Do reward and reprimand policies work in reducing electricity distribution losses?

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Abstract/Description

Electricity distribution losses due to theft and non-repayment of bills are costly burden for the power sector in developing countries, leading to significant financial losses and poor service delivery. Using monthly electricity feeder level data, we study the effect of a unique reward and reprimand policy in curbing losses, implemented by the utility serving the city of Karachi in Pakistan. Under this policy, feeders were assigned to very high, high, medium, or low outages, based on average losses in the past twelve months using fixed thresholds to separate the categories. To incentivize loss reduction, the distribution company periodically updated the outage category at the feeder level. We use an instrumental variable and fuzzy regression discontinuity design in which we instrument for actual outages by outages predicted by the policy, to study the effect on within feeder change in losses. Our IV estimates imply that an additional hour of outages reduces average monthly losses and within feeder change in losses by 6.6%. The RD estimates show that within feeder losses declined by 3.1% to 4.8%, but the effect is smaller for feeders in high and very high loss areas.

JEL Codes

JEL Classifications: D04, O12, Q48

Session Theme

Sustainable Energy and Urbanization - Session - IIIA

Session Type

Parallel Technical Session

Session Chair

Dr. Samina Khalil, Director - AERC, University of Karachi

Session Discussant

Dr. Heman Das Lohano, Professor - IBA Karachi

Start Date

3-4-2021 4:00 PM

End Date

3-4-2021 5:30 PM

Comments

  • Javed Younas, Department of Economics, American University of Sharjah
  • Ayesha Ali, Department of Economics, Lahore University of Management Sciences
  • Khusrav Gaibulloev, Department of Economics, American University of Sharjah

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Apr 3rd, 4:00 PM Apr 3rd, 5:30 PM

Do reward and reprimand policies work in reducing electricity distribution losses?

Electricity distribution losses due to theft and non-repayment of bills are costly burden for the power sector in developing countries, leading to significant financial losses and poor service delivery. Using monthly electricity feeder level data, we study the effect of a unique reward and reprimand policy in curbing losses, implemented by the utility serving the city of Karachi in Pakistan. Under this policy, feeders were assigned to very high, high, medium, or low outages, based on average losses in the past twelve months using fixed thresholds to separate the categories. To incentivize loss reduction, the distribution company periodically updated the outage category at the feeder level. We use an instrumental variable and fuzzy regression discontinuity design in which we instrument for actual outages by outages predicted by the policy, to study the effect on within feeder change in losses. Our IV estimates imply that an additional hour of outages reduces average monthly losses and within feeder change in losses by 6.6%. The RD estimates show that within feeder losses declined by 3.1% to 4.8%, but the effect is smaller for feeders in high and very high loss areas.