Using Price Incentives to Bound Welfare from Pay-as-You-Go Solar Electricity

Megan Elizabeth Lang

No 11374, Policy Research Working Paper Series from The World Bank

Abstract: Non-price barriers suppress demand at the adoption margin, complicating efforts to quantify the welfare effects of rural electrification. This paper studies demand for pay-as-you-go (PAYGo) solar electricity using a randomized experiment with 800 existing PAYGo customers in Kenya and Rwanda post-adoption. The experiment randomly assigns incentives that lower the effective price of usage for consumers who meet monthly purchase thresholds. Although average demand is unchanged, consumers with the highest pre-experimental demand increase their purchases by 6–7% in response to the incentive. These responses are used to estimate a lower bound on consumer surplus from PAYGo solar. The study finds large gains for high-demand consumers, but benefits deteriorate substantially for low-demand consumers. Combining these estimates with evidence from the literature on the environmental externalities of solar home systems, the marginal value of public funds of PAYGo solar subsidies is at most 1.7 in Kenya and 2 in Rwanda.

Date: 2026-05-07
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