Valuing energy poverty costs: Household welfare loss from electricity blackouts in developing countries

Abstract

Supply of electricity is not keeping up with the rapidly increasing demand due to industrialization as well as electrification of rural areas in many developing countries. This study adds to the scarce literature on valuing the welfare loss to households in developing countries from energy poverty in terms of access only to intermittent or unreliable electricity networks. We conducted a Contingent Valuation (CV) survey of households in both urban (city of Mekelle) and rural areas (village of Ashegoda) in Northern Ethiopia to estimate households' willingness-to-pay (WTP) to avoid electricity blackouts. On average, the households experienced 160 blackouts per year with an average duration of four hours; and were on average willing to pay 499 Ethiopian birr (18 USD) per household per year. This corresponds to a 34% increase in their annual electricity bill and represents 1% of their mean annual income. Thus, this type of energy poverty represents significant welfare losses in developing countries. The households´ WTP to avoid blackouts increases significantly both with annual income and expenditure as a proxy for income; and with the annual number of experienced blackouts, the average length of these blackouts, and the number of damage categories experienced. These results are all as expected and support the validity and reliability of CV surveys to assess household welfare loss from this type of energy poverty in a developing country context.