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Universal access to affordable, and reliable electricity is essential to every aspect of the modern economy. Yet, many lack this service. In 2020, recessions in countries around the world had a negative impact on investments, electricity providers, and their clients, slowing progress in meeting goals. This podcast discusses how 2020 changed the way we approach SDG7 and the policies needed to move forward as growth resumes.
This podcast series is produced by Fernando Di Laudo and Jonathan Davidar.
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Transcript
Roumeen Islam: This is the World Bank's infrastructure podcast. In this special episode, we will discuss the impact of the pandemic on electricity access and policies going forward. There are 17 sustainable development goals established by the United Nations. Goal Seven is ensuring affordable, reliable, sustainable, and modern energy for all by 2030.
Electricity access has been increasing fast. Yet, even with new technologies, almost 800 million people remain without it. With the setbacks of the past year and accounting for population growth, the number of people without electricity could in fact increase by 2030 and the number without reliable electricity to meet the needs of the modern economy, including a vibrant business sector, is even higher. Let's find out how the pandemic effected Goal Seven, and what this means. Good morning and welcome. I am Roumeen Islam, host of Tell Me How. And today, in this special edition, I have as my guest, Demetrios Papathanasiou, Global Director for all things energy in the World Bank's Infrastructure Practice. Demetrios will be speaking about the SDG 7 goal today. So welcome, Demetrios. It's very nice to have you with us.
Demetrios Papathanasiou: Thank you very much, Roumeen. It's very nice to talk to you about this important subject.
Roumeen Islam: So Demetrios, let me start by asking you: In what ways did the pandemic effect electricity access and SDG 7 goals in 2020?
Demetrios Papathanasiou: Thank you very much, Roumeen. I think, the first thing that the pandemic did, when it comes to electricity itself, is to point out how extremely important electricity is for everyone's life in a way that many people haven't quite realized before. So I think if anything, health, education, economic activity, and how electricity underpins all of that, came to the forefront. At the same time, what also happened, is that the things and projects slowed down or even stopped in many cases. So, what we're getting as reports, is that the rate of expansion of electrification around the world has significantly slowed down while many of the utilities affected by the crisis have lost money and are facing financial strains for weeks. They were certainly not prepared. Now, we recently issued our report regarding the status of electrification in the world. And on the positive side, we noted that over the last decade, another 10% of the world's population had access. But the problem that we see, is that now that we look at the last remaining 10% of the people who are the poorest, who live in more remote and difficult areas, that is where things are even harder. But these are many people.
And what we estimated, that if we continue with the present rates of expanding electrification, we will only be at about 92% of the world's population by 2030, that will leave us fall short of the targets for universal access by 2030. That will mean almost a billion people because population keeps growing. So, we have a long way.
Roumeen Islam: Yes, and I think what's very important also is that you said public and private investments have fallen, but also I guess what's happened at the same time, is that operations and maintenance of existing infrastructure have also declined substantially during the pandemic because governments were strapped for resources as were private companies.
Demetrios, if I were to ask you, relative to 2019 before the pandemic struck, suppose you were standing there, and then I brought you to 2021: How do you think we approach the elect the issue of access differently? What are the things that we might do a little bit differently, or that might cause us to think differently?
Demetrios Papathanasiou: So, as we were discussing earlier, probably the most important factor is that people really appreciated how important electricity is, and that is quite fundamental. And I think it will have an effect in terms of redirecting the resources of governments and the efforts of governments into making sure that they plan better for the programs of extending electrification access to their population.
Now, what is also important is that, as people think about the digital agenda and how do we get more and more people to use digital technologies, communications, their phones for information, for education, they see that this actually can go hand to hand with electrification. So, this is something that was there before, but what the crisis has given us is a more acute sense of urgency and a better focusing how we do that. Beyond that, and these are developments that have been coming before the pandemic, but I think now we see them even more in with more clarity, is that technologies both on the digital side and on the clean energy side have continued to advance and present us with significant new opportunities as we try to tackle the problem of access. So, to give you an example. It is now possible to do a much more accurate evaluation of how exactly do you service people? Should you be extending the electricity network, or does it make more sense economically and financially to focus on off-grid solutions? And because we can we can apply tools and computational capabilities that will give us these results together with geospatial planning, we can much easier today make the decisions about where should we make efforts to invest in grid extension, and which of the areas that can much better be served.
Roumeen Islam: Let me pick up on a couple of things that, that you said. And I wanted to pick up on what you said about the digital agenda, because in fact, during the pandemic, that agenda accelerated. Everything became far more digitized. So, what you're actually saying is because that depends so much on the digital sector and electricity, unless we move on ensuring reliable electricity access, countries are going to fall back on adopting one of the greatest technological developments of these last few decades. So, it will be a double whammy. You said there were many technological developments in the last few years but also during last year, of course, innovation continued to happen. And I'm wondering, with so many possibilities, so much innovation, especially that supporting the development of renewable energy, why isn't change happening faster? Is it something to do with regulation, something to do with financing at all? Could you talk a bit about this?
Demetrios Papathanasiou: That's a good question. I think part of the reason is that people are still, despite the fact that this has been going on for some time, people are still struggling with understanding what is possible today. And also, that we are struggling with making the case that there are new models, new business innovations that can come in and help things in happening.
Let me give you a bit of an example to try and make the point. I remember a few years back, I was traveling in Senegal, and we were looking at exactly part of an electrification project. I still remember visiting one station. It was a diesel generator and we went to have a look and see how things were developing. And I noticed as I entered the power station, fairly rudimentary in a remote, rural area in Senegal, I noticed a number of old batteries. And I noticed also a number of cell phones that were simply parked there on the side of the station and big charts. And I could easily tell that this was a small side business that the technicians running the power station were having.
I asked them how exactly did it work. With were they charging people and how the whole system was actually functioning. To cut the long story short, we, you could see that, people would walk, in some cases for a while, to come from the village, approach this power station, give batteries to be charged, telephones, what have you, in the meantime, waiting for all this charging to take place. From my rough calculations at the moment, I estimated that they were paying the equivalent of about a dollar per kilowatt hour just for the cost of electricity that this was charged to them. Now, if you put this in perspective, it shows you that in this let's say billion of people that are still not electric.
It's a huge challenge, but there is also still a huge economic opportunity. You do have people that even today are willing to pay quite a bit for basic electricity services and for relatively small quantities of electricity services. Now, the question is, can this be delivered otherwise? And the answer is yes, today you can easily install a small grid with solar panels and a battery bank, and this can serve a whole village. Now, you cannot charge villagers a dollar per kilowatt hour, even though in practice, actually people do it in the example that I mentioned. You cannot officially do it and say that this is a sanctioned regulated price for electricity for the simple reason that it is going to be a four or five times higher price compared to what is paid in an urban city.
And this, I think socially is not acceptable and politically it's not acceptable. So, the question is how do you reconcile the realities of what people actually pay for them? And the issue of equality among different citizens of the same country that will be paying for the electricity. And what can happen is that you can be much more intelligent in two things.
First of all, how do you finance the huge capital costs that come with many grids? And how do you direct subsidies that normally are directed towards fossil fuels into these options? And I think, these are the areas, again, not completely new, but because technologies today are much more prevalent and things are much more easily to do and because process technology are coming down, I think that is where we have possibilities to break new ground and see much more happening.
Roumeen Islam: So, thank you. Just to make sure that I understand this. What you're saying is that in terms of financing, in terms of the cost to consumers, and then financing the investment of going to a new, renewable source of energy, what you're saying is that you are replacing the high recurrent costs, which are the fossil fuel costs, the fuel that you buy to provide energy, with a much bigger investment, upfront investment cost, investment in renewable technology. But that once you've done that, the cost to consumers would be much lower because essentially, if you're producing solar energy, the additional cost, once you've got the investment in place, very low.
So that's, what's happening. It's the difference in, who's paying when. And in the longer run, it's much better environmentally, better, and cheaper to do the investment, if you can, for a lower marginal cost in the medium term. Is that right?
Demetrios Papathanasiou: So, this is again, underappreciated, I think from many of the decision-makers and the policy makers. There's a lot of mistrust on whether the new technologies actually are equivalent to the diesel. And there is the possibility that our vested interest in the whole ecosystem of fossil fuels, diesel generators, are quite reluctant to look at the alternatives, but because they will be missing some of the opportunities that they have to make money on the side.
I think these are some of the issues that need to be better appreciated. And have a more intentional approach and policies saying that if we're going to be doing mini grids to service small towns and villages, we have to much more aggressively look at how we do it without fossil fuels. It will cost more in the beginning, which poses a question of how you raise the additional finance that's required. But in the longer term, everyone is going to be better off.
Roumeen Islam: Thank you, yes, there's certainly a lot of complex issues involved there. Let me move on to a slightly different issue. So even before countries can actually think about spending more to invest in the future, they are going to have to think about the situation of electricity providers today, because as a result of the recessions induced by the pandemic, the financial situation of electricity providers has taken a hit and consumers and businesses have not been able to pay for their electricity. And yet, governments in many countries have asked utilities to maintain service governments, themselves, can¡¯t pay for power they purchase due to their constrained fiscal conditions. So, how are we going to approach this problem going forward? Could you talk a bit about that?
Demetrios Papathanasiou: So that is maybe one of the most difficult issues that we see at the energy sector and the power sector, especially where we work. So, what we see is a huge accumulation of arrears from customers to utilities and difficult prospects in seeing how all these losses will be actually covered going into the future. So, most of the utilities are looking for a bailout from the government. And that is something that we will have to face going forward. Indeed, in several countries, you can see that the utilities are trying to restructure their debts. And this is actually happening in some of the developed economies as well. There is this recognition that it is a different world, there's been a crisis, we need to have restructuring of debts. And in some cases that won't be enough. So, the expectation is that governments will need to bail utilities out and cover some of the losses. So that is the negative message of the story.
I think that the positive message is, and what we're trying to promote in our dialogue with the government is that since there will be support from the central government to utilities, it is a time to see what the reforms that have been lagging for a long time, and utilities were reluctant to take up, what reforms can take place so that this bailout is not a simple handout, but it is coming together with some positive changes that several utilities need to make. But the important thing is not to leave the opportunity unused and make sure that we can help some utilities to take up some of the reforms that they were resisting. And the good news is that in several countries this is happening, and I am optimistic that we will use that for some positive movement.
Roumeen Islam: Yes, you make some very important points that indeed governments will need to come in and help these utilities given that this was such a large exogenous shock for the economy and that they should come along with sectoral reform with some competition and good corporate governance. And I presume you want to pave the way for regulatory reform that supports private investment as well.
Thank you, Demetrios. I really appreciated the very nice example you gave, which is an example which gives us hope, and also very much, this illuminating conversation. Thank you very much. Bye for now.
Demetrios Papathanasiou: Thank you very much, Roumeen. Good talking to you.
Roumeen Islam: Listeners, what did we learn today? Firstly, we heard the pandemic was not a good year for electricity access goals.
Investment in the sector fell and many providers are experiencing financial difficulties. Secondly, the accelerating digitalization of economies during the pandemic means that those without reliable and sufficient electricity risk falling further behind, even in this agenda, a double hit. Thirdly, it is possible to provide cheaper electricity from renewable sources to many underserved areas, but the main constraint is funding the upfront investment needed. Finally, many governments will need to provide financial support to electricity providers just to continue service. But this must go hand in hand with sectoral and regulate reform that supports competition and private investment. Bye for now, till next time.
If you have questions or comments, we¡¯d love to hear from you. You can reach us at tellmehow@worldbank.org. Don¡¯t forget to subscribe and thanks for listening!
This episode was recorded in June 2021.
View all episodes on our Tell Me How: The Infrastructure Podcast Series homepage