Making electrification models more realistic by incorporating differences in institutional quality and financing cost

Globally, about 800 million people lack access to electricity. To address this situation, the sustainable development goals (SDGs) aim to reach universal electrification by 2030, a goal that requires annual investments in the ballpark of US$50 billion over the next 10 years. Several organizations, such as the United Nations’ Sustainable Energy for All initiative and the World Bank, support the governments of developing countries in their electrification efforts. Cost-minimizing models are a widely used tool to help governments decide where and in which technologies to invest or to create investment incentives for the private sector. Often, geospatial models are used to decide on technology and estimate market size for the different electrification alternatives: main grid extension, mini-grids, or solar-home systems. Here, I briefly describe the literature and identify a major weakness of these models: their ignorance of institutional quality, i.e. the quality of government, jurisdiction, regulation, and public services. I elaborate on the role of institutional quality for electrification, which strongly affects the success of projects and real-world investment decisions. I then argue that the emerging literature on off-grid financing can be used to consider institutional quality in cost-minimizing models. I conclude by recommending concrete steps that should be taken in order to make these models and thereby electrification planning and budget allocations more realistic.