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close this bookPhotovoltaic Household Electrification Programs - Best Practices (WB)
close this folderAttaining financial sustainability
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View the documentTerms and conditions
View the documentPricing strategies
View the documentGrants and subsidies
View the documentEnforcing repayments
View the documentFinancing battery replacements

Grants and subsidies

6.10 Governments and donors have provided grants or subsidies for technology promotion and demonstration, regional development, poverty alleviation, environmental and other reasons. Grants and subsidies should only be used for market-conditioning activities, or under the right conditions, as limited injections of equity to buy down the capital cost of a project. Such subsidies should not be used to demonstrate untested technologies on unwary consumers. Market-conditioning activities include training, promotion, project design, feasibility studies, setting and enforcing quality standards, monitoring, and establishment of infrastructure. If the capital investments are to be subsidized, a strong case must be made, based on need and an assessment of beneficiaries' capacity to pay. The amount of capital cost buy-down should preferably be limited to defraying the higher costs associated with the start-up of a new solar home systems program. The buy-down amount should be calculated, taking into account the price to the consumer in an established program serving a larger group of consumers.

6.11 The grants or subsidies must be very transparent and targeted, bearing in mind that, as in any subsidized program, the benefits may not go to the most deserving. Before subsidies are introduced, their impact on the development of a broader PV market should be assessed. A subsidized program may produce a quick injection of PV equipment, but potential consumers may form unrealistic expectations about obtaining systems at below-market rates. This can damage long-term, larger scale PV diffusion. A donor-subsidized program which "dumps" PV equipment will result in unstable market conditions as local project implementors gear up to meet a short-term demand. It could also hurt local commercial suppliers as they cannot compete with the subsidized goods' (Covell and Hansen, 1995).

6.12 Grants and subsidies must not be used to cover recurring operating costs. While governments or donors may initially agree to cover some of the operating costs of a household PV program, changes in policies may reduce or eliminate such funding. If a program depends on ongoing subsidies, any reduction can jeopardize its long-term sustainability.