Measuring the Benefits of Electricity

It is very difficult to measure the value of electricity in many countries because access to it 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 take if the service was taken away from them. This is actually a research method that is used most often in environmental studies.

DC Blizzard of 2010 Photo D. Barnes

I am actually writing about this today because of the Washington DC Blizzard of 2010 this past weekend. After getting 28 inches of snow, our electricity service went out for about 24 hours. This not only meant no light, television, or internet, but our gas furnace requires electricity to operate. With outdoor temperatures below 32 degrees Fahrenheit (0 degrees Celsius, the temperature inside the house quickly dropped to first 60 and then 50 degrees Fahrenheit (15 to 10 Celsius). Our decorative fireplace did not help very much.

To get warm I actually went outside for a walk, and as I was going down the street I passed the site where the electricity lines were down. I saw an electricity truck passing by, and someone on the other side of the street shoveling snow yelled in jest, “Hey I have a few hundred dollar bills if you fix those power lines.” Obviously, his offer was based on the prospect of a cold house without lighting, heating, entertainment, comfort, and communications for just a few days.

In one study that I was involved in we actually asked the people in focus groups how much we would have to pay them to take electricity away from them for 2 years; they would not be permitted to buy generators or other electricity from other sources. They knew this was a hypothetical question, but they gave to some interesting answers. One younger couple gave us a figure of about USD 20,000 which is quite a bit of money in the Philippines 10 years ago. However, one older woman was adamant. She said “I grew up without electricity and you could not pay me anything that would induce me to go without it.” This reminded me of the man with the snow shovel in Washington DC during the blizzard of 2010.

How would you characterize the benefits of rural electrificatoin.  Take the poll below. 

poll by twiigs.com

There are actually several well established methods for evaluating the benefits of rural electrification that have been applied in developing countries. One involves the simple concept of willingness to pay. Whatever you pay for a service is actually is 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 the compare the cost of pre-electricity uses such as kerosene lamps and compare them to electricity lights. However, it is important to not just compare actual costs because electric lights provide 100 times more light that is much cheaper per unit of light than kerosene lamps. Battery powered televisions and radios also are expensive to operate: D cell batteries cost about 40 dollars per kilowatt hour, compared to about 10 cents for electricity from the electricity grid. Finally, there are some indirect methods such as measuring the value of education made possible by electricity or the additional productivity of both home businesses and those outside of the home.

How do you measure these benefits? There are actually quite a few good resources that have been developed in recent years. Some of these have been mentioned in a previous blog, so I will mention two that not only deal with benefit methods, but also provide some assistance for developing surveys to measure such benefits both quantitatively and qualitatively. These include a study on Monitoring and Evaluaiton of Rural Electrification and a report on Energy Policies for Multitopic Surveys. The main topic of the latter paper is how to incorporate energy issues in household multititopic survesy such as the Livings Standards Measurement Studies and Demographic and Health Surveys.