American Economic Journal:
Applied Economics
ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)
Charging Ahead: Prepaid Metering, Electricity Use, and Utility Revenue
American Economic Journal: Applied Economics
vol. 12,
no. 2, April 2020
(pp. 134–68)
Abstract
Monthly bills for services such as electricity often go unpaid in developing countries. Prepaid meters offer a potential technological solution. In Cape Town, South Africa, over 4,000 residential customers on monthly billing were switched to prepaid metering, with random variation in the timing of the switch. In response, electricity use falls by 14 percent, driven at least in part by an increase in marginal price sensitivity. The decrease in revenue to the municipal electric utility is more than offset by lower revenue recovery costs. Switching poorer and more in-debt customers generates the greatest net revenue gains to the utility.Citation
Jack, Kelsey, and Grant Smith. 2020. "Charging Ahead: Prepaid Metering, Electricity Use, and Utility Revenue." American Economic Journal: Applied Economics, 12 (2): 134–68. DOI: 10.1257/app.20180155Additional Materials
JEL Classification
- L94 Electric Utilities
- L98 Industry Studies: Utilities and Transportation: Government Policy
- O13 Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
- Q41 Energy: Demand and Supply; Prices
- Q48 Energy: Government Policy
Energy savings depend on the type of the utility meter and its placement.
Pre-paid policies usually involve placing the electricity meter in the place where it is visible and can be monitored. This to allow households to make prepayments easy. However, utilities are already putting in place technologies to eliminate the visibility of meters, such as through online payments.
Most pre-paid meters fail the simple requirement to show the monetary value of electricity use to be truly effective in rationalizing energy use. Sellers of utilities want to maximize sales and revenues, keep consumption as high and as possible, irrespective of how wasteful it is. Progressive tariffs make things even more complicated as most people believe their tariffs change with time during a month, not volume of consumption.