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Abstract: In the fall of 2001, officials of the National Energy Commission of Nicaragua were reviewing a pilot study of the options for electrification in three rural communities. Rural electrification was an important issue in Nicaragua since 40 percent of the population, mostly in rural areas, was without power. Many of those lived too far from the main high-voltage grid to be served easily with grid extensions. The consultants were recommending subsidizing mini-grids powered by small hydro plants to serve villages and individual solar power systems for isolated rural households.
Learning Objective: This case raises issues about how the structure of costs and the quality of service affects the choice of alternative technologies. It also illustrates the potential advantages and disadvantages of subsidies and of the decentralized provision of public services.