HOUSEHOLDS’ WILLINGNESS TO PAY FOR IMPROVED QUALITY OF ELECTRICITY SUPPLY IN SELECTED CITIES IN NIGERIA

Abstract

Power outages and blackouts characterise household electricity supply despite the desire of Nigerians to have improved quality of electricity supply that is reliable with the appropriate level of voltage and where outages will not last more than a few hours daily. Households’ willingness to pay (WTP) is a requirement for the attainment of improved quality of electricity supply. Literature on attainment of stable electricity supply have focused more on the technical and organisational requirements with little attention to customers’ willingness to pay for such service most especially in Nigeria. This study, was therefore designed to investigate the determinants of household willingness to pay for improved quality of electricity supply and how much they are willing to pay in selected cities in Nigeria. The Random Utility Theory guided this study while a survey research method was adopted. Four major cities namely: Abuja, Ibadan, Lagos and Port Harcourt were purposively selected.A discrete choice with follow-up elicitation technique and a structured questionnaire focusing on social economic characteristics, quality of existing electricity supply and willingness to pay for improved quality of electricity supply was randomly administered to 680 households (Abuja =170, Ibadan = 170, Lagos =170 and Port Harcourt =170), identified using the statistical sample size determination formula. Descriptive statistics was used to analyse the impact of electricity supply on household welfare, while Ordered Probit model helped in identifying the factors that determine household willingness to pay (WTP) for improved quality of electricity supply, and Contingent Valuation Method (CVM) was used to determine how much households were willing to pay for the improved quality of electricity supply. Values from analysis were validated at 0.05 level of significance. More than 25% of households in the different cities spent between N10,000-N20,000 in repairing or replacing damaged home appliances due to power instability, while more than 50% indicated that poor quality of electricity supply in form of inadequate supply and fluctuating voltage from the electricity distribution companies adversely affected their daily activities and consequently, their welfare. Household income (β= 0.115), reliability of supply (β= 0.243) and cost of alternative supply (β= 0.199) were the determinants of household WTP for improved quality of electricity supply. Households in Abuja, Lagos, Ibadan and Port Harcourt were willing to pay an average amount of N36.00±14.95, N36.30±14.15, N38.30±11.43 and N50.20±10.96 per kWh of electricity respectively. This is more than one and half times the current tariffs they pay in each of these cities if the quality of electricity supply improves. Household income, reliability of supply and cost of alternative supply influenced households’ willingness to pay for improved quality of electricity in the selected cities. The welfare cost of unreliable power supply is high, and influenced households’ willingness to pay for improved quality of electricity supply. It is imperative thatthe electricity distribution companies as well as other stakeholders invest on infrastructure to improve the quality of electricity supply in Nigeria.