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Presented By: Energy & Environmental Economics

Energy & Environmental Economics

Charging Ahead: Prepaid Metering and Electricity Use in South Africa (with Grant Smith, UCT) presented by Kelsey Jack, Tufts University

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​Abstract: The standard approach to recovering the cost of electricity provision is through postpaid metering with monthly bills for consumption already incurred. These bills represent a substantial share of income for poor customers, and vary unpredictably from month to month. For poor, liquidity constrained customers, finding resources to pay these monthly bills therefore presents a major challenge. If unable to pay, customers face disconnection, the utility loses revenue, and the service provision model is undermined. A possible solution to this problem is prepaid metering, in which customers buy electricity upfront and use it until the prepaid amount is consumed. We partner with the City of Cape Town to examine customer responses to prepaid electricity metering. Approximately 2200 postpaid customers were involuntarily assigned to receive a prepaid meter, with exogenous variation in the timing of the switch. We first establish the impact of prepaid metering on electricity use, which falls by about 10 percent and remains lower for the first year after the switch. Larger proportional reductions from customers with larger outstanding balances and those with a history of paying bills late. We observe no within-household spillovers to water use, though the likelihood that other bills, including water, are paid late increases substantially. The overall impact on revenue to the utility is mixed, since the greatest reductions come from revenue-generating portions of the increasing block tariff schedule. We conclude with a discussion of implications for revenue and also for customer welfare.

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