“It is a matter of political vision. End-user subsidies are not a waste of money, they increase energy access, help build the tax base and create jobs. They are an investment in the economy.” – Shegun Adjadi Bakari, Senior Advisor to the Togolese President discussing the CIZO solar home system scheme.
On 20 January 2021, GOGLA, the World Bank Group’s Lighting Global program, and ESMAP, supported by GET.invest, brought together a broad range of stakeholders for our online event, ‘From ideas to action: Using end-user subsidies to achieve universal energy access’. The event facilitated discussion on how smart end-user subsidies fit within the ‘toolkit’ of public financing solutions to accelerate energy access via decentralised renewable technologies.
Materials used to prepare the event and the event recordings are now available on the recently launched End User Subsidies Resource Center. The platform hosted by ACE, GOGLA, and ESMAP/ Lighting Global will be regularly updated to provide up-to-date information on everything around end-user subsidies.
Presentations and discussions from the event generated three key takeaways:
1. To reach universal energy access, end-user subsidies are needed
Today, even with the increasingly wide-spread availability of low-cost energy solutions such as off-grid solar, 230 million people are at risk of still living without energy access by 2030; a number that has been exacerbated by the COVID-19 crisis. At our event, governments, development actors, civil society organisations, and private sector companies all recognized that end-user subsidies, directly reducing the retail price of an off-grid solar product or service, will play an increasingly crucial role in bridging the ‘affordability gap’ to reach the households at risk of being left behind.
Supply-side subsidies, such as results-based financing, tax breaks, and grants to companies for business or technological innovation, can help to foster market dynamics that bring economies of scale and efficiency, resulting in lower end-user prices. However, in many cases, they are not enough to bring the purchase price down to a level that is affordable to all households. End-user subsidies can close this gap, and work best as a complement to other key building blocks for achieving energy access, such as supply-side subsidies and the promotion of a conducive enabling environment for off-grid markets.
A case in point is the experience from Togo: Shegun Adjadi Bakari, Advisor to the President of Togo, shared with the audience, that despite his country’s adoption of supply-side subsidies to support the growth of the off-grid solar industry, many Togolese households were still not able to afford a basic solar home system. This prompted the government to start an end-user subsidy program to make products more affordable while continuing to closely work with the private sector on developing the market. Participants also pointed to the need for end-user subsidies which support energy access using other renewable and low-impact technologies such as mini-grids, clean cookstoves, and efficient appliances, which all create significant impact and drive development.
2. We need to learn as a sector how to deliver on the potential of end-user subsidies whilst mitigating risks
Dedicated country sessions for Ethiopia, Mozambique, the Democratic Republic of Congo (DRC), and Niger explored in-consultation, or recently adopted, initiatives to implement end-user subsidies for off-grid solar, with discussion pivoting around the need for careful design. Whilst critical, when applied poorly, there is a risk that end-user subsidies hinder, rather than aid, energy access progress in the long term as they can also discourage commercial investment and undermine the viability of sustainable off-grid markets. Participants shared their own lessons and experiences to aid discussion on smart subsidy design, to avoid these potential negative outcomes and maximize benefits. There was consensus that programs need to be created in a transparent and consultative manner. Participants agreed that end-user subsidies should be simple, in order to reduce overhead costs and to make participation attractive whilst, at the same time, complex enough to ensure proper and efficient targeting and verification. Attendees also stressed the importance of an exit strategy, either by phasing out the subsidies or by converting them into longer-term initiatives.
The complexity of end-user subsidies was also highlighted in the context of other technologies, and the benefits of working together and sharing insights were recognised. As Yabei Zhang from World Bank / Modern Energy Cooking Services (MECS) explained: “In designing subsidy schemes we need to learn by doing and it is key to share our learnings with others across sectors”.
3. It is time for action
With less than nine years to go to achieve SDG7; clean, reliable, affordable energy for all, participants agreed there is a pressing need for action. Attendees advised that additional pilots will be needed to explore viable end-user subsidy design options in different country contexts, in addition to those highlighted at the event. However, to end energy poverty by 2030, stakeholders were urged to make strong (financial) commitments to accelerate both the speed and scale of pro-poor interventions – highlighting that the urgency and the benefits of achieving energy access will far outweight the costs. A coordinated effort is now key to develop inclusive end-user subsidy programs that help sustain and catalyze long-term, sustainable off-grid markets and enable energy access for the most vulnerable communities.
The event was joined by 675 participants from 75+ countries, and speakers included representatives from the governments of Togo, Niger, and the DRC, and representatives from development and civil society organisations including the UK Foreign, Commonwealth and Development Office, Energizing Development and Sustainable Energy for All, national renewable energy associations, and off-grid solar companies.
Get involved
The event organizers are currently working on the next steps. If you want to engage with us, and be involved, please reach out to Johanna Galan at jgalan1@worldbank.org or GOGLA’s Head of Policy, Patrick Tonui at p.tonui@gogla.org.
What’s next
To further promote learnings on end user subsidies, ACE, GOGLA, and ESMAP/ Lighting Global are launching a webinar series and case studies profiling end user subsidy design examples. Please contact Aletta D’cruz at a.dcruz@gogla.org to join the mailing list for further updates.