THE WILLINGNESS TO PAY BY HOUSEHOLDS FOR IMPROVED RELIABILITY OF ELECTRICITY SERVICE

This research examines households’ willingness to pay (WTP) for an improved electricity service. Households’ WTP is estimated using the contingent valuation (CV) method on data from 350 in-person interviews in North Cyprus. In order to avoid the cost of outages, households are willing to incur a 13.5% increase in their monthly electricity bill. A cost–benefit analysis (CBA) indicates that the annualized economic benefits of improved reliability of the electricity service would be approximately USD 37.8 million for the residential sector alone. This figure is more than enough to finance the investments needed to completely eradicate any electricity outages. In addition, the fuel savings from substituting the generation of the new plants for the old plants would yield about USD 44.6 million per year in fuel savings. Hence, a change from the current low-reliability policy to one of providing a high-quality service would yield an economic net present value to the residents of North Cyprus of over 2.5 times the investment costs or USD 226 million within five years.