How a Simple Subsidy Transformed Solar Adoption

Using event studies and two-way fixed effects models, the research found that the subsidy had a massive impact on solar adoption. The overall adoption rate increased by 122%, with small solar systems experiencing a 240% rise, while large systems saw a 66% increase. Interestingly, medium-sized systems showed no statistically significant change, possibly because consumers opted for smaller, more affordable units or upgraded from small systems over time. The strongest impact was seen in areas with the lowest pre-existing electrification rates, suggesting that affordability plays a crucial role in energy access decisions. Unlike traditional electrification efforts, which focus on reducing connection costs, this study highlights the importance of usage costs, which can serve as a major barrier to continued electricity access. Consumers in low-income regions are highly price-sensitive, meaning that the long-term cost of using electricity is often more critical than the upfront installation fee. The success of electrification programs, therefore, depends not just on increasing availability but also on ensuring that energy remains financially sustainable for end users.

Can These Results Be Replicated Elsewhere?

Beyond its empirical findings, the paper develops a theoretical framework to assess whether similar subsidy programs would work in other settings. The PAYGo solar market differs from traditional grid electricity in two key ways: zero marginal costs for generation and distribution (since solar power is freely available once installed) and a competitive market structure, unlike monopolistic grid utilities. The model suggests that the effectiveness of such subsidies depends on several factors, including income elasticity of demand, price elasticity of demand, market structure, and the cost structure of PAYGo providers. The framework challenges the assumption that subsidizing electricity usage always increases adoption—in some economic or market conditions, it may not yield the expected results. If firms respond by adjusting prices or if consumers have inelastic demand, a price reduction may not necessarily lead to greater adoption. The study also raises the question of whether extensive margin subsidies (reducing upfront installation costs) might be more effective than intensive-margin subsidies (reducing usage costs) in some regions.

Is Subsidizing PAYGo Solar Cost-Effective?

A major concern for policymakers is whether these solar subsidies are financially viable in the long run. The study estimates that the Togolese government spent approximately $4.30 per additional watt of installed solar capacity. In contrast, high-income countries subsidize solar at much lower rates, ranging from $0.13 to $1.68 per watt. However, electrification in low-income settings provides unique benefits that go beyond energy access. Environmental benefits alone offset about one-third of the subsidy cost, according to estimates from Fetter and Phillips (2019). Additional positive externalities—such as reduced air pollution, better nighttime productivity, improved education, and access to mobile charging—could further justify the investment. However, to maximize efficiency, governments must carefully evaluate subsidy designs to ensure they generate the highest impact at the lowest cost. The study emphasizes that future subsidy programs should be paired with market interventions to ensure that PAYGo firms pass on the benefits to consumers rather than adjusting prices in response to subsidies.

The Future of PAYGo Solar in Africa and Beyond

Despite the subsidy’s success in boosting initial adoption, its long-term impact remains uncertain. Sustainability depends on keeping electricity affordable while allowing the PAYGo market to mature. Togo’s PAYGo market was highly concentrated, with only two major firms, limiting competition. In more competitive markets, firms may react differently to subsidies, potentially offsetting government efforts by altering pricing strategies. The study suggests that intensive-margin subsidies work best in markets with moderate competition, where firms face incentives to fully pass on the subsidy to consumers without manipulating prices. This research contributes to a larger policy debate on how best to expand electricity access in developing economies. Traditional grid expansion remains expensive and slow, making decentralized solar a promising alternative, but pricing structures pose significant challenges. PAYGo models require carefully designed subsidies that balance affordability with long-term sustainability. While subsidies can be effective, governments must tailor policies to local market conditions rather than assuming that price reductions alone will lead to widespread adoption. The findings also highlight the importance of complementary policies, such as consumer awareness campaigns and flexible financing options, to maximize the effectiveness of electrification programs.

The study concludes that while Togo’s PAYGo subsidy significantly boosted adoption in the short term, its long-term sustainability depends on continued affordability, sustained demand, and market competition. The lessons from this research suggest that policymakers in other low-income nations should carefully evaluate consumer price sensitivity, market dynamics, and alternative electrification strategies before implementing similar interventions. Ultimately, while PAYGo solar represents a viable path toward universal energy access, its success relies on smart subsidy design, regulatory oversight, and strategic market interventions to ensure that the benefits reach the most vulnerable populations efficiently.