Subsidizing Private-Sector Rural Electrification

Cheaper solar, storage and appliances, combined with increased connectivity and mobile money, have driven a radical transformation in the economics of delivering energy to remote rural customers.

Many believe this transformation alone is enough to eliminate the need for subsidies to achieve rural electrification. Unfortunately, based on the numbers, it’s not, or not yet. It is true that achieving universal electrification in Africa is going to require much less subsidization. It’s also true that the amount of subsidies required will further decline as off-grid technology costs decrease with scale. But today, subsidies are required.

Some solar home system companies have had success in delivering energy access through standalone solar systems, demonstrating how effective the private sector can be in helping achieve universal electrification. But the reality is that the majority of their customers are not the poorest and hardest-to-reach consumers.

Payment plans for systems that support a basic set of appliances like lights, TVs and fridges are typically over $1 a day. The World Bank defines affordable energy expenditure as making up less than 5 percent of household income. Without subsidies, it will be a long time until the 437 million people in Africa who earn less than $1.90 a day can afford lights, TV and a fridge at that price.

Today, no long-term, fully integrated structural subsidy scheme exists to support the private sector in reaching the majority of the people living off-grid in Africa — the rural poor.

To achieve the U.N.'s Sustainable Development Goal 7, this must change. We must make efficient, results-based subsidies available to private off-grid companies to connect the rural poor. The amount of public funding required to deliver universal electrification may be lower than ever before, and that need can be reduced even further. But right now, as always, rural electrification requires subsidy.

Article by Gabriel Davies and Matt Tilleard

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