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The Modern Energy Minimum: The case for a new global electricity consumption threshold

The current threshold used to define modern energy access is too low

According to the global standard set by the International Energy Agency (IEA), modern energy access is achieved once an individual’s household annual electricity consumption reaches 50 kWh per capita in rural areas and 100 kWh in urban areas. This level of electricity consumption is enough to power a few lightbulbs for a few hours per day, to charge a mobile phone, and to occasionally run a small fan. In fact, using cross-country trends, these levels of rural and urban electricity consumption correlate with incomes of just $0.27 and $0.57 per day, respectively.

For this reason, the current annual consumption threshold of 100 kWh is better thought of as an extreme energy poverty line, rather than as the international energy target for promoting development and greater incomes. Just as income is tracked above a poverty line and at other higher levels, the same framework could be applied to electricity consumption.

 

The current threshold for modern energy access also fails to capture any consumption outside the home, where the majority of electricity is used

The current consumption threshold does not provide any information about electricity used in industry, commerce, agriculture, transportation, or public services. This shortcoming is meaningful: non-household uses account for about 70 percent of global electricity consumption. More significantly, while using electricity at home is important for raising living standards, energy used to generate income and other productive uses is generally consumed outside the home. If higher electricity consumption is supposed to help drive incomes higher, we should be paying at least as much attention to non-residential uses

 

A New Threshold: the Modern Energy Minimum

If we believe that 50 or 100 kWh is the extreme energy poverty line, what is the next step on the energy ladder? What might be an electricity target for prosperity? Using the trendline from the full sample of cross-country data, the midpoint for lower-middle income status ($2,511 per capita) correlates almost exactly with an annual per capita consumption level of 1,000 kWh. In other words, if we aspire for all people to reach an income of at least $2,500 per year (or about $6.85 per day), we should also aspire for universal electricity consumption of at least 1,000 kWh. We propose this as the new threshold, or the Modern Energy Minimum.

 

Capturing development-inclusive electricity: at least 300 kWh at home plus at least 700 kWh in the wider economy

The Modern Energy Minimum encompasses both residential electricity consumption and non-residential consumption in the wider economy. Based on the approximate global average proportions (30/70 residential/non-residential) an overall target of at least 1,000 kWh per person implies at least 300 kWh of electricity consumed at home and at least 700 kWh consumed in the other sectors of industry, commerce, transportation, agriculture, and public services.

Capturing non-residential consumption is integral because electricity used outside the home includes most of the ways energy contributes to economic activity and higher income — which in turn enables household consumption. Since residential and non-residential consumption are intimately interlinked within a wider energy system and economy, having both in the new metric better reflects the full spirit and ambition of SDG7.

The scholarly literature is clear that household consumption alone does not drive income growth. This suggests that a household-only electrification approach - such as setting a residential connection target and intervening to stimulate household energy demand (for instance, via appliance finance) - is unlikely to succeed in improving economic outcomes at scale. Any successful development strategy that aims for far higher household consumption must also tackle the energy needs of commerce, industry, and agriculture to increase productivity and incomes.

 

Conclusion

The Modern Energy Minimum of 1,000 kWh per capita is a necessary complement to the current 50/100 kWh basic definition. This new threshold is not only higher and more consistent with the income aspirations and development goals of all people, but helps to shine a light on the crucial but less visible role of electricity in the economy. Yes, everyone deserves to have lights at home. But the new threshold also covers electricity needed to earn income outside the home.

At a practical level, the Modern Energy Minimum provides a target that could be used to influence planning and investment decisions by governments and the allocation of resources by the international community. And it should provide some guidance for prioritization and sequencing of policies and investments in the power sector. For countries with a headcount of zero, it highlights a need to balance household-level approaches with other uses. This might, for instance, suggest a need to prioritize higher consumption growth in the industrial, commercial, and agricultural sectors. That implies different investment decisions and greater attention on cost and reliability. For countries with a headcount between zero and 100, the new metric suggests a far greater focus on equity and inclusion.

A next step is to operationalize and adopt this Modern Energy Minimum. An international body — such as the UN, World Bank, or IEA — could begin collecting and reporting this data. That would enable the Modern Energy Minimum to become an additional indicator for progress that could be used in the next iteration of international development goals. The upcoming successor to SDG7 would be a good place to start.

 

Excerpt of: The Modern Energy Minimum: The case for a new global electricity consumption threshold (The Energy for Growth Hub, 2020)

 

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