The Energy-Micro-enterprise nexusR BhargavaWednesday 23rd May, 2012Contents Linkages between Energy and Micro-enterprise 1 Beneﬁts 2 Rationale for Rural Electriﬁcation: the evidence 2 Productive uses of Rural Electriﬁcation 3 Evidence of impact 4 Gender considerations 4 Lessons from Bangladesh 5 Survey instruments 5 Household energy consumption pattern 5 Rural enterprise 6Linkages between Energy and Micro-enterpriseThe development hypothesis under consideration is that: “the provision of modern energy is a key element in enabling the poor to improve their standard of living.” Attributing improvements in quality of life and livelihoods toaccess to modern energy and the potential for income-generationthrough micro-enterprise are common. However, substantial quan-tiﬁed data on the beneﬁt of modern energy for micro-enterprise,particularly electriﬁcation, is not available. Modern energy may refer to LPG, kerosene, petroleum or electri-city, on and off the grid, in-turn generated from carbon or renewablesources including solar, biomass, hydro and wind. Micro-enterprise typically refers to small business operating inthe informal sector, often home-based, producing goods or servicesfor cash income. They are usually unorganized, do not maintainaccounts and are not registered with a Registrar of Companies, norrecorded in ofﬁcial or tax records1 . Their informal nature results in 1 Karekezi, S. & Majoro, L. 2002. Im-them not being tracked by government statistics2 . proving modern energy services for Africa’s urban poor. Energy Policy. Vol Surrounding this, in the implementors’ Terms of Reference, the 30, pp. 1015-1028.following tasks are outlined, 2 Allerdice, A. & Rogers, J.H. 2000. Renewable Energy for Microenterprise. National Renewable Energy Laboratory (NREL), Colorado, USA.
The Energy-Micro-enterprise nexus1. Needs assessment (sample of 1000)2. Capacity building of SHGs (training 500 women SHGs to serve as trainers)3. Capacity building of women micro-entrepreneurs (10000 women)4. Monitoring and reportingBeneﬁtsThe beneﬁts of rural energy range from increased time savings andfarm productivity to improved education, communication, andoverall quality of life. For example, electric lights emit more than100 times the amount of lighting provided by a kerosene lantern orcandle, permitting household members – both adults and children –to read and study during evening hours. Electric irrigation pumpsmake it possible to grow and market crops year-round and raiserural incomes. Electric lighting and motive power can increase theproductivity of women owned microenterprises. Availability ofradios and televisions can improve communication and informationsharing. Use of well-designed stoves and efﬁcient cooking fuels canreduce IAP and the number of hours that families, especially womenand children, spend collecting biomass. Taken together, these beneﬁtscan lead to greater rural productivity and a higher quality of life formany of the country’s poorest citizens. Making the switch to electric lighting and appliances, petroleumfuels, and improved cooking stoves can enable rural families to raisetheir incomes and improve their quality of life. In a hot tropicalclimate such as Bangladesh, the addition of a simple electric fan cansigniﬁcantly improve a rural household’s indoor comfort level andward off insects. Electric lighting offers 100 times more light thantraditional kupi or kerosene lamps commonly used in householdswithout electricity. The higher quality of lighting makes it possiblefor families to pursue reading and other educational activities duringevening hours. Cooking with kerosene or LPG, or using improvedbiomass stoves–still a rare occurrence in rural Bangladesh–can resultin fewer hours spent collecting biofuels, less cooking time, andreduced IAP. 3 3 Barnes, D., & W.M. Floor. 1996. Ru- ral Energy in Developing Countries: A Challenge for Economic Develop-Rationale for Rural Electriﬁcation: the evidence ment. Annual Review of Energy and Environment 21: 497–530, cited in, Asaduzzaman, Mohammad (Author).Early analysis [by the World Bank, in 1975,] of [Rural Electriﬁcation] World Bank Working Papers : Restoringrecognized that investments in Rural Electriﬁcation would be loss Balance : Bangladesh’s Rural Energy Realities. Herndon, VA, USA: Worldmaking, at least initially. The up-front costs were very high and rural Bank Publications, 2010. p 5. 2
The Energy-Micro-enterprise nexusdemand lower than in urban areas resulting in low load factors andhigh unit costs. It suggested that marginal cost would drop rapidlyas connections expanded.4 4 World Bank (Author). Welfare Impact However, ex post Economic Rates of Return (ERR), according to of Rural Electriﬁcation : A Reassess- ment of the Costs and Beneﬁts. Hern-an Independent Evaluation Group (IEG) report in 1994, were much don, VA, USA: World Bank Publications,lower than those at appraisal and many indirect and external beneﬁts 2008. p 3.had not materialized. Cost recovery was low, between 10 and 50percent, thus imposing a ﬁnancial burden on electricity utilities orgovernments. The direct beneﬁts went to the non-poor and even withlow tariffs, the poor could not afford connection costs. In a direct response to the IEG report the World Bank’s EnergySector Management Assistance Program (ESMAP) brought out areport, “Rural Electriﬁcation and Development in the Philippines:Measuring the Social and Economic Beneﬁts,” published in 2003.While Rural Electriﬁcation had long been claimed to have manydiverse beneﬁts for health, education, nutrition, security, and so on– one study provided a list of more than 50 discrete beneﬁts5 , there 5 Saunier, G. ed. 1992. Rural Electriﬁca-was little rigorous evidence regarding these beneﬁts and no attempt tion Guidebook for Asia and the Paciﬁc. Bangkok: Asian Institute of Technologyat all to quantify them.6 6 World Bank (Author). Welfare Impact This report developed techniques for measuring the main beneﬁts of Rural Electriﬁcation : A Reassess-from improved lighting and access to television, which have since ment of the Costs and Beneﬁts. Hern- don, VA, USA: World Bank Publications,been used in a number of appraisal documents. Application of these 2008. p 4.methods has resulted in very respectable rates of return, reachinglevels as high as 95.3 percent for the Bangladesh Third Rural Elec-triﬁcation Project and 60.5 percent for the Lao People’s DemocraticRepublic Southern Provinces Rural Electriﬁcation Project.Productive uses of Rural ElectriﬁcationAccording to the World Bank7 , the vast majority of rural connections 7 Productive Uses. World Bank (Author).are residential. Certain rural electriﬁcation programs are strongly Welfare Impact of Rural Electriﬁcation : A Reassessment of the Costs andproductive, such as those in India where a strong link in found Beneﬁts. Herndon, VA, USA: Worldbetween the adoption of high-yield varieties of crops and the spread Bank Publications, 2008. p 34.of irrigated agriculture from electric water pumps run on subsidizedor free energy. According to the same report, small-scale enterprises,including those run from home, are more plausibly inﬂuenced bythe availability of electricity. There is evidence that the availability ofelectricity increases the number of businesses and the hours that theyare open. There is also evidence of how electriﬁcation reduces absenteeismin the Social Sector. More accurately, it acts as an incentive for publicsector employees to remain in the region. 3
The Energy-Micro-enterprise nexusEvidence of impactA general conclusion from analysis of RE programs is that the im-pact on productive activities is limited. There are caveats to thisconclusion. The ﬁrst is that some irrigation programs (and Bankprojects) have focused on RE for irrigation programs, and–in India, atleast–were linked to the spread of Green Revolution technologies 8 8 Barnes, D. F. & H. Binswanger. 1986. Second, in cases where there has been a complementary program Impact of Rural Electriﬁcation and Infrastructure on Agricultural Changes,to assist productive uses of electricity, there has been more success. 1966–1980. Economic and Political Finally, considering home enterprises, the effects are greater than Weekly (India) 21:26–34. and Bins- wanger, H., and Shahidur Khandker.those from medium and large ﬁrms, although these enterprises may 1993. How Infrastructure and Financialbe small indeed, such as renting out refrigerator space. In Ghana, Institutions Affect Agricultural Outputthe woman of the household prepares snacks to be sold to people and Investment in India. Journal of Development Economics 41: 337–366.who come to her house to watch television in the evenings. In SouthAfrica, households sell cold drinks and rent out refrigerator space. IEG’s analysis of household survey data does ﬁnd evidence of apositive impact of RE on home businesses. The ﬁnding is strongestfor the 15-year panel data from 1988 to 2003: the number of homebusinesses grew signiﬁcantly more in communities that becameelectriﬁed than in either those communities that did not or those thatwere already electriﬁed in 19889 . Similar evidence was not found 9 The Living Standard Measurementin the other panel data set (Peru), but the year between surveys Survey (LSMS) for Peru in 1994 covered 112 conglomerates, with the sampleoccurred at a time when rural areas were experiencing considerable drawn from all three rural regions–unrest. In addition, the presence of electricity extends the work hours mountains, coast, and forest–of the country. The 1991 LSMS for Peruof home businesses, and this increases the net income from these covered 43 conglomerates restrictedactivities. to the rural mountain regions of the country. These data are used to analyze the short-term growth and developmentGender considerations impact of Rural Electriﬁcation on micro-enterprises. In chapter, Appendix F: Impact of Rural Electriﬁcation on“Women often become stakeholders in private sector development Micro-enterprise. Welfare Impact ofthrough involvement in micro and small enterprises (MSEs) – either Rural Electriﬁcation : A Reassessment of the Costs and Beneﬁts World Bankas owners or employees. This is especially true in situations where (Author). World Bank Publications.employment opportunities are limited by geography, socio-cultural 2008.norms, and underdeveloped public and private sectors. Once womenhave gained experience in a microenterprise, they have expanded po-tential to contribute to the advancement of commerce and trade. Theobstacles lie, not in understanding this concept, but in designing andimplementing programs that overcome the challenges confrontingdisadvantaged women who are attempting to build businesses andparticipate in viable industries.”10 10 Palakurthi, Puneetha (Editor). Micro- enterprise Development in Emerging Markets. Bradford, GBR: Emerald Group Publishing Ltd, (date). p 3. 4
The Energy-Micro-enterprise nexusLessons from BangladeshToday, people in rural Bangladesh use a mosaic of energy sourcesto meet their various domestic and productivity needs. Biomass isstill used extensively for cooking, while kerosene is the main lightingsource. Electriﬁed households prefer electricity for both lightingand appliance use. Many small businesses, including home-basedenterprises, use electricity for lighting, agricultural processing, andother productive activities. Gradually, the types of energy used in rural areas are improving.Diesel-powered irrigation pumps and agricultural tillers are morecommon than in the past, when manual and animal powers were thetraditional energy sources for cultivation. Grid-based electriﬁcationis reaching more rural households at a faster pace. Recent projects inrenewable technologies, including Solar Home Systems (SHS), reﬂectslow, yet signiﬁcant, progress.Survey instrumentsHousehold survey. To determine socioeconomic characteristics, energy demand and availability, consumer ability and willingness to pay, attitudes toward various energy sources, and perceived beneﬁts of energy.Growth center and microenterprise survey. The study developed village- level proﬁles, including characteristics and potential energy de- mand, and assessed the energy used by small- and medium-sized businesses located in village marketplaces, known as growth centers.Historical data Because 25 years had passed since Bangladesh had conducted such a major rural energy survey, the present one used representative samples of rural households and commercial businessesHousehold energy consumption patternNearly all households use both biomass and non-biomass energy. Avast majority use biomass sources, including fuelwood, tree leaves,and crop residue. While kerosene is the predominant non-biomassenergy source, many households also use grid electricity and dry-cellbatteries. Biomass is used almost exclusively for cooking. Keroseneis used primarily for lighting; grid electricity is another importantlighting source. 5
The Energy-Micro-enterprise nexusRural enterpriseBangladesh’s rural enterprises can be grouped into three location-based categories: growth center, village, and home. The surveyﬁndings reveal, perhaps surprisingly, that most home-based busi-nesses center on manufacturing, while village and growth centerindustries are involved more in trading. On closer examination, thereasons are clear. Many home businesses are run by women involvedin such production activities as basket weaving and sewing. Outsidethe home, village enterprises, run mostly by men, are involved instore operations selling goods and services. Nearly all ﬁrms use some form of electricity, mainly for lighting.If owners cannot access electricity from the cooperatives or nationalgrid, they generate their own or purchase it from small ﬁrms. Be-cause electricity is used more efﬁciently than other energy sources, itsconsumption appears lower (9 percent). Kerosene and diesel are ma-jor sources of backup lighting during power outages, while candlesare also used. One surprising ﬁnding is that only 6 percent of ﬁrms–111 out of1,801 enterprises– use biomass energy, mainly for heat and steam.Charcoal is used by only 4 percent of ﬁrms to meet similar needs. Modern energy sources are used mainly for lighting and heating(including the preparation of food for sale). Non-lighting uses in-clude manufacturing and catering services and powering of smallappliances. Use in drive-shaft power for productive purposes is notyet widespread. Business entrepreneurs consider electricity the best source oflighting, but also perceive that reliability of supply is a signiﬁcantproblem. Few respondents consider kerosene superior to electricityfor lighting. Most agree that electricity provides better illuminationthan kerosene and makes reading easier. They also perceive that gridelectricity is superior to batteries for powering television Entrepreneurs perceive irregular electricity supply and voltageﬂuctuations as a negative use factor. Nearly all respondents agree that the advantages of using electri-city far outweigh the disadvantages. Enterprises without electricity were asked several questions relatedto the costs and beneﬁts of electricity use. There was no consensus onthe cost of obtaining a business connection: About 50 percent did notconsider prevailing rates exorbitant, 30 percent thought they were toohigh, and about 19 percent were indifferent. This ﬁnding is consistentwith respondents’ reactions to a similar statement on affordability ofconnection. With regard to fuelwood, the opinions expressed varied markedly, 6
The Energy-Micro-enterprise nexusreﬂecting the widespread problem of deforestation and thus unevenresource availability. Because of scarcity and moderate shortages,about 50 percent considered fuelwood expensive. At the same time,many rural entrepreneurs perceived fuelwood as a readily availableresource. More than 90 percent expressed concern with regard todeforestation. Rural entrepreneurs preferred fuelwood to straw, dung,and other biofuels, which were used sparingly. But about 85 percentof respondents were aware that the smoke emitted from fuelwoodcould cause respiratory problems, and some 50 percent agreed that itmay cause other health problems. Respondents’ opinions differed on the use of kerosene and li-queﬁed petroleum gas (LPG). Kerosene, although readily available,was viewed as a health hazard. Rural entrepreneurs perceived itsprice as relatively high, but were unclear why. More than 55 percentconsidered LPG a good source of cooking energy. The picture that emerges from this survey is that most growth-center microenterprises in rural Bangladesh are not energy intensive.They consist mainly of small retail stores and shops, with somemanufacturing. The main energy use is lighting, for which virtuallyall businesses use electricity. If a particular growth center does notyet have electricity, business owners organize their supplies, eitherby buying their own generator or purchasing small amounts from alocal ﬁrm. Small agricultural industries and restaurants that requireenergy for heat rely mainly on biomass or kerosene. The survey ﬁndings show that more than 70 percent of home en-terprises and virtually all village enterprises–most of which operateduring extended evening hours–use energy for lighting. Beyond ligh-ting, however, these small handicraft and retail ﬁrms use little energy.About 67 percent of home enterprises and 64 percent of village onesuse no energy for non-lighting purposes. Some report using noenergy types for either lighting or non lighting purposes, implyingthat their businesses involve manual labor and operate mainly duringthe daytime. Compared to village enterprises, home-based businesses usesigniﬁcantly less energy; on average, home enterprises consume332 kgoe per year, compared to 608 kgoe for village based ones(including non-users). Predictably, home businesses depend moreon biomass than do village enterprises. But surprisingly, within thebiomass portion of the energy basket, home enterprises depend moreon fuelwood, while village enterprises use non-fuelwood biomass;cow dung accounts for 8 percent of village enterprises’ energy basket,compared to only 1 percent for home enterprises. Similarly, villageenterprises derive 49 percent of their energy from crop residue,compared to only 26 percent for home enterprises. 7
The Energy-Micro-enterprise nexus The price of energy per kilograms of oil equivalent varies mar-kedly by fuel source. For non-lighting uses, biomass is by far theleast expensive source, which accounts for its dominance as a heatingfuel. Because village enterprises are larger than home-based ones,they use signiﬁcantly more biomass energy for non-lighting uses. 8