Willingness to Pay for Reliable Electricity: A Contingent Valuation Study in Bosnia and Herzegovina

Abstract

The expectation of electricity consumers to be served by electric utilities with higher levels of power quality and reliability becomes more stringent than ever, with the growth of total energy consumption worldwide, and mostly in developed areas and countries. Electricity supply interruptions less and less accepted by both consumers and regulators, imitated by the change of the consumer behavior and increased requirements by the regulator, making the requirements for the reliability of supply higher than ever. Meanwhile, distribution system operators struggle to achieve these requirements, mainly because of the infeasibility of the investments. However, if the consumers were willing to pay for the increased reliability of supply, these requirements can be achieved. Using a sample of 436 residential and business consumers in Sarajevo, Bosnia and Herzegovina, in this paper a willingness to pay (WTP) for an improved electricity service for both residential and business consumers is estimated by using the contingent valuation method (CVM). The average WTP of domestic consumers for avoiding one-hour interruption is estimated to be 3.02 BAM, while the average WTP of business consumers is 105.4 BAM. Information on the value of reliable service can be used to assess the economic efficiency of investments in distribution systems in order to strategically target investments to consumers segments that receive the most benefit from system improvements, and to numerically quantify the risk associated with different operating, planning and investment strategies.