In March 2016, some colleagues and I visited several villages around Kaffrine in Senegal where private companies had been awarded licenses to provide electricity on a commercial basis. As we spoke to people, two things became very clear. The initial cost of connection to the grid was too high for many poor people, and the cost of electricity offered by the private companies (or “concessionaires”) were in several cases higher than what the government-owned utility offered in nearby areas.
Governments have approached the affordability challenge in different ways. A typical solution is subsidizing the cost of electricity for the rural poor. While this certainly helps accessibility, connecting to the grid is still too expensive for those at the very bottom of the pyramid. African countries in general and Senegal in particular, are no exception. Even after three years of concessions awarded to private companies, only about 9,600 new connections have been achieved so far, pointing to the enormous challenge ahead.
For problems like these, countries are looking for specialized financial solutions, which is why we were visiting Senegal. We were talking to the Rural Electrification Agency of Senegal (ASER) about a new way to use voucher to help people pay for the upfront cost of installation of equipment and connecting to electricity.
, which are purchased by the World Bank’s Carbon Initiative for Development (Ci-Dev), generating a revenue stream that in turn helps pay for the voucher scheme. This use of vouchers and carbon finance to pay for them and incentivize reduced emissions are both unique in the electricity sector.
Seeing an opportunity to design a solution that not only helps poor people get connected to electricity, but also provides financial incentives to lower greenhouse gas emissions is very exciting. It’s clear how access to electricity changes people’s lives. One of the persons we interviewed during our visit in Dioly, Mrs. Sokhna Ndaw, showed us her fridge, which she uses to store soft drinks and ice cream that she sells in the village.
Another gentleman, who migrated to Dubai in search of employment, had come back to his place of birth and set up a flour mill when electricity was available. Listening to their stories reminded me of my childhood in Odisha, India, where our village got electricity when I was in high school. Our family could not get connected because it was too expensive: our neighbor would not allow the overhead electrical cables to cross his property, and rerouting the cables required paying for additional poles and cables that would make the whole investment very costly. As a child, I wondered why the government didn’t just make electricity free for all.
Thinking around sustainability has progressed over the years, but the challenge for many poor people remains. Seeing people in Senegal face the same issues I faced more than three decades ago in India tells me that in some sectors, development is not moving fast enough.
Nine months after our visit, we are now back in Dakar, this time to sign a purchase contract between ASER and the World Bank for the carbon credits that the project will produce. As the plan looks now, the connection subsidy will be delivered directly to the households in the form of “cash vouchers”. Households present these vouchers to the private concessionaires in order to pay for part of the initial costs to switch to cleaner electricity supplied either by the grid or by off-grid technologies (for example, a mini-grid fueled by solar panels). And the concessionaire takes the voucher to ASER for reimbursement, with funding coming from Ci-Dev.
The solution is pro-poor. While it benefits all rural households in a targeted area, poorer households can cover a larger portion of their connection fee with the voucher, up to about 85% depending on the service level they chose, matching their needs and means. Redeemable cash vouchers empower households to make the choice that’s right for them.
This is a pilot program, but I am encouraged that the Government of Senegal is seeing the potential of carbon finance to create new solutions for poor people. I am eager to return to Dioly to see how it is working out and to replicate this concept in other places if it is successful.