Public -Private Partnerships and International Collaboration to Promote Renewable Energy Supply in Rural Areas of Asian

Transcription

1 Public -Private Partnerships and International Collaboration to Promote Renewable Energy Supply in Rural Areas of Asian Developing Countries Kaoru Ya m a g u c h i Environment/Technology Unit The Institute of Energy Economics and Akihiro Watabe Department of Economics Kanagawa University

2 1. INTRODUCTION A study by Yamaguchi and Watabe (2004) examined the conflicts between rural development and local innovation for environmentally sound technologies (ETS) in Asian developing countries. The conflicts aris e because the national plans for rural development aim to supply electricity for lower prices but entail the environmental degradation by burning fossil fuels with bad qualities. Meanwhile, local innovation for renewable energy such as biomass and village hydro (i.e., micro-/ p i c o -hydropower) is environmentally sound but entails higher prices than the national electrification plans. Hence, the national plans may distort the adequate incentives to innovate environmentally sound technologies for renewable energy in rural areas. Despite the conflicts, there are several facts to support the promotion of renewable energy in Asian developing countries. That i s, (i) there are rich resources of renewable energy, (ii) people in rural areas are willing to participate for electrification plans as well as they are willing to pay for electrification, and (iii) there are sufficient benefits by electrification, which improve the quality of living, including lighting, use of electric appliances, ICT, medical facilities and so on. On the other hand, there are several facts that hinder entrepreneurial initiatives to promote renewable energy. That is, (i) institutional frameworks are very weak, (ii) there are not enough financial resources available, (iii) an i ncome level of rural residents is substantially lower than that of urban residents, (iv) ru r a l electrification, especially by renewable energies in short term, is more costly than urban electrification, and (v) the government-regulated prices do not reflect the costs of rural electricity supply. Given these benefits and w e a k n e s s e s of promoting renewable energy in rural areas of developing countries, we need to seek for

3 policy strategies for rural electrification, which is essential to living. The purpose of this paper, therefore, is to identify underlying problems of renewable energy supply in the rural areas and evaluate possible solutions to the problems. The rest of the paper is organized as follows. We will first discuss the advantages of renewable energy in section 2. Section 3 will address institutional and financial barriers to promote renewable energy in rural areas with the case of Myanmar. The importance of public -private partnerships will be discussed in section 4. We briefl The last section summarizes the results of the analysis. 2. A DVANTGAGES OF RENEWABLE ENERGY TECHNOLOGY The case studies of rural electrification in Indonesia and Myanmar show that the motivation for initiating the innovation for rural electrification with EST is induced by local need and poverty of a rural community (Yamaguchi and Watabe, 2004). By local need, we mean the lack of the electricity supply for residents in the rural community who wish to access electricity for lighting, TV, radios and other electric appliances. T he dilemma of the electricity supply by the government is that it may help residents access electricity; however, i t would impair the local innovation for electricity by depriving the innovative minds from rural communities. By poverty, we mean residents cannot afford f u e l s for power generation where diesel is the most typical f u e l and often the only option in a remote rural area (Frans et al., 2004). Ironically, the availability of only renewable energy option is one of the conditions required for the low cost renewable energy technology. In Asian developing countries such as Indonesia and Myanmar, renewable energy (i.e., mainly biomass) ha s become very important primary energy supply. It provides the share of 27.6% in the total energy supply not only for the electricity s u p p l y but also for

4 as a fuel in everyday use. In particular, the biomass is a major energy source for cooking and heating. B y way of comparison, OECD countries generate 82.7% of the energy supply by fossil fuels and 6.2% by renewable energy. Table 1 provides the statistics of the technical potential of renewable energy and the status of the current use in Asia and the whole world. In 2001, the share of renewable energy in Asia is 27% while that of the world is 13.5%. The reason is p a rtly because there are still many non-electrified rural communities in Asia where a higher reliance on fuel woods or other biomass for cooking and heating is observed. As such, the choice of renewable energy mostly from biomass in Asian developing countrie s is inevitable. Table 1 Renewable Energy Potential and Current Use (Exajoule) Technical Potential Current Use (2001) Biomass H y d r o Solar Wind Geother mal O c e a n Total Current Use (Biomass) Share of RE Asia (24) 27% World (45.2) % Source: Yamaguchi and Watabe (2004) A higher reliance on biomass is a b i g advantage to initiate EST for electrification in rural communities, since the energy sources are available out there and residents are using them in daily life. There are, however, lack of technology and institutional frameworks for electrification in rural communities. T hat is, there are (i) no affordable technology to transform biomass to electricity and (ii) no institutional frameworks to enhance funding and financing for investing in the technology. We will discuss it in the next section.

5 3. INSTITUTIONAL AND FINANCIAL BARRIERS As discussed in the previous section, there are advantages of developing renewable energy in rural areas over the national energy plan for rural electrification by non-renewable energy. And, there are sufficient benefits of rural residents by electrification; i. e., improving the quality of living with lighting, use of electric appliances, ICT, medical fac ilities and so on. On the other hand, there are several facts that hinder entrepreneurial initiatives to promote renewable energy. These include: (i) i nstitutional frameworks are very weak, (ii) there are not enough financial resources, (iii) an i ncome level of rural residents is substantially lower than that of urban residents, (iv) ru r a l electrification, especially by renewable energies in the short term, is much more costly than urban electrification and (v) tariffs are regulated and do not accurately reflect the costs of the electricity s u p p l y in rural areas. Needless to say, these facts differ across countries. Given the limited information available about Asian developing countries, we restrict attention on the case of Myanmar. Myanmar is the least electrified country in South -East Asia and only 18 percent of rural areas in Myanmar one of the lowest in Asia are electrified. E lectricity is supplied by Myanma Electric Power Enterprise (MEPE), government owned company, called State Economic Enterpris e. C urrently, rural residents rely on diesel a n d village hydro for power generation. Diesel technology, however, is inefficient (i.e., low energy intensity) and furthermore, MEPE does not allocate enough budgets on diesel. As a result, the electricity supply is limited up to three hours per day. Meanwhile, village hydro is available twenty four hours per day. Nonetheless, weather conditions greatly affect the electricity supply. Village hydro cannot supply sufficient electricity unless it is raining season. Furthermore, the population density of every rural area in Myanmar is very low.

6 Thus, the demand for electricity is geographically dispersed and small. These facts, of necessity, require the earlier development of renewable energy such biomass. There are four major institutional and financial weaknesses in Myanmar to develop rural electrification by renewable energy. The first drawback is policy failure caused by an institutional weakness. The Electricity Act was established in 1984, however, it does not contain provisions on renewable energy technology. Hence, the research and development of renewable energy are far behind those of other developing countries in Asia. Second, there is lack of the integrated national electrification plan by the government. In particular, electrification projects by local governments power generation of being less than 50kW--cannot get subsidies or credits from the Myanmar government. Third, there is no a stakeholder who can play a role of promoting rural e lectrification by renewable energy. Fourth, MEPE does not balance the budget. MEPE subsidizes a fuel in which a market price has soared by inflations. The price of diesel after subsidy is about 160 Kyat per gallon and that before subsidy is a bout 1,000 Kyat per gallon. Hence, the price residents actually pay for diesel is about only 16 percent of the market price. A subsidy causes financial problems of MEPE and dilutes incentives of rural residents to initiate for developing renewable energy technology. Let us consider the possible remedies for these weaknesses. First, the Electricity Act is out of date and must be amended to induce the technology development of renewable energy. The second drawback of the national electrification plan is closely related to public -private partnerships and international cooperation and the third drawback. For e l e c t r i c i t y supply for the geographically dispersed residents, it is extremely costly, inefficient

7 and time consuming to expand grids to rural areas. In o t h e r word, this is one of the major reasons for the necessity of renewable energy there. T hat is, the n a t i o n a l electrification plan is generally characterized by the expansion of grids from urban areas to rural areas where the expansion to every rural area is practically impossible. Hence, the national plan should turn their eyes to renewable energy in rural areas with support of any means, and establish an appropriate division in the government for this purpose. The subsidy for fuels i s a delicate issue. From an economic and s o c i a l welfare perspective, the subsidy should be removed to increase an economic efficiency and social welfare. T he dilemma of removing the subsidy is how rural areas of low income residents can initiate renewable energy if fuels become more expensive. According to the study by the Japan International Cooperation Agency (2003), the residents, particularly using diesel in non-electrified areas, are willing to pay for electricity as well as have abilities to pay for electricit y. The ability to pay for electricity depends on annual savings of the residents, which will decrease if the government removes the subsidy. Table 2 shows the willingness to pay and the ability to pay for renewable energy in Myanmar in 2001.

8 Table 2: The Willingness to Pay and the Ability to Pay for Renewable Energy I t e m s Non-electrified Electrified Villages Vi l l a g e s Willingness to Pay 1 5, ,400 A n n u a l Income 2 6 6, ,000 Annual Expenditure 2 2 7, ,000 Annual Saving 3 9, ,000 (Ability to Pay) (Unit: Kyat) Source: Japan International Cooperation Agency, PUBLIC - PRIVATE PRATNERSHIP FOR RURAL ELECTRIFICATION BY RENEWABEL ENERGY From perspectives of poverty, equity and basic needs for living, rural electrification in developing countries is generally regarded as governmental responsibility. A typical approach is to subsidize power suppliers in rural areas and those who are obliged to supply electricity to rural residents. Under the invisible pressure t o achieve an ea rlier electrification in rural areas, the government wants to expand electrification into rural areas i n a c o s t-effective, fastest m a n n e r. The government is, however, financially not well-sustained for the earlier electrification (i.e., limited gove r n m e n tal budget on the power sector), and would fail to pursue the expansion of electricity as planned in a fairly balance manner. The government, therefore, prefers the technology w i t h smaller initial sunk costs and faster benefits. Power generation by diesel is in a typical category for the technology in the case of rural electrification. Fuel costs, however, tend to rise as power generation

9 runs i n a long period due to the energy inefficiency of diesel technology. Hence, fuel cost s w i l l be an obstacle for the electricity supply by diesel. In contrast, renewable technology, such as micro -hydro and biomass based electric power generation, requires relatively higher initial sunk costs per one unit of generating electricity, although f uel c o s ts are almost negl igible. As such, like other projects i n developing countries where the government faces the time and budgetary constraints to build the infrastructures, the government tends to employ a high e r discount rate for electrification projects, thereby, making long-term benefit s small e r. Wh e n t h e government finances or subsidize s the projects, the government is the primary a c t o r. Private sectors in supply side cannot become primary players and the participation of private sectors is passive as far as it is assumed not profitable. C ommunity-b a s e d sustainable electrification by renewable energy emerges as the only viable option when the government is impotent for the electric power supply and fuel s for power generation is difficult to be acquire d or fuel prices are t o o high for a c o m m u n i t y to afford them. In such a c a s e, the community as a private entity is the primary player of the electrification by renewable energy i n a rural area. There are two main reasons why the government must play a key role for public-private partnership. First, electricity is essential to basic needs for living and its supply to the poor is the responsibility of the government. Secondly, the government can save the budget on rural electrification, if the community-oriented rural electrification by r e n e w a b l e energy can be achieved for cheaper costs than the governmental supply. In addition, there are at least two major roles that the government can play to succeed rural electrification with minimum

10 cost. Usually the financial options in rural communities i n developing countries are very limited. Hence, the government plays a role of a financial mediator or institution. Typical options include 1) self funding, 2) commercial bank, 3) donation/subsidy, 4) loans from cooperatives and 5) suppliers credit s. Among all to borrow money is especially difficult because of the lack of collateral in rural community, which relies on agricultural life and especially for those who do not own land as collateral. Mi c r o -credit s are now under trial. An important public -private partnership the authors find it promising is the partnership between local suppliers /inventors and the government. In the case of rural electrification by renewable energy, the local suppliers are extremely important in three a spects. First, the suppliers know the availability of renewable energy. Secondly, the suppliers are the innovators of low cost alternatives. Third, the suppliers provide credit for the rural communities, although the total amount of credit they can provide is very limited as is usual in local community. The partne rship between the suppliers and the government greatly improve the credibility of the suppliers and the amount of the credit to be provided. For example, the government can authorize the technology and personnel as credible for rural electrification. Of course, it should be admitted that the quality of electrification projects needs to be improved within the framework of the partnership. Fi n a l l y, the government can play a role for the help spreading the technology as well as supporting low cost EST in terms of capacity building. In this case, the local suppliers are a key stakeholder to expand the EST into the rural communities as well. 5. INTERNATIONAL COOPERATION International assistances for renewable energy supply in

11 developing countries are essential to earlier and efficient development of rural electrification. The assistances are usually made through international organizations such as Global Environment Facility, the United Nations, World Bank, and the Official Development Assistance (ODA) from industrial countries (Frans et al., 2004; Japan International Cooperation Agency, 2003). The international assistances are also linked to institutional frameworks as well as public -private partnerships in a developing country. That is, the assistances of an industrial country are usually as forms of financial and/or technical assistances, through the government of a developing country. Hence, the good success of the assistances will depend on institutional framework as well as the partnerships between public and private sectors in a recipient country. Rural electrification usually involves risks of investments and failing technology development. Private sectors alone in developing c o u n t r i es cannot make rural electrification possible. Consequently, the government and private sectors must share the risks of the development, whatever the share of financial risks is. Thus, the point is how international assistances mitigate the risks and balancing out the risk shares. 6. CONCLUSIONS We summarize the result of the study as follows. 1. Market of renewable energy as EST in Asian developing country is immature to compete with conventional energy without public involvement. 2. Low quality but low cost technology/market has a potential to grow and improve. Community oriented policy for sustainable electric power supply is preferred. 3. Extension of national grid removes innovation incentives for rural area oriented renewable energies.

12 4. Deregulated elec tricity prices for rural electricity supply are critical for a market of competitive renewable energies and local innovation. 5. The government policies for rural subsidies and income distributions among people across the countries will be very important to stabilize renewable energy supply. R EFERENCES Frans, Dirk R., Nilufar Matin, V. Ratna Reddy and Juha Uitto India Hilly Hydel Local Benefits: Case Study Report. Global Environment Facility and Stockholm Environment Institute. Japan International Cooperation Agency A Study on Introduction of Renewable Energies in Rural Areas in Myanmar. Tokyo, Japan. Yamaguchi, Ka o r u and A kihiro Watabe Conflicts between Rural Development and Local Innovation for Environmentally Sound Te c h n o l o g i e s i n Asian Developing Countries, Paper presented at the First UNGC Academic Conference held in Istanbul, Turkey, May 2004.