The Welfare Impact of Rural Electrification : A Reassessment of the Costs and Benefits

It has long been claimed that rural electrification greatly improves the quality of life. Lighting alone brings benefits such as increased study time and improved study environment for school children, extended hours for small businesses, and greater security. But electrification brings more than light. It's second most common use is for television, which brings both entertainment and information. The people who live in rural areas greatly appreciate these benefits and are willing to pay for them at levels more than sufficient to cover the costs. However, the evaluation of these and other benefits, as well as of their distribution, has been sparse. This report reviews recent methodological advances made in measuring the benefits of rural electrification (RE) and commends them. It also notes that the understanding of the techniques shown in project documents is sometimes weak, and quality control for the economic analysis in project documents lacking. This study shows that willingness to pay for electricity is high, exceeding the long-run marginal cost of supply. Hence, in principle, RE investments can have good rates of return and be financially sustainable. But caveats are in order. The first caveat is that attention needs to be paid to ensuring least cost supply, including limiting system losses. Second, continued attention needs to be paid to achieving the right balance between financial sustainability and reaching the poor.