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The business case for going solar

By Carl Pope18 April 2012

The key to low-carbon development in the emerging economies — and to energy access and development for all — is to get the numbers right, and invest our resources for leverage.

Not all electrons are created equal. A distantly generated 2 a.m. electron from an old coal-power plant might cost only 10 cents perkilowatt-hour, even delivered. Solar has a hard time competing with that. Solar power generated on a hot summer afternoon in Bangalore or Nairobi could replace a kilowatt-hour produced by a diesel generator for around 50 cents. Renewable power for a remote telecom tower could replace diesel generation costing $1 per kwh or more. And light for an off-grid household otherwise condemned to use kerosene is worth at least $3 per kwh.

In all of these critical energy choke points, solar panels are easily competitive with fossil fuels. What keeps them from flooding the market is not cost but regulatory barriers, the lack of distribution and a shortage of credit.

But most of the world’s attention is focused on deploying new, clean energy technologies where the old, high-carbon approaches are best-established and hardest to displace. And most of the effort that is being devoted to helping the poor access energy is being misapplied: Governments keep subsidizing the cost of solar electrons, which the poor could actually afford, rather than credit, finance and distribution, which they cannot.

The “grid trap” and the “solar is expensive” myth are getting in the way of what is probably the single major opportunity facing the world: providing energy access for the 1.2 billion people who don’t have electricity, most of whom, in business-as-usual scenarios, still won’t have it in 2030.

These are the poorest people on the planet. Ironically, the world’s poorest can best afford the world’s most sophisticated lighting: off-grid combinations of solar panels, power electronics and LED lights.

The cost of copper and coal, the ingredients of conventional grid power, has been soaring. Meanwhile, the cost of solar panels and LEDs, the ingredients of distributed renewable power, is decreasing even faster.

This creates opportunity for renewable energy: The economics are compelling, the moral urgency profound, the development benefits enormous, and the potential leverage game-changing.

What poor people pay

If we want the poor to benefit from electricity, we cannot wait for the grid and we cannot rely on fossil fuels. The International Energy Agency, historically a grid-centric, establishment voice, admits that half of those without electricity today won’t be wired even by 2030. The government of India estimates that two-thirds of its unelectrified households need distributed power.

The poor already pay for light. They pay for kerosene and candles. And they pay a lot. The poorest fifth of the world may be paying up to one-fifth of the world’s lighting bill — but they receive only .001 percent of the lighting benefits. Over a decade, the average poor family spends between $1,000 and $1,800 on kerosene lighting, when replacing kerosene with a vastly superior home solar system would cost only $300, and give them not only light, but also power up cellphones, fans, computers and even televisions.

Kerosene costs 10-30 percent of a family’s income — globally, that’s between $25 billion and $36 billion per year. The poor do not use kerosene because it is cheap – they are kept poor in significant part because they must rely on expensive, dirty kerosene.

And the poor pay in other ways. A room lit by kerosene typically can have concentrations of pollution 10 times above what is safe. About 1.5 million women every year die of this pollution, as well as from burns by fires.

So why do the poor use kerosene? Because they can buy a single day’s worth in a bottle, if that is all they can afford. For the poor, affordability has three dimensions: total cost, upfront price and payment flexibility. Solar power comes in a panel that will give 10, or even 20, years’ worth of light and power — but the poor cannot afford a 10-year investment up front. And many cannot handle conventional finance plans, which require fixed payments regardless of their income that month.

So, lighting the lives of 1.2 billion people with off-grid renewable electricity requires three ingredients:

1) Capital to pay for solar or other renewable electrical generation for 400 million households that depend on kerosene.

2) Business models for those households to pay for the electricity they use, at the price it really costs, which is a lot less than kerosene.

3) Financing, public policy and partnerships to create the supply chains and distribution networks capable of getting distributed electrical systems to every household that needs them. (These needs might require $6 billion in credits and loan guarantees.)

The money is on the table. It’s just on the wrong plates. Purchase and finance of solar power for 1.2 billion people would cost about $10 billion a year over a decade. The 11 countries with the largest number of households without electricity spent $80 billion each year subsidizing fossil fuel — only 20 percent of which benefits the poor. In 2010, the World Bank spent $8 billion on coal-fired power plants, few of which provided meaningful energy access to the poor. The United Nation’s Clean Development Mechanism is proposing to give $4 billion a year to anything-but-clean coal-plants. So there is already far more capital in the system than is needed.

The business argument

Even five years ago, the business models did not exist to enable the poor to afford solar. Solar was much more expensive. The only alternative to buying a solar system with cash was a bank or microcredit loan, for which most of the poor could not qualify.

But a combination of dirt-cheap solar, the cellphone revolution and mobile phone banking has changed everything. There are almost 600 million cellphone customers without electricity, using their phones very little yet still spending $10 billion to charge them in town. There are hundreds of thousands of rural, off-grid cell towers powered by diesel — at a price of about 70 cents perkwh. All over the world, cellphone towers are being converted from diesel to hybrid renewable power sources. Cellphone companies have a powerful motivation to get renewable power into rural areas, get electricity to their customers, and charge for electricity through mobile phone payment systems.

After the U.N. Convention on Climate Change last December, climate realists must now face the reality that “shared sacrifice,” however necessary eventually, has proven a catastrophically bad starting point for global collaboration. Nations have already spent decades debating who was going to give up how much first in exchange for what. So we need to seek opportunities — arenas where there are advantages, not penalties, for those who first take action — both to achieve first-round emission reductions and to build trust and cooperation. The new Durban platform that emerged — one which envisages a common legal regime for all countries with different responsibilities — could be used to invest heavily in renewable energy solutions that solve both development and climate problems.

U.N. Secretary-General Ban Ki-moon has proclaimed 2012 the International Year of Sustainable Energy for All. His initiative is keyed not to the U.N. climate talks, but to Rio+20, the U.N. Conference on Sustainable Development this June.

Imagine world leaders at Rio empowering the poor with the electricity they can truly afford — distributed solar — instead of embracing business-as-usual solutions to energy access!

But the leverage is actually much greater than the 1.2 billion who would benefit directly. If one-fifth of the world relies on solar energy, as they prosper and afford more electricity, they will expand solar systems, not turn to coal or nuclear. Their neighbors include the one-third of humanity with “spasmodic” electricity — wires that in rural areas work only at night, and in urban areas go down in the afternoon. These customers would find distributed solar far more reliable than the current grid. If we add those 2 billion to the 1.2 billion who are not on the grid, virtually half of humanity would be turning to renewable power as the cheapest, most reliable and most available form of energy. The fossil fuel interests would lose completely their current moral argument — that more carbon will power the poor.

That, I would argue, would be a phenomenal game changer — and a powerful first step in building a trusting, low-carbon coalition of rich and poor nations. And that coalition can lay the groundwork for the more challenging global efforts that will be needed to stabilize and eventually restore the climate.

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