Analysis of households' willingness to pay for a renewable source of electricity service connection: evidence from a double-bounded dichotomous choice survey in rural Ethiopia

Abstract

Getting access to electricity services for domestic consumption is still a luxury service in the rural areas of developing countries. For instance, about 55 percent of the total population do not have access to electricity service in Ethiopia. To alleviate the problem, the government of Ethiopia is intensively investing on hydroelectric dam construction so as to increase the coverage of electricity. However, the grid-line electricity supply in the scattered settlements of rural households of Ethiopia poses a challenge for connection. This study investigated households' preference for renewable source of electricity service connections and estimated potential willingness to pay for the services by considering solar PV electricity in addition to the grid-line. In this survey, 220 rural households were sampled from Hexosa (Harbe) and Boset (Xiyyo) districts in Ethiopia using systematic sampling methods. The result estimated by using bivariate probit model reveals that the median willingness to pay alone is not sufficient to recover the cost of connection of electricity service. However, among the two sources of renewable electricity services, households preferred grid line to solar electricity services irrespective of the payment scheme. Monthly instalment-based payment is more convenient for the rural household than lump sum connection cost payment regarding the payment scheme. Furthermore, the households' income level, level of education, age, location and amount of initial bid prices are important variables in determining the scale of households' willingness to pay for connection of electricity service. Therefore, based on the findings of the study, the following policy suggestions have been forwarded: there should be provision of electricity service that is suitable and preferred by the rural households and the community shall get various options of payment modalities.