The United Nations' Sustainable Development Goal 7 calls for universal electrification by 2030. We are going to start this article by saying something controversial about it. We’re not quite sure when this became controversial.
But it did. And the history of electrification shows it must have been very recently.op Articles. It wasn’t controversial in 1935 when President Roosevelt implemented the world’s first rural electrification program, spending roughly 0.3 percent of U.S. GDP annually — or $18 billion in 2018 dollars — on government-subsidized loans for rural electrification. Within two decades, the proportion of electrified farms in the U.S. increased from 10 percent to over 90 percent. It wasn’t controversial in 1973 when the government of Thailand adopted its National Plan for Thai Accelerated Rural Electrification, establishing an agency to deal with rural electrification and implementing a tariff subsidy that guaranteed the financial viability of the plan. In 1972, only around 10 percent of people living outside the Bangkok metropolitan area had access to electricity. Thirty years later, more than 99 percent of Thailand's villages had electricity service. It wasn’t controversial in 2001, when the government of South Africa decided to fund the entire capital cost of the electrification program entirely from the tax base through its National Electrification Fund. Rural electrification rates have risen from 47 percent in 2001 to 71 percent to 2014.
And it wasn’t controversial in 2010 when a World Bank report, Addressing the Electricity Access Gap, summarized the need for subsidies throughout the history of electrification. “[A]lthough universal access makes sense from economic and equity perspectives…the financial viability of electrification for those without access usually requires subsidies to cover part of its capital and/or operating costs," it states. Why is the World Bank right in saying that universal electrification requires subsidy? Because universal electrification requires rural electrification. And rural electrification implies two things: 1) remote, spread-out customers with higher costs to connect, and 2) rural households and businesses with lower incomes than their counterparts in cities. We couldn’t put it better than this 1926 U.S. Congress research report: “Chief among the financial obstacles are the farmer’s small cash income, coupled with the large unit investment required in distribution systems to serve only a few farms per mile of line."
So what is controversial about the subsidization of electrification? As we’ve previously established, we know we can electrify Africa most cost-effectively through the deployment of new and cost-effective off-grid technology such as mini-grids and solar home systems. So perhaps the real controversy is the subsidization of new forms of rural electrification.
Achieving universal electrification requires subsidy, including off-grid electrification. Is this what is controversial? The addition of "off-grid"? It’s not controversial in Kenya, where public utility Kenya Power is one of the largest mini-grid operators in Africa, with a portfolio of 19 mini-grids totaling 21 megawatts of generating capacity. These mini-grids provide much-needed power to Kenyans living too far from the grid to be cost-effectively connected through grid extension. The capital cost of the mini-grids was 100 percent subsidized by the government of Kenya, and the cost of fuel used in power generation is fully transferred to all Kenya Power customers through the Fuel Cost Adjustment, which is in practice a cross-subsidy mechanism.
Again, the World Bank report finds this to be uncontroversially true across different markets and throughout history, stating, “Like grid electrification programs, off-grid programs typically require subsidies."
So, we are left once again with the question of what could possibly be controversial about the subsidization of electrification. In past articles we’ve argued that electrification could be accelerated by greater involvement from the private sector. Perhaps this is where the controversy lies.