
Transforming livelihoods through scaling up the productive use of energy
Access to energy alone cannot transform the livelihoods and incomes of recently connected communities. Rather, people need to be able to use energy for productive purposes that increase their income-generating capabilities and improve their wellbeing.
To date, most of the focus of productive use of energy (PUE) has been on mechanisation in agriculture and value-added processing, as well as lighting and cooling. Through these innovations, PUE has increased the socioeconomic impact of electrification in numerous ways, including improving service provision, reducing manual workloads and the time required to complete tasks, and creating income streams for small businesses. It has become possible for mills to save hours of menial de-husking and grinding work and for refrigerators in remote clinics to safely store medicines and vaccines.
Despite its potential, the uptake of PUE after gaining access to energy is not straightforward, and a myriad of complementary investments are needed if improved outcomes are to be achieved. For example, without doctors and nurses being deployed to clinics, refrigerated medicines are unlikely to change the health outcomes of rural communities. Similarly, if farmers cannot access markets to sell the additional produce they grew through improved water irrigation, their increased yield doesn’t raise their earnings. Specific considerations must also be incorporated to include women and other marginalised groups across all PUE adoption activities.
Our recent policy toolkit, Driving productive use of energy in fragile contexts explores these dynamics, and more, as a part of the State Fragility initiative’s set of publications investigating key aspects of scaling up solar mini grids in fragile settings.
Addressing barriers to PUE adoption
Easing financial constraints
Low affordability continues to be a major barrier to the adoption of PUE appliances, with the high upfront cost of appliance purchase and limited credit options in many low-income countries constraining access. This is particularly so for women, who often have lower financial literacy and less documented credit histories. A range of different financing options have developed to help address the affordability gap, most notably the pay-as-you-go (PAYGo) model whereby the borrower can take possession of the appliance immediately and use the income it generates to pay off the loan taken for its purchase. Flexible repayment plans that accommodate seasonal agricultural earnings or allow non-cash payments (for example, livestock or coconut oil) have also been important in overcoming affordability barriers in Mozambique, Zimbabwe, Indonesia, and elsewhere.
Financing solutions have also been developed to support the growth of businesses on the PUE appliance supply side. Grants and highly concessional financing have been needed to enable PUE distributors and asset financing companies to reach low-income populations and implement the PAYGo model, which significantly increases the working capital requirements of these businesses. Results-based financing also offers promise but favours larger, more established companies that can pre-finance expansion efforts themselves, thereby often sidelining local companies lacking the resources required for large upfront expenses.
Providing information and support
Limited consumer awareness of PUE appliances and their benefits is also a challenge. Different activities help to improve consumer awareness, including road shows, product fairs, pilots, public awareness campaigns, and business model demonstrations. Low-income individuals are often fearful of taking on debt, and consumer awareness activities need to equip potential users with sufficient information to make informed decisions about asset purchases.
Experience to date has shown that providing business support services to entrepreneurs and small businesses is often needed to ensure that they are able to make the maximum use of their PUE appliances to grow their business. A good example is seen with EnerGrow, an asset financing company that provides loans for the purchase of PUE appliances in Uganda. In addition to asset financing, EnerGrow provides borrowers with business and management training, covering basic bookkeeping, inventory management, micro-marketing, and customer service training. They have found that this business service support improves their borrowers’ operations and markedly lowers the likelihood of borrowers defaulting on loan repayments. More about EnerGrow’s approach to supporting PUE adoption can be found in our recent case study.
Overcoming the gender divide
Gender-based differences must be factored into all PUE adoption efforts. For example, marketing information needs to be conveyed in ways likely to reach women, such as through community groups rather than the radio. Consumer awareness demonstrations need to include PUE appliances likely to be used by women and PUE training activities need to be held at safe and convenient times and locations, with child care being provided to enable women to participate in training. Men often have greater access to the resources needed to purchase PUE appliances than women do, as women face more constraints around financial decision-making, which can lead to investment decisions that primarily benefit men. Interventions must, therefore, bear these dynamics in mind throughout PUE adoption drives to ensure that the barriers women may face around PUE uptake can be overcome.
Governments have a key role to play
Governments have an important regulatory role to play in facilitating PUE adoption. For example, a number of countries (including Mali and Ghana) have introduced import duty and VAT waivers on renewable energy technologies and PUE appliances to lower their cost to end users, thereby encouraging uptake. Ensuring consistent application of such regulations and avoiding lengthy and costly customs clearance processes is crucial for importers, as uncertainty in these areas can increase costs and dissuade investment, which ultimately harms potential users.
Quality assurance is another area where government input is key. PUE appliances are of varying quality and durability, and spurious goods can spoil the market and hinder the adoption of clean technologies. However, the sector's rapid evolution makes it difficult for standards agencies to stay abreast of quality standards for different products, particularly in contexts where government capacity is constrained. Notable support is offered in this space by initiatives such as Verasol, which provides quality assurance services and comparable performance data for products to improve market information and integrity.
Integrating PUE promotion into market systems development
PUE uptake can increase the incomes of users, which is valuable as an end in and of itself but is also important because the higher spending power of users – as a direct result of their PUE adoption – enables them to pay for energy services. PUE adoption is therefore critical to enabling solar mini grids to become more financially sustainable.
To achieve the greatest gains for households, farmers, and small businesses, as well as to improve the financial viability of mini grids, PUE expansion efforts need to tie PUE adoption into market systems development. PUE adoption needs to be a part of an integrated rural development strategy, alongside the complementary investments needed to stimulate rural development and rural job creation. This necessitates coordination and information sharing across many different sectors (energy, agriculture, water, health, and education, among others) and actors, including PUE appliance distributors, mini grid developers, local government authorities, donor agencies, and private sector actors (such as farmers’ cooperatives).
To learn more, read our policy toolkit, Driving productive use of energy in fragile contexts and case study, EnerGrow: Providing asset financing for productive use of energy products in Uganda, as well as other related publications on energy access in fragile settings.