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October 27, 2014

Five Principles For Taming the Wild West of Beyond the Grid Clean Energy Policy

Misguided and inappropriate safeguards threaten to handicap some of the most dynamic and innovative approaches to ending energy poverty for 1.3 billion people around the world.

That the findings of Sierra Club’s latest report -- Expanding Energy Access: Beyond The Grid --  which proposes five policy principles to ensure clean energy access markets thrive.

If we don’t fill the vacuum of safeguards that exist for companies serving those living beyond the reach of the grid, we threaten the long term viability of these beyond the grid clean energy markets. These approaches are already pioneering cutting-edge Machine to Machine (M2M) technology, dynamic financial innovations like pay as you go (PAYG), and even big data to unlock clean energy for low-income populations. That’s all while unlocking tremendous economic opportunity in a $12 billion market.

But all of that is threatened if policymakers don’t set appropriate rules of the road. Without rules, we all but ensure that those most in need of energy solutions pay the price for the most expensive electron -- the one that isn’t delivered. An outcome no one wants to see because without access to electricity, communities may suffer from poor healthcare and restricted opportunities for economic advancement.  

In order to ensure these markets continue to grow rapidly and deliver for low-income populations, we’ve identified five principles for policymakers to abide by:

1. Energy Services Not Electrons: It was the LED light bulb, not just the falling price of solar, that unlocked clean energy for low-income populations by bringing down the size of all components in a solar home system. It’s vital we apply that principle -- that energy efficiency unlocks clean energy for low-income populations -- to the next steps of energy service delivery. That means supporting the deployment and development of highly efficient appliances and agricultural equipment.

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2. Build Markets From The Bottom Up: Starting with ‘pico’ power -- like solar lanterns and solar home systems -- populations get onto the energy ladder by displacing existing expenditures on dirty kerosene lighting. Lighting, however, is the beginning, not the end, of energy access. As people move up the energy ladder to higher levels of access, policymakers should transition deployment support to full access technologies like mini-grids and larger solar home systems.

3. Level The Playing Field With Fossil Fuels: Right now, clean energy access providers are getting hit both coming and going. Their competitors -- fossil fuel companies -- are highly subsidized, but clean energy companies are taxed. Policymakers should seek to direct fossil fuel subsidies directly to low-income populations and gradually eliminate the fossil fuel industry’s support over time (see Michael Liebrich’s paper on this here). At the same time, policymakers should focus on reducing taxes, like value added taxes (VAT) on solar products, which hinder our ability to end energy poverty.

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4. Unlock Finance: In many ways, enabling access to finance is job number one. Public policy can help achieve that in part by setting the rules of the road. But it can achieve it more directly by de-risking private investment through loan guarantees. In certain cases, like mini-grids, subsidy support -- in the form of innovative approaches like rural feed-in tariffs (rFit) -- are required to unlock the market. Regardless, the effect of access to finance, particularly for consumers, is dramatic.

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5. Define Utility Regulations In The Off-Grid And Mini-Grid Space: This is perhaps the largest looming threat to the burgeoning beyond the grid clean energy industry. There simply is no policy certainty for companies in this market, and policymakers need to ensure light touch regulation that accommodates, rather than precludes, the growth of the clean energy industry by, amongst other things, defining what constitutes a utility and benchmarking prices to protect consumers.

We firmly believe that these solar companies should be regulated and consumers protected. But current clumsy attempts to fit a square peg in a round hole can have unintended, harmful impacts by -- amongst other things -- handicapping the ability to charge consumers what is required for a sustainable business model. By applying the body of regulations and policymaking designed for the operational realities of the grid -- like benchmarking prices against grid resources instead of diesel generators -- we ensure the most expensive power of all: its absence.

That means we need a whole new body policy steeped in the realities of the populations living beyond the reach of the grid whom we are attempting to serve. This will require new innovative, light-touch policy making to ensure rules of the road so that investment continues to flow and that these markets remain as innovative as ever in their quest to end energy poverty.

-- Justin Guay, Associate Director, International Climate Program


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