|Estimating "Willingness to Pay" for Rural Solar Electrification in Ghana
Masters Candidate, Department of Statistics, Colorado State University
Wednesday, November 8, 2006
11:00 a.m.-1:00 p.m.
The use of Photovoltaic (PV) solar power in remote areas has received considerable attention as a potentially economic alternative to grid connection. It has been found that the most economically viable option compared to grid-based electrification is to use distributed PV in rural areas (Jonas et al, 2002). Because of the importance of using solar energy in rural areas, there have been many studies on how to utilize this energy source to improve the life of poor people in Africa . However, many services associated with rural areas electrification are not traded in well-organized markets in which the price of goods and services are determined by demand and supply forces. Therefore, finding an appropriate pricing system for these commodities and services remains a challenging task.
Methods have been developed for estimation and valuation of commodities and services that are not traded in organized markets, i.e. not bought and sold in the market. In this study we implemented the Contingent Valuation Method (CVM) to estimate the willingness-to-pay (WTP) for solar electrification in rural areas of Ghana in Africa . This study estimates the amount to be charged to the beneficiaries of the PV electrification program in Ghana , through estimating the amount people's willingness-to-pay for the service. The willingness-to-pay survey is expected to give project managers in those areas a way to make pricing decisions based on the empirical information provided by the survey. Also, the results of CVM survey are expected to help with estimating the aggregate demand for solar electrification and the total expected revenue, thereby making it easy to study the economic feasibility of the project. Although the results of this study cannot be generalized to other solar energy projects in Africa, they do shed light on the future prospects of the PV systems in Africa .
WTP was estimated through a questionnaire survey following guidelines suggested by (CVM). This study discusses multiple regression analysis, multinomial logistic regression analysis, and parametric and non-parametric survival statistical methods to estimate the willingness-to-pay for rural electrification. The multiple regression estimates of WTP prove not be good estimates. Polytomous logistic regression suggested that high monthly income and high-energy costs increase the odds of respondent's willingness-to-pay an amount greater than seven thousand cedis, while high age of head of household reduces those odds. Nonparametric and parametric survival analysis methods suggest that the people in rural area are willing-to-pay, on average, amount equal to 12 thousand cedis (one US dollar equal 2500 Ghanaian cedis) for electrification. The aggregate demand for rural electrification, using our estimates of WTP, is expected to be 19.2 billion cedis (approximately 7.7 million dollar).