By Sarah Best, Senior Researcher at IIED
New research from IIED and Hivos shows the potential for energy entrepreneurs to scale up productive energy use in Tanzania. But to make it work, funders and policymakers need to provide incentives, support experimentation, and encourage collaboration.
Extending the 'productive use of energy' (PUE) for agriculture and small enterprise offers huge potential for poor communities in Tanzania: increased food production, better services and more jobs.
But the sector still faces significant challenges. Entrepreneurs providing off-grid services need to balance the time and costs involved in encouraging energy uptake locally with getting an adequate return on their investment. And providers, donors, local authorities and communities need to ensure that energy development has a positive impact on the local economy.
Research published by IIED and Hivos as part of our Tanzania Energy Change Lab initiative found impressive innovation in promoting PUE in two areas studied. But the research concluded that significant funding and policy support would be required to scale this up to a level where it could make an impact on poverty.
One report by masters graduates at HEC Paris, focuses on regulation and business models, while the other by IIED researchers examines what operators can do to build demand for energy. The research has led to three key recommendations:
1. Use grant funds to incentivise PUE-focused business models
Policymakers should encourage energy development in the remote rural areas where it will make the most difference (by boosting agricultural production, promoting market access and improving livelihoods). Grants and policies should be used to reduce market barriers and provide incentives to energy entrepreneurs to target productive energy use.
Mini-grid developers with an eye to their bottom line typically choose small systems (0.5-15kw: cheap to build, lightly regulated, easy to standardise) that can meet household energy needs; or large systems (300kw-10 mw: expensive and more highly regulated) that depend on their scale and having a large 'anchor client' (e.g. the state utility) to lower their costs and repay their investment.
Providing medium-sized systems in remote rural districts is often less attractive to developers as small farms and enterprises lack the resources and productive capacity to drive energy demand. And, unlike small or large systems, developers cannot rely on standardisation or scale to keep their costs down.
But, as our research concludes, government and donor grants can effectively build local demand for power. What's needed now is more dedicated funding lines to support PUE.
The World Bank-funded TEDAP (Tanzania Energy Development and Access Expansion Project) grant, for example, provided a flat subsidy per connection regardless of whether it's a household or a business. Could grant windows such as TEDAP be reformed so they reward PUE outcomes, reflecting the extra costs involved in building local businesses' demand for power?
Grants should not focus on quantity (number of businesses created or connected) but on quality; developers should showcase a few promising PUE opportunities, such as chilling fish or pressing sunflower oil, and work with expert local partners to develop the businesses.
2. Support experimentation to find out what works
Experimentation leads to innovation, which throws up interesting ways to create energy demand and build local economies. The projects we examined were implementing typical good practice advice on PUE, for instance by working with local savings groups to help customers buy electrical equipment. Interesting examples of innovation include:
- Establishing agricultural enterprises which are integrated with a community-owned energy utility, providing an anchor client and driving local economic development (CEFA)
- Enabling local millers to purchase electricity in exchange for the commitment to charge lower grain prices than millers that use diesel, helping to ensure food security (ACRA), and
- Identifying larger-scale investment opportunities that require more energy than local micro-enterprises, and marketing these to energy developers outside the locality (JUMEME).
We need more of this type of experimentation and there is good guidance out there to build on. The German development agency, GIZ, for example, has produced a useful 'mini-business plan calculator' (.xls file) and a manual for productive end-use programmes.
Funders have a significant opportunity to help the private sector, NGOs and local partners test out interventions and understand what works in different contexts.
3. Collaborate and share – people, information and sectors
But energy entrepreneurs can't be expected to drive rural development on their own; they need to work with those with expertise in agriculture, water, gender, finance and business to ensure development is sustainable and meets local needs.
Government and funders can help broker such collaboration. After all, it's being done with mobile phone operators and household solar companies.
In the fishing sector, JUMEME has scoped an opportunity for a better cool chain to reduce food waste, help fishers add value, and create anchor clients for a local grid, (e.g. an ice-factory). Can we get fishers talking directly to processing factories and finance providers to see what creative business opportunities they come up with?
More coordination and openness by government is also crucial. Energy providers tell us that sharing key government investment plans would help them identify where to focus (e.g. water supply, agricultural investment corridors, grid extension plans), while setting cross-ministry PUE performance indicators would help different sectors to work together.
Building on the learning from the research, the Energy Change Lab partners are now launching a PUE programme (2017-18) which will bring together a wide range of stakeholders to unlock collaboration and innovation in the energy sector in Tanzania.
Participants will work on joint problem-solving, testing interventions, gathering expert advice and sharing learnings for sector-wide improvements.
Tanzania has big ambitions on energy access. The lab is playing its part by supporting a new generation of energy pioneers, who want to go beyond lighting homes to provide services that also catalyse jobs and incomes.
If you have an idea for productive energy use, but need the support of experts and peers to test it out, please contact Sisty Basil (email@example.com) or Sarah Best (firstname.lastname@example.org) for more information.