Small-Scale Renewable Energy and the Informal Economy

In the Kenyan village of Kiptusuri, far from the national energy grid, Sara Ruto powered her home and offered cell phone charging services with one simple solar photovoltaic system.  Photo credit: New York Times

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 systems are 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.

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.

"This new focus on microgrid and off-grid solutions reflects a shift in focus on the part of international organizations from formal market capitalism to microenterprise and the informal economy."

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.

Eric Anderson | February 17, 2012

Read more from the Climate & Energy team at Revolt

Carousel image credit: World Bank

You may also be interested in:


Vital Signs 2012:
 The Trends that are
Shaping our Future


State of the World 2008

State of the World 2008:
 Innovations for a
Sustainable Economy


Report 184

Worldwatch Report #184:
Powering the 
Low-Carbon Economy