By Marcus Wiemann, Secretary General of the Alliance for Rural Electrification
It is not difficult to agree that a lack of access to energy, and more specifically to electricity, is very likely to be followed by unintended consequences for socio-economic development. To contribute to needed progress in this area, Small Hydropower (SHP) is an important solution in practice.
According to the 2012 IEA’s World Energy Outlook, it is estimated that about 1.3 billion1 people still lack access to electricity. 84%1 out of these live in rural areas. Of course, electricity alone is not sufficient to alleviate poverty, but it is the essential factor that enables active progress in all sectors related to the UN Millenium Development Goals, such as health, education, gender equality or water quality and sanitation.
The business potential of Small Hydropower
The European Small Hydropower Association (ESHA) and the European Commission’s definition of SHP sets the upper limit by 10MW of installed power capacity. An international standard alike could initiate further development of a global market for this sector. ESHA’s definition includes also mini-hydro (≤ 1 MW), micro-hydro (≤ 100 kW) and pico-hydro (≤ 5 kW), although each of these systems has its own specific characteristics and applications2.
In 2013, it has been estimated by the International Centre for Small Hydropower (ICSHP) and the United Nations Industrial Development Organizations (UNIDO) that SHP was providing 72 GW of the worldwide electrical capacity, and 67% of it was produced in developing and emerging countries.3
Table 1: Installed capacity in MW (SHP ≤ 10 MW)*3
In remote communities where the access to electricity is not yet available, SHP offers a feasible solution to tackle this basic need. It is a proven technology that can be connected to the public grid, work off-grid as a stand-alone plant or as the main source to power a mini-grid. In addition to its energy use, water reservoirs can also be combined with irrigation systems for agricultural purposes.
Furthermore, it is a sustainable, clean resource, able to satisfy a high demand of energy without compromising the natural resources, to guarantee a constant supply of electricity, to provide flood control and to contribute to the reductions in greenhouse gas emissions.
Despite some voices that have been raised against hydropower for its effects on the environment, SHP’s impact is actually minimal due to the size and characteristics of the plant.
Growth opportunities for Small Hydropower outside Europe
Whereas the SHP sector was more focused on Europe before the global economic crisis, the growth perspectives for global activities have become more promising in recent years.
The outcomes of the preliminary assessment “World SHP Development Report” by ICSHP and UNIDO give strong evidence that there is a growing potential for SHP in developing and emerging countries. These perspectives are mainly based on the positive economic evolution in these regions and as a consequence of the increasing demand for electricity.
Table 2: Global SHP statistics (SHP ≤ 10 MW)* 3
* Preliminary statistics
** Colombia is not included in Americas total potential’s statistics, because its figures were not verified when the article was drafted.
For example, Asia, where India and China are the major players of the SHP sector, is holding the biggest number of installed projects. While rural areas have already benefited from recent developments, there is certainly more potential to explore. This potential derives mainly from three factors: (i) Availabiltiy of important hydro resources, (ii) stronger electricity demand by major parts of the population, yet combined with (iii) well-established governmental initiatives fostering rural electrification and supporting small scale renewable energy technology (RET) schemes.
In this context, it is also important to highlight the potential of Latin America. According to ICSHP and UNIDO statistics (2013), the total installed capacity is equal to only 19% of the full capacity of the continent (except Colombia. Please, see table 2). Due to the powerful presence of oil and gas, the receptivity of this technology may be weaker than in Asia or Africa, although the continuous instability of fossil fuel prices is easing the path to an increased use of renewable sources in the continent3.In Peru, for instance, which provides for advantageous natural conditions, hydropower is one of the main sources of energy, providing already 63% of its electricity4.
Let electricity flow
Current trends show that the private sector is getting involved more and more in rural electrification initiatives. To support this engagement, it is essential to first properly assess the market situation before adapting existing legal and institutional frameworks or developing new ones. Moreover, the resultant frameworks should aim to allow for the application of suitable business and financing models.
For example, Uganda presents abundant hydro resources and a very low electrification rate in rural areas. In 1999, the Electricity Regularity Authority began to implement legal reforms to open up the power market to the private sector and to finish with the former monopoly of the Uganda Electricity Board for power generation, transmission and distribution. This initiative aimed at promoting competition for the generation and marketing of electricity. Within this framework, a new tariff structure was developed and the charge rates and conditions of electricity services were investigated. Further initiatives to foster hydropower included the identification of potential non-Nile mini-hydro sites with a total capacity of 200MW with the support of the Royal Netherlands Embassy and African Development Bank2.
Another interesting example can be found in Latin America. Brazil has been supporting SHP initiatives since 1998 through incentives, which allow owners of power plants to sell energy directly to large consumers (over 500kW), to use the grid system with at least 50% discount on distribution, and with access to special funds to generate energy in remote areas. These funds are mainly targeting North and Northwest areas, where there is a very suitable combination of high concentration of rivers and remote villages demanding electricity2.
From the industry perspective, the SHP sector should also consider the need for training and capacity building addressing local stakeholders at all levels: local governments, rural electrification utilities, NGO’s, small IPPs, local sources of financing, as well as local private sector and end users.
Furthermore, the industry has already assisted governments and institutions in the past on the creation of policy tool kits to share experience from good practice. Finally, the dissemination of qualified and transparent information is a pre-condition for private sector involvement. This accounts for electricity market developments for both, the short and the long term.
The undeniable conclusion is that SHP is part of the answer to power the electricity of the world. To provide for reliable, cost competitive and sustainable electricity production, this technology offers two options: production of electricity in connection with existing grids and also independently on the basis of off-grids as the more flexible solution.
Let the evidence speak for itself: In a world covered at 70% by water, SHP has already proved itself as a major contributor to electrification in developing and emerging countries with more than 50 million households and 60,000 SMEs powered by SHP at the village-level as well as projects injecting power into the grid2. With the proper legal and institutional support, the right private sector approach and the lessons learnt from the past, there is no telling the growth this technology might experience.
IT Power: Honduras, linking income-generating activities and micro enterprises with energy services
In 2007, the Government of Honduras was awarded a loan from the World Bank for the construction of at least two Micro Hydro Power (MHP) Stations. IT Power was selected to build these new facilities using a design previously tested. With an installed capacity of 63 kW and 86 kW (Las Champas and La Atravesada) respectively, they were expected to provide electricity to a total of 300 homes in six rural communities. The World Bank advised the design of the Honduran MHP projects to be based on the following fundamental principles:
Use of electricity as a driver for socio-economic development
Building of institutional and technical capacity of all participating stakeholders
Monitoring and evaluation of the project, its implementation, and lessons-learned as seen from the perspective of the end-user
In designing the project in Honduras, several productive applications (by region) were identified and evaluated. Each of these applications were developed designed based on the socio-economic conditions of each community and the past energy needs or local businesses. In addition, a parallel project – the GAPFund – was created to complement and support the construction phase of these MHPs by increasing awareness among rural developers of the synergies between projected commercial activities, community development, new microenterprise initiatives and the level of energy services to be provided.
In close coordination with the communities and stakeholders, a methodology was developed for implementing income-generation activities and micro-finance models for productive applications that were supported by renewable energy projects. This methodology was then applied at both MHP locations and its main components included:
Analysis of local markets: availability of raw materials, access to markets, commercialisation, range of market, etc.
Local market-based technological analysis
Linking energy needs to financing and micro enterprise
One of the objectives of this project was the possibility of its replication. To support training activities in other communities in Honduras, a toolkit was developed to train instructors and to conduct advanced training programmes. Another document was prepared on the recommended mechanism for providing micro-financing services to the rural sector. The manual aims at increasing capacity building around the establishment and implementation of such financial services and it describes financial policies specific to the rural sector. It also identifies the human resources required, and explains how these should be structured to provide such services, as well as regulations, procedures, support forms, etc.
The methodology described in this manual could be adopted or customised by any micro-financing institution (MFI) that wants to provide a financial service in rural areas. Hence, the manual is also useful for capacity building of credit officials from an MFI.
The two best practice demonstration projects using renewable power from the MHPs were designed for income-generating applications. The enterprise developed for the “Las Champas” community and its surroundings in the Municipality of Irione was for a select market of meat consumers. The population in this area was approximately 3,161 inhabitants, where most of the families consumed at least 1.5 pounds of meat a day.
The enterprise design for “La Atravesada” Coffee House included the purchase of beans, pulp removal and drying (in an organic manner), packaging and sales. The project, due to the level of coffee bean production in the area and the transformation of only 120,000 pounds of dry Pergamino coffee, would use electrical machinery for pulp removal, washing and drying. The set-up of the enterprise would make it easier for the partners to sell their product collectively and thus negotiate better prices.
In addition to the above, the following material was also developed in the local language (Spanish):
Guidelines to evaluate the connection between rural energy services and income-generating activities, including information that helps final users, project developers and micro financing institutions to identify productive uses;
A micro-credit model to promote and improve access to financing for income-generating activities resulting from usage of energy from MHPs in Honduras;
A manual for business development advisory services for rural micro entrepreneurs in Honduras; this includes a catalogue of financial services for different types of financial and technical services provided as well as a comparison of different credit schemes;
Training/capacity building events designed specifically for the two communities where the MHPs were installed, on MHP-based rural enterprises, along with training manuals for potential micro enterprises;
A monitoring and evaluation programme with guidelines for policy makers and project implementers to understand the impact of productive activities associated with the electrification process (with an emphasis on the reduction of poverty and indicators related to the Millennium Development Goals).
To know more about IT Power, please visit www.itpower.co.uk.
1: International Energy Agency, World Energy Outlook 2012, Paris, OECD/IEA 2012.
2: European Small Hydropower Association, IT Power, Small Hydro Power for Developing Countries, Brussels, 2006.
3: ICSHP/UNIDO, World SHP Development Report Draft Version 2, 2013
4: MEM-DGE.2010. Informativo DGE No.1. Dirección general de electricidad, Ministerio de Energía y Minas, Gobierno de la Republica de Peru. 11 p
About the Alliance for Rural Electrification and Marcus Wiemann
Marcus Wiemann is responsible for the policy sector and outreach for the Alliance for Rural Electrification (ARE). With a background in International Economics as well as in Political and Environmental Sciences, he works closely together with ARE partners and international organisations on numerous advocacy and policy actions. ARE has become a pioneering actor in the field of sustainable development, supporting and bringing together renewable energy companies who are passionate about rural electrification through off-grid renewable energies.
The Alliance for Rural Electrification is the only international business association focusing on the promotion and development of off-grid and distributed renewable energy solutions in developing countries and emerging markets.