Innovative Infrastructure Investment (in3)
I am the founding director of the in3 programme, which was established in 2016 at the University of Oxford's Smith School of Enterprise and the Environment. The programme comprises a series of intersecting research projects that focus on water, energy, enterprise and sustainable development. We work closely with the Smith School's other programmes to leverage capacity. Our outputs are targeted to policymakers, practitioners, and publications. More information about the programme is available on the in3 web pages,
Making Light Work
Making Light Work' focuses on a unique model for delivering utility-scale solar powered electricity in sub-Saharan Africa. It will look at the conditions that are necessary for this model to succeed at scale, and to understand the value that an reliable electricity supply can unlock from the digital 'always on' economy.
Bridging the Gap
Bridging the Gap considers innovative solutions to the challenge of insufficient investment in infrastructure. The world currently invests around US$2.3 trillion annually in transport, power water and telecoms. It needs to spend US$1 trillion more each year, just to meet growth forecasts to 2030.
Beyond Digital Data
Beyond Digital Data is an early-stage initiative that asks how we might capture the value within extant data-sets and models on climate change, sustainability and financial performance, in ways that enable stakeholders such as investors, corporations and public officials to carry out intuitive scenario forecasts.
There are a lot of these around now, aren't there? Borrowing slightly from Chairman Mao, I'm taking a "hundred flowers" approach to research networks, and signing up to pretty much every one that I'm invited to. I figure that eventually, people will gravitate to the ones that are most useful to them.
The analytics code on this page is allegedly counting which of the links below are clicked most often, so please feel free to participate in this little research exercise into research networks on this research page.
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Making Light Work
A unique programme from the World Bank is currently being implemented in Lusaka, Zambia. If successful, it will deliver utility-scale solar powered electricity for 6 US cents per kWh, the lowest such tariff yet seen in sub-Saharan Africa. The programme aspires to scale across urban Africa, with the transformative prospects that accessible, reliable, low-cost and clean energy brings to communities.
Making Light Work (MLW), focuses on three questions. First, what are the conditions necessary for this programme to succeed at scale? Second, can a more reliable electricity supply demonstrably unlock economic, social and cultural capital in urban Africa? Third, to what extent does ‘power mean empowerment’ for individuals and communities? The project is funded by the British Academy under their Sustainable Development Programme, and is part of the UK Government's Global Challenges Research Fund (GCRF). I am the Principal Investigator, and my Co-I's are Prof. Jim Hall of Oxford's ECI, Prof. Cameron Hepburn of Oxford's INET, and Prof. Anton Eberhard at the University of Cape Town Graduate School of Business.
MLW proposes three hypotheses: that a generalizable set of conditions exist that are predictive of success in implementing utility-scale urban solar programmes in sub-Saharan Africa (SSA); that there are specific and observable relationships between a more reliable electricity supply; economic prosperity; and the creation of socio-cultural capital; and that greater energy security increases human agency, driving a virtuous cycle of empowerment through material progress, growth and innovation, cultural diversity and well being
MLW has three objectives. First, to establish whether there are a generalizable set of conditions that must be met in order for utility-scale urban solar programmes to succeed, at scale, in sub-Saharan Africa. Scaling Solar brings together a suite of International Finance Corporation (IFC) and World Bank services to offer a "one stop shop" for client countries, most of which are eligible for ODA. The objective of the Scaling Solar programme is "to make privately funded grid-connected solar projects operational within two years and at competitive tariffs.” Zambia is host to Scaling Solar’s pilot implementation, and the facility is due to be operational in the middle of 2017. The project timeline for this call (December 2016 to March 2018) is therefore ideally suited both to identifying success factors before the facility becomes operational; and subsequently testing these factors against observable evidence. Scaling Solar has already scheduled further implementations in Senegal and Madagascar in 2017/18.
Second, to identify specific and observable relationships between a more reliable electricity supply, economic prosperity, and the creation of social and cultural capital. The implications of intermittency in a developing country context (i.e. urban grid connections that offer unpredictable, irregular or sporadic access to electricity) are different to issues such as cost or accessibility. And yet, this is a markedly under-researched area in academic, policy and practitioner literature. Zambia is currently reliant on hydroelectric power to meet its energy requirements. The country has faced rolling brown-outs due to load shedding on the grid. These have been particularly acute in the 2015-16 dry season, due to drought conditions and critically low levels of water in the Kariba dam and other reservoirs. Intermittent electricity supply presents particular challenges of uncertainty and anxiety – from the maintenance of critical hospital equipment in hospitals, through to effective participation in the digital economy. A combination of greater urbanisation and population growth will likely place severe strain on urban infrastructure in sub-Saharan Africa in the next decade. Exploring the potential for solar power to contribute to reliability of supply – an inversion of the traditional critique of renewables as being intermittent and unreliable – is a core element of this research project.
Third, to consider the extent to which energy security delivers greater empowerment for individuals, communities, enterprises and civic society. Electricity generation and distribution is a monopoly industry in much of SSA. If successful, the Scaling Solar programme will likely lead to more competitive domestic energy markets. MLW is interested in exploring the greater agency that this might bring. The transformation of internet connectivity across SSA in recent years has been accompanied by various predictions of a productivity revolution as the quaternary sector expands. That this growth has yet to substantively materialise is often attributed to energy insecurity: for example, only 22% of Zambia’s population currently has access to electricity. MLW will test the hypothesis – through the lens of SSA’s knowledge economy – that greater access to energy drives a virtuous cycle of empowerment and wellbeing. However, new and emerging research into global digital marketplaces and the commodification of labour suggests that the cycle may be less virtuous than the extant literature proposes. MLW’s cross-disciplinary outputs will therefore be informed by this broader contemporary perspective, with its locus at the intersection of the humanities and social sciences.
Bridging the Gap
An innovative model to lever private sector capital into financing sustainable water infrastructure. The approach aligns the interests of company shareholders with managers of water utilities. Returns on water infrastructure are often low due to state-controlled tariffs; while the cost of capital is high due to perceived sovereign risk. Low returns and high costs help explain why the current provision of infrastructure investment in most developing countries is woefully inadequate.
I propose a new model of business mutuality, to lever more private sector investment into infrastructure. By accessing the large pools of global savings via the balance sheets of multinational companies, the deficit gap can be bridged. The model is based on a core principle of the sharing economy, where collective capability meets collective need. My research has been informed through interviews with CEOs at food and beverage multinational companies; with Chief Investment Officers at fund management firms in the UK, USA, South Africa and Australia; with senior bankers; government representative; insurance company representatives; non-governmental bodies; corporate sustainability specialists; and various academics.
As an exemplar of the proposed approach, consider Pangia, an imaginary country in Africa. The capital of Pangia is urbanising rapidly and needs a $100m water treatment plant. The return on capital is 6%, reflecting state-controlled utility tariffs. Meanwhile the cost of capital is 10%, reflecting sovereign risk. On this basis, the plant doesn’t get built.
Meanwhile two large multinationals operating in Pangia, are reviewing their long-term organic growth targets. They agree the plant is necessary not just for their operations, but also to ensure that their customers continue to thrive. Their CEO’s agree to each raise $50m through a green bond issue, with a yield of 2%. This is then repackaged into a $100m loan to Pangia’s water utility, with a yield of 4%. From the utility’s perspective, the treatment plant is now a viable investment. The multinationals have effectively arbitraged credit risk to help improve water security in Pangia’s capital, which is good for their consumers, good for their shareholders, and good for the economy. This has not been at the cost of profits: in fact, the action is earnings accretive. This model of mutuality connects capability with demand, and offers a fresh, unexplored perspective on the future of the sharing economy.
This idea presents a novel approach to combining aspects of credit arbitrage (a well-understood investment strategy) with green bonds (a nascent but fast-growing asset class). This approach carries execution and governance risks. Access to relatively cheap capital is a necessary but insufficient criterion. My research suggests that the model has the greatest traction where companies providing the investment capital have a close interest – beyond the merely financial – in the project, for example because the infrastructure is material to their own in-country operations. Multinational companies operating in the consumer staples sector are more obvious candidates.
In the time since I first presented this concept at the 2016 World Water Week in Stockholm, it has achieved considerable traction. A pilot project is likely to begin in early 2017, and further details on this will follow in due course.
Beyond Digital Data
One of the challenges we wrestle with is that while all the data and models out there on climate change offer pretty good insight into e.g. the relationship between carbon emissions and rising temperatures, the models that take this data and predict financial consequences or the value at risk from climate change are nascent, with outputs that are less robust than we would like. And while there is plenty of work going into improving this process - for example the Task Force on Climate Change Disclosure is trying to identify the information that will help investors and others make better decisions - we're still some way from the finished article.
So a few of us at the Smith School are looking into other approaches. We're interested in alternatives to normative judgements,and instead are working on frameworks where stakeholders such as company managers, shareholders, public officials, development agents and others can pose straightforward what-if scenario questions into a system that leverages multiple (and expanding) data sets to offer a set of probabilistic outcomes. The value we think we can bring to this process is that we have a good understanding of the requirements of different stakeholders. We are also pretty well placed to identify the data sets and models that we could use, and to do the integrative work necessary to make this happen.
We're at a really early stage with this, so not much more that I can say for now. But we are certain that an opportunity exists, and I will add to this section as we make progress.