Common Tragedies

Thoughts on Environmental Economics

Deregulated electricity, extreme makeover edition

Posted by Daniel Hall on November 9, 2007

There is more electricity out there in the world than official statistics suggest, and that is both scary and comforting.

First, China is generating a lot more electricity – and hence carbon emissions – than is officially on the books. Arnold Kling sat down with some researchers from MIT, who report that:

At a local level, “government” consists of powerful party officials who are more interested in business than in public goods. They are outside the central government’s control, as exemplified by the fact that there are 100 gigawatts of “illegal” electric power plants in China, meaning plants not approved by the central government. (The entire nation of France uses 80 gigawatts of power. China uses 650 gigawatts.)

Second, I attended a talk this week by Hisham Zerriffi from the University of British Columbia, who presented some of his research – soon to be published in a book – that examines rural electrification schemes and tries to quantify what works and what doesn’t.

The most striking and encouraging part of his presentation was his micro-level data on rural electrification in Cambodia, which suggests that access to basic electricity services in rural areas is far more widespread than official numbers report. Officially, only 15% of Cambodians have electricity. But this is just the number who have access to the grid. The reality is that 90–95% of the population has basic electricity services, with nearly the entire gap being made up by what he called “Rural Electricity Entrepreneurs.”

The REEs are tiny local operators who have distributed generation resources – typically a diesel generator – and set up their own micro-grid to sell electricity. In fact, they typically serve three market segments: 1) businesses, which need power throughout the day; 2) village households, who want power in the evenings; and 3) remote households, who use (typically car) batteries for power and need them charged every 3–5 days. During the day the REE sells electricity to businesses and battery chargers, and in the evening most power goes to village households, who are typically powering lights and a small TV.

How valuable is this electricity to rural residents? Very valuable, based on their willingness to pay. Typical electricity rates are around 50 cents per kilowatt-hour, around 3 to 5 times what you probably pay for your electricity. Even at these rates – and despite median per capita household income of around US$350 per year – Cambodians want to buy this electricity, with most households consuming 3–5 kWh per month, thus spending 5–10% of their income on electricity.

These REEs are not unique to Cambodia – similar entrepreneurs exist in many places in the world. This is good news in regards to statistics about how many of the world’s residents lack even basic electricity services.

One take-home point from the presentation was that while there is abundant talk about using scalable and distributed renewable generation technologies – solar, wind, hydro, etc. – to encourage rural electrification, the reality on the ground is that people prefer using technologies that they are familiar with. The lesson for those who attempt to deploy renewable resources off the grid is to engineer systems which are simpler and built from parts that can be easily obtained and worked on.

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