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Self-Generation and Households' Willingness to Pay for Reliable Electricity Service in Nigeria

Many households in developing countries often engage in self-generation to mitigate the impacts of poor public electricity provision. What is less well known, however, is whether (and how) self-generation influences households' willingness to pay (WTP) for service reliability. Using data collected from a sample of Nigerian households, the results reveal that engagement in self-generation is positively correlated with WTP for reliability. This is despite the fact that self-generation reduces the negative welfare impact of unreliability. Further analyses, however, show that backup households' decisions to pay a higher amount than non-backup households are influenced by the costs of self-generation: an increase of N1 (US$0.006) in self-generation's fuel cost per-hour is associated with WTP about N5.22 (US$0.032) more in the monthly bill. However, households' WTP US$0.15-0.16/kWh of improved reliability is smaller than the marginal costs of reliability from self-generation - US$0.27-0.41/kWh. We conclude by discussing the policy implications of our findings.

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Energy Specializations: Energy Efficiency; Electricity; Electricity – Markets and Prices

JEL Codes:
Q55 - Environmental Economics: Technological Innovation
L94 - Electric Utilities
D42 - Market Structure, Pricing, and Design: Monopoly

Keywords: Self-generation, Matching method, Willingness to pay, Contingent valuation, Households, Nigeria

DOI: 10.5547/01956574.38.4.mose

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Published in Volume 38, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.