How a Focus on Small-scale Projects Can Accelerate the Energy Transition in Melanesia

In November 2019, I led a team to Solomon Islands to develop a locally generated clean-energy project. After a long day under hot sun and thinking through deep challenges, my team and I rested on the nearby beach. To our surprise, our host tapped us on the shoulder, offering several ice-cold beers.

It seemed innocuous, but was significant. There was no electrical refrigeration on the island, and Honiara was a four hour return trip by boat. Our host, it turned out, had dispatched one of his staff to the capital to pick up slabs of ice – ice to keep our drinks cool, but also to keep that day’s catch safe for the handful of guests to eat.

A reliance on these types of improvised, costly solutions is the reality of energy poverty in Solomon Islands, and elsewhere in Melanesia. While many communities access some form of electricity through toxic and expensive diesel generators, others live entirely without access to power.  It is a blight that has seen energy access in the Pacific hover at similar rates to sub-Saharan Africa for generations and, despite renewed attention on the Pacific Islands, this fundamental development problem is still not front-and-centre in our own conversations about the region’s future.

One of Scott Morrison’s first prime ministerial acts was to launch the ‘Pacific Step-Up’, a sweeping, multifaceted policy aimed at addressing what had been billed as Australia’s ‘benign neglect’ in the region. The Step-Up is significant. It has reprioritised the Pacific in Australian foreign policy, seen the creation of the Office of the Pacific, broadened Australia’s diplomatic footprint in the region, expanded the Pacific Labour Mobility program and delivered of the Coral Sea Cable, among other projects.

But the central pillar of the Step Up is the Australian Infrastructure Financing Facility for the Pacific, or the AIFFP.

The AIFFP was launched in 2019 and promised to address the Pacific’s acute infrastructure-investment deficit. $1.5 billion of the fund is dedicated towards offering concessional loans, with a further $500 million allocated towards grants. As of October 2021 the AIFFP has announced just six projects. While the fund has doubtlessly been constrained by COVID-19, I suggest the overall lack of investment is inherent to its design.

While the AIFFP offers more money, it isn’t a novel financing mechanism. It essentially mirrors what was already available to the Pacific: large investment funds focused on financing economically viable mega-projects. It is a useful strategic asset for Australia, as it gives Canberra a strategic tool to finance projects that might otherwise receive Beijing’s backing,  but its remit is complementary to existing financing architecture in the Pacific, not distinct from it.

This is problematic given Australia’s insistence that its Step-Up policy was rooted in a desire to be the ‘partner of choice’ for development in the Pacific. I believe that to actually achieve this, Australia should proactively work to address the region’s most stubborn development challenges that no one else is solving – not just replicate existing approaches.

In fact, I have long argued that Australia should make a focus on alleviating Pacific energy poverty its point of distinction.

There are innumerable development challenges in the Pacific, but prioritising the technical, economic and policy hurdles contributing of the Pacific’s enduring energy woes makes sense. Without reliable energy, communities cannot engage in basic economic activity. And in a pandemic age, poor energy infrastructure makes the activation of the cold-chain networks needed for vaccine distribution next to impossible.

Getting energy provision right in low-income island geographies is hard. An overwhelming majority of prospective energy consumers in the Pacific are not connected to a grid, due to the disparate and rural-majority nature of Pacific populations. This means that energy access will have to be achieved through isolated, decentralised systems – be they mini grids, solar home systems, or other localised solutions.

But given advances in renewable energy, the biggest hurdle is no longer technological – it is economic.

Energy-deprived communities in Melanesia are disparate, small and low income – attributes that discourage private and donor investors alike. Further, even viable projects rarely get off the ground due to a lack of investment in project origination. The scant funding dedicated towards the origination of projects is a key bottleneck in the Pacific’s development.  It is currently too expensive for private sector or NGO actors to travel into the region and seek out viable projects, and expensive to design them, which means they simply don’t happen.

These problems are well known, but a development ecosystem consumed by a risk-averse managerialism that views innovation with scepticism seems unwilling or incapable of addressing it.

Despite these major hurdles, new policy levers can pulled and I suggest that Australia is uniquely placed to pull them. Canberra could start by acknowledging the need to have a dedicated focus on the value of small-scale, community-led energy projects as a development catalyst in the Pacific. It should then allocate resources specifically towards funding small-scale renewable energy projects. Quarantining ten percent of the AIFFP’s $500m grant funding for small-scale (sub $1m value) electrification initiatives would be a start. Australia could then seek out partners – local, private sector, and NGO – who are able to proactively identify community-level energy projects, before funding the technical evaluation of these projects, enabling them to be presented to prospective private or donor investors as shovel-ready.

Additionally, Australia should work to aggregate small-scale energy projects into larger portfolios of investments, which would enable higher returns on investment for the myriad financiers operating in the Pacific who otherwise will not invest in small-scale projects.  Aggregation also enables operational expenses, like maintenance, to be streamlined across large portfolios of projects, ultimately lowering investor overheads.

Finally, Australia – and the broader aid ecosystem – should accept, but mitigate against, individual project failure. Doing things differently won’t always work. But if the region’s energy poverty issues aren’t addressed, millions of Pasifika peoples will remain in development limbo for generations to come.

Edward Cavanough is a PhD Candidate at the University of Adelaide’s Department of Politics & International Relations, Director of Policy at the McKell Institute and founder of the Savo Solar Initiative.

This article draws on research presented in September 2021 at the Unsettling Resources Symposium: Renewable Energy in the Pacific, convened by Professor Susan Park and Dr Kate Owens as part of the Unsettling Resources research project.