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The Willingness To Pay By Households For Improved Reliability Of Electricity Service

Author

Listed:
  • Aygul Ozbafli

    (JDINT’L, Department of Economics, Queen’s University, Canada)

  • Glenn P. Jenkins

    (Queen’s University, Canada and Eastern Mediterranean University, North Cyprus)

Abstract

This research examines households’ willingness to pay (WTP) for an improved electricity service. Households’ WTP is estimated using the contingent valuation (CV) method on data from 350 in-person interviews in North Cyprus. In order to avoid the cost of outages, households are willing to incur a 13.5% increase in their monthly electricity bill. A cost–benefit analysis (CBA) indicates that the annualized economic benefits of improved reliability of the electricity service would be approximately USD 37.8 million for the residential sector alone. This figure is more than enough to finance the investments needed to completely eradicate any electricity outages. In addition, the fuel savings from substituting the generation of the new plants for the old plants would yield about USD 44.6 million per year in fuel savings. Hence, a change from the current low-reliability policy to one of providing a high-quality service would yield an economic net present value to the residents of North Cyprus of over 2.5 times the investment costs or USD 226 million within five years.

Suggested Citation

  • Aygul Ozbafli & Glenn P. Jenkins, 2015. "The Willingness To Pay By Households For Improved Reliability Of Electricity Service," Development Discussion Papers 2015-02, JDI Executive Programs.
    • Handle: RePEc:qed:dpaper:272
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    References listed on IDEAS

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    Cited by:

    1. Niroomand, Naghmeh & Jenkins, Glenn P., 2020. "Averting Expenditures and Willingness to Pay for Electricity Supply Reliability," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 11(3), pages 501-523, October.
    2. Naghmeh Niroomand & Glenn P. Jenkins, 2018. "Estimation of Households’ and Businesses’ Willingness to Pay for Improved Reliability of Electricity Supply in Nepal," Development Discussion Papers 2018-05, JDI Executive Programs.
    3. Ju-Hee Kim & Kyung-Kyu Lim & Seung-Hoon Yoo, 2019. "Evaluating Residential Consumers’ Willingness to Pay to Avoid Power Outages in South Korea," Sustainability, MDPI, vol. 11(5), pages 1-12, February.
    4. Parvaneh Shahnoori & Glenn P. Jenkins, 2019. "The value of online banking to small and medium-sized enterprises: evidence from firms operating in the uae free trade zones," Applied Economics, Taylor & Francis Journals, vol. 51(37), pages 4046-4055, August.
    5. Parvaneh Shahnoori & Glenn P. Jenkins, 2018. "The Value of Online Banking to Small and Meduim-Sized Enterprises: Evidence From Firms Operating in The UAE From Trade Zones," Development Discussion Papers 2018-12, JDI Executive Programs.
    6. Nkosi, Nomsa Phindile & Dikgang, Johane, 2018. "Pricing electricity blackouts among South African households," Journal of Commodity Markets, Elsevier, vol. 11(C), pages 37-47.
    7. Yurtsev, Arif & Jenkins, Glenn P., 2016. "Cost-effectiveness analysis of alternative water heater systems operating with unreliable water supplies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 54(C), pages 174-183.
    8. Motz, Alessandra, 2021. "Security of supply and the energy transition: The households' perspective investigated through a discrete choice model with latent classes," Energy Economics, Elsevier, vol. 97(C).
    9. Behrang Vand & Aira Hast & Sanaz Bozorg & Zelin Li & Sanna Syri & Shuai Deng, 2019. "Consumers’ Attitudes to Support Green Energy: A Case Study in Shanghai," Energies, MDPI, vol. 12(12), pages 1-20, June.
    10. Majid Hashemi & Glenn P. Jenkins & Roop Jyoti & Aygul Ozbafli, 2018. "Evaluating the Cost to Industry of Electricity Outages," Development Discussion Papers 2018-14, JDI Executive Programs.
    11. Carlsson, Fredrik & Kataria, Mitesh & Lampi, Elina & Martinsson, Peter, 2021. "Past and present outage costs – A follow-up study of households’ willingness to pay to avoid power outages," Resource and Energy Economics, Elsevier, vol. 64(C).
    12. Bigerna, Simona & Choudhary, Piyush & Kumar Jain, Nikunj & Micheli, Silvia & Polinori, Paolo, 2022. "Avoiding unanticipated power outages: households’ willingness to pay in India," MPRA Paper 114160, University Library of Munich, Germany.
    13. 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.
    14. Morteza Chalak & Veronique Florec & Atakelty Hailu & Fiona Gibson & David Pannell, 2017. "Integrating non-market values in economic analyses of flood mitigation: a case study of the Brown Hill and Keswick creeks catchment in Adelaide," Working Papers 256513, University of Western Australia, School of Agricultural and Resource Economics.
    15. Hashemi, Majid, 2021. "The economic value of unsupplied electricity: Evidence from Nepal," Energy Economics, Elsevier, vol. 95(C).
    16. Amoah, Anthony & Ferrini, Silvia & Schaafsma, Marije, 2019. "Electricity outages in Ghana: Are contingent valuation estimates valid?," Energy Policy, Elsevier, vol. 135(C).
    17. Paul Nduhuura & Matthias Garschagen & Abdellatif Zerga, 2021. "Impacts of Electricity Outages in Urban Households in Developing Countries: A Case of Accra, Ghana," Energies, MDPI, vol. 14(12), pages 1-26, June.
    18. Deutschmann, Joshua W. & Postepska, Agnieszka & Sarr, Leopold, 2021. "Measuring willingness to pay for reliable electricity: Evidence from Senegal," World Development, Elsevier, vol. 138(C).
    19. Bernadeta Gołębiowska, 2020. "Preferences for demand side management—a review of choice experiment studies," Working Papers 2020-05, Faculty of Economic Sciences, University of Warsaw.

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    More about this item

    Keywords

    Willingness to pay; contingent valuation; electricity; outages; reliability; cost-benefit analysis;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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