Panel Discussion: The global energy and growth challenge

Challenges of securing reliable energy access to fuel sustainable growth in developing countries

Dr. Robin Burgess, Director of the IGC and Professor at the London School of Economics, gave a presentation emphasising that rising to the challenge of structural transformation is impossible without access to cheap energy. From that perspective, it is worrying that global energy consumption is characterised by staggering inequality, surpassing per capita income inequality.

While part of the solution lies in generation capacity on the supply side, Dr. Burgess stressed the need to also focus on the demand side. Electricity markets in many developing countries function inefficiently, with low repayment rates leading to circular debt, essentially trapping countries into low-cost low-quality equilibriums. The challenge for policymakers is breaking out of that equilibrium.

Bearing this in mind, research was presented from the Indian state of Bihar. There used to be no relationship between payment for electricity and supply, at the feeder level. The Government of Bihar decided to try and link those two through a scheme rewarding better paying areas with more hours of electricity, as a means of incentivising payment. Since the reward is provided at the feeder level, the scheme uses group-level incentives, relying on mass communication and marketing to encourage payment. A Randomized Control Trial was carried out to analyse the effects. Preliminary results show that payment rates in treatment areas increased drastically within a short period.

Panellist Anjani Kumar Singh, Chief Secretary of the Government of Bihar, offered additional insights, stressing that main problem was that people were not in the habit of paying for electricity but that these kinds of innovative policies can break that habit.

A further issue discussed by Dr. Burgess relates to energy mispricing. Subsidies are often poorly targeted and fail to incorporate externality costs of pollution and climate change. These pricing structures tend to favour fossil fuels. Although off-grid solutions such as solar can play a role in remote rural areas, it cannot yet provide an alternative to grid-based energy needed for industrial development.

Panellist Robert Sogbadji (Ghanaian Ministry of Power) presented challenges in the Ghanaian energy sector, reinforcing aspects from the earlier presentation. One challenge he raised is the poor financial health of utility companies, linked to non-payment by users, which Ghana is trying to address through prepaid energy. He also confirmed the relevance of off-grid solar energy for remote areas, lighting up not only houses but also schools and clinics.

Summary written by Jorrit Oppewal, Country Economist – IGC Mozambique