Opinion: Power revolution — A new way forward in the global power sector

Solar panels in Durban, South Africa. Photo by: USAID South Africa Low Emissions Development program

The COVID-19 pandemic that has overwhelmed health care systems around the world has also exposed significant weaknesses in another essential element of economic and social development: the global power sector.

Dramatic swings in daily electricity demands as countries impose and rescind pandemic lockdowns, and the subsequent economic damage to governments and public utilities, are putting unprecedented strains on many power providers.

The challenge is particularly acute in low- and middle-income countries, where power providers are generally government-owned, operating on thin or negative financial margins, offering below-cost tariffs for low-income residential consumers, and frequently saddled with capacity charges or onerous take-or-pay contracts for power supply. More than 90 countries have inquired about bailouts from the International Monetary Fund, many of which are at least partly linked to the financial problems in their power sectors.

Should aid be used to fund fossil fuel investments?

Billions of aid dollars are spent on fossil fuel activity each year. Supporters say there is no alternative to getting some countries the energy they need to develop — but detractors say that is a poor excuse.

There is a better way. It is time to rethink how we provide power in a way that grows businesses and creates new economic opportunities in LMICs. As with COVID-19, a meaningful response to power system deficiencies requires far-sighted leadership, international coordination, data-driven solutions, and public support.  

Power to the people: A new distribution model

Strategies for meeting the growing demand for electricity have too often relied on an outdated model built on expensive centralized power plants and massive and difficult-to-maintain distribution networks that seek to provide last-mile connectivity to every home, office, and factory.  

It doesn't have to be this way. The leap forward in decentralized renewables — particularly modular solar technology coupled with battery storage — can move power generation resources closer to the point of consumption.

It begins by turning consumers into producer-consumers — “prosumers” — by integrating solar in the increasing number of places where it is viable. With rooftop solar, residential, commercial, and even some industrial consumers can use what they need and sell what they don’t through net-metering schemes. At the community level, renewable-based mini-grids can power small businesses, municipal facilities, schools, and homes. And, as we ramp up the electrification of personal transportation, thousands of batteries in electric vehicles can become a massive distributed storage network when they are sitting idle.

Of course, manufacturers can’t run a factory on a mini-grid that’s powering a remote village, but there are better alternatives to coal- or oil-fired generation. Large scale solar, biomass, and hydropower, coupled with small, efficient combined-cycle gas plants to deliver the balancing power needed to fill gaps left by variable renewable generation, can meet the power demands of a growing nation.

These renewable energy options create local jobs for installation and operation while significantly reducing greenhouse gas emissions.

The road from here to there

Shifting to more efficient and resilient power systems that integrate renewables and mini-grids has begun in the United States, but still has a long way to go in other parts of the world. In many countries, new power models face considerable legal, regulatory, and political barriers. Resistance to change can be significant, but the benefits of change — energy security, job creation, stable energy costs, and lower greenhouse gas emissions — are even more significant.

For example, Nigeria has tremendous solar energy potential, along with the capacity to generate a decent amount of hydropower, but these renewable sources meet strong resistance in an oil rich country where fossil fuels are cheap and readily available. It will take a significant change in public attitudes and government policy for Nigeria to use its oil wealth to transition to a more sustainable future and reap the long-term environmental, social, and economic benefits of a green economy.  

In Kosovo, most of the power is provided by two out-of-date fossil fuel generating stations. The country has official policies to increase renewable capacity, but persistent public skepticism and lack of political leadership have limited the expansion of renewables. As in many other countries, misconceptions about the viability and costs of renewables, along with barriers to investment, are fueling the skepticism.

Government-controlled power systems should open the door to private investors through direct investment or public-private partnerships such as those that have long been permitted in the Philippines, Malaysia, Thailand, and India as well as many advanced industrial economies. To do so they must establish a transparent and credible regulatory regime that provides certainty to investors and ensures fairness both to producers and to their customers.

This has been done before

Costa Rica's state-owned power company, The Costa Rican Electricity Institute, has helped lead the country to a near-total reliance on renewable resources while serving as a model for quality, equity, and affordability in the power sector. Oil-producing Malaysia recently concluded its fourth solar auction of two 500-megawatt packages, one for 10-30 MW projects and the other for 30-500 MW projects. The auctions were significantly oversubscribed with the resulting lowest tariff offered of $0.033-kilowatt-hour.

Other countries should follow a similar path forward with greater reliance on distributed resources — including solar photovoltaics as well as other renewable technologies — increased digitization, storage and automation to enable integration of renewable generation, more efficient energy utilization, and more and better customer engagement.

Existing models for power sector governance are varied — ranging from traditional vertically integrated regulated utilities to regulated unbundled sectors — with competition among multiple generators, an independent transmission system operator, and private distribution companies with designated franchise areas. Private companies, public institutions, and PPPs can all be part of this energy transition. The development sector also has a critical role to play. Reliable energy is essential for development. It is the foundation for nearly every type of development project.

In countries where traditional energy supplies are unreliable or unavailable in rural areas, distributed, renewable energy resources can be a catalyst for positive change in agriculture, small business formation, public health, education, and other public needs. But much more can be done to introduce distributed renewable energy in conjunction with development programming, and to advocate forcefully to government counterparts on the need to reduce barriers to investments and to mobilize financial resources where needed.

The time has arrived for an electric power revolution. Let's seize this opportunity to help create a more sustainable, secure, affordable, and equitable power sector everywhere.

The views in this opinion piece do not necessarily reflect Devex's editorial views.

About the authors

  • Matthew S. Mendis

    Matthew S. Mendis, managing director of the Chemonics Energy Group, is a clean energy, environment, and finance expert with more than 35 years of experience in more than 45 developing countries. Initially, Mendis spent 10 years of his career at the World Bank, pioneering innovative financing mechanisms for small-scale energy efficiency and renewable energy initiatives before founding Alternative Energy, Development, Inc. — later merging with International Resources Group — where he was corporate vice president for the energy and environmental management division.
  • Edward Hoyt

    Edward Hoyt is a senior energy, climate change, and development professional with wide experience consulting for the government, multilateral, and private sector institutions in more than 50 countries. Prior to joining Chemonics, Hoyt served as transaction advisor for USAID Power Africa in Ghana, helping the national utility and government define the country’s need for new generation capacity. Under the USAID Africa Infrastructure Program, Hoyt supported the government of Mozambique on a competitive bid for a wind project, the first ever competitive procurement for a power project in the country.