Economics of Access to Energy

Abstract

Energy services underpin the socio-economic development of nations and their prosperity. This chapter discusses the key obstacles that have so far prevented 840 million people worldwide from gaining access to electricity and 2.9 billion from accessing clean cooking facilities. The authors argue that the problem of access to modern commercial energy is fundamentally an economic one. They explore the different yet common roots linking energy access to technological, governance, and financing aspects. The electricity and clean cooking challenges are firstly discussed separately to highlight the specific techno-economic issues underlying each service. This is beneficial to a conclusive discussion of the key economic policy instruments and financing approaches necessary to achieve universal access to modern energy.

1 Energy Access: Fundamentally an Economic Problem

Energy is a key enabler of human activities. The provision of energy services underpins the socio-economic development of nations and their growing prosperity (Fouquet 2016). Not only is energy required by all industrial activities, but it is also essential for the provision of clean water, sanitation and healthcare, as well as efficient lighting, cooling, cooking, use of mechanical power, transportation, and telecommunication services (McCollum et al. 2018; Nerini et al. 2018). Thus, providing access to affordable modern energy services represents a key requirement for eradicating poverty and reducing inequalities. This is the reason why the United Nations (2015) included the achievement of universal access to affordable, reliable, sustainable, and modern energy among the Sustainable Development Goals at the core of its 2030 Agenda for Sustainable Development.

The concept of energy access does not have a unique, widely agreed definition (International Energy Agency 2017). Generally, it is referred to as household access to minimum levels of modern energy, for both electric appliances and clean cooking needs. However, a heated debate over the quantification of those minimum levels and their measurement is ongoing (Bhatia and Angelou 2015; Nussbaumer et al. 2012; Pachauri 2011). The most widespread metric of access to electricity and clean cooking solutions is the share of a country’s population that benefits from each energy service. However, much criticism has been raised about this measurement approach, because it is inherently limited by a strong aggregation and mono-dimensionality. This approach disregards crucial questions such as reliability of supply, and the effective use beyond nominal access provision (Falchetta et al. 2020). These discussions have spurred the establishment of measurement schemes, such as the World Bank Multi-Tier Framework, suitable for providing a multi-dimensional indicator of energy access (Bhatia and Angelou 2015). One of the crucial arguments emerging from these frameworks is that energy access and energy poverty are not mutually exclusive. At the same time, energy access is not a static concept, but should be considered a dynamic process following a ‘ladder’ (Bensch et al. 2017; Chattopadhyay et al. 2015; Grimm et al. 2016; Monyei et al. 2018). In this process, different technologies and solutions gradually replace the previous ones, providing greater power and supporting more appliances and uses. Nevertheless, since measures of country-wide access level are widely used, in this chapter we refer to them extensively. Yet, while we are aware of their intrinsic limitations, concepts and metrics that better characterise the multi-dimensionality of energy access are at the core of the discussion.

Eight hundred and forty million people across the world continue to lack access to electricity, while 2.9 billion people do not have access to clean cooking facilities. Substantial efforts have been made over the last decade in this area, with the global electrification level growing from 83% in 2010 to 89% in 2017. As highlighted by the International Energy Agency, the International Renewable Energy Agency, and the United Nations Statistics Division (2019), electrification efforts have been particularly successful in Central and Southern Asia, where 91% of the population had access to electricity in 2017. Access levels in Latin America and the Caribbean, as well as Eastern and Southeast Asia, climbed to 98%. Among the 20 countries with the largest populations lacking access to electricity, India, Bangladesh, Kenya, and Myanmar have made the most significant progress. Sub-Saharan Africa remains the region with the largest access deficit: here, about 570 million people—more than one in two—lack access to electricity. The continent is home to 15 out of the 20 countries with the lowest electrification levels (Fig. 28.1).

Fig. 28.1

Share of population with access to electricity in 2017. (Source: International Energy Agency et al., Tracking SDG 7: The Energy Progress Report 2019. All rights reserved)

Progress towards universal clean cooking has hitherto been slower than the rollout of electrification. The share of global population with access to clean cooking fuels and technologies increased from 57% in 2010 to 61% in 2017. Sub-Saharan Africa, Central and Southern Asia, and Eastern and Southeast Asia account for the majority of the population lacking access (Fig. 28.2). In sub-Saharan Africa, the number of people without access to clean cooking has been rising as a result of strong demographic dynamics outpacing clean cooking access progress. Throughout the continent, the population lacking access increased from less than 750 million in 2010 to around 900 million in 2017 (International Energy Agency et al. 2019). Over the same period of time, Asia showed instead substantial progress relative to population growth. This result was achieved through a variety of strategies depending on the national context (e.g. the diffusion of liquid petroleum gas (LPG) in India, or the construction of natural gas pipelines in China). Globally, a strong urban–rural divide characterises this challenge: the level of access to clean cooking fuels and technologies stands at 83% in urban areas, while it remains at a low of 34% in rural areas.

Fig. 28.2

Share of population with access to clean cooking fuels and technologies in 2017. (Source: International Energy Agency et al., Tracking SDG 7: The Energy Progress Report 2019. All rights reserved)

Providing universal access to electricity and clean cooking would greatly enhance the living standards as well as the economic prospects of the people currently lacking access. The case of electrification is illustrative of how the lack of energy access represents a major stumbling block for socio-economic development. Any developed country has among its key priorities secure access to electricity to foster its economic development. Electricity access is key to improving health conditions, increasing productivity, enhancing overall economic competitiveness, and ultimately promoting economic growth and poverty reduction. Empirical studies have shown that expanding electricity access indeed increases time spent on income-generating activities (Bernard 2010; Bos et al. 2018; Rathi and Vermaak 2017; Van de Walle et al. 2013), especially outside of the agricultural sector. Electrification also increases the number of manufacturing firms, their productivity, and revenues (Bonan et al. 2017). Moreover, the significance of electricity access for adaptation purposes—including cooling and irrigation—is increasing since coincidentally the regions lacking access are also those forecasted to undergo the greatest temperature increases in the coming decades as a result of anthropogenic climate change (Byers et al. 2018).

The case of clean cooking is illustrative of the social character of the challenge of energy access. In developing countries, women and children are often in charge of collecting firewood, an activity that is estimated to require an average hour and a half each day (International Energy Agency 2017). This time could instead be employed for education or for productive activities, as well as to support women’s empowerment. Furthermore, each year across the globe around 3.8 million people die prematurely from illness attributable to indoor air pollution generated from these cooking practices (Amegah and Jaakkola 2016). Due to the fact that women and children spend more time indoors, they are the first victims of this phenomenon (Rumchev et al. 2007). Empirical studies clearly show that expanding access to clean cooking would lower this premature death toll, enhance the living conditions of the most vulnerable, and bring significant economic co-benefits (Rosenthal et al. 2018).

This chapter discusses why the key obstacles that have so far prevented 1 billion people worldwide from having access to modern commercial energy share a fundamentally economic nature. In turn, it explores the different roots tying energy access to technological, governance, and financing aspects. While the lack of either electricity or clean cooking solutions has several common causes, we discuss them separately to highlight the specific techno-economic issues underlying each service. This is beneficial to a tailored discussion of the key economic policy instruments and financing approaches necessary to achieve universal access to modern energy.

2 Access to Electricity: Economic Issues and Policy Instruments

2.1 Generation, Transmission, and Distribution Infrastructure Expansion

In countries with electricity access gaps, power generation capacity is often limited. The operational power plants also face recurrent maintenance and fuel provisioning security issues. As a result, a share of the national demand remains unmet and electricity distribution utilities are forced to adopt load-shedding policies. These dynamics determine recurrent supply reliability issues for grid-connected consumers. For instance, the World Bank reports that in sub-Saharan Africa firms faced an average of 9 outages per month in 2018. This implies that even households and businesses considered electrified are not benefitting from secure access to energy. The bottom line is that electricity access planners face significant constraints to broadening the consumer base (and therefore the domestic demand) without ramping up the sources of supply.

Concurrently, the national transmission and distribution networks have a limited extent and coverage. The existing infrastructure often connects power plants to the main urban areas, while the bulk of rural settlements, where most of the population is concentrated, remain far-off from the network. The infrastructure supply inequality determines a situation of strongly unbalanced electricity access levels in urban and rural areas (International Energy Agency et al. 2019). This suggests that commonly reported national electrification levels are hiding wide disparities, especially considering that the bulk of the population of developing countries lives in rural areas (World Bank 2018). It is worth underlining that the unequal expansion of energy access, with both urban–rural and across-province inequalities within each country (Falchetta et al. 2020), is the product of explicit political choices to target investment and infrastructure expansion in determined areas, which do not necessarily respond to an efficiency criterion. A broad stream of literature (Onyeji et al. 2012; Trotter 2016) has highlighted the role of political factors and local institutions in determining electrification pathways, and in particular the inequality in access within regions of the same country. Moreover, as a result of the ongoing rapid urbanisation trends, significant hotspots of people without access are emerging in peri-urban areas surrounding cities. In those areas the local distribution network is sometimes lacking despite the geographical proximity to existing electric substations, or the dwellers simply cannot afford to pay for grid connection charges.

The main economic roots behind the insufficient or poorly maintained generation capacity and the limited extent of grid networks include:

• (i). The considerable upfront investment requirements and operation costs of power generation facilities. According to Enerdata (2016), the costs of new power plants in Africa are: (i) 2,000/kW for hydropower; (ii) 1,112 and 1,290 USD/kW for open and combined-cycle gas-fired turbines, respectively; (iii) 2,153 USD/kW for coal-fired plants; (iv) 2,011 USD/kW for utility-scale solar photovoltaic (PV) plants; (v) 11,300 USD/kW for solar concentrated power plants; and (vi) 2,450 USD/kW for wind power plants below 100 MW in size. A steeply growing demand for power as a result of both economic development (e.g. 2.4% and 6.8% on average in Africa and South Asia in 2018) and population growth (2.7% and 1.2% on average in Africa and South Asia in 2018) implies large capacity addition requirements. These, in turn, necessitate substantial investment that in past decades has not been adequately channelled due to the reasons discussed below.

• (ii). The key role of running costs. The lack of maintenance and ageing of power plants has led to a situation where 25% of the installed capacity is unavailable in sub-Saharan Africa (Findt et al. 2014). The supply security of the fuels necessary to power existing plants is another issue. For instance, the installed capacity in Nigeria (above 10 GW, USAID 2019) is technically adequate to satisfy the current national demand, and yet supply disruptions due to damage to the pipelines, geopolitical issues, or price volatility have led to their under-exploitation and thus to issues in guaranteeing a secure supply of electricity to grid-connected consumers (e.g. see Occhiali and Falchetta 2018). Hydropower plants—which are the main source of power supply in many countries with electricity access gaps—are also constrained by increasingly frequent and prolonged drought periods which force utilities to suspend generation or limit the operational capacity (Falchetta et al. 2019). Countries heavily relying on coal—such as South Africa, India, and China—are facing substantial socio-economic pressures. For instance, South Africa is water-scarce and faces recurrent droughts, which requires the Government to curtail residential water use. This is also due to the very large cooling water requirements of coal-fired plants (van Vliet et al. 2016). In Asia, burning coal is perceived as increasingly costly for the social impact it has been exerting on public health.

• (iii). The high expansion costs of the grid, ranging from 3000 USD per km of low-voltage distribution line to 30,000 USD per km of high-voltage transmission line, which in turn imply an average of 1500 USD for each new household connected to the national grid (Rosnes and Vennemo 2009). These costs are even more difficult to bear considering that the central planner is facing high discount rates (medium-term government bonds average a 15% yield in sub-Saharan Africa), and thus the cost of capital is high. This, of course, discourages long-term infrastructure investment.

• (iv). The dispersion of the population—particularly in rural areas—which results in low population densities (e.g. the average for sub-Saharan Africa is 51 inhabitants/km² against 455 inhabitants/km² in India, where most connections have been achieved through direct connection to the national grid). The low population density often renders the investment not economically profitable.

• (v). The low ability-to-pay and low short-term consumption of new customers (Blimpo and Cosgrove-Davies 2019; Jacome et al. 2019; Taneja 2018), which, together, do not allow the national utility to recoup the large upfront investment needed to connect new households to the national grid.

In recent years, a number of decision support tools have been developed to optimise electricity access planning and quantify the required investments, as well as to identify the optimal technological solutions to bring access to each specific settlement. These tools exploit geospatial data of population settlements, existing energy infrastructure, and electricity supply options’ potential and costs. In general, least-cost electrification tools optimise each settlement, that is, they look for the technology with the minimum local power supply cost, subject to the local demography, infrastructure, geography, electricity demand sources, and power generation potential factors. Electrification modelling instruments are particularly insightful because they are able to represent and visualise the techno-economic boundary separating areas where grid-based or decentralised solutions are more efficient to reach the access targets defined by the policymakers. Figure 28.3 illustrates an example of the output of the OnSSET geospatial electrification tool for sub-Saharan Africa (Mentis et al. 2017), where colours identify the most efficient technology in each area and black lines represent the current transmission network. The results show, for instance, that in most areas remote from the grid, solar PV-based solutions are the least-cost electrification option, and that different areas are more efficiently electrified either through the development of mini-grids or with the installation of household-level infrastructure. Thus, when provided with reliable data on the potential demand from both the residential sector and productive uses, electrification tools can inform policymakers on the local techno-economic aspects of the design and implementation of electrification plans.

Fig. 28.3

Example of the output of a geospatial electrification model. (Source: Mentis et al. 2017)

2.2 Budgetary Deficit of National Utilities and Subsidy Reforms

Among the plethora of economic policy measures adopted by utilities to foster the electrification process, two aspects have emerged as crucial: the pricing (Kojima and Trimble 2016) and subsidisation schemes (IMF 2013; Vagliasindi 2012).

Pricing schemes determine the relationship between (i) disposable income at the household level, (ii) the ability to afford electricity, and (iii) the capacity of utilities to recoup their costs and attain a positive budget balance. Historically, electricity pricing is divided into (a) an upfront connection charge, (b) a yearly service charge, and (c) a per-unit (marginal) cost of electricity consumed. Clearly, components (a) and (b) are the greatest household-side upfront barriers to the increase of the local electricity access level. Credit-constrained households necessitate options to pay for those initial charges in instalments or have them waived through appropriate subsidisation.

Traditionally, electricity systems are developed through investments made by national utilities, which allow the achievement of strong balance sheets through the sale of electricity produced at large-scale power plants. Earnings serve as the primary financing source for grid infrastructure expansion and strengthening, and new capacity additions, and, in many markets, they allow utilities purchasing power from independent power producers (IPPs).

Crucially, the marginal cost of electricity is the key running cost determining the final household use of electricity over time. For this reason, utilities have aimed at keeping their electricity prices as low as possible, with the result of running large budget deficits. Figure 28.4 illustrates a comparison of electricity supply costs (capital and operational) with cash collected by the national electric utilities of sub-Saharan Africa. It reveals that most utilities require yearly financial support from the Government and thus steadily contribute to the increase of national debts.

Fig. 28.4

National utilities of sub-Saharan Africa: comparison of electric supply costs with cash collected in 2014 ($/kWh billed). (Source: Kojima and Trimble 2016)

Key reasons behind the deficit include significant transmission, distribution and bill collection losses, overstaffing, and, most crucially, poorly designed customer subsidisation, which leads to excessively low electricity prices. In particular, the universal nature of pricing subsidies has implied large public expenditure to sustain the consumption of all grid-connected households, even those that are not credit-constrained. Universal energy subsidies—which for decades have prevailed in developing countries—are inequitable, as they mostly benefit higher-income groups that consume the most (Vagliasindi 2012). These types of subsidies are also regressive, because access to electricity through the national grid is highly skewed towards higher-income groups. Second, universal electric energy subsidies are profoundly detrimental for the development of energy systems. In fact, they create a disincentive for maintenance and investment in the energy sector, perpetuating energy shortages and low levels of access. Subsidies are only efficiently designed if they target reducing connection charges and stimulating new connections to the national grid, rather than reducing the marginal prices of electricity consumption for customers. Large budget deficits have in turn the perverse effect of diminishing the ability of utilities to invest in new infrastructure and connections to improve access to electricity. Together, budgetary deficit-related factors represent an important concurrent cause of the limited expansion of the national grid, and thus the lack of electricity access.

Today, new, ‘smarter’, pricing and policy paradigms are revealing successful alternatives to the traditional model of subsidisation. Digital technologies enable an automatic, near-real-time monitoring of consumption levels at each customer. This allows the differentiation of pricing structures among households and their consumption tier. These approaches enable both an effective cross-subsidisation through substantially higher prices for non-income-constrained, higher-consuming households, and the rebalancing of the deficit of utilities.

2.3 Investment Attractiveness and Private Capital

Historically, the fundamental cause for the lack of power supply infrastructure—both installed capacity and transmission and distribution grid—has been the insufficient private investment in the power sector of developing countries. Because of macroeconomic, political, and monetary instability, the cost of borrowing local capital is extremely high, with medium-term government bonds often yielding more than 15%, compared to, for instance, 1.8% in the US or even 0.3% in Germany as of 2020.

Independent power producers (IPPs) are crucial players in the development of the power sector of emerging countries, because they complement and—on the road towards a competitive power supply market—gradually substitute the national utilities in their role. This is because of the uneven nature of electrification investment, requiring significant amounts of capital upfront—which the public funds of a developing country cannot afford due to the large number of additional priorities to be met under tight budget constraints. A broad stream of literature has highlighted that countries whose policies, institutions, and general investment environment attract IPPs also exhibited the steepest improvement in electricity access levels (Eberhard et al. 2017b, 2018; Eberhard and Gratwick 2011). Kenya and South Africa are the two most prominent examples for the last decade.

On the other hand, countries classified as insecure by investors and lacking a regulatory framework for private power and infrastructure suppliers (a good reference is provided by the Regulatory Indicators for Sustainable Energy database, RISE (2017)) have historically struggled to expand access and domestic supply capacity. More recently, international donors, financial banks, and, pivotally, state-owned enterprises from China have supplied significant investment even to these countries, albeit to a lesser extent than to countries with a more suitable regulatory framework. As shown in Fig. 28.5, China plays a major role. Over the last decade, the country has become the first source of investment in power-generating infrastructure in sub-Saharan Africa (Eberhard et al. 2017a). According to the International Energy Agency (2016), Chinese companies (90% of which are state-owned) were responsible for 30% of new power capacity additions in sub-Saharan Africa between 2010 and 2015—with a total investment of around USD 13 bn over the quinquennium. Chinese contractors have built or are contracted to build 17 GW of power generation capacity in sub-Saharan Africa from 2010 to 2020, equivalent to 10% of existing installed capacity. These projects have hitherto targeted at least 37 countries out of 54 in the region.

Fig. 28.5

Investment flows in power generation infrastructure in sub-Saharan Africa. (Source: Eberhard et al. 2017a)

2.4 The Ability-to-Pay of Households, Connection Charges, and New Payment Schemes

Roadblocks to electricity access are not only originated from the supply side, but they also relate to the inability to pay by income-constrained households. The issue involves several dimensions, all of which can be tackled by an appropriate policy design.

• (i). The first issue concerns the charges levied by national utilities for new connections to the central national grid, which traditionally have been levied in a lump sum of an amount higher than the monthly income of most households (refer to Table 28.1).

• (ii). The second aspect concerns the running costs, that is, the price of electricity, and the capacity of the national utility to enforce its regular collection.

• (iii). A third aspect is related to the reliability of the electricity provision from the national grid. An unreliable supply with frequent outages may induce households and, particularly, small business enterprises, hospitals, and schools to purchase a back-up generator, which determines a double cost borne by the consumer for benefitting from the electricity service, or even the decision not to connect to the grid. For instance, wide disparities in electricity consumption levels exist between populations with access to electricity in sub-Saharan Africa and in other regions of the world. As an example, in Nigeria the average person consumes 140 kWh per year of electricity. This is in comparison to 4300 kWh/year for the average Chinese, 6000 kWh/year for the average European, and 13,000 kWh/year for the average American. To put it even more clearly, in many sub-Saharan African countries an average person consumes 10 times less electricity than a refrigerator cooling coke bottles in a typical kitchen in the United States each year.

Table 28.1 Connection charges and electricity access levels in selected countries

Expanding off-grid electrification might pose even higher financing challenges than on-grid electricity systems. Investing in on-grid, utility-scale projects is more comfortable for energy companies and investors, as high density of electricity demand guarantees more stable revenue streams. Should sound reforms of electricity utilities and energy subsidies be enacted, there should be no major problem in the future in ensuring the bankability of on-grid electricity infrastructure expansion. Far more problematic will be to ensure the development of small-grid and off-grid solutions needed to bring electricity to populations living in rural areas, which cannot be reached by the national grid, due to either geographical constraints or lack of a business case for grid expansion.

A recent trend has been observed in the diffusion of standalone generation solutions, in particular for household-scale photovoltaic modules running on pay-as-you-go business models (Mazzoni 2019). Several companies—initially in Western and Eastern Africa—have been shifting their business model to mobile-enabled payments, particularly suited for those potential customers who cannot afford a cash-paid system or grid connection charges (Bensch et al. 2018; Muchunku et al. 2018). With an initial payment, customers take their system home and make small periodical payments in order to keep it working, and eventually become owners of the equipment after a certain amount of time (Table 28.2). Solar Home Systems comprise a solar panel, a charge controller with a battery inside, a mobile charger, several DC ports for other appliances, and several light points. Their recent development enables the possibility to connect larger and larger DC appliances, such as refrigerators, fans, TVs, laptops, small-business and agro-processing machines, or even solar pumps (International Energy Agency 2017). Figure 28.6 illustrates a roadmap of the expected technological and service breakthroughs in the electricity access sector thanks to the emerging digitalisation trends. The timeline is divided into three dimensions, that is, by the type of access solution (national grid, mini-grids, or standalone solar home systems).

Table 28.2 Cost of pay-as-you-go solar home systems for major companies operating in sub-Saharan Africa

Fig. 28.6

Several developments are expected to bring about a ‘leapfrogging’ digital transformation of the electricity sector. (Source: Mazzoni 2019)

3 Access to Clean Cooking: Economic Issues and Policy Instruments

3.1 Modern Cooking Fuels: Lack of Infrastructure and Economic Incentive

A key difference between the clean cooking challenge and electricity access is that people cannot live without cooking, while they do not, strictly speaking, need electricity access for survival. Thus, populations without access to modern energy services revert to traditional options to cook food. There are 30 countries in the world where 90% of the population relies on solid biomass for daily cooking activities, 23 of which are located in sub-Saharan Africa (International Energy Agency 2017). Globally, at least 2.8 billion people (Bonjour et al. 2013), that is, almost four in ten, live in these conditions.

Solid biomass consists of firewood—sometimes converted into charcoal—and agricultural residues. These fuels are collected, bought, and burnt daily by the bulk of the population without clean cooking solutions. The main economic issue related to solid biomass is that—where collected at the household or community level—it presents very high non-marketed (thus, shadow) costs. These include (i) the opportunity cost of the time spent collecting wood, (ii) the environmental and resource value of the trees logged to obtain the fuel, and (iii) adverse health effects (Karekezi et al. 2006). Thus, while a shadow price for solid biomass exists, this is often not explicitly stated or found in a market, and this makes it difficult for individuals to compare it with the market price of clean cooking solutions. In this sense, the establishment and regulation of local charcoal and firewood markets can contribute to providing a signal of the true cost of solid biomass. This is, however, only possible where the production activity of wholesalers is regulated to reduce environmental harm (e.g. through deforestation and land-use degradation). Also, for the true cost of solid biomass to become visible, salary-free child and female labour must not be exploited at the household level, otherwise this might provide an incentive for households to procure their own biomass despite the existence of a formal market.

Transitioning towards modern cooking fuels is an even greater economic challenge than electrification, because the marginal transportation costs of modern cooking fuels are substantially higher than those for the provision of basic household access to electricity, no matter the fuel or the vector considered. For instance, developing a natural gas transmission network—the most popular solution in large parts of Europe and North America—is estimated (Agency for the Cooperation of Energy Regulators 2015) to cost, depending on the pipe diameter, between 350,000 and 1 million USD/km. For instance, the LL2 210 km pipeline, bringing natural gas from Mozambique to South Africa, costs 1.65 million USD/km (SASOL 2015), against the 30,000 USD/km of a high-voltage power transmission grid (Rosnes and Vennemo 2009).

The bulk of the global populations without access to clean cooking are concentrated in regions with a warm climate where there is no need for residential heating, which in non-equatorial countries is the first source of household gas consumption, and thus of revenue for utilities. At the same time, households that cook with solid biomass belong to the most income-constrained sections of the population. Even in urban and peri-urban areas, the horizontal and often informal expansion of most urban agglomerates makes the development of a gas distribution pipeline costly, and risky. Thus, it is clear that the economic incentives for such large-scale fixed infrastructure investment are lacking, at least over the medium term.

As a result, alternative paradigms to piped natural gas must be considered. The option which is most frequently considered and—at least in some countries—being implemented is the development of a liquefied petroleum gas (LPG) distribution network, with trucks transporting tanks towards capillary-distributed withdrawal points, where households can buy retail-scale quantities of fuel. Notably, LPG is among the few cooking fuels that can meet the indoor pollution standards set by the World Health Organization, and several studies point to its suitability for cooking in the developing world. The International Energy Agency estimates that about 90% of those who will shift away from solid biomass by 2030 will move to LPG.

Nevertheless, particularly for rural customers, difficulties of distribution due to poor road infrastructure and populations living in remote, low-density rural areas will likely remain a major barrier to a wider uptake (Van Leeuwen et al. 2017). The distribution of LPG from production sites or import stations to individual users requires careful handling, storage, and transport of pressurised gas. Clearly, this type of supply chain cannot be improvised for safety reasons, such as the handling of pressurised cylinders by untrained people.

Despite the energy unit cost of LPG being lower than traditional cooking fuels, the upfront cost of the first cylinder and LPG stove represents a strong entry barrier. Consumers willing to switch away from solid biomass or kerosene often lack sufficient disposable cash. Transportation is often an additional issue: moving heavy cylinders is challenging for rural households living far from the distribution sites. This is due to poor distribution networks in remote areas, and even in some urban centres. Another barrier is the absence of governmental subsidies that, together with lack of an appropriate supply chain, is hampering factors for the uptake of LPG. From an economic point of view, the policy design is also crucial in the transition to cleaner cooking fuels. The experience of Senegal with LPG is emblematic: thanks to an initial high subsidy-based strategy, LPG reached a share of about 70% of urban users. Yet, as soon as the government decided to remove subsidies, there was a massive drop in consumption. The next section elaborates on some of the economic reasons behind this reversal. A related trend was observed in India, where more than 70 million poor women have received free LPG stoves under a government programme. Yet, this has not been matched by an increase in LPG sales, suggesting that LPG access has not induced a full transition away from the use of polluting solid fuels as a result of inadequate incentives accompanying the deployment of the programme (Kar et al. 2019).

3.2 Complementary Cooking Solutions for the Short and Longer Term

If the aim is to also bring LPG cooking to rural users, the most critical elements of success will be the existence of far-reaching LPG value chains on the one hand and the effectiveness of targeted pro-poor cross-subsidisation on the other. It is still possible that smarter payment methods could also help in accelerating access to LPG distribution (in the same way this is happening with solar lanterns)—either as a purely market-driven solution or in combination with subsidies. So far, however, the accumulated experience of this solution is still limited (International Energy Agency 2017).

Despite these issues, there is substantial evidence that—once available and affordable—LPG responds to the needs of customers, which is not trivial. For instance, the experience of South Africa shows that (subsidised) LPG cooking can take root even where electrical cooking is available and cheap (Kimemia and Annegarn 2016). At the same time in India—where the use of solid biomass is also widespread—LPG seems to be responsible of the first signs of reduction in solid biomass consumption after decades of promotion of improved biomass stoves, which ended up delivering poor results (International Energy Agency 2017).

Despite the emergence of the market for LPG, estimates (International Energy Agency 2017) show that solid biomass cooking will continue to be the main cooking fuel for several decades. This is due to both the capillary infrastructure and market development necessary to reach remote communities, but also due to behavioural factors linked to local tradition and recipes. Therefore, solutions that allow increasing cooking efficiency and minimising exposure to harm are necessary over the short and medium term. The most viable and commonly supported solution is improved biomass cookstoves, which allow for substantial improvement in fuel efficiency (Mehetre et al. 2017). A number of protocols are adopted to identify the efficiency of cookstoves, in particular exploiting exergy analysis (Colpan 2012).

The adoption of improved cookstoves is strongly influenced by household income, but also by the robustness of supply chains and the type of devices available on local markets (Pattanayak et al. 2019). Empirical evidence shows high technology rejection rates in the lack of specific policy targeting socio-cultural aspects that hinder adoption (Okuthe and Akotsi 2014). From an economic point of view, improved cookstoves present significant monetary benefits (less biomass is required to cook the same amount of food) and non-marketed economic gains—both at a local and a global scale. These include health benefits, due to the inferior exposure to indoor air pollution; less time spent collecting or purchasing biomass, less deforestation, and lower greenhouse gas emissions. Empirical evidence has shown that replacement of traditional cookstoves can have a discounted (at 12%) payback period of as little as 5 months (Rubab and Kandpal 1996; Suvarnakuta and Suwannakuta 2006), and substantial fuel cost savings emerge thereafter. Thus, the greatest economic barrier is the upfront cost component that must be abated by ad-hoc business models and subsidisation strategies. At the same time, ensuring sustained use after the initial adoption requires tackling social and community-level barriers (Ruiz-Mercado et al. 2011).

Another clean cooking option is electricity. For instance, electricity is already widely used for cooking purposes in urban areas in South Africa, and, assuming sufficient affordability, it could become a key vector in the future cooking mix of other developing countries. Of course, compared to other basic household uses of electricity, cooking requires substantially more power (Bhatia and Angelou 2015), and a reliable supply. Nevertheless, the declining cost of solar PV modules and of battery storage over recent years is bringing significantly closer the possibility to promote solar electric cooking as the least-cost option for large shares of the population currently cooking with solid biomass (Batchelor et al. 2018).

In fact, similar to what has been observed in recent years for solar-home-systems, the clean cooking market is also—although at a slower pace—moving towards more innovative and private-based business models. Companies offering pay-as-you-go smart LPG valves are already operating in some countries (such as Kenya and Tanzania). These use M2M-connected smart metres on top of gas cylinders to provide an affordable supply of LPG for cooking, and monitor and enable its consumption. The model allows for a lowering of entry barriers thanks to leasing or instalment-based payments for the equipment.

Figure 28.7 shows the timeline of the projected market breakthroughs of smart cleaning solutions, with electric cooking still lagging behind but bound to emerge in the coming decades also thanks to its strong complementarity with the development of electricity access solutions, both standalone and through connection to mini-grids, or even to the national grid.

Fig. 28.7

Several developments are expected to bring about a ‘leapfrogging’ digital transformation of access to clean cooking. (Source: Mazzoni 2019)

3.3 Fuel Choice and Behavioural Barriers

Finally, when examining the household decision as to cooking fuels (Poblete-Cazenave and Pachauri 2018), policymakers must consider that this is not necessarily an explicit, frictionless, cost-minimising decision, because behavioural factors are at play (Lewis Jessica J. and Pattanayak Subhrendu K. 2012; Sunil Malla Govinda and R Timilsina 2014). These relate to traditional cooking habits and recipes, as well as to the socio-cultural dynamics involved, and—from an economic point of view—they suggest that the most appropriate approach to frame the problem is that of an imperfectly rational choice (Vigolo et al. 2018; Akintan et al. 2018).

Thus, energy policy design targeted at expanding access to modern cooking fuel must necessarily assume that a price signal might not be enough to trigger a switch from solid biomass to alternative cooking fuel. Supporting measures targeting communities as a whole (Vulturius and Wanjiru 2017), and in particular linked to education, is an important example.

Irrespective of the technology considered, similar barriers are found, namely the lack of infrastructure and of suitable policy to enable its development. Hitherto, policies aimed at modernising access to clean cooking have proved largely insufficient, and the challenge of universal access to clean cooking still receives less attention than that of electrification. One of the reasons for this is that there has not yet been a real market breakthrough of innovative standalone technologies (e.g. solar or biogas cookers), and the alternatives to traditional cooking today are more or less the same as decades ago, most importantly petroleum-based fuels and electricity. In other words, the main challenge of clean cooking remains that of improving the logistics and increasing the affordability and cultural acceptance of alternative solutions to rudimentary stoves.

4 Conclusion: Enabling Energy Access

4.1 Economic Issues of Energy Access

Meeting the SDG7’s goal of ensuring universal access to modern energy for all by 2030 requires an intensification of efforts at different scales. In particular, tackling the economic roots of the lack of energy access represents a fundamental requirement to unleash developing countries’ social development and economic potential. Throughout this chapter, we have highlighted that the main barriers that still prevent 1 billion people worldwide from having access to electricity are both infrastructural and policy-related.

• First, the limited extent and coverage of the national transmission and distribution network determines a situation of strongly unbalanced electricity access levels in urban and rural areas. This comes in combination with insufficient generation capacity, which renders it both challenging to broaden the consumer basin by establishing new connections for which there is a lack of power and to guarantee a reliable supply of electric energy to already electrified households and businesses. The situation is the result of large capacity and network expansion costs coupled with the high discount rates faced by investors, but also the high degree of dispersion of the populations in sub-Saharan Africa—the main region affected by electricity access deficits, which renders the investment not economically profitable. Finally, there is the low ability-to-pay and low short-term consumption of new customers, which together do not allow the national utility to recoup the large upfront investment borne to connect new households to the national grid.

• Second, there is the issue relating to the budgetary deficit on which energy utilities in most developing countries are running. The key reasons behind the deficit include the significant transmission, distribution, and bill collection losses, overstaffing, and, most crucially, poorly designed customer subsidisation (e.g. universal energy subsidies), which leads to excessively low electricity prices.

• Third, there is the issue of the difficulty in attracting investment, in particular private (IPPs) and foreign sources, which could strongly contribute to boosting generation, transmission, and distribution capacity and thus expanding electricity access and increasing its use. The unattractiveness is the result of macroeconomic, political, and monetary instability, which implies an extremely high cost of local capital.

• Fourth, there are questions related to the ability-to-pay of potential customers and the related upfront barriers, such as grid connection charges, which traditionally have been levied in a lump sum of an amount higher than the monthly income of most households. Other barriers include the running costs, that is, the price of electricity, and the capacity of the national utility to enforce its regular collection, as well as the reliability of the electricity provision from the national grid, which discourages new grid connections when the law forces small business enterprises, hospitals, and schools to purchase a back-up generator.

• Fifth, there is the acknowledgement that a relevant political-economic dimension exists, which depends on the role of political factors and local institutions in determining electrification pathways.

With regard to the challenge of guaranteeing universal access to clean cooking solutions, this is even greater due to both the structural difficulty of replacing solid biomass among remote communities and the behavioural aspects involved.

• First, the lack of an infrastructure that can enable the diffusion of clean cooking solutions has as its underlying cause the lack of an economic incentive, at least if the traditional model followed in Europe and North America is taken as the reference. Setting up a capillary natural gas transmission network is very capital intensive and simply not profitable if the only source of demand for it is cooking, with no heating demand and little industrial consumption.

• Second, the shadow and opportunity costs of solid biomass are still implicit. Households too often disregard the opportunity cost of the time spent collecting wood, the environmental and resource value of the trees logged to obtain the fuel, and the adverse health effects.

• Third, the behavioural barriers relating to the traditional cooking habits and recipes, as well as to the socio-cultural dynamics involved, render the fuel choice problem one of an imperfectly rational choice, where friction prevents the economically optimal solution from being adopted.

4.2 Coordinated Policy Actions to Enable Energy Access

Overall, a set of coordinated policy actions is required to unlock synergetic actions for electricity and clean cooking action (Hafner et al. 2018). A comprehensive policy action aimed at achieving universal energy access by 2030 notably needs to entail: (i) a mix of technological solutions; (ii) pricing and subsidies reform; (iii) digitalisation and smart payment schemes; (iv) a strong role of international organisation in unlocking international investments; and (v) appreciating the synergy of energy access with other sustainable development targets. Let us review these in detail.

• (i). A mix of technological solutions is needed to achieve universal energy access by 2030. Electricity planning encompasses the decision around the development of national grid connections, the development of mini-grids, or the installation of standalone off-grid solutions. In a similar fashion, cooking encompasses piped natural gas (mostly in urban districts characterised by a high demand density, e.g. from the industry sector), tanked LPG, eCook (in synergy with electricity access), or—where none of these solutions is viable over the medium term—improved biomass cookstoves. In both cases, modelling tools to assess the optimal technological mix at each settlement is of crucial importance to inform policymakers and private parties in their decision.

• (ii). Pricing and subsides reform is a key enabling condition for both electricity and clean cooking solutions access. Subsidies are a potentially very effective policy instrument to overcome energy access barriers. However, policymakers must make the most of today’s data collection and analysis capability to target them as precisely as possible, exclusively to those household who need them and would not have the means to afford energy access otherwise. Every dollar spent subsidising the wrong household is a dollar taken away from energy access investment. In a very similar way, pricing schemes must recognise the heterogeneity of customers within countries and be designed to match the ability and willingness to pay of different income groups. If pricing reform is effectively implemented, energy utilities can offer electricity and clean cooking solutions at prices that are below costs to specific customer groups while keeping a positive balance sheet.

• (iii). Digitalisation and smart payment schemes are starting to play a greater role as enablers of new business schemes, which enable customers by lowering upfront cost barriers while at the same time ensuring solvency for the businesses for the service provided and eliminating transaction costs. Data collection and analytics, for example on energy use habits and payment patterns, can become much more pervasive, and thus improve planning. A necessary condition that must be met is that this information is shared among public and private parties.

• (iv). International organisations play a key role in unlocking international capital towards the energy sectors of developing countries. Where a country’s financial sector is not deemed stable enough to attract the required investment under market conditions, the role of development and assistance banks is to provide sufficient guaranties to private investors. This is achieved by negotiations with national governments and conditionality approaches in the financing of public infrastructure.

• (v). The cost-benefit analysis of energy access projects is in all instances likely to be downward-biased, as energy access investment presents strong interconnections with the achievement of other development objectives (Bos et al. 2018; McCollum et al. 2018; Nerini et al. 2018). One of the most crucial of these aspects is the synergy between energy access and climate change mitigation and adaptation goals (Dagnachew et al. 2018). In particular, providing universal electricity access has been shown to exert little impact on global CO₂ emissions (Calvin et al. 2016), while switching to universal clean cooking would even imply a reduction in emissions and energy demand due to strong efficiency gains (e.g. see Rosenthal et al. 2018; Singh et al. 2017). At the same time, providing energy access allows for a steeply increased adaptation capability by enabling air cooling and telecommunications, for example. Finally, also from a governance and financing point of view, synergetic initiatives targeting both climate change adaptation and energy access can bring co-benefits (refer to Chirambo 2018).

But how to intervene in practice with policy actions in the energy access space? Operationally, it is sensible to differentiate two levels of intervention: (i) macro-scale reforms to unlock investment and (ii) micro-scale interventions to enable the uptake of access solutions.

At the macro-level, large-scale investment is the main responsibility of national and international policymakers involved with the electrification process. To do so, several coordinated options are necessary. These include:

• (i). Ensuring macro-economic, exchange rate, and political stability. These are first-order, necessary conditions to allow a country to be perceived as a favourable environment for private capital—including foreign capital—to flow into long-term infrastructure projects (Sweerts et al. 2019).

• (ii). Channelling infrastructure investment through competitive processes, rather than with direct negotiations (Ackah et al. 2017). Auctions and tendering procedures have proven particularly effective in attracting IPPs, which can become the real drivers of generation capacity expansions (Ackah et al. 2017; Kruger and Eberhard 2018), letting utilities focus on the management of the natural monopoly of the transmission and distribution grid, while governments act on sector governance.

• (iii). When designing subsidies, ensuring that these are neither universal (i.e. they target a population group which is too broad) nor regressive (i.e. they have the perverse effect of supporting the rich more than the poor because the rich are more likely to be grid-connected customers and consume more electricity), and that a clear long-term financing strategy exists. The latter point is particularly crucial to avoid. Consider, for instance, the precedent of the LPG subsidisation scheme in Senegal, where an initial skyrocketing of LPG clean cooking was followed by a dramatic return to solid biomass combustion as soon as public subsidisation came to an end.

• (iv). Ensuring that synergies among socio-economic objectives are fully exploited. With regard to energy access planning, synergetic financing and subsidisation of electricity access with eCook capability is a relevant example (Pachauri et al. 2013).

• (v). Given the order of magnitude of the challenge, only a joint effort of interested countries and international public and private players (known as PPPs, public–private partnerships) could provide a comprehensive solution. This is already being demonstrated by a number of initiatives currently under way across the developing world (Sovacool 2013). PPPs also encompass data exchange between public and private parties involved in the energy access sector, that is, between companies installing mini-grids and rural electrification agencies, so that an optimal synergetic planning is achieved. International organisations can play an important role by ensuring financing and capacity building conditional on these public-private partnerships being exploited.

At the micro-level (or local level), policies should be flexible enough to accommodate heterogeneous necessities and roadblocks. As highlighted in the chapter, some of the most important issues are:

• (i). The need to lower entry barriers on both the demand and supply side, that is, simultaneously mitigating connection charges for households and ensuring private companies promoting energy access solutions large flexibility in the business model and implementation strategy they adopt.

• (ii). This means fully exploiting the potential of digital technologies, including pay-as-you-go business schemes (which mostly work through the use of mobile e-banking, which thus presents strong synergies with energy access).

• (iii). At the same time, behavioural campaigns on the switch away from solid biomass can be particularly effective if they present sound evidence on the monetary and health-related benefits. Specific groups, such as women, should be targeted. These campaigns should, however, be able to recognise the role of traditions (recipes and tastes), otherwise they may be counterproductive.

• (iv). Solid biomass cooking issues have no silver-bullet solution. While modelling scenarios agree on the fact that a universal switch to either LPG or eCook cannot be achieved by 2030 (International Energy Agency 2017), an efficient mix of improved biomass cookstoves, LPG, and eCook can be extremely effective over the medium term as a joint strategy to drastically decrease indoor air pollution, reduce deforestation, and prevent households from collecting fuelwood autonomously.

• (v). Data collection and analysis at the local scale is necessary to gauge energy access solutions correctly. Accounting for the energy demand components stemming from the productive sectors such as agricultural and entrepreneurial businesses is important because—if provided with sufficient energy supply—these can boost local socio-economic development and employment. Disregarding these energy demand sources might bring an only partial solution of the energy access problem, with persistent energy poverty.