The world has made great progress over the past several decades. Primary education is becoming almost universal in many regions, child mortality rates have fallen globally, and life expectancy has risen in most countries. To maintain this momentum we need a sustained commitment to invest in infrastructure that provides people access to healthcare, water and most crucially, electricity.
Electrification, a key enabler of this progress — to power hospitals, facilitate studying at night, and run equipment necessary for manufacturing and job creation — is lagging behind. More than one in six people still lack access to electricity and one in three can’t depend on the sources they have. In Africa alone, over 600 million people still lack access to basic electricity and 70 percent of businesses cite unreliable power as a main constraint to doing business on the continent. Moreover, the world’s poorest often pay the most for what little electricity they do get. We can do better.
The coming year presents a number of opportunities to take action:
1. Lower Oil Prices Can Enable Market Reform
Distorted energy markets are a key culprit in preventing people from accessing electricity. When governments subsidize fossil fuels and cap electricity rates, there is underinvestment in fuel production, power generation and distribution. But today, sustained lower oil prices mean governments have the political space to wind down subsidies. Over the long term, removing subsidies will improve fiscal health and lead to a market mechanism for reallocating resources to produce more reliable, efficient, and fairly priced power — and get it to more people.
Egypt and Indonesia are two countries that have begun to phase out subsidies. As evidenced by GE’s experience in both countries, energy market reforms are important to expanding electricity. We are investing and building capacity to train up future workforces in both countries. Last year, GE helped add 2.6 GW of power to Egypt’s grid, enough to light 2.5 million homes. In Indonesia we are adding 500 MW of “fast power” with more to come.
2. Emerging Markets Are Embracing Innovation
Achieving electrification, particularly in emerging markets and the least developed countries, will depend on new technologies and new business models. The 2016 GE Global Innovation Barometerfinds that business leaders and influencers in emerging markets are embracing disruptive innovation far more than their peers in developed markets. The results are particularly encouraging with respect to Africa, the region suffering the greatest from lack of electricity. For example, 62% of Innovation Barometer respondents in Nigeria see energy efficiency, transmission, and distribution as the areas ripest for innovation.
At GE, Africa is a test bed for novel power products. From distributed power applications that will light entire villages in Algeria to Africa’s first self-sufficient micro grid in Equatorial Guinea, GE employees and our partners are working together to innovate, build new skills and create the next generation of jobs on the continent. In Nigeria, we have plans to invest over $1 billion over the next five years to strengthen our local presence in manufacturing and product services, particularly in the energy sector.
3. Energy Policy Reforms are Attracting Investors
Addressing the global electrification challenge will require massive investments. Happily, we are seeing examples of investment, often driven by market reforms. Mexico and India are two examples that provide ongoing lessons.
A new report by the World Economic Forum spotlights how Mexico is taking steps to bring private companies into the power sector, opening the state-owned system to private investment and creating a wholesale power market. Last year we saw positive results from earlier steps taken in the oil and gas sector. The report also highlights reforms underway in India, including policies that encourage investment across the energy value chain. If consumers get access to affordable and reliable energy while investors receive fair compensation, these countries should see successful results.
4. A Renewed Focus on Energy by the Global Community
Last year, the global community adopted the UN Sustainable Development Goals (SDGs), which include a specific goal to expand energy access. The world also came together in Paris to reach a global climate agreement that recognized the need for the world’s least developed countries to provide sustainable electricity to their people. There seems to be a newfound momentum behind the goals of electricity access, efficiency, and sustainability. This includes a recognition of the importance of governments and the private sector working together.
It was encouraging to see the international community address funding mechanisms for both these global agreements. Development banks and the IMF committed $400 billion in conjunction with the SDGs. The United Nations and partners have pledged $5 billion to promote renewable energy adoption in Africa. 2015 also saw the formation of a new infrastructure finance institution, the Asian Infrastructure Investment Bank. For these funding sources to have maximum impact we need a continued focus on creating a pipeline of financeable energy projects. We also need to encourage financial institutions to prioritize infrastructure projects that underpin economic growth – electricity, water and healthcare.
5. The Digital Revolution in Energy is Beginning
The power industry has embarked upon a transformational journey. Power producers are starting to apply big data and analytics to optimize plant operations and accelerate the adoption of technologies that produce fewer or no emissions. They are also developing new ways to interact with customers, empowering them to become more efficient, participative and responsive to demand and supply. These advances present opportunities for the power industry to enhance the efficiency, reliability, and affordability of electricity.
It will take cooperation between technology companies, utilities, investors, financial institutions and governments to create flexible and prudent policies that ensure innovation happens in a secure and sustainable manner. We are at the beginning stages of a power revolution, it is gaining momentum and we should start to see exponential adoption and innovation in 2016.
John G. Rice is Vice Chairman of GE and President and CEO of GE Global Growth Organization.