The productive use of electricity provides a foundation for sustainable economic development by increasing incomes and improving welfare. Conventional definitions of productive use often focus on increased mechanization in the agriculture sector and new opportunities for value-added processing, storage and transport. In an emerging, broader perspective, lighting for education is a productive use, as there are well-documented links between education and earnings and lighting for businesses is also understood to increase productivity and rural incomes.
Productive uses are possible from even the smallest renewable energy systems. Pico-solar lanterns or solar micro-grids that provide watts or tens of watts per household enable lighting for craft work and cell-phone changing. Some solar photovoltaic (PV) systems on the scale of hundreds of watts are used for agro-processing, like grating cassava, shredding coconut, pressing coconut oil. Solar PV/diesel mini-grids can deliver up to several kW (or more) per connection and can power carpentry tools such as saws and drills, sewing machines and larger-scale agricultural processing such as milling and grinding as well as pumping, welding or modest refrigeration. Larger systems enable large-scale refrigeration or even factories (like tea processing). The World Bank’s Multi-Tier Framework for Measuring Electricity Access includes productive uses and provides more examples.
Measures to Encourage Productive Uses
Mini-grid developers can encourage productive uses of electricity through financing for productive-use equipment, tariffs that encourage productive uses and local economic development.
On-bill Financing for Productive-use Equipment
With on-bill financing, customers essentially purchase equipment (such as grain mills or power carpentry tools) using a loan from the mini-grid utility. This loan is paid off month by month through a surcharge on the monthly electricity bill. This allows villagers to tap into the mini-grid utility’s low cost of capital, compared to the “loan shark” type of interest rates that are typically their only option. The villager taking out the loan has a strong incentive to pay because if they fail, their electricity may be cut off.
Time-of-use or Curtailable-load Tariffs
Time-of-use tariffs are differentiated by time of day—lower during off-peak hours. This can encourage productive use of electricity when the system has spare capacity, such as the middle of the day, when most people are working in the fields, or the middle of the night, when most people are asleep. Curtailable-load tariffs charge lower rates for customers or loads that can be curtailed by the mini-grid operator, if necessary, to meet demand from other customers. These two approaches are particularly useful for hydropower mini-grids, because hydropower operates 24 hours per day and has no fuel costs but is limited in the amount of power that can be generated at any moment.
Local Economic Development to Grow Markets for Productive Uses
Electricity is generally a necessary but insufficient condition for developing productive uses. Transportation, communication, training and markets are also essential. For example, milling grain or processing tea is only useful if roads exist that allow these goods to be transported to consumers.
Putting it Into Practice
The following questions are useful in scouting for opportunities for productive uses:
- Which productive uses are likely to be pursued if electricity is available, including evaluation of opportunities to switch from low-price commodity production to higher value-added products:
- Agricultural: water pumping, grain grinding or agricultural processing;
- Construction: saws, saw mills, planers, welding or drills;
- Cottage industry: sewing, hat making or basket weaving;
- Lighting for productive purposes?
- How much money is spent per month on milling and other services (and accompanying transportation) that could be saved by providing those same services locally, powered by a local mini-grid?
- What capacities for power output are possible and/or affordable?
- Can capacity be incrementally added as necessary to enable greater productive uses? If so, at what cost?
- What is the likely timing (hourly, seasonally) of productive uses?
- What productive uses can be shifted to off-peak times or operate under dispatchable load tariffs in ways that increase capacity?
- Which productive uses require three-phase power? Use this information to plan distribution lines.
- What is the kVA requirement of motors operating on the mini-grid? What are the start-up current requirements of these motors? Can startup be staggered so that start-up surges are not coincident?
- What is the expected population/industry growth in the village?
Research results and analysis that answer the questions above should be part of a carefully considered feasibility study or business plan for the mini-grid project.
Relevant Case Studies
Hydropower in Tanzania’s Rural Highlands. The Mwenga Hydro Generation and Rural Electrification Project in Tanzania’s Iringa region provides electricity to more than 2,200 households in 17 villages, a local tea and coffee factory and the national grid. The Rift Valley Corporation installed the 4-MW facility in 2012 with funding from the Africa Caribbean Pacific-European Union Energy Facility and Rural Energy Agency.
Rental Solar Power Systems in Tanzania. In rural Tanzania, Redavia Rental Solar Power rents preassembled solar PV systems to local operators. Local entrepreneurs use the easy-to-deploy systems to hybridize traditional diesel-powered mini-grids, generating electricity for both household and industrial use.