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Emerging economies are expected to experience the highest growth in energy demand in the coming decades, writes Rahul Tongia. Their energy trajectories must be inclusive, affordable, and sustainable. This piece was originally published by the World Economic Forum.
Emerging economies are expected to experience the highest growth in energy demand in the coming decades, mostly because they are starting from a low or modest base. This means their future energy trajectories must be at an intersection of inclusive, affordable, and sustainable growth.
However, for all the potential that advanced energy technologies (AET) offer for speeding up the energy transition, their application in developing countries will not be the same as in developed regions. This isn’t just about affordability; issues of political economy, the role of government, regulation and markets (or lack thereof) are all significant barriers to integrating and scaling AET. Aligning technology and its possible disruptions with more immediate needs that go beyond carbon — such as access, inclusivity, local air pollution and consumer choice — will make for faster adoption and improvement.
Developing regions differ from more developed nations in three key ways:
1) Energy demand will grow: As an example, India’s per capita electricity consumption will likely double by 2030, but that would still be below today’s global average. In contrast, demand in many developed regions has plateaued or is falling.
2) Ability to pay is much lower: Per capita incomes are much lower in developing regions. If new technologies are “expensive,” they will be unaffordable.
3) Current systems are heavily centralized: Traditional regulation hasn’t worked well. In a number of regions, basic access to energy is limited, and many suppliers are loss-making. In fact, counter-party risk is one of the biggest challenges for providers of AET as well as traditional suppliers. The flipside is that many consumers are subsidized – but subsidies aren’t always well-targeted, and can often lead to inefficient consumption patterns.
Where do AET fit in?
While the whole world is focusing on new energy technologies such as better solar panels, batteries and hydrogen systems, who is innovating for needs such as solar cooling for agricultural products, cleaning up wood-based cooking (with attendant indoor air pollution, which is much worse than outdoor pollution in places), or small electric and hybrid vehicles for local transportation? Riding the global innovation wave will only take developing regions so far.
We should view advanced technologies on two levels. First, they can help us do what we did before much more efficiently. Second, they can help us transition to new frameworks that weren’t feasible before, such as peer-to-peer energy networks or real-time pricing. The latter is where the real value lies — but such changes will take time.
Recommendations for accelerating AET in developing regions
1) Sharpen the AET value proposition beyond a narrow, traditional return on investment. This means thinking societally, and looking for co-benefits like reduced air pollution, reliability or avoiding diesel back-up power. It’s better to price negative externalities than to pick technology winners.
2) Set up proper energy pricing and signalling. For electricity this includes time-of-day pricing that recognizes that not all power is the same; location, time of day and predictability all matter. This also helps reduce tensions caused by disruption, such as consumer solar power squeezing traditional distribution companies who lose “paying customers” (also known as the utility death spiral).
3) Move to a smart(er) grid. A smart grid enables more flexible and nimbler operations, both of which are key to renewable energy-heavy (RE) systems. A subtle need within this (and all AET) is the use of modular, open standards.
4) Plan infrastructure for state-of-the-art and forward-looking designs. If much of local distribution companies’ (LDC) infrastructure is yet to be built, it should be state-of-the-art and ultra-energy-efficient. Appliances are the lowest hanging fruit for such a push.
5) Innovate on financing AET and the energy transition. LDCs often have high capital costs, which hinder take-up of the most energy-efficient but more capital-intensive technologies. Improving utility risk profiles can help unleash cheaper global capital. Governments should help consumers buying cutting edge “green” solutions or ultra-efficient appliances by making the lowest available interest rates accessible.
6) Build human capacity. While more energy-related staff may be required in general, it isn’t just traditional engineers that energy systems need, or even economists, but IT and security experts, systems-level planners, modelers and behavioral specialists.
As we scale AET, we must be mindful not just of political economy, but also social welfare redistribution. All changes create winners and losers. Instead of ignoring these trade-offs, we should make them transparent so we can devise the best instruments for managing redistribution. Instead of giving free electricity in the name of the poor, we could give direct benefit transfers (DBT) solutions like India is doing (powered by an advanced biometric IT solution for fraud prevention). This is an example where segregated subsidies with properly priced energy — instead of traditionally subsidized electricity—gives consumers an incentive to save energy.
In developed regions, consumers take energy for granted. They don’t want to change their lifestyles much, especially when the potential savings are perhaps just a dollar or two a month. In contrast, many energy consumers in developing regions are deeply engaged with their energy supply due to its relatively high cost and often poor quality. If we tell people, for example, that a smart grid could not just save them a dollar or two, but prevent outages, they’d be very interested.
AETs are an ongoing process and will take learning and multiple iterations to scale. Maybe we’ll get the equivalent of “cold fusion”-style breakthroughs, but we don’t need to wait for those — we aren’t even harnessing existing AET sufficiently. What we do need are policies that enable frameworks which incentivize, accelerate and scale innovation — because the innovation is already happening.