Energy Tribune

Robert Hart has for many years worked to develop electric power projects in emerging nations. As CEO of Coastal Power from 1994 to 1999, he was at the forefront of the global surge of private investment in emerging market power, pioneering the first privately owned and operated power plants in El Salvador, Guatemala, Nicaragua, the Dominican Republic, Pakistan, and Bangladesh.

He was the founding partner of Globeleq, an emerging market power company whose power plants in Asia, Africa, and Latin America supply the electric power consumption of more than 80 million people every day. Hart was born and raised in southern Idaho, where rural electrification transformed the economy and made his family’s farm possible. He studied government at Harvard University, writing his honor’s thesis on campesino organization in the Dominican Republic. Hart lives in Houston. He corresponded with Robert Bryce via e-mail.

ET: Why is electricity so important to the creation and development of a modern economy?

RH: It is hard to exaggerate the critical importance of electricity, both as the foundation for economic development and as a component of a full and healthy quality of life. Our power plant in Quetta, Pakistan, provided the electricity required to irrigate farms and orchards that would otherwise have been barren desert. In the Philippines, our electricity created the shrimp farming industry. In Uganda, Kenya, and Tanzania, electricity is an essential part of the recent expansion of small enterprises.

Equally important is the role played by electric power in the daily lives of people. Classrooms in schools undergo a revolutionary transformation when electric power allows them to connect to the rest of the world. Health clinics are similarly transformed when electricity brings refrigeration, which is essential to the storage of many medicines.

ET: Put another way, can you think of any examples of countries that have high per capita consumption of electricity but low levels of per capita G.D.P.?

RH: No. It is important to note, however, that electricity consumption – like G.D.P. – suffers from extreme inequality, particularly in the poorest countries. A tiny handful of the very rich use virtually all of the available electric power, while the rest of the population lives and works in much the same way their ancestors did a century ago.

ET: There are numerous efforts underway to increase electricity use in southern Asia and in Africa. Why are those locations so persistently under-electrified?

RH: There are many dimensions to this problem. For a thoughtful and comprehensive discussion of the persistence of poverty and underdevelopment, I highly recommend The Elusive Quest for Growth by William Easterly. My own short answer involves the complex array of interconnected policies and conditions that surround the whole approach to the supply of electric power in most emerging markets.

When I retired from Globeleq, I was given a beautiful crystal sculpture of a hammer and nail, which serves as a reminder of one of my favorite sayings – “When your only tool is a hammer, every problem looks like a nail.” For almost all of my business life, my “tool” was private sector ownership and management of electric power generation and distribution. So I consistently said that the largest problem in poor countries was simply the absence of private power!

I believe that a well-regulated, privately owned, market-based electric power industry works best. State-owned utilities are universally inefficient, over-staffed, and – with very few exceptions – poorly managed. In those cases where professional, competent management exists, their efforts face constant pressure from politicians to under-price the end product, use the utility as a dumping ground for patronage jobs, and allow corruption into the procurement process.

ET: The International Energy Agency has estimated that some $5 trillion in new electricity investment will be needed over the next 30 years to keep up with demand. Is that figure in the ballpark?

RH: The actual figure for electric power in both developed and underdeveloped countries is more than $10 trillion, using [year-]2000 prices. With crude oil at $106 a barrel and current new plant construction costs more than twice the 2000 level, that number is vastly higher today. And keep in mind that the I.E.A. forecast assumes that more than a billion people will still be without electricity at the end of those 30 years.

Incredibly, for wealthy countries, this staggering investment is theoretically possible. I say theoretically because I believe two factors are about to change the equation. On one hand, the cost implications of global warming, which are not factored into the I.E.A. numbers, are simply enormous. And on the other hand, competing uses for public investment are just beginning a period of explosive growth. There will not be much public capital left after we pay the health and retirement costs of the world’s aging population.

As for the $5 trillion (in 2000 prices) required for the emerging markets, I am sorry to say that it is sheer fantasy. The simple math works out to more than $225 billion every year from now through 2030. Investment in electric power in the emerging markets increased from 1994 through 1997, then began a decline that continues to this day. At its highest level, total investment in new capacity did not reach $100 billion.

ET: The I.E.A. also estimates that 1.6 billion people around the world have no access to electricity. Is it possible to serve that many people and do so with renewable sources like solar and wind? And what do you see as the biggest problems with those two sources?

RH: Let me answer that question by addressing its parts.

I believe the current estimate is that slightly more than 2 billion people have no access to electricity. It is estimated that 2.5 billion people live on less than $2 a day, with another 2.5 billion living on something between $2 and $5 a day. It is safe to say that none of these people can afford even the lowest-cost electric power. So three-quarters of the population of our planet (5 billion out of 6.5 billion) either have no access to power or cannot afford the power that is accessible. This is a mind-numbing fact.

I have always insisted that we should pursue every possible source of electric power in our effort to make as much electricity available and affordable to as many people as possible. Even doing that, a huge amount of faith (much more than I have) is required to believe that we will ever bring the poorest majority of our global population out of the dark.

Limiting the sources of power to renewables makes this impossible task even more impossible. In my view, renewable power (solar, wind, geothermal, hydro, and biofuel) may meet the growth in demand in the developed countries, but even that will require a massive increase in the level of incentives. And the simple fact that renewable energy requires incentives means that it will be too expensive to make a meaningful difference in poor countries.

ET: What are the biggest challenges for private power developers moving into underdeveloped countries like, say, Pakistan or Bangladesh?

RH: The first challenge is the set of policies that allow and support a private sector role in the generation and distribution of electricity. Related to that is the challenge of creating a credit-worthy power sector in the early years of transitioning from state utility to private actors in regulated markets. It is very hard for politicians to resist the appeal of promising lower-cost power to voters and easy jobs to supporters.

ET: Is natural gas the fuel of choice for power projects in underdeveloped countries? If so, why?

RH: Natural gas is clearly the fuel of choice for those countries with natural gas. However, most poor countries have little or no hydrocarbon energy, and are now faced with the daunting task of competing with wealthy countries to buy coal, oil, and natural gas in the global marketplace.

ET: What trends or technologies do you see as the most promising with regard to electricification in developing countries?

RH: The general trend toward globalization is clearly the most promising. Even with all the difficulties of the current global economic uncertainty, the growing rift between Islam and the rest of the world, the growing inequality of wealth, and the threats of isolation and protectionism in the U.S. and Europe, globalization continues to be the only rational choice. I am encouraged by the number of times I see the political freedom and economic rationality of globalization emerge from political debates.

ET: I’ve been thinking a lot about batteries lately. And I have a section in my new book that discusses the idea that super-high storage batteries could be a game changer for solar and wind, and for the conventional power plants. Do you see much opportunity there?

RH: Technology breakthroughs will be the source of whatever solutions we ultimately find for our energy problems. We have to find an affordable way to store power, both to compensate for irregular availability and to optimize time of peak use.

ET: Over the past decade or two, which countries do you think have been the most successful in their electrification programs?

RH: Most of the Latin American countries that moved aggressively to put well-regulated marginal cost systems in place have been successful. Unfortunately, African and Asian countries lag behind in adopting market-based models. And most countries around the world still struggle with finding and implementing the right kind of regulation.