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