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Leapfrogging: A notion in need of an upgrade

In some cases developing economies can skip over earlier modes of energy use and infrastructure, but this concept often misses the unique trajectories and challenges of the developing world.

Image courtesy of Burn Design Lab

By Gregor Macdonald
November 2019

The Jikokoa stove is a modern and sleek update to its predecessor, the common cookstove, burning 50 percent less charcoal. To purchase the stove new and unlock those savings, however, requires a single up-front payment. And in domains where the stove is currently being adopted, like Kenya, a price tag of US$40 can act as an insurmountable hurdle. Multiply this opportunity cost across the sweep of developing economies and a story begins to unfold.

It’s not the lack of scalable technology that forms a barrier to ending energy poverty; rather, it’s the ancillary structures of broader development that are often missing—in this case, simple financing. Challenges like these also offer a retort to the common belief in “leapfrogging,” the idea that new and affordable technology can pull economies quickly past legacy systems into a clean future.

Findings on Jikokoa stove purchasing come from a new working paper, “Credit and Attention in the Adoption of Profitable Energy Efficient Technologies in Kenya,” from Susanna B. Berkouwer of the University of California, Berkeley, and Joshua T. Dean of the University of Chicago. The authors found that the energy efficient stove technology offers very high returns, as high as 300 percent given potential fuel savings of $120 per year (about one month of household income).

“It is not the lack of scalable technology that forms a barrier to ending energy poverty. Rather, it’s the ancillary structures of broader development that are often missing.”

However, willingness to pay (WTP) faced a number of pressures, certainly anchored by the financing hurdle but also explained by a range of external factors, like the need to hoard access to smaller credit requests for other unseen life events throughout the year. The paper found that credit “operates in part through a psychological channel” and, equally important, that people were not inattentive to energy savings—a sign of strong potential for adoption. Encouragingly, access to credit doubles the WTP for the Jikokoa, the authors concluded.

Leapfrogging is an appealing idea, one that gained hold during the build-out of global wireless networks in the early part of the new millennium. But how applicable is the concept to the broader concept of energy transition? Many developing nations that lack broad access to energy also lack crucial pieces of underlying infrastructure—like roads, ports, rail, and waterways that are needed to deploy new energy technology—and distributed banking systems. The aggressive electrification programs undertaken by India since 2014, for example, highlight to some extent how rural electrification can deliver big top-level gains but run into a last-mile problem.

“While we’ve seen good gains globally in electricity access from the standpoint of effort, it still remains a problem that much of this new electricity is of low quality,” says Morgan Bazilian, director of the Payne Institute and a professor of public policy at the Colorado School of Mines. Bazilian cites a commonly known statistic, that over the past decade there’s been a significant decline on the macro level of the number of people without access to energy, from roughly 1.2 billion people to 850 million. However, as Bazilian points out, if we “add the quality component to this decline—and we could define that as 24-hour access over 365 days at a reasonable frequency and voltage—that number is probably closer to 4 billion.”

There’s no question the advance of affordable technology has prodded the global community into speculating that energy development, and a reduction of energy poverty, could go faster. Creative financing solutions are now typically digital, allowing people in sub-Saharan Africa—the largest concentration still of those without energy access—to break up purchases into micropayments. Moreover, the steep cost declines for solar photovoltaics (PV), and especially lighting and batteries, offers a twofold advantage to developing economies.

High quality and simple, the technology on offer today is robust. And in domains where other forms of development are still in the future, the arrival of a durable kit can seem like a miracle. Bill McKibben of 350.org wrote in a 2017 New Yorker piece that simple solar kits were spreading so rapidly in Africa that even in countries where no wireless payments were an option, like Ghana, customers could top up their accounts at a meter box after obtaining a code from a scratch-card, vended at local kiosks.

“While we’ve seen good gains globally in electricity access from the standpoint of effort, it still remains a problem that much of this new electricity is of low quality.”

However, according to Bazilian, it’s important to consider that energy poverty spans very different settings. “Economies are not homogenous, so there are at least a couple of frames you can put on them. There are emerging market economies, like India and China, which are different in kind and scope to other countries. And then there are the least-developed countries (LDCs), and even among them there are differences. Some countries are extremely fragile. So, in these kinds of categories, there needs to be different approaches. And there are.”

Bazilian goes on to point out that, on the finance side, cost of capital can cover a wildly broad range. “You are either going to have a cost of capital that approaches infinity, as in a place like South Sudan, where you are not going to see private entities loaning on either a debt or equity basis. Or, you are going to have a place like India that can finance itself, and then the Chinese national development banks in China, or the Brazilian national bank that is putting out more money than the World Bank.”

A 2017 paper from South Africa helpfully tries to disentangle our understanding of rapid energy development with a useful matrix, Reconceptualizing Leapfrogging Paradigms. “Scattered leapfrogging,” to use the authors’ phrasing, is just one category that describes a sudden adoption or transition to new technology—certainly with revolutionary characteristics—but coming from a low base. This may well describe the kinds of new technology adoption profiles seen today in small developing nations. Although, as the authors allow, it could also describe development in much larger economies, especially as they attempt to make a break from legacy systems.

India, for example, is currently at a turning point in this regard. Long dependent on an installed base of coal for electricity, new coal build cancellations have started to accelerate as the cost of utility-scale PV crashes and financing for coal dries up. In a late 2019 report at Carbon Brief, Lauri Myllyvirta and Sunil Dahiya, analysts with Greenpeace in Asia, note that India’s CO2 emissions have slowed sharply, on track for their lowest annual increase in 20 years. And, speaking of speed, Kamuthi, a 648 MW behemoth utility-scale solar plant completed in 2016, earned some fame for itself when it was completed in less than a year.

“We can bring the best of the clean energy solutions that we have today to bear in helping to solve the problem of energy access in developing economies. And some aspects of that may help us to leap over earlier solutions that are now suboptimal.”

“You often hear people say, ‘We can leapfrog over the grid,’ and I don’t think that’s an appropriate use of the terminology,” says Richenda Van Leeuwen, managing director for empowering clean economies at Rocky Mountain Institute (RMI). “Rather, I would say, ‘We can bring the best of the clean energy solutions that we have today to bear in helping to solve the problem of energy access in developing economies. And some aspects of that may help us to leap over earlier solutions that are now suboptimal.’”

Van Leeuwen points to ongoing work undertaken by RMI in the area of minigrids. A 2018 RMI report, Minigrids in the Money, lays out a compelling case for how rural minigrids could enjoy a cost drop of as much as 60 percent into the year 2020 through a combination of policy and finance initiatives. Notably, the potential contribution from projected cost declines in both hardware and load management are substantial—together accounting for nearly 30 percent of the total projected cost decline. This is unsurprising, because even large utilities in developed markets like the United States are projecting cost declines from hardware cost curves, and more optimized load management.

Minigrids may also offer a way forward from the scattered phase of energy transition to subsequent phases of development. Indeed, there is a natural tension in development design. On one hand, zero-to-one solutions that advance from low bases are miracle-like when they first appear in the LDCs. On the other hand, as Bazilian emphasizes, the erection of larger national grids is ultimately unavoidable. And such larger-scale investment is also urgent. Minigrids are not unlike a model, therefore, for how development occurs through sequencing, as economic activity is built up through layers.

“Where we’re focusing at the moment, in our work particularly in Nigeria and Ethiopia, is how the minigrid solution can be maximized to help drive economic development,” says Van Leeuwen. “Not only by looking at the infrastructure [the minigrid] provides, but from a consumer standpoint as well: the agricultural appliances, the efficiency of those appliances, and the access to those appliances by the farming community. For example, how adding a solar-powered mill appliance can allow farmers to mill grain more quickly, allowing greater volumes to be sold at the market.”

Leapfrogging is perhaps a well-intended intuition but one long overdue for an upgrade. Both the least-developed domains and the large, emerging economies have unique hurdles to overcome. The former typically are coming up in a landscape bereft of ancillary infrastructure, and that can promote a premature enthusiasm for simple technology as a cure despite how demonstrably capable simple energy technology has become.

Larger developing economies meanwhile have an entirely different hurdle to face: although they enjoy the strong momentum of economic growth, they must still contend with legacy systems, and the political intervention which invariably arrives to protect incumbents. Mostly, however, larger emerging economies must find ways to direct future growth to better choices.

Developed economies, meanwhile, are not excluded from the discussion. As Berkouwer and Dean write in the conclusion to their paper, “In an efficient market, a rational and time-consistent agent will adopt a technology as long as its marginal benefit exceeds its marginal cost.” That’s a theoretically true statement. But incumbency and path dependency can exert powerful forces against such rational behavior across all domains—and, in particular, advanced economies!

Better categorizing the notion of leapfrogging, therefore, can open up better ways to apply its meaning. Let’s take three examples across very different domains.

In just 10 years, the UK grew combined wind and solar’s share of power generation from 1.8 percent in 2008 to 21 percent in 2018. In the process, the UK has mostly eliminated coal from its power system, but prying loose coal’s incumbency was no easy task. The prize was one of the faster systemic transitions seen in the last century, especially for a large economy.

In 2018, China’s car market lurched hard in the direction of electric vehicle (EV) adoption, as sales of internal-combustion engine (ICE) vehicles, which had peaked the year prior, began to decline. Here, legacy technology was both interrupted and also obviated through aggressive policy. It’s critical to note that most consumers buying EVs in China today, unlike their Western counterparts, will not be trading in an ICE vehicle for an EV, but rather will own an EV as their first car. EVs will reach at least 6 percent of new market share this year, and it’s now clear that all future marginal growth will swing away from ICE.

Across Africa, over a 10-year period, user growth for Vodafone’s mobile payment system M-Pesa has soared to over 30 million from its inception in 2007. The payment system has turned out to be a platform, arising where little previous infrastructure and scarce, if any, options had existed previously. And now, on top of this platform, micropayment options are flowering. Indeed, digitalization of money and credit are turning out to be logjam breakers for the adoption of affordable electricity and lighting.

The rapid adoption of mobile phones shows that the developing world can move directly to new technologies without adopting more basic, earlier forms. Credit iStock.com

“The physics of energy are the same in Nairobi as they are in New York City,” says Bazilian. Indeed. What’s instructive about carefully, and responsibly, pushing back against the notion of leapfrogging is uncovering how energy development proceeds along very different pathways depending on the built environment of each domain. The encouraging news is that ending energy poverty in least-developed economies, diverting adoption to cleaner choices in emerging economies, and retiring legacy systems in advanced economies is no longer a technical issue. We are in a new era of affordability. And, as is so often the case, policy design must carry the weight forward.