# 5.2.2 Affordability

The average energy budget share among electrified households can be used as a benchmark against which the affordability of SHS is assessed<sup>9</sup> . The estimated energy (kerosene plus electricity) budget share among electrified households is about 2.3%. This is significantly lower than the budget share of about 8.4% for SHS based on the imputed monthly cost of SHS purchase.

However, given the fact for many households living in non-electrified villages, gridelectrification is unlikely to be an option for many years to come, the majority of households may well be willing to pay a substantial share of the budget for the option of SHS. The results from the probit model (presented in Annex Table A1) show that the propensity to purchase SHS is very sensitive to household incomes, with a 1% increase in per capita expenditure increasing the probability of installing SHS by about 12 %, and with a 1% increase in non-farm incomes increasing the probability by about 9%, holding other factors constant.

In the analysis, the criterion of a budget share of 8% is used to define affordability. That is, households are considered to be able to afford SHS under the existing micro-credit scheme if their budget share of monthly SHS financing is below the level of 8%. Admittedly, this level of budget share is high, so that the estimated affordability rate should be regarded as a upper bound estimate. By the criteria of 8% budget share, the total number of households in rural areas that can afford SHS is about 76,000 households under the existing micro-credit scheme plus a $50 cash subsidy, representing about 24% of non-electrified households in the sample districts. This number goes up to about 45% if the cash subsidy increases to $90 (see Figure 1).

The spatial distribution of households who can afford SHS is also important as it provides useful insights into the potential for cost reduction in SHS dissemination from economies of scale. The district level affordability rate and the proportion of non-electrified households are presented in the Annex Table A2. Among the 42 districts in the sample, 17 districts have an affordability rate above 25%. More importantly, the 17 districts also have a relatively high concentration of households living in non-electrified villages at the level of 45% compared with the national average of 38%.

The spatial analysis indicates that the potential market for scaling up SHS indeed exists in many parts of the rural areas in Bangladesh if well-designed micro-finance schemes and delivery services can be implemented successfully. The cost of SHS dissemination, including distribution and post-purchase maintenance cost, can also be reduced substantially because of scale of the market.

# **5.3 Distributional impact analysis of SHS subsidies**

While the SHS programs financed through public resources have been implemented in many low-income countries over the past decade, the distributional consequences of SHS promotion programs are not well studied. The general belief based on anecdote evidence is that SHS

> 9 The study for housing affordability for California uses the budget share of 30% as the benchmark and households with a housing spending budget share above 30% are defined not able to afford (name)

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