In a 2017 study economists from USAID’s Office of Economic Policy conducted a cost-benefit analysis (CBA) of four off-grid solar energy investments, representing $8.4 million in development assistancethroughUSAID’sDevelopment Innovation Ventures (DIV). The objective of the analysis was to determine the value for money of USAID’s investment by measuring the financial and economic cost of producing and distributing these products, as well as the impact on households.
An initial review of the results suggestsUSAID’s $8.4 million investment is creating over $17million in net present value to the East African countries of Rwanda, Tanzania, and Uganda. A majority of this value addition comes in the form of consumer surplus estimates, as households are spending less of their income on energy sources while enjoying additional hours of higher-quality lighting. At the same time, solar households continue to use large amounts of non-solar energy sources to meet their overall lighting needs
The preliminary results from this cost-benefit analysis demonstrate howDevelopmentInnovation Ventures’investments into the East African solar market have created value for money in terms of an economic gain of $17million–one of the most important metrics for evaluating a development investment as it signals the entire economy, or in this case a number of economies, is benefiting from USAID’sinvestments.
In summary, USAID made four primary recommendations and conclusions:
- Donors should consider supporting solar investments that produce social welfare benefits, at least until companies can create financially sustainable investments in partner countries.
- Identify the target beneficiary group, and make sure projects support the selected beneficiaries.
- Focus innovation efforts on three main constraints to financial viability: the distribution model, the payment system, and the supply chain.
- Emphasize data and evidence collection.
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