Progress in LDCs hinges on access to modern energy, new United Nations report says

Expanding access to adequate, reliable and affordable sources of modern energy is essential if the world’s poorest nations are to escape the poverty trap, says UNCTAD’s  The Least Developed Countries Report 2017: Transformational Energy Access .

According to the report, published on 22 November the world’s 47 least developed countries1 (LDCs) are falling far behind the rest of the developing world in terms of getting power to homes and businesses. While they have made great strides in recent years, achieving the global goal of universal access to energy by 2030 will require a 350% increase in their annual rate of electrification.

“Achieving Sustainable Development Goal 7 is not only a question of satisfying households’ basic energy needs,” UNCTAD Secretary-General Mukhisa Kituyi said. “That in itself has valuable welfare implications, but we need to go beyond… For electrification to transform LDC economies, modern energy provision needs to spur productivity increases and unlock the production of more goods and services.”

Dr. Kituyi added: “The productive use of energy turns access into economic development, and what ensures that investments in electricity infrastructure are economically viable. But that means looking beyond satisfying households basic needs to achieving transformational energy access – satisfying producers’ needs for adequate, reliable and affordable energy.”

This two-way relationship between the productive use of energy and economic development, which the report dubs “the energy-transformation nexus”, remains very weak in LDCs. More than 40% of businesses operating in these countries are held back by inadequate, unreliable and unaffordable electricity. On average, they suffer 10 power outages per month, each lasting around five hours, costing 7% of the value of their sales.

While on average 10% of people in other developing countries lack access to electricity, more than 60% do so in LDCs. As  a group LDCs have around just 8% the capacity of other developing economies to generate electricity per person, and barely 2% that of wealthier nations.

High time for donors to meet aid commitments

Achieving universal access to modern energy in LDCs by 2030 will be costly. Based on previous global estimates, the report puts the cost at US$12 billion to US$40 billion per year. Transformational energy access would cost still more.

This far exceeds the resources currently available, the report says. Total official development assistance to the energy sector is just US$3 billion per year, domestic resources for public investment are scarce in most LDCs, and most also face serious limits to borrowing without risking an unsustainable debt burden.

Private investors show little enthusiasm for investments in electricity infrastructure in LDCs, which entail large irreversible costs, long project cycles and slow payback. Most LDCs are also seen as relatively high-risk environments – although the availability of de-risking instruments, such as insurance and guarantee products, might help to bolster confidence.

Governments could raise extra capital by developing domestic debt markets or tapping into alternative sources of funding, such as impact investors, infrastructure funds and, in some LDCs, the population living abroad.

Better still, the report says, would be for international donors to honour their long-standing commitment to provide at least 0.15–0.20% of their national income in aid, as part of the Istanbul Programme of Action for the Least Developed Countries for the Decade 2011–2020 of the United Nations. Current aid levels to LDCs fall short of this target by US$33 billion to US$50 billion per year.

Renewables have potential but will need support

Renewable energy sources, such as solar and wind power, could have a revolutionary effect in rural areas, home to 82 per cent of those without power in LDCs, and help to overcome the historical obstacles to rural electrification.

But non-hydro renewable energy in these countries has so far come mostly from small-scale technologies, such as solar lanterns and stand-alone home systems. While these have brought some progress, they fall short of the game-changing access to power that LDCs need to transform their economies.

Utility-scale renewable technologies capable of feeding the grids and mini-grids necessary not only to power homes, but also to grow businesses and industries, need to be deployed rapidly. But to achieve this, LDCs must overcome important technological, economic and institutional obstacles. This will require both the right national policies and stronger international support.

Despite remarkable potential in LDCs, wind and solar power alone cannot meet their needs. Hydroelectricity plays a major role, currently providing half of all the electricity generated in LDCs; and fossil fuels will also have a continuing role in many cases, with a progressive shift towards less carbon-intensive technologies such as natural gas.

Because energy technologies, and particularly renewable technologies, are constantly evolving, it is critical that LDCs gain access to the technologies suited to their particular conditions and circumstances, and that they strengthen the capacity of their energy sectors to absorb such technologies.

The recently created Technology Bank for the Least Developed Countries could help, but developed countries could help even more by living up to their technology-transfer obligations under the United Nations Framework Convention on Climate Change and the Kyoto Protocol.

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