The Demand for Off-grid Solar Power: Evidence from Rural India’s Surprisingly Competitive Retail Power Market

• Development Workshop
• Environmental and Energy Economics Workshop

Date and Location

Tuesday, November 28, 2017, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Over a billion people, nearly all in South Asia and Sub-Saharan Africa, do not have electricity in their homes. Solar technology has advanced and panels have come down sharply in price, making off-grid, distributed solar systems a feasible alternative to grid electrification. What has been the value of this wave of solar innnovation for the poor? This paper reports the results of a randomized-control trial that offered off-grid solar systems at varying prices in one hundred sparsely electrified villages in Bihar, one of India’s poorest states. We find that demand for solar is highly price elastic and is near zero at un-subsidized 2013 prices. The high price elasticity appears to be due to a surprisingly competitive retail market where the grid and diesel generator operators compete with off- grid solar. To value solar in this competitive landscape and under counterfactual supply conditions, we estimate a discrete choice demand system for electricity sources using the experimental variation in solar prices. We find that the average household (solar user) is willing to pay USD 2 (USD 6) per year for solar if the grid is absent and USD 0.20 (USD 2) if the grid is present. The willingness to pay for off-grid solar is therefore ten times as large if the grid is not available as a substitute.