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Tuesday 10th July 2012
12 Seymour Place, London W1H 7NE
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UN Conference on Sustainable Development, Rio+20, this month's meeting will be an opportunity to reflect on its outcomes and implications in the provision of universal access to sustainable energy, with Ben Garside.
This evening will also feature the topic of Domestic Biogas in Asia with a focus on household systems generating biogas for cooking from animals, to mark HEDON's release of the Biodigesters database, led by David Fulford.
International Institute for Environment and Development
Researcher, Sustainable Markets Group
Ben's focus includes opportunities and risks new technologies bring to the developing world; decentralised energy through local initiatives; and base of the pyramid paradigm and sustainable business models.
His work in Rio involved covering the energy focus at the official summit and presenting the expectations on the private sector to meet sustainable energy goals- particularly access for the poorest- for Ban Ki-moon's Sustainable Energy for All (SE4ALL) initiative. He also contributed to a discussion on a post-Rio world, aiming to answer whether voluntary agreements such as SE4ALL will become more common, and if so, how these can best deliver sustainable energy services that work for the poorest.
David Fulford: Kingdom BioEnergy, Ashden Awards for Sustainable Energy
Director at Kingdom BioEnergy Ltd. and Consulting Technical Assessor at The Ashden Awards
David was part of a group working in Development and Consulting Services of the United Mission to Nepal that set up the Gobar Gas Company in 1977, forerunner of the Biogas Support Programme by SNV. Since returning to the UK in 1984 and completing a PhD, he taught on the MSc course on Renewable Energy at the University of Reading and has been involved in a range of consulting and project work.
In 2007, he set up Kingdom Bioenergy to encourage the development of biogas technology. He is currently working with a group in South India to establish an International Charitable Foundation fostering biogas and is also evaluating SNV's Asia Biogas Programme. As an assessor for the Ashden Awards, David has seen various renewable energy projects in many parts of the world.
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- HEDON's Biodigesters database - http://www.hedon.info/Biodigesters+Database
- Running a biogas programme (available on Amazon) - author David Fulford
At the Rio +20 conference last month, Emma Wilson and I from IIED were present. In addition to covering the energy issues there, we introduced IIED’s work on gathering opinions on the role of the private sector in delivering the Sustainable Energy for All (SE4All) initiative. I will present an introduction to SE4All, and what it means in the light of events at Rio. Raffaella Bellanca, co-author of the private sector and SE4All study will then present some of the detailed findings of the study.
SE4All is a UN voluntary initiate by Secretary General Ban Ki-moon as part of the International Year of SE4All, 2012. It aims to double the rate in improvement of energy efficiency, double the share of renewables in the global energy mix, and provide universal access to modern energy services by 2030. Rio+20 was a 20-year follow-up to the 1992 United Nations Conference on Environment and Development (UNCED) also held in the same city. The conference was organised by the United Nations Department of Economic and Social Affairs.
The official Rio text 'The future we want' had very little agreement in the week leading up to the main conference, and the Brazilian government then took over delivery of that document, but it was only further watered down so as to speedily reach a consensus. In terms of energy within that UN text at Rio, there was a commitment to provide universal access to electricity, but no timelines were presented. There was a re-inclusion of the Environmental Democracy Principles established in the 1992 Earth summit, which states that anything affecting local environments will have local consultation. The Rio Text references energy in only these contexts, in addition to a brief mention that the UN SE4All initiative is “noted”, without a commitment to any of its goals. Lots of interest and debate regarding fossil fuel subsidies, which are estimated to be around $400b, but this resulted in only some vague language stating that subsidies need to be phased out.
SE4All is a voluntary process, which operates separately from the formal Rio+20. Lack of commitment to SE4All in the official text was disappointing but not unexpected. And perhaps the voluntary nature does of SE4All offers flexibility that might attract more commitment to funding and action over the long term – but this remains to be seen.
Rio commitments and SE4All:
The commitments to SE4All announced at Rio are from 50 countries and are currently worth $50b, including $2b from the US; $4.3b from Brazil for universal electricity access by 2014; and $1b from OPEC.
Proponents of SE4All say that 2012, the International Year of Sustainable Energy for All, is the time to make pledges and that the energy issue has been really brought to the mainstream by SE4All, including to big businesses. The energy discussion is also now encompassing clean cooking, in addition to access to electricity.
Criticisms of SE4All:
- One key criticism is related to the unclear numbers – how much of this commitment is ‘new’ money – than already planned activities to improve energy efficiency, double renewables etc. Undefined $50b commitment could be just business as usual and nothing new. Also, the ambition timeframe for many of the financial commitments is undefined which means the headline figure of $50b is likely spread over a number of years. The IEA estimates at least $48b a year is needed to meet SE4All targets, hence the $50b current commitment falls way short of the scale needed.
- There is also a great deal of emphasis on big businesses as deliverers, to the extent that the EC has said it expects a twentyfold multiplier of private financial commitments to its own (public) commitments.
- Then there are unclear definitions on what constitutes green and renewable energy, how access is defined – leading back to the business as usual accusations.
- Leading from this, concerns have been raised regarding potentially simplistic indicators, such as measuring energy usage by power delivered via the grid and in terms of number of cookstoves sold, rather than more broadly the benefits energy services are delivering. Some have chosen to define this in terms of numbers of people with access e.g. the EC has committed to increasing its current target by 500m more people having access to electricity by 2030. So there has been little thought of definitions and indicators of progress to achieving them, being based on the principle of energy as a means of achieving other development goals, and it is unlikely that these broader definitions and indicators will make it in to SE4All.
- Finally there has been very little inclusion of civil society in the SE4All process – perhaps exemplified by the co-chair of the high level panel of SE4All being Bank of America Chairman Chad Holliday. It was initially UK based NGOs that were rallying to provide a response to better civil society involvement. A civil society statement to this effect and including a number of the points I have mentioned has been circulated to the high-level panel, including Ban Ki-moon, to which 107 NGOs across the Global North and South have signed on to.
Beyond Rio and into SE4All:
Post Rio, the high-level SE4All group is currently being dissolved following a mandate of just over a year. This provides the hope that the new international secretariat will be more inclusive of civil society. The 50 countries that have signed up for the goals of SE4All are performing a gap analysis of where and how then can close the gaps needed to meet the 2030 SE4All goals - on energy efficiency, renewables and access. Fourteen countries have completed the first part of this and are currently looking at the operational phase of achieving them – this operational phase is due to start in September.
Country level scrutiny - Although discussions between civil society groups have been mixed so far on a plan of action post Rio for how to engage with SE4All, the initial feeling seems to be there needs to be a country level focus now, with real civil society participation and scrutiny in the gap analysis and action plan process, as well as a broader transparency and scrutiny of where funds are allocated. This includes analysing which objectives they fall under (efficiency, renewables, or access) and whether they represent new money. From initial observations of the $50billion it appears much of big businesses may be focused on efficiency- their own industrial processes and how they can save money (and the planet!). What about access for the poorest?
Large-scale finance issues - One of the other finance challenges is how to get big money to many small energy projects – rather than large finance going to mega projects such as dams. This means money not just from private sector energy companies, but also from pension funds and other investors. What mechanisms can be put forward to use that money to replicate innovative small-scale initiatives on a massive scale, for example, developing the farm-level biogas plant from David Fulford’s presentation into millions of units? If private finance is involved, there are perceived risks and new business models need to mitigate them. Private finance will always demand a certain rate of return on investment which is sometimes a win-win in delivering energy goals efficiently. Small-scale initiatives targeting the poorest may not meet this rate of return which is where subsidies can help – but these need to be used smartly so the subsidy benefits the poorest e.g. rather than subsidise on consumption of power, subsidise a system enabling people to be connected; but such subsidy sources need to be made sustainable and have clear boundaries.
Definitions and indicators – Taking that example, millions of biogas plants would need to be deployed where needed and where appropriate (where success is not just measured by number of biogas plants funded). This comes back to having better definitions and target clarifications of SE4All and to push towards development based indicators, which even if they cannot be adopted by businesses, can be used as a broader level target by national governments.
A real people focused approach - Additionally, the SE4All processes need to be more people focused. This needs to go beyond official civil society partnerships and inclusion in the national and international formal SE4All processes (which are needed), but also consider the political economy realities of how decisions are made. How can people and civil society groups get involved and lobby in high level political or business environments where these processes are often really planned – particularly when considering national plans which lead to on-ground initiatives? With countries like Nigeria for example, IIED has found that there is mistrust between big business such as Shell, government and civil society, to the point that dialogue is non-progressive. From a civil society perspective they are witness to many years of corruption, broken promises, and environmental pollution. However civil society needs to evolve beyond a stage of name-calling and accusations to engage in a more informed manner. Quite often they have very little understanding of the issues involved in delivering large-scale power and just demand “lights on”. Building civil society in to the usually top-down national decision making process takes much more than insisting representatives are invited. It is a longer term process of building their own capacity to engage, and building smaller forums for dialogue, with businesses and government groups to change mind-sets of these groups on the value of civil society inclusion in the real decision making processes.
The issue of civil society and NGO capacity to engage was raised at a recent post-Rio meeting in London. While there are many NGOs working on energy poverty, the topic of energy itself has been largely ignored compared to the attention larger NGOs are more successful at bringing to the limelight, such as potable water for example. How can this capacity be built up and what is the role of donors like EU and DFID in skilling up their own staff in-country to assist with capacity building across civil society, business, and government? One example here is raising awareness across stakeholder groups in-country on the broad range of energy technology options out there, the pros and cons in different contexts, and how to select an appropriate technology and adapt it to suit context.
Finally, PPP (referring to public-private partnership) is widely referred to in SE4All and a lot of organisations and NGOs do not like this term as it smacks of big business and unaccountable projects where the state has stepped aside. The “private sector” needs to be viewed as more than just big businesses and also include small and medium enterprise and the informal economy. SE4All and organisations working on innovative energy delivery models need to show how such models can explicitly include a broader private sector definition, and lobbying is needed to convince politicians that these models are valid and can really work. SE4All should explicitly include targets for this broader mix of “private sector” rather than the vague terminology of “we need a mix of everything”.
That then brings us to the survey of businesses and NGOs commissioned by IIED on the role of the private sector in delivering sustainable energy, which my colleague and one of the authors of the publication, Raffaella Bellanca, will present.
How can the private sector deliver access to sustainable energy?
For this study, we interviewed actors from big and small businesses, NGOs and various institutions - for their thoughts on the private sector's role in delivering access to Sustainable Energy for All.
First, I would like to start with some definitions regarding access to energy and the private sector that this study aimed to identify.
What is ‘Energy’? - Is it electricity as is commonly believed by the big actors, such as the World Bank for example, or does it also include cooking services and productive uses in a broader sense?
What is ‘Access’? - The physical presence of an infrastructure does not necessarily grant access because people may not always be able to use the service, if for example if they don’t have money to purchase it.
What is the ‘Private sector’? - While this includes corporations, the SE4All initiative also recognises small entrepreneurs on the ground to some extent. For this survey, we talked to Small and Medium Enterprises based in the developed world and we believe they too have a role to play in terms of technology transfer and expanding to new markets.
What is ‘Awareness’? - From the responses of our interviewees, the SE4All initiative hasn’t been publicised well enough. All the NGOs working in advocacy knew about it. Corporations with CSR (referring to Corporate Social Responsibility) departments knew about it, as they are generally involved with UN activities anyway. However, the small players in the private sector and local NGOs in developing countries didn’t know it existed, and even those that did, did not know what it is meant to do.
Challenges in delivering SE4All
We investigated the barriers for the private sector in delivering SE4All to the poorest people. Generally, for a private enterprise to start up, grow and thrive, it needs an enabling environment and supporting services, similar to the factors present in the developed world such as state run initiatives. But this is more difficult in developing nations. Many of our respondents who were working in challenging locations said that the enabling environments and supporting services essential for enterprise development are not present. It could be that the accountants in these regions are not available at reasonable prices, or that there is mistrust from people on the company due to cultural factors, or even that the physical infrastructure is just not present. An example of the latter is an enterprise involving one man on a bicycle selling cookstoves, which of course is more expensive than bulk delivery.
A crucial question we asked these private sector players was whether they were reaching out to the poorest of the poor, to which they all responded ‘No’. This was simply because such a business cannot be sustainable, although, many of the enterprises we interviewed were operating in very impoverished areas. The business models they used were often hybrid ones, where some of the input was from philanthropy and on that input, a sustainable business model could be built and run.
In the most successful cases, a big barrier overcome was upfront cost in acquiring new technology. For example, Eight19 provides solar lighting in Africa, and the model they used to deliver it is literally copied from the mobile phone industry, where users buy the service rather than mobile phone itself. With Eight19, you buy a scratch card whenever you have the money to do so and then activate the system through a mobile phone to enjoy the power service. This ‘pay as you go’ type model is successful mainly because it mimics people’s behaviour, such as in buying kerosene in small quantities each week.
Another example is SELCO, based in India, which also provides solar power services. They operate differently in that they work with financial institutions. SELCO acts as an intermediary between the end user and banks to convince the latter that is worth lending money to the poor, who generally don’t receive this kind of service, and ensure that the returns are sustainable. They are successful in doing so as return payment is over 90% and people in the financial sector are convinced that this system works.
This issue was generally highlighted by all our respondents; that the financial sector is often not knowledgeable when it comes to financing energy projects. There is a need for capacity building because it not understood to what extent energy can give returns and also because there isn’t sufficient information on any available successful business models. An example of such a case is carbon finance. The enthusiasm generated attracted traditional investors to finance these projects, but the expectations were completely unrealistic that in many cases, they haven’t been successful. This is mainly due to a lack of understanding of the difficulties present in working in rising economies, and concepts like low risk-high return and fast realisation of this return is not feasible in development type projects.
Support for the private sector
We also explored the kind of support that the SE4All initiative can give the private sector to facilitate its work. The suggestions can be grouped into these main topics:
- Coordination: There is often competition between donors and private initiatives and no coordination between them, simply because they do not know what the other is doing. Many mentioned the need for a place to gather universal information regarding market opportunities and market analyses.
- Guidance: at policy level in terms of regulations for the private sector. The rules established must be clear and remain for a while so that plans and decisions can be made.
- Demonstration: There must be clear access to successful business models that can be replicated, but these must also be accurately verified as reliable. NGOs and donor-supported initiatives have a tendency to portray themselves as always successful and this doesn’t help the private sector. So the SE4All initiative could perhaps point out which models are really successful and which aren’t, as failed ones are just as important to learn from. Learning from failed projects should overcome the negativity in admitting failure itself since statistics indicate that only 20% of start-ups are successful, which provides ample room for learning.
Some highlights from the study
An issue that was referenced by Dr. Grant Ballard-Tremeer (Eco Ltd.) in his interview, is that you can have a certain sustainable business and make enough money from it, but if there is a more money to be made in another activity, it is in the nature of the private sector to switch to that instead, even if the former was profitable enough. This study highlights that incentives, and especially social indicators, need to be included in a business activity and that one of the SE4All goals should be to promote social enterprise.
Another respondent was Bosch-Siemens who at the time of interview was involved in a cookstoves project using plant oil as fuel in Indonesia with local entrepreneurs. However, by the time of publication of this study, that was no longer the project. The reason they dropped it was that they couldn’t source enough sustainably produced plant oil, coupled with the technical difficulty of running stoves on this fuel. So there are other reasons for private enterprises to venture into an activity only to later drop it. This was a failed experiment, but on the bright side, the designs of these stoves and contact details are available on their website for replication.
Regarding successful models, one of the interviewees was Enel, a large Italian electricity company that developed a project of gaining electricity for waste materials. They are doing CSR now and their goal in this competitive market developing around the world is to be accepted by the communities where they work. It used to be in Brazil that slum-dwellers were apprehensive of someone from the electricity sector entering their areas as many didn’t pay for their utility services. Enel introduced this initiative where people can bring sorted garbage to a hub and get an electricity voucher for it, and at the end of the month, get a discount if they accumulated enough. The company is now viewed very positively amongst the community here. So such innovative models of delivering access to energy are emerging.
While SE4All is subject to some criticism, it does address that at the end of the day, energy poverty is a real problem. GVEP International is currently conducting a results based financing operation on energy access with the World Bank, who are very keen on reaching to the BoP (referring to Base of the Pyramid) in conflict areas. So even if the SE4All process is very slow, those of us who have been working in the sector for a long time can feel that progress is now being made in the energy sector. The next decade is likely to be one of entrepreneurs and this shift has already arrived. We do however need to examine the potential balance between private and public sector involvement.
How the study ties into SE4All is a requirement for transparency and better definitions. If there is this expectation that the private sector can deliver substantial paths, a lot of work needs to be done in terms of processes; finance; examples that work and how they can be scaled up, and also into the mind-sets of politicians; and how NGOs and donors can work better together. As energy hasn’t got as much attention as other issues, an investigation needs to go into how energy sector players can use their resources to bring this discussion to the forefront.