This post is a quick note on something that I noticed yesterday at the SE4ALL Forum. While we — and this certainly includes myself — often demand viability, scalability, and profitability from off-grid entrepreneurs, it seems that rural electrification via grid extension is rarely evaluated against this benchmark. This seems to put off-grid electrification advantages at a disadvantage. If the government is allowed to invest any amount of money in grid extension as a social service, why are generous subsidies not an option for off-grid electrification?
One possible rationale for this double standard is the effect of subsidies on business. If entrepreneurs are subsidized heavily without safeguards against abuse, this will result in the wasteful use of resources and the spread of low-quality technologies. So, generous subsidies may ruin the off-grid market by preventing competition on quality and price.
At the same time, if we do believe that electricity is basic infrastructure that should be supplied whether or not it’s profitable to the supplier, we need to find ways to support both grid extension and off-grid alternatives without arbitrary discrimination against one or the other.
How to do this? Here are some preliminary steps. First, we need hard data on the costs and subsidies required for grid extension. I bet these already exist. Second, we need to use these subsidies as the benchmark for supporting off-grid alternatives. The level of subsidy should be set sufficiently high to ensure that off-grid alternatives and grid extension are on an level playing field, while the institutions to mitigate the negative effects of subsidies on competition have to be built. That’s a tall order, but it’s probably necessary if we are serious about the off-grid alternative.