Residential Welfare-Loss from Electricity Supply Interruptions in South Africa: Cost-Benefit Analysis of Distributed Energy Resource Subsidy Programs

Roberto V. Toto

Economics of Energy & Environmental Policy, 2022, vol. Volume 11, issue Number 1

Abstract: This paper uses market data on income, electricity price, and electricity demand to estimate residential welfare loss caused by electricity supply interruptions in South Africa. The welfare-loss estimation (or "willingness-to-pay") uses cross-sectional data from 16,851 South African households. A two-part (probit and OLS) estimation method is used to model price and income elasticities, and a log-linear function models the marginal effect of electricity shortages. Household welfare loss is derived from an indirect utility function showing the difference in utility between shortage and non-shortage conditions. The welfare loss is compared to the costs and benefits of investing in distributed energy resources (DERs) to determine whether household solar PV units are a worthwhile investment for households suffering outages. The net benefit of investing in DERs is found under varying conditions of government subsidy to show whether household DERs is also a worthwhile societal investment. The study finds that (1) lower-income households are disproportionately affected by interruptions in electricity, as measured by WTP per dollar of income; (2) households may eliminate WTP by investing in DERs with a at least a 40% government subsidy; and (3) government policies to reduce welfare-loss caused by electricity interruptions should focus on the bottom-two income deciles in order to return the greatest reduction in WTP per dollar spent in subsidies. These findings imply that for every dollar policy-makers in South Africa spend on residential DERS subsidies, recipient households gain more than a dollar of economic benefit. Recipient households, in turn, would have greater resources and capacity for economic engagement, providing a twin benefit to both households and the South African economy.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.iaee.org/en/publications/eeeparticle.aspx?id=403 (text/html)
Access to full text is restricted to IAEE members and subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aen:eeepjl:eeep11-1-toto

Ordering information: This journal article can be ordered from
http://www.iaee.org/ ... ons/eeepjournal.aspx

Access Statistics for this article

More articles in Economics of Energy & Environmental Policy from International Association for Energy Economics Contact information at EDIRC.
Bibliographic data for series maintained by David Williams ().