Controversy Over Rural Electrification

As recently as a decade ago, rural electrification was perceived almost as a magical force for transforming poor areas into highly productive regions. Advancing power lines into poor rural areas was considered synonymous with providing the necessary infrastructure for quickly bringing them into the twentieth century. Communication, lighting, productivity increases, reduced birth rates, elimination of traditional customs blocking modernization, and many other benefits would flow from a reliable supply of electricity to rural areas. Electricity obviously plays an indispensable role in modern society; that a society could progress without a substantial commitment to rural electrification seemed almost incomprehensible to early planners, as it does even today.

Certainly electricity is a prerequisite for attaining the level of productivity and quality of life experienced in developed countries. But if this is true, then why has controversy now replaced blind faith in rural electrification? Why are there questions regarding rural electrification as a way to development?

The early optimism has been clouded by reports from a number of developing countries that the anticipated development effect of rural electrification has been very slow in materializing. Development of load demands and prospects for socioeconomic development have been disappointing and potential customers in electrified villages and communities are not connecting to the central grid at the rate anticipated. The lower the number of people in rural communities taking advantage of available electrical service, the lower the chance that electrification programs can have an impact on rural productivity and quality of life. Similarly, since most rural electrification projects in developing countries are subsidized, lagging demand for electricity can be a substantial financial strain on the utilities, whether public or private.

The equity of rural electrification investments and subsidies also is at issue. Since only better-off villagers may be able to afford to connect to the central grid, rural electrification may worsen the gap between rich and poor. This article reviews the arguments for and against central grid rural electrification, examines the policy issues, and concludes with some preliminary findings of detailed studies conducted within RFF's program concerning energy in developing countries.

The advocates

As noted, the early justifications of rural electrification were viewed almost as self-evident truths. Rural electrification was thought to be a necessary, and perhaps even a sufficient, condition for future development.

Electricity is more efficient and less expensive

Energy efficiency and cost-effectiveness are the two most commonly cited justifications for rural electrification. In the households that could afford appliances, women would be among the main beneficiaries of rural electrification through its making domestic tasks less burdensome. Although cooking with electricity is well beyond the means of many rural people in developing societies, income-producing activities such as handicrafts can be continued well after dark in households with electricity, as can recreational activities requiring a high quality of light, including reading and playing games. Thus, household electricity can provide high-quality light and efficient labor-saving household appliances, and can add to family income by expanding work hours into the evening. Comparisons between electricity and kerosene for lighting, according to advocates, favor electricity both on the basis of cost and quality. Also, several studies have found that public electric lighting confers a greater feeling of safety.

In addition, rural electrification can improve productivity. While some agencies have promoted household use of electricity, others have stressed its productive potential in providing driveshaft power for agriculture and rural industries. In agriculture its primary contribution often is pumping water for irrigation. Limited cost-per-unit-of-output comparisons by advocates between competing sources of energy power—animal, wind, and diesel engines—and electric pump sets generally are one-sided in favor of electricity. Electricity also is both more efficient and usually less expensive per unit of water output than irrigation by Persian wheels or other traditional systems, such as hauling water-filled leather bags by bullock.

Rural electrification advocates stress that electricity as a source of driveshaft power and lighting is ideal for small rural industries in developing countries. Agricultural processing industries—the main industries in rural areas of most developing countries—can use electricity to grind food grains, press oil seeds, and perform a variety of other tasks. Beyond food processing, available electrical service may lead to such new industries as small machine shops for repairing implements, electric-powered machinery for cottage craft industries, and others. As in pumped irrigation, diesel engines are an alternative to electric motors, but they require more maintenance, often are more expensive to operate, and may involve foreign exchange problems in purchasing the diesel fuel.

The urban bias in development

Rural electrification is promoted as a means to balance development investments between urban and rural areas. Although about 70 percent of populations in developing countries are rural, only 12 percent of those rural populations had access to electricity as of 1977. Reflecting this figure, the World Bank estimated that cumulative investment in rural electrification was about 10 percent of total investment in the power sector for the same period. This bias is compounded by food-pricing policies in many developing countries that hold down the cost of food for urban populations. Rural areas thus in many instances subsidize urban regions by providing cheap food. In addition, a large percentage of development programs are capital-intensive projects in urban areas. Rural electrification is seen as a convenient way to redress some of these inequities. Since it costs less to provide service to high-density urban regions than to sparsely populated rural areas, the revenues from the more profitable urban electrification typically subsidize rural electrification in developing countries.

Electrification also produces indirect benefits from employment and other income-generating activities. For instance. electricity can make possible the double-or even triple-cropping of land, thus substantially increasing the amount of required labor. Initial levels of improved productivity through capital improvements have not proved to be labor displacing as was earlier feared, but actually create an additional demand for labor. While agriculture is still the main source of economic activity in rural areas, new jobs also can be created through small-scale industries. Thus, while most of the rural poor probably do not benefit directly from rural electrification, its advocates claim the indirect employment benefits may be quite substantial. Moreover, although most of the direct benefits of electrification go primarily to the middle and upper classes, significant indirect economic gains might well reach the rural poor.

Investments in rural electrification therefore are touted as infrastructure improvements that will enhance the rural quality of life and lead to long-term increases in rural productivity and employment. The net result of such benefits is that rural areas should be regarded as more desirable places to live. Many spillover effects may be created, such as a reduction in the extent of rural-to-urban migration. And qualified professionals such as doctors may be more likely to serve in rural areas with conveniences provided by electricity.

The belief that rural electrification is an appropriate development strategy for almost all developing countries has been shaken during the last five years. Critics claim that it is too expensive, does not benefit all social classes equally, and has no direct impact on agricultural or industrial development. This all-encompassing criticism has resulted in serious internal debates within donor agencies, and in some instances funding for rural electrification has been curtailed. The criticism centers on the place of rural electrification in energy strategies for socioeconomic development. Rural electrification by itself obviously will not irrigate fields, apply fertilizer, or produce industrial goods. Rather, it must be placed in the context of integrated rural development programs to have a substantial impact in the countryside.

Too soon?

The success of rural electrification in the United States during the 1930s provides the model for extending electrification to developing countries. Rural electrification indeed has been extremely successful for the United States, but questions still remain whether poor rural areas in developing countries can take advantage of the opportunities presented by electricity. The connection growth rates in the United States probably cannot be duplicated in developing countries because of the substantially lower levels of household income and rural employment. Projections of load demands by utilities in some countries have been very disappointing. After a thorough review of projects in Indonesia, McCawley concludes that rural electrification is a "doubtful priority in Indonesia," and does little to achieve the various objectives originally anticipated as project benefits. The tariffs generally are set so high only the wealthy can afford electrical service. Because low incomes constrain participation by the poor, growth in connections is much lower than anticipated, which cuts revenues and puts undue financial strain on the utilities. McCawley's conclusion is that other development priorities should come before rural electrification.

That countries must have relatively high per capita incomes to support rural electrification programs is substantiated by examining countries at different levels of socioeconomic development (see table 1). Access to electrical services generally is lower in poor countries such as Burma, Chad, and Ethiopia, while the reverse is true in higher-income developing countries such as Costa Rica, Chile, and Mexico. In addition, a survey in Colombia found that only 12 percent of the potential customers in the lowest standard-of-living category took advantage of electrical service, as compared with 68 percent for the total sample. The per capita gross national product for Colombia is $870, again above average for developing countries. Few African countries have extensive rural electrification programs. Critics of rural electrification argue that the available evidence suggests that for most developing countries it is too soon for rural electrification, and other development programs should precede it to raise income levels. In this view, rural electrification is a luxury that should be implemented at a later stage of development.

Rural productivity versus household consumption

Many of the early and even some of the recent projects have emphasized residential electricity rather than productive economic activities such as agriculture, commercial enterprises, and small-scale industries. As noted, the social benefits include bright nonpolluting lights, appliances such as fans, irons, and refrigerators, and other quality-of-life improvements. But who reaps these benefits? Critics charge that only the more wealthy households can easily afford to connect to the rural electrification grid, and that rural electrification programs with a household emphasis are subsidizing the already well off. The plight of the poor is not worsened absolutely, but the gap between rich and poor is widened.

Community and regional inequality

The scenario is similar for agriculture and small-scale industries. Small farmers must be able to afford the capital investment in pumpsets or other complementary inputs. Rural artisans need to be able to purchase the electrical equipment that will improve their productivity. Again, people in the upper strata are able to take advantage of the benefits of subsidized electricity, and the poor must rely on traditional and noncommercial sources of energy.

Rural electrification also can cause regional imbalances in socioeconomic development. Just as it may disproportionately benefit the better-off rural households, some critics claim that rural electrification inequitably benefits the more wealthy regions within a country. The reasoning is that capital and complementary inputs are necessary before rural electrification can have a significant impact on socioeconomic development, and therefore that many of its productivity- and employment-generating benefits would be limited to the more prosperous regions. In a study of a less-developed region in India, it was found that the productive use of electricity lagged behind expectations because of lack of capital, inability to obtain bank loans, insecure markets for projects, and unreliable supplies of electricity. The conclusion is that electrification benefits and has a higher rate of load growth in the more prosperous regions of developing countries, which exacerbates regional inequalities.

Too expensive and little productive impact

Rural electrification programs are very capital-intensive, so much so that construction of generating capacity and extension of lines into rural areas almost always are subsidized by governments in developing countries. Concessional loans from donor agencies and multilateral banks for rural electrification schemes generally range from $20 to $40 million, and such investments can be justified only by the revenues and the socioeconomic benefits produced by the project.

The most potent criticism of rural electrification is that—despite the large capital expenditures—it has little impact on rural productivity or regional levels of socioeconomic development. In an article advocating decentralized energy for rural communities in developing countries, Smith concludes that rural electrification has no productive benefits and generates no additional regional development. Many evaluation studies favorable to rural electrification cite the number of electrified industries that have been started since villages were electrified. Smith argues that most of the industries that started after regions or villages were electrified may have done so for independent economic reasons and, moreover, that they could have been powered by another energy source. The conclusion of this line of criticism is that the economic benefits of rural electrification for establishing rural industries are insignificant, especially when compared with the costs involved in extending the central grid.

Alternative energy strategies

Before the energy "crisis" of 1973-74, electrification was the only significant strategy for rural energy development. Now, rural energy needs have been more critically examined, and some expensive rural electrification programs have been easy targets for criticism. Rural electrification is blamed for preventing balanced energy development strategies that would include traditional fuels such as fuelwood and charcoal, and alternative technologies, such as biogas, wind energy, and others. Rural electrification advocates are accused of recommending their technology for everyone and for every location, regardless of the energy resources available in the villages.

Decentralized or "soft paths" of energy development typically involve matching the energy end use with the energy source. For example, many rural electrification critics claim that alternative technologies might be adopted for location-specific end uses, including wood or biogas for cooking and hydropower for irrigation. The type of technology would depend on the resources available in a specific village; a village on a semiarid plain obviously could not adopt hydro-power as a motive power source. Today many alternatives to central grid, some in the experimental stages, are being evaluated within the context of diversified energy policies for developing countries.

RFF studies in India, Indonesia, and Colombia

The main goal of all development strategies is socioeconomic development. The rural electrification controversy revolves around the strategy that can best reach this goal. The advocates of rural electrification believe strongly that it is a necessary condition for development, that it is a catalyst for improved rural productivity and a better rural quality of life. The critics argue that rural electrification should not be a priority program for developing societies, especially those at a very low level of economic development. Other development programs and energy strategies can improve the level of rural socioeconomic development more quickly than rural electrification. In this view, rural electrification has limited end uses and applications for development strategies. Many of these claims and counterclaims are empirically tested in studies recently completed under the Energy in Developing Countries Program at RFF.

For rural electrification advocates, the good news from the RFF studies is that the impact and response to rural electricification varies greatly in different countries. Since 1966, India has had an explicit policy to power rural pumpsets through electrification, and this has led to increased agricultural productivity through stimulating the change from traditional to modern agricultural practices. However, this productive impact would not have been possible without the parallel introduction of new agricultural technologies, including fertilizers and hybrid seeds. In Indonesia, the commercial sector was affected substantially by the introduction of electricity into a relatively wealthy rural area. Many electrified shops now stay open longer, have increased profitability, and have diversified their product lines. Colombia saw little productive impact of electricity in the agricultural sector, but over 30 percent of the rural households in the survey had purchased television sets. Patterns of how families use their leisure time appear to have been greatly affected by rural electrification in Colombia, and development involving small shops also occurred.

The bad news for rural electrification in the three countries is that subsidies will be necessary for the near and sometimes the distant future. Revenues from consumers do not pay for the operation, maintenance, and capital costs involved in rural electrification. In fact, the India study reports that decentralized generation from biogas-powered engines is competitive on a cost basis with central grid electricity, if the necessary volume of dung for digesters is available, which may not be the case. In any event, rural electrification in developing countries is likely to involve some kind of subsidy under current conditions.

Rural electrification's variable impact indicates that its positive effects may be determined more by government policies and unique regional characteristics than by the technology itself. Significant development can occur with rural electrification, but opportunities for productive uses may be constrained by failing to implement complementary programs that would make full use of electricity advantages. More realistic and concerted effort is needed to coordinate rural electrification with other relevant programs. Without such complementary programs the full socioeconomic impact of electrification probably will not be realized, and its substantial capital investments may not be justifiable. Nevertheless, electrification projects properly coordinated with complementary programs appear to have substantial potential for improving productivity and the quality of rural life.

Author Douglas F. Barnes is a fellow in RFFs Center for Energy Policy Research.