Solar micro-grid product can bridge the gaps in access to electricity, with potentially large economic and welfare gains to households
The electricity sectors in developing countries are woefully inefficient, and their rapid growth will not be sustainable if they rely primarily on burning fossil fuels. Therefore, small decentralised energy projects have an important role to play in providing universal access and reducing the carbon-intensity of electricity load growth.
A solar micro-grid product for villages in Bihar
We partnered with Husk Power Systems (HPS), a company that had already won accolades for its innovative rice husk biomass micro-grid product. Our goal was to examine the demand for solar energy in villages with few other electricity options, and to study the causal effect of electricity on household welfare characteristics such as health, education, and income generation. In 2012, HPS began piloting a solar micro-grid product that would provide consumer households with energy supply to 2 LED bulbs and 1 mobile charger for 5-7 hours per day. Working in collaboration with Husk Power System’s roll-out, we were able to design a randomised control trial with two randomly selected groups – the treatment group would receive the intervention and the control group would not. One group of treatment villages would be able to purchase the solar connection at a subsidized rate of 100 rupees per month, while another group would be offered the connection at the unsubsidised price of 200 rupees per month. This is a powerful experimental design, as it will allow us to directly compare two groups who have the same characteristics all other ways, the only difference being access to electricity.
Village-level demand for solar energy
Over the course of the project, we hoped to gain insight into the demand for solar power in rural areas with few other electrification options. To accomplish this, we measured both the stated and actual willingness-to-pay of households in our sample villages.
Before the rollout, we asked potential customers how much they would be willing to pay for different appliance bundles. We found a very large stated willingness to pay for entertainment appliances, such as a television set. For example, households have stated that they are willing to pay approximately 40 rupees per month for one CFL or LED bulb and an additional 90 rupees per month for a television, adding to a total of 130 rupees per month.
Once HPS began installing panels in interested households, we collected monthly data on actual customer take-up and re-charges in both subsidy and non-subsidy villages. This has allowed us to estimate demand curves by fitting the number of solar micro-grid customers in each village against the total number of households in the village (see Figures 1 & 2). This take-up data suggest that at a price of 200 rupees per month, demand does not increase as village size gets larger. On the contrary, it declines. We believe that this may be due to the fact that larger villages are more likely to have diesel generator options, which are HPS’s main competitors. At a subsidised price of 100 rupees per month, however, the HPS solar micro-grid product is competitive, and there is strong demonstrated customer demand. In response to this data, HPS lowered the normal price of their product to 160 rupees, as the resulting increase in customer demand and recharges actually made it more cost-effective for the company.
Figure 1. Demand for connections at subsidised price (100 rupees per month)
Figure 2. Demand for connections at 200 rupees per month
Household and business welfare impacts of electrification
Our baseline survey provided insights on the characteristics of electrified and un-electrified households. Sample villages for this project were selected based on a limited access to government electricity infrastructure, and so over 70% of households did not have access to electricity from any source when the project started. In order to meet their primary requirements of lighting and phone charging, households may have the possibility of choosing between grid electricity, solar panels, or diesel generators. Of these sources, diesel generators are by far the most popular option, employed by 17% of our sample households at baseline. Diesel generators are usually operated by someone from the village who collects money from households every month. Connections to a diesel generator generally cost 70-120 rupees per month, thus making it a very strong competitor to the HPS product at 200 rupees per month.
Our baseline results point to correlations between electricity access and household welfare outcomes, controlling for income. For example, in households with electricity from any source, girls are more likely to attend school. Households with electricity are also more likely to use their mobile phones for business purposes. These correlations could be due to the effect of electricity or other factors, like wealth, that are related to school attendance or entrepreneurship. Figure 3 shows the school attendance for children under the age of 16 years by access to electricity. Figure 4 shows that households with electricity are more likely to use their mobile phones for business purposes, perhaps resulting in an increase in income generation activities such as micro-enterprises.
Figure 3. School attendance, by electricity access
Figure 4. Mobile phone usage, by electricity access
As of May 2016, we are completing our endline survey, where we hope to be able to confirm causal effects on health, education, and income generation.
Editors' note: This column first appeared on the IGC blog.