IN THE JOURNAL | POINT OF VIEW
The energy paradox: Cheap versus clean
January-March 2018
By: Bob S Effendi

Every developing country dreams of achieving a prosperity level similar to the United States or European countries, with a per capita gross domestic product above $35,000. Turning these dreams into reality, however, is a daunting task. The per capita GDP of most developing countries is less than $10,000. Simply put, half of the world’s population lives on less than $2.50 a day, and about 1.2 billion people live without electricity. The biggest challenge humanity faces right now is poverty alleviation.

Economic growth has a direct relationship with energy – specifically, electricity. Robert Ayres, an economist with INSEAD, the international graduate business school, shows that every one kilowatt-hour (kWh) of electricity consumption contributes about $4 to GDP. Ayres asserts that electricity is the actual driver of economic growth, not investment, as most economists believe.

Developing countries need about 10,000 kWh per person annually to reach the level of prosperity enjoyed by the United States. Indonesia consumes around 900 kWh per person, per year (a 100-watt average), and China about 4,000 kWh per year (a 450-watt average). But for electricity to lead to prosperity it must be cheap and affordable. For Indonesia, electricity needs to cost less than $0.11 per kWh, the price consumers now pay. The only such sources of reliable energy that can meet this price are hydro and coal, but hydro resources are limited and require large areas of land far from the points of demand. Consequently, Indonesia and most developing countries have come to depend on cheap and dirty coal to power their economies.

Bill Gates said the single most important thing you can do to alleviate poverty is to provide cheap and clean energy, a quest that Gates has called “the energy miracle.”

The energy paradox

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