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Energy is critical to human welfare, yet energy consumption in developing countries is extremely low relative to modern living standards. Conventional aid programs have invested in energy production with some success but also with many notable failures. This paper discusses how a distinctive approach to development aid—disbursing funds against improved outcomes—could make aid more effective in the energy sector. In particular, it explores the use of Cash on Delivery Aid (COD Aid) to resolve perennial difficulties encountered by conventional aid programs in energy sector development.
After reviewing energy sector experiences with results payments and presenting the COD Aid model, the paper illustrates the new approach with three examples. The first example involves paying for increases in per capita electric consumption along with rewards for reducing average greenhouse gas emissions per kilowatt-hour. The second example suggests paying for each additional household that is consuming electricity at a basic level of 300 kWh per person per year. The third example promotes financial sustainability by paying a matching grant for appropriately billed and collected energy bills. The paper concludes with a discussion of common objections to the approach.