Dividann Aksè a Enèji nan Ondiras ak Ayiti

1 1 Directed by: Natacha C. Marzolf (IDB) Jonathan Phillips (Duke University) Subhrendu K. Pattanayak (Duke University) Emily L. Pakhtigian (Duke University) Eric Burton (Duke University) Marc Jeuland (Duke University) Christine Eibs Singer (SEforALL) Hadley Taylor (SEforALL) Michelle Hallack (IDB) Javier Cuervo (IDB) Carlos Jacome (IDB) The Energy Dividend in Honduras and Haiti 2 2 Cataloging-in-Publication data provided by the Inter-American Development Bank Felipe Herrera Library The energy access dividend in Honduras and Haiti / Natacha C. Marzolf, Emily L. Pakhtigian, Eric Burton, Marc Jeuland, Subhrendu K. Pattanayak, Jonathan Phillips, Christine Eibs Singer, Hadley Taylor, Michelle Hallack, Javier Cuervo, Carlos Jacome; directed by Natacha C. Marzolf. p. cm. — (IDB Monograph ; 743) Includes bibliographic references. 1. Energy development-Economic aspects-Honduras. 2. Energy development-Economic aspects-Haiti. 3. Electric power-Economic aspects-Honduras. 4. Electric power-Economic aspects-Haiti. I. Marzolf, Natacha C. II. Pakhtigian, Emily L. III. Burton, Eric. IV. Jeuland, Marc. V. Pattanayak, Subhrendu. VI. Phillips, Jonathan. VII. Singer, Christine Eibs. VIII. Taylor, Hadley. IX. Hallack, Michelle, 1983- X. Cuervo, Javier. XI. Jacome, Carlos. XII. Inter-American Development Bank. Energy Division. XIII. Series. IDB-MG-743 JEL Codes: N76, P28, Q40, Q4 Keywords: Energy, Electricity, Access to Electricity, Dividend, Methodology Copyright © 2019 Inter-American Development Bank. This work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB’s name for any purpose other than for attribution, and the use of IDB’s logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license. Note that link provided above includes additional terms and conditions of the license. The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent. 3 3 THE ENERGY ACCESS DIVIDEND IN HONDURAS AND HAITI Emily L. Pakhtigian, Eric Burton, Marc Jeuland, Subhrendu K. Pattanayak, Jonathan Phillips 1 Under the direction of Natacha C. Marzolf 1. Address correspondence to jonathan.phillips@duke.edu, Director of the Energy Access Project at Duke University. The other authors are, respectively, Ph.D. student, MEM student, Associate Professor and Oak Professor of Environmental & Energy Policy at Duke University. 4 4 Table of Contents List of Tables List of Figures Executive Summary Impacts of energy access Calculating the Energy Access Dividend The Energy Access Dividend for Haiti The Energy Access Dividend for Honduras Conclusions 1. Introduction 1.1 The benefits of energy access 1.2 Defining the Energy Access Dividend 1.3 Identifying the components of the Energy Access Dividend 1.3.1 Economic benefits of new connections 1.3.2 Tiered framework of electricity access 1.3.3 Benefits of improved connections 1.3.4 Benefits excluded from calculation 1.4 Overview of report 2. The Energy Access Dividend from new electricity connections 2.1 What is the Energy Access Dividend from enhanced energy access? 2.2 Calculating the EAD for new, basic access 2.3 Calculating the simple Energy Access Dividend for Haiti 2.3.1 Electricity access context in Haiti 2.3.2 Indicators and data for EAD calculation, Haiti 2.3.3 Estimating the simple Energy Access Dividend for Haiti 2.4 Calculating the simple Energy Access Dividend for Honduras 2.4.1 Electricity access context in Honduras 2.4.2 Indicators and data, Honduras 2.4.3 Estimating the simple Energy Access Dividend for Honduras 3. Extending the Energy Access Dividend to include tiered access 3.1 What is the EAD from enhanced electricity access? 3.2 Calculating the Energy Access Dividend for improved connections 3.2.1 Monetizing benefits 3.2.2 The “business-as-usual” trajectory across energy access tiers 3.2.3 Scenarios to evaluate 3.2.4 Assumptions and methodological limitations 3.3 Extending the Energy Access Dividend in Honduras 3.3.2 Estimating the extended Energy Access Dividend, Honduras 4. Discussion and Recommendations 4.1 Energy Access Dividend Findings 4.1.1 Energy Access Dividend at the household level 4.1.2 Energy Access Dividend in relation to Sustainable Development Goals 4.2 Recommendations for future research 4.2.1 Benefits outside the scope of this report 4.2.2 Costs of electricity provision 4.3 Recommendations for policy makers 5 5 References Technical appendix A. Model equations and assumptions B. Model parameterization B.1 Parameterization of basic EAD for Haiti B.2 Parameterization of basic EAD for Honduras B.3 Parameterization of extended EAD for Honduras B.4 Estimating consumer surplus C. Sensitivity analysis D. Evidence from the literature List of Tables Table 1: Percent of population across energy tiers, Honduras Table 2: Benefits across tiers Table 3: Simple EAD by benefit type, Haiti Table 4: Simple EAD by benefit type, Honduras Table 5: EAD scenarios, Honduras Table 6: Extended EAD by benefit type, Honduras Table 7: Household EAD Table 8: Parameters used in simple EAD calculation, Haiti Table 9: Parameters used in simple EAD calculation, Honduras Table 10: Asset ownership by tier, Honduras Table 11: Parameters used in extended EAD calculation, urban Honduras Table 12: Parameters used in extended EAD calculation, rural Honduras Table 13: Simple EAD by benefit type, Haiti, 5 percent discount rate Table 14: Simple EAD by benefit type, Haiti, no discounting Table 15: Simple EAD by benefit type, Honduras, 5 percent discount rate Table 16: Simple EAD by benefit type, Honduras, no discounting Table 17: Extended EAD by benefit type, Honduras, 5 percent discount rate Table 18: Extended EAD by benefit type, Honduras, no discounting Table 19: Evidence on key EAD parameters from the literature List of Figures Figure 1: Households accruing the energy access dividend (top), and by tier (bottom). Figure 2: Multi-tier framework for energy access. Figure 3: EAD for basic universal electrification, Haiti Figure 4: EAD for basic universal electrification, Honduras Figure 5: Electricity access baseline by tier, urban Honduras Figure 6: Electricity access baseline by tier, rural Honduras Figure 7: Mean energy tiers by municipality, Honduras Figure 8: EAD for universal tier 5 electrification (grid), Honduras Figure 9: EAD for universal tier 3 electrification (off-grid), Honduras Figure 10: EAD for hybrid tier 3 or 5 electrification, Honduras Figure 11: Most common energy tier by municipality, Honduras 6 6 Executive Summary Access to modern energy services is an enabler of opportunity and a pillar that supports job creation, economic growth, and improved social well-being. While the Sustainable Develop- ment Goals (SDGs) identify universal access to safe, reliable, sustainable, and modern energy as one of the seventeen goals to promote sustainable global development, it is clear that uni- versal energy access also affects the achievement of many of the other SDGs, including the eradication of poverty, education, health, economic growth, reduced inequalities, and climate action (Barron and Torero, 2017; Lee et al., 2016; SEforALL and Power for All, 2017). Nearly 1.1 billion people globally still lack access to basic electricity and projections indicate that 674 million people will remain unelectrified in 2030, suggesting that a “business-as-usual” approach to electrification will not be sufficient to reach the SDG target (IEA, 2017). Beyond basic access, far more people lack the higher levels of electricity access needed to support income generation through small businesses, agriculture, industry, health services, and other productive uses. Global patterns in electricity access show uneven progress towards universal electrification. Nearly 90 percent of households lacking basic electricity access are rural (IEA, 2017). Althou- gh reaching rural households through grid connections continues to present challenges to expanding access, alternative electricity solutions including solar home systems and micro- grids are allowing for more rapid expansion of access in rural and peri-urban areas. These off-grid platforms have been successful in concentrated areas, suggesting the potential to scale quickly in new markets. Indeed, there have never been more possible pathways to universal electrification than there are today. Governments face important decisions regarding how to balance power quality, quantity, and reliability priorities with how to ensure all populations receive access as quickly as possible. Identifying the pathway that best fits the needs of the country requires a detailed understanding of the benefits that accrue to different populations under different scenarios and timelines. This report attempts to quantify and monetize these and other benefits generated through accelerated electricity access. Electricity access saves households money on lighting and cell phone charging costs. It facilitates ownership of radios, fans, televisions, and refrigerators. It 7 7 allows for increased study time in the evening and reduced emissions of harmful pollutants. The report builds on an existing framework for measuring the dividends of electrification, which was developed to estimate the potential benefits of increasing the pace of electrification through a series of three case studies examining energy access in Kenya, Ethiopia, and Bangla- desh (SEforALL and Power for All, 2017). It builds on this methodology and applies it for the first time in Latin America, a region that is doing comparatively well in electrifying households, with 97 percent of the population currently having some level of electricity access, but where 17 million people still lack access and where reliability remains a major challenge. The concept of the Energy Access Dividend (EAD) is to quantify the electrification benefits forgone over a country’s business-as-usual electrification transition. It is calculated based on the estimated benefits of electrification forgone over this transition and the time horizon over which households remain without electricity access. This report presents results of the EAD model for Haiti and Honduras, two countries that represent different electricity access situations in Latin America. In both settings, energy poverty continues to pose important challenges, but the nature of the problem is quite diffe- rent. Haiti has the lowest rates of electricity access in the Western Hemisphere, while Hondu- ras has much higher connection rates but still faces problems related to last mile connections and electricity quality. The contrasting nature of the challenge in these two settings provide a useful comparison that also helps to better demonstrate the value of EAD in policyma- king. Furthermore, as data availability differs substantially between the two countries, this report illustrates how detailed household-level survey data can be a powerful addition to national-level statistics by demonstrating how benefits accrue in different ways to different populations within a country. Designed as a tool for policy planning, the dividends presen- ted in this report for Haiti and Honduras are intended to highlight the role of electrification in economic development and offer policymakers a framework for including electrification trade-offs—in terms of technology, pace, and level—in policy planning and design. 8 8 Impacts of energy access Electricity access can provide a number of benefits to households, which is why it is a critical component of overall economic development and poverty alleviation. The initial EAD framework identifies thirteen categories of potential benefits, which capture a useful picture of the many ways households benefit from access. These include: financial benefits including savings on lighting, use of savings, savings on phone charging; environmental benefits including health benefits and emissions reductions; time use changes including study time, time spent in income-generating work, time spent in domestic work, time required for communication, and leisure; and asset access including cell phones, radios and televisions, and refrigerators (SEforALL and Power for All, 2017). In addition to these household benefits, there is also potential for productive benefits of electricity through the use of electricity in small industry or in agricultural production, as well as community benefits such as increased property and home values and nighttime safety and security. These categories of benefits suggest that electricity access exists along a continuum rather than as a binary distinction. Households enjoying basic electricity access may experience benefits associated with reduced lighting and cell phone charging expenditures and lowered emissions; however, their level of electricity access may not be sufficient to power many electricity-utilizing assets like televisions and refrigerators and not reliant enough to power small businesses, irrigation equipment, or other productive applications. To acknowledge and quantify these differing levels within the electricity access continuum, this report utilizes the Multi-Tier Framework (MTF), developed by the World Bank, which categorizes households into energy access tiers depending on the quality, capacity, daytime and evening duration, reliability, legality, and safety of their access (Bhatia and Angelou, 2015). The MTF tiers range from 1—indicating a low level of basic access that is available for about four hours per day and is sufficient to power electric lights and charge small electronics—to tier 5—indicating grid-quality electricity available for at least 23 hours per day. Unelectrified households are categorized as tier 0. Previous research provides the starting point for determining and quantifying these benefits. Gaps in the research demonstrate areas in which data limitations may preclude the valuation of certain benefits within the EAD framework. This extended EAD framework incorporates benefits associated with savings on lighting and cell phone charging expenditures, reduced emissions, changes in study time, asset ownership of four key household assets (radio, fan, television, and refrigerator), and improved household productivity related to electricity reliability. Gaps in the existing research and lack of data prevent the inclusion of additional benefit categories associated with energy access like how households use their financial savings, improved health, time use changes outside of increased study time, increased commercial and industrial productivity, and broader community effects. 9 9 Calculating the Energy Access Dividend This report expands the original EAD framework in three key ways: (i) it values a wider set of electrification benefits; (ii) it converts all benefits into monetary values to present one, comprehensive EAD estimate; and (iii) it incorporates levels, or tiers, of electricity access, estimated using household-level survey data, directly into the EAD calculation for each benefit. The basic EAD focuses on the benefits of initial, basic access to electricity and is presented for both Haiti and Honduras. This framework is useful for considering the analysis possible with limited country-level data, demonstrating that even with basic country-level statistics, the EAD framework provides valuable insights for energy policy development and design. The benefits of electrification as they relate to reduced kerosene expenditures for lighting, reduced expenditures on cell phone charging, reduced emissions, and changes in study time make up the benefits portion of this basic EAD. These benefits are attributed to each household without electricity along the electrification transition time horizon to generate an aggregated dividend calculation for the country as a whole. The extended EAD expands on this basic framework by incorporating both the benefits of initial access as well as benefits of asset ownership and improved household productivity that accrue as households climb to higher energy access tiers. This extended framework allows for the comparison of benefits across different electrification scenarios. Given the availability of household-level survey data for Honduras (World Bank and ESMAP, 2018) and the lack of such detailed data for Haiti, the extended EAD is presented only for Honduras.* The Energy Access Dividend for Haiti In 2016, Haiti’s rate of electrification was just 39 percent, leaving a population of over 6.6 million people without electricity access (IEA and World Bank, 2017). Electrification rates are not constant across the country; 65 percent of the population in urban areas has access to electricity, while electricity access is available only to approximately 2 percent of the rural population (IEA and World Bank, 2017). Haiti accounts for 43 percent of those without access in all of Latin America. Based on existing rates of electrification growth, Haiti is not projected to achieve universal electrification until 2150. Given these low rates of electricity access, the EAD associated with universal basic access in Haiti provides an estimate of the level of well- being improvements that are likely to be left on the table absent a radical departure from its current electrification path. In Haiti, the average unelectrified household would gain an annual benefit of 1153 Haitian gourdes ($16.20 USD) from reduced kerosene consumption for lighting, 704 Haitian gourdes ($10 USD) from reduced cell phone charging expenditures, and 228 Haitian gourdes ($3.80 USD) from reduced climate-affecting emissions (monetized using the social cost of carbon) if the transition to universal basic electrification happened immediately, rather than over the business-as-usual electrification trajectory. This yields a total annual EAD of nearly $30 USD per unelectrified household in Haiti. The aggregate EAD for Haiti over the period of 2016-2050, which incorporates the forgone benefits of electrification as they relate to lighting expenditures, emissions, and cell phone charging, amounts to 30 billion Haitian gourdes, or $423 million USD (the total undiscounted benefits are 128.8 billion gourdes, and the present value using a discount rate of 5 percent is 55.5 billion gourdes). Over half of these benefits result from transitioning away from kerosene and towards electricity for lighting. A third of the benefits are associated with cell phone charging inside the home, and the remainder of the EAD benefits are associated with reductions in climate pollution from kerosene combustion. * Disclaimer: The Honduras Multi-Tier Framework data is not yet officially published or endorsed by the Government of Honduras and therefore is being used for demonstrative purposes only. 10 10 2. In some instances, the values from the multi-tier framework survey data from Honduras (World Bank and ESMAP, 2018) are inconsistent with nationally reported statistics. In these cases, we defer to the multi-tier framework data as these data provide the basis for our empirical analysis. The Energy Access Dividend for Honduras In 2016, Honduras’s rate of electrification was 82 percent, leaving 1 million people without access to electricity (World Bank and ESMAP, 2018) 2 . Projecting current rates of electrification forward, urban Honduras would reach universal electrification by 2028—achieving the access target of SDG 7—while rural Honduras would reach universal electrification by 2038, falling short of the SDG7 access target. Additionally, Table 1 shows that just 38 percent of Hondurans have reliable, high-quality electricity access, indicating that significant additional benefits could be achieved by moving households up the tiers of access. So, the electricity access challenge facing Honduras is in reaching last-mile households in remote, rural communities as well as improving the quality and reliability of access for those already connected. This report presents four energy access scenarios for Honduras, calculating the EAD for each electrification pathway. Given the availability of household-level survey data, which allows for the classification of Honduran households into energy access tiers (World Bank and ESMAP, 2018), each of these scenarios is based on tiered access according to the MTF definitions. Table 1 shows the distribution of households across tiers for Honduras. Table 1: Percent of population across energy tiers, Honduras Tier Urban Rural Combined Tier 0 2.34 30.37 18.01 Tier 1 0.64 5.21 3.20 Tier 2 2.82 4.38 3.69 Tier 3 37.71 21.28 28.53 Tier 4 11.60 6.54 8.77 Tier 5 44.88 32.21 37.80 First, under the universal access to basic electricity scenario (tier 1), the aggregated present value of the EAD (using a 12 percent discount rate) amounts to 1.3 billion lempira, or $54 million USD (the total undiscounted benefits are 2.7 billion lempira, and the present value using a discount rate of 5 percent is 1.8 billion lempira). These benefits come through reduced expenditures on kerosene and cell phone charging outside the home as well as benefits from reduced climate-affecting emissions, monetized using the social cost of carbon. Benefits are accrued to unelectrified households across the electrification trajectory and discounted to generate an aggregate present value of the EAD. 11 11 The extended EAD is then calculated for three more scenarios: universal tier 5 electrification, universal tier 3 electrification, and a hybrid scenario of universal tier 5 electrification in urban areas and universal tier 3 electrification in rural areas. These scenarios align with electrification policies associated with extended grid access (universal tier 5), off-grid solutions such as microgrids and solar home systems (universal tier 3), and a mix of grid and off-grid solutions (hybrid scenario). In addition to the benefits associated with basic electricity access, the extended EAD incorporates benefits associated with higher tier access including increased study time, asset ownership, and electricity reliability. The present value (12 percent discount rate) of the extended EAD for universal tier 5 electrification in Honduras is 6.4 billion lempiras or $267 million USD (using a 5 percent discount rate, this estimate rises to 10.3 billion lempiras, and the undiscounted total is 16.9 billion lempiras). For universal tier 3 electrification, the present value of the extended EAD is 3.2 billion lempiras ($132 million USD). Finally, the present value of the extended EAD for universal tier 5 electrification in urban areas and universal tier 3 electrification in rural areas is 6.1 billion lempiras or $255 million USD (using a 5 percent discount rate, this estimate rises to 9.9 billion lempiras, and the undiscounted total is 16.1 billion lempiras). Comparison across EAD scenarios demonstrates that the benefits of electricity access extend far beyond a household’s access to basic, tier 1 electricity. A binary treatment of electricity that considers only basic access fails to capture substantial benefits in Honduras, an intuitive but important finding that is consistent with past energy access research. Clearly, access to four hours of electricity a day with the capacity to power light bulbs and charge phones presents vastly different potential benefits than access to twenty-four hours of electricity a day with the capacity to power large appliances and machines. These extended EAD calculations provide an initial framework for considering and valuing the differences associated with the quality of energy access. Even countries like Honduras that have made impressive strides towards universal electrification may be missing significant benefits if additional resources are not allocated to improving the quality and reliability of modern energy access. Conclusions Electrification decisions are among the most complicated and far-reaching that governments must make, and the ramifications of those decisions have great bearing on how a country is able to support improvements to its citizens’ well-being and achieve broader development goals. While governments generally have the tools and methods at their disposal to understand the cost of different electrification options and pathways, there is a lack of rigorous methodologies available for understanding how much those different options provide in terms of benefits for different populations over different timeframes. The EAD can help to fill this critical gap. The EAD estimates for Haiti and Honduras—and for other countries in the future using this methodology—are intended to elevate the electrification policy dialogue. The approach can be used not only to understand the aggregate level of benefits that electrification can unlock, but it can shed light on which pathways and platforms it can be achieved through, which populations benefit, and how the pace of these investments influences the level of benefits achieved. The pain of potentially expensive electrification investments can be tempered with the positive reality of what those investments could reasonably achieve, which can be invaluable in mobilizing the political will and resources needed to shift to an accelerated energy access pathway. 12 12 The EAD framework provides a structured approach to weigh the relative benefits of providing accelerated access to rural communities using distributed renewables, compared to service delivered through the grid over a longer timeframe. Similarly, the EAD can provide guidance on the relative gains of extending basic access to more people versus enhancing the access of those already served. It can and should be used in combination with energy demand forecasts, electrification scenario planning, and other key information about the local context, to prioritize pathways that provide greater dividends. In applying the EAD for planning purposes, policy makers must consider the timing for when universal access should be achieved, population growth, regional development issues and priorities, and minimum tiers of access to be achieved within different regions. As the Honduras case highlights, the EAD can be a powerful tool for understanding benefits that accrue as households climb the tiers of access. Given the benefits associated with electricity access, achieving the goal of universal access is critical to broader economic development. While SDG 7 presents the clearest connection to the EAD concept, the relationship between energy and development expands beyond basic access, which is reflected in the EAD calculation. The EAD framework demonstrates the relationship between energy access and quality education (SDG 4), reduced inequalities (SDG 10), climate action (SDG 13), and other development objectives. The aggregate EAD figures in this report should be used as a conservative lower-bound estimate of electrification benefits. There remain many categories of benefits that for reasons of data availability remain unquantified here. As researchers drill down further in understanding additional benefit categories related to energy access—like how households use their financial savings, health improvements, time use changes outside of increased study time, increased commercial and industrial productivity, and broader community effects (see Section 4.2)—these additional benefits can be incorporated into relevant planning. 13 13 1. INTRODUCTION 14 14 1.1 The benefits of energy access Access to modern and reliable energy services provides myriad benefits. Many of these benefits are related to enhanced productivity, which increases opportunities for income generation for households and firms. Even when higher income does not result, modern energy may facilitate more efficient time use, and relief of drudgery, for example from solid fuel collection or hauling of water. Modern energy also enables new consumption opportunities that enhance well-being, ranging from consumption of information and entertainment to services and foods whose production require specific appliances. Energy is also foundational for improving the delivery of many basic public services on which people rely to meet fundamental development needs, including safeguarding of health in community clinics or hospitals, enhancement of learning opportunities for children attending schools, or in enhanced safety and protection from crime through public lighting. These energy demands related to so many aspects of modern life have led some to dub energy the “golden thread” that connects economic growth, social equity, and environmental sustainability (United Nations, 2012). Yet today, one in six people worldwide live without any access to electricity (World Bank, 2015), while many more consume energy at very low levels, often from unreliable supplies (IEA, 2016; Nordhaus et al., 2016). About 40 percent of the global population relies on solid fuels and dirty technologies for lighting, cooking, and heating, exposing them to negative health, productivity, and environmental consequences (World Health Organization, 2014). These are shocking numbers, and the increasing consensus surrounding energy poverty has led to a global call to arms to tackle the problem, as evidenced most clearly in the establishment of the seventh Sustainable Development Goal, which endeavors to “ensure access to affordable, reliable, sustainable, and modern energy for all” by 2030. As clear as the problem is, policymakers remain hamstrung by a lack of clarity in quantifying the gains – or dividends – that come with energy access. In terms of aligning politics and planning high-level budget priorities, better understanding of these gains can be critical to building momentum to deliver them. Such understanding is vital for governments in low- and middle-income countries that are striving to deliver economic development and opportunity to their people, for donors aiming to support those governments with focused programming, and for the many businesses, NGOs, community groups, and other institutions that help to implement energy access solutions. In addition, such information can aid decision-making 1. Introduction 15 15 related to what types of solutions deliver the greatest benefits, and in what contexts. For example, there is a vibrant debate today concerning the appropriateness of various types of off-grid solutions and how the benefits of these solutions compare to those offered by conventional grid extension. Similarly, questions abound concerning the relative importance of extending basic access to more people versus enhancing the access of those already served. Discussion of such questions requires analysis of how benefits and economic development can be maximized, as well as consideration of the distribution of those enhanced outcomes and the ethical dimensions of energy access. This report describes an approach used to provide enhanced information on the nature of the energy access dividend (hereafter called the EAD). This report is not the first to address this problem: a previous report titled “Why Wait? Seizing the Energy Access Dividend” developed a framework for evaluating “the economic, social and environmental benefits that households and countries can expect through accelerated access to decentralized electricity, such as solar home systems and microgrids” (SEforALL and Power for All, 2017). The approach taken in this report uses the Why Wait framework as a starting point and extends it by including more impacts and leveraging new data pertaining to those impacts and to whom they accrue. This extended approach is applied to two Latin American country cases, Haiti and Honduras. In both settings, energy poverty continues to pose important challenges, but the nature of the problem is quite different. Haiti has the lowest rates of electricity access in the Western Hemisphere, while Honduras has much higher connection rates but mostly faces problems related to last mile connections and electricity quality. In fact, the contrasting nature of the challenge in these two settings provide a useful comparison that also helps to better demonstrate the value of EAD quantification. 1.2 Defining the Energy Access Dividend The conceptualization of the EAD originates from the idea of quantifying and valuing the opportunity costs of slow electricity transitions. During the time in which they do not have access to electricity, households miss out on opportunities to utilize electricity for productive or other benefit-generating ends. Thus, the EAD serves as a framework to calculate these forgone benefits over the course of a baseline, or “business-as-usual”, electricity transition (Power for All, 2016; SEforALL and Power for All, 2017). Figure 1 (top panel) depicts the population to which the EAD accrues graphically for a hypothetical case of access to basic electricity. As shown, the baseline rate of electricity access is 50 percent. By the end of the time horizon across which the EAD is calculated, access under “business-as-usual” expansion of coverage with connections has risen to 65 percent. The population that accrues the EAD over this time horizon, depicted in the shaded region in the graph, represents the unelectrified households in each year. In percentage terms, this population decreases over time as more people gain connections. Later in the report, this basic definition of the EAD (the “basic” EAD) is extended to also encompass quality aspects related to electricity access (the “extended” EAD). That is, in this extended definition of the EAD, the forgone benefits associated with both lack of access to electricity and access to electricity that has quality or reliability deficiencies are considered. The concept of the Multi-Tier Framework (MTF) for characterization of energy access (Bhatia and Angelou, 2015), which is described further below in Section 1.3 is used to incorporate this quality aspect. For illustrative purposes, extending the simple case in Figure 1, the 50- 65 percent of the population having access at baseline into tiers 1-5 could be subdivided (bottom panel), where the range again corresponds to evolution over time of the “business- as-usual” extension of energy access and quality. The more complete EAD then encompasses 16 16 the foregone benefits experienced over the time horizon by (i) the 35-50 percent not having any access at all, and (ii) the 75-90 percent (inclusive of those unconnected) having less than the tier five (or highest quality) access. Figure 1: Households accruing the energy access dividend (top), and by tier (bottom). 100 90 80 70 60 50 40 30 20 10 0 Households with each tier of electricity access (%) Energy Access Baseline, MTF 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 100 90 80 70 60 50 40 30 20 10 0 Households with electricity access (%) Energy Access Baseline 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 17 17 The EAD is not solely about population unconnected however, because simply identifying the unelectrified population offers little insight concerning the magnitude of forgone economic benefits. There are four key steps required for estimating the EAD. Step one concerns identification of the relevant categories of positive impacts associated with access to electricity and higher quality electricity. This step yields a qualitative conception of the lost opportunities from deficiencies in the supply of modern energy within a country. Step two then aims to quantify each of those types of impacts. For example, access to electricity provides benefits in the form of reduced use of alternative fuels such as kerosene. The forgone benefits in a particular year, from lack of access among unconnected people, can then be quantified in terms of the quantity of kerosene (e.g., in liters) that is displaced per person over the course of that year. Step 3 is the valuation or monetization of those quantified benefits. In the kerosene example, the expenditures on kerosene within unconnected households are used as a measure of the value of these forgone benefits, although a more complete conception would use the true shadow cost of that kerosene use, which would account for price distortions in the market for kerosene as well as the social and environmental externalities associated with kerosene use. Finally, in step four, the various economic benefits of enhanced energy access are aggregated together to produce the EAD estimate. To do so, the monetized benefits that households would enjoy with improved access are ascribed to them, for simple connections (in the basic EAD) and for the highest quality of access (in the enhanced EAD). To further aggregate these benefits consistently over the entire time horizon, the EAD is calculated as the sum of these benefits across the time horizon, discounted to reflect present values. In each EAD calculation presented in this report, the EAD for immediate access is estimated against the “business-as-usual” baseline rate of electrification. The next section briefly summarizes the scope of the analysis, prior to the more detailed description of steps 1-4 that follows later in the report. This summary also identifies additional relevant impact categories that are not included in the quantitative analysis, for reasons such as lack of sufficient evidence, insufficient data, or particular challenges related to valuation of those impacts. 1.3 Identifying the components of the Energy Access Dividend 1.3.1 Economic benefits of new connections The first benefits from electrification that households often experience come from the lighting transitions. Even with low energy capacity and limited duration of access throughout the day, households that gain access transition away from non-electric fuel sources for lighting such as biomass and kerosene. Importantly, lighting is often the main benefit for households attaining electricity access through non-grid solutions (e.g., micro-grid, solar home systems). Depending on the nature of the alternative fuels that are displaced, households often gain time and/or monetary benefits from this lighting transition. This report focuses on the financial savings households gain when transitioning from kerosene to electric lighting. Second, members of households may alter the distribution of their time after gaining access to electricity for lighting. It is often argued that this will have positive implications for children’s study habits, especially during evening hours. The literature relating electricity access, time spent studying, and education outcomes, however, provides mixed evidence 18 18 regarding this benefit. Some studies find evidence of positive effects of electrification on educational attainment (Daka and Ballet, 2011; Lipscomb et al., 2013), while others find the opposite (Ismail and Khembo, 2015; Squires, 2015). This report focuses on changes in study time when data is sufficient to facilitate their measurement. Reduced emissions encompass a third benefit related to the lighting transition. Burning biomass and kerosene for lighting emits climate-affecting pollutants such as carbon dioxide (CO2), black carbon (bc), methane (CH4), carbon monoxide (CO), nitrogen oxide (N2O), and organic carbon (oc); use of these fuels also often (but not always) releases more emissions than those released through the generation and use of electricity. As such, use of electricity for lighting often reduces emissions. This report focuses on the emissions reductions resulting from households transitioning from kerosene to electric lighting. In addition to lighting, households typically use basic electricity access for cell phone charging. Without private electricity access, households with cell phones often pay to charge them outside their homes, sometimes at high cost and difficulty. Thus, electricity can provide time and financial savings to households. This report focuses on the reductions in household expenditures incurred for cell phone charging outside the home. 1.3.2 Tiered framework of electricity access Consideration of benefits beyond those from simple connections that primarily provide lighting and phone charging benefits requires a framework that captures the quality, reliability, and safety of electricity access. The multi-tier framework (MTF) developed by the Energy Sector Management Assistance Program (ESMAP) unit of the World Bank (Bhatia and Angelou, 2015) is a useful tool for considering benefits of this nature. The MTF framework allows examination of the differential benefits accruing to households across six tiers (0-5) of access, where higher tiers indicate “better” access to electricity. The framework incorporates seven dimensions of access to characterize the energy access tier: capacity, duration, reliability, quality, affordability, legality, and health/safety. Figure 2 depicts the concept of energy tiers, focusing on the dimensions of capacity and duration. In tier 0, households do not have electricity access and must rely on other sources (candles, kerosene, biomass, or use of outside electricity) to meet their energy needs. In tier 1, households have connections with capacity only to power a single light bulb and charge a cell phone, and that provide electricity only a few hours per day. In tier 2, households can power small appliances like radios or fans in addition to lighting and cell phone charging. Households with tier 3 access have moved beyond electrification via basic solar products and may be electrified through grid connections, microgrids, or larger solar home systems. These larger systems provide capacity, quality, reliability, and duration improvements, and allow the powering of increasingly electricity-intensive appliances or assets for up to eight hours of electricity per day. Grid-based electricity facilitates access to tiers 4 and 5, which provide additional capacity and a longer supply of power (a minimum of sixteen hours per day for tier 4, and twenty-three hours per day for tier 5). While the dimensions of electricity capacity and duration enter into the MTF framework across all tiers, the other five dimensions of energy access become relevant in tiers 3 through 5. Reliability, characterized by service disruptions differentiate between tier 4 (maximum of 14 disruptions per week), tier 5 (maximum of 3 disruptions per week), and all other tiers (weekly disruptions not incorporated). Quality differentiates between tiers 1-3, in which electricity quality may prevent the use of some high-voltage appliances, and tiers 4-5, in 19 19 which all appliances can be powered. Affordability differentiates between tiers 1-2, which have no affordability component, and tiers 3-5, which indicate that households must pay a maximum of 5 percent of yearly income to access 365 kWh. Legality differentiates between tiers 1-3, which have no legality component, and tiers 4-5, which stipulate that electricity bills are paid to the utility or authorized seller. Finally, health/safety differentiates between tiers 1-3, which have no health/safety component, and tiers 4-5, which include access that is free of accidents. Figure 2: Multi-tier framework for energy access. 1.3.3 Benefits of improved connections As households progress through the MTF tiers described above, they will experience different types of benefits. Ownership and use of energy-consuming appliances and assets represents a large category of potential benefits households may enjoy with higher-quality electricity access. These electricity-using assets may provide a variety of benefits. For example, radios and televisions provide both leisure and informational benefits, fans are used for space cooling, and refrigerators enable food storage and preservation. This report focuses on ownership of these four assets and estimates the consumer surplus obtained from each asset in the EAD calculation. Figure 2: Multi-tier framework for energy access. 20 20 Finally, electricity for productive use is an increasingly relevant benefit as households progress to higher energy tiers. Households with more reliable, higher capacity electricity access begin to use electricity as an input to income generation. As such, they may incur income losses when they experience unexpected interruptions in access. Because reliability and duration increase as a household progresses through the tiers, these unexpected service interruptions and associated losses occur with lower frequency at the highest tiers. This report focuses on the reductions in income loss that households experience as they transition to higher tiers. Of course, individual households are not the only beneficiaries of increased and improved electricity access; there are also benefits to firms. While firm-level benefits are not the focus of this report, they are an important category of potential benefits attributable to increased electricity access. In summary, households experience benefits from electricity access both from acquiring initial, basic connections, and during their transition towards higher energy tiers. Table 2 summaries the benefits included in estimates of the EAD. Table 2: Benefits across tiers Included Excluded Tier 1  Savings of alternative lighting fuels • Climate-forcing emissions (CO2; black carbon) • Phone charging • Radio ownership • Study time • Health benefits of reduced emissions • Safety • Increased land values Tier 2  Additional phone charging  Fan ownership  Refrigerator ownership  Changes in time allocation  Additional health benefits  Additional safety  Increased land values Tier 3  Study time  Television ownership  Refrigerator ownership  Improved reliability  Additional productive use  Changes in time allocation  Additional health benefits  Additional safety  Increased land values Tier 4  Improved reliability  Additional productive use  Changes in time allocation  Additional health benefits  Additional safety  Increased land values Tier 5  Improved reliability  Additional productive use  Changes in time allocation  Additional health benefits  Additional safety  Increased land values 21 21 1.3.4 Benefits excluded from calculation While this study attempts to include many of the benefits of both initial and extended electricity access in calculations of the EAD, several categories of potential benefits are excluded from the analysis (Table 1), either due to mixed evidence or data limitations. First, while a first attempt is made at valuing improved reliability through reductions in income loss due to unexpected interruptions in access (albeit only for tier 5), further productive benefits of electricity access are omitted from the calculation. For example, increased productivity for small businesses, agriculture, or in in-home production are not included in the quantification of the EAD. Due to the absence of detailed data on electricity use for businesses in the MTF surveys on which the study relies, there is insufficient justification for quantification of additional productive benefits at this stage. Second, time use changes (outside of study time) associated with energy access are excluded from the analysis. Data availability is insufficient to quantify changes in household and income-generating work patterns, leisure time, and time spent on communications (SEforALL and Power for All, 2017). Furthermore, clear links between electricity access and many of these time use changes have not been identified in the broader academic literature. Third, health benefits associated with electrification are excluded from the EAD calculation. Heating and cooling, changes in emissions, and refrigeration of medication are all mechanisms that could lead to improved health outcomes. Again, data quality, particularly the challenge of cleanly identifying the specific effects of electricity versus other confounding factors, render inclusion of health difficult in the EAD calculations. Fourth, community benefits associated with electrification including safety and increased land value are not included in the EAD calculation. Electrified communities have more lights at night, increasing safety and security. Additionally, economic development spurred by electricity use in home or small-industry production can increase the value of local holdings such as land (Pueyo et al., 2013). 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