Demand for Off-grid Solar Electricity: Experimental Evidence from Rwanda

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October 2017
Michael Grimm, Luciane Lenz, Jörg Peters, Maximiliane Sievert
University of Passau, Erasmus University Rotterdam, Institute of Labor Economics (IZA), RWI – Leibniz Institute for Economic Research, GGKP Annual Conference
Peters_Demand for Off-grid Solar Electricity_Experimental evidence from Rwanda

The cost of providing electricity to the unconnected 1.1 billion people in developing countries is significant. High hopes are pinned on market-based dissemination of off-grid technologies to complement the expensive extension of public grid infrastructure. In this paper, Demand for Off-grid Solar Electricity: Experimental Evidence from Rwanda, the revealed willingness to pay for different off-grid solar technologies is elicited in a field experiment in rural Rwanda. The findings show that households are willing to dedicate substantial parts of their budget to electricity, but not enough to reach cost-covering prices. Randomly assigned payment periods do not alter this finding. The results are interpreted from two perspectives. First, the authors examine whether the United Nations’ universal energy access goal can be reached via unsubsidized markets. Second, in a stylized welfare cost-benefit analysis, a subsidization policy for off-grid solar electrification is compared to a grid extension policy. The findings suggest that, for most of rural Africa, off-grid solar is the preferable technology to reach mass electrification, and that grid infrastructure should concentrate on selected prosperous regions.