It is a widespread belief in developing countries that electricity is a right to be enjoyed by all citizens. In practice, this social norm regularly results in customers not paying their electricity bills, stealing electricity, and bribing bill collectors—behaviors the government often tolerates. Consequently, power utilities lose money on every unit of electricity sold, leading to large financial losses that limit their desire and ability to maintain infrastructure, provide reliable power, and invest in expanding access to electricity. Because customers then receive poor energy supplies, they are even less likely to pay their bills.
As a result, this social norm that electricity is a right paradoxically limits access to electricity for everyone, according to a new publication based on findings from around the world with a special focus on Bihar, India. This insight comes from researchers at the International Growth Centre (IGC) at the London School of Economics & Political Science (LSE), the University of Chicago, and Yale University.
In the case of Bihar, the research—led by Robin Burgess (LSE), Michael Greenstone (Chicago), Nicholas Ryan (Yale), and Anant Sudarshan (Chicago), in collaboration with the Bihar state government—found that less than half of consumers of all income levels paid their electricity bills. This indicates that bigger consumers of electricity are just as likely to fail to pay their bills as smaller ones, underscoring that this is not a matter of an expensive redistribution program but a feature of the entire electricity market. Furthermore, the power authority in Bihar only collects an average revenue of 30% of the cost of supplying electricity, and less than 20% of the official rate. In other words, the distribution companies lose 70 INR for every 100 INR of electricity supplied. They therefore must limit their losses by limiting supply: no consumers get 24 hours of electricity, the average consumer gets about 12 hours a day, and some areas only get 6 hours. As a result, there are consumers who value electricity at more than its costs but who are unable to purchase it.
“Surprisingly, we find no relationship between payment rates and the amount of electricity supplied to a given area. This is a serious indication that the electricity market is not functioning effectively.”Robin Burgess, International Growth Centre (IGC) at the London School of Economics & Political Science (LSE)
“It is critical to provide lifeline style electricity to the poorest, but doing so in a way that causes electricity markets to fail harms everyone. Our view is that no solution will work in the end, unless the social norm that electricity is a right is replaced with the norm that it is a regular product, just like food, cell phones, etc.,”Michael Greenstone, Energy Policy Institute at the University of Chicago (EPIC) and Tata Centre for Development at UChicago (TCD)