The off-grid catch-22: Effective institutions as a prerequisite for the global deployment of distributed renewable power

Abstract

Off-grid electric systems powered by renewable sources are appealing because they could reduce energy poverty in a sustainable manner. Yet their deployment has been uneven across the world. In this article, I argue that the deployment of such technology pre-requires effective institutions. This is because the off-grid power industry faces two problems: governments (who may reverse policies on short notice) and customers (who may fail to pay their bills). More democratic regimes, which tend to uphold the rule of law, can mitigate these risks and facilitate long-term investments. Empirically, I show that countries that are democratic deployed considerably more off-grid renewable energy capacity. An increase in the democratic score by one standard deviation leads to an increase in deployed capacity by 40% (95% CI: [20%, 63%]). Further, I show that this effect operates through supply-side institutions, such as the protection of the rule of law. I find little evidence for a competing interpretation of my main results based on the demand side: democracies do not provide more off-grid power in countries with stronger demand for it. These results suggest that institutions are a prerequisite for a successful growth of the off-grid renewable energy industry and raise concerns over the ability of its technologies to penetrate the most destitute regions.