Rural electrification: The potential and limitations of solar power

• National grids in many African countries still struggle to provide reliable electricity to many of their citizens, especially in rural areas. Decentralised, small-scale solar panels have been proposed as one solution to the electrical impasse many rural communities in Sub-Saharan Africa currently face.
• This project provides much needed experimental evidence both on the impact of solar lamps on welfare at the household level, and the nature of demand from potential users for small-scale solar power in Tanzania.
• Even with the basic levels of electricity these individual lamps could provide to individual households, researchers observed an improvement in many welfare indicators among those who used solar energy. However, willingness to pay the full cost for the lamps remained low.

Worldwide, nearly 1.3 billion people lack reliable access to electricity; 530 million of them live in sub-Saharan Africa. Considering the current performance of national grids in many African countries, many of this 530 million will remain without power for a long time still.

Alternative solutions are needed, especially in rural areas. ‘Off-grid’, small-scale solar energy that provides basic electricity to individual households have been proposed as a way to address this. However, much debate still surrounds whether there is demand for these small grids in the communities they are aimed at in the first place, or whether they improve the lives of those who do decide to pay for the electricity.

To address this, researchers designed an experiment where households in rural Tanzania were offered the chance to purchase solar powered lamps with solar panels. Subsidy vouchers, ranging from 0% to 100%, were randomly distributed to potential purchasers to test the price people were willing to pay for the lamp. Researchers also randomly varied the amount of information about the lamps available to consumers before they purchased them too.

In terms of the lamp’s effect on welfare, the effects were clearly positive. The total savings a household would accumulate over a two-year period would be enough to pay for the lamp, without taking any other benefits into account. Having more reliable access to mobile phones also increased use of mobile money. Adults work more outside of the household and in jobs in which they can earn money. Households also report feeling happier with their life situation. It therefore seems that solar lamps are a cost-effective way to improve welfare.

However, the study found that those with low subsidy vouchers were very unwilling to pay for the lamp – i.e., only a few households were willing to purchase the lamps at full cost. Understanding why willingness to pay for electricity is so low despite the clear welfare benefits therefore remains an important issue to address, and one in which the evidence from this study will undoubtedly inform.

Beyond this ongoing debate, this study helped the organisation who provided these solar lamps, GiveWatts, develop their pricing and distribution strategies so they can reach more communities that would otherwise be without electricity.