This paper analyzes the process through which more than 650,000 off-grid households in rural Bangladesh decided to purchase a solar home system (SHS) from 1996 to 2010. The authors hypothesize that positive word of mouth is the primary driver of these sales. They tested the hypothesized diffusion process through a combination of semi-structured key informant interviews and an examination of 100 households in Panchua Village, including 60 with a SHS and 40 without a system. The data from Panchua Village suggest the hypothesis was correct, although they do not explain why owners influenced others to purchase systems. The authors’ analysis of this process adds to the technology diffusion literature by highlighting the role of opinion leaders in SHS diffusion and quantitatively testing the role that word of mouth played in driving SHS sales. A second contribution of the paper is its analysis of non-owner willingness to pay for a SHS. The authors use the data from Panchua Village to test an alternative hypothesis that the SHS cost reductions provided by the World Bank-financed Rural Electrification and Renewable Energy Development Program were the key driver of sales. Their results build on others’ contention that further subsidies will be needed to encourage the widespread diffusion of SHS by demonstrating that the gap between non-owner willingness to pay and overall system costs cannot be bridged by the current level of system subsides.
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