A firm-level analysis of outage loss differentials and self-generation: Evidence from African business enterprises

Abstract

This study examines the outage loss differential between firms that engage in backup generation and those that do not. Unmitigated outage losses were estimated to be US$2.01–23.92 per kWh for firms engaging in self-generation, and range from US$1.54 to 32.46 per kWh for firms without self-generation. We also find that firms engaging in self-generation would have suffered additional 1–183% outage losses had they not invested in self-generation. On the other hand, firms without self-generation would have reduced their outage losses by around 6–46% if they had engaged in self-generation. Further analyses, however, reveal that, although engagement in self-generation reduced outage losses, a firm engaging in self-generation may still suffer a greater unmitigated outage loss relative to a firm without a backup generator. The relative outage losses depend on the relative vulnerability of the operations of the two sets of firms to power interruption, and the relative generating capacity of a self-generating firm to its own required electricity loads. Policy reforms that allow firms, whose operations are highly vulnerable to outages, to make a binding contract with utilities in order to get preferential supply are recommended.