This is a linkpost for https://worksinprogress.co/issue/every-generator-is-a-policy-failure
This article was spun out of a shallow investigation for Open Philanthropy; I thought it might be of interest to GHW folks.
This article was spun out of a shallow investigation for Open Philanthropy; I thought it might be of interest to GHW folks.
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.
We are currently having problems with inadequate electricity generation in Ecuador, where drought has weakened hydropower output. What do you think second-best solutions might be for countries in this boat? Waiting for foreign donors/investors/lenders to impose higher prices as a condition of major help? Waiting for solar and batteries to get better/cheaper and replace more of diesel's role, and also to make generation cheaper for the energy firms so that their deficits are smaller and more bailout funds can be aimed at new investment?
Countries like Ecuador, Colombia, and Nigeria have recently demonstrated courage in reducing motor fuel subsidies (which, in Nigeria, may impact those firms and households who rely on diesel backup). Are electrical price subsidies politically even tougher due to electricity being so much more common than cars in low and middle-income countries?
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.