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Usually, people make decisions based on choices that yield the most satisfaction by taking into account both benefits and costs associated with a specific action. Ones willingness to pay for electricity and the price one actually pays can be used as a measurable benefit of electricity says a new report, Measuring the Benefits of Increased Electricity Access in Developing Countries funded by the World Bank and the Energy Sector Management Assistance Program (ESMAP).
In Yemen a household survey was conducted by the World Bank to establish patterns of energy supply, consumption and expenditure. The report shows a logical relationship between price and quantity among Yemen’s urban and rural populations, a total of about 23 million people. Average prices paid by urban households are approximately 40 percent lower than those paid by rural households, yet the average consumption rate of urban households is twice as high. Ownership and use of other household appliances which are fully dependent on access to electricity are primarily used in urban areas where only 30 percent of Yemenis live.
The report found that Yemenis placed high value on electricity for entertainment and about 40 percent of their households have TVs and Radios. As a result Yemenis are willing to pay a high electricity price for entertainment than for lighting and cooking. In spite of with increased access to cheaper electricity or gas, most Yemenis did not abandon their traditional forms of lighting and cooking such as kerosene lamps and stoves, says Pierre Audinet a Senior Energy Specialists at the World Bank and author of the report.
How to measure benefits of increased access to electricity?
There are actually several well established methods for evaluating the benefits of access to electricity that have been applied in developing countries. One involves the simple concept of willingness to pay. Whatever you pay for a service is actually its minimum value but usually is not the actual value because it is likely to significantly underestimate the value of electricity. A better way is to estimate and compare the cost of pre-electricity uses such as kerosene lamps and compare them to electricity lights.
However, there are situations where the benefits and cost may not match up directly for example when a government needs to choose among investments aimed at improving the standard of living of its population or the value of reduced indoor pollution through the elimination of kerosene lamps. It may be difficult to predict the type of impacts that might arise as a result of the investment.
It is very difficult to measure the value of electricity in many countries because access is virtually universal and prices and connection costs are often subsidized or set by regulatory agencies. One interesting way to estimate the value of services such as electricity is to ask people how much money they would pay if the service was taken away from them.