race – or culture – are able to subsist on less energy than their first-world brethren? Or is it perhaps that we could subsist on less energy, and they would be far better off with more? And what happens to the food in that solar refrigerator after a couple of cloudy days – should Africans simply replace it with fresh food from the local convenience store?

Perhaps the challenge is “really much simpler than what many of us make it to be” if we assume significant areas of the African continent are content with a diet of insects, of fetid drinking water, of healthcare which is deplorable – largely the result of a lack of dependable baseload energy.

You would be well-served by a trip there to see firsthand what sub-subsistence living looks like.

Paul O's picture
Paul O on Feb 27, 2014

Please don’t try to obfuscate with the fastest growing new generation baloney. We have a well developed electrical generation infrastructure supporting industry here in the US. These fastest growing peanuts for energy don’t mean a thing in terms of overal US generation capacity

Paul O's picture
Paul O on Feb 27, 2014

Clayton, Africans are interested in real industrial growth, not just PV toys for laptops and lamps..They want to build their own Iron and steel industry, they want to manufacture cement, not just import it. They want factories where millions can find jobs, they want Refrigeration to keep food fresh.

 

This is nothing more than starry eyed westerners trying to tell Africans how (not) to develop.

Jesse Jenkins's picture
Jesse Jenkins on Feb 27, 2014

Bob, that’s pretty unfair to Todd’s comment. He is simply noting where we are starting from as you consider improving energy access in many emerging economies, and his comment talked about boosting per capita electricity consumption levels 20-fold. He’s hardly championing “a diet of insects, of fetid drinking water, of healthcare that is deplorable.” Please try to keep things on topic and avoid fighting with straw men…

Jesse

Paul O's picture
Paul O on Feb 27, 2014

Jesse,

My roots are steeped (VERY) deeply in Africa, and Frankly I feel insulted by the complacency and arrogance I hear from Westerners who want Africans to live on Subsistence energy from PVs.

I have to disagree with you and side with Bob. Whether Todd meant it or not, the only way for Africans to survive on PVs is if they ate insects and didn’t manufacture products that are widely available elsewhere in the world.

The very notion that all we need is power to replace kerosene lamps in Africa, or that we should not build grids, this notion is almost infuriating.

Jesse Jenkins's picture
Jesse Jenkins on Feb 27, 2014

Paul, I agree 100% with the sentiment that we need to be building scalable, modern energy systems for everyone. I doubt Todd disagrees either. My point is you need to be careful not to put words in other people’s mouths. The idea that installing PV systems is tantamount to condeming people to “eat insects” is also pretty laughable. Sorry, but tone down the rhetoric and try to keep this conversation focused on solutions.

Jesse

Clayton Handleman's picture
Clayton Handleman on Feb 27, 2014

Paul,

I guess I am missing your point.  Do you feel that the US should pay to build a grid in Africa?  Can you provide some figures as to the price of that and how long it would take? 

 

 

 

 

Bob Meinetz's picture
Bob Meinetz on Feb 27, 2014

Jesse, solutions arise from people’s perceptions of problems, and I stand by my criticism of Todd’s opinion that African society somehow “needs” less energy than any other.

PV systems won’t condemn anyone to eat insects (of course that’s putting words in my mouth); they won’t prevent that either. Most of these systems are incapable of providing refrigeration or anything more than lighting a couple of bulbs or charging a cellphone.

I suspect that most people receiving handouts of this equipment will try to sell it to someone else, or burn any part of it that’s combustible in a stove for heat and scavenge the rest for parts.

Bob Meinetz's picture
Bob Meinetz on Feb 27, 2014

Clayton, I’d like to hear more on your thesis that “intermittency is much more manageable” in the developing world. Do people living in poverty manage better than we do with manufacturing that shuts down on cloudy days?

I tend to think you’ve got it backwards – people who need reliable energy the most are the poorest.

Paul O's picture
Paul O on Feb 27, 2014

Nigeria is paying for it’s own Grid (as an example).  They have a population of about 130 Million people, they are about twice the size of Texas.

They certainly have Huge cities already lit up, Lagos, Calabar, Port Harcourt, Abuja, Kano, Enugu, Sokoto, Ibadan, and lesser towns like Ilesha, Oyo, ife, …and many many more.

They Have a huge Hydro-electric Dam at Kainji, and they have Coal and Oil burning Facilities.

Nobody is forcing Obama or the US to invest anything. However if they chose to invest, the expectation that what Africa needs is substandard PV power is annoying, and this is almost exclusively the message I get from renewables fans.

Africa wants real power, enough to supply home grown automobile manufacturing, Textiles, Plastics,  Iron and Steel Manufacturing. Africa for short wants what the West already has, and people suggesting that they should settle for PVs to light up some LEDs and charge laptops is riddiculous.

Clayton Handleman's picture
Clayton Handleman on Feb 27, 2014

I think it is great that Nigeria is developing infrastructure and I am all for it.  My take-away from the article was that renewables has an important role to play in more rural settings where many people don’t have electricity and they are unlikely to get grid access even if their country does industrialize.  I agree that for heavy industry, centralized power is still needed. 

Nathan Wilson's picture
Nathan Wilson on Feb 28, 2014

Yes, it’s a sad fact that in developing countries, an unreliable grid can help de-stabilize the government, and therefore increase the risk of civil war (do I sound like Gail T.?)

Nathan Wilson's picture
Nathan Wilson on Feb 28, 2014

Ok, but the growth of (low penetration) wind power in the US, via government subsidies and a robust and highly capable grid (see this presentation on US transmission for a 20% wind vision from the Utility Wind Integration group) does not fit with your vision for avoiding costly and time consuming grid development.

The reality is that once we put aside the wildly optimistic long-term vision of people being satisfied with a few hundred unreliable Watts from a rooftop PV system, we end up with a system in which renewables are built in addition to, not instead of a traditional grid with dispatchable generation (i,e. they save fuel, but do not eliminate grids or power plants).

Nathan Wilson's picture
Nathan Wilson on Feb 28, 2014

In a modern society, only about 2% of the people are farmers.  As these countries develop, kids will leave their parents’ farms and seek jobs in the city, in industries that depend on large amount of power. They will not have the option to live in their parents’s house where their labor is not needed, watching television and talking on the phone.  Most of them will not be able to get low energy service industry jobs; manufacturing is the cornerstone of developing economies.

I do not doubt that the lives of the 2% who will live on farms in rural areas will benefit from off-grid PV.  It will provide a more cost effective rural electrification.  But rural use is only a small part of electrical demand.

Paul O's picture
Paul O on Feb 28, 2014

Nathan Let me reassure you that an unreliable grid Will Not lead to civil wars. Civil wars are largely caused by underlying ethnic tensions from non-heterogenous populations being artificially bonded together, compunded and sparked by percieved unfairness or injustices that are inflamed by unscrupulous “leaders“.

A City the size of lagos with some 12 million (or maybe more) inhabitants, and a grid (however frail) , goes a long way toward fostering understanding between disimilar populations. People living there are doing useful jobs that earn incomes for their families back home in their tribal areas, while living side by side folks of different ethnic origins. Some evn intermarry..

Trade and commerce along with jobs made possible by the presence of factories which are supported by grids and diesel backups, and which provide a market for products from outlying regions, have done much more to minimize tensions than anything else that I can think about.

Surprisingly people may blame the gov’t for bad grids, but since the pain is shared evenly by everyone, destabilization does not occur from the grid issues as far as I can recall.

I can assure everyone that pansy solutions like PV’s won’t even touch the needs of Africa’s population centers which serve as commercial hubs and ports of export for the rest of the countryside.

Nathan Wilson's picture
Nathan Wilson on Feb 28, 2014

Thanks, that is reassuring.

Bob Meinetz's picture
Bob Meinetz on Feb 28, 2014

Todd, people use whatever resources are available to them and make the best of it. My criticism was of the idea that Africans somehow need less energy to run their “societies”, which smacks of first world exceptionalism and is franklly offensive. As is your satisfaction with a challenge so “simple” that dropping some relatively worthless solar junk on it will make it go away.

You can bet that the refrigeration equipment at your mom’s ice factory was not powered by a windmill. Unlike the radio, her ice box made it possible to survive, and I doubt she would take kindly to any suggestion that the radio met her needs.

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