Asia is at a critical moment in its energy development. Hundreds of millions of people across Asia will be gaining access to modern electricity systems for the first time in the coming years. The question is: will they be supplied with power from traditional central plants, or by low-carbon, distributed power systems? According to David Fullbrook, senior consultant with DNV GL Energy’s Clean Technology Centre in Singapore, people in Asia would benefit greatly from a transition to clean energy. But he notes that this will only happen if policymakers chart a clear course towards such a future.

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Dharnai is a leafy village of farmers an hour or so north from Bodhgaya on the Ganges Plain where the Buddha attained enlightenment. In March 2014, smoky oil lamps were packed away and chugging diesel generators left idle, replaced by around-the-clock clean and quiet solar electricity. It took only a few months to build the system, threading wires through the village to connect distributed solar panels and batteries with consumers. The system was developed by Greenpeace India to prove solar works and inspire investors.

Around 400 households and their enterprises are served by 70 kilowatts of solar plus lead-acid storage. Another 30 kilowatts powers pumps irrigating crops. The cost of electrifying the village with a zero-carbon low-water electricity system, a platform for incremental expansion to serve evolving needs, equates to about $1,250 per household. Residents pay $0.15 per kilowatt-hour and non-residential customers $0.18, while irrigation pumping costing $0.60 per hour.

The project in Dharnai is a great success for the local people, but it also shows why it is not easy to replicate it without “outside” help. The energy prices are still higher than conventional tariffs. In addition, the project – as is the case with most renewable energy projects – requires upfront investment which poor people cannot afford.

Water withdrawal

Yet there are many reasons why Dharnai could be a stepping stone to the future of electricity in India and around Asia. To begin with, comparing prices for new renewable-energy systems with rates for conventional central-electricity systems is like comparing apples and pears. The latter appears to cost less because prices rarely account for the full costs of pollution to people and the planet from burning fossil fuels or damming large rivers. They are also often reduced by open-ended and inefficient government subsidies.

Local systems may be more reliable than the frequently overloaded central systems plagued by brownouts in many developing countries

In addition, distributed-power systems using local renewable energy bring many benefits to communities and national economies alike. Benefits begin almost immediately because building distributed systems only takes months, so people don’t have to wait years to be connected to central supply. Moreover, although the price may be higher, it is more transparent. Some ownership models for local power keep money in the community instead of leaking out to utilities preoccupied with managing regional or national operations. Local systems may also be more reliable than the frequently overloaded central systems plagued by brownouts in many developing countries.

As to costs, the last five years or so have seen prices of renewable energy dropping fast. The factory-gate price of solar modules, for example, has fallen 70 percent. The next five years could be as dramatic, if not more so if balance-of-system costs continue to fall too. This means that renewable decentralised energy can be expected to become cheaper as time goes on, which is not the case for fossil-fuel or nuclear power plants. In addition to increasing economies of scale in production, the experience of learning-by-doing may improve the efficiency of distributed systems. Furthermore, systems open to active participation by consumers may encourage more frugal energy behaviour. The fixed costs of energy delivered by renewables are also more attractive to some than the fluctuating prices of fossil-generated electricity.

Rural electrification

There are in fact already many local companies in Asia putting distributed renewable energy to work. In India, for example, companies like Gram Power, Mera Gao Power, Omnigrid and Orb Energy are developing village microgrids. These start with a few solar panels or biomass digester. Highly efficient incremental expansion can then follow, taking advantage of the modular nature of solar panels.

Bottom-up power firms are also rethinking business models. Gram Power, for instance, charges US$1.37 per month whereas previously households were spending US$3.66 on kerosene. Simpa Networks, another player in India, sells solar home systems on flexible installment plans paid through mobile phones.

Thus, an energy transition in Asia is underway. The technology and economics suggest rural electrification could be solved by 2030, as targeted by the UN, perhaps even within a decade.

However, the question is whether such base-up piecemeal approaches alone can deliver the most cost-effective, sustainable and resilient outcome.

Barriers

A more systematic approach could deliver more value at lower cost. However, there are several barriers to overcome. The first is upfront financing. Although lifetime costs for distributed renewable energy are more stable and increasingly work out cheaper than conventional models, upfront costs are usually higher. That can make project development more challenging, especially when access to finance is limited.

It is easier to solve a puzzle, such as a jigsaw, with a clear picture of the result in hand

For example, in Myanmar, the European Union Energy Initiative and Mercy Corps, in separate field studies several years ago, found solar lanterns and solar home systems sold in markets for US$10 to US$300. The return on that investment can work out to savings of 80 percent over 10 years, given mean monthly spending of about US$10 on candles and batteries. However, such sums can be too much for many households in a country. where one in four people lives below the poverty line and annual GDP per capita is US$859 according to the Asian Development Bank (ADB).

What households currently spend on candles and batteries sets a baseline for potential initial revenue for distributed power systems. The challenge for developers is to reduce costs, including finance if required. While that is unlikely to be straightforward, experience in Bangladesh and India shows household or village power systems can be financed. Meanwhile, recent years has seen confidence in solar projects rise among banks in countries such as Sri Lanka and Thailand while private equity bemoans a thin project pipeline. Standardized designs and contracts could increase transparency which should help to reassure lenders unfamiliar with microgrids and renewable energy.

Jigsaw puzzle

Secondly, scaling base-up distributed power systems to achieve sustainable electrification and an energy transition in Asia requires a favourable policy and regulatory framework. It is essential to phase out fossil-fuel subsidies and lay down and enforce a long-term pathway for substantial improvements in energy efficiency. Renewables and microgrids should get access the grid and permit communities to govern local electricity systems. Thailand has already started on this path, offering incentives for community solar projects and preparing regulations for the crowdfunding of renewable-energy projects.

Asia’s electricity plans remain by and large focused on coal, gas, large hydro, and nuclear

What is needed above all is an integrated approach. A vision of the low-carbon, low-water energy system is essential to guide policy design and regulatory reform. A vision lights the way forward when facts are few or at odds. It is easier to solve a puzzle, such as a jigsaw, with a clear picture of the result in hand.

Vision of the transformed power system is all the more needed because the scale and speed of change is unprecedented. This energy transition needs the coordination of dozens of governments, hundreds of agencies, thousands of firms, millions of consumers across Asia. A clear vision is also needed to open the door to investments and new financing models. Investors will remain cautious until adjustments are made to policy and regulation.

Unfortunately, vision often remains vague. This is understandable given the complexity of the transformation facing regulators, utilities and consumers. Indeed, for now Asia’s electricity plans remain by and large focused on coal, gas, large hydro, and nuclear despite the risks to such investments now playing out across Australia, Europe and the U.S.

Still, there is reason for optimism. Countries like China and India have set ambitious targets for solar and wind, although even in these countries the infrastructure needed to integrate these new sources of energy into the overall system is not developed fast enough.

The answer may lie in a switch of strategy. Focusing first on distributed renewables and microgrids would be easier to manage and avoid the challenges of integrating utility-scale renewables into overworked and unreliable central power systems. Starting from the base-up with distributed renewables and microgrids could produce power systems less vulnerable and more resilient to weather extremes driven by climate change. The economic, ecological and equitable benefits of clean electricity for sustainable development and national prosperity could be spread further, faster.

Whether Asian countries will make the switch to clean local energy, with all of its economic, ecological and social benefits, remains to be seen. If they do, the world’s prospects for limiting climate change may brighten.

David Fullbrook, an ecological economist, is currently senior consultant strategy and policy with DNV GL’s renewable energy practise in Singapore. He has undertaken wide ranging research for development agencies on matters relating to agribusiness, energy, food security, and natural resources in east Asia. He holds advanced degrees in Asian Politics, environmental management, and ecological economics. He writes in a personal capacity.

The article was first published at Energy Post and is reposted with permission.