Small-Scale Renewable Energy And The Informal Economy

Editor’s Note: EarthTechling is proud to repost this article courtesy of the Worldwatch Institute. Author credit goes to Eric Anderson.

Kenya’s power grid does not reach the small farming village of Kiptusuri, making it difficult for local farmers to charge their cell phones. Mogotio, the nearest town connected to the grid, has a small cell phone charging store where waits can be as long as three days. One Kiptusuri resident, Sara Ruto, took the initiative to purchase a solar photovoltaic system, providing lighting for her children to study by and allowing her to provide local residents with more reasonably priced cell phone charging services. Sixty-two other families in the village subsequently installed solar power systems, providing electricity to a previously unlit town.

Small-scale distributed renewable energy is also being developed in places such as Nepal, where 80 percent of the population has no access to the national electricity grid. Solar photovoltaic systemsare beginning to be employed in clusters in outlying villages, providing power to between 6 and 12 houses each. Micro-hydropower programs have been implemented in Sri Lanka and the Philippines. There are even efforts to use small subterranean chambers designed to convert cow manure into biogas. The United Nations Development Programme has begun focusing on microgrid solutions as the primary method of providing electricity to rural areas. In many cases, microgrids are more economical and, in addition to off-grid technologies, they represent one of the best options for electrifying the most remote areas.

blm arizona solar and wind

image via Shutterstock

This new focus on microgrid and off-grid solutions constitutes a shift in thinking from previous efforts to incorporate rural areas into the national power grid, spurred in part by new technology and lower costs. But it also reflects a shift in focus on the part of international organizations from formal market capitalism to microenterprise and the informal economy. Though there are many competing definitions of the “informal economy,” it is generally defined as economic activity occurring outside of formal channels, usually outside government regulation or done without monetary exchange. Essentially, it is the economic activity not easily quantifiable by traditional macroeconomic statistics. It can range from street vendors operating without licenses to vegetable gardens in backyards.

The term “informal economy” was popularized by anthropologist Keith Hart in 1973 in opposition to international emphasis on national-level economic development, which has its roots in the Keynesian theory of macroeconomics. It is nevertheless important for sustainable development efforts to focus on the informal economy because in some countries, the informal economy constitutes the majority of economic activity.

Energy frequently plays a major role in the informal economy. In urban areas of many countries, electricity is stolen through illegal connections, and in many rural areas without access to centralized electricity grids, people collect and burn wood or other biomass for their energy services. Commonly, electricity theft and off-grid and microgrid energy projects are used as platforms for microenterprise, as in the case of Sara Ruto selling excess electricity from her solar panel to charge her neighbor’s cell phones. Thus when implementing renewable energy projects – especially microgrid or off-grid systems – international development must take the informal aspects of the local economy into consideration.

Economist Hernando de Soto has been influential in this shift in focus to the informal economy. De Soto’s policies advocate primarily for the reforming of property ownership in order to empower underprivileged populations. The goal is for low-income populations to achieve representation within the economic system. However, land ownership formalization efforts also have the effect of undermining established social relations in informal communities and thus the displacement of cultural ways of being. In attempting to recapitulate the informal economy or informal ‘capital’ into the formal system, the indigenous forms of economy are marginalized or displaced in favor of the globalized market system.

Similarly, national- or industry-level policymaking on renewable energy in less-developed countries can result in ignoring indigenous energy production without taking into account the social and cultural aspects of the informal economy. In the attempt to bring marginalized populations into utility-scale grid systems instead of encouraging distributed forms of renewable energy, indigenous modes of production and opportunities for microenterprise are often overlooked. Ultimately, the attempt to make local populations actors in the established energy system has the potential to worsen the economic situation of those most at risk — as has already taken place in some countries.

The question then is how international development can best collaborate with the locally driven informal economy. As one Enabling Access to Sustainable Energy (EASE) report notes, international organizations can help small communities set up renewable energy microgrids by engaging with local entrepreneurs, providing them with demonstration models, easing distribution mechanisms, promoting training and education programs, and working with local and national governments to reduce regulation and facilitate small-scale energy projects.

Ultimately, it is important for the international development practice to keep the informal economy in mind. International organizations must engage with specific populations, adopting a participatory model of renewable energy development. This model has been adopted by the Worldwatch Institute in its “sustainable energy roadmap” model, which engages policymakers and stakeholders on the national, municipal, and local levels in order to understand the impact that renewable energy projects will have on communities.

Through research and outreach that inspire action, the Worldwatch Institute works to accelerate the transition to a sustainable world that meets human needs. The Institute’s top mission objectives are universal access to renewable energy and nutritious food, expansion of environmentally sound jobs and development, transformation of cultures from consumerism to sustainability, and an early end to population growth through healthy and intentional childbearing.

    • Iris Mackenzie

      I am writing in response to Eric Anderson’s article, “Small-Scale Renewable Energy and the Informal Sector”, re-posted in Earth Techling on 23 February 2012.  Mr. Anderson makes the blanket statement that property formalization “undermines established social relations [and displaces] cultural ways of being.”, and he goes on to say that by incorporating the informal sector into the formal, “indigenous forms of economy are marginalized or displaced in favor of the globalized market system”.
          I just wanted to clarify that Hernando de Soto and his organization, the Institute for Liberty and Democracy, ILD, actually work to give the informal sector the legal tools needed to deal with globalization on an equal footing, while preserving their way of life, if they so wish.  Furthermore, if the rights of remote communities are not recognized by the formal sector, they will very likely be swept away by the tides of globalization because they do not have the tools to communicate with the outside forces much less defend their rights and ways of life.  ILD does not believe that the law should be a static, one-size-fits-all corset, but rather a breathing and living apparatus that acknowledges existing mechanisms, such as those recognized by barking dogs and local customs.
          If remote communities are recognized and brought into the formal sector, they will be able to use the legal tools of the formal sector not only to develop their activities in ways recognizable by the outside world, but also to carry these out in ways that incorporate and/or preserve their cultural ways of life.  Countries as culturally and economically divergent as Japan and Saudi Arabia are cases in point.
          More important, ILD, believes that not only should indigenous communities have the right to being consulted about what others would like to do in their territories, but also that indigenous communities have the right to decide their future for themselves.  Interestingly, in Peru, when natives were asked how they would like to see things done during the National Development Proposal for the Amazon Region in 2009, they communicated to the government that, “Neither public institutions nor NGOs [non-governmental organisations] should insist on promoting models for communal aquaculture (communal fish farms) that have been proven to fail, given that the indigenous model of production is based on the family or extended family (interest groups).” (OECD, Development Co-Operation Report 2011, October 2011, p. 84)
          I recommend that Mr. Anderson read Hernando de Soto’s “The Peruvian Amazon is not Avatar”, where Mr. de Soto explains the importance of leveling the playing field through property and business formalization. 

      Iris Mackenzie