Effect of electricity price reform on households’ electricity consumption in urban Ethiopia

Until recently, the price of electricity in Ethiopia was among the lowest in the world, contributing to a substantial financial deficit for the government-owned utility and degradation in service quality. In December 2018 the utility began increasing tariffs to help finance service improvements. Using two rounds of household survey data and six years of utility consumption data, this paper studies the effect of the revised tariff on urban households’ electricity consumption and alternative fuel expenditure. Prepaid customers reduced consumption by about 22 kWh per month post-adjustment, equivalent to about 10 percent of electricity expenditure and 14 percent of daily consumption, while consumption in the overall sample slightly increased over time, implying highly inelastic demand. Households did not shift substantially toward alternative fuels. The findings suggest governments and utilities pricing electricity well below cost-covering levels may be able to increase revenues with relatively modest effects on household consumption, though effects from larger tariff hikes should be examined.