Affordability of Off-Grid Solar

Key Messages

Key Concept: Affordability

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Affordability refers to the ability of households to pay for off-grid solar products without straining their financial resources.

In this report, a product is considered affordable when it costs less than 5% of a household’s income on a monthly basis, in line with the Multi-Tier Framework definition of affordability. A product is considered affordable at a stretch when it requires a household to allocate 10% of monthly income.

Globally, only 22% of households lacking access can afford a Tier 1 solar energy kit with PAYG

Affordability is a critical challenge for households lacking access, especially where OGS products are most needed. Many households, particularly in rural and underserved areas, face financial constraints that limit their ability to purchase OGS systems outright or make regular payments under financing schemes like PAYG. Economic factors such as inflation, currency depreciation, and rising costs of living further strain household budgets.

The ongoing payment for a Tier 1 OGS product with PAYG is considered affordable—that is, it would cost 5% or less of their monthly budget—for only 22% of households lacking access globally. In contrast, 27% of households without access would be able to afford the product "at a stretch," which would require spending 10% of their income on energy, potentially leading to significant financial strain.

Affordability constraints are amplified for those who live in remote locations and in conflict-affected settings, where Tier 1 access comes at a much higher price owing to higher operational costs. About 82% of the population lacking access—roughly 562 million people—reside in hard-to-reach areas, where off-grid solar companies face higher expenses for delivery, maintenance, and payment collection. Around 31% of people lacking access (~211 million people) live in active conflict zones, where the cost of doing business is high and potential revenues are limited.

Sales of affordable household and small business appliances are increasing, driven by low prices, limited energy needs, ease of distribution, and the ability to pay through PAYG when they are bundled with SHS.

In Sub-Saharan Africa, household and small business appliances are typically sold bundled with SHS kits, with PAYG financing to help address affordability constraints. While smaller Tier 1 SHS bundled with appliances such as fans or radios are affordable to a small proportion of people lacking access, larger Tier 2 SHS bundled with appliances such as TVs are primarily sold to wealthier households in weak-grid areas, and remain unaffordable to the vast majority lacking access.

OGS productive use appliances remain out of reach for many despite their clear economic benefits. The productive use of energy (PUE) sector is still in its early days, as only 2% of the estimated addressable market is currently being served, and stakeholders are still learning about and exploring the sector. However, evidence on the benefits of PUE is clear: in cases where OGS appliances have been deployed for productive use, 81% of customers saw their incomes rise.

Affordability is a core challenge for PUE appliances. OGS solar water pumps (SWPs), refrigerators, and milling machines are expensive compared to customers’ incomes and require relatively large upfront payments. Prices of SWP vary from USD 750 to over USD 1,200 depending on size and features. SWPs tend to have lower lifecycle costs than engine water pumps; however, SWPs cost more upfront, which prompts most farmers to opt for engine pumps. Ongoing PAYG payments for SWP are also a challenge for farmers, who, in some cases, are forced to make unacceptable sacrifices to afford them. Similarly, cooling appliances like solar refrigerators and cold-storage units remain relatively expensive. These PUE products range from USD 600 to USD 30,000, depending on the size and capacity of the unit. Their high price points place them out of the reach of most small businesses and farmers: for the poorest 50% of off-grid households, solar-powered refrigerators can cost 2.5 times their annual disposable income. These affordability constraints have only grown with the current challenging macroeconomic conditions.

Business models in the productive use sector are evolving to reduce the cost of appliance access and increase customer reach. For example, in water-as-a-service models—such as those offered by Oorja Development Solutions in India—farmers pay an initial membership fee and then pay per liter used, eliminating the need for individual farmers to purchase pumps. Others have experimented with bundling appliance service with other services such as market linkages. For example, Raheja Solar in India sells affordable, easily assembled, locally manufactured solar dryers to rural farmers—and buys their dried produce before selling it on.

Development organizations have set ambitious targets to electrify social infrastructure. However, affordability and budgeting concerns on the public sector side require a dramatic change of approach to sustainably electrify schools and health centers globally.

Affordability remains a major challenge in scaling up OGS electrification for social infrastructure like public schools and health centers. Government funding for these projects is often very limited; most are financed by donor capital and grants. Typically, projects are delivered through a design, build, operate, and transfer (DBOT) model, in which the government—often through line ministries like Health or Education—takes ownership of the systems once the work is completed. However, this model poses significant sustainability challenges. Both the facilities and ministries often lack the budget to cover ongoing operations and maintenance, especially when expensive components, such as batteries, need replacement. As a result, many schools and health centers are forced to operate without electricity until new components can be centrally procured. Such challenges are, however, less pronounced in private facilities. Private schools and health centers are able to tap into sources of revenue such as student admission fees, patient fees, and more. Consequently, these facilities often have resources to cover the costs of system operations and maintenance, which in turn allows for reliable electricity supply.