Robin Burgess, Michael Greenstone, Nicholas Ryan, Anant Sudarshan
Over a billion people do not have electricity and many others have abysmal power supply. Innovation has cut the price of solar photovoltaic panels to that point that off-grid solar power can compete with traditional, grid electrification to light the homes of the rural poor. We collected data over four years in Bihar, India, as the state underwent a transformation that raised electrification rates nearly 40 percentage points. We use a randomized experiment to estimate a demand model wherein households choose between grid electricity, off-grid electricity sources and having no electricity at all. The model yields three findings. First, demand for off-grid solar power is highly elastic, with an elasticity around -3. Second, the value of off-grid solar is much greater when the grid is absent or if the grid were priced at cost, in contrast to the highly subsidized rates in our setting. Third, though at present power is only supplied part of the day, households do not value improvements in supply enough to justify their cost. Our findings rationalize the government offering a low price, low quality bundle of energy services to maximize access.