Least-cost on Paper, Feasible in Practice? An Iterative Framework Linking Electrification Planning, Regulation, and Finance for Universal Access

Santos J. Díaz-Pastor and Ignacio J. Pérez-Arriaga

November 2026

Bringing electricity to those who still lack it usually begins with a least-cost techno-economic plan. Planning models assign each community to an electrification mode—grid extension, mini-grids, or solar home systems. Yet other institutions often set tariffs, contracts, and financing terms after the plan is fixed, without testing whether their assumptions are consistent. The cheapest plan on paper may therefore prove unaffordable or unfinanceable. This paper proposes a procedure, built on an information-exchange matrix, that revises the techno-economic plan, its regulation and business model, and its financing plan until they are consistent—or identifies unresolved constraints. When revised tariffs, subsidies, concession contracts, or financing terms solve the problem, the plan stays; otherwise the planner changes modes, service levels, or investment timing.

In Zambia’s national plan, the cost of capital assumed under each business model, instead of a single rate, shifts part of the modeled allocation from mini-grids toward grid extension. Capital expenditure rises from USD 3.00 to 3.34 billion, yet the revised allocation is least-cost under those assumptions. In a rural pilot covering mini-grids and solar home systems, a cost-recovery mini-grid tariff cuts consumption without raising revenue per household, because households spend their whole electricity budget. With connections and developer equity unchanged, an affordable tariff and an annual revenue settlement increase modeled cumulative mini-grid supply by 57% over twenty years. Implementing this package requires reliable, timely annual public payments. Success is not an optimal plan on paper but a program that stays affordable, financeable, and credibly funded while reaching everyone.

JEL codes: L94; L51; Q48; G32; O21; O55

Keywords: Universal electricity access; Least-cost electrification planning; Mini-grids; Cost of capital; Tariff regulation; Infrastructure finance; Sub-Saharan Africa; Zambia.