U.S. Leaves Paris Agreement, so Now What?

After weeks of behind-the-scenes debate, President Trump announced that the United States will withdraw from the Paris Agreement, the landmark pact on climate change negotiated in 2015 (and now signed by 194 countries), which entered into force just days before the 2016 presidential election. Still, signatories and companies large and small around the world are moving forward, as well as state and local governments in the United States. Moreover, there is ample evidence from around the world that technological advances, falling prices for clean energy technologies and the dynamism of entrepreneurs are all helping accelerate the process of transformation in how energy is produced and used everywhere.

As manager of work that Abt Associates is implementing in West Africa under USAID’s CEADIR program, I have seen firsthand how this transition is playing out in West Africa, where enormous wealth in energy resources contrasts with the inadequate access to energy of the region’s population.  According to the World Energy Organization, almost 200 million people — nearly 60 percent of West Africans— do not have access to grid-supplied electricity.  International and local entrepreneurs are working to change this, creating energy infrastructure where none has existed.  With a team of West Africa- and U.S.-based consultants, Abt is working with local banks to support their entry into the market and channel local capital to fund the expansion of these businesses. Two examples:

  1. The pay-as-you-go (PayGo) model for delivering electricity from solar photovoltaic (PV) panels in unelectrified areas, and even grid-connected areas with unreliable service, is growing rapidly, with global sales on the order of $150 million in 2016.  Companies such as Azuri, Nova-Lumos, Mobisol, BBOX and Off-grid Electric, have attracted capital from investors.  These businesses install solar home systems (SHS) to power homes and small businesses, on a cash basis as well as by providing financing with repayment via mobile money technology supported by cell phones.  Users can pay for this equipment because they save money by eliminating the use of expensive batteries, diesel/gasoline generators or kerosene.  As a first step in bringing small quantities of electricity – the highest quality and most versatile source of energy – to people who are isolated and impoverished, these SHS businesses are the vanguard in a wave of economic growth that promises to dramatically reduce rural poverty in some of the most impoverished nations of the world.
     
  2. Mini-grids based on solar or a mix of renewable and conventional generation technologies to supply isolated communities are the next rung on the energy ladder. Reliable data on the number of such projects at the global level are hard to come by, but there is widespread evidence of accelerating investment in mini-grids in Sub-Saharan Africa as well as elsewhere, by companies such as Black Star, Rafiki Power, Husk Power, Gigawatt Global, PowerGen, Power Hive and TramaTecnoAmbiental (TTA).  When implemented properly, with local support and involvement, such projects can deliver electricity for basic requirements more cheaply than existing alternatives, and can help jump start small businesses as well as improve living standards.  Distribution utilities typically don’t view these mini utilities as a threat to their business, because the cost of adding small communities with relatively small consumption to the national grid adds more costs than revenues.  In contrast, when communities outgrow mini-grids because of increased consumption, they are more attractive additions to the grid. When properly regulated, the legacy mini-grid can continue to operate as a distributed generation resource in the national grid.

A major challenge for these businesses is access to capital in local currency and in amounts tailored to the capital costs of these projects. Another challenge is the financial capability of these companies, which are relatively small and local as well as international start-ups.  Banks in West Africa are beginning to appreciate the market opportunity these businesses seek to exploit. However, bankers are unfamiliar with the technologies involved, concerned about the risk of backing young companies, and are unused to lending for the periods of time required, typically three to five years. Further, local financing is often available at punishingly high interest rates.  Support from Abt consultants under CEADIR is helping to address these issues and concerns.

In future postings, I’ll report on Abt’s work in several countries around West Africa.
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