What’s the best way to measure the social, economic and environmental impacts of power projects? Which type of development indicators should investors use? What’s the evidence to show impacts of investment in electricity on jobs, on business viability, on carbon emissions reductions and on the quality of life for individuals?
These questions, and a lot more, are addressed in a report published last week by our shareholder CDC Group plc. The review, “What is the Impact of Investing in Power?” is written by energy experts from Cape Town University, Professor Anton Eberhard and Gabrielle Dyson. It looks at the evidence of more than 15 years of research into how electricity affects development outcomes.
Click here to read the report
The energy challenge is a significant one. Over a billion people globally lack access to electricity, the majority of whom are in Africa. Those that are connected are regularly affected by power cuts. And as the continent’s demographic boom continues – over a quarter of the world’s population will be in Africa by 2050 – the demand for adequate electricity to support job creation is expected to grow apace.
The review assesses macroeconomic, microeconomic, social, and environmental impacts and will help guide financial institutions like CDC and Gridworks get the best out of our investments. As we focus on improving the quantity and quality of power and of the networks that carry that power, we will use this evidence to shape our approach.
Here are some of the key findings that come out of the report, particularly for investors like Gridworks who are committed to improving transmission, distribution and off-grid electricity infrastructure in Africa:
- Affordable and reliable electricity has a significant impact on GDP and job creation. And the effect is especially great in low income countries with small and costly electricity grids
- Many developing countries suffer from unreliable power service because of insufficient grid capacity and chronically under-maintained transmission.
- Electricity infrastructure investments can contribute to climate change adaptation, in addition to cutting emissions.
The role of the Private Sector:
- In terms of investment in grids, private investment works best in the context of improving availability and service quality, rather than increasing access. Extending grids to remote areas tends to increase transmission and distribution losses, creating a trade-off between access and quality. Private sector participation to increase grid access in rural areas should focus on strengthening the quality of grids.
- Electrification through renewable power presents opportunities but also poses operational challenges for grid management and, in many cases, an increased need for baseload capacity. Solar and wind generation varies according to weather and climate conditions, with consequences for meeting demand. And many African countries’ use of hydropower highlights the need for reliable baseload generation to complement renewable technologies.
- The declining costs of renewable technologies and batteries, coupled with innovations in business models, have increased the viability of off-grid options including mini-grids. This offers new opportunities to develop off-grid systems which can achieve impact either in parallel with or in advance of grid-based solutions.
- More work is needed on the impact of investments in transmission and distribution companies on development outcomes, in part because relatively fewer privately-financed investments have targeted these sectors.
The enabling environment:
- Transparent and well-run regulatory decisions and tariff policies contribute to cost recovery and the financial sustainability of grid systems. They also contribute significantly to the impact of electricity on welfare, particularly in ensuring affordability of electricity for the poor.
- Project financing and development must be accompanied by robust regulatory institutions alongside efforts to increase transparency, such as thorough competitive procurement processes.