Catalysing socio-economic change through the productive uses of widened energy access

Europe's World

Climate & Energy

Picture of Patrick Nussbaumer
Patrick Nussbaumer

Industrial Development Officer at the United Nations Industrial Development Organization (UNIDO)

Picture of Eleanor Vickery
Eleanor Vickery

Intern at UNIDO in the Department of Energy

Photo of This article is part of Friends of Europe’s “Energy for Development” discussion paper.
This article is part of Friends of Europe’s “Energy for Development” discussion paper.

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Show more information on This article is part of Friends of Europe’s “Energy for Development” discussion paper.

Developing and emerging economies face a complex challenge when it comes to their energy infrastructure: they must meet the needs of growing populations that still lack access to basic services like water and electricity but – the climate crisis front and centre – they must also be part of the solution by answering the global climate emergency through innovative efforts to ensure a low-carbon future.

This article is part of Friends of Europe’s “Energy for Development” discussion paper. Beginning on the day of the UN Secretary-General Summit on Climate Action and ending at the time of COP 25 in Santiago, Friends of Europe will release such articles online on a weekly basis. The full publication will be launched in December and its insights and recommendations aim to demonstrate that it is possible to achieve SDG 7 well before 2030, and inform the next EU mandate on actions to take.

Enabling energy access for productive uses in the developing world is key to harnessing energy’s full developmental potential. This means facilitating its use for agricultural, commercial, and industrial activities. At the crux of this argument is the notion that, in order for energy access to catalyse real economic growth and socio-economic development, the right wider economic conditions – combined with a healthy financial, entrepreneurial and investment ecosystem – must exist. Developmental efforts must aspire to create deeper societal and economic change.

Development policy should therefore be highly coordinated if it is to be impactful. The United Nations has established programmes that seek to achieve such a paradigm shift – namely the Private Financing Advisory Network (PFAN) and the Global Cleantech Innovation Programme (GCIP). These can provide means through which this change is realised.

It is well established that energy access is vital for achieving basic levels of development. Provision of electricity is needed for lighting, health, education, communication and community services, not to mention modern fuels and technologies for cooking and heating. Furthermore, fuelling modern energy needs is key for the international community.

However, societies do not magically jump from meeting their basic developmental needs to being fully industrialised and developed. An intermediary level of access to energy services, notably for productive uses, is vital for socio-economic development.

Similarities can be drawn between countries currently undergoing industrialisation and those who went through it centuries ago

Historically, innovation in energy technology has been an important driver of economic development, as exemplified by the widespread use of steam and internal combustion engines throughout the West in the 19th century. Similarities can be drawn between countries currently undergoing industrialisation and those who went through it centuries ago, when the transformative potential of energy for economic growth first came to light.

Collectively, electricity, modern fuels and other energy services demonstrate considerable promise when it comes to the challenge of improving productivity. In the agricultural sector, it provides means such as water pumping for irrigation, fertiliser and mechanised tilling. When it comes to commercial activities, it can help with agricultural processing and cottage industries. And finally, in the transportation sector, it can offer crucial modernisation.

If the focus of widening energy access is confined to meeting basic human needs, then the indicators of poverty are merely mitigated while the structural causes of poverty remain unaddressed. On a structural level, a more drastic paradigm shift in the economies of poverty-stricken communities must occur in order for change to be self-sustaining and meaningful. Perhaps the age-old parable, “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime,” is relevant here. Energy-related developmental efforts should aim higher and seek to transform the underlying socio-economic conditions that keep communities stuck in a vicious cycle of poverty.

Energy access can generate tangible growth by catalysing small business activities in local communities. Even for activities that outwardly do not require energy, such as leather manufacturing or wood carving, a small energy supply can greatly improve productivity through measures that include the extension of the working day or the enabling of partial mechanisation.

A developmental strategy that focuses on productivity as opposed to one that deals exclusively with the consequences of poverty, will allow the full potential of modern industrialisation to be realised

Furthermore, in countries that are late to industrialisation, energy access grants the possibility of technological leapfrogging. Where in the past un-electrified communities may have automatically been connected to conventional grids powered by fossil fuels, innovative mini-grids that run on renewable energy are increasingly becoming the go-to option throughout the developing world.

PFAN has worked with several inspiring projects that do exactly this. For example, Okra Solar, an Australian start-up operating out of Cambodia, has developed a unique Internet of Things (IoT) device that enables homes to be integrated into a fully modular solar micro-grid. The system uses off-the-shelf parts, meaning that anyone can set it up.

Given the understanding that industrialisation is now occurring in a different context than in past decades, a developmental strategy that focuses on productivity as opposed to one that deals exclusively with the consequences of poverty, will allow the full potential of modern industrialisation to be realised.

The assumption that has thus far been made is that socio-economic development is contingent on access to reliable, affordable energy services. However, if increased energy access is to successfully stimulate an increase in productivity, other relevant economic conditions must be satisfied. Ultimately, energy access remains the binding constraint to development.

Ultimately, a narrow focus on energy resources exclusively is not enough

To determine whether or not firms are competitive in domestic and international markets, a number of factors must be taken into account. These include the structure of technical and managerial skills among a population, the levels of transaction costs for production and related services, and the depth and outreach of financial systems. It is also essential to have well-defined property rights, economic stability and healthy public finances. These favourable macro- and micro-level variables need to be promoted in parallel to energy-related projects for positive socio-economic outcomes to be adequately realised.

Arguably, both PFAN and GCIP embody an approach that aims to ensure that widening energy access leads to meaningful socio-economic development. PFAN draws on its expertise to support early-stage clean energy projects become investment ready, thereby bridging the gap between investors, clean energy entrepreneurs and project developers. GCIP identifies and accelerates climate technology enterprises and supports national policymakers in enhancing policy frameworks for SMEs and entrepreneurship, therefore improving local access to modern energy and climate technologies and creating new green industries as a result. Both programmes go further than simply widening energy access, seeking to build healthy economic ecosystems within which development can occur.

To conclude, the set of conditions needed for energy access projects to catalyse systematic and sustainable economic growth is very complex, thus great coordination is needed among actors pursuing developmental initiatives. Ultimately, a narrow focus on energy resources exclusively is not enough.

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