By Rachel Posner Ross
CSIS – With Myanmar’s historic elections around the corner, the international community has focused its attention on this former military regime’s transformation toward democracy. But in every political scenario following the November 2015 elections, Myanmar has immense needs for investments to mitigate problems with energy access, capacity, and reliability that hinder the country’s prospects for economic development. Today, Myanmar has one of the lowest electrification rates in Asia. The recent census documented only 32 percent of households use electricity as the main energy source for lighting and 69 percent still use firewood as the primary energy source for cooking. The communities and businesses already connected to the national grid experience frequent power outages due to inadequate supplies and degraded infrastructure. As Myanmar’s rural population seeks tangible improvements to their quality of life, electrification represents an opportunity for the government to bring near-term legitimacy to the political and economic reform agenda.
A recent influx of donors – including bilateral and multilateral partners, private companies, and charitable foundations – are making significant investments to improve electricity access in Myanmar. In September 2015, the World Bank approved a $400 million loan to support the first phase of the Myanmar government’s National Electrification Plan (NEP), which aims for universal electricity access by 2030. The World Bank estimates the total cost of connecting the national grid to 7.2 million households by 2030 (excluding generation and transmission costs) is $5.8 billion. To attract such financing, Myanmar will need a strong regulatory framework that guides private and public energy-related investments.
However, Myanmar’s investment environment is characterized by ambiguity and rapid change as the country pursues a broad reform agenda after newly reopening to Western trade and investment. In particular, the electric power regulatory framework includes new laws and policies at high levels, but detailed implementing guidelines and standards are still under development, leaving investors uncertain about legality and market feasibility of private electrification projects. Practitioners expect this ambiguity to continue at least until a new government is formed following the 2015 elections.
In the meantime, the development community is largely promoting distributed renewable energy solutions – meaning localized options such as mini-grids and solar home systems – to provide lighting and electricity to rural communities. While extension of the national electric grid will play an essential role in advancing toward the country’s 2030 target, in the medium term many rural customers will remain far from the grid and unable to afford connection fees.
Advocates and practitioners point to the country’s abundant renewable energy resources and history of village-level, self-organized use of distributed energy systems as momentum for further off-grid investments. For example, local developers in Shan State have installed hundreds of micro-hydropower sites to electrify thousands of households. In rice-growing areas across the country where feedstocks are abundant, it is estimated that local entrepreneurs have installed more than 1,000 rice-husk gasifiers to power rice mills and provide electricity to local communities. And as solar products have become widely available on the open market, thousands of households have purchased their own solar home systems on a self-help basis.
Myanmar’s government has also committed sizable resources for off-grid renewables. Between 2013 and 2015 fiscal years, the Department of Rural Development distributed at full subsidy over 200,000 solar home systems and more than 100 mini-grids, with a ten-fold program budget increase reaching $37 million for 2015. But with vast electricity needs (for 70 percent of the population), Myanmar will need a robust private market and commercially viable technologies – accessible and affordable for the rural poor – to enable distribution at the levels needed to meet rural energy needs.
Commercial viability for distributed renewable energy systems remains a challenge in Myanmar. Project developers face regulatory ambiguity, market-distorting subsidies, and a rapidly extending electric grid that influences where their systems are appropriate for installation and sale. But the government’s village-level plans for grid extension are not yet publicly available. Without the right information (nor clear legal and technical guidelines for grid interconnections), mini-grid service providers risk making plans that become obsolete if their target communities will be connected to the grid soon.
In addition, Myanmar’s financial environment presents a barrier to commercial development of off-grid renewables. The country’s banks are acknowledged as offering inadequate financial services, as most borrowers are limited to one-year loans at 13 percent interest rates with high collateral requirements. But the situation is slowly improving with financial reforms. More business financing is anticipated now that several foreign banks received final licenses, opened branches, and launched the first foreign bank operations in Myanmar in decades. For consumers, some microfinance institutions are offering small loans for purchasing solar lighting kits and the telecommunications firm Telenor is poised to partner with Yoma Bank for a mobile money service (pending further guidelines from the Central Bank of Myanmar).
Looking ahead, Myanmar’s policymakers will need to create an enabling environment for businesses; detailed regulations and standards are needed to clarify the role of small independent power producers in Myanmar’s electrification. As policies and plans are finalized, sharing information and data among public and private players will allow stakeholders to coordinate and target activities appropriately, thus maximizing resources available to meet Myanmar’s electrification and development goals.
Ms. Rachel Posner Ross is an adjunct fellow with the Energy and National Security Program at CSIS. Read her full CSIS report on Myanmar’s Path of Electrification and follow her blog with Myanmar Energy Partners.