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The Welfare Impact of Rural Electrification

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a look inside
cover miniElectrification brings a plethora of social benefits and is a key component in poverty reduction. Bank projects have succeeded in bringing electrical infrastructure to many rural areas over the past three decades. However, there has not been enough focus on translating the infrastructural improvements into successful energy delivery service through consumer education campaigns, productive use promotion, and properly focused subsidies and tariff mechanisms.
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INTRODUCTION

WORLD BANK LENDING FOR RURAL ELECTRIFICATION


WHO BENEFITS FROM RURAL ELECTRIFICATION?

WHAT IS ELECTRICITY USED FOR IN RURAL AREAS?

THE BENEFITS OF RURAL ELECTRIFICATION

Rural electrification has been claimed to have substantial benefits, promoting production and better health and education. Yet coverage rates remain very low across Africa and in some other countries around the world. New analysis by IEG finds empirical support for many of these links. This report also demonstrates rates of return on rural electrification projects are sufficient to warrant the investment. Moreover, it shows that consumer willingness to pay for electricity is almost always at or above supply cost. Given these findings, the report argues that rural electrification is both an important goal and a feasible one. But the Bank has frequently neglected the poverty dimension failing to do all it can to ensure that the poor benefit from rural electrification.

blue_arrow.gif Methodology
The analysis unpacks the causal chain from the provision of electricity to the various benefits which it is claimed to bring, and quantifies these benefits where possible so as to address the balance of costs and benefits. The data were used to test the impact of rural electrification on several variables, such as the quantity of lighting used, opening hours of clinics, female health knowledge and income from home businesses. More on Methodology >

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Electrification and Consumer Goods Ownership
in Rural Areas
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More on Uses of Electricity >

The graphs plot the percentage of people in rural areas owning the specified good against the RE rate. The 45o line and fitted line are also shown. As expected, electrification is close to a necessary condition for TV and refrigerator ownership (no points above the 45o line) but not for radio, for which there is a very weak association between ownership and electrification.

Source: DHS data (MEASURE DHS STATcompiler, http://www.measuredhs.com, March 8 2007).

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microenterprise photo While stimulation of productive enterprise is claimed to be among the benefits of electrification, few studies have tried to quantify these benefits using an impact evaluation methodology. IEG analyzed three different effects considered important to achieving higher economic benefits: (i) complementary infrastructure, (ii) stock of equipment and tools of microenterprises, and (iii) hours of operation. More on Microenterprise > health photohe effect of rural electrification was analyzed in rural households in 11 countries, specifically how access to information from TV and radio influences health knowledge and so health behavior and health outcomes; how the availability of refrigerated storage improves nutrition; and third, how electricity affects schooling. More on Health and Education > 
conclusions and lessons
Conclusions
blue_arrow.gifA Number of trends in Bank projects have emerged, such as growth in off-grid electrification and the use of renewable energy sources 
blue_arrow.gifExplicit attention to poverty reduction in project design is growing, but remains limited. 
blue_arrow.gifBank projects have been generally successful in establishing electricity infrastructure but weak in strengthening supplier institutions. 
blue_arrow.gifThe larger share of benefits from rural electrification is captured by the non-poor. 
blue_arrow.gifHigh connection fees and community selection criteria that emphasize economic returns are barriers to reaching the very poor. 
blue_arrow.gifConsumer education and promotion of productive uses would enhance the benefits of electrification. 
blue_arrow.gifProperly calculating willingness to pay can demonstrate good rates of return on rural electrification projects. 

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Lessons Learned
blue_arrow.gifIn order to demonstrate the feasibility of rural electrification projects, proper analysis of the benefits and tariff levels need to be mainstreamed in Bank project analysis. 
blue_arrow.gifMore empirical evidence of the claimed benefits of rural electrification will help in properly calculating the benefits and returns to electrification projects, and therefore proper tariff levels. Tailor-made surveys, designed to test these benefits, need to be built into a greater number of Bank projects. 
blue_arrow.gifFuture electrification projects will need to ensure efficiency by limiting system losses and consider off-grid generation, with an eye to maintaining technical quality, since grid connections will grow slowly many areas may be eligible for off-grid connections. 
blue_arrow.gifFurther increases in coverage require increasing connections in already electrified areas rather than laying new lines 
blue_arrow.gifUncommon project design options, including financing schemes for connection charges, consumer education and support to productive uses would enhance project benefits. 
More on Lessons Learned >




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