The Welfare Impact of Rural Electrification

1. The Welfare Impact of Rural Electrification Howard White IEG, World Bank

2. Introduction • IEG impact studies • Rigorous and relevant • Theory-based • Link to CBA • Rural electrification (RE) • Multi-country • Portfolio review • Multiple data sets • Country case studies

3. Overview • Strategy and portfolio • Output achievements • Who benefits? • Identifying benefits • Returns • Policy implications Underlying theme of evaluation design

4. Evaluation design I: portfolio review • Identify all RE projects – there is no list and RE activities fall under many projects • Dedicated RE – becoming more common • Larger energy sector project – RE component may be very small (e.g. a study), usual rule of thumb is 10% budget to count • Multi-sector – mainly Community Driven Development (CDD) • Portfolio review analyses the universe of projects • Quantitative • Qualitative

5. What counts as a RE project?

6. Shifting regional focus

7. Changing strategy • 1993 Policy Papers • Environment • Private sector • 1996: Rural energy and development: improving energy supplies for 2 billion people • 2001 sector board paper ‘helping poor directly’ one of four pillars, which includes priority to gender issues

8. One consequence of strategy: Increasing number of RET and off-gird projects • Percentage projects with off-grid • 1980-95: 2% • 1996-2006: 60% • Percentage RE projects with RET • 1980-95: 35% • 1996-2006: 62%

9. Practice lags strategy: welfare

10. Practice lags strategy: gender

11. First conclusion Disconnect between strategy and project design, with little explicit attention to poverty and gender objectives in the majority of projects

12. Outputs • Most (but not all) projects deliver on infrastructure • In particular a series of dedicated projects can make a very substantial contribution to RE coverage • Indonesia • Bangladesh • There has been progress on institutional issues but it is uneven

13. Evaluation design II: the role of descriptive analysis (the factual) • Targeting – profiles of who benefits? So need characteristics • Uses of electricity – need detailed data on appliance usage • Alternative fuel sources – need detailed data on fuel usage for all activities Issues in questionnaire design

14. Who benefits?

15. Who benefits? II

16. Poorest remain excluded

17. Second conclusion RE reaches poorer groups as coverage expands, but there remains a residual of unconnected households in connected villages for many years

18. Evaluation design III: who is the control group? (the counterfactual) • Need a control group identical to treatment group • Selection bias • Program placement • Self-selection • Approaches • RCTs • Statistical matching (PSM or regression discontinuity) • Regression Is selection just on observables?

19. Uses • Lighting • TV • Other household appliances • Small business appliances • Social facilities

20. Uses of electricity

21. Benefits • Domestic benefits • Recreation • Homework • Information • NOT cooking • Productive uses • Home enterprise • Industry • Agriculture • Social benefits • Facilities • Staffing • Safety Environmental benefits Need HIGH QUALITY data on all these

22. Quantification of benefits • Approach • WTP • Income gain • Value of fertility decline • Environmental benefits • The problem of double counting

23. Consumer surplus & WTP

24. Costs versus benefits I

25. Cost versus benefits 2 • WTP > supply cost • ERRs high (20-30%) • Higher for grid extension than off-grid, for which costs higher and benefits lower

26. Third conclusion WTP is high enough to ensure a good ERR and financial sustainability in many cases (caveat on Africa). Grid extension economically superior to off-grid programs.

27. Policy implications • Good economic analysis can inform policy • Design to catch up with strategy • Smart subsidies • Consumer information • Support to productive uses • Balance grid and off-grid