Modelling the Impact of Market Imperfections on Farm Household Investment in Stand-Alone Solar PV

Professor Euan Phimister, University of Aberdeen

Euan Phimister, University of Aberdeen

Yakubu Abdul-Salam, University of Aberdeen

Overview

According to the International Energy Agency, over 1.6 billion of the world’s population mostly living in rural regions of developing countries have no access to electricity. Access to electricity has been shown to have significant benefits for rural inhabitants.  At a household level, the value of access to electricity to the household is derived from a number of sources.  The consumption of goods and services which are not possible without access to electricity provide direct utility, e.g. electric light, mobile phones, plus indirect potential health benefits.

Recent research on Ghana shows that small household systems consisting of a solar panel PV plus battery would provide a cost effective solution to extending universal electrification for at least a million households.  However, improving standalone access to electricity requires purchase and adoption of a capital intensive system by many poor rural farm households. The object of this paper is to investigate the long run properties of an optimal self-funded solar panel acquisition scheme for the farm household.

Methodology

We model the optimal buy/do-nothing decision of the farmer for solar panel technology investment using a dynamic programming model while allowing for market imperfections such as borrowing restrictions, absence of insurance and lack of local electricity markets.  The model is solved using an approximate linear programming approach.

Results

Initial Modelling Results show that the impact of uncertainty and access to credit can be severe with Farm Households not adopting Solar PV in a wide range of circumstances where they are profitable when markets operate perfectly.

Conclusions

The papers shows that taking adoption decisions of poor farm households into account will be crucial if stand-alone solar PV is really going to play an important part in improving access to electricity in Ghana.

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Keyword Set: Energy and Development, Access to Electricity, Farm Households, Adoption