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

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  • Carlsson, Fredrik

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Demeke, Eyoual

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Martinsson, Peter

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Tesemma, Tewodros

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

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," Working Papers in Economics 731, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0731
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    Cited by:

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    2. 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.
    3. 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.
    4. 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.
    5. Acar, Pinar & Berk, Istemi, 2022. "Power infrastructure quality and industrial performance: A panel data analysis on OECD manufacturing sectors," Energy, Elsevier, vol. 239(PC).
    6. 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).
    7. 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.
    8. Thomas, Douglas & Fung, Juan, 2022. "Measuring downstream supply chain losses due to power disturbances," Energy Economics, Elsevier, vol. 114(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. Hashemi, Majid, 2021. "The economic value of unsupplied electricity: Evidence from Nepal," Energy Economics, Elsevier, vol. 95(C).
    12. Majid Hashemi & Glenn Jenkins, 2021. "The Economic Benefits of Mitigating the Risk of Unplanned Power Outages," Working Paper 1468, Economics Department, Queen's University.

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    More about this item

    Keywords

    power outages; willingness to pay; choice experiment; Ethiopia;
    All these keywords.

    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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