The social and economic impacts of electrification: Evidence from Kenya

• In sub-Saharan Africa, nearly 600 million people live without electricity.
• This study analyses the economics of rural electrification through a randomised field experiment that connected hundreds of rural households to the national electrical grid in Kenya. 
• The experiment reveals low demand for grid connections, high costs of construction, and limited economic and social impacts of rural household electrification, roughly 18 months after connection.
• Some of these results may be attributed to excess costs due to leakage, and low demand due to bureaucratic red tape, low reliability, and credit. This suggests the impacts of electrification may be greater in settings with better governance and institutional performance.

Universal access to modern energy has become a top priority for policymakers, NGOs, and international donors across sub-Saharan Africa. In Kenya, nearly $600 million has been invested in extending the grid to rural areas since 2008. While there is now widespread grid coverage in Kenya, the national electrification rate remains low at roughly 32% in June 2014. Kenya’s Ministry of Energy and Petroleum has identified last-mile connections for “under grid” households as the most promising strategy to reach universal access to electricity by 2020. However, given the high cost of subsidising mass connections, there is a need for rigorous estimates of the social and economic impacts associated with rural electrification.

This impact evaluation finds that the net benefits of a large, government-funded rural household electrification program in Kenya may be limited, although evidence suggests that the impacts of electrification may be greater in settings with better governance and institutional performance.

There are a number of areas in which improved governance and institutional performance can improve the welfare gains from rural electrification, and the following areas would benefit from further research.

1. Eliminating leakage through improving the monitoring of contractors may lower the average costs of electrification.
2. Eliminating bureaucratic red tape causing construction delays, boosting reliability, and alleviating credit constraints through financing may increase demand.
3. Subsidising electrical appliances may raise electricity consumption and general impacts.

By quantifying the impacts of subsidised grid connections, as well as documenting how household energy use evolves over time, policymakers will be able to better plan energy investments in the future.