Self-generation and outage losses: A firm-level analysis for emerging and developing Asian countries

Abstract

Access to reliable and affordable electricity is critical to economic development in emerging and developing Asia. However, many firms in these regions face challenges in obtaining consistent and affordable electricity from the grid, leading them to invest in self-generation technologies. This paper examines the strategic decision of firms to self-generate electricity and the economic losses incurred during power outages. Using survey data from the World Bank Enterprise Survey (WBES) of 5639 manufacturing firms in seven Asian countries, we identify factors driving the decision to self-generate and assess the impact of self-generation on mitigating economic losses during power outages. An endogenous switching regression model is employed to account for self-selection bias. The results show that firms experiencing more outages and higher electricity costs are more likely to invest in self-generation. Larger, older, and exporting firms also show a higher propensity to self-generate. In addition, the results indicate that firms that invested in self-generation would have experienced, on average, outage losses that were 88 percent higher than their actual losses if they had not invested. Conversely, firms without self-generation could have reduced their actual outage losses by on average 5 percent by implementing self-generation strategies. Overall, our results indicate that self-generating firms in Asian emerging and developing countries are particularly vulnerable to losses from power outages and underscore the importance of self-generation as a strategic choice for these firms.