Productive Use of Energy – Pathway to Development?

Factors to consider for making productive use of energy a success story

Access to clean and sustainable energy has been acknowledged as a key component in reducing poverty and supporting social and economic development. The use of electric, mechanical or thermal energy for improving existing productive activities or for establishing new productive activities is expected to create value, for example in the form of increased income, resulting in positive impacts on local livelihoods. 

There are high expectations concerning the positive impacts of productive use activities triggered by improved access to energy. However, we know from our research that energy access alone does not automatically lead to productive use of energy, and subsequently to income generation and improvements in welfare.

There are many factors that play a decisive role in whether and which productive uses the introduction of decentralized local energy systems makes possible at all. So let’s have a more systematic view on them by applying a simple value chain logic.

A generic value chain of productive uses of energy consists of three main stages: a) local energy systems providing energy services based on locally available and renewable energy sources; b) local enterprises, using this energy for creating local value; and c) markets where the products and services are sold. Important factors that affect the outcomes of energy access interventions can be grouped along these three value chain stages.

Factors related to the energy system:

• Type of energy provided: Whether energy is provided in the form of electricity, gaseous, liquid or solid fuel is decisive for which energy services can be addressed and which appliances would be necessary for this.
• Capacity: This includes both the maximum power provided (e.g. in kW) and the amount of energy available over time (e.g. in kWh per day). For example, mechanical manufacturing processes require high peak power in rather short and intermittent ways, while thermal processes (e.g. baking) require stable levels of power for rather long periods of time. 
• Duration and scheduling: Depending on the technological configuration, local energy systems are able to provide energy for a limited time. Solar home systems typically provide 12 or 24 watts for about 2 to 4 hours of continuous operation. A small biogas plant typically provides energy for 2 to 3 hours of cooking per day. In addition, the available power may vary over the day like in PV-based systems or depends on the season. Small hydropower plants, for instance, generate more power during and immediately after monsoon in South Asia. 

Factors related to enterprises:

Social and financial resources of local enterprises act very often as a barrier to productive uses of energy. There is increasing consensus to complement the installation of energy technologies with measures to strengthen skills and finance of local enterprises. 

• Competencies: These include the different types of skills needed to develop or expand commercial enterprises. They can be of a ‘technical nature’, such as skills in new processing techniques or improved agricultural practices. But also ‘business skills’ such as accounting, management and marketing are also a precondition for running successful enterprises.
• Finance options need to be available and accessible for small scale entrepreneurs. Not only for buying the energy system itself but also for investing in appliances and equipment needed to expand existing or establish new processes. For instance, an investment in solar irrigation will only unfold its transformative power if it is complemented by investments in drip irrigation systems and greenhouses. 

Market-related factors:

Whereas technology and enterprise related factors are more and more addressed in energy programmes, market related factors are still often being overseen or simply under addressed. Nevertheless, the access to (bigger) markets is one of the major barriers for local enterprises. Local markets tend to be limited and saturated quickly, thus not offering significant opportunities for growth. Furthermore, the entire value chain necessary for bringing products to market needs to be considered and addressed adequately. 

Two factors seem to be of specific relevance:

• Physical access: The availability of infrastructure such as roads and transport services can severely limit the growth possibilities of local enterprises. While road construction goes well beyond the objectives of energy access projects, interventions such as the establishment of collection centres (and related management capacities) could facilitate access to transport services.
• Social access: Access to relevant networks of market actors, information and communication about markets, and also the negotiating abilities of small local enterprises need to be considered. 

Our research shows that technological issues are often not the most decisive factor in achieving development effects through productive use of energy. Social, economic and market aspects such as training, market research or finance are essential for enabling the productive use of energy at all. So, for productive use of energy to happen successfully, it is critical that energy access projects apply a holistic approach, which considers all these factors along the value chain. Only then positive outcomes and impacts for local living conditions can be achieved.

Further Readings:

• Terrapon-Pfaff, J., Gröne, M.-C., Dienst, C. & Ortiz, W. (2018). Productive Use of Energy – Pathway to Development? Reviewing the Outcomes and Impacts of Small-Scale Energy Projects in the Global South. Renewable and Sustainable Energy Reviews (96), 198-209.  https://doi.org/10.1016/j.rser.2018.07.016
• Terrapon-Pfaff, J., Gröne, M.-C., Dienst, C. & Ortiz, W. (2018). Impact Pathways of Small-Scale Energy Projects in the Global South – Findings from a Systematic Evaluation. Renewable and Sustainable Energy Reviews (95), 84-94. https://doi.org/10.1016/j.rser.2018.06.045

Further Material:

• Webinar (2022): Drawing Economic Benefits – Maximising the impacts of energy access by drawing economic benefits from the productive use of energy.