Willingness or ability to pay? Expanding electricity access with cost sharing and financing

Lack of access to electricity represents a large impediment to achieving higher income levels. The Government of Uganda has recognised this both in Vision 2040 and the National Development Plan, and set the goal of achieving universal electrification by the year 2040.

Energy access goes beyond simply providing the population with access to an energy source. In order to benefit, the population also needs to be able to afford the electricity. This is doubly important because not only does an unused connection mean a lower number of beneficiaries, it also increases the cost of serving the remaining consumers. Furthermore, high electricity prices increase the incentives for customers to tap into the network illegally or bypass meters.  It is, therefore, crucial to understand the relationship between prices, consumption, and theft.  In this project, the impact of reducing households’ cost of accessing legal connections to the electricity grid will be analysed.

While there is a growing literature on the impact of electricity connections, there is little literature on electricity theft and how it responds to the tariff structure.  Electricity theft ultimately affects the ability of the government and the distributors to expand to new areas and provide electricity at affordable prices to additional populations.

The following research questions will be examined:

• How should connections be subsidised to maximise take-up and electricity use?
• How sensitive are customers to prices and service charges?
• Can cost-effective interventions lower commercial electricity losses and improve revenue recovery?

These questions are important to Umeme (Uganda’s main electricity distributor) in understanding how best to manage its grid in order to reduce costs and theft. Also to the Ministry of Energy and ERA, the electricity regulator, in understanding the willingness to pay for electricity at different usage rates.

To this end, a randomised controlled trial will be designed to test the elasticity of electricity purchases to payment of past monthly service charges and increased audit rates.  This will help Umeme to understand the best ways to reduce theft in order to reduce the cost of legal electricity connections and help the Ministry of Energy understand how changes in tariff structures may affect legal electricity use by residential customers.