There are 1.5 billion people in the world without access to electricity

Renewable energy technologies (RETs) are invaluable to those who live outside the boundaries of power grids. The Renewable Energy Policy Network for the 21 Century (REN21) estimates that tens of millions of rural households are served by renewable energy around the globe. But this still translates into a mere drop in the ocean.

Why doesn’t the power grid reach these households in the first place? For starters, they are typically located in remote villages where grid access is prohibitively expensive. Governments lack the means and motivation both, because of their inability to recoup costs from poor villagers, often because subsidized electricity prices depress revenues. In some cases, grid expansion makes sense after removing these distortions. But expanding the grid will never make economic sense where villages and households are too remote.

These households resort to traditional fuels such as wood, oil and candles for heating and lighting, leading to severe indoor pollution, not to mention chronic fire hazards. Study after study has shown the devastating effects that indoor pollution has on women, children and public-health finances. Moreover, these fuels are not cheap, costing isolated households a significant proportion of their income.

Off-grid RETs represent a viable solution, and come in various forms: solar photovoltaic home systems, mini-hydroelectric generators, rooftop wind turbines, and village-level mini-grids using a mix of diesel generators and local renewable sources, to name a few. A solar home system connects a photovoltaic panel to florescent lightbulbs, radios and even TV sets, via a battery and load controller. A World Bank study has shown that a 20-watt solar home system can cut monthly kerosene consumption in rural households by roughly 15 liters.

Many ask why the most expensive technology should be used for the poorest people. A 20-watt panel could cost roughly $200 – a huge sum for households earning $2,000 or less a year. However, with installment financing, monthly costs become not only manageable, but also competitive with traditional fuels. The monthly leasing cost of the 20-watt panel in question, when stretched over 10 years, can be as little as $1.60. And off-grid RETs offer tangible benefits: better lighting, a safe and smoke-free home environment, and the opportunity to connect to the world through TV or radio.

Governments in poor and developing countries have been promoting projects to distribute off-grid RETs for decades, supported by multilateral institutions, bilateral aid programs or non-governmental organizations. The private sector has typically stayed out because of long cost-recovery periods, small market size and lack of consumer credit.

But the nature of these projects is now changing. The often-debilitating impact of the traditional foreign-aid model on developing countries’ nascent private sectors has led to a fundamental reconsideration. New projects are more market-driven, with donors’ focus gradually shifting to building the capacity of domestic regulatory and technical institutions, and to strengthening the position of existing private sector companies to serve the market.

It was precisely such a model that led to the emergence in China of the World Bank’s famous "Golden Sun" standard for solar panels, which focused disproportionately on strengthening technical institutions. The project is often credited for leading to the boom in manufacturing of photovoltaic panels in China, which has overtaken Germany and the United States to become the world’s largest producer.

There are many ways to undertake rural electrification using off-grid RETs. Governments can choose household-level technologies or village-level micro-grids, involve aid donors or use other modes of financing, offer subsidies to encourage private entrepreneurs or energy service concessions to existing utilities, lease the equipment by providing consumer credit or sell it up front.

The important thing is to recognize that there is a broad spectrum of available options, and that efforts need to be ramped up on a massive scale. In India alone, every third person lacks access to electricity. If we want to avoid isolating communities and ensure inclusive economic growth, we need to start with the basics.

By Malavika Jain Bambawale. The author is a research fellow at the Centre on Asia and Globalisation at the Lee Kuan Yew School of Public Policy, Singapore.