An energy market accelerator

How can we accelerate energy access in rural areas of low-income countries? 

Formidable commercial and operational obstacles deter private energy enterprises from investing in these areas. They concentrate instead in wealthier markets that benefit from high population density and higher average income levels.

Subsidies can help by closing the commercial viability gap. Paying incentives to private enterprise boosts their operating margins, allowing them to absorb the additional costs of expansion into new areas where customers have less ability to pay.

But the difficult question is this: which enterprises should donors back, and how much incentive is needed? Well-meaning but poorly-designed ​‘one size fits all’ subsidies have distorted markets; enterprises get too comfortable with the grants on offer.

Our insight is simple. What’s the best way to calculate how much is needed to incentivise enterprises to operate in rural areas? Ask the enterprises themselves. And to ensure value-for-money, use a competitive auction. So rather than donors attempting to calculate the ​‘right’ amount of subsidy, an auction allows enterprises themselves to determine the level of support they get, tailored to their circumstances.