The Welfare Impact of Rural Electrification: A Reassessment of the Costs and Benefits

While there are widespread claims that electrification greatly improves quality of life for rural households, coverage rates remain low in many countries across the world. This report explores World Bank lending for rural electrification, who benefits, what electricity is used for in rural areas, the potential benefits and finally makes conclusions and outlines lessons learned.

This research finds empirical support for the links between electrification and the promotion of production, health and education. The justification for lending to rural electrification projects is broken down into a number of evaluation questions, leading to the ultimate objective of calculating private and social rates of return from investments. Data is analysed from a range of sources, including a portfolio review, the Independent Evaluation Group’s own analysis of existing data sets for a dozen countries and a review of World Bank and external studies. The economic analysis unpacks the causal chain from the provision of electricity to the various benefits which it is claimed to bring, and quantifies these benefits where possible. Data was used to test the impact of rural electrification on several variables, such as the quantity of lighting used, opening hours of clinics, female health knowledge and income from home businesses.

The report’s conclusions include:

• World Bank Projects are now more likely to involve growth in off-grid electrification and the use of renewable energy sources than they have been in the past.
• Explicit attention to poverty reduction in project design is growing, but remains limited.
• There are many successes in establishing electricity infrastructure, but shows weakness in strengthening supplier institutions.
• There remain barriers to reaching those living in the most poverty; the larger share of benefits from rural electrification is captured by those who are more well off, and high connection fees and community selection criteria can emphasise those obstacles.
• Education and the promotion of productive uses would enhance the benefits of electrification.
• The return of rural electrification projects are worth the investment and consumer willingness to pay for electricity is almost always at or above supply cost.
• Rural electrification is not only achievable, but greatly important for development.