Pre-paid electricity: Better service delivery for the poor?

  • Study examined the effects of a policy change in 2014 that switched 4,000 households on the grid in Cape Town, South Africa, to prepaid metering.

  • Introducing prepaid meters led to a 13% drop in electricity usage – and the effect persisted throughout the two-year study, suggesting the meters helped customers better understand and take control of their energy usage and expenses.

  • The switch to pre-paid electricity brought particularly large cost savings (through reduced energy consumption) for poorer customers and those with a history of delinquent payments.

  • There were also net benefits for the electric utility, due to more reliable payments and lower costs of recovery and administration. Overall, the gains are estimated to cover the costs of the prepaid meters after seven years of use.

Prepaid metering – where customers buy electricity upfront – has potential to improve electricity access and reduce utility costs for lower-income customers, while also helping utility companies recover revenue. It offers a promising solution to lumpy and unpredictable bills by allowing customers to choose the timing and quantity of purchases. At the same time, prepayment circumvents debt accumulation, allowing utility companies to serve otherwise high-cost customers.

Researchers collaborated with the municipal utility in Cape Town, South Africa, to evaluate customer responses and revenue recovery for prepaid versus credit electricity metering. The study generated new evidence on the impacts of prepaid meters on energy use and revenue recovery using both a randomised phase-in of new prepaid customers and a retrospective evaluation of historic transitions to prepaid meters in a ten-year, household database of all municipal utility customers.

Researchers explored how prepaid meters changed the customer experience and the municipality’s revenue recovery. The pilot study will be used to refine hypotheses about consumption responses and explore the potential for complementary interventions, such as improved price information. Findings from this pilot study will contribute to the literature on service delivery for customers with limited liability, and will inform future (testable) policy interventions for South Africa and other developing country municipalities.