Summary: across Africa it is very common for power companies to be operating under government imposed rates that are well below their actual costs, with the difference made up by occasional bailouts. In response, they have very little reason to invest in reliable delivery, and quite a lot of reason not to: it doesn’t bring in more money if it costs more to produce than you can sell it for [1]. Businesses and anyone who can afford it make up for the unreliable power with generators, which are much more expensive than well functioning grid power would be. Allowing utilities to charge a higher rate, still less than the cost of generators, would probably make things better for most people and reduce the cost of electricity a lot when you include that currently a lot of the cost is generators. This may be politically infeasible, however, and one potential intervention is NGOs covering the difference.
[1] It wasn’t entirely clear to me whether the post was talking about marginal costs or average costs, so I’m not totally sure this is right.
Thanks for sharing. Do you have any thoughts on the cost-effectiveness of the best interventions in this area relative to GiveWell’s top charities? I skimmed the section “Solutions”, and you sounded pessimistic.
Summary: across Africa it is very common for power companies to be operating under government imposed rates that are well below their actual costs, with the difference made up by occasional bailouts. In response, they have very little reason to invest in reliable delivery, and quite a lot of reason not to: it doesn’t bring in more money if it costs more to produce than you can sell it for [1]. Businesses and anyone who can afford it make up for the unreliable power with generators, which are much more expensive than well functioning grid power would be. Allowing utilities to charge a higher rate, still less than the cost of generators, would probably make things better for most people and reduce the cost of electricity a lot when you include that currently a lot of the cost is generators. This may be politically infeasible, however, and one potential intervention is NGOs covering the difference.
[1] It wasn’t entirely clear to me whether the post was talking about marginal costs or average costs, so I’m not totally sure this is right.
Marginal costs, and yes, you are completely correct.
Hi Lauren,
Thanks for sharing. Do you have any thoughts on the cost-effectiveness of the best interventions in this area relative to GiveWell’s top charities? I skimmed the section “Solutions”, and you sounded pessimistic.