Pay as You Go: Prepaid Metering and Electricity Expenditures in South Africa

Abstract

High rates of customer default on utility bills present a barrier to the expansion of electricity access in the developing world. Pre-paid electricity metering offers a technological solution to ensuring timely payment. Using an eleven-year panel of pre-paid electricity customers in Cape Town, South Africa, we describe patterns of purchase behavior across property values, our measure of socioeconomic status. Poorer households buy electricity more often, in smaller increments, and are most likely to buy on payday. These patterns suggest difficulties smoothing income, and reveal a preference for small, frequent purchases that is incompatible with a standard monthly electricity billing cycle.

Determinants of household electricity consumption in South Africa

“…They focus on prepaid electricity users, while examining the relationship between property value and electricity purchasing patterns. They find fewer monthly prepaid purchases, but greater total expenditure, for higher value properties, suggesting that prepaid electricity meters introduce flexibility, allowing liquidity constrained households to purchase electricity (Jack and Smith, 2015). By incorporating price information, more detailed household-level data, and accessing relatively recent data, our research is able to complement these studies.…”

“…The exceptions to the time series focus are Louw et al (2008), Anderson (2004), described earlier, and Jack and Smith (2015). Louw et al (2008) examine factors affecting electricity usage decisions in low-income households from two typical rural villages in South Africa.…”

“…Unfortunately, they neither include electricity price data in their final analysis nor uncover any price effects (Louw et al, 2008). Jack and Smith (2015) use customer transaction data from the City of Cape Town combined with property value records. They focus on prepaid electricity users, while examining the relationship between property value and electricity purchasing patterns.…”

Paying More for Less: Why Don't Households in Tanzania Take Advantage of Bulk Discounts?

“…Recent papers have shown how seemingly inexplicable behavior by individuals in developing countries can be understood by either gathering better information about the setting (Baland, Guirkinger and Mali, 2011;Stephens and Barrett, 2011;Zeitlin, 2011;Burke, 2014), or expanding the class of admissible explanations to include those grounded in models that allow for psychological biases or cognitive costs (Ashraf, Karlan and Yin, 2006;Duflo, Kremer and Robinson, 2011;Dupas and Robinson, 2013;Mani et al, 2013;Kremer et al, 2013;Jack and Smith, 2015;Kremer et al, 2015). We borrow from both of these approaches, and consider a wide range of both rational and behavioral mechanisms.…”

Who Uses Electricity in Sub-Saharan Africa? Findings from Household Surveys

“…Tewari and Shah (2003) describe the South African experience, starting in 1989, of the introduction of pre-paid meters and their benefits, costs, and problems. A study by Jack and Smith (2015) of purchasing patterns of electricity in South Africa through pre-payment meters found that the bottomquintile households tended to buy electricity three times as often but in amounts that are only one-fifth of those households in the top quintile. The pattern of small frequent transactions is consistent with the existence of liquidity constraints and difficulties in smoothing income, suggesting that the pay-as-you-go approach of pre-paid meters is preferable for low-income households to a monthly billing cycle.…”