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The Welfare Impact of Rural Electrification Howard White IEG, World Bank
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Introduction IEG impact studies Rigorous and relevant Theory-based Link to CBA Rural electrification (RE) Multi-country Portfolio review Multiple data sets Country case studies
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Overview Strategy and portfolio Output achievements Who benefits? Identifying benefits Returns Policy implications Underlying theme of evaluation design
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Evaluation design I: portfolio review Identify all RE projects – there is no list and RE activities fall under many projects Dedicated RE – becoming more common Larger energy sector project – RE component may be very small (e.g. a study), usual rule of thumb is 10% budget to count Multi-sector – mainly Community Driven Development (CDD) Portfolio review analyses the universe of projects Quantitative Qualitative
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What counts as a RE project? 1980-951996-2000Total Dedicated RE project 17 (33%)25 (37%)42 Energy sector with RE component 23 (44%)21 (30%)44 Multisectoral12 (23%)22 (32%)34
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Shifting regional focus
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Changing strategy 1993 Policy Papers Environment Private sector 1996: Rural energy and development: improving energy supplies for 2 billion people 2001 sector board paper ‘helping poor directly’ one of four pillars, which includes priority to gender issues
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One consequence of strategy: Increasing number of RET and off-gird projects Percentage projects with off-grid 1980-95: 2% 1996-2006: 60% Percentage RE projects with RET 1980-95: 35% 1996-2006: 62%
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Practice lags strategy: welfare
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Practice lags strategy: gender
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First conclusion Disconnect between strategy and project design, with little explicit attention to poverty and gender objectives in the majority of projects
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Outputs Most (but not all) projects deliver on infrastructure In particular a series of dedicated projects can make a very substantial contribution to RE coverage Indonesia Bangladesh There has been progress on institutional issues but it is uneven
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Evaluation design II: the role of descriptive analysis (the factual) Targeting – profiles of who benefits? So need characteristics Uses of electricity – need detailed data on appliance usage Alternative fuel sources – need detailed data on fuel usage for all activities Issues in questionnaire design
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Who benefits?
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Who benefits? II
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Poorest remain excluded
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Second conclusion RE reaches poorer groups as coverage expands, but there remains a residual of unconnected households in connected villages for many years
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Evaluation design III: who is the control group? (the counterfactual) Need a control group identical to treatment group Selection bias Program placement Self-selection Approaches RCTs Statistical matching (PSM or regression discontinuity) Regression Is selection just on observables?
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Uses Lighting TV Other household appliances Small business appliances Social facilities
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Uses of electricity
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Benefits Domestic benefits Recreation Homework Information NOT cooking Productive uses Home enterprise Industry Agriculture Social benefits Facilities Staffing Safety Environmental benefits Need HIGH QUALITY data on all these
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Quantification of benefits Approach WTP Income gain Value of fertility decline Environmental benefits The problem of double counting
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Consumer surplus & WTP
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Costs versus benefits I
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Cost versus benefits 2 WTP > supply cost ERRs high (20-30%) Higher for grid extension than off-grid, for which costs higher and benefits lower
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Third conclusion WTP is high enough to ensure a good ERR and financial sustainability in many cases (caveat on Africa). Grid extension economically superior to off-grid programs.
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Policy implications Good economic analysis can inform policy Design to catch up with strategy Smart subsidies Consumer information Support to productive uses Balance grid and off-grid
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