The Economist recently published an article questioning the cost of investing in energy access versus the benefits for energy access customers. Our partners at CrossBoundary, an investment advisory firm based in Nairobi, published a response to the article that fact checks The Economist article’s claims and dispels some of the misinterpretations made by The Economist of studies that were conducted in Tanzania and elsewhere. We want to share CrossBoundary’s response with our community.
-Leslie Labruto, Head of Global Energy, Acumen
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Why we believe The Economist should reconsider their doubts regarding the impact of electrification on the poor
By Gabriel Davies, Matt Tilleard and Jake Cusack
On Friday, The Economist published an article questioning whether the costs of investing in universal electrification were justified by the benefits. We applaud The Economist for taking the time to conduct interviews in Rwanda as well as review relevant research in constructing their piece. However, we believe the article misinterpreted some of the research on electrification and found more room for doubt than justified.
Beyond anecdotes, the article based its case on two empirical claims and referenced well-respected research papers to support each claim. In this short response, we will examine both of The Economist’s substantive claims and show how a closer reading of the evidence they cite would offer a different perspective.
The most substantial claim made by the article is that a study showed that grid connections in Tanzania only had a minor effect on poverty. The Economist wrote:
A detailed study of rural Tanzania, where America’s Millennium Challenge Corporation built power lines and subsidised connections, found little effect on adults’ welfare. Offering cheap connections cut the proportion of people living on less than $2 a day from 93% to 90%—hardly a transformation
However, this claim appears to be based on a misunderstanding.
First, the statistic the article cites is based on the total cohort of people who were offered a subsidized connection, not who actually received a connection. For those who actually did receive a connection, the proportion of people living on less than $2 a day dropped from 90% to 85%. And using the more common benchmark of living on less than $1 a day, the number of people in poverty dropped by 16 full percentage points.
Second, perhaps The Economist would still see a 5% or 16% reduction in poverty as “hardly a transformation.” But that would be to ignore the paper’s clearly stated conclusions that being connected to the grid does have a transformative impact on economic well-being. Quoting directly from the paper itself – “Grid Electricity Expansion in Tanzania: Findings from a Rigorous Impact Evaluation”[i]: “We found large and consistent positive impacts of connection to the grid on various measures of household economic well-being. Connection to the grid increased annual household nonelectric consumption by 27 percent, annual household income by 49 percent, per capita daily consumption by 23 percent, and per capita daily income by 27 percent.”
So it seems that The Economist has misunderstood this study. It may be true that the study shows that merely offering a connection doesn’t decrease poverty across a community. But that’s not particularly surprising! What is important and significant is that the study does show a substantial increase in household wellbeing for those who were connected to the grid.
The second substantial claim in the article is that a paper by Michael Grimm and others concludes solar lamps have little substantive impact on poverty. The Economist wrote:
Another study by Mr Grimm and his colleagues found that Rwandans who were given solar lamps responded by lighting their households more brightly, for more hours each day. They burned less kerosene, and their children studied a little more, especially at night. But the adults’ working lives changed hardly at all. Solar lamps appear not to rescue people from poverty.
There are two problems with The Economist’s interpretation of Mr Grimm’s papers.
First, Mr Grimm’s work in fact generally suggests that solar lamps do have an impact on poverty. The first two sentences of The Economist’s paragraph already acknowledge some of these meaningful benefits (more lighting, more studying, less harmful kerosene) of solar lamps for the poor. Our reading of Grimm’s papers would only support an extremely narrow version of the assertion that “adults’ working lives changed hardly at all.” In Grimm’s own paper “Demand for off-grid solar electricity – Experimental evidence from Rwanda”[ii] he states: “In fact, Grimm et al. (2016) as well as Samad et al. (2013) provide evidence for pro-poor impacts of off-grid solar that are noteworthy given the low investment costs.” And “Grimm et al. (2016) and Samad et al. (2013)…find that households not only reduce energy expenditures quite considerably. There is also evidence for effects on productivity of housework activities, health, environmental outcomes, study time of children, and women’s decision-making abilities. These benefits are quite likely to cover the social costs and hence to make the investment worthwhile.” In another Grimm paper “A First Step up the Energy Ladder? Low Cost Solar Kits and Household’s Welfare in Rural Rwanda”[iii] he states “Using a randomized controlled trial, we examine uptake and impacts of a simple Pico-Photovoltaic kit that barely exceeds the modern energy benchmark defined by the United Nations. We find significant positive effects on household energy expenditures and some indication for effects on health, domestic productivity, and on the environment.”
Second, completely ‘rescuing people from poverty’ is a high and artificial standard against which to judge solar lamps. We would agree with The Economist that solar lamps alone cannot fully lift people out of poverty. But taken alone, neither do vaccines, education or the myriad of other effective interventions that together help people emerge from poverty. As Grimm’s studies show, solar lamps do save the poor money and make their lives substantially better. Given that solar lamps are also the bottom rung of the ‘electricity ladder’, we can expect that larger Solar Home Systems, Mini-Grids and/or grid extension would have an even more powerful effect.
The research papers cited in the article are some of the best experimental research in rural electrification that we have read. There is a good and expanding body of work investigating the costs and benefits of electrification. We welcome a robust debate and further empirical research on the impact of different approaches to electrification on poverty. We have written extensively ourselves on how electrification can be most cost-effectively achieved. There is more to learn, and we agree with The Economist that we should approach this immense task with humility.
But it is a bit disappointing that such high-profile coverage of the leading research would appear to misunderstand their results. We strongly encourage readers to download and read the papers themselves and make their own minds up. Given our respect for The Economist and the immense influence it wields, we hope they will continue to take an interest in the continuing efforts to bring electricity to those who remain without it. In time, perhaps they will take the opportunity to reconsider the positive impact of bringing electricity to the poor.
Jake Cusack and Matt Tilleard are the Managing Partners of The CrossBoundary Group. Gabriel Davies is the Head of CrossBoundary Energy Access.
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CrossBoundary recently launched CrossBoundary Energy Access (CBEA), Africa’s first project financing facility for mini-grids.
[i] Duncan Chaplin, Arif Mamun, Ali Protik, John Schurrer, Divya Vohra, Kristine Bos, Hannah Burak, Laura Meyer, Anca Dumitrescu, Christopher Ksoll, and Thomas Cook, 2017, Grid Electricity Expansion in Tanzania: Findings from a Rigorous Impact Evaluation. Mathematica Policy Research, Reference Number: 06919.431.
[ii] Michael Grimm, Luciane Lenz, Jörg Peters, and Maximiliane Sievert, 2018, Demand for Off-Grid Solar Electricity – Experimental Evidence from Rwanda, Ruhr Economic Papers #745.
[iii] Michael Grimm, Anicet Munyehirwe, Jorg Peters, and Maximiliane Sievert, 2016, A First Step up the Energy Ladder? Low Cost Solar Kits and Household’s Welfare in Rural Rwanda. THE WORLD BANK ECONOMIC REVIEW, VOL. 0, NO. 0, pp. 1–25.