Unpaid Electric Bills Weakens the Efforts to Improve Access to All

Electric utilities in many developing countries often don’t get fully paid by consumers for the power they supply. A new study by the University of Chicago and partner institutes suggests that this has led to widespread outages and rationing of power. This poor electricity access may be a consequence of society treating electricity as a right rather than a commodity to be bought and sold.

More than a billion people worldwide lack access to reliable electricity, despite multilateral efforts across the globe that have poured resources into improving electricity access and reliability in order to spur economic growth. Research suggests that the root of the problem may lie in the fact that society too often views electricity as a right that does not need to be paid for.

This set off a vicious cycle: Consumers regularly don’t pay their full bills and governments often tolerate this. Power utilities then lose money every time they supply more electricity. Eventually, these companies become bankrupt and choose to cut-off supply because they can no longer afford to pay generators without recovering costs from consumers. And finally, because customers then receive poor energy supplies, they are even less likely to pay their full bills. And then this loop becomes never ending and we have to come out with a sustainable solution for this.
Greenstone and his co-authors Robin Burgess (London School of Economics and Political Science), Nicholas Ryan (Yale University), and Anant Sudarshan (U Chicago) offer three changes to the current system.

  • Subsidy reform: Consumers of all incomes often enjoy electricity subsidies; subsidies are frequently regressive and poorly targeted. Removing these subsidies and supporting the poor through direct transfers will allow them to pay for power without distorting the electricity market.
  • Changing social norms: Introducing consumer incentives and changes to the bill collection process could reduce electricity theft and non-payment of bills. The study shows that theft is not restricted to the poor. Indeed, larger consumers account for most of the losses.
  • Improved technology: Technology-based reforms such as using smart meters would explicitly link payments and supply at the individual level.

The study draws upon microdata from poor, rural, or small-town communities in Bihar, where the link between payment and supply had been severed. In 2017, customers received on average about 17 hours of electricity a day. Some areas paid their full share, while many more paid a share of less than 20 percent and the average paid only 38 percent.
Most strikingly, areas that paid more didn’t necessarily get more electricity. In combining this data with observations from several field experiments in countries like Brazil, Pakistan and South Korea, the researchers found this was indicative of a broader trend.

And to overcome these issues the team worked with the state-owned electricity distribution company in Bihar on an innovative pilot programme that linked the amount of electricity supplied to consumers to payment rates in their neighborhood and came up with similar solutions of breaking the social reforms.

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