financing the future

The energy issue dominating South African headlines and dinner table conversation is the electricity supply crisis and how Eskom is going to worm its way out of this one. But in homes where the dinner table is a few cartons covered with cloth, and you have to shout to be heard above the din of rain on a tin roof, and the dog just knocked over the pot that's catching the drips, the perspective is going to be ever so slightly different. Let's face it: if your dinner was cooked over paraffin or a few sticks of wood, you aren't going to be too concerned about whether pebble bed nuclear is a better option than coal with underground CO2 sequestration.

We're talking about survival, and intellectual debate doesn't feed the masses. Arguments about the need to focus on a reliable supply of electricity to maintain a healthy economy (to provide jobs for the poor) and about how the forthcoming increases in electricity tariffs will hit the poor hardest, ignore the inescapable fact that there are not now and never have been jobs for a shockingly large number of South Africans.

The unemployed and underemployed need a solution too; and don't tell them they need clean energy unless you can tell them how they are going to pay for it. The poor are masters at innovation and using resources efficiently - ask anyone who survives on a few bucks a day. It's not because they enjoy ill-health from living in smoke-filled hovels that they continue to do just that. Their crisis is chronic, and it's not new. They don't need motivation to adopt energy sources that will improve air quality and reduce time spent scrounging for cooking fuel, they just need the means.

Which brings me to my point. A post last week on WorldChanging talks about the possibilities for using microfinance to bring cleaner energy options to poor communities. Microfinance service providers have a reputation for exploiting vulnerable communities with exhorbitant interest rates and improper repayment procedures, but where poverty is widespread and microfinance is provided through a well-entrenched network, as in South Africa, it seems there may be a viable market-based approach to addressing energy needs for those with almost no resources.

MicroEnergy Credits Corporation (MEC) have developed a model that works with existing microfinance institutions to broker arrangements that promote clean energy using carbon finance.

Allderdice and Dailey [founders of MEC] have developed two credit instruments, Microfinance-originated Carbon Credits and Millennium Development Goal (MDG) credits. With the first, MFIs [microfinance institutions] can receive revenue when they lend for energy systems that create verified carbon emissions reductions, such as solar PV systems, improved cookstoves and biogas digesters. With the second, MFIs can receive MDG Credits when they lend for an intervention that enables an MDG household to meet all or part of an MDG. According to Allderdice, "There is no established market in MDG credits yet, but MEC is building the infrastructure to enable it."

The WorldChanging post talks about the benefit of this approach in rural, off-grid locations, but it would be equally appropriate to urban off-grid communities, of which there are many in developing countries. Urban squatter settlements are far more desperate, in many ways, than rural settlements, and upgrading these areas is a more promising option than state-supplied housing. If residents have a financial mechanism to provide their own energy more sustainably, even better.

Comments

[Jacob Winiecki]

If your readers are interested in learning more about the linkages between energy and microfinance, please take a look at this report published by Citi Foundation and USAID late last year: http://www.seepnetwork.org/content/library/detail/5875

This report analyses the energy lending portfolios of microfinance institutions in Africa, Asia, and Latin America.
Cheers,
Jacob

[Rory]

Useful paper - thanks, Jacob. Interesting to see lending for LPG stoves and solar technologies emerging in Kenya without external assistance, which I take to indicate that there is a genuine business case for energy lending.

I see also that biogas will be added to the mix - it would be interesting to hear what scale of biogas technologies are being employed (e.g. for individual households, or several grouping together).