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A new study says, benefits of electrification programs in most developing countries comes from savings made by households when they switch to cheap, clean, safe and reliable electricity for lighting, entertainment and cooking instead of using expensive batteries, candles and kerosene. The newly released study, Measuring the Benefits of Increased Electricity Access in Developing Countries is funded by the World Bank and the Energy Sector Management Assistance Program (ESMAP).
 

The new study contends that the benefits of electrification materialize fully when electrification is planned along with accompanying measures to ease access to electricity consuming appliances. This does not come as a major surprise since low income households are highly sensitive to energy prices and could therefore be reluctant to modify rapidly their patterns of energy consumption once they gain access, However, our commonly used method to assess benefits should take this into account better, said Pierre Audinet a Senior Energy Specialist at the World Bank and one of the report’s authors.
 

The study draws on patterns of energy supply, consumption and expenditure in Yemen, to conclude that assessing benefits using consumer’s surplus remains a challenge because it requires that the analyst construct a consumer demand curve, generally with very little in the way of actual data.
 

The paper leads to several important policy messages for the preparation of investments aiming to increase energy access in developing countries:
 

Policy message 1: Consumer surplus as the measure for estimating benefits of enlarged access by households to public electricity supply needs to be used with caution. Consumer surplus benefits from increased access to electricity supply may be less than has been postulated in earlier analyses. Evidence from Yemen indicates that the demand curve for utilities such as lighting and information or entertainment is highly concave. Consumer surplus associated with induced consumption (e.g. use of additional lights, electric fans) may involve consumption of more units of electrical energy than before electrification, but the unit value of consumer surplus is small. The primary consumer surplus benefit from electrification programs comes from avoided expenditure on substitutes. While the unit value of these latter savings may be high, the number of units involved is typically small.
 

Policy message 2: Make sure that benefits of increased access to electricity are measured both in terms of gains in consumer surplus and gains in real income from electrification. Analysis of benefits from enlarged electricity access often focuses entirely on the consumer surplus benefits. However, the avoided expenditures by households on energy forms that are substituted by electricity are likely to yield high savings which in effect increase the real incomes of these households. This effect is not currently measured in the evaluation of household electrification programs, and its inclusion can strengthen the economic case for investment in household electrification.
 

Policy message 3: Plan electricity access expansion taking into account that reinforced electricity access may increase consumption of electricity modestly. The approach to assessing consumer's preferences could lead to substantially lower forecasts of electricity consumption by newly connected households than forecasts which assume that household expenditure on energy services after electrification is similar to that before electrification.
 

Policy message 4: Plan electrification along with accompanying measures to ease access to electric appliances. Patterns of energy demand evidenced in Yemen indirectly show that the cost of electric appliances may be a stronger barrier to higher consumption of electricity among low income households than commonly anticipated.
 

Policy message 5: Strengthen public data on energy consumption. Measuring benefits of increased benefits needs solid data on patterns of energy consumption and household expenditure to provide reliable estimates of the economic benefits of household electrification. It requires substantial effort to collect the necessary date for ensuring appropriate allocation of investment resources to improve energy access.