External cost of electricity in Northern Ethiopia : households’ willingness to pay to avoid blackouts and environmental costs of windfarms

Abstract

This study aims to value the external costs of a wind farm, and households´ welfare loss due to electricity blackouts in Northern Ethiopia. A Contingent Valuation (CV) survey of a random sample of 200 households was conducted to estimate their willingness-to-pay (WTP) to avoid blackouts as well as their WTP to avoid negative external costs of a windfarm. 150 households were randomly selected from the city of Mekelle, and 50 from the nearby village of Ashegoda where a windfarm is located. OLS, interval regression, logit and tobit regressions are used to identify the factors affecting households´ WTP. The result show mean WTP/household to avoid the external costs of the wind farms to be 374 birr per year which is 24% of their current annual electricity bill. Whereas the mean WTP/household to avoid blackouts was 499 birr per year that is 34% of their current annual electricity bill. Household WTP to avoid external effects of wind power increased significantly with increasing wealth and number of people in the household; and decreasing preference over windfarm construction. Household WTP to avoid blackout increased significantly with increasing wealth, number of blackouts and average length of blackouts. Male respondents have significantly higher WTP for both avoiding blackouts and avoiding external effects of wind farm. The results shows that there is a significant WTP to avoid blackouts, which could justify larger investments by the government (particularly the Ethiopian electric power corporation (EEPCo)) to reduce blackouts. Moreover, based on the results EEPCo should also consider community compensation schemes to compensate for the external costs from the windfarm to the affected households.