Charging ahead: Prepaid metering, electricity use and utility revenue

Type Working Paper - LSE Working Papers
Title Charging ahead: Prepaid metering, electricity use and utility revenue
Publication (Day/Month/Year) 2017
The standard approach to recovering the cost of electricity provision is to bill customers monthly for past consumption. 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 use data from Cape Town, South Africa to examine the effects of prepaid electricity metering on residential consumption and electric utility revenue and costs. Over 4,000 customers on monthly billing were involuntarily assigned to receive a prepaid electricity meter, with exogenous variation in the timing of the meter replacement. Electricity use falls by about 13 percent as a result of the change in meter type, a decrease that persists for the following year. The decrease in revenue to the municipal electric utility is more than offset by lower revenue recovery costs, on average, though results vary by customer type. Poorer customers and those with a history of delinquent payment behavior offer the greatest net revenue gains when switched to a prepaid meter. These findings point to an important role for metering technologies in expanding energy access for the poor.

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