How Valuable is the Reliability of Residential Electricity Supply in Low-Income Countries? Evidence from Nepal

We use contingent valuation to estimate the willingness to pay (WI'P) for improved electricity service in Nepal following the end of the country's load-shedding crisis of 2007-2016. Using a nationally representative survey of grid-connected Nepali households, we calculate the 'VVTP per outage-day avoided and the value of lost load (VoLL) for residential customers and analyze their key drivers, including income, education, and investments in own generation or electricity storage equipment. Households are willing to pay, on average, 123 NR ($1.11) per month for improved quality of power supply. In other words, they would be prepared to see a 65% increase in their monthly bill to avoid outages. Our preferred estimates of the VoLL range from 5 to 15 NR/kWh (cent 0.7-cent 14/kWh). These estimates are below the marginal cost of avoided load shedding, and are virtually the same as valuations at the beginning of the load-shedding crisis.

Automated summary

This study uses contingent valuation to examine the willingness to pay for improved electricity service in Nepal after the end of the country's load-shedding crisis. The findings indicate that Nepali households are willing to pay an average of 123 NR per month to enhance the quality of power supply, which means they would accept a 65% increase in their monthly bill to avoid outages. The preferred estimates of the value of lost load (VoLL) for residential customers are below the marginal cost of avoided load shedding and are similar to the valuations at the beginning of the crisis.