Last week, India helped the world get one step closer to an international climate pact when it ratified the Paris Climate Accord. Much of India’s strategy to reduce fossil fuels relies on a transition to renewable energy, namely solar. In fact, with solar prices worldwide plummeting, many countries are placing bets on solar.
Most analysis conducted to date suggests that among various competing solar technologies the economics are best for utility-scale photovoltaic (PV) projects. But grid scale PV can only serve households actually connected to the grid. Millions of people in developing and emerging economies live without electricity, either because the grid has not reached them or because they remain too poor to pay.
Rooftop solar and solar micro-grids seem appealing as a clean solution to a crippling energy access problem that condemns these countries to low growth. Micro-grids—where a handful of homes are centrally wired to a field of solar panels—are becoming especially popular because, unlike rooftop solar, the high upfront installation costs can be spread throughout a village, making them cheaper. Often fully or partially funded by non-profits and social venture capital, solar micro-grids are popping up in villages from Africa to Bangladesh, where households are able to flick on a switch for light for the first time.
So are solar micro-grids a sustainable solution to lighting up the developing and emerging world? Unfortunately, a recent study I conducted with my colleagues in the state of Bihar, one of the poorest regions in India, suggests they may have a tough time. A mix of inefficient policy, conflicting incentives and unreliable operations can ultimately lead to a product that consumers do not want.
The first challenge is low take-up. In our study, only 20% of potential micro-grid customers signed up, even with existing capital subsidies augmented with subsidies that cut monthly usage fees in half. There are various reasons this may have happened. One reason involved the low-power nature of the micro-grid. While we might think households would (and should) be willing to pay for small amounts of electricity to be able to switch on a light at night, this was not the case. Households wanted enough electricity to power a fan or even a television. If they couldn’t get that, they were willing to do without. A separate study found a similar phenomenon in Kenya and Tanzania. As with any other product, getting people to pay requires giving them what they want – even if this means serving fewer people with the same number of solar panels.
Even where micro-grids have takers, solar is not the only game in town. In our study, solar micro-grids faced competition from generators burning a mix of diesel and kerosene. This source of electricity can be more flexible than solar, doesn’t require storage and is often cheaper. In India, a specific problem occurred because of a government subsidy program. The government provides an allotment of highly-subsidized
kerosene to households meant for lamps. But not satisfied with the inferior lamps, households are trading in their kerosene to the operators of small generator plants. The kerosene is used to power the plants, and in return the households receive cheaper electricity. So, this policy essentially subsidizes a dirty fuel burned in a high-pollution small generator, while simultaneously making it very hard for solar micro-grids to compete.