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Cost of Power Outages for Manufacturing Firms in Ethiopia: A Stated Preference Study

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  • Carlsson, Fredrik

  • Demeke, Eyoual

  • Martinsson, Peter

  • Tesemma, Tewodros

Abstract

Having a reliable supply of electricity is essential for the operation of any firm. In most developing countries, however, electricity supply is highly unreliable. In this study, we estimate the cost of power outages for micro-, small-, and medium-sized enterprises in Addis Ababa, Ethiopia, using a stated preference survey. We find that the willingness to pay, and thus the cost of power outages, is substantial. The estimated willingness to pay for a reduction of one power outage corresponds to a tariff increase of 16 percent. The willingness to pay for reducing the average length of a power outage by one hour corresponds to a 33 percent increase. The compensating variation for a zero-outage situation corresponds to about three times the current electricity cost. There is, however, considerable heterogeneity in costs across sectors, firm sizes, and levels of electricity consumption. Policy makers could consider this observed heterogeneity when it comes to aspects such as where to invest to improve reliability and different types of electricity contracts.

Suggested Citation

  • Carlsson, Fredrik & Demeke, Eyoual & Martinsson, Peter & Tesemma, Tewodros, 2018. "Cost of Power Outages for Manufacturing Firms in Ethiopia: A Stated Preference Study," EfD Discussion Paper 18-13, Environment for Development, University of Gothenburg.
    • Handle: RePEc:hhs:gunefd:2018_013
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    2. Meles, Tensay Hadush & Mekonnen, Alemu & Jeuland, Marc & Beyene, Abebe D. & Klug, Thomas & Hassen, Sied & Sebsibie, Samuel & Pattanayak, Subhrendu K., 2025. "Does the payment vehicle matter for valuing improved electricity reliability? A discrete choice experiment in Ethiopia," Utilities Policy, Elsevier, vol. 93(C).
    3. Meles, Tensay Hadush & Mekonnen, Alemu & Beyene, Abebe D. & Hassen, Sied & Pattanayak, Subhrendu K. & Sebsibie, Samuel & Klug, Thomas & Jeuland, Marc, 2021. "Households' valuation of power outages in major cities of Ethiopia: An application of stated preference methods," Energy Economics, Elsevier, vol. 102(C).
    4. Meles, Tensay Hadush & Lokina, Razack & Mtenga, Erica Louis & Tibanywana, Julieth Julius, 2023. "Stated preferences with survey consequentiality and outcome uncertainty: A split sample discrete choice experiment," EfD Discussion Paper 23-16, Environment for Development, University of Gothenburg.
    5. Thomas, Douglas & Fung, Juan, 2022. "Measuring downstream supply chain losses due to power disturbances," Energy Economics, Elsevier, vol. 114(C).
    6. Mehrnoosh Asadi & James I. Price & Roselinde Kessels & Pallab Mozumder, 2024. "Hurricane-Induced Power Disruptions: Household Preferences for Improving Infrastructure Resilience," Economics of Disasters and Climate Change, Springer, vol. 8(2), pages 235-261, July.
    7. Narayan, Seema & Narayan, Paresh Kumar, 2024. "Clean energy for the Pacific Island countries: Does donor funding promote this transition?," Energy Economics, Elsevier, vol. 134(C).
    8. Lin, Yatang & Kassem, Dana, 2025. "The environmental cost of power outages: Evidence from Delhi," Journal of Public Economics, Elsevier, vol. 242(C).
    9. Majid Hashemi, 2021. "The Effect of Reliability Improvements on Household Electricity Consumption and Coping Behavior: A Multi-dimensional Approach," Working Paper 1469, Economics Department, Queen's University.
    10. Ebrahim Endris & Andualem Kassegn, 2022. "The role of micro, small and medium enterprises (MSMEs) to the sustainable development of sub-Saharan Africa and its challenges: a systematic review of evidence from Ethiopia," Journal of Innovation and Entrepreneurship, Springer, vol. 11(1), pages 1-18, December.
    11. Tensay Hadush Meles & Razack Lokina & Erica Louis Mtenga & Julieth Julius Tibanywana, 2023. "Stated Preferences with Survey Consequentiality and Outcome Uncertainty: A Split Sample Discrete Choice Experiment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(4), pages 717-754, December.
    12. Acar, Pinar & Berk, Istemi, 2022. "Power infrastructure quality and industrial performance: A panel data analysis on OECD manufacturing sectors," Energy, Elsevier, vol. 239(PC).
    13. Hashemi, Majid, 2021. "The economic value of unsupplied electricity: Evidence from Nepal," Energy Economics, Elsevier, vol. 95(C).
    14. Xu, Shuling & Yang, Zihan & Deng, Nana & Wang, Bo, 2024. "Residents' willingness to be compensated for power rationing during peak hours based on choice experiment," Applied Energy, Elsevier, vol. 367(C).
    15. Jin, Taeyoung & Lee, Tae Eui & Kim, Dowon, 2024. "Valuing flexible resources in the Korean electricity market based on stated preference methods," Utilities Policy, Elsevier, vol. 88(C).
    16. Bhorat, Haroon & Köhler, Timothy, 2025. "Watts happening to work? The labour market effects of South Africa’s electricity crisis," Energy Economics, Elsevier, vol. 142(C).
    17. Emerta Aragie & Yohannes Gebretsadik & Claudia Ringler, 2025. "Modeling the economywide effects of water and energy interventions in the face of climate shocks in Ethiopia," Climatic Change, Springer, vol. 178(7), pages 1-27, July.
    18. Majid Hashemi & Glenn Jenkins, 2021. "The Economic Benefits of Mitigating the Risk of Unplanned Power Outages," Working Paper 1468, Economics Department, Queen's University.
    19. Hashemi, Majid & Jenkins, Glenn, 2022. "Can privatization of distribution substations improve electricity reliability for non-residential customers? An application to Nepal," Utilities Policy, Elsevier, vol. 74(C).
    20. Muhammad Luqman & Mirajul Haq & Iftikhar Ahmad, 2021. "Power Outages and Technical Efficiency of Manufacturing Firms: Evidence from Selected South Asian Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 11(2), pages 133-140.
    21. Nawaraj Kumar Mahato & Jiaxuan Yang & Junfeng Yang & Ren Qiang & Gangjun Gong & Jianhong Hao, 2025. "Physical Security Threat Assessment and Resource Investment Allocation for Electric Power Substations," Energies, MDPI, vol. 18(3), pages 1-24, January.
    22. Dong Cheng & Xunpeng Shi, 2024. "The Power Crunch and Firms’ Anticipatory Investment: Evidence from Manufacturing SMEs in China," The Energy Journal, , vol. 45(3), pages 153-176, May.

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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