Kerosene to Solar PV Subsidy Swap: The business case for redirecting subsidy expenditure from kerosene to off-grid solar

Solar power has a key role in India's transition towards universal household electrification by March 2019. India has a growing market for off-grid products, recording its highest sales volume of off-grid products in 2017.

Despite recent progress and the wide range of on- and off-grid electricity and lighting options, a large number of marginalized households in India continue to remain without power and rely on subsidized kerosene.

Kerosene subsidies, originally provided as a way to promote access to affordable fuel for lighting and cooking, create negative health impacts and household pollution. They are also inefficient because it is easy for fuel to be illegally diverted in the distribution system. For many years, the Government of India has sought to gradually reduce kerosene subsidy expenditure by increasing product prices and restricting the volume of subsidized fuel supply.

If kerosene subsidies are being gradually removed, can a share of the subsidy savings not be reinvested in helping the most vulnerable households access electric lighting through off-grid solar technologies? This paper explores this idea in detail, referring to it as a “kerosene to solar subsidy swap” or a “subsidy swap.” The paper lists pico solar PV products currently available on the market to provide an affordable, reliable, direct replacement for lighting with kerosene. It then examines how the current business models and market structure for the suppliers of these products could enable a subsidy swap. The paper ends by reviewing the suitability of Uttar Pradesh and Odisha to host a subsidy swap pilot study, assessing the real-world impact of increased adoption of solar energy and a reduction in kerosene consumption.