The vicious circle of power outages and bill payment: Evidence from Ghana

One of the primary challenges facing developing countries that are attempting to build a robust electric grid is “tariff under-recovery” – many customers do not pay their electric bills. A consequence is that utilities are unable to cover operating expenses, maintain their existing infrastructure, and fund new investment to accommodate growth in electricity demand. In Ghana, load shedding – often referred to as “dumsor” – has risen dramatically in recent years. It is widely believed that load shedding is a major barrier to economic growth. It is estimated that intermittent power leads to a loss of productivity and economic growth on the order of $320- $924 million per year, or 2-6% of GDP.

Industry experts have conjectured that there is a dangerous negative feedback loop that exists between tariff under-recovery and load shedding. To the best of our knowledge, no research has tested for evidence of this feedback loop or investigated methods to mitigate such negative feedback effects.

The researchers will conduct a comprehensive study to understand tariff under-recovery and load shedding affecting the Electricity Company of Ghana (ECG). Our research will use detailed administrative data from ECG on load shedding events and customer-level bill payment.

The first step will be to document the magnitude of tariff under-recovery and load shedding. Using several years of household-level payment data from ECG, we will describe the level of under-recovery and how it varies by customer class, location, and time. Also, we will use high-frequency administrative data on outage events on each electricity distribution feeder to comprehensively characterise the timing and locations of load shedding. These detailed datasets form the basis for the next steps of the project.

The second step is to investigate how non-payment is related to load shedding. In particular, we study the extent to which (a) underpayment contributes to revenue inadequacy, and (b) subsequent load shedding contributes to future underpayment. We will study the feedback loop through which underpayment creates the need for the utility to load shed which in turn contributes to lower future bill payment.