Does quality of electricity matter? Household-level evidence from the Philippines

Abstract

The Philippines is a country that faces many development challenges, including providing reliable and good quality electricity. Access to good quality electricity connection matters because it affects many aspects that increase productivity (e.g. education, health and business) and can make lives easier and more comfortable. While access has improved over time, many households still suffer from poor quality of their connection brought about by incidents of power outages, fluctuations and low voltage. This article attempts to examine whether better electricity quality improves household welfare. We apply a two-stage probit-ordered probit model to overcome endogeneity caused by reverse causation between electricity quality and household income. We find that households experiencing better electricity quality decrease the probability of remaining in the lowest income category by 23%.

Keywords:

• Electricity quality
• reliability
• two-stage probit-ordered probit
• Philippines

JEL Codes:

• O10
• Q00
• Q48
• Q49
• D10

Acknowledgement

M. Ravago also completed this research as a Research and Creative Work Faculty under the Ateneo de Manila University Research Council.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Good and reliable electricity access provide benefits to education by allowing for longer study hours, reading time and access to televised learning programs (ESMAP 2002). Benefits to health include improved air circulation (e.g. through electric fans) that may reduce concentration of mosquitoes, improved water quality through access to groundwater by electric pumps, preservation of food through refrigeration and access to health programs on radio and television. Benefits to productivity include longer or more flexible working hours, better working conditions through space cooling and filtration, and access to learning agricultural methods introduced on radio or television.

2 Chakravorty, Pelli, and Marchand (2014) computed the density of the transmission network as the total length of all the line segments within each district divided by the district surface area. The normalized transmission cable density is then defined as the deviation of this computed measure from the national average. They argued that if a household is located in a district served by a higher density of transmission cables, there is a higher probability of being connected to the network, and of receiving better quality power supply, compared to being located in a district with a lower cable density.

3 Service reliability and intrinsic service quality are two categories that are attributed to infrastructure services such as, but not limited to, electricity (Klytchnikova and Lokshin 2007). Service reliability is reflected in the frequency of outages and the predictability of their timing while service quality pertains to voltage fluctuations for electricity services, temperature for heating, and the like. Benefits of improved service quality can be interpreted as a change in an individual’s or a household’s utility.

4 Installed capacity is the ‘maximum capacity of the generating plants which are connected to the grid’ (Adoracion, Detros, and Cruz 2016).

Additional information

Funding

This research is a product of the Energy Policy and Development Program (EPDP), a project funded by the U.S. Agency for International Development (USAID) and implemented by the UPecon Foundation, Inc. in Oct 2014–Oct 2018 [grant reference number AID-492-G-15-00002].

Notes on contributors

Vanessa Mae Pepino

Vanessa Mae Pepino is a technical specialist for a power generation company in the Philippines, and an environmental planner by profession. Her areas of interest include energy economics, sustainable tourism planning, urban development, socioeconomic development assessment and policy development. She has nine years of experience in technical research spanning different sectors such as energy, tourism and environment. She holds an undergraduate degree of Political Science from De La Salle University-Manila and a MA in Development Economics from University of the Philippines School of Economics.

Majah-Leah V. Ravago

Majah-Leah V. Ravago is Associate Professor at the Economics Department of Ateneo de Manila University. Her research interests include energy economics, economics of natural disasters, development economics and resource economics. She was the Program Director of the 2014–2018 USAID grant – Energy Policy and Development Program (EPDP). She served as the President of the Philippine Economic Society (PES) in 2018. In 2016, she was awarded the Outstanding Young Scientist (OYS) in the field of Economics by the National Academy of Science and Technology (NAST). She earned her BS in Business Economics and MA in Economics from the University of the Philippines. She obtained her PhD in Economics from the University of Hawaii in 2012 under the East-West Center (EWC) Graduate Degree Fellowship Program.

Karl Jandoc

Karl Jandoc is Assistant Professor at the University of the Philippines School of Economics. He finished his Ph.D. in Economics from the University of Hawaii in 2016. His fields include microeconomic theory, resource, environmental and energy economics. He is also a Fellow for the Data Science for Public Policy Program at the UP Center for Integrative and Development Studies (UP CIDS).