Demand for Electricity on the Global Electrification Frontier

Nearly a billion people, mostly in rural Africa and South Asia, do not have electricity at home. The advent of off-grid solar power means that many of these households, at the frontier of global electrification, have a choice between competing sources of electricity. This paper studies the demand for electricity with a discrete choice model wherein households choose between grid electricity, several off-grid electricity sources, and having no electricity at all. The model is estimated using a randomized experiment that varied the price of solar microgrids for a sample of villages in the state of Bihar, India, an outpost on the global electrification frontier. There are three main findings. First, households value electricity, but demand for any one electricity source is highly elastic, because several sources provide similar energy services at similar prices. Second, even in a relatively poor, rural sample, richer households greatly prefer grid electricity. Third, future growth in income will drive an increase in electrification due mainly to new grid connections, even if the cost of solar continues to fall. Our analysis suggests that off-grid solar power provides an important stop-gap technology, which fills the space between having no electricity at all and grid electricity, but that the future will run on the grid.