Elsevier

Energy Economics

Volume 120, April 2023, 106592
Energy Economics

Who benefits from the decentralised energy system (DES)? Evidence from Nepal’s micro-hydropower (MHP)

https://doi.org/10.1016/j.eneco.2023.106592Get rights and content

Highlights

  • In Nepal, decentralised micro-hydropower (MHP) improves educational outcomes.

  • MHPs facilitates a labour shift from traditional agriculture to waged and salaried jobs.

  • Educational outcome of access to MHP electricity is higher for women and lower caste individuals.

  • Positive employment-related effects of MHPs are inclined towards socially dominant groups.

Abstract

In low-income countries, uneven access to clean energy poses a challenge to reducing socioeconomic inequalities across gender and disadvantaged groups. Development planners view the decentralised energy system (DES) as having the potential to help address this issue, because it provides electricity access in areas where the national electricity grid is not available. This study assesses whether the DES helps to reduce inequality and improve gender empowerment by focusing on the micro-hydropower (MHP) scheme, a form of DES adopted widely in Nepal, and studying its impact on educational attainments and employment outcomes by caste and gender. The results show that MHP improves educational outcomes and facilitates a labour shift from traditional agriculture to waged and salaried jobs. However, a disaggregated analysis shows that, while the educational outcome of access to MHP electricity is higher for women and lower caste individuals, the positive employment-related effects are inclined towards socially dominant groups such as males and upper caste individuals. This shows that, while the DES improves educational outcomes in general, complementary conditions may be necessary to achieve significant improvements in the employment of women and lower caste individuals.

Introduction

Between 1998 and 2018, the proportion of the global population with access to electricity increased from 72% to 89% (World Bank, 2021). Despite this progress, a significant portion of the global population, estimated at over 800 million individuals, remains without access to electricity (UN, 2020). Most of these live in remote rural areas of the poorest countries, and many are ethnic/racial minorities or socially and economically marginalized groups.

The cost associated with maintaining and expanding conventional centrally-planned grid electricity is very high and is unlikely to be recovered due to the very low electricity demand (Lee et al., 2020). Thus, development planners need to look for more innovative and contextual solutions for providing energy to households and raising the socioeconomic status of marginalized groups. Decentralised energy systems (DES) such as micro-hydropower (MHP) and off-grid solar have attracted considerable attention in recent years as cleaner and more cost-efficient ways of achieving mass electrification (Narula et al., 2012; Alstone et al., 2015; Grimm et al., 2020). Unlike the national grid, which requires extensive infrastructure in the form of transmission lines and substations, DES uses low-cost technology, distributed through micro/mini-grids and managed by community user groups. This makes DES a suitable alternative solution for remote rural areas.

Access to electricity has several direct and indirect benefits for households. Electrified households can transition to modern living, with clean, reliable and efficient lighting, cooking and heating facilities. Indirectly, the productive use of electricity improves a wide range of welfare outcomes, such as employment, labour shift, education, gender equality and health. Several studies have documented these direct and indirect impacts of electricity.1 However, most existing studies on the impacts of electrification have focused on the extension of grid electricity and the aggregate population. The impact of country- and context-specific DES forms such as off-grid solar, wind, and MHP on development outcomes is largely unstudied (Jeuland et al., 2021). Only a few studies have focused on off-grid solar energy (Grimm et al., 2017; Aklin et al., 2017; Wagner et al., 2021; Bharadwaj et al., 2021). The United Nations Sustainable Energy for All (SE4ALL) initiative predicted that by 2030, 70% of new connections in rural areas will be provided through the DES (International Energy Agency and World Bank, 2014). The majority of these new beneficiaries are socially and economically disadvantaged groups. Since energy is essential for socioeconomic transformation, access to electricity can play a key role in reducing inequality, ensuring social inclusion, and promoting gender empowerment. Thus, it is important from both academic and policy perspectives to determine the disaggregated impact of DES on the welfare outcomes of disadvantaged groups.

One could argue that the welfare impacts of DES and grid electricity are comparable, as both provide household lighting solutions. However, there are at least three reasons why the welfare effects of these two types of energy solutions are not identical. First, grid-connected and DES-targeted areas are substantially different contexts. Grid expansion requires the transportation of transmission poles and transformers, and therefore a road network. In addition, grid electricity usually targets market centres and densely populated areas. This systematic bias of grid expansion towards populated and accessible areas means that the areas targeted by DES lack basic infrastructure, which eventually adds additional costs for other public services such as schooling. Second, DES is a more localised and community-based solution. This localisation means that the type of DES that can be used is constrained by the availability of local resources and the community's socioeconomic strength. Therefore, the selection and use of DES in a particular location are endogenous to both observable and unobservable community characteristics. For example, observable characteristics, such as the availability of year-round water with an appropriate elevation profile, may make MHP appropriate. Similarly, areas with suitable solar radiation or wind potential may opt for a home solar system or wind energy. Areas with a higher demand for electricity and a lower chance of obtaining a grid connection tend to invest more in DES. At the same time, some characteristics that are difficult to observe but are inherently associated with social or gender norms also play a role in the adoption of DES. Third, grid electricity is an ultimate energy solution, whereas DES is promoted as a transitional lighting solution. DES usually operates in peak electricity demand hours, unmetered; if there are charges, they tend to be a household-based lump sum or based on the number of lighting bulbs each household uses. Given that DES is designed primarily as a basic lighting solution, the operation of high-wattage appliances is restricted. Experience from developing countries shows that when DES areas get access to the grid, households typically shift to grid connections for reasons such as reliability and sufficiency of electricity.

Given the distinct features of DES that differentiate it from the national grid, this study aims to fill a gap in the literature by studying the effects of household access to DES on individuals' educational attainments and employment outcomes by gender and caste. For this, we consider the case of an MHP system in Nepal. This is a hydro project with an installed capacity of usually <100 kW that uses a mini/micro-grid to distribute generated power to nearby households.2 Nepal makes an ideal context for studying the impact of MHP on household welfare for two reasons. First, many MHPs supply electricity to significant numbers of people from different social groups in different times and locations. This provides extensive variation that can be exploited to analyse the impact of MHP on household welfare. Second, as a developing country, Nepal has made significant strides in educational outcomes and labour shifts over the last two decades. We explore the possible causal link between MHP expansion and educational and employment-related outcomes in remote rural areas of Nepal.

Access to clean energy promotes the advancement of socioeconomic outcomes, such as education, health, and labour productivity (Kanagawa and Nakata, 2008). In recent years, the country- and context-specific DES has brought people out of darkness, providing basic lighting solutions, and it is expected to grow in future. At the same time, more equitable access to modern energy services is key in enabling marginalized segments of the population, such as lower castes and women, to transition smoothly to modern energy solutions. In recent years, governments and donors have made investments in DES, such as home solar systems and MHP, to provide basic clean lighting solutions to people who use biomass fuel such as kerosene lighting. Understanding the developmental impacts of such energy systems on different strata of society is important for both the academic and policy realms. Therefore, we study both the aggregate effects of MHP on educational and employment-related outcomes and the disaggregated effects on different strata of the population (different castes and genders).

We use microdata from the national population and housing censuses of 2001 and 2011, and combine it with data from multiple administrative sources. We employ an instrumental variable (IV) approach to address possible endogeneity concerns. Our results indicate that household access to MHP electricity improves educational outcomes, as proxied by adult literacy, years of schooling, and a years-of-schooling z-score that measures the cumulative progress among school-aged children. We also find evidence of the expanding access to MHP affecting labour shifts from traditional subsistence agriculture to non-agriculture sectors such as salaried jobs and business activities. We extend the analysis to explore how gender and the traditional social hierarchy/class (caste/ethnicity) affect the distribution of such benefits resulting from MHP electricity access. The results indicate that improved educational outcomes are more evident among females and lower caste individuals, whereas improved employment outcomes are evident among males and upper and middle caste individuals.

This study contributes to the literature in three ways. First, it extends the existing literature on the economic impact of infrastructure expansions, focusing on rural electrification through DES. In developing countries, improvements in educational attainments are usually associated with lower schooling costs (Duflo, 2001). However, education itself is not the only problem in developing countries with low educational attainments. Governments face additional challenges in achieving a variety of development goals, such as inclusion education and employment with scarce resources. This calls for cross-cutting investments that deliver households a range of welfare returns. For example, studies such as those by Toman and Jemelkova (2003), Nankhuni and Findeis (2004), Bhandari (2006), Gebru and Bezu (2014), O’Brien et al. (2021), Banerjee et al. (2021) and Apergis et al. (2022) have shown that providing electricity at the household level improves educational attainments without the need for additional investments in school infrastructure. However, these studies have focused more on grid electricity, which is not an imminent possibility in developing countries with rugged terrain, like Nepal in the Himalayas. Therefore, this study evaluates the impact of DES on education and employment outcomes, contributing to an understanding of the welfare returns of DES in thinly-populated remote and rural areas of Nepal where grid electricity is not economical.

Second, this study contributes to the emerging literature on the intersection of caste/race/ethnicity, gender, and energy access by examining the heterogeneous impacts among different castes and genders. While several studies have investigated the heterogeneity of energy access across gender (Moniruzzaman and Day, 2020; Pachauri and Rao, 2013; Oparaocha and Dutta, 2011) and race/ethnic groups (Churchill and Smyth, 2020; Nguyen et al., 2019; Hernández and Siegel, 2019; Belaïd, 2018), the existing knowledge regarding caste heterogeneity is limited. The social hierarchy in Nepal and India has roots in the caste system and influences every aspect of an individual's life (Subedi, 2016). Caste makes a section of the population resourceful and dominant by birth, while preventing large populations from accessing opportunities and resources. It also inhibits the welfare of a marginalized section of society (Mosse, 2018), for example cooking fuel use in the household (Rahut et al., 2022). This study estimates the caste heterogeneity of the DES welfare impact and provides evidence that access to basic services such as clean energy helps disadvantaged groups to catch up with the dominant group.

Finally, this study provides evidence on how DES enables the achievement of SDG goals in the remote, rugged terrain of the Himalayas. Limited resources, a high cost of infrastructure in sloping terrain and socio-economic deprivation make achieving SDG goals in remote locations of Nepal and the Himalayas a challenge. This study provides evidence on why and how DES is a cross-cutting intervention that enables energy access and socio-economic welfare in deprived areas of developing countries like Nepal. This study can help them seek alternative cost-effective options for electrifying remote and high-elevation areas independent of grid reliability, thus reducing inequality.

The remainder of this paper is organised as follows. Section 2 discusses the context of the study, followed by a literature review and analytical framework in Section 3. Section 4 presents the data and methods. Sections 5 and 6 present the results and the discussion and conclusion, respectively.

Section snippets

MHP development and its impact in Nepal

In principle, the MHP is akin to a conventional hydro project; however, it is usually of less than 100 kW installed capacity. It combines land gradients and flowing water with the widely adopted technology of turbines and generators to produce electricity. The sloping land and snowy, mountainous areas in the northern part of Nepal provide the ideal situation for MHP, both technically and practically. Technically, snow-fed rivers and streams running down a steep slope provide an appropriate

Economic effects of access to electricity: Literature and an analytical framework

The construction of large-scale infrastructure projects such as big dams, rail networks, electricity, and roads aims to provide people with basic services and improve their wellbeing. The impacts of such projects on development outcomes such as education, health, and employment have been explored in the economic literature.3

Data

This study uses data from the Population and Housing Censuses of Nepal administered in 2001 and 2011. The Central Bureau of Statistics, a government agency, conducts a nationwide population and housing census every ten years. The dataset represents approximately 12.5% of all households during the census, and provides us with information on variables of interest at both the household (e.g., household access to electricity, household amenities, and other household-level facilities) and individual

Access to electricity

The proportion of people with access to electricity in Nepal increased from 41% to 68% between 2001 and 2010 (see Table 3 for details). Access to an electricity connection was uneven among the three social classes in 2001, with one in two upper caste households having electricity connections, compared to only one in five lower caste households. The gap became slightly narrower (though still big) in 2011, with an average of 69% for upper caste and 52% for lower caste. Middle caste access to

Discussions and conclusion

We study the impact of a DES on the educational attainments and labour market outcomes of both dominant and marginalized groups in Nepal. The results show that households' access to MHP electricity positively affects educational attainments, as indicated by adult literacy, years of schooling and the education z-scores of school-aged children. The results also indicate that these positive impacts on education are more evident in lower caste males and lower and middle caste females, contributing

CRediT authorship contribution statement

Mukti Nath Subedi: Conceptualization, Methodology, Software, Formal analysis, Writing – original draft. Bishal Bharadwaj: Conceptualization, Methodology, Writing – review & editing, Project administration. Shuddhasattwa Rafiq: Conceptualization, Methodology, Writing – review & editing, Supervision.

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