Dear Sir/Madam,

I writing to you as the CEO and Managing Director of Village Infrastructure Angels (www.villageinfrastructure.com), a UK based company that helps the poorest 2 billion people gain access to poverty-alleviating micro infrastructure in developing countries such as solar electric cooking, solar mills for farmers, solar washing machines and more. Our world-class infrastructure design software www.developmentmaps.org co-designed with another UK company, Illustreets, is also part of 4-prong strategy to help the global poor. We see hardware, software, finance and capacity building as the four pillars of our micro infrastructure approach. We are glad to see this inquiry on community energy being held, and we hope our 30 years of experience helping over 1 million people get electricity can help inform good policy.

I will try to address the questions posed. To start with, an abridged version is given of less than 3000 words, as well as a full more detailed version.

ABRIDGED VERSION

1) What is community energy in the context of aid?

Improved clean energy systems including electricity access and non-electric energy, that communities help design, manage and own, either community-owned or individually owned, but a project where assets are owned by one entrepreneur, a company/organization or the government are not community energy, even if the community are involved. Ownership of assets is important.

2) What are the environmental, economic and social benefits of community-led energy initiatives?

There are not likely major environmental advantages to community-led energy initiatives compared to other models. Economic benefits can be significant if one person or organization is not profiting from supply of energy services but said services can be provided in a non-profit, cooperative way as NRECA did in the USA which was replicated in Philippines. Social benefits could be good too, increasing the chances of “leave no-one behind” and ensuring everyone receives improvevd energy services. However, there are also risks and shortcomings of community-led energy initiatives. The most common is the ‘tragedy of the commons’, that when it is no single persons’ responsibility to make sure something is done (saving money for future repairs, doing maintenance, chasing up late-paying/defaulting customers or even disconnecting them), it doesn’t get done, and the whole system collapses. We provide examples of where community-led models have worked well (Nepal) and where they have been a disaster (Papua New Guinea). One cannot blindly copy and past models from one country to another without taking into account different cultures.

3) How does the UK’s ODA support decentralised energy initiatives? How effective is this support?

“Decentralized energy initiatives” and “community-led energy iniatives” are not the same thing. Decentralized can be community-led, but can also be entrepreneur or organization/company led, and usually is. “Centralized” is likely to refer mostly to the national electricity grid and/or national government led programs. “Decentralized” is likely to refer to community-scale energy systems like minigrids, or individual systems like solar home systems and improved cookstoves. A google search of “uk aid decentralized energy initiatives” gives a first link to the UK committing ₤200 million to the Climate Investment Funds Global Energy Storage Program in 2019. However, most of this probably ended up in big battery projects connected to national power grids, so was not really decentralized at all. Modern Energy Cooking Services (MECS) which promotes electric cooking is a good example, but it is questionable how cost-effective it is, and is still relies on centralized (grid) power. A truly decentralized approach would promote solar electric cooking, where households generate their own electric power for cooking. This is almost certainly cheaper than current fuels or buying from the grid, but because it is capital intensive, it is seen as “too hard”, it involves financing 20 years of energy costing $500-1000, not just financing low cost electric pots costing $50-100. Of course, 10 times more people can be impacted for each ODA dollar spent with the latter approach, which is extremely attractive for impact metrics, but that does not mean the least cost solution is being promoted, so the end effect is that the poor will be convinced to switch to a solution that will cost them more in their lifetimes than a capital intensive option like solar electric cooking. Short term gain for the UK, long term pain for the poor (though less pain than they have now, so still an improvement, but not a least-cost solution).

ODA funding could be braver, and recognize that long-term financing of poverty-alleviating infrastructure is vital if the UK truly wants to end poverty in our lifetime.

British International Investment (BII) is an example entity that does invest in energy projects in developing countries. However, when an innovator like VIA approaches them, they turn us away because we are too small. They can only do $20-200 million projects. This is the classic “missing middle” finance, where SME finance of $0.5-5 million has always has been hard to find in the 30 years we have worked in development, a problem that our team has won prizes from the G20 worth $2 million and from USAID, yet continues to be totally ignored by the UK aid staff. Entities like Shell Foundation are supported to help, but don’t really succeed in doing so.

A 2019 study of UK International Climate Finance for low carbon development (https://icai.independent.gov.uk/wp-content/uploads/International-Climate-Finance-ICAI-review.pdf) found that ₤5.8 billion spent in 2016-21 leveraged ₤3.3 billion in new public investments and ₤0.9 billion in private finance, totaling ₤10 billion. This could be viewed as very underwhelming. The report notes that at COP15 in Copenhagen in 2009, developed countries committed to mobilizing US$100 billion per year until 2025 from public and private sources for climate action in developing countries (both mitigation and adaptation). The UK accounts for about 4.5% of OECD country populations, so one might interpret this as a commitment to mobilizing ₤4.5 billion per year, which would be ₤22.5 billion during 2016-21. However, only ₤10 billion was mobilized. Assuming no further public funding can be committed by the UK Government, the gap needs to be filled by the private sector, so instead of mobilizing ₤0.9 billion in 5 years it should be aiming to mobilize ₤13.5 billion per year to honor its commitment. This requires a complete rethink of how UK ODA can leverage ₤2.33 of private sector funding for every ODA ₤1 instead of leveraging just ₤0.155

But do we really need this level of funding? Using a pro-rata approach of UK / OECD populations, one might say the UK is “responsible” for 4.5% of 100 million households that lack access to electricity globally, or 4.5 million households, while other OECD countries take care of the rest. If ₤1 billion/year of UK aid was spent efficiently with zero leveraging of any other capital on these 4.5 million households, there would be ₤222/year/household available to increase their access to energy. This is sufficient for around 200W or 0.6-1kWh/day of energy every single year. This about the average consumption of a household newly connected to the national electricity grid. In 5 years, each of the 4.5 million households would 1kWp of solar or 4-5 kWh/day, enough to cook with, and thus completing the SDG 7 task for UK’s share of the goal of bringing access to electricity to everyone on earth AND clean cooking.

The problem is that UK aid funding does not reach these households, and instead of 20 million households being reached in Africa per year and completing the SDG7 task in the next 5 years, only 3 million households are being reached, the same as population growth rate in Africa so no real progress is being made. Thus, we conclude that 85% of climate finance is not helping increase access to electricity, and it could be argued, is being spent grossly inefficiently, the same argument that has now led to the demise of USAID. The effectiveness of UK ODA expenditure is hence concluded to be mostly ineffective, and its support of decentralized energy is well-intentioned but resulting in very little real impact for those who need it most.

4) How are development finance institutions engaging with the potential of community energy?

There are over 500 such DFIs, the biggest of which is the IFC with $50 billion of assets under management (compared to about $5 billion for British International Investment, for example). The most obvious support of “community energy” might be DFI support of minigrids built in developing countries, but in some ways, this fails the true meaning of community energy, because usually there is zero community ownership of minigrid assets. These assets are being held by private companies who have no intention of ever handing over ownership to the local community, but will instead extract money from them for the life of the minigrid.

Thus, we would argue that DFIs are not supporting community energy much at all. Access to DFI funding should be contingent on a slow but steady handover of assets funded to the local community. It is not, and largely the aim is to deliver double digit returns to private sector investors. The usual argument for this is that public funding is insufficient to deliver development goals like SDG7. However, as shown earlier in this document, that is clearly false now that solar power has dropped dramastically in price and now public funding alone could bring 200W of solar to each and every offgrid house in the world every year, if spent directly and efficiently, instead of being only 15% efficient. The majority of DFI funding is directed towards the privatization of energy services for communities, not the ownership of energy assets by the community (which NRECA and other cooperative models are a good example of, but are rarely used today).

5) Can you provide examples of successful programmes or initiatives that have enhanced access to clean, affordable and inclusive energy systems? Or, on the opposite, are there examples of energy programmes where UK aid could have been used better?

As an extension of the analysis already made above, it would appear that the spend on climate finance made by the UK Government of around ₤1 billion/year that leverages about the same again from other sources is grossly underperforming if progress on SDG7 is used as the main indication of progress. Any project which does invest the majority of its budget in actual infrastructure being built that increases electricity access to offgrid households or increases clean cooking solutions to households are energy programmes where UK aid could have been used better. This includes handing funds over to multilateral banks, assuming they will use it efficiently and effectively, rather than on research and innovation projects, capacity buillding, conferences and events, etc. which appears to be what most of the money is spent on. The technology needed to deliver solutions to the global energy poor exist and at a reasonable price point. What is lacking is low cost finance to scale up delivery massively. In the 1930’s and 40’s in the USA, rural electrification was financed by 2-5% year 20-year tenor loans at 95% debt and 5% equity, delivered via a non-profit cooperative (NRECA) that still exists today. I am not sure how the UK financed its rural electrification, but similar low interest long-term finance was undoubtedly part of it. This is what is sorely needed today, and does not exist.

6) How does the UK’s ODA support decentralized energy initiatives? How effective is this support?

The main challenge of deploying a decentralized energy system in ODA-recipient countries is not the lack of entities that can deliver such projects, but a) the cost of some solutions and b) the expensive finance and complicated subsidy systems currently preferred to fund them.

Let’s look at costs. A 250Wp solar system making 1kWh/day costing $250 installed would generate 3650 kWh of energy, costing $0.0685/kWh (₤0.0514/kWh). This levelized cost of energy (LCOE) is cheaper than the retail cost of grid electricity delivered to any OECD country and the vast majority of grid-connected households in developing countries. However, if investors demand 10-15% rate of return (often higher), this increases to $0.11-0.14/kWh. Still affordable, but 63-99% more expensive than it needs to be. No wonder 30-50% RBF subsidies are “needed” - all these do is go straight into the pockets of “impact investors”, often very rich people, who refuse to offer the 2-5% interest rates and long lending periods that built rural electrification in their own country. This is ethically questionable at best, an inefficient use of valuable development finance, and false economy. That expensive private sector funding is not needed.

Thus, one could argue that the upper limit of the capital cost of any renewable decentralized energy solution should not cost much more than $1000 for 4kWh/day of service, or $250 per daily kWh delivered. Households now spend $0.30-$0.80/day on cooking fuel, or $100-300/year, whcih is $1000-3000 over 10 years. A solar electric cooking system is cheaper than this. Hydropower can also be shown to be a cost-effective solution at current prices, even if a local battery is added to each household to give higher peak load capabilities.

We recommend that a global non-profit version of NRECA be established. For-profit venture-backed companies still have a role to play in the supply and installation of such systems, but their high double-digit return expectations make them unsuitable to own these assets long-term, doubling the cost of power to those who need the cheapest energy possible to accelerate economic development. We did not use that model for our own rural electrification efforts so we should not use it today either, unless the actual intent of development aid is for rich people to profit from providing essential services to the poor. Our own efforts to raise a similar $30 million Micro Infrastructure Fund for Women has attracted feasibility study support from Convergence Finance, but has not secured any support or investment from the UK since being launched at the Glasgow COP26 in 2021. We are happy to share documentation on this fund to anyone interested (stewart@villageinfrastructure.com), as we believe it would invest in decentralized energy systems in a way that no other investor is currently doing.

7) How does the FCDO ensure that the voices and rights of women, older people and marginalised communities are heard and protected in funded energy projects?

The energy needs of women in funded energy access projects are routinely mostly ignored. Energy plays a big role in their daily activities - cooking is the main need for energy, but also food/crop processing, water supply and purification, washing clothes as well as smaller appliances (lights, phones, radio, music, TV, etc). In 25 years we have never seen an energy access project that features washing machines to reduce up to 1 day per week of manual labour, nor is this found even in the WASH industry. It is as if women’s labour is viewed as free and their time is not worth saving. Processing crops by hand such as removing maize kernels from cobs is another example of manual labour mostly undertaken by women and children, and our projects replacing this with solar powered maize shelling and cassva grating mills have shown that the time saved is often spent on income-generating activities that earn more than the cost of the time-saving machinery. This can equally apply to washing machines, but never has been. The cost analysis of improved cookstoves rarely adds the opportunity cost of time spent collecting wood into the analysis, but the first reports recently published that have done so show this cost far exceeds anything else, and is similar to the cost of paying for the fuel, so there is no such thing as “collecting fuelwood/water for free”. Women-focused energy access projects or innovations have been few and far between, so we have filled these market gaps with the world’s first full-size fully automatic solar powered (DC voltage) washing machine, as well as the world’s largest range of solar mills for farmers.

The Human Development Index, one measure of poverty, has a third of its value attributed to years of education, while the other two thirds are focused on increased income and increased life expectancy. These 3 elements could offer new KPIs by which development projects could be measured, to ensure they are not too narrowly focused on income generation only.

8) How can the value for money of community-led energy projects be evaluated to account for their full environment and social benefits?

It is questionable that community-led energy projects have better environmental or social benefits than non-community-led energy projects (entrepreneur or organization or government led/owned projects). It is likely that a community-led project will have more social benefits and be likely to be more inclusive, giving every household in the village voice during decision-making processes, but a well designed non-community-led project would do this same consultation process, and a good entrepreneur responds to customer demand. Therefore, it is more important to value any energy projects’ full environmental and social benefits. Some benefits are harder to value, but could be if an effort was made, mostly through higher subsidies or lower cost capital for extra benefits generated. Such difficult benefits can include

 CO2 emission reductions from cleaner cooking or kerosene/diesel displacement - carbon credits are a well established way to generate value, but need to be high quality, with real-time monitoring to verify actual usage.

 Similar, other health benefits for clean water, health centre electrification, sanitation and other life-increasing services could be incentivized in this way.

In summary, focusing on community-led models of energy projects, rather than any model of energy project that can prove itself effective, risks focusing on one model that might look good in theory but could be a disaster in practice due to a poor fit with local culture. What is needed is a drastic overhaul of the cost-effectiveness of delivery energy aid funding to those who need it most. We have the resources and cost-effective technology to eliminate energy poverty globally in the next 5-10 years, but our current model is probably 85% inefficient, and is far more important to address than a narrow study on community-led models.

For more detailed commentary, please see the next pages.

DETAILED VERSION

1) What is community energy in the context of aid?

As you have noted, about 750 million people still lack access to electricity in the world. Most of the other 7.25 billion people have been reached by large central grids that are owned by the government or by large private sector companies. Until recently, very very few people made their own energy or were served by isolated minigrids. With the reduction in price of solar power and batteries, this is changing, more and more people are making power where they consume it, on the roof of the house or business or other organization, on ground-mounted on their property. This reduces the need for poles and wires to distribute power. However, after a few rainy days, solar and batteries might not deliver enough energy, so a backup is required. There are two ways to deliver this backup energy - one is through poles and wires that cost about $200/household and another is by carrying the portable solar battery of the house to a recharge point and topping it up. Less convenient, but still practical and convenient (eg. same applies to bottled gas vs piped gas), and cheaper. Therefore, community energy does not need to by default mean a centralized power station in or near the community with poles and wires distributing this to households. It can also include households owning their own power system. Mesh grids allow such self-generation systems to interconnect to each other and share power.

This gives rise to the question - if government or company owned power infrastructure we historically relied upon is the opposite of community energy, does individually owned power generation by each household in the community also constitute community energy? We would argue it should be, because members of the community benefit from infrastructure ownership, as much as if the infrastructure was owned by a community institution like a cooperative that local people are a member of (as NRECA did in the USA for rural areas when private companies did not want to electrify less profitable lower population density rural areas). There, we would suggest that “community energy” has a critically important characteristic of ownership, that community members (households) own the energy infrastructure, rather than simply being customers who pay an entity outside the community for the energy services delivered.

Sadly, the 750 million people who lack access to electricity have little chance of owning energy infrastructure because they have little money. This might suggest community energy has little chance of being a dominant model or solution for these people. However, the last 30 years that we have worked in energy access has demonstrated clearly that almost all people in the world can afford the first few watts of power from solar panels and a small battery to run a few white LED lights in the house, thanks to white LED lighting technology that was invented 30 years ago, its decreasing cost, and the decreasing cost of solar and batteries. Lighting is not much, but it’s a start. If households cannot afford to buy such products for cash for $5-50, pay-as-you-go or lease-to-own models allow households to pay a smaller affordable amount like $1/week, the same they pay now on kerosene lamps, candles and batteries, to pay off a small lighting kit over 3-24 months. By taking successive loans in the same way many microfinance clients have taken more than one loan to help start a microbusiness, solar home energy systems worth up to $100-200 can be made affordable via succesive expansions over several years. These days, that is enough to afford a system of up to 100W (eg. This link shows a 120W payg solar home systeme for $108 ex-China - https://www.alibaba.com/product-detail/PAYG-120W-Mini-Mobile-Solar-Home_
1601338664695.html?spm=a2700.details.you_may_like.1.ab3c4e74Hji0R0).

Assuming 5 people per household, reaching 100% access to electricity would require $100-200 x 150 million = $15-30 billion of 1-2 year loans to be made. This is around 10-20% of the annual OECD aid budget (before USAID’s demise) and obviously cannot be completed in 1 year, but allowing 10 years for completion would reduce the requirement to just $1.5-3 billion/year. This is just 2-4% of the EU+UK annual aid budget of around US$75 billion per year, so completely acheivable. Based on those same aid budgets, the UK could “take responbility” for 25% of the total households to reach or around 40 million households and 200 million people.

However, getting the poor their first 100-200Wp of solar energy, perhaps 0.4-0.8kWh/day of energy, is not enough access to energy to lift them out of poverty. This quantum is enough to run the first small appliances like lighting, radios, phone chargers, music, TVs, fan and maybe a small fridge, or could power very basic microbusinesses like hair clippers and fishing lights, but lacks the power to run higher energy needs like cooking, washing machines, schools, clinics, government offices, water pumps, agricultural equipment, welders, ice-makers and more. Some of these technologies are needed at every house, like cookstoves, but some can be shared community-scale energy infrastructure, such as a single crop-processing mill that grinds flour or hulls rice or processes cassava (the main 3 staple foods of the poor) for 50-200 of the nearest households. This brings us to another definition of community energy, which is community-scale energy infrastructure that is needed by a group of households rather than a single household. The aid policy of energy access cannot and should not stop at getting households a few small appliances and then ticking the box as job done (such as Tier 1 <50W of power in the Multi-Tier Framework for Energy Access). How much energy is then “access to energy” if 0.4-0.8 kWh/day from 100-200Wp of solar per house is not “access”? This will be answered soon in other questions.

2) What are the environmental, economic and social benefits of community-led energy initiatives?

It is assumed the benefits of bringing access to modern energy to all is already well understood - less manual labour via mechanization, cleaner air from clean cookstoves, lighting to enjoy the evening hours and make them more productive, powering essential services like clean water, health, education, communications, finance and in general the entire economy, as well as helping culture to blossom and other social benefits. Sometimes access to electricity and energy comes at a significant environmental cost, such as water and air pollution, deforestation and low-paid arduous labour, to name just a few.

To isolate the environmental, economic and social benefits of community-led energy initiatives in contrast to the more typical government-led or private-company-led approach is more difficult, but some are apparent. Having a community mobilized around environmental issues rather than individuals or organizations might create a more thorough lasting effect, like forest user groups in Nepal ensuring only a sutainable amount of firewood is harvested. The economic benefits are considerable - instead of one single entrepreneur getting rich from a business opportunity, the whole community can benefit a smaller amount, particularly if a non-profit cooperative structure is used like NRECA which was formed in the USA to help farmers get access to electricity in the 1930’s-40’s after private sector companies refused to service low population density areas. NRECA still exists today and the model was replicated in the Philippines with dozens of regional electricity cooperatives. Social benefits can be improved too - there is more chance of a “leave no-one behind” policy succeeding if the whole community is making decisions rather than an individual company or entrepreneur, ensuring everyone gets affordable access and, if necessary, cross-subsidizing low income households by ‘overcharging’ higher income households or commercial customers.

However, there are also risks and shortcomings of community-led energy initiatives. The most common is the ‘tragedy of the commons’, that when it is no single persons’ responsibility to make sure something is done (saving money for future repairs, doing maintenance, chasing up late-paying/defaulting customers or even disconnecting them), it doesn’t get done, and the whole system collapses. Community decision making can also be slow and ineffective, subject to local politics, power grabs and jealousies. It has worked quite well in Nepal with user committees set up for each microhydro minigrid installed, but trying to do the same in Papua New Guinea has led to total failure. There are over 800 languages in PNG for a population of just 10 million, an average of 12,000 per language or around 2000 households. Inter-village murderous warfare was common until recently, and even within villages, as a clans or “wantoks” clashed. It is dangerous to blindly copy and paste a model from one country to the next without taking into account its anthropology. An entrepreneur-driven model in PNG is far more likely to succeed than a community-managed project, and this often obvious if past projects are studied before implementing something new. Africa is also quite tribal, so might lean more towards the PNG way of doing things than the Nepali way, while in Asia the opposite might be true. These are very coarse generalizations.

3) How does the UK’s ODA support decentralized energy initiatives? How effective is this support?

A comment at the end of the press release is from Ed Brown, Research Director of the Modern Energy Cooking Services (MECS) programme, who works from Loughborough University. MECS is promoting electric cooking as a more efficient alternative than wood, charcoal, LPG and other alternatives. However, it is still focused on grid-powered cooking, so again is not fully decentralized from a power generation perspective, just from a consumer perspective. How much of this MECS budget reaches the poor? Very little, most of it is spent on consultants and project managers. However, those managers are doing an excellent job of raising awareness of the cost-effectiveness of electric cooking, and hopefully this results in massive increases in people using electric cooking, probably promoted heavily by utilities who want to see demand growth for power so they can increase revenue.

A truly decentralized approach would promote solar electric cooking, where households generated their own electric power for cooking, which is almost certainly cheaper than current fuels or buying from the grid, but because it is capital intensive, it is seen as “too hard”, it involves financing 20 years of energy costing $500-1000, not just financing low cost electric pots costing $50-100. Of course, 10 times more people can be impacted for each ODA dollar spent with the latter approach, which is extremely attractive for impact metrics, but that does not mean the least cost solution is being promoted, so the end effect is that the poor will be convinced to switch to a solution that will cost them more in their lifetimes than a capital intensive option like solar electric cooking. Short term gain for the UK, long term pain for the poor (though less pain than they have now, so still an improvement, but not a least-cost solution).

ODA funding could be braver, and recognize that long-term financing of poverty-alleviating infrastructure is vital if the UK truly wants to end poverty in our lifetime.

UK ODA is also helping develop new technologies via the Transforming Energy Access (TEA) program, with sub-programs including Innovate UK Energy Catalyst and Efficiency for Access programs, which VIA have participated in. These are very good, bringing new innovations to solve energy poverty issues in new exciting ways. However, it totally fails to address scaling up these innovations to commercial rollout, it seems to be an endless cycle of pilot projects with little to no effort to cross the “Valley of Death” and bring investors on board to scale up these innovations. This could sadly be seen as a wasted effort - what is the point of making new products that don’t scale up and create full-scale profitable businesses? Only slightly less worse is the possibility that the UK invests in the R&D, but other non-UK investors commercialize this R&D, so the UK public bears a lot of the upfront cost and misses out on the benefits of jobs and wealth created. I am from Australia, and so many Chinese solar entrepreneurs have been trained in Australia but then return to China to build huge businesses that Australia didn’t bother to invest in. The UK could be following the same pattern.

A 2019 study of UK International Climate Finance for low carbon development (https://icai.independent.gov.uk/wp-content/uploads/International-Climate-Finance-ICAI-review.pdf) found that ₤5.8 billion spent in 2016-21 leveraged ₤3.3 billion in new public investments and ₤0.9 billion in private finance. This could be viewed as very underwhelming. The report notes that at COP15 in Copenhagen in 2009, developed countries committed to mobilizing US$100 billion per year until 2025 from public and private sources for climate action in developing countries (both mitigation and adaptation). The UK accounts for about 4.5% of OECD country populations, so one might interpret this as a commitment to mobilizing ₤4.5 billion per year, which would be ₤22.5 billion during 2016-21. However, only ₤10 billion was mobilized. Assuming no further public funding can be committed by the UK Government, the gap needs to be filled by the private sector, so instead of mobilizing ₤0.9 billion in 5 years it should be aiming to mobilize ₤13.5 billion per year to at least honor its commitment, forget about exceeding it. This requires a complete rethink of how UK ODA can leverage ₤2.33 for every ODA ₤1 instead of leveraging just ₤0.155. Higher commitments are expected from 2025 onwards, yet political interest in doing so seems to be waning. As usual, the promises made at COP events are not worthless, but never kept. This can continue, or a sincere effort can be made to change the situation.

However, the UK only invests ₤55 billion per year in its own infrastructure, one of the poorest performances by G7 or OECD countries (https://www.ice.org.uk/news-views-insights/inside-infrastructure/how-should-the-uk-pay-for-infrastructure). If it could raise an amount as high as ₤13 billion it is highly unlikely to direct that towards developing countries, nor would investors be likely to invest this much in countries of higher risk than than the UK (especially as the UK is viewed as one of the riskiest in the OECD). Still, giving up is not an option, and at least an improvement towards promised amounts is helpful.

Where did $100 billion/year come from anyway? It’s a nice round number, suspiciously so. India has increased access to electricity from 75% in 2009 to 99.5% today (https://data.worldbank.org/indicator/EG.ELC.ACCS.ZS?locations=IN), while the population increased from 1.23 billion to 1.44 billion. It therefore helped 510 million people gain access to electricity, a major part of the SDG 7 goal, which is the same decrease in people lacking in electricity globally (1.18 billion people in 2009 to 677 million people in 2023). No progress has been made in Sub Saharan Africa even though access has risen from 32.8% to 53.3% because of population growth (0.87 billion to 1.26 billion), leaving 585 million people in the dark, around 100 million households. How much is needed to finish the job? If a single tiny ₤5 solar LED light is given to every African household, only ₤500 million would be needed, well within the Governments’ ₤1 billion/year spending, and it is not the UK Governments’ job to light up all of Africa by itself, so using the same pro-rata approach, one might say the UK is “responsible” for 4.5% of 100 million households or 4.5 million households, while other OECD countries take care of the rest. If ₤1 billion/year of UK aid was spent with zero leveraging of any other capital on these 4.5 million households, there would be ₤222/year/household available to increase their access to energy. This is sufficient for around 200W or 0.6-1kWh/day of energy every single year. This about the average consumption of a household newly connected to the national electricity grid. In 5 years, each of the 4.5 million households would 1kWp of solar or 4-5 kWh/day, enough to cook with, and thus completing the SDG 7 task for UK’s share of the goal of bringing access to electricity to everyone on earth AND clean cooking.

If this is extrapolated to the other 95.5% of households, ₤22 billion/year spent in 5 years efficiently and effectively by OECD countries would complete the SDG7 goal. $100 billion/year is not needed to meet the needs of the poor, but might be needed if other climate goals other than SDG are required, or to increase clean energy for those that have electricity (and help bring clean cooking to on-grid households). The problem is that UK funding does not reach these households, and instead of 20 million households being reached in Africa per year and completing the SDG7 task in the next 5 years, only 3 million households are being reached, the same as population growth rate in Africa. Thus, we conclude that 85% of climate finance is not helping increase access to electricity, and it could be argued, is being spent grossly inefficiently, the same argument that has now led to the demise of USAID. The effectiveness of UK ODA expenditure is hence concluded to be mostly ineffective, and its support of decentralized energy is well-intentioned but resulting in very little real impact for those who need it most.

Of course, not every climate finance dollar can be spent on households that lack access to electricity - those on-grid also need help too. But the number on-grid vs off-grid in sub-Saharan Africa are about equal, so even if half the climate finance was used for offgrid households, it would be 30% effective, and even less effective it is leveraging other capital too but still have limited effect.

4) How are development finance institutions engaging with the potential of community energy?

Development finance institutions include multilateral banks, national development banks and subnational financial institutions, as well as bilateral “aid agencies”. The website http://www.dfidatabase.pku.edu.cn estimates there are over 500 such DFIs, the biggest of which is the IFC with $50 billion of assets under management (compared to about $5 billion for British International Investment, for example). The most obvious support of “community energy” might be DFI support of minigrids built in developing countries, but in some ways, this fails the true meaning of community energy, because usually there is zero community ownership of minigrid assets. These assets are being held by private companies who have no intention of ever handing over ownership to the local community, but will instead extract money from them for the life of the minigrid. This is very different to the Nepali model of microhydro development where the community or at least a local entrepreneur generally had ownership of the minigrid assets.

Thus, we would argue that DFIs are not supporting community energy much at all. Access to DFI funding should be contingent on a slow but steady handover of assets funded to the local community. It is not, and largely the aim is to deliver double digit returns to private sector investors. The usual argument for this is that public funding is insufficient to deliver development goals like SDG7. However, as shown earlier in this document, that is clearly false now that solar power has dropped dramastically in price and now public funding alone could bring 200W of solar to each and every offgrid house in the world every year, if spent directly and efficiently, instead of being only 15-30% efficient. The majority of DFI funding is directed towards the privatization of energy services for communities, not the ownership of energy assets by the community (which NRECA and other cooperative models are a good example of, but are rarely used today).

Instead, development finance is “convinced” that it can only reach the poor if it leverages private sector capital, which is expensive (10-20% target returns) and short term (1-5 year tenors). This drives up the cost of energy delivered, resulting in complex subsidy programs being required to bring down the cost. If the same subsidy money was simply released as low interest long term loans, the private sector capital would not be required at all. Given there was no expectation on the subsidy money being repaid, it should not matter if these long-term patient loans are defaulted on, so high risks can be taken, but deployment partners who are defaulting the least should be rewarded with access to larger loans and partners that do not manage default well should be dropped from the program.

This model can serve most of the offgrid/poor population, but not the poorest, who will not have the cash to pay, and will still need some subsidy. An alternative is to pay for solar electric cooking systems for such households with carbon credits generated from emissions reductions realized, which can generate 2-5 tonnes/year of high value credits worth ₤10-20/tonne or ₤20-100/year, which amounts to ₤200-1000 over 10 years.

Sadly, there is hardly any model that exists today financing offgrid energy systems that replicates the same model we used to bring electricity to our own populations, so providing an example of UK aid or any other aid that has enhanced access to clean, affordable inclusive energy using truly patient offgrid capital is hard to find. Financing on-grid energy is quite different - GridWorks, BII and others routinely have available long-term 10-25 year finance at single digit interest rates for transmission line and power generation projects which serve cities that mostly already have access to electricity. But as soon as offgrid is involved, these financing terms change drastically to higher interests rates, shorter tenors and higher perceived risk. This is quite simply unfair. For reasons hard to fathom, energy aid funding for offgrid is obsessed with being deployed as results-based-financing (RBF) subsidies that tries to leverage expensive private sector capital, picking a few lucky winners who get the money and starving everyone else of much needed capital. The 2016-21 results would appear to indicate it is doing a dreadful job of this, leveraging very little. It would be far better to simply make these climate funds available as low cost long term loans for as many deployment partners as possible, having far more “winners” in competitive processes (particularly locally owned and managed African companies rather than foreign-owned mostly American companies that usually win most of the funding), and focus far more on increasing access to households.

A key problem with much of development aid is that it can only be spent as Technical Assistance, which means paying consultants and running workshops and conferences, but specifically disallows the construction of real assets. This is mostly boomerang aid, which pays for expensive Western consultants to advise developing countries, but yields little real impact on the ground. Such TA funding should be minimized and infrastructure finance maximized so that more real projects can be built, and less talk.

6) What are the main challenges facing the deployment of decentralised energy systems in ODA-recipient countries? How could they be overcome?

Let’s first look at the cost of some solutions. As noted by the IEA in 2020 (https://www.carbonbrief.org/solar-is-now-cheapest-electricity-in-history-confirms-iea), solar energy is now the cheapest form of electricity mankind has ever made. Solar panels are available from China at $0.10/watt and can be installed on rooftops in Africa for less than $0.50/watt. Adding a battery to ensure energy can be used outside daytime hours or on rainy days might double this cost to $1/watt installed, but if amortized over 10 years and assuming 4 hours/day of sunshine, a 250Wp solar system making 1kWh/day costing $250 installed would generate 3650 kWh of energy, costing $0.0685/kWh (₤0.0514/kWh). This levelized cost of energy (LCOE) is cheaper than the retail cost of grid electricity delivered to any OECD country and the vast majority of grid-connected households in developing countries. However, if investors demand 10-15% rate of return (often higher), this increases to $0.11-0.14/kWh. Still affordable, but 63-99% more expensive than it needs to be. No wonder 30-50% RBF subsidies are “needed” - all these do is go straight into the pockets of “impact investors”, often very rich people, who refuse to offer the 2-5% interest rates and long lending periods that built rural electrification in their own country. This is ethically questionable at best, an inefficient use of valuable development finance, and false economy. That expensive private sector funding is not needed.

Some will argue that solar home systems run lights and small appliances but cannot power productive uses of power - only grids and minigrids can. This is rubbish. Stand-alone 10-100kWp systems are running farms in Western Australia, and the utility is removing poles and wires that cost a lot to maintain, and achieving not just lower cost but also higher reliability than the old grid solution. Many examples can be found of isolated solar systems running mills for farmers, pumping water, making ice and refrigeration, even welding. The biggest energy use by the poor is cooking - solar can do this too, and the MECS program has shown how to do this efficiently with just 2-4kWh/day instead of 10-15kWh needed by open fires or 5-10kWh needed by LPG. Even a 1kWp solar home system costing $1000 can deliver enough solar energy to cook with electrically. Thus, one could argue that the upper limit of the capital cost of any renewable decentralized energy solution should not cost much more than $1000 for 4kWh/day of service, or $250 per daily kWh delivered. Households now spend $0.30-$0.80/day on cooking fuel, or $100-300/year, whcih is $1000-3000 over 10 years. A solar electric cooking system is cheaper than this.

Assuming 4kWh/day of consumption, $0.30-0.80/day is $0.075-0.20/kWh. Thus, any grid or minigrid solution that costs more than $0.20/kWh without subsidy is not going to be cheaper than cooking with current mostly unsustainable and polluting fuels (wood, charcoal, LPG). These fire-based fuels not only emit CO2 to the atmosphere but cause major respiratory diseases from indoor air pollution, deforestation and burn/death risks to people and property. Electric cooking, powered by solar or other low cost energy, is fire-free, so safer, cleaner and can be automated to reduce time spent tending fires, watching the meal and also hours spent collecting fuelwood, which is a non-zero opportunity cost.

Hydropower grids are another good example of cost-effective clean power that is not solar power. To deliver 4kWh/day over 16 non-sleeping hours per day at an average of 250W per hour per household at a cost not more than $1000/household like the solar system, the installed cost should be less than $4000/kW. This is achievable in many situations - the global average installed cost of hydropower was $2881/kW (https://www.renewableenergy
world.com/energy-business/energy-finance/costs-for-most-renewables-decreased-in-2022-but-hydropower-costs-increased/#:~:text=As%20a%20result%2C%20the%20global,105%25
%20from%202010%20to%202022) but it excludes the cost of distributing this power to households, housewiring, meters and appliances that solar home systems include. It is also hard to cook with only a 250W connection, so a local battery to help with peak loads of up to 2000W per household should also be considered, adding to the cost significantly (a 1kWh 2C discharge LFP battery probably costs $200 installed, so 20% of the $1000 budget). The cost of distribution, connection and metering is likely $100-250 per household, so 10-25% of the budget, but this still leaves $550-750 per household for the hydropower generation ($2200-3000/kW, which is likely viable in most cases).

KOKO Networks is already disrupting wood, charcoal and LPG cooking in Nairobi with over 1 million customers switching to their ethanol fuel. However, these households still average $0.70/day purchasing fuel which is $250/year or $2500 over 10 years. This proves a market exists for switching over to electric cooking, not just from the grid, but altenatively from well-financed solar (low interest 10 year loans). The finance available for solar now is just 1-2 year loans at 20% interest, making it impossible to switch without incurring highly daily costs. DFIs consistently refuse to make low cost long-tenor finance available for solar home system solutions, yet the price of this technology keeps dropping every year. It is this refusal to offer a level playing field for infrastructure finance that robs those who need it most of accessing the least cost solution.

7) How does the FCDO ensure that the voices and rights of women, older people and marginalised communities are heard and protected in funded energy projects?

Studies for all countries in the world, rich or poor, show that the value of unpaid labour is worth 10-50% of the GDP, and 75% of this cost is born by women. It is relatively simple to find evidence that increased access to electricity and time-saving appliances in OECD countries allowed greater participation on the economy by women than would otherwise have been possible. When there is access to modern appliances, 2-3 days of manual labour can be avoided, allowing people to do work that counts towards the formal GDP economy, and thus driving economic growth by having more workers available. Access to such appliances also helps the elderly and disabled. Girls are often pulled out of school to help their mothers with daily chores. A true impact investor would invest in projects that keep girls in school for years longer than they currently are, but they don’t, they just want financial returns. The Human Development Index, one measure of poverty, has a third of its value attributed to years of education, while the other two thirds are focused on increased income and increased life expectancy. These 3 elements could offer new KPIs by which development projects could be measured, to ensure they are not too narrowly focused on income generation only.

Microhydro minigrids in Nepal soon recognized that those without daytime loads, that powered small appliances like lighting only, were ineffectual and unsustainable. Rules were made 25-30 years ago such that each project had to have a mill included in the capital cost of the minigrid if it wanted a subsidy. Subsidies for minigrids in Africa still have not learned this lesson, though recently there has been more focus on promoting productive uses of energy in solar minigrids to improving revenue, but it is not part of the capital cost of the minigrid, often treated as an afterthought rather than a core part of the original design. This repeating old lessons learned is avoidable and disappointing, particularly given the tomes of knowledge captured in the libraries of Practical Action and others, and the experiences DANIDA and others gained helping over 3000 minigrids get built in Nepal, far more than all solar minigrids in Africa at this time. The main point is that if certain developments are desired, they can be made a condition of accessing finance or subsidies. If donors are passive and don’t enforce the outcomes they want to see, those outcomes probably won’t happen.

8) How can the value for money of community-led energy projects be evaluated to account for their full environment and social benefits?

It is questionable that community-led energy projects have better environmental or social benefits than non-community-led energy projects (entrepreneur or organization or government led/owned projects). Papua New Guinea, as mentioned earlier, is a good example of where community-led management structures tend to fail, as they are a poor match to the real social dynamics that exist in the PNG culture, as opposed to Nepal where the community-led model seems to have largely worked fairly well. It is likely that a community-led project will have more social benefits and be likely to be more inclusive, giving every household in the village voice during decision-making processes, but a well designed non-community-led project would do this same consultation process, and a good entrepreneur responds to customer demand. Therefore, it is more important to value any energy projects’ full environmental and social benefits. Some benefits are harder to value, but could be if an effort was made, mostly through higher subsidies or lower cost capital for extra benefits generated. Such difficult benefits can include

 Cleaner indoor air in households from cleaner cooking and other innovations, which in the long term results in less respiratory disease and longer life expectancy. A model could be set up from medical research drawing a link between pollution and life expectancy to help quantify the benefit, then valuing the benefit can perhaps be reflected by the discounted future annual earning capability converted into a lower interest rate on capital. A worked example - electric cooking reduces indoor air pollution from an excessive level to below World Health Organization limits that may be calculated to add 5 years of life expectancy from 55 to 60 years (derated for older people who won’t benefit from decades of clean air, so assuming an average age of 25 years and 2.5 years increased life expectancy and an earning capacity of $500/year discounted by 5% for 55-25=30 years gives a present value of $1250 / 0.95^30 = $268. Over a $1000 investment for 10 years normally at 5% flat interest that would charge $500 interest over 10 years, $268 interest could be forgone for this outcome resulting in only $232 interest paid, so an interest rate reduction of 2.68% to 2.32%. A higher discount rate would result in a lower interest rate reduction.

 Similar, other health benefits for clean water, health centre electrification, sanitation and other life-increasing services could be incentivized in this way.

 A project that reduces excuses for parents to take children out of school to help with household chores can also be rewarded, using low cost electronic role call to verify school attendance of children, which would boost the Human Development Index considerably at relatively low cost. For example, the cost of a laundromat, food/crop-processing mill and other time-saving machines would only cost $1-2/month or $120-240 over 10 years. Again, this could result in higher subsidies or lower cost capital if the benefits are realized. Again, research could be used that quantifies the higher earning capacity of a person if they complete school compared to if they don’t.

Stewart Craine

Managing Director

Village Infrastructure Angels

stewart@villageinfrastructure.com