Willingness to Pay for Improved Quality of Electricity Supply Across Business Type and Location

Abstract

Regulatory authorities in many countries are experimenting with mechanisms for providing electricity distributors with financial incentives to improve quality of supply. In designing these incentives it is apparent that customers’ preferences have rarely been obtained for consideration in the regulatory process. As a result, there is relatively limited understanding of customers’ willingness to pay for improved quality of electricity supply. Several studies have examined the willingness of households to pay for improved quality of electricity supply, however, few studies have examined the willingness of businesses to pay for improved quality of supply. In this study we use choice modelling with random parameters logit models to identify the willingness to pay of business for various service related attributes. Furthermore, we examine the values held by both service and manufacturing businesses, from both rural/regional and urban areas, and observe the differences between them. We find several differences in willingness to pay across business types and locations, however overall the value estimates are relatively homogeneous.