Energy and Growth

Robin Burgess

AGF, Addis Ababa

30th June 2015

• Energy is critical for growth & development

• Off-grid has potential but grids are critical to support firms’ energy needs

• Useful to focus on demand side, not just supply side

• Energy as a private good not a right

• Political commitment to increasing access to reliable energy critical

• Need for better data and creative research strategies

Overview

Key focal areas: (directed by Michael Greenstone

[Chicago] and Nicholas Ryan [Yale])

Trying to break out of low cost, low quality

equilibrium

1. Improving the Reliability of Grid Services

2. Rural Electrification

3. Energy Efficiency

4. Minimising External Costs of Energy

Consumption

IGC’s Energy Agenda

1. Looking for projects in Africa

2. Need partners to undertake evaluations with

(e.g. distribution companies, energy companies)

3. Cogeneration of knowledge

4. Can draw on IGC Country Offices, IGC Hub in

London and IGC Research Network to start

projects

IGC’s Energy Program

is Open for Business

• Building on Sutton, Oqubay and Macchiavello

• Industrial revolution driven by access to cheap, reliable energy

• Key to structural change (manufacturing, agribusiness and service sector firms) an urbanization

• Key to making firms more productive and (critically for Africa) to bringing new firms into existence

Energy and Industrial

Development

• Industry used to develop where cheap

energy was available

• Now energy mobile

• African countries small – potential large

role for energy trade

• Also key to Asia where some countries

have fossil fuel deposits and hydro

potential and others do not

• Ethiopia 1/250th Bihar 1/100th US

Energy and Industrial

Development

1.3 billion people lack access to electricity,

(Africa - 600 million), 2.5 billion underelectrified

Percentage of Population

with Access to Electricity

0%

20%

40%

60%

80%

100%

Access to Electricity (% of population) 2010

It takes 131

KWh to use a

60 watt bulb for

6 hours per day

for a full year

Annual Per-Capita Electricity

Consumption

CountryPopulation

(millions)KWh/Capita

USA 312 13,246

Ethiopia 94 52

Russia 143 6,486

China 1,357 3,298

India 1,252 684

Bihar 104 122

Ghana 26 344

Energy is critical to growth

USA

Canada

China

France

Mexico

India

285 quadrillion Btu

535 quadrillion Btu

Energy Consumption Growth Will be in Non-

OECD Countries

Production Costs of Fossil Fuel-Based

Electricity are Low (USA)

3.2

6.2 5.5

9.4 8.9 12.2

0

2

4

6

8

10

12

14

¢/k

Wh

Private Costs

Tremendous Innovation in Fossil Fuels in the Last 5-10 Years

Global Concentrations of PM 2.5

Exposure to fine particulate matter is associated

with increased mortality rates from respiratory and

cardiovascular disease.

Air Pollution Standards

WHO Indian NAAQS

India Loss of 2.1

billion life years

Northern China

Loss of 2.5 billion

life years

Effect of Temperature Rise on

Agricultural Yields in India

Mortality Impact of Daily Temperature

in Rural and Urban India

Historical and Predicted Distribution of

Daily Average Temperatures in India

01

02

03

04

05

06

07

0N

um

be

r o

f D

ays P

er

Ye

ar

<49 49-52 52-54 55-57 58-60 61-63 64-66 67-69 70-72 73-75 76-78 79-81 82-84 85-87 88-90 91-93 94-96 >=97

Historical Distribution: 1957-2000 Average Hadley 3 A1FI (error-corrected): 2070-2099 Average

Historical and Predicted Distribution of

Daily Average Temperatures in India

01

02

03

04

05

06

07

0N

um

be

r o

f D

ays P

er

Ye

ar

<49 49-52 52-54 55-57 58-60 61-63 64-66 67-69 70-72 73-75 76-78 79-81 82-84 85-87 88-90 91-93 94-96 >=97

Historical Distribution: 1957-2000 Average Hadley 3 A1FI (error-corrected): 2070-2099 Average

Predicted Impact of Climate Change on Indian

Life Expectancy at Birth, Based on Error-

Corrected Hadley 3 A1FI Model: 2015-2099

1) Low Repayment Rates Limit Supply

Energy is Mispriced

Repayment Rates are Low in Developing

Countries, Leading to “Circular Debt”

0

5

10

15

20

25

Pe

rce

nta

ge o

f O

utp

ut

Electricity Transmission and Distribution Losses

Electricity Consumption and Distribution

Losses are Linked

0

5,000

10,000

15,000

20,000

0% 10% 20% 30% 40%

KW

h C

on

sum

pti

on

pe

r C

apit

a

Aggregate Transmission & Distribution Losses (%)

USA

UK

Brazil

Russia

India

China

Pakistan

1) Low Repayment Rates Limit Supply

2) Energy Subsidies are Huge and Fail to Target the Poor

Energy is Mispriced

End User Energy Consumption Remains

Heavily Subsidised

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

10

20

30

40

50

60

70

80

90

Iran

Egyp

t

Sau

di A

rab

ia

Ve

ne

zue

la

Alg

eri

a

Ecu

ado

r

Pak

ista

n

Ban

glad

esh

Lib

ya

Ind

on

esi

a

Thai

lan

d

Arg

en

tin

a

Vie

tnam

Ru

ssia

Ind

ia

Nig

eri

a

Me

xico

An

gola

Sou

th A

fric

a

Ch

ina

Bill

ion

$

Consumption Subsidies (Billion $, real 2012)

Total subsidy as share of gdp

Energy Subsidies Benefit the Wealthy, not

the Poor

6%

9%

10%

Electricity

Natural Gas

Gasoline

Share of Fossil Fuel

Subsidies Received

by the Lowest 20%

Income Group

1) Low Repayment Rates Limit Supply

2) Energy Subsidies are Huge and Fail to Target the Poor

3) Mispricing Energy Favors Fossil Fuels

Energy is Mispriced

Production Costs of Fossil Fuel-

Based Electricity are Low (USA)

3.2

6.2 5.5

9.4 8.9 12.2

0

2

4

6

8

10

12

14

¢/k

Wh

Private Costs

Fossil Fuels Greatly Benefit from Failure

to Price Pollution and Climate Damages

9.1

11.7

6.6

9.4 9.9

13.3

0

2

4

6

8

10

12

14

16

18

ExistingCoal

New Coal NewNatural

gas

NewNuclear

Wind(Onshore)

backedup

Solar (PV)backed

up

¢/k

Wh

Private Costs Non-Carbon External Costs

Carbon-External Costs

Lighting up Bihar

Extremely Uneven Consumption

Across India

Average Per Capita

Consumption:

India – 626 kWh

USA – 13,325 kWh

Bihar – 122 kWh

Source: CIA World Factbook

(200); Govt. of Bihar

Structure of the Bihar Electricity

Sector

Generation

Bihar State Power

Generation Company

Transmission

Bihar State Power

Transmission Company

Distribution

North and South Bihar Power

Distribution CompaniesRevenue

Revenue

Revenue

Bihar State Power Holding Company Limited

Bihar Has a Substantial Energy

Deficit

Balance of Electricity Demand and Supply in Bihar

Areas with high payment not

rewarded with high supply

Feeder: Basahi

PSS: Lahlladpur

District: Chapra

Feeder: Mela

PSS: Sonpur

District: Chapra

Bihar has undergone transformations in law-and-

order, roads and access to education over the last

decade

Power sector reform is now a focus, with recent

increase in consumption

But expanding power supply is difficult

• Losses and lack of revenue problems

• Electricity is a network good; many areas in a bad

equilibrium of low payments and low or no supply

Bihar Transforming

its Power Sector

Few Consumers

are Paying Their Bills

3.9

2.9

0.6 0.7

0.0 0.0 0.0 0.0

0

1

2

3

4

5

TotalConsumers

MeteredConsumers

MeterReadings

PayingConsumers

Vo

lum

e (

in M

illio

ns)

Consumer Base of Discoms

Nov-12 Jul-14

Bihar is attempting to address the problem of low

payments

• In collaboration with Government of Bihar, the

research team is randomizing repayment

incentives across feeders

• Co-generation model: IGC working with Bihar

energy department and distribution companies to

increase payments

• Key idea: communities incentivized to pay for

electricity in return for more hours

Potential Solution: You Get

What You Pay for

Feeders represent last high voltage node in

distribution network and will soon be fully metered

in Bihar (feeder = ~2000 households, 27

manufacturing and service sector firms)

Research team focused on:

• Linking feeder power supply to feeder level

collection losses

• Group-level incentive to reduce theft and

increase collections

Feeder Level Power Supply

Scheduling

New scheme:

You get what you pay for

GroupRevenue

Rate (%)

Hours /

Day

1 0-15 12

2 15-30 15

3 30-45 18

4 45-60 21

5 > 60 24

Group Revenue

Rate (%)

Hours /

Day

1 0-10 10

2 10-20 12

3 20-30 14

4 30-40 16

5 > 40 18

Rural Feeder Allocation Urban/Mixed Feeder

Allocation

Benefits of the scheme:

I. Reward better paying areas with more supply

II. Provide an incentive to increase payment rates

III. Reduce utility losses

Bill Inserts were distributed to

more than 1 lakh consumers

Inserts being attached to bills Consumer receiving bill

Pu

bli

c

An

no

un

cem

en

tS

MS

No

tifi

cati

on

Mass-Marketing is Essential for

Maximum Outreach

• Mobile Number Database to

send monthly SMS

notifications

• Posters informing consumers

about the scheme

• Feeder-wise route maps to

make public announcements

in villages

39 Feeders randomly assigned into two groups:

• Treatment: Supply based on revenue performance

• Control: Supply is uniform

The Scheme was Piloted in

Chapra and Siwan

- 0.02

+ 1.01

-0.40

0.00

0.40

0.80

1.20

Control Treatment

Revenue Rate (Rs/kWh) Change

Revenue improves

drastically in a short

period

Treatment feeders show

increase of Rs. 1.01 on

base of Rs. 0.95 within

just two months

Non-payment for electricity a global problem

• Severely limits supply

• Low-cost and low-supply equilibrium in developing

countries

• Bihar scheme is one way to break this deadlock

• May serve as model for supplying electricity in

other developing countries

Preliminary Conclusions

IGC Energy Research

Agenda

Key focal areas: (directed by Michael Greenstone

[Chicago] and Nicholas Ryan [Yale])

Trying to break out of low cost, low quality

equilibrium

1. Improving the Reliability of Grid Services

2. Rural Electrification

3. Energy Efficiency

4. Minimising External Costs of Energy

Consumption

IGC’s Energy Agenda

1) How to improve energy quality?

• What is the demand for better electricity?

• How much will people pay for better quality

electricity?

• What is the role for data and new technologies

(pre-paid cards, privatization, etc.)?

• How to prevent electricity theft?

Questions

Questions

2) How to expand energy access?

• How best to roll out expansion of the grid?

• How to encourage electricity uptake once

connected?

• What are the best solutions for difficult

geographies (i.e. poorer areas, population density,

higher costs)?

• What is the role for minigrids, solar panels, etc.

and how can these support longer-term solutions?

Questions

3) How to encourage investments in energy

efficiency?

• What are the barriers to investment and their

relative importance e.g.

• Slow technology diffusion

• Imperfect information

• Price uncertainty

• Costs of purchase/adoption

• Different potential vs. real world returns

• What are the private vs. social costs of these

investments?

Questions

4) How to minimize the external costs of energy

consumption?

• What are the effects of energy use on:

• Health

• Welfare

• Pollution

• Climate Change

• Who is willing to pay to reduce these effects?

• Energy is critical for growth & development

• Off-grid has potential but grids are critical to support firms’ energy needs

• Useful to focus on demand side, not just supply side

• Energy as a private good not a right

• Political commitment to increasing access to reliable energy critical

• Need for better data and creative research strategies

Overview