Understanding demand for electricity among rural consumers using pay as you go solar
Electrification poses a unique growth policy challenge. It requires large investments in infrastructure, however the willingness to pay for electricity in low-income countries remains largely unknown. Recognising this challenge, Rwanda has developed a Rural Electrification Strategy (RES) to ensure that households have “the most appropriate form of electricity access” given their level of income and building public-private partnerships (PPPs) to provide electricity access to 100% of households by 2020. The government will facilitate access to a solar system for low-income households, provide a risk-mitigation facility so that private firms can offer solar systems under financing that is affordable for the rural population. and continue targeted expansion of the grid and mini-grids.
This project addresses the current and future challenges to electrification in Rwanda by partnering with BBOXX Ltd (a company that offers affordable renewable energy in developing countries) and Innovations for Poverty Action (IPA). Estimating the demand for solar electricity is important for the government’s risk-mitigation facility, as it provides evidence on households’ willingness and ability to pay for electricity. The incentives BBOXX is offering to some of its customers causes variation in price and liquidity, as some discounts are only available for customers who buy in bulk. Variation in price informs us of consumer demand, while variation in liquidity provides evidence about the types of financial arrangements which are feasible for rural households. Furthermore, we will collect data through a phone survey conducted with IPA to understand why customers are or are not responding to the incentives they have been offered. Understanding consumer demand is central to mitigating risk overall and facilitating fair risk-sharing agreements between public and private stakeholders.
What is the willingness to pay for reliable solar electricity among rural consumers in Rwanda, and how responsive is demand to changes in the price of electricity? In order to answer this question this project aims to:
- Examine administrative data to understand how and to what extent pay as you go solar customers respond to incentives for good payment. Particularly focusing on whether consumers purchase more power in the face of larger incentives, the extent to which consumers will forgo liquidity for cheaper solar, and how consumers who pay consistently and those who pay inconsistently differ in their response to various incentives.
- Survey BBOXX customers after they have experienced 6-7 months of BBOXX incentives for good payment to understand the most important challenges they face in paying for solar as well as their value for solar.
The results of this randomised control trial will enable public and private sector stakeholders to design strategies for rural electrification in Rwanda.