Estimation of households' and businesses' willingness to pay for improved reliability of electricity supply in Nepal

Abstract

For the decade prior to 2016 Nepal suffered from the worst electricity shortages in South Asia. During this period load shedding occurred for up to 18 h a day when hydropower generation is low. This research uses parametric and non-parametric models to estimate households' and businesses' willingness to pay (WTP) for improved reliability of electricity services in Nepal. A contingent valuation (CV) survey was completed by 1800 households and 590 businesses. The parametric models are estimated using Logit regressions. The non- parametric estimations include the median, Turnbull and the Kriström mean estimations that are estimated directly from the survey results. In all estimations of the WTP the households and businesses are willing to pay more to get from a 50% reduction to a complete elimination of outages than they are willing to pay to get from their current situation to a 50% reduction in outages. This difference in the estimates of the WTP for these two options is even more important in the case of businesses than for households. In the cost- benefit analysis that uses these results the annual benefit in 2017 from improving the reliability of the electricity service would be approximately US$ 324 million with a present value over 20 years of between US$ 2 and 3.8 billion.