Energy for lighting, cooking, income generation, or to keep cool in rising temperatures is vital and becoming more so. Lack of energy access is increasingly concentrated among people living in extreme poverty (those on less than $2.15 per day), putting them most at risk of being left behind. As of 2023, an estimated 312 million people living in extreme poverty in South Asia, the Indo-Pacific and sub-Saharan Africa were without access to electricity, and 430 million without access to clean cooking energy. For this group, affordability of energy products and services is a key barrier to access.
Following the recent Global Off-Grid Solar Forum and Expo in Nairobi, a new consensus has emerged: achieving universal energy access by 2030 requires a rapid increase of public finance—including USD 9 billion in subsidies—alongside alternative business models to reach people who simply cannot afford the most basic energy systems.
Practical Action has produced a new series of briefs exploring the potential of these business models as well as market interventions, including subsidies, that improve energy affordability for those in extreme poverty and other hard-to-reach groups, specifically in Nepal, Rwanda, and Zambia.
This blog and its accompanying briefs explore basic electricity access to Tier 1 Solar Home Systems. We intend to publish additional briefs that explore people’s access to a range of improved and clean cooking solutions.
Our new analysis utilises a modelling tool developed for our study ‘Can Market Mechanisms Enable Energy Access for People Living in Extreme Poverty?’ conducted with Kuungana Advisory for the UK Aid funded Transforming Energy Access platform. The briefs build on this study by providing country-specific results for key mechanisms including:
Business models:
- Pay as you go (PAYGo) rent to own: where the customer pays an initial upfront deposit on a technology, then pays the remaining amount with interest via instalments over time until eventually owning the technology outright.
- Energy as a Service (EaaS): a customer pays a regular fee for the use of a product or service but does not own the technology. In the scenario we looked at, the monthly charge to the customer was the same regardless of consumption level.
Subsidies:
- End-user subsidies: fixed term funding provided directly to a consumer, for example in the form of cash transfers, to support product purchase.
- Sales subsidies: funding provided to companies to lower the retail price of products or services. Under a results-based scheme, funding is only provided to companies upon achievement of predefined results such as sales to specific consumers.
Business models combined with subsidies:
- PAYGo or EaaS combined with a Results-Based Finance (RBF) sales subsidy, where the upfront cost of a technology is reduced through subsidy before the business model is applied.
In the briefs we estimate both the number of households who can potentially gain access to technologies through market mechanisms as well as the cost of these interventions. Importantly, we provide a best-case estimate, as well as estimates for situations where people’s ability to benefit from a mechanism is hindered by social and economic factors. This way, the briefs can support donors, governments, the private sector, and NGOs to select, target, and design the most suitable options for specific groups and contexts.
Key messages
- Our findings show that Energy as a Service (EaaS) has significant overall potential to enhance electricity access, but subsidies are crucial to reach those living in extreme poverty; either by enhancing the impact of EaaS and other business models or by overcoming their limitations.
- In our scenarios, both a 50% end-user and a 50% RBF sales subsidy had the same level of impact. This is because, in principle, they both lower the retail cost of a technology by the same amount. In practice, both can be used to provide targeted support to those living in extreme poverty. For example, end-user subsidies can involve targeted cash transfers and companies can provide vouchers to specific households so they can purchase subsidised products.
- Across all countries surveyed, Energy as a Service combined with a 50% results-based sales subsidy had the highest potential impact. EaaS combined with a 50% subsidy has the potential to increase the number of people living in extreme poverty who are willing to pay for a Tier 1 Solar Home System by up to 409,000 households in Nepal, 620,000 in Rwanda, and 1.7 million in Zambia. The overall cost of subsidies needed to achieve this impact is $21.5 million in Nepal, $48 million in Rwanda, and $70.2 million in Zambia. However, without additional investment, those living in extreme poverty will continue to face affordability challenges, hindering their access to electricity.
- Crucially, impact can only be achieved if factors hindering people’s ability to take up market mechanisms are addressed through careful design or supporting interventions. Factors which reduce people’s ability to engage with business models, particularly seasonal or unreliable incomes, low experience, and hesitancy in taking on financial commitments and physical remoteness, could mean that far fewer households take up support (and therefore gain electricity access) in practice. For external interventions, lack of registration in national databases or proof of residence will hinder targeting and inclusion for certain groups and limit impact.
This blog has focused on those living in extreme poverty, but the briefs also explore national-level impacts and impacts for specific sub-groups including displaced people in Rwanda, female-headed households in Nepal, and those practicing subsistence farming in Zambia. It will be followed by a separate blog and accompanying briefs that focus on increasing access to a range of improved and clean cooking solutions.
To find out more, we encourage you to read the briefs in full and explore the other reports developed for the wider TEA study, located on the project’s webpage.