The value of electricity reliability in India

In many low- and middle-income countries, frequent and prolonged power outages constrain energy access for large segments of the population connected to the electricity grid. For policymakers in these countries, the value of electricity reliability to customers is a central policy parametre for understanding the benefits of expanding energy access by reforming tariff design and investing in infrastructure to reduce power outages.

This project aims to understand whether residential consumers would prefer to pay higher prices and receive more reliable electricity. The researchers will evaluate this tradeoff by estimating residential consumers’ willingness to pay for improved reliability and characterising the benefits and distributional effects of improved reliability in Delhi.

A research partnership with one of Delhi’s public-private distribution franchises has enabled the researchers to construct a large and uniquely detailed metre-level dataset on monthly bills and payments and individual power outages for 1.6 million customers from 2013 to the present. They will link these data with measures of appliance and backup power investments, along with income, demographics and perceptions of reliability from a household survey.

To study the effects of reliability on household appliance investments in Delhi, the researchers take advantage of a natural experiment that caused similar residential customers to experience different frequencies, durations, and timing of power outages during the past several years. Detailed data on appliance investments and demographics from a survey they are carrying out with residential electricity consumers in Delhi will enable them to characterise which households changed their investment decisions in response to these variations in outages.

This study aims to be directly responsive to the evidence gaps on the value for reliability facing electricity policymakers in Delhi, throughout India, and across many low-income countries. The research design is structured to provide actionable evidence in several forms, including retrospective evaluation of past policies to improve reliability, empirical estimates of willingness to pay for reliability characteristics, and simulation evidence prospectively evaluating alternative reforms to tariff setting policies. The researchers anticipate that the evidence generated on the reliability characteristics that its customers value most will impact how distribution utilities prioritise network investments and that their policy simulations will directly inform tariff setting.