The financial power to electrify rural areas

PUBLISHED : Wednesday, 23 February, 2011, 12:00am
UPDATED : Wednesday, 23 February, 2011, 12:00am

Chinese leaders are increasingly anxious about growing public discontent, as well as the worsening urban-rural wealth gap. The only way to safeguard social harmony is to maintain a balanced economy so the entire country can prosper.

One priority is to further enhance rural electrification, which has always been a focus in its national policy blueprint. In its latest five-year plan, Beijing has pledged to expand and upgrade existing rural power networks in the next few years to meet rising demand.

Premier Wen Jiabao has reiterated that there will be more investment in developing rural infrastructure in areas such as water conservancy and electricity supply for both residential consumption and irrigation of crops.

To improve rural electrification is a huge task, which involves upgrading the existing grid system to make it safer, more reliable and environmentally friendly, cutting tariffs and introducing healthy competition.

Renewable energy application is, of course, vital to the mainland's long-term rural development but, most urgently, Beijing needs to speed up energy development in the countryside, upgrade existing power generation facilities for residents in the central and western rural regions, and expand their capacity to accommodate rising need.

Enhanced rural electrification can improve economic activity, help create jobs and business, increase agricultural productivity and, as a result, reduce poverty. But to guarantee sustainability and affordability, these rural power projects must focus on a diverse energy mix to include renewable and less-polluting sources.

Financing and development of these projects need not be restricted to the mainland or local rural authorities. The Hong Kong government, as well as the city's power supply sector, banks and private investors can also participate.

The funding responsibility could be shared among the mainland government and interested investors to guarantee proper and sustainable financing. But, first, we must convince policymakers, financiers and technology providers that there are big cost benefits.

Unfortunately, we are confronted with a lack of investor confidence, which makes project financing difficult; most banks require the securing of collateral, and pioneering projects such as this intrinsically involve an enormous risk for investors with no physical collateral. To overcome this, one option is for banks to adopt a bundling strategy by packaging together a number of projects to form a combined unit, to minimise risk and trade it as a financial product to raise funds.

Improved rural electrification will not only improve the quality of life for the mainland's rural population, it will also bring significant indirect carbon benefits and extensive social and economic benefits to the entire nation, including Hong Kong.

Jerry Li is chairman of Asia Energy Platform, a non-profit organisation that promotes energy-efficient and renewable energy technologies in the region, and supporting organisation for GTec2011, a technology conference to be held in Macau this year