Study on gradual reduction of subsidy under IDCOL SHS program

Study Team: Dr. Monzur Hossain (Team Leader) and Dr. Mohammad Yunus

The Infrastructure Development Company Limited (IDCOL) has been implementing a program on solar home system (SHS) since 2003 with the mission of fulfilling basic electricity requirements in the off-grid regions of rural areas of Bangladesh. Around fifty to sixty thousand SHSs are now being installed every month under the Program. The program is run through 47 Participating Organizations (PO) comprising NGOs/MFIs/Private entities. So far, a total of 3.41 million SHS have been installed. The IDCOL has been providing concessionary credit support and subsidy/grant to the POs for implementing the program and motivating the potential adopters with revisions. When the IDCOL program first started in 2003, the capital buy-down grant was $90 per system. Over time, the subsidy has been gradually reduced to the current level of $20/SHS applicable to only smaller systems (=<30Wp). In the backdrop of subsidies available only for smaller systems, sales of those systems have been increasing very fast at average year on year growth rate 81%. Monthly installation rate of smaller SHS is more than 65% of total installation, implying a strong demand for the smaller sized SHS in the off-grid areas of Bangladesh with the current incentive structure.