Energy service delivery will change in the next decade—and public-private cooperation will be key to the pivot

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Access to reliable electric services has a big impact on economic activity and welfare. Nevertheless, 800 million people still live without electricity—mostly in Sub-Saharan Africa—and in many countries, power supply is unreliable. While more people need reliable electricity, the world also needs a huge and fast transition to a sustainable and clean supply to address climate change. Need we mention that these challenges coexist with the COVID-19 crisis?

While daunting on the surface, perhaps this is a perfect storm—combined with recent leaps in power technology resulting in lower costs—this could be the job-creating, economy-stimulating shake-up we may need. Cooperation between governments and the private sector is key to capitalizing on this momentum.

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Solar and wind energy production costs have plummeted by nearly 90% in the past decade, but transmission and distribution costs remain high. The rise in renewable energy (RE) ushers the possibility of distributed RE production. Where extension of main grids is not an optimal option, particularly for remote locations with small populations, the rise in RE will allow for distributed RE generation. Consequently, a trend we expect in the coming decade is more focus on mini grids, and standalone solar PV and storage systems—all part of least-cost solutions to achieve universal access.

In Haiti, the Public-Private Infrastructure Advisory Facility (PPIAF) is supporting EDH (Electricite d’ Haiti) to design and implement an innovative PPP approach for scaling up mini grids. For readers who are not energy specialists, a mini grid (or micro or isolated grid) is as a set of electricity generators and possibly energy storage systems interconnected to a distribution network that supplies electricity to a localized group of customers. A simple solar PV (photovoltaic) system refers to an automatic solar system that produces power to charge banks of batteries during the day for use at night.

To accommodate the transition to these solutions, we see an increasing need for mini-grid regulation that clearly spells out license issuing, cost-reflective tariff setting, and service quality for provision of electricity through the construction and operation of mini grids by the private sector. Additionally, governments need new institutional models and policy frameworks to mobilize and incentivize the private sector and local communities to invest in electrification through mini grids and stand-alone systems.  Agencies responsible for planning and coordinating rural electrification need to be established with adequate capacity.

A second observable trend in energy infrastructure will be continued innovation in utility-scale renewable energy and storage, and energy efficiency solutions. In energy efficiency, we can expect innovation in both technologies and financing mechanisms, while in renewable energy, further innovation in wind and solar will be boosted by increased usage of data analytics and smart power dispatch.  

PPIAF and the World Bank Group help support governments in their endeavors to de-risk project investments by putting in place regulatory and financial incentives and credit enhancements alongside RE procurement programs. This improves market attractiveness for local and global investors, fostering competition, and ultimately, reducing the costs of generation and storage. In the Pacific Island countries, PPIAF is currently working on a regional PPP scheme on Renewable Energy and Battery Energy Storage System (BESS) including auctions through guarantees and loans.

Third, green hydrogen is becoming recognized as an important piece of the future energy infrastructure puzzle: for example, playing a key part of the European Union’s climate-neutrality goal by 2050.  Though further cost reductions in renewable energy to power clean electrolysis are needed for green hydrogen to scale up, green hydrogen is steadily gaining attention as an alternative to fossil fuel-derived hydrogen. Countries such as Morocco, Costa Rica, India, South Africa, and some European and Central Asian countries could be well positioned to produce green hydrogen.

Other countries will be keen to understand how they could benefit from this zero-carbon fuel, and the sort of incentives they need to put in place to foster its deployment to decarbonize industries and mass transportation systems while offering an alternative technology to battery storage. The cost of green hydrogen will remain high given the way hydrogen is produced, but it will be plugging the technology gap by providing better storage and being deployed in contexts where deploying other renewables is not a workable solution.

Lamentably, the last observable trend is the lag in utility reform in most parts of the developing world. Despite technological and digital advancements, many electricity companies are unable to take advantage of these because they struggle to be in the black. Although retail electricity tariffs in parts of the developing world can be abnormally high, many developing countries’ utilities struggle to attain cost recovery at current rates. Underpricing makes utilities raise connection charges, which in turn lowers electricity access. Utilities also struggle to recover costs due to high levels of inefficiency, which is partially a result of weak governance practices in state-owned enterprises. As a result, power utilities often present substantial quasi-fiscal burdens to the state, presenting the need for profound utility reform. PPIAF helps governments tackle these issues through various means, including utilities turnaround, preparation for credit rating, divestitures, and the development of competitive markets. 

There is lots of good reason to be optimistic about real energy transitions here and we can confirm that we see them playing out very concretely in our work at PPIAF alongside ESMAP and energy specialists at the World Bank. From our standpoint, the questions are no longer whether or how we will accomplish a sea change in how we produce and distribute energy. We’ve now moved to hopefully thinking about how quickly it can happen and whether it can dovetail with efforts for a green, resilient, and inclusive COVID-19 recovery.

  • Culled from World Bank Blogs
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