The Economic Costs of Unsupplied Electricty: Evidence from Backup Generation among African Firms (original) (raw)
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Energy Economics, 2015
This study examines the outage loss differential between firms that engage in backup generation and those that do not. Unmitigated outage losses were estimated to be US$2.01-US$23.92 per kWh for firms engaging in self-generation, and range from US$1.54-US$32.46 per kWh for firms without self-generation. We also find that firms engaging in self-generation would have suffered additional 1-183% outage losses had they not invested in self-generation. On the other hand, firms without self-generation would have reduced their outage losses by around 6-46% if they had engaged in selfgeneration. Further analyses however reveal that, although engagement in selfgeneration reduced outage losses, a firm engaging in self-generation may still suffer a greater unmitigated outage loss relative to a firm without a backup generator. The relative outage losses depend on the relative vulnerability of the operations of the two sets of firms to power interruption, and the relative generating capacity of a selfgenerating firm to its own required electricity loads. Policy reforms that allow firms, whose operations are highly vulnerable to outages, to make a binding contract with utilities in order to get preferential supply are recommended.
Cost of power outages for manufacturing firms in Ethiopia: A stated preference study
Energy Economics, 2020
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.
Power outages and firm performance in Sub-Saharan Africa
Journal of Development Economics, 2018
In this paper we assess the extent to which power outages affect the sales of firms across different African economies. We address the potential endogeneity concerns endemic in much of the existing literature by constructing an instrument for power outages based on the varying share of electricity produced by hydro-power as a result of variation in the local climate conditions. Using firm-level data for 14 countries from the World Bank Enterprise Surveys, we find evidence of a negative relationship between an unreliable electricity supply and firms' sales, with a stronger effect for firms that do not own a generator. We find that reducing average outage levels to those of South Africa would increase overall sales of firms in Sub-Saharan Africa by 85.1%, rising to 117.4% for firms without a generator.
Evaluating the cost to industry of electricity outages
Energy Sources, Part B: Economics, Planning, and Policy, 2018
The unreliability of electricity supplies is a major cause of the high cost of manufacturing in developing countries. In this paper we propose a more accurate approach, the contribution method, to measure the cost imposed by power outages. We employ a rich, if not unique, set of data from the detailed operating accounts of three large manufacturing enterprises in Nepal. Estimating the true opportunity costs to the enterprises from lost production caused by power outages sheds light on the issue of cost measurement that is critical for the determination of the feasibility of mitigating measures. Furthermore, having such micro-based information on the value of lost load per kWh by firm or sector is critical for reducing the economic costs of planned outages by the electric utility.
The economic cost of power outages in the industrial sector of Pakistan
This paper quantifies the economic cost of power outages in the industrial sector of Pakistan: first, by extending the methodology developed by Munasinghe and Gellerson [7,8] and Sanghvi [ 11] to allow for long-run adjustments by firms to outages like investment in generators and renegotiation of labour contracts with flexible timing provisions; and second, by incorporating multiplier effects on other sectors. Variation in anticipated and unanticipated outage costs per kWh by type of industry, firm size and location are highlighted by analysing data collected from a nationwide sample of 843 industrial units..4 set of policies is derived for pricing and load management in the short run and investment in energy generation in the medium run.
Emerging costs deriving from blackouts for individual firms: evidence from an Italian case study
2016
Among the costs deriving to firms from electric blackouts, emerging costs are the less studied ones. This work aims at shedding some light on the specific topic with an empirical approach. It performs in fact three case studies, describing blackout emerging costs for three firms of very different industries. Data obtained in the cases are described, and a cost function is tentatively sketched. Case studies show that emerging costs, though not prevailing in value over the lost production costs, may be relevant in some cases. At the end of the work, conclusions are drawn, and learned lessons are outlined.
Estimation of power outage costs in the industrial sector of South Korea
Energy Policy, 2017
This study estimates the power outage costs of the industrial sector by not only considering production loss but also the customer's inconvenience and various damages. For the estimation, we used a Type II Tobit model with firm-level survey data for 430 firms, and considered factors affecting the outage cost such as outage duration, average annual sales, and average monthly electricity consumption, among others. In addition, we analyzed the effect of the preannouncement of a rolling blackout on outage cost savings, and also examined the value of an emergency generator. From the estimation results, we found that the estimated outage cost is 1.24-1.3 times greater than the simple value of lost load (VoLL), and this difference increases when companies have emergency generator. The commercial and public service sector can reduce the outage cost the most compared to other sectors when a preannouncement is provided, and operating emergency generators can lower the outage cost in these sectors. Finally, we confirm that South Korea's rolling blackout in the predetermined order by the industry is appropriate to minimize the outage costs for the national economy when the outage is preannounced, but is not appropriate when there is no preannouncement.
The Effects of Power Outages on the Performance of Manufacturing Firms in the MENA Region
Review of Middle East Economics and Finance, 2020
Power supply in developing countries is often characterized by unreliability and inefficiency, resulting in disruption costs for operating firms. The extents of power outages in the Middle East and North Africa (MENA) region are more significant compared to other geo-economic regions. This paper examines the effects of power outages on the performance of manufacturing firms in the MENA region using a firm-level dataset derived from the World Bank’s Enterprise Surveys (WBES) database. Firm performance is represented by sales, employment, and productivity growth rates. The extents of power outages are depicted by objective measures characterizing durations and frequencies of power outages, and by perception-based measures reflecting firms’ perceived severity of power outages. The results emphasize the adverse consequences of power outages for the performance of manufacturing firms in the MENA region. They also suggest that different patterns of power outages have varying implications ...
2005
Infrastructure has been identified as the key constraint to private sector development in Nigeria. Hence, this study analysed the cost of power outages to the business sector of the Nigerian economy using both a survey technique and revealed preference approach. One strong outcome of the study is that the poor state of electricity supply in Nigeria has imposed significant costs on the business sector. The bulk of these costs relate to the firms’ acquisition of very expensive backup capacity to cushion them against the even larger losses arising from frequent and long power fluctuations. Small-scale operators are more heavily affected by the infrastructure failures as they are unable to finance the cost of backup power necessary to mitigate the impact of frequent outages. The smallscale operators that could afford to back up their operations have to spend a significant proportion of their investment outlay on this. The study advocates for institutional reforms of the power supply sec...
Economic Implication of Power Outage in Nigeria: An Industrial Review
2016
This work shows how poor power supply to industrial consumers has contributes to the increase of prices of consumer goods and services in Nigeria thereby affecting the standard of living and thus placing the average citizenry of the present day Nigeria in a pitiable condition. For the purpose of this research, relevant data was collated from various operators for a period of twelve months, the data was analyzed sequentially using spread sheet analysis and results were obtained. From the data it was established that the total monthly cost of generating power from the industry in question is ₦45,811,859, Further results shows that if the power generated by the appropriate power utility is used, there will be a 30% reduction in the cost of generating power thus leading to a corresponding reduction in the prices of goods by the industry. The paper has therefore shown that increase in the cost of power generated often lead to a corresponding increase in the prices of goods and services