2019/100 Supported by K NKONW A A WELDEGDEG E OL N ONTOET E S ESREI R E ISE S F OFRO R P R&A C T HTEH E NEENREGRYG Y ETX ITCREA C T I V E S G L O B A L P R A C T I C E THE BOTTOM LINE Where and How Slum Electrification Succeeds: Substantial gains have been made in recent years in electrifying A Proposal for Replication urban and peri-urban areas in the developing world, in partial fulfillment of the global How have slum dwellers fared in gaining In the developing world in the latter half of the 20th century, commitment to ensure access to electrical service was often extended to informal urban and peri- access to electricity? affordable, reliable, and modern urban areas well below cost as a social benefit (to make those areas energy for all by 2030. But Early efforts to regularize electrical service to slums safer, healthier, and more livable), often in exchange for political additional efforts are required to were half-hearted and had mixed results support. The cost to utilities was initially small, because few residents reach slum dwellers, who often fall could afford more than a lightbulb. But as slums grew, so did demand Today, 55 percent of the world’s population lives in urban areas; by back on power theft or informal for electricity. And as rate-paying customers and taxpayers began 2050, the level is expected to rise to 68 percent.1 The number of slum connections to obtain access to to balk at providing further subsidies for electricity consumption dwellers will grow apace, from 1.6 billion to almost 3 billion by 2050.2 electricity. This kind of access, in slums, utilities became trapped in a downward cycle of financial In some countries, such as Brazil, Kenya, and Pakistan, more children however, comes at a high cost for losses and deteriorating service. are already growing up in slums than outside them. paying customers and distribution Slum dwellers responded to poor service quality by ceasing to With urbanization, access to electricity has grown. Urban areas companies. Joint efforts by pay their bills; load limiters and meters were bypassed or tampered across the world have close to universal access (96 percent), government, utilities, and local with; so-called flying connections became rampant; and efforts although challenges remain in the rapidly growing cities of Africa and populations can break the vicious to collect monthly payments fell far short of the mark (figure 1). Asia–Pacific. “Although urban access rates have increased relatively cycle of theft and poor service. Residents and organized criminals became hostile to the distribution little in the last 25 years,” notes the leading report on progress company’s efforts to collect, causing the company to withdraw and toward sustainable energy for all, “even sustaining those rates allow infrastructure to deteriorate to the point of failure. Utilities  utu Dave is an energy R represents a major achievement given the rapid urbanization that appealed to government, usually without much success, to make up specialist with the World has added 1.6 billion people to the world’s cities during this period” their mounting losses. Customers in slums were left with unreliable, Bank’s Energy and Extractives (IEA and World Bank 2017: 11). However, this assessment does not Global Practice. unsafe, and often illegal services—a far cry from the affordable, distinguish between safe, reliable, and legal connections, and the reliable electricity they had been promised. Low-income areas  onnie Smyser is a C unsafe, unreliable, and illegal ones that are ubiquitous in urban slums and informal settlements throughout the developing world are still consultant with the World and peri-urban areas. littered with the remains of failed electrification projects. Bank’s Energy and Extractives Global Practice. 1 https://www.un.org/development/desa/en/news/population/2018-revision-of-world-urban- Fabian Koehrer is a ization-prospects.html 2 https://unhabitat.org/up-for-slum-dwellers-transforming-a-billion-lives-campaign-unveiled- consultant with the same in-europe/ practice. 2 W h e r e a n d H o w S l u m E l e c t r i f i c at i o n S u c c e e d s : A P r o p o s a l f o r R e p l i c at i o n Figure 1. The vicious cycle of deteriorating service distinct from adding previously unconnected areas to the distribution grid. Typically slums will have already obtained access one way or another—the challenge is to ensure that service is safe, reliable, and Poor affordable so that it contributes to the area’s economic development. service quality Enabling conditions are needed to improve the utility’s expected Utility companies often return from investments in regular service for slum dwellers, such Utility Population block or resist slum experiences bypasses as the assurance that special tariffs for low-income customers losses meters will be subsidized from outside the utility (e.g., by the government electrification efforts, or donors). In fact, most slum electrification programs will require expecting that, despite some financial stimulus either to the distribution company or to the their best efforts, the prospective customer. Putting those supportive instruments in place Infrastructure Flying requires substantial planning to avoid common pitfalls, such as the initiatives will result in declines connections and fails following. poor return on investment. • Costly subsidies to unprofitable utilities (often state-owned) leave the government no space to provide social support to the slum population. Residents Difficulty hostile to the collecting • Many utilities are unable to get corruption under control or to utility monthly bills implement a system of cost-recovery tariffs. • Connection fees and costly requirements such as structural safety certifications and concomitant rewiring costs may deter The causes of these common failures were several. customers from connecting. After years of receiving a service at no cost, consumers came to believe that they had a right to free electricity—however Without an appropriate business and service model and a regu- unreliable and unsafe. Once electrified, low-income communities latory environment that removes these barriers, slum electrification continued to be marginalized through bare-bones services, lack of efforts will not be successful in the long term. consultation, and only rare hiring from within the newly served areas. Governments and utilities seemed to expect technology alone to Has the prognosis for slum electrification improved? solve social problems. Improved distribution and metering technol- Several recent developments suggest a ogies, for example, may be necessary, but they are insufficient to path to success address electricity theft. Utility companies often block or resist slum electrification efforts, Slum electrification has been successful when governmental expecting that, despite their best efforts, the initiatives will result institutions at all levels work together, utilities are on board with the in poor return on investment. This is especially true where systems political program, and marginalized communities are brought into the have been poorly maintained and the need for rehabilitation is high. planning process and have a stake in its successful outcome. The return that can be achieved from connecting new customers for At bottom, sustainable access to safe, reliable electricity benefits whom affordability is not a problem is usually significantly higher. everyone, and several recent developments have made it easier In other words, regularizing electricity service in slums where to set a virtuous cycle in motion. Governments seek the stability electrical service has slipped into the cycle depicted in figure 1 is and social and economic development that are achieved through 3 W h e r e a n d H o w S l u m E l e c t r i f i c at i o n S u c c e e d s : A P r o p o s a l f o r R e p l i c at i o n Figure 2. The virtuous cycle created through social compact governments have acknowledged that unsafe, substandard access no longer meets the basic electricity needs of households and small Customers businesses. Providing populations with safe and reliable electricity receive safe, services is increasingly seen as an opportunity for economic reliable, and affordable development rather than as a burden for taxpayers and ratepayers. Costly subsidies to electricy And—as always—politicians understand that providing safe and Slum dwellers unprofitable utilities (often reward the Customers pay reliable electricity to slum populations is a major vote enhancer. government their bills Mandates for full electricity access are being established. As an state-owned) leave the politically example, Kenya Power’s mandate to achieve full electricity access government no space to in Kenya by 2020 is complemented by financial support to overcome provide social support to barriers. Kenya’s government launched the “Last Mile Program,” the slum population. The utility under which electrification is to reach 100 percent for both regular The government cuts its losses and residential customers and slum consumers. Support from the World provides improves its incentives for electrification return on Bank’s International Development Association to subsidize con- investment nection fees allowed Kenya Power to restart its slum electrification program—within two years, nearly 150,000 legalized household The government connections were established (World Bank 2015). pays out less in subsidies When making policy decisions about how the electricity sector will be structured and delineating the lines of authority, responsibil- ities, and rules under which utility companies will operate, govern- ments and regulators have an opportunity to build in incentives electricity access. Governments and utilities have evinced greater to provide sustainable energy for all. Governments and regulators willingness to invest and engage in slums. In several prominent must join forces to make slum electrification a triple win: enhance cases, government and utility leaders have demonstrated that electricity savings, staunch electricity theft, and ensure that new sustainable slum electrification is possible, especially when good paying customers are satisfied. leadership is paired with upgraded technology and systems and During the process of privatizing a nonperforming utility, goals for when the specific characteristics of slum communities are reflected reducing losses and increasing connections can be stipulated in a in business models. Within the bounds of affordability, consumers concession agreement. are willing to pay for a safe, reliable electricity supply. In particular, Governments should work with utility regulators to bring tariff making regular service affordable for low-income customers has relief to those who cannot afford to pay the full electricity tariff. Social been shown to help maintain losses at low levels. Electricity compa- and welfare policies can be coordinated to make electricity more nies want to provide safe, reliable electricity profitably to customers affordable for low-income households. Examples include prepay- who are happy with their service and not prone to vandalism or theft. ment systems, which make it easier for consumers to control their Figure 2 depicts the virtuous cycle. electricity consumption, and direct cash payments to slum dwellers, Governments and utilities are increasingly willing to which enable them to make their tariff payments. Prepaid systems invest and engage in slums. Through their commitments to the are especially suited for customers with irregular incomes who need Sustainable Development Goals or Sustainable Energy for All (SE4All) to control their spending. 4 W h e r e a n d H o w S l u m E l e c t r i f i c at i o n S u c c e e d s : A P r o p o s a l f o r R e p l i c at i o n Governments can support additional enabling conditions to Upgrading technology and systems facilitates slum elec- mandate, design, and implement a successful strategy for slum trification. New and smarter technology systems improve overall electrification. In order of effectiveness, the most important of these utility operations and help to prevent, reduce, and monitor theft. enabling conditions are: Metering and monitoring equipment provides information on where • Creating regulatory incentives or penalties linked to return on problems are occurring and whether they are caused by tampering. Basing utility compensation investment for shareholders and key performance indicators Analytical tools for energy balancing, which help to localize theft, on achievement of for utility management (including moving toward cost-recovery are an essential backbone and a necessary part of any prepaid tariffs). system. Some utilities have applied ultra-high deterrence technology performance goals has • Favorable treatment of the extraordinary investments and in locations where gangs have taken over the distribution system. proven to be a major initiatives required to bring highly degraded distribution systems Prewired “ready-boards” reduce the cost of required wiring upgrades. game changer. up to standards for quality, reliability, and theft-reduction, possibly Improving affordability for low-income customers is key as part of a concession award. to maintain a low-loss situation. Lowering or eliminating the • Allowing the company to “internalize” the initial cost of connec- connection fee, or providing financing to allow the fee to be paid in tions rather than charge the customer all or part of the connec- monthly installments, helps low-income consumers to overcome the tion fee. If a connection fee is mandated by law, ways to reduce upfront barriers to becoming a legal customer. As just noted, ready- the “down payment” and incorporate the remainder into monthly boards cut wiring costs. More energy-efficient appliances and lighting payments through the billing cycle should be evaluated. reduce electricity expenditure. • Adoption of low-income (social) tariffs funded by social cash Adapting business and service approaches to slum transfers or other assistance aimed at the poorest. In other conditions is essential. A common pitfall is rushing into slum words, targeted subsidies should enable providers to charge a electrification with insufficient knowledge of the service territory. social tariff, or provide low-income customers with enough cash Successful efforts have been characterized by a deep understanding to pay for their (efficient) electricity usage. of the targeted communities and enough resources to carry out the mandate. A plan must include reconnaissance, engagement, and Utility leadership has proven to be essential to sustain- trust building exercises with the community. able slum electrification. The main implementer of any slum electrification program is the utility. Reliable supply for consumers What is the way forward? and return on investment for the company both depend on stem- ming technical and commercial losses. This needs to become a The government, the utility, and the local population company-wide priority. A change of ownership can be a key entry must work together to provide everyone with safe, point for slum electrification and other loss reduction efforts. Where reliable, and affordable electricity top management have embraced slum electrification and eliminated Efforts to advance slum electrification should be embedded in a internal corruption, the job was done successfully. Additionally, system of assistance for the slum population. Government must efforts by the utility need to be complemented by the government provide an enabling environment (including a sound regulatory in the form of decrees or laws. Basing compensation or return on framework) and subsidies to assist low-income households. Utilities investment on achievement of performance goals has proven to be a must be willing to engage in activities that are outside of their major game changer. normal role, notably in designing and implementing approaches and business models keyed to slum realities. Community engagement is 5 W h e r e a n d H o w S l u m E l e c t r i f i c at i o n S u c c e e d s : A P r o p o s a l f o r R e p l i c at i o n necessary at every stage; communities should be enlisted in efforts and engineers can greatly improve effectiveness of efforts to regu- to reduce illegal connections and inefficient consumption behaviors. larize electricity service through community engagement. In some Community-based organizations and nongovernmental organizations instances, nongovernmental organizations may be better at certain often have local knowledge invaluable to the utility. functions. These include public outreach or management of aspects Large-scale regularization means making a concerted effort to of utiities’ corporate social responsibility efforts, such as programs to Community engagement bring the following elements together: benefit disadvantaged groups. has often been the missing • A social compact Figure 3 depicts the different stages of a successful slum • Affordability, through the reduction or elimination of connection electrification intervention. All these stages provide the opportunity component in slum costs to apply the previously mentioned game-changers. Through a holistic electrification programs. • Solutions to problems such as unsafe wiring and informal land approach in which utilities, political leaders, and communities work tenure together, the groundwork for successful electrification can be laid. • Technology adapted to payment capability Development partners can provide leverage to kick-start slum • Social (low-income) tariffs electrification projects, since they can offer much-needed support • Linking good payment performance to eligibility for social- for governments. The World Bank can aid in the successful electrifi- economic benefits. cation of slums by supporting projects that invest in such efforts, by sharing its know-how (e.g., through South–South Knowledge efforts Community engagement has often been the missing component or communities of best practice), and by bringing stakeholders in slum electrification programs. As communities become formalized, together. interdisciplinary teams composed of social scientists, economists, Figure 3. Stages of slum electrification Slum regularization stages Community engagement track 1. Implementing enabling tools and market reconnaissance Conducting stakeholder and community assessments Project preparation 2. Gaining initial community support Developing social compacts and targeted marketing/education materials 3. Preparing the company for regularization Training management and staff on community engagement 4. Mapping the community; recruiting customers and siting On-site activity Involving the community in physical and service-related upgrade decisions physical infrastructure 5. Assisting customers Helping customers with affordability problems 6. Performing evaluations, corrections, scale-ups, and replications Gathering postregularization feedback 6 W h e r e a n d H o w S l u m E l e c t r i f i c at i o n S u c c e e d s : A P r o p o s a l f o r R e p l i c at i o n References and sources Smyser, C. 2010. “Slum Electrification Programmes: An Overview MAKE FURTHER of Global versus African Experience.” Report prepared for Antmann, P . 2009. “Reducing Technical and Non-Technical Losses CONNECTIONS UN Habitat, GENUS. in the Electricity Sector.” World Bank, Washington, DC. TERI (The Energy and Resources Institute). 2011. Energy Access Live Wire 2014/16. “Capturing the http://siteresources.worldbank.org/EXTESC/Resources/ and Productive Uses for the Urban Poor: Final Report on Ghana Multi-Dimensionality of Energy Background_paper_Reducing_losses_in_the_power_sector.pdf Access,” by Mikul Bhatia and Scoping Study. Energy Sector Management Assistance Program, IEA (International Energy Agency) and World Bank. 2017. “Sustainable Nicolina Angelou. World Bank, Washington, DC. https://openknowledge.worldbank. Energy for All: Global Tracking Framework 2017—Progress toward org/handle/10986/17497. Live Wire 2015/34. “Scaling Up Sustainable Energy” (Summary). World Bank, Washington, DC. Access to Electricity: Pay-as-You-Go UN Habitat and GENUS (Global Energy Network for Urban https://trackingsdg7.esmap.org/data/files/download-documents/ Plans in Off-Grid Energy Services,” Settlements). 2010. “Promoting Energy Access for the Urban Poor by Alejandro Moreno and Asta eegp17-01_gtf_summary_final_for_web_posting_0331.pdf. in Africa: Approaches and Challenges in Slum Electrification.” Bareisaite. IED (Innovation Energie Développement). 2015. “Modèle d’electri- Nairobi, Kenya. fication de zones periurbaines d’habitat spontané: Revue de Live Wire 2014/35. “Planning for USAID (U.S. Agency for International Development). 2009a. “Optimal Electricity Access,” by Debabrata l’expérience internationale.” Lyon, France: Innovation Energie Feeder Level Connection Toolkit, Energy Tool Box.” Washington, Chattopadhyay, Rahul Kitchlu, and Développement. DC. http://www.energytoolbox.org/oflc/index.shtml. Rhonda L. Jordan. Lawaetz, S., and C. Smyser. 2011. “Challenges and Opportunities in ———. 2009b. “Transforming Electricity Consumers into Customers: Live Wire 2015/44. “Mapping Electricity Service Provision for Urban BOP Communities.” Case Study of a Slum Electrification and Loss Reduction Project Smart-Grid Modernization in Power In Private Utilities and Poverty Alleviation: Market Initiatives at in São Paulo, Brazil.” Washington, DC. https://pdf.usaid.gov/ Distribution Systems,” by Samuel the Base of the Pyramid, ed. P . Marquez and C. Rufin (Chapter 7). Oguah and Debabrata Chattopadhyay. pdf_docs/PNADO642.pdf. Cheltenham, England, and Northampton, Massachusetts: World Bank. 2009. “Grid Intensification, Innovation, and Cost.” Live Wire 2015/50. “Implementing Edward Elgar. “African Electrification Initiative workshop session no. 5. Rooftop Solar Projects: Public-Private Rojas, J., and D. Lallement. 2007. Meeting the Energy Needs of the Partnerships in India,” by Pankaj Washington, DC. http://documents.worldbank.org/curated/ Sinha and Shaina Sethi. Urban Poor: Lessons from Practitioners.” ESMAP technical paper en/891141468209043296/Grid-intensification-innovation-and-cost 118/07, World Bank, Washington, DC. https://openknowledge. World Bank. 2015. “Bringing Electricity to Kenya’s Slums: Hard Live Wire 2016/66. “Can Utilities worldbank.org/handle/10986/17915. Realize the Benefits of Advanced Lessons Lead to Great Gains.” Washington, DC. http://www. Metering Infrastructure? Lessons worldbank.org/en/news/feature/2015/08/17/bringing-electricity- from the World Bank’s Portfolio,” by to-kenyas-slums-hard-lessons-lead-to-great-gains. Varun Nangia, Samuel Oguah, and Kwawu Gaba. Live Wire 2016/69. “Smartening the Grid in Developing Countries: Emerging Lessons from World Bank Lending,” by Varun Nangia, Samuel Oguah, and Kwawu Gaba. Live Wire 2018/93. “Does Electrification Make a Difference in People’s Lives? The Case of Rural Electrification in Laos,” by Hussain Samad and Elisa Portale. Find these and the entire Live Wire archive at https://openknowledge. worldbank.org/handle/10986/17135. Get Connected to Live Wire Live Wire briefs are The Live Wire series of online knowledge notes, an initiative of the World Bank Group’s designed for easy reading Energy and Extractives Global Practice, offers rich insights from project and analytical work on the screen and for done by the World Bank Group. downloading and self-printing “Live Wire is designed in color or black and white. Every day, Bank Group experts apply their knowledge and expertise to solve practical problems in for practitioners, policy client countries. 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