Ghana: Understanding The Factors Limiting The Productive Use Of Energy (PUE) In Rural Communities

By: Paa Kwasi Anamua Sakyi

There is an ongoing debate on how best to provide electricity for income generating activities to the 1.1 billion people currently without access to electricity — of whom 600 million are living in Sub-Saharan Africa, many of them in rural areas. The electrification rates in rural communities in sub-Saharan Africa average 16 percent, compared to 99 percent in North African countries and 71 percent in South Africa (Toman and Peters, 2017, Practical Action 2012).

Lack of access to electricity have been identified as a major constraint to economic growth and increased welfare in developing countries. This has been reemphasized by the United Nations and the World Bank Group as co-chairs of the global Sustainable Energy for All (SE4All) initiative, which was launched in 2011, with the goal of achieving universal access to energy within the next 15 years.

Since 2014 the number of people without access to power in SSA has declined, as electrification efforts have surpassed population growth (Tagliapietra, 2015). According to an Independent Evaluation Group 2015 report commissioned by the World Bank, low-access countries received about US$3.6 billion on annual basis into the electricity sector from all sources between the period 2000 and 2014. A substantial part of these funds was allocated to extension of the traditional electricity grid (Foster and Briceño-Garmendia, 2010). This level of investment in grid extension, according to Toman and Peters (2017), is politically popular in many donor organizations and national governments, including those in Africa. 

The extension of grid electrification is seen rightly as a key part of the infrastructure development needed to achieve the economic transformation required for achieving the standard of living of industrialized countries (Toman and Peters, 2017). The arguments are that modern energy use may enable the poor in developing countries to engage in improved or new income-generating activities often called ‘productive use of energy’ (PUE), as opposed to ‘consumptive use’, thereby eventually leading to an improvement in their living conditions (UNDP/WHO 2009, Practical Action 2012).

“Productive Use of Energy” Defined

The Food and Agriculture Organization (FAO) in conjunction with the Global Environment Facility (GEF), in the context of providing modern energy services in rural areas, defines productive use of energy as one that involves the application of energy derived mainly from renewable resources to create goods and/or services either directly or indirectly for the production of income or value (White, 2002). While this definition is originally meant to consider only renewable energy, many researchers including Short (2015) and (Cabraal, 2005) applies it to all forms of energy.

In Cabraal (2005) productive uses were viewed as uses which improved the economic situation — increased production, higher employment, et cetera leading to higher incomes. Short (2015) refers to any use resulting in the production of income as an economic use of electricity. Also according to the German development agency GIZ, productive uses of electricity are those that increase income or productivity.

Therefore any use of electricity that generates income or value for the user is considered as productive use of electricity; from artisanal activities to large-scale commercial and industrial processing of agricultural products.

Productive uses of energy can assist women, in particular, to earn income and improve their quality of life, through the use of lighting to extend opportunities for cottage industries in the home and electrical equipment in activities such as baking and ceramics. Electrical equipment helps women save time and labor and creates opportunities for education, socializing, and communication (White 2002; Cabraal, Barnes, and Agarwaal 2005).

Examples of Productive Uses

Applying electrical equipment to production increases productivity and income by extending product life through electrical equipment for drying, refrigeration, freezing, and packaging; raising output, standardizing product quality and cutting costs; replacing less-efficient equipment (e.g., diesel-powered motors); expanding access to information about markets and technologies; and creating jobs (World Bank Group, 2017). The simplest productive use of electricity according to Fishbein (2003), is the extension of working hours of restaurants, shops, clinics, schools, and artisanal businesses. Other common uses include the provision of cooling and refrigeration, heat, and motive power for agriculture, small industry, or commerce (Fishbein 2003).

Finucane, Bogach, and Garcia (2012) provides other range of production processes as shown below:

Agriculture

• Pumps (groundwater, surface water)
• Modern irrigation (sprinkler, drip)
• Processing centers for coffee, cereals, root crops, fruit
• Grain and rice mills
• Crop drying

Animal husbandry

• Centers for processing and storing dairy products and meat
• Heated shelters, feed mixing and processing

Metalworking and carpentry

• Soldering equipment, saws, lathes, and sanders

Tourism, bakery, restaurants, crafts

• Lights, fans, ovens, mixers, cook-stoves
• Sewing machines

In spite of the potential benefits of having access to electricity, the adoption of electrical equipment for production doesn’t seem to occur spontaneously. A study by Lenz et al. (2017) in Rwanda found that although most people with the opportunity to access the grid got connected, consumption levels in both households and enterprises remained very modest, even 4 years after the connection. And that there was no indication of economic multiplier effects from increased productive uses of electricity at a scale beyond small shops and other small service businesses.

Limiting Factors to PUE

A major evaluation of World Bank-assisted rural electrification projects concluded that simply providing an electricity connection did not lead to adoption of electrical equipment in    businesses or significant development impacts (IEG 2008). Short (2015) studied how electricity is being used in rural areas and whether the uses are aiding in the national growth of Vietnam. The findings conclude that although electricity is being used productively, in most cases it is not being utilized economically. These experiences have shown that promotional efforts are often needed to encourage the adoption of electrical equipment for production (Finucane, Bogach, and Garcia 2012).

The U.S. National Rural Electric Cooperative, suggest that the reasons why adoption of electrical equipment requires promotion relate to the nature of rural producers and the markets for their products (demand constraints), the characteristics of rural electricity supply (supply constraints), and tariff and regulatory issues (public policy constraints).

Demand constraints include:

• Limited market opportunities – The local market may lack the capacity to absorb the expected growth in production from use of electrical equipment for revenue generation.
• Limited access to information – Producers may not have the requisite knowledge about potential business opportunities or potential electricity uses, and technology options like electrical equipment brands, types, sizes, local availability etc., or how to connect to the grid.
• Lack of technical and management skill – Producers may lack the know-how even as they adopt a new technology. They also lack the skills to present a business plan to financing institutions, and qualified technicians to maintain electrical equipment may be scarce.
• High investment costs and limited financing – Producers may face high upfront costs for grid connection and new equipment, and credit to finance those costs may not be available in some rural areas.

Supply constraints      include:

• Unreliable electricity service – An unreliable grid poses threats to electrical equipment from voltage fluctuations and interruptions and can prevent realizing a return on investment in electrical equipment.
• Physical limitations of rural grids – Most rural distribution systems use single-phase circuits (two-wire configurations with a neutral conductor or single-wire earth return). Such lines can only accommodate small-scale applications such as sewing machines and refrigerators. However, the motors needed for many productive uses can create problems on such systems.
• Minimal service by rural utilities – Utilities serving rural areas often provide minimal service, focusing on connections, billing, and collection. Many have no staff to help rural producers select electrical equipment or design connections and facilities.
• Low distribution company revenues and viability in rural areas – Utilities often incur high costs but earn low revenues in rural areas owing to a combination of low levels of demand, the lack of cost-reflective tariffs and the absence of compensating subsidies. The result is poor service quality and minimal service.

Public policy constraints include:

• Tariff issues – Rural tariffs may not fully cover costs, discouraging utilities from promoting demand. Tariff structures may also discourage productive uses of electricity.
• Electrification targets and system designs that focus on access and ignore motorized uses – When programs focus only on numbers of connections, system designs often use least-cost single-phase or single-wire earth return distribution lines. As noted earlier, such lines often limit the use of motors that are essential for common applications such as grinding, milling, pumping, and sawing.
• Lack of evidence linking productive uses of electricity to socioeconomic development – There is a lack of data and evidence-based conclusions on the broader effects — on income generation, health, and education — of expanding the productive use of electricity.
• Electrification seen as an end in itself – Rural electrification must be seen not as an end, but as a means of promoting rural development and the well-being of rural populations.
• Lack of coordination with other development efforts – Too often, electrification is not coordinated with efforts in other sectors, such as health, education, agricultural extension, or small-industry development programs.

The demand, supply, and public policy constraints may be overcome by the promotion of productive uses of electricity to foster economic and social development. The objective is to exploit that potential through capacity building and education of rural producers in coordination with other government agencies in value chains, and non-governmental organizations alike.

Written by Paa Kwasi Anamua Sakyi, Institute for Energy Security ©2019

The writer has over 22 years of experience in the technical and management areas of Oil and Gas Management, Banking and Finance, and Mechanical Engineering; working in both the Gold Mining and Oil sector. He is currently working as an Oil Trader, Consultant, and Policy Analyst in the global energy sector. He serves as a resource to many global energy research firms, including Argus Media and CNBC Africa.