What is an end-user subsidy?

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What is an end-user subsidy?

Solar home systems, productive use equipment, mini grids, and other decentralized renewable technologies transform the lives and livelihoods of those living in energy poverty. The off-grid solar sector alone has enabled over 400 million people to purchase affordable renewable energy solutions and is expected to serve a further 600 million people by 2030. Yet, even before the COVID-19 pandemic, research showed that over 230 million people would be too poor to gain basic electricity access. The impacts from COVID-19 are expected to drive an additional 70 million people into extreme poverty - putting energy access even further out of reach for millions.

Rather than leave these communities behind, we must address the acute, and growing, “affordability gap”, to ensure they do not stay locked in energy poverty and universal energy targets are realized.

How end-user subsidies fit within the pro-poor toolkit? 

The transformative impact of the decentralized renewable energy sector has been achieved largely by leveraging market dynamics. Public actors seeking to support energy access through off-grid have primarily provided supply side support, which indirectly bring down costs for end-users: companies receive support to reach rural and remote areas and to drive costs down through economies of scale. Supply-side subsidies, such as results-based financing (RBF) schemes, alongside supportive fiscal policies, and other market enablers, remain critical, allowing companies to charge a consistent price for their products, even when it costs them more to reach and service a customer. To achieve energy access goals, these solutions must be both continued and expanded.

However, to fully bridge the affordability gap, end-user subsidies that directly reduce energy costs for very low-income households, are needed. Examples include direct cash transfer, voucher schemes or RBF schemes that specifically enable or mandate that companies reduce product costs for very low income or vulnerable customers. These subsidies are complex in their design and bear a larger risk of market distortion. As such, they must be considered carefully within the broader mix of energy access dynamics and enablers and be designed very carefully.

Find more resources on end-user subsidies in the off-grid solar sector here.

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