Access to Energy: Why smart subsidies leave no one behind

What you need to know:

Smart subsidy. A smart off-grid subsidy is only smart if executed in a time-limited, rule-bound and deployed with a laser focus to produce demonstrable social and economic impacts and such impacts should be measured using rigorous statistical analyses.

On a recent 6km walk from Nyeibingo Parish to Kabingo Parish, Ikuniro village remains a stray into the far rural, with real people discerned from urbanites and peri-urbanites. Ikuniro Village is from far submerged at footsteps of Itemba mountain (tallest point in Rukungiri District).
On the walk, rusty rooftops of densified villages have a bit of rectangular shine that on closer look materialises as small solar panels that have come to define this place – not yet universally because of mostly inhibitive solar system upfront cost.
Taking grid electricity to Itemba villages is not only a fat public spend but can also challenging because of the terrain. Besides, folks, solar enabled off-grid electrification is becoming a reality in Uganda.
In these households’, children can now read, safe from pungent and unsafe kerosene fumes. Small businesses can extend working hours with some light. I marvelled at this progress and was reminded of passionate access to energy conversations we had in Nairobi three weeks ago.
From February 18 to 20, more than 1,250 off-grid solar professionals and stakeholders from 75 countries gathered in Nairobi for an energy conference and expo under the auspices of Global Off-Grid Lighting Association (GOGLA).
Participating firms have for the past nine years electrified 420 million people and sold more than 180 million off-grid solar units worldwide with more than $1.5 billion in investments. According to a 2019 World Bank report, the off-grid solar industry has grown into a $1.75 billion annual market.
At the conference, Kenyan President Uhuru Kenyatta said: “Evidence is abound that to realise sustained social economic development, provision of sufficient and clean electricity is a critical enabler. In 2019, we achieved two million sales of solar products.”
Mr Yoven Devaragen Moorooven, the CEO of ENGIE Africa who gave a keynote speech, said the huge potential of the off-grid electrification sector will be instrumental in rapidly and cost-effectively bridging energy gaps across Africa.
“We will build upon our successes to sustain and meet our long-term ambition of impacting tens of millions of lives across Africa. ENGIE has an important role to play in industrialising and scaling up the off-grid solar business. We are keen to offer the lowest cost and best quality Access to Energy solution that addresses our customers’ needs.”
The high-level thoughts from President Uhuru and Mr Moorooven, set the tone for the two-day conference. How will the consequential and surging industry profitably accelerate to leave no one behind and serve the poorest households living on less than a dollar a day?
Positively, world poverty is de-accelerating but at a slow pace. Data scientists at World Data Lab estimated that on New Year’s Day 2019, just under 600 million people across the world (excluding Syria) lived in extreme poverty. By 2030, this figure is expected to fall to some 436 million. In the midst of the foregoing, 840 million people globally are un-electrified, with attendant energy poverty challenges such as pollution, disease, illiteracy, insecurity among others.
The latest GOGLA report says the sector would need an additional boost of up to $11 billion in financing to close the energy access gap. More specifically, the sector would need to grow at an accelerated rate of 13 per cent, with up to $7.7 billion in external investment to companies and up to $3.4 billion of public funding to bridge the affordability gap.
I share the view that filling global clean energy access gap requires not a particular re-invention of new ideas but rather re-imagination and tweak of conventional and old ideas.
One particular idea is deployment of subsidies – yet we need not just “subsidies” but rather “smart subsidies”.
A smart off-grid subsidy is only smart if executed in a time-limited, rule-bound and deployed with a laser focus to produce demonstrable social and economic impacts and such impacts should be measured using rigorous statistical analyses.
It is inclusive and offsets immediate costs by participating firms through equity replacement and have savings passed on directly to the end consumer in proportionate lower pricing of energy product.
A smart subsidy is an affordability accelerator which facilitates scale and drives affordability in the long term.
It’s execution model must, therefore, combine supply and demand subsidies . The purpose of supply side subsidy is to reduce cost/risk for the company.
President Uhuru revealed that Kenya has given import duty exemptions on a range of solar products to ensure both profitability for investors as well as affordability and high-quality products on the part of consumers.
Broadly, these smart subsidies enable market creation through injecting public sector funding to overcome early structural challenges in the market among others.

Rwakakamba is a global Senior Director of Policy, Fenix International, a Company of ENGIE.