Why are Connection Charges so High? An Analysis of the Electricity Sector in Sub-Saharan Africa

40 Pages Posted: 17 Apr 2018

See all articles by Moussa Blimpo

Moussa Blimpo

World Bank

Shaun McRae

ITAM, Centro de Investigación Económica

Jevgenijs Steinbuks

World Bank - Development Research Group (DECRG)

Date Written: April 16, 2018

Abstract

This study develops and structurally estimates a model of household and electric utility behavior to describe how the low access rates and high connection charges that are common in the Sub-Saharan Africa region arise from regulated electricity tariffs being set too low. As a result, the utilities lose money on each connected customer and low electricity consumption by households makes it difficult to recover the cost of providing a connection. For each possible choice of the regulated tariff, the optimal upfront connection charge is computed that will maximize profits for the utility in its service territory. Higher tariffs are associated with lower optimal connection charges and higher electrification rates. Nonetheless, due to households' low willingness to pay for electricity services, the equilibrium electrification rates in the model are much lower than 100 percent. Future advances in electrification will require higher incomes, increased coverage of the distribution network, and lower connection costs.

Keywords: Energy Policies & Economics, Energy and Environment, Energy Demand, Energy and Mining, Electric Power, Hydrology, International Trade and Trade Rules

Suggested Citation

Blimpo, Moussa and McRae, Shaun and Steinbuks, Jevgenijs, Why are Connection Charges so High? An Analysis of the Electricity Sector in Sub-Saharan Africa (April 16, 2018). World Bank Policy Research Working Paper No. 8407, Available at SSRN: https://ssrn.com/abstract=3163961

Moussa Blimpo (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

HOME PAGE: http://https://sites.google.com/site/mpblimpo/home

Shaun McRae

ITAM, Centro de Investigación Económica ( email )

Camino a Santa Teresa No. 930
Col. Héroes de Padierna
Ciudad de México
Mexico

Jevgenijs Steinbuks

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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