The economics of clean energy in poor countries

climatescopeA few years ago, one of the most common arguments against climate change action was that renewable energy was uneconomic. We couldn’t afford it. And if we couldn’t afford it, neither could emerging economies. They would push ahead with coal power and make our carbon cutting irrelevant – so why bother?

That’s an argument that doesn’t hold any longer. The cost of renewable energy has fallen steeply over the last few years, and the first comprehensive survey of renewable energy investment in the developing world shows that it is affordable after all. Though we are starting from a lower base in many cases, renewable energy is growing faster in developing countries than in the West. It’s good news for those hoping that poorer countries might be able to leapfrog dirty fossil fuels and build green energy from the start.

The survey is from Bloomberg New Energy Finance and partners, and it can be explored interactively online. Called ClimateScope 2014, it argues that renewable energy is often turning out to be cheaper than fossil fuels, and there are a couple of reasons why.

The first is that some of the poorest countries actually have very expensive electricity. That’s because people rely on diesel generators or on expensive imported fossil fuels. Take Uganda, for example. Landlocked and without gas pipelines or a rail network to carry coal, the most portable fossil fuel is oil. Uganda has three oil-burning power stations, an expensive way to generate electriciy.

Small island states have similar problems, especially farther-flung ones. Despite its associations with tropical sunshine, much of the Carribean runs on diesel generation. “Barbados’ national grid is 100% dependent on generation from imported fossil fuels” ClimateScope points out.

In the West, solar panels or wind power have to compete with cheap fossil fuel energy, which benefits from well established infrastructure and huge economies of scale. In poorer countries, they are competing with expensive imported energy and inadequate infrastructure. It is therefore a much more attractive option: “renewables make economic sense in many of these countries based simply on the high local electricity prices.”

Secondly, where people don’t yet have access to electricity, providing clean energy first time round is usually proving cheaper. That’s because renewable energy can be local and small scale, whereas big fossil fuel power stations need much more expensive infrastructure and transmission networks. If you already have a grid, adding another coal power station to meet rising demand is easier than fitting hundreds of solar panels. But if you have to start from scratch, it’s a different matter. “In countries where millions lack access to a grid of any sort, distributed sources of clean generation can represent a logical and less costly solution.”

Combined with the falling cost of renewable technologies, and higher returns from solar PV in sunnier countries, it turns out that the economics of clean energy are more positive than we might have expected. The investment figures reflect that, with renewable energy installations growing twice as fast in the developing world than in the West.

That’s bad news for the fossil fuel companies, but good news for the rest of us. We don’t just have to hope that developing countries will invest in renewable energy because it’s the right thing to do. For many it will also be the best value for money, and the simplest way to extend energy access to their citizens.

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