This is a presentation from the 'How can subsidies accelerate universal energy access?' IIED Debates webinar on Thursday, 22 October 2020. The online event brought together experts to explore the role of subsidies in achieving Sustainable Development Goal (SDG) 7 – universal energy access: What are the opportunities and challenges for policymakers, the private sector and civil society? What can we learn from current and past subsidy schemes? And how can subsidies play a vital part of the COVID-19 response and recovery? This presentation by IIED and Hivos was delivered by key speaker Nipunika Perera, who is a researcher in IIED's Shaping Sustainable Markets research group. The event was hosted by IIED in partnership with Hivos and Tearfund. More information: https://www.iied.org/how-can-subsidies-accelerate-universal-energy-access

1. www.iied.org @IIED
Energy for all: Better
use of subsidies to
achieve impact
22nd of October 2020

2. Nipunika Perera / @IIEDEnergy for all: Better use of subsidies to achieve impact 2
Unpacking subsidies
Demand-side subsidies
Cash transfers, freely distributed products, interest subsidies
for end-user loans, vouchers, end-price/ capital subsidies
Supply-side subsidies
Tax exemptions, grants, concessional debt facilities, risk-
sharing instruments, RBF, guarantees
Commercial finance
Working capital loans, equity, patient capital, end-user credit

3. Nipunika Perera / @IIEDEnergy for all: Better use of subsidies to achieve impact
Sources: Adapted from Providing Energy Access Through Off-Grid Solar: Guidance for Governments; Lighting Global, GOGLA, ESMAP (2020) Off-Grid Solar
Market Trends Report 2020; Open Capital Advisory (2020), B2. Leaving no one behind: how to best channel subsidies to reach the most remote and poorest
Households; GOGLA (2019)

4. Nipunika Perera / @IIED
• Targeting and delivering subsidies is difficult and complex
Energy for all: Better use of subsidies to achieve impact 4
Nepal’s demand side subsidy delivery
0% 20% 40% 60% 80% 100%
BCT
Janajati
Dalit
Have access to ICS
Don't have access to ICS
0% 20% 40% 60% 80% 100%
BCT
Janajati
Dalit
Have access to
electricty
Don't have access to
electricty

5. Nipunika Perera / @IIED
• Systemic processes help quality assurance, but delays and
complex procedures can affect ultimate objectives
• Affect innovation
• Working capital challenges
• Increasing retail price
• Unfair competition
• Long term provision of subsidy helps but can be unsustainable
• Companies increased but struggle to self-sustain
• Lack of commercial finance
• Business model challenges
Energy for all: Better use of subsidies to achieve impact 5

6. Nipunika Perera / @IIED
• Is a tool among many to support market development, but needs other
support – e.g. links to commercial financing
• Opportunity to build in quality assurance mechanisms, but risks include:
overly bureaucracy, delays and costs
• Unblocking finance to local companies may require additional support
e.g.: technical assistance, result payments tied to smaller milestones
• Often not intended to reach the poorest but combining with demand-side
subsidies has helped reached poorest
Energy for all: Better use of subsidies to achieve impact 6
Emerging lessons on RBF

7. Recommendations

8. Nipunika Perera / @IIED
• Target better:
Understand who needs subsidy most and who doesn’t- combined supply-side,
demand-side and credit financing
• Define better:
Comprehensive analysis to understanding the context and needs are key!
• Engage better:
Address data gaps with more systematic engagement at the local level (e.g.: use
participatory and inclusive planning tools)
• Use existing data:
Use verification data and existing well defined government schemes to bridge data
gaps
Energy for all: Better use of subsidies to achieve impact 8
Adjusting and targeting subsidies

9. Nipunika Perera / @IIED
• Inefficiencies:
Delays in payments and bureaucracy lead to increased costs
• Sustainability:
Short term business models limit key functions such as maintenance
• Unfair competition:
Lack of updating of standards can lead to mal-practice
• End-user awareness:
Marginalised communities unaware of subsidies
• Local company capacity:
Require additional support to access subsidies
Energy for all: Better use of subsidies to achieve impact 9
Identifying and managing risks

10. Nipunika Perera / @IIED
• Facilitate partnerships:
• Affluent households may need affordable credit
• Strategic partnerships with commercial banks, MFIs, and companies
• Technical assistance support to leverage partnerships with banks, MFIs and companies
Energy for all: Better use of subsidies to achieve impact 10
Enhancing end-user access to credit

11. Nipunika Perera / @IIED
• Package with commercial finance:
• Accessing subsidies usually requires companies to pre-finance, so
affordable working capital for implementation is crucial
• Making these links during programme periods can help open the market to
commercial finance once programmes end
Energy for all: Better use of subsidies to achieve impact 11
Unlocking commercial finance

12. Nipunika Perera / @IIEDEnergy for all: Better use of subsidies to achieve impact 12
Nipunika Perera
Researcher
Nipunika.Perera@iied.org