Increasing Financial Incentive for Renewable Energy in the Third World

Section 1: The Field of Research and Provisional Title

Field of Research: Ecological and Developmental Economics

Provisional Title: How can Externalities be internalised in order to increase private sector   involvement in the renewable energy sector

Name of Candidate: Mr I.Pemba

The Degree: Bachelor of Economics Honours

Department: Department of Economics and Economic History

Supervisor: Dr D.Bekker

Section 2: The context of the research

Due to the lack of financial resources and technical experience and information in developing countries, there has been limited involvement in the renewable energy technologies sector. It has been revealed, that the most efficient and sustainable type of economic growth is linked with the use of renewable energy sources. Lack of proper maintenance and leadership in the supply of electricity by the government and Eskom has led to inefficient and disruptive distribution of electricity in South Africa. There is sometimes confusion as to which category these resources fall into. Distinguishing between renewable and non-renewable sources of electricity production are important as this distinction has consequences for the production of electricity and to society at large.The amount of electricity demanded by citizens of these nations is not meant by an equal demand. The negative consequences of fossil fuel use for the environment and human beings is detrimental to society as a whole.

These negative consequences are named externalities. These can be either negative or positive depending on how third parties to energy production is affected. Negative externalities from fossil fuel use are issues such as pollution, degradation of land and negative health implications for humans residing in vicinity of non-renewable energy use. Externalities of fossil fuel use have not been included in the price of non-renewables on the market. Government tend to create more subsidies for renewable energy based technologies, rather than removing the artificial barriers that have been created by government intervention in the industry. The use of public funds to finance such an uncertain investment is not the most efficient use of public funds. The private sector has the resources to aid in the growth of this industry as they have the human and financial resources that are lacked by the government in many developing countries.  

It has been noticed that the use of fossil fuels leads to higher price and less quantity of good being available, whereas, the use of renewable energy sources has been linked with lower prices and higher quantity of good supplied. A partnership between government and private sector could be the most efficient manner of growing this industry. The private sector will be allowed into electricity sector to create more competition and also the goal of achieving higher profits with efficiency. The government sector gains via the financial resources private sector has with the addition of the technical prowess needed to make this venture a success.