Willingness to Pay for Good Quality, Uninterrupted Power Supply in Madhya Pradesh, India

Date: November 2012
Type: Papers and Briefs
Country:
Subject:
Series: South Asia Working Papers
Author: Gunatilake, Herath

Description

This study undertakes a contingent valuation survey using a stratified random sample of 2,083 households in rural Madhya Pradesh, India, with the objective of estimating the benefits of an improved electricity supply to rural households. Survey results clearly show that existing electricity services are very poor and rural households consider good quality uninterrupted power supply as a top development priority.

Willingness to Pay (WTP) for good quality uninterrupted power supply together with improved customer services and accurate and transparent billing is high enough to justify the investment project. An improved electricity supply would be a new commodity for rural households. The estimated demand functions that use actual prices (revealed preference methods) paid by consumers may underestimate the benefits of improved services, because these prices may reflect the value of poor service to the consumers. Accurately estimated WTP through CV surveys may serve better in representing the benefits of an improved electricity supply. Power distribution problems in MP are very similar to those in many other states of India. Higher benefits of feeder separation and distribution improvements shown in this study, suggest that similar investments may be justifiable in other states.

Policy simulations using the estimated WTP functions show that price responsiveness is very similar amongst different income groups under very high or very low prices. In the middle, if the monthly bill is around Rs. 200, more than half of the poor opt- out from the system, whereas more than 75% of high income households would continue to enjoy the service. Block tariffs result in a drastic reduction in uptake rates for higher income groups. Given that these households may opt to reduce consumption rather than disconnect their service, block tariffs have potential to induce energy conservation. Hence block tariffs may serve as an effective demand management tool. Subsidized service can ensure near universal coverage but generate substantially low revenues for the utility companies. Removal of subsidies reduces coverage to about 86% whilst generating sufficient revenues. The role of subsidies is not clear however, as 90% coverage of low income households can be achieved with very low, or no subsidies.

Contents

  • Abstract
  • Introduction
  • Literature Survey
  • Methodology
  • Survey Results
  • Willingness to Pay for Improved Service
  • Policy Simulations
  • Conclusion
  • References
  • Appendixes