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[top] [end]Issue in Brief

[top] [end]Energy policy trends

Over the last few decades energy policy has undergone numerous transitions in terms of approaches for services delivery, each impacting in different ways. However, the results of the various policy models that have been proposed and tried out, remains debatable, as their capability to deliver desired results, more specifically the increased access to modern energy to the poor in developing countries, remains minimal at best. Indeed, growing populations and decreasing financing has meant that in real terms, access to modern energy has decreased or remained stagnant in certain countries. Issues such as the investment capabilities required to meet policy goals, policy implementation capacity and political will remain a challenge to real changes in the energy sector. This paper explores some of the policy issues in developing countries and expounds on some best practices in the sector.

[top] [end]Trends & History

[top] [end]Access and pricing in the 1970s - Securing energy

Traditionally, energy policy has targeted the security of energy supplies as a principal goal. This became especially critical for developed countries after the 1973 oil crisis. For both developed and developing countries, the oil crisis sparked debates and action on matching demand and supply, catalysing a trend of establishing strategic oil reserves. For developing countries however, this largely meant securing supply for those who were already using commercial fuels, leaving the majority of people without access to modern energy supplies. For non-commercial energy, in developing countries principally biomass, the focus on policy was to create supply zones. At the same time, policies created “protected zonesâ€? where forests were under threat or where they were considered of special added value such as national parks and botanical reserves. These areas were not to be used for biomass energy sourcing and such activities could be penalised by a range of fines and/or other legally binding sentences. Where forests were demarcated for special purposes, such as timber or fuelwood plantations, such protected supply zones have been characterised by monoculture tree plantations (often to the detriment of indigenous slow growing tree species and their symbiotic/dependent animal and plant species). Such protected zones, most of which were originally community owned forests with indigenous and exotic plants, were taken over by governments . However, rather than creating the desired balance sought by policy, this input-output approach to policy often led to negative social impacts. Examples of such social impacts include harassment of women collecting fuelwood and the fact that villagers, mainly women and children, have had to walk further to “unprotectedâ€? zones or designated areas to collect fuelwood. The fact that forest and forest resources were taken away from people, thereby taking away a vital natural capital, without providing alternative played a key role in failure of protectionist programs. Subsequently, development practitioners sparked parallel debates on increasing energy access to those without modern energy services and energy policy frameworks were modified to include issues of natural resource management that did not further deprive poor populations.

[top] [end]No, we can’t pay but it’s all in the market! (From donors and banks to markets)

In post-independence developing countries, the development and expansion of commercial energy supplies has historically been largely aided by multilateral and bilateral loans. Gradually, these sources of funding have reduced and the 1980s saw a substantial drop in external funding for the energy sector. The solution to declining investment and poor performance, as argued by economists, was to turn over the energy sector to private participants. It was argued that the problems of the energy sector were primarily driven by lack of competition and that with the right regulations, the market would send appropriate signals and investors would meet the financing gap. Thus, over the last two and half decades there has been increasing efforts to reform the energy sector. In particular, the power sector in developing countries has been undergoing reforms in efforts to improve its technical and financial performance. For financial performance, emphasis has been on introducing long range marginal costs (LRMC) that would enable power utilities to meet their investment needs. Policy frameworks in the power sector have also started moving from centralised, government enforced policy, planning and delivery, to a more decentralised framework. A majority of developing countries have (in theory) opened up their energy sectors to private participation, in an effort to get increased investment as well as improved technical and financial performance. Theoretically, such an approach would transfer the bulk of the financial burden of the power sector from governments to private investors. To support these new frameworks, ancillary institutions including new laws and “independentâ€? regulatory bodies have been established. In some cases, government owned utilities have been separated and even sold off to private participants. Despite the move to more market friendly policy frameworks in the power sector, emerging evidence has shown little to no private investment. Burdened by high capital costs and uncertainty in long term policy commitments, new infrastructure investments have been particularly absent in developing countries that have undergone reforms. The poor in particular have yielded little benefit and in some cases their positions have actually regressed as supply has been cut-off due to the inability to pay. Fears over potential as well as emerging real impacts of neo-liberal reforms sparked debates of what and how to reform the energy sector. This has then compelled policy makers to broaden policy analysis and resulting frameworks from narrow efficiency focus to include principles of equity and poverty alleviation efforts.

[top] [end]Neither can we!

As the debate over what and how to reform has raged, development and policy practitioners as well as academics have questioned the impacts of technically and financially focussed reforms, specifically the impact on the poor who either have no or limited access to modern energy services. However, assessing the impact of energy sector reforms on the poor has not been easy due to the relatively short period involved, subsequent policy revisions and the difficulty in predicting impacts on those without access to modern energy services. The emerging consensus has been that both governments and their constituents are too cash constrained to pay for investments in the energy sector. Policy makers are therefore continually looking to other aspects of energy policy formulation, including social and environmental aspects. Indeed a number of Sub-Saharan countries, their power sectors and potential (paying) customer bases are so small one questions the very foundation of the market debate (Box 1).

Box 1: Time for the salesman? A case of power sector reforms in Malawi

In Malawi, with a population estimated at 12 million has a GDP per capita is about US$180. Up to 65% of the population live below the poverty line. Access to electricity is at an estimated 5% but over 95% continue to use biomass as the primary thermal energy source. This is because even among the 5% electrified, the costs of electricity, at about 5USc per Kwh remains too high for most households to use it for thermal applications such as cooking at all or most of the times. A largely agricultural country, Malawi’s poor economic performance of the country is further constrained by a periods of alternating drought and flooding and falling prices of primary crops such as maize and tobacco. HIV/AIDS, affecting about 14% of the population not only diverts household resources from basic development needs to care needs. It also reduces productivity as the young and productive population is worst hit by the epidemic and other household labour is further divert labour from production time to care time. Electricity in Malawi is provided by the state owned electricity Commission of Malawi (ESCOM). Installed capacity is at 306MW. Within this context, Malawi embarked on power sector reforms in 1998. The aims were to improve technical and financial performance; and attract private sector participants. Despite almost a decade of reforms, with an independent regulator put in place, private participation remains elusive. For details on the case of energy sector reforms in Malawi, please visit www.afrepren.org

[top] [end]A shift towards SD supportive policy

Recognition of the contributions that energy can make to sustainable development is leading to a shift in policies focussed on supply and demand, to policies that include the support for sustainable development. In addition, the role of markets in modern energy services provision has proved complex, particularly in the face of wide spread poverty and policy uncertainty. Gradually, energy policies in developing countries are including, within their frameworks principles of environmental stewardship and social equity. Targets and strategies for improving access for uneconomically viable groups are now common place, particularly for rural energy supplies in most countries. Also increasingly popular are efforts to embark low carbon paths by increasing uptake of renewable energy and energy efficiency. International bodies, particularly the EU have been in the driving seat, financing such programs. A challenge for uptake of renewable energy technologies remains their high costs of investment as well as their inability to cater for thermal needs of the poor in a culturally and economically acceptable manner . In addition, a debate remains on whether and how much the developing world energy users should pay for the lifestyles of developed country energy users, which is largely responsible for issues such as climate change- an issue at the core of the energy-environment debate. Thus a question one poses is with the current limitations in uptake of RETs, should women and children continue to suffer from indoor air pollution and the hardships of fuelwood by denying them fossil fuel because it contributes to climate change? The energy sector still needs to cope with the reality barriers RETs will continue in the medium to long term. And for a range of applications, RETs remain an expensive option compared to fossil based fuels for a range of complex reasons. On the other side of the debate however, the developing world, with its infant energy sector, is considered the easiest place for implementing and disseminating renewable energy technologies. And RETs have the particular advantage that they can be set up in a cumulative manner as demand grows and are suited for dispersed populations prevalent in rural areas of most developing countries. Policy frameworks will therefore have to carefully balance the need for cleaner and low carbon economies with meeting the real needs of its populations.

[top] [end]Current Best Practice

Considering the large proportion of people without access to modern energy services, it is perhaps difficult to find policy frameworks that provide examples of best practice. However, various policy frameworks do have elements of what is best practice and there are lessons we could be learning. Below are some examples of elements of best practices and learning suggestions;

[top] [end]Sustainable biomass production

In the medium to long term, biomass will remain the key energy source for most households, for economic, political and structural reasons. Unlike past policies, in which forest were government managed, future policy should include accessible, locally managed community forests, with the aim of creating sustainable supply and usage. The local management of forests has shown promise as users have a stake in their protection. Experiences in Nepal (despite some drawbacks) indicate that community forests have the potential to address supply issues and help meet energy demand. However, poverty, which creates short term vision, remains a challenge to truly maximise the benefits of community forestry. Charcoal is increasingly a fuel of choice for urban areas. Yet its production remains highly inefficient. Thus the efficient production of charcoal remains a challenge that threatens long terms wood supply and the environment. Preference for hardwood, indigenous species which are also harder to cultivate further impacts biodiversity. However, the fact that charcoal production remains illegal or cumbered by other legal issues means that accessing charcoal producers with messages, technologies and alternatives can be a daunting task. Conceding the need for charcoal and de-criminalising its production is the first step in finding solutions to a more efficient charcoal production industry.

[top] [end]Biomass use

Millions of people in developing countries continue to use inefficient stoves that have a substantial, harmful impact on the environment , are costly (both in terms of cash and time spent collecting firewood) and harmful to health due to high levels of smoke and particulates. Improved cookstoves can help reduce fuel use due to their improved efficiency levels. However, disseminating improved stoves as an alternative has shown to be more complex than a simple selection and selling of technology. Approached that have involved of users in design and development of stoves and household energy interventions has proved to improve results of dissemination efforts, particularly in Kenya (Kammen, Owalla, 2001). In addition, increasing awareness of the multiple and multilevel benefits of technologies such as stoves. Projects should not assume that all stakeholders are aware of the benefits of efficient stoves for their group. Incentives should also be available for people to transition to these technologies. Where local artisans can earn incomes from production and sales of improved cookstoves, it has created a pool of local stakeholders – the entrepreneurs- interested in sustaining the dissemination process during and after program interventions. A strategy that has aided the dissemination of efficient stoves in China is the concentration of dissemination efforts in wood constrained areas. Here, the incentive is the cost of fuelwood, both in terms of money or time (scarcity). This seems to be behind the relative success of improved stoves in urban areas in African cities such as Nairobi, Kenya and Blantyre, Malawi where households have to but fuelwood. By contrast, in rural areas of Africa where fuelwood is still largely collected free of charge by women, the dissemination of improved cookstoves have not yielded substantial results. In Pura for example, despite participatory involvement efforts to induce a transition from fuelwood to Biogas failed due to the low cost and “abundanceâ€? of fuelwood. It should be appreciated here that the notion of whether fuelwood is abundant or not cannot simply be decided by numbers computed by well educated researchers. Rather it is decided, felt and ultimately used for or against a program by the fuelwood users whose definition of scarcity, hardship and benefits of transitions are informed by complex socio-economic structures and issues. In addition, it must be noted that in general in most areas, women’s time is greatly undervalued. They have little money earning capacity due to lower levels of education and socio-cultural issues. As a result, for these communities, a woman spending say 6 hours a week collecting fuelwood may not be conceived as a production loss or income loss. She is doing her woman duties. Increasing the value of women’s time through income generation activities may affect willingness to invest in fuelwood serving technologies as well as other energy technologies.

[top] [end]Smart subsidies

Although in the early days of energy sector reform, subsidies were demonised as the death knell of the energy sector, the reality remains that the initial costs for connecting to a grid remain prohibitively high. In countries where per capita income is less than 200 USD it is not unusual for connection costs to be as much as USD700 to USD1000 per household. This must often be paid at once or over a very short time period. As a result, subsidies remain a vital tool for increasing access to modern energy services. Practitioners should however assess the need and the target of subsidies to avoid leakages.

[top] [end]Role of choice in policy

Most energy pricing and payment practices have assumed monthly payments fuelled by western styled standards. These continue to put modern energy out of reach of the majority of the poor in developing countries where incomes are not monthly. They are often seasonal in line with agricultural or fishery markets. Similarly, utilities have adhered to connection standards that assume permanent building and a nucleus family, requiring a sophisticated metering system per household. Yet a substantial number of people in developing countries live in semi permanent buildings and compound settings. Thus current sophisticated standards are a mismatch to the reality and complicate how households interpret their energy access compared to how service providers view them. This is particularly true for electricity delivery. Building in flexibility in payments, connection and delivery standards is vital for ensuring improved access and continued use of modern energy services. Technologies are mostly available but support policies and services are largely lacking. For electricity, the use of prepayment cards, and flexible connection standards such as the compact ready board have proved useful in South Africa and to a limited extent in Malawi. For gas, the delivery of smaller bottles rather than cylinders and amortised payment for gas supplies is proving a better option for the poor in Kenya and Senegal.

[top] [end]Multiple choice

The reality in most households transitioning or attempting to transition from traditional to cleaner or modern energy supplies is that their livelihoods are complex and often transient. Whilst some households are chronically poor, others move in and out of poverty throughout depending on seasons and household circumstances such as long term illnesses or job loss by members. As a result, their use of energy in the traditional to modern energy transition period is often peppered with these ups and downs in their livelihoods. In addition, modern energy supplies in developing countries are often unreliable for a range of reasons. As a result, there is rarely absolute or exclusive modern energy usage for those that have access. Households often use a basket of energy resources, comprising traditional and modern energy. Hence energy policy should enable a broader set of choice to support the reality of multiple fuel usage rather than a hypothetical state of modern energy use that assumes a dichotomous and absolute jump from traditional to modern energy fuels.

[top] [end]Integrated policy frameworks

The traditional approach to optimal supply focus energy policy has proved to be inadequate in distributive capacity. It may supply but does not necessarily balance the distribution equation. For example, if a country’s supply target to maintain energy security is a capacity of 1200 MW, this may be reached and yet there would still be pockets of households with modern energy services access. Thus the supply target has been reached but the distribution is skewed. Equally, such a target does not give an indication of which sectors are benefiting from the “progressâ€?. In recognition of the cross cutting nature of energy as an enabler for various services for improving livelihoods, policy frameworks for services delivery must clearly link to various sectors such as health and agriculture. Thus various government sectors and energy sector must work together to ensure that the right technologies and policies support their sectoral development agendas. For example, for clinics to effectively provide services needed for combating infant mortality, they may need energy for refrigerators, lighting for emergency deliveries, power for running water at the clinics and other support services. The energy sector then should work hand in hand with the health sector on where and how to meet these needs. Rather than just improve capacity and hope that somehow it gets to the right clinic. Similarly, local planning policy should ensure that energy needs are assessing and integrated in local development programs. An integrated policy such as this policy should be implementable (i.e. resources, objectives and targets match and should be realistic) and hence its targets must also be measurable, qualitatively and quantitatively. The need for an implementable policy also negates the “one-size fits allâ€? policy. Rather, the integrated policy will vary between and within countries, between urban and rural, across sectors and across target groups. For such a policy to be effective there is need to ensure that policies across sectors are supportive rather than independent and silent of each others concerns. .

[top] [end]Areas of Research

Multidisciplinary approaches to policy
Poverty and energy
Energy and gender
Energy and health

[top] [end]Organizations / People

[top] [end]International action

The World Bank as a key contributor in terms of finance and technical assistance is a major catalyser of action in energy policy in developing countries. The Bank has a number of programs on energy and energy policy. Who does what?

[top] [end]Main actors at international level

• WB and IMF
• UNDP – Mainly involved in energy and poverty issues, it has a number of programs related to energy and poverty as well as household energy in developing countries.
• EU – Committed to energy in developing countries, it is especially focussed on renewable energy dissemination, with specific focus on reducing barriers to renewable energy access.
• DGIS AND DFID GTZ - Have programs on energy access in developing countries. They include knowledge programs such as research and dissemination as well as implementation programs.

[top] [end]Expert groups

• AFPREPREN - The African Energy Policy Research Network (AFREPREN/FWD) and Foundation for Woodstove Dissemination (FWD) is an NGO that’s brings together African energy researchers and policy makers. It has initiated policy research in 19 African countries in order to strengthen local research capacity and to harness it in the service of energy policy making and planning. Study areas over the years have included energy institutions and planning, renewable energy technologies, oil, gas, coal and gasification, energy efficiency, climate change and energy, power sector reforms, energy services for the urban poor, power sector reforms and rural energy development. Most of their publications are available on www.afrepren.org
• ERC - The Energy Research Centre, ERC is a multi-disciplinary energy research centre, housed in the Faculty of Engineering and the Built Environment at the University of Cape Town in South Africa. It undertakes research in energy policy and climate change. Its special focus is South Africa and Sub-Sahara Africa. It also undertakes capacity building through short courses and postgraduate Masters and PhD programs.
• ENERGIA - The international network on gender and sustainable energy (ENERGIA) contributes to the engendering of energy policy in developing countries. Recently, it has been undertaking gender audits and training of energy policy makers and related officials in gender mainstreaming in the energy policy. ENERGIA is active in Africa, Asia, Latin America and Oceania, as well as in Europe, North America and Australia. It is also involved in knowledge dissemination on gender issues through its publications including a newsletter and a resource centre.
• The Institute for Energy Economics, Fundacion Bariloche IDEE/FB, is a socio-economic and interdisciplinary research institute with specific focus on energy issues in Argentina, Latin America and developing countries. It provides technical assistance and undertakes research on energy issues in Latin America. It also conducts training including the four months’ Latin American Postgraduate Course on Energy and Environment Economics and Policies as well as the Master's Program in Energy and Environment Economics and Policies -MEPEA- for professionals from public and private energy enterprises, universities, and planning organizations from all of Latin American countries.
• TERI- The Energy and Resources Institute is focused on sustainable development issues especially energy and resource use in developing countries. It research activities include technical and policy relevant energy issues, climate change and biotechnology. It also undertakes a number of projects, primarily in Asia and undertakes training.

[top] [end]Partner agencies include

• REEEP
• GEF
• AFREPREN
• GDN

[top] [end]Web Links

www.hedon.info
www.energia.org
www.afrepren.org
http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/0,,menuPK:336812~pagePK:149018~piPK:149093~theSitePK:336806,00.html
www.teriin.org
www.gdnet.org
http://www.energycommunity.org/
www.sei.se

[top] [end]Documents

Victor D.G AND Thomas C.H (year)The political economy of power sector reforms: The experiences of five major developing countries. Cambridge University Press.
C.M. Shastri, C.M., Sangeetha G. and N.H. Ravindranath Dissemination of efficient
ASTRA stove: case study of a successful entrepreneur in Sirsi, India. Energy for Sustainable Development Vol. 4 No. 2 l June 2002

[top] [end]Contributors

User:Margaret Matinga 16 May 2007
User:Donna Skordili 12 February 2007

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