Christopher has a good point, the key question for me is scale ... if a project is to work at scale it needs appropriate pricing, which offer means small per-unit profit, if that is insufficient to cover operating costs UNTIL you reach scale, then a subsidy/grant is an appropriate way of getting there. For example neither Lumeter nor SEAL are covering their operational costs from margins yet.
BUT if a business model is going to make a per-unit *loss* even at scale, then this is where subsidies/grant's are inappropriate because scale can never be achieved with a per-unit loss.
The simple question to ask is .... if your business increased by a factor of 10 would it require more or require less subsidy. To solve poverty at scale needs business models where scale makes them easier, not a business model where scale means we need even more grants/subsidies.
Christopher Camponovo said:
Tim makes a couple of very good points of how governments and development partners can facilitate expanding energy access in Africa. Indeed, a number of governments are doing just that -- whether it be DFID and USAID support for governments, developers and civil society or others, such as OPIC or AfDB, taking on private sector transaction costs.
However, there's a real question as to whether this assistance represents a subsidy with a different name. Why would it be necessary if these business models could stand on their own, independent of any assistance? What are the structural inefficiencies or obstacles that prevent these businesses from taking off without the assistance? That's ultimately where we need to focus our efforts - whether governments, civil society or the private sector. Ultimately, even with the "subsidies," these business models run the risk of failure when the subsidy runs out....