The cost of renewable energy public-private partnerships in developing countries

Altruistic and marketing motives aside, a private operator of infrastructure (in particular in an arrangement as highly structured as PPP) is likely to implement renewable energy technology only if profitable and/or mandated in the PPP arrangements. Critics are often angry that private operators think first about the bottom line, rather than make decisions based on the best interests of the environment. This is unfair to some extent, as private companies are often committed to climate friendly efforts (whether truly altruistic or for marketing opportunities). But as a general premise, the private sector will do what you pay it to do.

The cost of action, and inaction

Renewable energy technology can be expensive (though prices are falling).  Unless free or cheap public money is available, consumers must pay for the technology used, including renewable energy. Tariffs can be increased to pay for this, but higher tariffs may not be affordable, or politically feasible. Low tariffs keep the utility underfunded and unable to finance climate friendly technology. One must ask if renewable energy technologies are appropriate for use in developing countries where the challenge of passing such costs on to the consumer is even more difficult. From the perspective of national budget management, maybe not—but from a global perspective the answer is clearly “yes.”

Where public funding is limited, and utility tariffs are low, an additional subsidy to encourage green behavior may just add to existing inefficiencies. Instead of reducing losses, increasing efficiency, improving services, or connecting the poor and unconnected, the utility might be incentivized to focus on renewable energy technology in order to receive the sorely needed subsidy. Setting sensible, environmentally and socially responsible performance standards and tariff levels for utilities would be far more effective and encourage a balanced approach.

In some cases, price is not an issue, since renewable energy is more cost effective than other technologies. The database at www.worldbank.org/pppirc provides some interesting examples of agreements for renewable PPPs. For example, solar power is used for municipal buildings (where energy is needed during the day when solar generates). For facilities located far from generation centers—for example, at mining sites, small islands, and remote communities—solar can compete with diesel generation (the main power generation technology available to isolated communities, and very expensive). Similarly, solar can replace diesel powered water pumps and systems in small communities. The water is pumped into an elevated tank during daylight, and is fed by gravity to the system for 24/7 services. Some interesting case studies that explore this further can be found at www.energypedia.info.

Funding questions remain unanswered

Technology for renewable energy is evolving, but still poses some logistical challenges.  Solar, wind, and often biomass are peak-load generation technologies (used to address peaks in demand, as and when power is available). They provide intermittent generation, depending on wind, sun, and harvest cycles, though storage capacity is improving. Lower- and many middle-income countries are chronically low on generating capacity. So should precious funds be expended on less-needed peak load capacity rather than more essential base load capacity? Can the grid handle that level of intermittent generation? These are important questions that have yet to be answered.

Funding for renewable energy from donors is significant. For developing countries, there is no lack of money or training courses or travel to visit successful programs in developed countries. However, there is a lack of supply of skilled experts to do the hard work to help developing countries prepare relevant and appropriate renewable energy solutions. This is a massive gap, and probably one of the key reasons for frustrated green fund managers recycling existing assets and donors sitting on piles of cash looking for good projects.

“By failing to prepare, you are preparing to fail.”
― Benjamin Franklin