A firm-level analysis of outage loss differentials and self-generation: Evidence from African business enterprises

• Published in: Energy economics 2015-11, Vol.52, p.277-286
• Main Authors: Oseni, Musiliu O., Pollitt, Michael G.
• Format: Article
• Language: English
• Subjects: Brownouts; Companies; Differentials; Electric utilities; Electricity; Electricity generation; Energy economics; Energy policy; Firms; Generating capacity; Generators; Loss recognition; Outage loss; Power; Power generation; Self; Self-generation; South Asia; Studies; Sub-Saharan Africa; Utilities; Value of lost load
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2015.11.008

This study examines the outage loss differential between firms that engage in backup generation and those that do not. Unmitigated outage losses were estimated to be US$2.01–23.92 per kWh for firms engaging in self-generation, and range from US$1.54 to 32.46 per kWh for firms without self-generation. We also find that firms engaging in self-generation would have suffered additional 1–183% outage losses had they not invested in self-generation. On the other hand, firms without self-generation would have reduced their outage losses by around 6–46% if they had engaged in self-generation. Further analyses, however, reveal that, although engagement in self-generation reduced outage losses, a firm engaging in self-generation may still suffer a greater unmitigated outage loss relative to a firm without a backup generator. The relative outage losses depend on the relative vulnerability of the operations of the two sets of firms to power interruption, and the relative generating capacity of a self-generating firm to its own required electricity loads. Policy reforms that allow firms, whose operations are highly vulnerable to outages, to make a binding contract with utilities in order to get preferential supply are recommended. •We study outage loss differentials between firms with and without self-generation.•Engagement in self-generation reduces firms' potential outage losses.•However, they still suffer substantial outage losses despite self-generation.•Reforms that allow preferential supply to certain firms should be considered.