Renewable Energy in Under-developed or Developing Countries

Electricity as we all know is the driving force for economic development, there is just no disputing that fact.  That does not make it right or wrong, good or bad, it is what it is.  There are people who say that it is not right to introduce, or push, economic development onto the developing nations.  Perhaps they do not want it, or it will not benefit them.  We can't push our lifestyle on others, etc. is how the story goes.  Although I see that Coke Cola has done an outstanding job of placing itself into every corner of the planet.

What is missing from those arguments is that democracy is part of economic development.  Even in China, as that economy has grown certain elements of democracy has crept into their political system.  My apology, I am deviating from the point.

Many of the developing countries do not have the infrastructure for generating, transmitting, or
distributing electricity.  Whatever they do have is typically rudimentary.  Now this in my opinion is a good thing all around.  Why?  Well we all know that it is easier to write on a clean blackboard (dating myself), and so it is in establishing a power infrastructure when it is being built from scratch.  Also, the pricing of electricity in these places is very high compared with the developed world.  This scenario has been identified by other much smarter people than myself, so it is not a new concept.

So what is the connection between a weak infrastructure, high energy prices, and the environment?  Ah, now that is the puzzle to be solved, because this triangle makes for the perfect market driven environment for the development of a renewable energy based economy.  No need for the government welfare feed-in tariffs that artificially create a market for renewable energy, but can not be sustained in economies such as the ones I am talking about.  In these economies the market makes for the perfect incubator.



So I say---

However, it is constrained by a limited pipeline of bankable projects, leading experts to complain about “too much money chasing too few bankable projects” and a lack of resources to prepare projects and develop a robust project pipeline.  Increased efforts are therefore taking place to mobilize human and financial resources and partner with countries experienced at private‐public partnerships (PPPs) to create facilities that either offer extensive and specialized technical assistance or combine such help with financial resources.

  Quality and reliability of infrastructure services is another challenge in developing countries. Power outages and water suspensions still frequently occur, hampering productive and efficient economic and social activities. Frequent interruptions in infrastructure services are significant constraints on businesses in developing countries.

Infrastructure services often are public goods or natural monopolies, or both. As such they are either run or are regulated by public entities and thus suffer from common inefficiencies of public services.

In response to the clear infrastructure deficiencies of most developing countries, and a broad consensus in the literature that infrastructure is important for growth, a number of authors have attempted to provide estimates of infrastructure “needs”. A useful starting point of course is to determine the level of demand. Demand for infrastructure increases with income. For instance we know from empirical studies that electricity use, telephone use and automobiles increase with disposable income. Countries also tend to increase their investments in environmental amenities as they become wealthier.

First establishing the level and type of demand that is welfare-improving and, second, in order to find out whether a project is worth undertaking, relying on a mechanism that tests whether the benefits of a project or service exceed its costs. For most types of infrastructure, cost- covering prices provide such a test. Relying fully on user fees to fund infrastructure services makes sense for all sectors. Cost-covering prices provide the strongest protection against wasteful investments. Relying on prices to reveal demand implies that policymakers instruct potential providers to proceed on the assumption that they will not receive any fiscal transfers or subsidies and that regulation will allow them to set prices at cost-covering levels in the aggregate. 

Providers, whether publicly or privately- owned, will then estimate demand and calibrate it against costs just as any private investors in a normal market would do. The infrastructure provider will then invest and provide the service. He/she can only make money if customers are actually willing to pay the required price. Thus it is assured that investments are welfare improving. Financing happens as in any other market and is again fundamentally the same for private or public enterprises. Firms seek to obtain bank or capital market financing based on the cash flow expected from cost-covering prices. Risks for creditors are limited by the equity of the provider. Proceeding in this way also means that policymakers themselves need not take a view on “need” or demand. They can delegate this to the service provider. 

Without adequate cash flow investment is not possible, and no amount of financial engineering or PPP structuring can change this basic fact. Once prices are allowed to cover costs, the financial constraints on infrastructure investment become significantly less binding. Focus can then move to the optimal market structure, which is what we turn to next.

Maintain the stability and enforceability of laws and contracts. A clear and enforceable legal framework is also among the top priorities for investors. They want the “rules of the game” to remain credible and enforceable—not altered at the government’s convenience once they have made investment decisions based on those rules. A government’s willingness and ability to honor its commitments are key.

• Improve responsiveness to the needs of investors. Investors identified government unresponsiveness to their needs and time frames as the most important factor in the failure of investments. And they considered the administrative efficiency of a host government one of the top factors in their decisions to invest in a country. Completing better preparation of trans- actions before inviting investors to participate can help reduce processing delays and the related opportunity costs for investors. 

Minimize government interference. Investors are most satisfied with investment experiences when they are free to realize returns from their investments with- out government interference. Where investment experiences were successful, investors pointed to their ability to exercise effective operational and management control of their investments as a key factor. And when investors consider investing in a country, they give much weight to the independence of regulatory processes from government interference. 

Economies also depend on electricity supplies that are free from interruptions and shortages
so that businesses and factories can work unimpeded.  

Africa faces a huge energy deficit: the 48 countries of sub-Saharan Africa, with a combined population
of 800 million, are estimated to generate roughly the same power output as Spain, a country of 45 million.  This energy deficit is the result of the region’s limited generation capacity—the result, in turn, of a lack of long-term planning on the part of each of those countries.  The lack of large-scale investment is a consequence of the limited participation of private players and the difficulties in mobilizing long-term financing from African financial systems to fund big-ticket items such as infrastructure, in places that historically have not followed a strict financial regime that encourages long term investment.  

The monthly, daily, or hourly change in government, or policy, along with little internal investment makes for high risk for low returns on investment.

In addition, aging infrastructure and rising demand have led to intermittent blackouts across all regions of Africa, undermining competitiveness. The blackouts largely started in the 1990s in East and West Africa, in 2007, once again due to lack of planning or any formalized plan that was strictly followed. 

Energy facilities across Africa are in urgent need of new and innovative sources of investment, particularly for generation, transmission lines, and distribution. This much-needed investment
is held back because across Africa—especially sub- Saharan Africa—even though tariffs are very high, they do not reflect actual cost because they account for only about 50 percent of the historical production costs.  The thought process within most of these areas is that they deserve to have the lowest priced electricity on the planet, and the developed countries are obligated to provide it.

Even beyond the much-needed physical investment, there is an urgent need to invest in the diversification of the energy mix so as to make the infrastructure sustainable. In East and Southern Africa, over-reliance on hydropower energy makes the economies vulnerable to hydrological conditions. The major drought in the mid-2000s caused substantial economic losses—as high as 4 percent of GDP in Tanzania—and increased the demand for expensive emergency diesel power generation. In Northern and Western African countries, the energy mix depends largely on gas and oil reserves (thermal energy), which is more reliable than hydropower but more costly.  

In Djibouti a country with no conventional resources that has placed its short/mid-term economic and political life on the back of Ethiopian hydropower have suffered considerable set backs with the up and down availability of electricity.  The price of electricity has not dropped since the power started coming from a 200km interconnection line as no more than 35MW is available at anyone time.  The Djiboutian negotiators were out maneuvered by their Ethiopian big brothers as the metering cost is at the point of generation so that the 20% plus line loses are absorbed by the people of Djibouti.  This keeps the cost of electricity at above $400/MW, with continued brown and black outs.  The Ethiopian government is also able to keep their little brothers in line by a flip of a switch, which is not uncommon.

All these situations come back to the same point of lack of planning, and serious focus on long term economic development on the part of each of the countries' private and public leadership.

Hazardous Chemicals Transferred from Developed Nation to Third World Locals

Washing hands with Trichloroethylene

I start off this month's blog with this image as it symbolizes a major international issue that is spoken about infrequently yet should be one of the main topics of discussion in all international commercial discussions.

An example of this issue is a local 'recycling facility', aka junkyard, that has provided the French military with an exclusive location to dispose of all of it unwanted material (trash).  This material includes jeeps, generators, furniture, ammunition boxes (empty), ammunition clips, washers, refrigerators, trucks, tires, barrels, and drums.

There does not seem to be any controls placed on the 'waste' material that is given (or sold) to this local recycler.  I was told this man has been in business for over 30 years and been exclusive with the French military for all of that time.
As you see in the above photograph of drums of 'acid' it does not appear that the containers have been properly drained and cleaned prior to be 'transferred'.  There were a number of drums that were full, of what I don't know, but I would not be interested in doing any taste test.

I watched a laborer who was painting a drum wash his hands using Trichloroethyene (TCE).  I tried to explain to him that this was not a good idea, but I was not able to properly communicate this to him=French does not translate well to English or versa.  Which is just as difficult when we are speaking with people in our own country.  

TCE has been used for years as a solvent by both private and government industrial sectors that includes the military.  It has been used as an anesthetic, in food processing, dry cleaning solvent, industrial cleaner, and in refrigerant manufacturing.

When talking with long time TCE users, who usually look like long time TCE users, it was always difficult to explain to them the hazards associated with the improper use and disposal of this solvent.  It is not uncommon to hear statements such as; "I've been using this stuff for years and nothing has happened to me", "It is great, so what do you have that will replace it", "You environmental people are all nancy boys", etc.  

So trying to speak with someone in a third world country is that much more difficult as they have the same opinion.  This is a parts cleaner product that comes from France so it has to be good, never mind being safe or not.  The man actually did say to me "no problem, good".  

Something as simple as a parts cleaner that is dangerous at best when used properly, is associated (according to the CDC) with depressed brain function, kidney/liver toxicity, associated with the development of Parkinson's Disease, reproductive toxin, and of course cancer whose impacts are magnified when used improperly; i.e. hand washing.

The improper use of hazardous chemicals is a norm in third world countries where a combination of a high illiteracy rate, and general understanding of health is common.  If someone can't read a label how can they understand the dangers or how to protect themselves?  If that same person has no basic health science back ground how can they understand the risks?  Answer to both questions is they can't.  


This is not an isolated incident.  As I have seen large US firms supporting the same type of activity, especially when operating in these third world countries.  One temporary energy firm I worked for had a plant in Ecuador.  The diesel engine mechanics had a local deaf/mute janitor wash parts using gasoline.  When I told them to immediately stop they complained to 'senior' management that I was impacting the operation.  They had used gasoline for parts washing for years, and there is no other alternative.  Of course I identified an alternative within a few days, that was cost effective and safe.  Old ways of doing things are always hard to change.

According to UNESCO the majority of illiterate people in the world are located in the sub-sahara, arabic countries, and south Asia.  The sub-sahara of Africa is where hazardous waste/chemicals has been disposed of or stored legally (as in the case of the French military mentioned about) and illegally.  

The Basel Convention agreement was designed to stop the illegal transboundary movement of these substances.  In the case of the US military it has caused an increase in the price that is paid to dispose of hazardous wastes.  This increased price can put pressure on other country governments to identify other means of disposal as was identified at this one location, either intentional or inadvertent.