How Valuable is the Reliability of Residential Electricity Supply in Low-Income Countries? Evidence from Nepal

Abstract

We use contingent valuation to estimate the willingness to pay (WTP) for improved electricity service in Nepal following the end of the country’s load-shed-ding crisis of 2007–2016. Using a nationally representative survey of grid-con-nected Nepali households, we calculate the WTP per outage-day avoided and the value of lost load (VoLL) for residential customers and analyze their key drivers, including income, education, and investments in own generation or electricity storage equipment. Households are willing to pay, on average, 123 NR ($1.11) per month for improved quality of power supply. In other words, they would be pre-pared to see a 65% increase in their monthly bill to avoid outages. Our preferred estimates of the VoLL range from 5 to 15 NR/kWh (¢4.7–¢14/kWh). These estimates are below the marginal cost of avoided load shedding, and are virtually the same as valuations at the beginning of the load-shedding crisis.