Figure The adverse impact of policy decisions on diffusion in Sri Lanka compared to Bangladesh annual installations

of administration for a firm. But it is not clear that the rural solar market is yet able to take it.

There has been a lot of talk of so-called 'smart' subsidies, by which is meant subsidies that exist only for a limited programme duration and are self-eliminating. The idea is that, with volumes of transactions growing and with businesses becoming more efficient, prices will decline and grants can be gradually reduced.15 But in the case of rural solar, it may be that after reaching the more accessible customers who can afford to buy, grants will still be required to reach the poorer, more remote segments of society. It is not clear that a grant can eventually be eliminated.16

Ultimately, there is a reason why more firms have not already invested more money into the rural solar sector of emerging markets. There is a perception that the costs are high and the rewards are low, relative to the risks and hassle. Recall what the general manager of a PV module manufacturer in India thought of serving the rural markets:

The rural markets are dispersed - here the problem is 'How do I reach them?'. The reach is where the costs come in for us. You need many of these little, little, little centres, and then one needs to manage these centres, and they will grow and then there is the problem of how to orchestrate them. Suddenly, when you have one hundred of them, it becomes a difficult task. That is where the costs enter in.17


Although entrepreneurs with an all-consuming vision were willing to invest early in these markets, a government cannot dramatically accelerate solar diffusion on the back of pioneering entrepreneurs alone. It is critical to attract and retain a host of firms that are willing to sell solar in the rural markets. The grant per unit installed is a key policy tool for doing so.

In parallel with using a grant to attract and retain interest in the rural solar markets, a government needs to consider how to make the product more affordable. The key is to encourage finance institutions to start to offer loans to solar customers. Without some kind of consumer finance mechanism, those selling solar will struggle to sell in sufficient volumes and generate a sustainable business.

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