I recently returned from a two-week visit to India, where I did research on different approaches to eradicating energy poverty. According to the 2011 India census, every third Indian — approximately 400 million people — still does not have access to electricity. Predominantly a rural problem, a lack of access to electricity deprives households of simple services such as mobile charging, effective nighttime lighting, air circulation, and television. Moreover, communities that lack electricity cannot use it to power livelihood activities, such as small business. In this sense, electrification is a necessary but not sufficient condition for socio-economic development toward modern standards of living.

There are two broad solutions to the electrification problem. Historically, most efforts have focused on “grid electrification,” whereby the government constructs transmission lines to reach additional households. Combined with subsidized electricity pricing, this solution extends the grid to cover poor and remote households.

The other, more recent solution is “off-grid electrification.” This approach is based on decentralized electricity generation, often using renewable energy sources, such as solar photovoltaics or biomass. This solution bypasses the grid, and instead electrifies communities using their own power resources. In Uttar Pradesh, I saw The Energy and Resources Institute‘s off-grid electricity solutions that focused on providing lighting, while in Rajasthan I saw Gram Power‘s “smart grid” systems that allow households to consume pre-paid solar electricity for a wider variety of uses, including fans and televisions.

The suitability of grid and off-grid electrification depends on the context. Grid electrification is often cost-effective and can bring electricity to large numbers of marginal households. However, grid electrification can be highly expensive for remove households that are far removed from the existing grid. This problem is made worse if the grid suffers from large transmission and distribution losses, as is true of India. In such circumstances, off-grid electrification can be a faster and less expensive way to bring electricity services to deprived households.

However, the relationship between grid and off-grid electrification is more complex than this. The profitability of off-grid electrification depends on whether the grid is expected to cover the community in focus in the future. If inexpensive grid electricity will be made available next year, local entrepreneurs have no incentive to invest in decentralized electricity generation. This incentive against off-grid electrification is even larger if electricity is heavily subsidized, as is again the case in India.

Moreover, the equity issue looms large. If grid electricity is much less expensive than off-grid electricity, is it fair that some rural communities are not given access to grid electricity?

In the long run, successful efforts to promote electrification in large, geographically diverse countries probably require an integrated policy framework that allows both grid and off-grid electrification to play a role. Grid electrification is the default approach, and it should be actively encouraged wherever expanding the grid is not too costly. However, grid electrification can only work if the electricity sector is governed by policies that allow efficient electricity generation. Off-grid electrification can be a useful complement to grid electrification in remote communities. Ideally, off-grid electrification efforts are designed in view of an expanding grid so that their profitability does not assume a failure of grid expansion. Similarly, grid electrification should be designed so that it does not crowd out off-grid electrification where the latter is more appropriate.