Household willingness to pay for green electricity in urban and peri-urban Tigray, northern Ethiopia: Determinants and welfare effects

Abstract

This paper set out to estimate household willingness to pay for green electric services and welfare gains attributed to such schemes. For this purpose, contingent valuation survey was conducted on 300 urban and peri-urban households in northern Ethiopia. A bivariate probit model was used to elicit willingness to pay and analyze determinants of household willingness to pay. On the other hand, welfare gains were analyzed using consumer and producer surpluses. The mean willingness to pay was estimated to be Birr 12.5 (0.66 USD) per month per household for five years on top of monthly electricity bill. Among others, income played positive role on willingness to pay while difference in willingness to pay behavior was observed between male and female-headed households. In addition, distance to wood and charcoal (alternative energy) markets played encouraging role for willingness to pay. Results from the welfare analysis show that there is significant societal gain to be made both in terms of surplus for households and producers (government) if the previously ‘untapped’ green electricity service was implemented. The revenue (producer surplus) for the state would be instrumental in contributing to the state's endeavor to generate a much-needed capital for investment in and expansion of renewable energy.