The Welfare Impact of Rural Electrification

Howard White

IEG, World Bank

Introduction

IEG impact studies Rigorous and relevant Theory-based Link to CBA

Rural electrification (RE) Multi-country Portfolio review Multiple data sets Country case studies

Overview

Strategy and portfolio Output achievements Who benefits? Identifying benefits Returns Policy implications

Underlying theme of evaluation design

Evaluation design I: portfolio review Identify all RE projects – there is no list and RE

activities fall under many projects Dedicated RE – becoming more common Larger energy sector project – RE component may be

very small (e.g. a study), usual rule of thumb is 10% budget to count

Multi-sector – mainly Community Driven Development (CDD)

Portfolio review analyses the universe of projects Quantitative Qualitative

What counts as a RE project?

1980-95 1996-2000 Total

Dedicated RE project

17 (33%) 25 (37%) 42

Energy sector with RE component

23 (44%) 21 (30%) 44

Multisectoral 12 (23%) 22 (32%) 34

Shifting regional focus

Changing strategy

1993 Policy Papers Environment Private sector

1996: Rural energy and development: improving energy supplies for 2 billion people

2001 sector board paper ‘helping poor directly’ one of four pillars, which includes priority to gender issues

One consequence of strategy: Increasing number of RET and off-gird projects Percentage projects with off-grid

1980-95: 2% 1996-2006: 60%

Percentage RE projects with RET 1980-95: 35% 1996-2006: 62%

Practice lags strategy: welfare

Practice lags strategy: gender

First conclusion

Disconnect between strategy and project design, with little explicit attention to poverty and gender objectives in the majority of projects

Outputs

Most (but not all) projects deliver on infrastructure

In particular a series of dedicated projects can make a very substantial contribution to RE coverage Indonesia Bangladesh

There has been progress on institutional issues but it is uneven

Evaluation design II: the role of descriptive analysis (the factual) Targeting – profiles of who benefits? So need

characteristics Uses of electricity – need detailed data on

appliance usage Alternative fuel sources – need detailed data

on fuel usage for all activities

Issues in questionnaire design

Who benefits?

0

5

10

15

20

25

30

0 10 20 30 40 50 60 70

Rural electrification rate

Sh

are

of

the

bo

tto

m 4

0%

in

ele

ctr

ifie

d h

ou

se

ho

lds

Bangladesh

Philippines

Ghana

Peru

Nepal

Who benefits? II

Poorest remain excluded

0

10

20

30

40

50

60

70

80

90

0 2 4 6 8 10 12 14

Years since grid connection

Ele

ctr

ific

ati

on

ra

te

All households

Poor households

54% connect in first year

Another 10% connect in the next two years...

… then it takes 7 years for the next 10% to connect

Second conclusion

RE reaches poorer groups as coverage expands, but there remains a residual of unconnected households in connected villages for many years

Evaluation design III: who is the control group? (the counterfactual) Need a control group identical to treatment

group Selection bias

Program placement Self-selection

Approaches RCTs Statistical matching (PSM or regression discontinuity) Regression

Is selection just on observables?

Uses

Lighting TV Other household appliances Small business appliances Social facilities

Uses of electricity

Benefits Domestic benefits

Recreation Homework Information NOT cooking

Productive uses Home enterprise Industry Agriculture

Social benefits Facilities Staffing SafetyEnvironmental benefitsNeed HIGH QUALITY data on all these

Quantification of benefits

Approach WTP Income gain Value of fertility decline Environmental benefits

The problem of double counting

Consumer surplus & WTP

0

2

4

6

8

10

12

0 20 40 60 80 100 120 140

Quantity

Pri

ce Pk

Pe

QeQk

A

B C

D E

Costs versus benefits I

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

Bangladesh1990

Lao PDR 2005 Philippines1994

India (NathpaJhakri) 1989

India(Rajasthan)

2000

Indonesia 2000

US

$/kW

h

WTP Price Cost of supply

Cost versus benefits 2

WTP > supply cost ERRs high (20-30%) Higher for grid extension than off-grid, for

which costs higher and benefits lower

Third conclusion

WTP is high enough to ensure a good ERR and financial sustainability in many cases (caveat on Africa). Grid extension economically superior to off-grid programs.

Policy implications

Good economic analysis can inform policy Design to catch up with strategy

Smart subsidies Consumer information Support to productive uses

Balance grid and off-grid