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.
