How will energy access for the poor be financed?
Ecoal, Vol.76, November 2011
The 2011 World Energy Outlook includes a special chapter entitled "Energy for all: financing access for the poor". In this, the IEA estimated that worldwide there are over 1.3 billion people lacking access to modern energy, of which 95% live in either sub-Saharan Africa or developing Asia. In addition to this, a further 1 billion people have access to intermittent power supplies only.
The United Nations Millennium Development Goals state that the proportion of people living in poverty by 2015 must be reduced by half but in order to do so, there needs to be a major transformation in the funding of energy infrastructure and services. Increased financial support is critical if the IEA's Energy for All scenario (projections for which would see universal access to electricity) is to be achieved by 2030.
Electricity access for business and industry is critical to any hope of eradicating poverty. It is increasingly important given rapid urbanisation in developing countries and considering the role that economic growth can play in supporting human development. However, improving access to modern energy depends on adequate funding.
The IEA report estimates that to achieve the Energy for All scenario, investment of $1 trillion is needed. That's an additional $48 billion a year or, to put this figure in context, five times more than was invested in improving energy access in 2009. As the title suggests, the main thrust of the IEA's report is how that investment can be financed. The message is that raising the required finance is certainly possible - it equates to approximately 3% of expected investment in energy infrastructure to 2030 - but it will be a challenge, especially if current economic and financial market difficulties continue. Most importantly, all sources of finance - the public sector, development banks and private finance - have a role to play.
The IEA proffers that the $9.1 billion invested in energy access in 2009 came from multilateral organisations, domestic government finance, private investors and bilateral aid. This gave an estimated 20 million people access to energy who did not have access before. For the Energy for All scenario to be reached, the investment from each of these sources needs to be increased dramatically, particularly from the private sector which contributed only 22% of the total funding received in 2009. The challenge here is encouraging the private sector to invest; clearly governments will have to provide an attractive investment environment at a local and national level to actively boost private funding contributions.
Average annual investment in modern energy access by source of funding
Source: IEA, WEO 2011, Special early excerpt: Energy for All: Financing access for the poor
Historically energy access funding has focused on large scale electricity infrastructure. It is unlikely that remote areas such as parts of sub-Saharan Africa or developing Asia, will ever reap the benefits of this investment. What is needed is a reliable grid-based energy supply which will support electrification in small and remote villages in these areas. Coal, as outlined in the main feature article, can play a significant role in supplying the power generation needed to provide expanded access to electricity, particularly in on grid solutions.
In the IEA's Energy for All scenario about 45% of the increased energy supply will come from extending existing national electricity grids. The IEA says that more than half of that electricity will be generated from coal. This is supported by their own analysis of the past decade in which they demonstrate that coal provided just under half of world primary energy demand. Although the IEA recognises the role coal will play in addressing the energy access challenge, the lack of attention provided to it may distort policy decisions by the World Bank and other development finance institutions about which energy technologies to fund. The absence of analysis regarding the role of coal may lead to mistaken assumptions on their part and a serious underestimation of the role of coal in economic growth and poverty eradication.
Incremental world primary energy demand by fuel, 2000-2010 (IEA estimates for 2010)
Source: IEA, WEO 2011
