A briefing paper on key principles for the design of pro-poor subsidies to meet the goal of sustainable energy for all
There is increasing recognition that subsidy is not a dirty word; indeed, subsidies are a necessary ingredient to achieve SDG 7.
Subsidies can be used to address affordability gaps and the high cost of service in reaching remote, rural and often poor communities. Ensuring that these communities have access to energy is particularly important in catalysing economic activity and building resilience as countries plan their recovery from the Covid-19 crisis.
There are lots of examples of subsidies being deployed successfully without undermining private sector investment.
The review of country examples of subsidy schemes in Table 1 and the Appendix shows that subsidies have been used widely with the aim of ensuring sustainable and affordable access to energy. They are still used, and are integrated into the design of on-grid energy markets, in many of the most advanced countries.
But there are not yet examples of truly systemic subsidy schemes targeting the deployment of decentralised energy access technologies.
Many of the lessons from the subsidy schemes targeted at decentralised technologies have been ignored when designing new schemes. In particular, many such schemes have failed to achieve sustainable results as new offgrid connections or clean cooking solutions have fallen into disrepair or have not been properly maintained over the long term. It is a matter of concern that the current wave of results-based finance schemes risk repeating many of the same mistakes.
Excerpt from: Designing sustainable subsidies to accelerate universal energy access, tearfund, 2020