Prepaid electricity metering: Costs, benefits and potential for scale-up

The standard approach to recovering the cost of electricity provision is to bill customers monthly for past consumption. If unable to pay, customers face disconnection, the utility loses revenue, and the service provision model is undermined. A possible solution to this problem is prepaid metering, in which customers buy electricity upfront and use it until the prepaid amount is consumed. We use data from Cape Town, South Africa to examine the effects of prepaid electricity metering on residential consumption and returns to the electric utility. Over 4,000 customers on monthly billing were involuntarily assigned to receive a prepaid electricity meter, with exogenous variation in the timing of the meter replacement. Electricity use falls by about 13 per cent as a result of the switch, a decrease that persists for the following year. This creates a trade off for the utility: revenue from consumption falls but more of it is recovered on time and at a lower cost. The benefits to the electric utility outweigh the costs, on average, though results are very heterogeneous. Poorer customers and those with a history of delinquent payment behaviour show the greatest improvement in profitability when switched to a prepaid meter. These findings point to an important role for metering technologies in expanding energy access for the poor.

The analysis code for tables and figures in the paper is contained in stata do file downloadable under “Additional Materials”. The analysis uses a proprietary dataset owned by the City of Cape Town, accessed by the authors under a non-disclosure agreement. A ReadMe file is available outlining the analysis

The authors are discussing options for releasing a public version of the dataset with the City of Cape Town. In the meantime, researchers interested in further analysis with these data should contact the relevant departments in the City of Cape Town.