How public-private partnerships can bring renewable energy to the poorest

A report published on July 29 2011 by the International Institute for Environment and Development examines how governments, donors and businesses can work together to provide poor communities with low-carbon energy supplies.

The study analyses an Argentinean programme that has successfully delivered basic electricity access to remote, rural communities that are beyond the reach of the grid.

PERMER (the Project for Renewable Energy in Rural Markets) has provided a combination of renewable (solar and wind power) and hybrid fossil fuel-renewable energy (e.g. diesel-solar mini grids) to around 10,000 households and 1,800 schools and other public buildings, and is on its way to reaching another 18, 000 households.  

The programme was introduced in the late 1990s, when it became clear that power sector privatisation had done little to extend access in remote rural areas. Long distances, low population density and poverty meant the cost of extending grid networks was prohibitively high.

PERMER has used government and donor funding to install generating equipment and subsidise user tariffs, with exclusive delivery contracts awarded to concessionaires (private sector, public sector, co-operatives) that run and maintain the service. 

Most of the start-up funding came from international loans and grants from the World Bank and Global Environment Facility, along with co-financing from national and provincial government budgets, companies and users. 

The programme has provided better quality and safer illumination to households at costs that are equivalent to, or lower than, what residents paid previously for kerosene lamps and candles. This enables users to listen to radios or have a light source for studying, reading or making handicrafts at night.

However, PERMER installations do not provide enough electricity for productive or domestic activities such as pumping water, refrigerating food or shearing sheep, so the project has not created new economic opportunities or addressed poverty directly. 

The report says that to reduce poverty and create productive opportunities, electrification projects like PERMER need to be integrated with rural development plans and programmes, which involve all relevant ministries, are rooted in community participation and address a much wider range of energy needs.

“While PERMER has not transformed lives it has certainly improved them,” says the report’s author, Sarah Best (who was working at the time for Sustainable Development Advisors). “The biggest positive impact has been felt by students and teachers in rural schools because the level of power provided there is greater.”

“For schools, the programme has not only meant more hours of light for teachers to prepare classes and for students to study. It has allowed staff and pupils to use radios, televisions and sometimes computers, - and gain a greater understanding of the wider world.”

Despite these gains, progress has been much slower than expected and capital costs have been higher. There is also the challenge of economic sustainability. Provincial governments set the tariffs that users pay for electricity, and level of tariff subsidy, according to the local context and people’s ability to pay, but some private-sector concessionaires complain that tariffs are too low for them to make a profit.

“There is a lot of interest from donors and governments in promoting private sector investment for expanding energy access in Southern countries,” says Dr Emma Wilson, who leads IIED’s access to energy research. “They should look to the Argentinean experience, which shows that the right institutional, market and financial and regulatory conditions need to be in place to support this kind of approach.”

“Public finance for start-up support and subsidies with a sustainable source are playing an important role in overcoming the lack of commercial attraction that such isolated, low-income communities present to the private sector,” says Wilson.

“Meanwhile international finance must be flexible to allow countries to develop delivery models that are appropriate to local conditions. It is also crucial to invest in building the knowledge and effectiveness of key government bodies — especially regulators, who must ensure that companies are properly serving low-income customers.”

The new report describes PERMER’s delivery model, its successes and challenges, and the social impact on residents and schools. It focuses on Argentina’s north-eastern province of Jujuy — one of the poorest and most remote provinces, and one of the first to implement PERMER.

#This report was prepared for IIED by Sustainable Development Advisors (SDA), a Buenos Aires-based consultancy working on sustainable development. (www.sd-advisors.com)