From pv magazine 07/2020
While the full impact of Covid-19 on the global energy landscape remains to be seen, economic shocks to electricity providers and their customers threaten many with disconnection. And interrupted investments are hitting the energy sector unevenly, creating an atmosphere of uncertainty. It is also becoming clear that economic recovery policies will play a significant role in determining the future trajectories of energy access and renewable energy.
The most recent edition of the annual monitoring report, “Tracking SDG7: The Energy Progress Report”, shows how we’ve achieved remarkable progress to date with key technologies and financing models, but also reveals how far we still have to go. Rich in data and analysis, it offers lessons for how to turn a crisis that threatens energy supply for so many into a catalyst for accelerated progress.
Advances over the past decade have been striking, with the electrified share of the global population growing from 83% in 2010 to 90% in 2018. More than 1 billion people gained access to electricity during that period, far outpacing progress in previous decades.
And yet, this progress has been uneven. Latin America, the Caribbean, and Southeast Asia are now almost fully electrified. Central and South Asia not far behind, with 92% of the population enjoying access in 2018. Yet Sub-Saharan Africa continues to lag behind. In 2018, only 47% of the region’s population had access to electricity, with electrification efforts unable to keep pace with population growth. Energy poverty also continues to be a largely rural problem. While cities have plateaued at about 97% access over the decade, the electrified proportion of rural populations rose from 70% to 80%. This is where most of the work is yet to be done.
Renewable energy is a critical component of SDG7, and its advancement goes hand in hand with improved access. In addition to policy support, resource availability explains regional differences in renewable electricity consumption. Sub-Saharan Africa might have the highest share of renewable energy in final consumption, but almost 85% of that is down to traditional biomass, with its various pollution and health risks. Latin America and the Caribbean have the largest share of modern renewables, thanks to the extensive use of modern bioenergy in transport and industry, as well as hydropower. In Europe, Northern America, and Oceania, hydropower remains the largest source of renewable generation, followed by wind and solar PV. While hydropower remains the largest source of renewable electricity in Africa too, governments have been introducing policies to foster deployment of wind and solar technologies, which have benefitted from recent cost reductions.
The annual growth rate of renewables in the power sector was almost 6% last decade, driven primarily by wind energy and solar PV. In 2017, they increased by 18% and 35%, respectively, and together they were responsible for almost 85% of year-on-year renewables growth. China was already the largest consumer of solar PV in 2016, and as of 2017 the country also became the largest consumer of electricity from wind and bioenergy, surpassing the United States. In most European countries, wind and solar PV were the largest sources of renewable energy, with their shares ranging between 15% and 20%.
These technologies have now passed a tipping point. A recent International Energy Agency report found that almost $320 billion was invested into the sector in 2019, and global additions had been expected to hit a record in 2020. Falling costs also mean that every dollar buys more power, and in constant 2019 cost terms, investment had been rising rapidly over recent years.
Since Covid-19, investments in renewable electricity assets have been relatively resilient, partly thanks to their small share of the overall demand decline. As money switches out of more vulnerable energy sectors, that may indicate more growth to come. Cost declines in components like solar panels, and the increasing popularity of competitive auctions to set electricity tariffs, mean that renewable energy is now the cheapest option for at least two-thirds of the global population, according to BloombergNEF.
Advances in solar, battery storage, and minigrid technologies are bringing those advances to bear on rural energy poverty. Between 2010 and 2018, the adoption of renewable offgrid energy sources tripled worldwide, providing below Tier 1 electricity services to 136 million people around the world, up from about 1 million in 2010. They now represent the best option to connect 40% of Africans who still lack electricity.
Despite these remarkable gains, the world is still not on track to achieving universal access by 2030. While the annual pace of electrification accelerated over the past decade from 0.77% (2010-16) to 0.82% (2017-18), it needs to rise to 0.87% over the coming decade to meet the target – and that was true even before pandemic-related setbacks. Pre-crisis policies and trajectories would leave 620 million people without access in 2030, about 85% of whom live in Sub-Saharan Africa.
With the pandemic, disrupted supply chains and revenue shortfalls threaten the viability of utilities and offgrid electricity providers, and risk setting back progress. Utilities are suffering from a sudden drop in sales to the most profitable industrial and commercial consumers (which can account for as much as 70% of total revenue). They also face also an affordability crisis among residential consumers grappling with unemployment and declining incomes. Some may struggle to provide basic services or fulfill purchasing contracts with private-sector generators.
The minigrid and offgrid sectors, which play such an important and growing role in closing the access gap, are also being hit hard. Companies are typically unable to subscribe new customers due to lockdown, and face defaults from existing customers. Supply chain disruptions are also affecting importation, inventory, and in-country logistics. A recent SE4All questionnaire found that solar-home-system companies expect a 27% decline in revenues due to the pandemic. Minigrid companies expect a 40% decline, and most have less than two months of opex available. Without liquidity to bridge the crisis, offgrid startups and small- and medium-sized enterprises will struggle to survive.
At the same time, the Covid-19 pandemic exposes the critical need to expand electricity access to contain the disease and mitigate the effects of major systemic shocks. Reliable energy services are urgently needed in developing countries to power healthcare facilities, supply clean water for essential hygiene, and provide cold chains for the distribution of medicines and an eventual vaccine. In Sub-Saharan Africa, two-thirds of health centers lack reliable electricity, and more than one-third of health facilities have no electricity at all. Electricity access also underpins the digital infrastructure needed to fight the pandemic, cope with social distancing measures, and ensure business continuity for government agencies and essential businesses.
Exceptional measures and stimulus spending to limit the human and economic impact of the immediate crisis is an opportunity to lay the groundwork for a sustainable economic recovery that prioritizes access to clean and modern energy to ensure greater resilience to future shocks. Mobilizing capital, optimizing technologies, and adopting the enabling conditions for universal energy access will be crucial to the post-pandemic recovery phase.
Achieving SDG 7
In the wake of emergency spending, public financing will be constrained for years, underscoring the critical role of the private sector. World Bank Group programs to scale up solar and wind seek to leverage private capital with public-private partnership models that reduce investment risk and uncertainty. For example, several African countries – such as Zambia, Senegal, Cote d’Ivoire, Madagascar, and Togo – are actively pursuing an expansion of renewable generation capacity. They are capitalizing on the Scaling Solar Program to put privately funded grid-connected solar projects into operation within two years, yielding competitive tariffs at less than $0.04/kWh.
For offgrid investments perceived to be higher-risk, one of the imperatives is to unlock financing from local commercial banks. Before the Covid-19 outbreak, we estimated that the offgrid solar energy industry presented a $1.7 billion annual market and would have to grow at an accelerated rate of 13% to reach the goal of universal energy access by 2030. This meant that up to $7.7 billion in private investment and up to $3.4 billion in public funding would be required to bridge the affordability gap. So-called results-based financing – where flows are tied to delivery of services – ensures that electrification reaches the intended population. Further private efforts may depend on additional risk mitigation by public authorities and new approaches to encourage local entrepreneurs and foster access to finance. Public resources in the form of credit lines, guarantees, and working capital facilities should be used to leverage the needed private capital and mitigate risk. Policy frameworks will require consistent updates and enforcement to support innovation.
Keeping up the momentum toward full electrification despite Covid-19, and accelerating progress in a new economic environment, will be particularly important for mitigating impacts on vulnerable populations. As universal energy access draws near, those still lacking electricity will be poorer and more rural, living in fragile regions affected by conflict and violence. Existing data shows that refugees have disproportionately lower access to grid electricity than their surrounding host communities. The most striking cases are in Rwanda and Tanzania, where just 10% of refugees had access to the electricity grid in 2018, compared with 25% to 37% in the host communities.
Electricity also plays a critical role in poverty reduction for women and girls, improving employment, health, and leisure. Use of electrical appliances allows for diversification in products for sale and helps female entrepreneurs attract more customers, while the provision of electric light amplifies time savings by increasing efficiency and adding flexibility in the scheduling of household tasks. Freeing up women’s time is a prerequisite for investments in their education and life choices, encouraging them to seize economic opportunities and participate in economic, political, and social life.
Closing the access gap, particularly in Sub-Saharan Africa, will require concerted efforts and integrated policies embracing both centralized and decentralized solutions. Drawing on the lessons of the past decade, it will be important to use the current crisis as an opportunity to accelerate progress on energy access. We urge the international community and policymakers to safeguard the gains already attained for SDG 7. The World Bank and its Energy Sector Management Assistance Program (ESMAP) stand ready to work with our country partners to leave no one behind when it comes to access to affordable, reliable, sustainable, and modern energy.
About the author
Rohit Khanna is Manager for Global Energy Programs at the World Bank, covering Climate Finance and the Energy Sector Management Assistance Program (ESMAP). Khanna, an Indian national, joined the World Bank in 2000. Prior to assuming his current position, he worked on the Global Environment Facility (GEF) and Clean Technology Fund (CTF) at the World Bank. Before joining the bank, he was a program officer in the United Nations Environment Program and worked for Save the Children Federation in its Bhutan Field Office.
The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.