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Charging Ahead: Prepaid Electricity Metering in South Africa

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  • B. Kelsey Jack
  • Grant Smith

Abstract

The standard approach to recovering the cost of electricity provision is to bill customers monthly for past consumption. If unable to pay, customers face disconnection, the utility loses revenue, and the service provision model is undermined. A possible solution to this problem is prepaid metering, in which customers buy electricity upfront and use it until the prepaid amount is consumed. We use data from Cape Town, South Africa to examine the effects of prepaid electricity metering on residential consumption and returns to the electric utility. Over 4,000 customers on monthly billing were involuntarily assigned to receive a prepaid electricity meter, with exogenous variation in the timing of the meter replacement. Electricity use falls by about 13 percent as a result of the switch, a decrease that persists for the following year. This creates a tradeoff for the utility: revenue from consumption falls but more of it is recovered on time and at a lower cost. The benefits to the electric utility outweigh the costs, on average, though results are very heterogeneous. Poorer customers and those with a history of delinquent payment behavior show the greatest improvement in profitability when switched to a prepaid meter. These findings point to an important role for metering technologies in expanding energy access for the poor.

Suggested Citation

  • B. Kelsey Jack & Grant Smith, 2016. "Charging Ahead: Prepaid Electricity Metering in South Africa," NBER Working Papers 22895, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22895
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    Cited by:

    1. Christopher Ksoll & Kristine Bos & Sarah Hughes & Anthony Harris & Arif Mamun, "undated". "Evaluation Design Report for the Benin Power Compact's Electricity Generation Project and Electricity Distribution Project," Mathematica Policy Research Reports 9f8974513ee745aaac3b5c62e, Mathematica Policy Research.
    2. Jacome, Veronica & Ray, Isha, 2018. "The prepaid electric meter: Rights, relationships and reification in Unguja, Tanzania," World Development, Elsevier, vol. 105(C), pages 262-272.

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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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