Pricing electricity blackouts among South African households
South African households, like households in many other developing countries, are faced with regular power outages. This is a big problem, since the outages that the households experience are both frequent and long in duration. Efficient electricity infrastructure investment decisions are possible o...
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| Published in: | Journal of commodity markets 2018-09, Vol.11, p.37-47 |
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| Main Authors: | , |
| Format: | Article |
| Language: | eng |
| Subjects: | |
| Online Access: | Get full text |
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| Summary: | South African households, like households in many other developing countries, are faced with regular power outages. This is a big problem, since the outages that the households experience are both frequent and long in duration. Efficient electricity infrastructure investment decisions are possible only if the welfare loss of electricity blackouts is determined. We estimate a measure for welfare analysis. We subject respondents to eight power outage scenarios. We use a random parameter panel Tobit model to account for both zero willingness to pay (WTP) and cross-sectional heterogeneity. In addition to exploring more scenarios, this study contributes as it extends basic analysis found in the literature by allowing for a proportion of the sample to have a zero WTP. A zero WTP is in many cases not unrealistic. The picture that emerges is that WTP increases with duration, which was expected. Overall, South African households place a significant value towards avoiding the interruption. The WTP values presented in this paper approximate the value of supply security. Improving reliability of supply to households requires significant and continuous investment in electricity infrastructure.
•Random parameter panel Tobit model is used to account for both zero willingness to pay (WTP) and cross-sectional heterogeneity.•Overall, duration and seasonality of power outages are the main drivers of WTP.•South African households are generally WTP for improved reliability of power supply.•The findings in the study have much more implications than for the pricing.•There are implications for the investments in infrastructure and the quality assurance of the network. |
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| ISSN: | 2405-8513 2405-8505 |