San Francisco -- As the Senate slogs forward, and the Chamber of Commerce drags its feet, and the U.S. disappoints the rest of the world at the Bangkok climate talks, it's easy to get discouraged. But at the end of the day, all the hot-air CO2 emitted in political speeches will get recycled. And as you poke around the real energy economy, the signs keep signaling, "this is easier than we think."
Last week, at the Clinton Global Initiative in New York, I sat down with a solar entrepreneur from India who had some startling numbers. Harish Hande runs a company called SELCO. They offer a grassroots distribution model for solarizing villages that don't have grid access. Here's what their experience shows:
Properly financed, installing solar cuts the lighting cost of a poor family in India, Pakistan, Africa or Latin America currently dependent on kerosene by 1/3 to 1/2, depending on the size of the government subsidy for the kerosene. Solar is not only less costly than fossil, it is less costly than doing nothing!
And one-fifth of humanity needs this solution. It turns out that if a village begins electrifying with distributed solar cells, it never needs to connect to the grid -- it can just keep adding solutions such as solar, small-scale wind, biomass, and methane generation from agricultural waste.
How much upfront capital would it take to electrify that final one-fifth of humanity? My back-of-an-envelope calculations suggest total capital cost would be about $25 billion, but two-thirds of that could be obtained in-country as commercial loans from local banks. So the seed capital for the whole world would be only $8 billion -- the cost of a couple of nuclear power plants. A similar idea has just been floated in India by my friend Raj Chengappa, one of the editors of India Today.
What makes this even better is how easily it dovetails with the just-announced decision, by the G-20, to phase out global subsidies to fossil fuels. These subsidies total $300 billion a year. If they are gone by 2020, the G20 estimates that step alone would reduce global greenhouse pollution ten percent by 2050.
But that misses the big picture. What's really important is that we invest the money saved in clean energy. If we cut subsidies by one-tenth every year, then in 2011 we'll have $30 billion to invest, in 2012 we'll have $60 billion, and over the course of this decade we'll have $1.5 trillion. That's far more than the biggest offers thus far from the U.S. and Europe to held put third-world countries on a low-carbon development pathway -- although it's still at the low end of what the World Bank has estimated is needed to do the job.
But I think the World Bank's estimates are almost certainly too high. Compare them with my estimates. Even if I 'm off by a factor of two or three, there's still a huge difference. Why? The bank ignores grassroots distribution models like my friend at SELCO's. The bank's estimates, like most conventional models, ignore the reality that huge parts of this job can be financed with conventional commercial loans, IF there are loan guarantees and seed capital at the front end to develop the technology, scale the supply chains, and bring down the cost. Most economists also ignore that the lack of clean energy means that the poor spend a huge amount on dirty energy. If the government subsidies total $300 billion a year, wasteful expenses by the poor on fossil fuels must total a trillion dollars or more.
SELCO's model is a classic piece of what Clayton Christensen calls disruptive innovation. SELCO goes after customers -- poor householders in villages off the grid -- that the established electrical companies don't care about (because at first they don't need much power). This model meets their needs at very low cost -- and scales to meet more demand over time, even as it drives the price of the innovation down. It's simple, elegant, and it could save the world.
We don't even need to take the costs of global warming into account in this calculus. We just need to act on our understanding that there aren't enough cheap fossil fuels to power the entire world and that a clean-energy revolution makes economic sense on its own terms -- once we get the financing right.