P.U. Report No. RES 5 lXTEfNATIONAL BANK FOR RECONSTRUCTION AND D ~ ~ - T ~ . u v T ......................................... - INTEXNAnONAL DEVTLOPMENT ASSOCIATION RESEARCH WORKING PAPERS SERlES COSTS AND BEXEFITS OF R W ?ZECTRIF'ICATION -a case s t u d y in El Salvador - Central Projects Staff P u b l i c U t i l i t i e s Department This paper i s one o f a s e r i e s i s s u e d by t h e Public U t i l i t i e s Department f o r t h e Lnformation and guid- ance of Bank s t a f f working in t h e power, water and wastes, and telecommunica~ionss e c t o r s . It may n o t be published o r quoted as r e p r e s e n t i n g t h e views of the Bank Group, and t h e 3ank Groap does not accept r e s p o n s i b i l i t y f o r i t s accuracy o r completeness. I ABSTRACT This stu* first estimates the overall costs and f i n a n c i a l returns t o a program, which began in 1962 of elect-g k a l areas in E l Salvador. It then analyses t h e f i n a n c i a l and e c o n d c returns f o r projects senring 1 2 cormunities which d i f f e r in several respects, including the type and l e v e l of output i n l a c a l agriculture, llvlng standards, quality of social and e c o n d c infrastructure, and costs of service. This enables some conclusions to be drawn regarding t h e factors which make f o r successful projects. A methodology f o r estimating economic benefits i s developed; and a large sanple of households, small businesses, farms and agro-industries - and without e l e c t r i c i t y - both with are studied so t h a t benefits can be estimated, and the f a c t o r s which explain people's response determined. Overall, peaple have responded well t o the Fnvestments; t h i s i s r e f l e c t e d ' i n generally high growth r a t e s of demand from households and from consumers using e l e c t r i c i t y f o r productive purposes. But response, costs and economic benefits vary markedly f m m one place t o another; moreover, a large fraction of the rural popdation (so f a r not connected) are too scattered, o r l i v i n g in cornunities too small f o r extension of service to them t o be economically justified, It i s concluded t h a t the= are three conditions which make f o r successful projects: - load density (by r u r a l standards)., since this keeps costs down; (a) a Meh (b a good potential demand from households and c o m r c e ; and (c) a good potential demvld from f m s and agro-industries. These conditions a r e generally met, i t i s believed, i f the e l e c t r i f i c a t i o n projects a r e clearly related t o development programs aimed a t raising productifity and output i n rural areas. The study was i n i t i a t e d following the 1972 World Bank Sector Working Paper on Electric Power, and was financed by the Bank's Research Committee, Prepared by: Dennis Anderson (Public U t i l i t i e s ~ e p a r h e n t ) In Collaboration with: Mario Bicard, Maria Luisa Calderon Sol, Antonio Orellana (consultants , Universidad ' Centroamericana ~ o s eSimeon ~an'as) February 28, 1975 READER'S GUIDE This research p r o j e c t required a good d e a l of f a c t finding and a t t e n t i o n to d e t a i l , , maklng the r e p o r t l a r g e r than w e had wished. For t h e e n e r a l reader, i t is hoped t h a t t h e Abstract, Introduction, and t h e Summary - %d Conclusions ( a t t h e end of the report) w i l l prorlde a s u f f i c i e n t guide. The s p e c i a l i s t reader might note t h a t most of the chapters e .g. those on - theory, costs, demand.projections, household studies, and t h e s t u d i e s of agro-industries o t h e r chapters. can be read independently, with little cross-reference to This report i s t h e r e s u l t of a joint study between Universidad Centroarmericana Jose Simeon Cafias, San Salvador, and t h e DRD. W e wish to o f f e r p a r t i c u l a r thanks t o t h e Rector, .Mr. Achaerandio, and his Deputy Mr. Mayorga, f o r t h e i r help and cooperation throughout the study and f o r p u t t i n g the University's f a c i l i t i e s a t our disposal. The present report i s s u b s t a n t i a l l y based on t h e m a t e r i a l presented i n t h e University's report, which was submitted to the Bank in April 197L. 1Je thus owe many thanks to a l l t h e others who worked on t h e study, i . particular t o Xabier Beltran, Maria C+stina de Cabrera, Jesus Cutie', Carlos Xartines, F e U x C a s t i l l o , Jose Cabrero, and some 65 students uho a t one time o r another t o i l e d l o y a l l y in t h e fieldwork and analysis of the data. ~t an early s t a g e of the study, we were a l s o fortunate t o have a b r i e f but highly informative anthropological f i e l d study f r o m Ricardo Falla. We a r e a l s o very g r a t e f u l t o CEL, t h e bmisio'n Ejecutiva @dm- e l e c t r i c a d e l Rio Lempa, f o r permission to study t h e i r program, and f o r making t h e i r f a c i l i t i e s , records and experience f r e e l y a t our disposal. W e should l i k e , i n p a r t i c u l a r , t o thank Ing. Benjamln V d e n t e , and Ingeniems Espinoza, Matamoros, Granadino, ~ o l G o s and O r t i z f c r t h e l r advice and willingness to discuss the r e s u l t s of the research as they materialized. I n the Bank, s p e c i a l thanks a r e due t o Marcelo Selowsb, who developed most of the t h e o r e t i c a l and e n p i r i c a l approach reported here; to John GUMI.1g f o r enormously sharpening the r e s u l t s of t h e fieldwork; to Tony Churchill and Bernard Russell f o r t h e i r help i n s e t t i n g up t h e study; t o D.C. Rao and Anandarq Ray of the Research C o d t t e e f o r t h e i r encourage- ment; to P h y l l i s Peter and Haria d e l Solar f o r l o o w after a e a t r a t i v e problems and many other aspects of the work. - NOTES CEL - Cornision Ejecutiva H y d r o e l e ~ t ~ cdae l Rio Lenpa Foreign Exchange Rate: 1 co16n = k US$ 0. PART I BACKGROUND,OWANIS ATION,PRINCIPLES CHAPTER I. m A AND ORGANIZATION OF THE STUDY Intro c?uct i o n Aims Organization CHAPTER 11. 'x'HmREl'ICAL PRINCDLES Economic Costs and Banefits (a) Benefits - The Model f o r A r t i f i c i a l Light (b) Benefits - (c) M g r a t i o n Uses in General (d) Assumptions of t h e Denand Supply Models (e) The Problem of J o i n t Demand (Multiple Inputs) ( f ) Aggregathe; t h e Benefits from Sample Studies (g) .Costs of Supply (h) The Growth of Aggregate Costs and Benefits Over Time ( i ) Shadow P r i c e s ( J ) -am The C r i t e r i o n f o r P r o j e c t Acceptability CHAPTER III. BACXGROUND INFORMATION ON a S A L V ~ , P Economic Growth Agriculture, Land Tenure, Organisation of Rural Labor Manufacturing Trade Urban-Village-Rural Definitions Urban-Village-Rural Population Levels and Migration CHAF'TER IV. THE ELECTRIC P O W E R SECTOR Development of the Sector (a) Generation and Wansmission (b) D i s t r i b u t i o n T a r i f f s and Cost S t r u c t u r e ( a ) Bulk Supply T a r i f f s (b) R e t a i l Tariffs The Rnral E l e c t r i f i c a t i o n P~ogram ( a ) History (b) CEL1s Program (c) E n a n c i a l Returns on CB1s Program PART I1 STUDIES OF SELECTED PEOJECTS CRAPTER V . PRUJECTS SF&CTED FOR STlTDY Selection C r i t e r i a Features of t h e Areas Served by the P r o j e c t s CHAPTER VI. ELECTRICITY DEMAND ON THE PRDJJ3CTS Introduction Domestic and Commercial Consumption Fn t h e Villages Farm and Agro-Industrial Consumption Outside t h e Villages CHAPTER VII. THE COSTS O F SUPPLY Introduction Bulk Supply Subtransmission and Medium Voltage Distribution (a) U n i t Costs (b) Costs p e r Village ( ~ a b e c e r a s ) (c) Costs p e r Large Consumer (outside the ~ a b e c e r a s ) (d) Costs p e r Caserio (rPinor v i l l a g e ) ( e ) A General P o h t on t h e Decline of Costs Over Time Low Voltage Local Distribution Administration, B i l l i n g and Other Costs (Running c o s t s ) Summary of Investanent Costs by Village CHAP'rER VIII. FINANCIAL ETURNS (a) Net Revenues from t h e Villages (Cabeceras) (b) Net Revenues from Fam and Agro-Industrial Consumers (c) Extensions to Minor Villages ( ~ a s e r i o s ) PART 111 HOUSMDLD sums CHAPTER IX. SAMPLE STUDIES OF HOUSEIIOLD CONSUMPTION Introduction Sample Selection and Procedures Analysis (a) Main Uses of E l e c t r i c i t y and i t s S u b s t i t u t i o n (b) Changes i n t h e Use of E l e c t r i c i t y and i t s S u b s t i t u t e s Over Time (c) Income Effects on Consumption (d) Income Distribution Effects on Consumption (e) Occupations and E l e c t r i c i t y CoAsumption ( f ) Quality and Ownership of Dwellings and E l e c t r i c i t y Consumption (g) Note on Service t o Small Farmers and Fann Workers Outside t h e Villages (h) Income Transfers and Migration ( i ) G i f t s and Purchases of E l e c t r i c a l Appliances ( j) P r i c e and WiLlFngness-to-Pay (k) Estination of Monetary Benefits (1) Other Aspects of Consumer Response sunnning UP PART IV S m OF FARMS,AGRO-I?lMISTRIES AND COMMERdE CHAPTER X THE EXTENT AND GROWTH OF PRDDDCTIVE USES OF ELECTRICITY I N RURAL AREAS CE L 's Consumers (a) Consumers on the Motive Power Tariffs (b) Non-Domestic Uses on the Domestic General T a r i f f s (c) I r r i g a t i o n General Extent and Growth of Agm-Industrial ActixLty The Future Demands of Non-Domestic Consumers S-ry CHAPTER H. CASE STlTmES OF PROIUCTIVE USES OF EtECTRICITP Sample Selected Rewlts (a) Coffee Processing (b) Sugar Processing (Large Scale) (c) Sugar Processing (Small Scale) (d) Rice Processing (el Con, Mills ( f ) Poultry Farm3 (g) I r r i g a t i o n (h) Fann Machinery (i) CooUng on Farms (j) ReMgeration in Shops (k) Potable Water Pumping Effects of Taxes on F u e l 4 1 1 and Equipment Average Net Benefits f o r Small and Large Consumers sunmring UP PART V COST-BENEFIT CALCULATIONS3 SUMMARX AND CONnUSIONS CHAPTER XI10 COST-SENEFIT CALCULATIONS e llo Introduction no Resume of Consumers' Surplus Benefits and Shadow Prices no Economic Returns t o the Components of the Pmgram 111 (a) Economic Returns from the Villages ul (b) Economic Returns fmm Fann and Agro-Industrial Ilh Consumers (c) Ektensions to Efinar Villages Overall and Regional Returns to the Program CHAPTER XIII. S U MMARY AW CONCLUSIONS ADDENDA TO CHAPTKRS 2 AND Il HAPS PART I CHAPTER 1 AIMS AND ORGANIZATION OF THE STUDY Introduction 1.1 Rural e l e c t r i f i c a t i o n i s a comparatively new and growing f i e l d of investment i n developing c o u n t r i e s . Some c o u n t r i e s , and I n d i a i n p a r t i c u l a r , have had p u b l i c investment programs i n t h i s f i e l d f o r over twenty y e a r s ; and f o r an even l o n g e r p e r i o d , r u r a l a r e a s i n most c o u n t r i e s have had v a r y i n g d e g r e e s of a c c e s s t o e l e c t r i c i t y through small a u t o g e n e r a t o r s i n s t a l l e d a t p r i v a t e i n i t i a t i v e . However, t h e major i n i t i a t i v e t o e l e c t r i f y r u r a l a r e a s took shape i n t h e 1 9 6 0 ' s and t h e b u l k of t h e investment has occurred w i t h i n t h e l a s t t e n years. The r a t e of investment i s a l s o i n c r e a s i n g . It i s e s t i m a t e d t h a t cumulative investment i n r u r a l e l e c t r i f i c a t i o n by c o u n t r i e s w i t h i n t h e Bank's s p h e r e of o p e r a t i o n s was about $10 b i l l i o n by 1971, o r 10% of t o t a l investment i n e l e c t r i c power, b r i n g i n g s e r v i c e t o about 150 m i l l i o n people, o r one-eighth of t h e v i l l a g e - r u r a l p o p u l a t i o n ; i t i s a l s o e s t i m a t e d t h a t t h e l e v e l of cumulative investment and t h e number of p e o p l e served w i l l more t h a n double w i t h i n t h e n e x t t e n y e a r s .l! 1.2 The p r e s e n t r e s e a r c h s t u d y i s one of s e v e r a l i n v e s t i g a t i o n s by t h e Bank i n t o ( a ) t h e scope f o r s u c c e s s f u l investments i n r u r a l e l e c t r i f i c a t i o n and (b) t h e methods of i d e n t i f y i n g and a p p r a i s i n g them. It was i n i t i a t e d f o l l o w i n g t h e 1972 S e c t o r Working Paper on E l e c t r i c Power , which f i r s t r a i s e d i n t h e Bank t h e p o s s i b i l i t i e s f o r investment; o t h e r s t u d i e s , and a l s o some of t h e main p o l i c y messages o b t a i n e d from t h i s s t u d y , have been d i s - cussed i n t h e 1974 i s s u e s paper on r u r a l e l e c t r i f i c a t i o n [ I ] . Aims 1.3 . I n o r d e r t o p i n p o i n t t h e aims of t h e s t u d y , i t i s u s e f u l t o c o n s i d e r some of t h e q u e s t i o n s t h a t were r a i s e d when i t was i n i t i a t e d . One s e r i e s of q u e s t i o n s were f o r f a c t u a l c l a r i f i c a t i o n s r e g a r d i n g : ( i ) t h e c o s t s of r u r a l e l e c t r i f i c a t i o n and how' t h e y v a r y w i t h : - terrain; - t h e l e v e l and growth of demand; - u t i l i z a t i o n ( o r l o a d f a c t o r s ) ; and - consumer d e n s i t y ; - 1/ See t h e paper on " I s s u e s i n R u r a l E l e c t r i f i c a t i o n " , J u l y 1974 [ I ] . (ii) the response of rural areas to the investments, as reflected in: - the level and growth of demand and of the number of consumers; - which income groups are affected; - the level and growth of demands from productive uses in farms, agro-industries and rural commerce; - load factors; (iii) the financial returns that can be expected, taking a long view.(financial returns are often believed to be low, but generally on a basis of short time horizons and on in- sufficient analysis of changes in costs and demand over time); (iv) the economic benefits and if these are sometimes sufficient to justify projects which cannot otherwise be justified on financial grounds; (v) the dependence of financial and economic 'returns on : - the level of economic development in the area; - the extent of productive uses in farms, agro- industries and commerce; - the quality of complementary infrastructure; - the presence of an integrated rural development program; and - institutional factors such as promotion, credit and pricing policy. Two remaining questions were for clarifications of method: (vi) how are economic costs and benefits to be estimated in practice? (a UN Inter-Regional Seminar on Rural Electrification, held in New Delhi in 1971, also high- lighted the need for studies to answer this question); (vii) most countries stress the importance of the social aims in their electrification programs: how are these to be allowed for in project justification? 1.4 The broad aims of the study, then, are first, as far as possible, to estimate the costs, the demands, and the financial and economic returns to rural electrification projects in different circumstances; and second, to emerge with some piactical recommendations for the evaluation of rural electrification projects. 1.5 E l Salvador proved t o b e a good c o u n t r y f o r a c a s e s t u d y . The p u b l i c program t o e l e c t r i f y s e l e c t e d r u r a l a r e a s i s now twelve y e a r s o l d , a s u f f i c i e n t p e r i o d f o r t h e purposes of e x p o s t e v a l u a t i o n (some v i l l a g e s have indeed been e l e c t r i f i e d a t p r i v a t e i n i t i a t i v e f o r o v e r 20 y e a r s ) . I n common w i t h o t h e r d e v e l o p i n g c o u n t r i e s , t h e c o s t s a r e h i g h , and i n i t i a l demand l e v e l s and f i n a n c i a l r e t u r n s low. Output i n a g r i c u l t u r e i s q u i t e d i v e r s i f i e d and i n c l u d e s c o f f e e , c o t t o n , s u g a r , r i c e , l i v e s t o c k and t h e r e l a t e d agro-industries, with c o f f e e being t h e p r i n c i p a l product; t h e q u a l i t y of i n f r a s t r u c t u r e and t h e l e v e l s of income and commercial a c t i v i t i e s a l s o v a r y s u b s t a n t i a l l y from one p l a c e t o a n o t h e r ; t h e r e f o r e , t h e r e was t h e o p p o r t u n i t y t o examine how e l e c t r i f i c a t i o n p r o j e c t s f u n c t i o n i n d i f f e r e n t e n v i z o n e e n t s . F i n a l l y (though t h i s judgment proved t o b e o p t i m i s t i c ) i t appeared, b e f o r e we began t h e s t u d y , t h a t i n f o r m a t i o n about r u r a l a r e a s , and about t h e r u r a l e l e c t r i f i c a t i o n program, was q u i t e good. 1.6 The remainder of P a r t I o u t l i n e s " t h e t h e o r e t i c a l p r i n c i p l e s on which t h e s t u d y is b a s e d , and p r o v i d e s background i n f o r m a t i o n on E l Salvador and t h e e l e c t r i f i c a t i o n program. The e m p i r i c a l work of t h e s t u d y h a s ' b e e n organized i n t o four p a r t s : P a r t 11: S t u d i e s t h e a g g r e g a t e f i n a n c i a l performance of p r o j e c t s i n 1 2 s e l e c t e d a r e a s of d i f f e r i n g s o c i a l and economic c h a r a c t e r i s t i c s ; i t l o o k s a t t h e growth of consumer demand and compares revenues w i t h c o s t s . The n e x t two p a r t s probe more d e e p l y i n t o consumer demand i n an a t t e m p t t o a s c e r t a i n some of t h e s o c i a l and economic b h n e f i t s from e l e c t r i f i c a t i o n : Part 111: P r e s e n t s a s o c i a l and economic a n a l y s i s of a broad sample of households i n r u r a l a r e a s ; households n o t u s i n g e l e c t r i c i t y a r e a l s o studied. Part IV: P r e s e n t s an economic a n a l y s i s of a sample of farm, a g r o - i n d u s t r i a l and commerciql a c t i v i t i e s i n r u r a l areas; a c t i v i r i e s not using e l e c t r i c i t y a r e also studied. From t h e s t u d i e s i n t h e s e two p a r t s i t i s ~ o s s i b l et o b u i l d up on the f i n a n c i a l s t u d i e s of P a r t I1 and make a d j u s t m e n t s f u r s o c i a l and economic f a c t o r s ; t h i s is the task of: P a r t V: P r e s e n t s a c o s t - b e n e f i t a n a l y s i s of t h e p r o j e c t s i n 12 s e l e c t e d a r e a s , ..nd t h e r e a s o m f o r t h e d i f f e r i n g l e v e l s of eccnomic r e t u r n s . The c o n c l u s i o n s a r e a l s o brought t o g e t h e r i n P a r t V . , CHAPTER 2 THEORETICAL PRINCIPLES 2.1 R u r a l e l e c t r i f i c a t i o n i n developing c o u n t r i e s i s intended t o serve b o t h economic and s o c i a l aims. On t h e economic s i d e , t h e aim i s t o r a i s e t h e s t a n d a r d of l i v i n g and p r o d u c t i v i t y i n r u r a l a r e a s by p r o v i d i n g a s u p e r i o r and o f t e n cheaper form of power and energy; on t h e s o c i a l s i d e , c o u n t r i e s o f t e n extend s e r v i c e t o a r e a s of low income and p r o d u c t i v i t y even i f t h e s e r - v i c e i s u n l i k e l y t o b e f i n a n c i a l l y s e l f - s u f f i c i e n t f o r many y e a r s . When b u i l d i n g up a j u s t i f i c a t i o n f o r a p r o j e c t i t i s u s e f u l t o keep t h e s e two aims a p a r t and b e g i n w i t h a s t u d y of economic f a c t o r s b e f o r e working s o c i a l f a c t o r s i n t o t h e a n a l y s i s . Confusion between economic and s o c i a l aims i s t h u s avoided, and t h e t r a d e - o f f s , t o t h e e x t e n t t h a t t h e y o c c u r , can b e examined. T h i s approach i s followed below. The f i r s t s e c t i o n d i s c u s s e s economic c o s t s and b e n e f i t s ; s o c i a l f a c t o r s a r e i n t r o d u c e d i n t h e subsequent s e c t i o n , which d i s c u s s e s t h e criterion for project acceptability. Economic Costs and B e n e f i t s 2.2 The most commonly c i t e d economic b e n e f i t s of r u r a l e l e c t r i f i c a t i o n a r e t h a t i t r a i s e s t h e s t a n d a r d of l i v i n g of households and t h e p r o d u c t i v i t y of l o c a l farms, a g r o - i n d u s t r i e s and commerce; i n a d d i t i o n i t i s thought t h a t r u r a l e l e c t r i f i c a t i o n h a s some e f f e c t i n stemming m i g r a t i o n t o c i t i e s by making i t more d e s i r a b l e f o r people t o l i v e i n r u r a l a r e a s . I n monetary terms, p e o p l e ' s p r i v a t e v a l u a t i o n s of t h e s e b e n e f i t s can be c a l c u l a t e d from t h e demand and supply models of t h e f i n a l p r o d u c t s of e l e c t r i c i t y and i t s s u b s t i t u t e s ; b e n e f i t s t o t h e economy a r e t h e n t h e a g g r e g a t e of p e o p l e ' s p r i v a t e v a l u a t i o n s c o r r e c t e d , u s i n g shadow p r i c e s , f o r p r i c e d i s t o r t i o n s i n t h e economy. I n t h e f o l l o w i n g d i s c u s s i o n of t h i s approach, we f i n d i t con- v e n i e n t t o begin w i t h a simple c a s e b e f o r e g f n e r a l i z i n g i t : (a) Benefits - The Model f o r A r t i f i c i a l Light; (b) Benefits - Uses i n Gener-al. - A f t e r t h i s , v a r i o u s problems and complications a r e d e a l t w i t h : (c) Migration; (d) Assumptions of t h e Models; (e) The Problem of J o i n t Demand ( o r M u l t i p l e I n p u t s ) ; (f) Aggregating t h e B e n e f i t s ; (g) Costs of Supply; (h) Growth of B e n e f i t s and Costs Over Time; and (i) Shadow P r i c e Adjustments. A summing up i s then provided. (a) Benefits - The Model f o r A r t i f i c i a l L i g h t 2.3 To b e g i n , d i s c o n t i n u i t i e s and q u a l i t y d i f f e r e n c e s between l i g h t s o u r c e s a r e n e g l e c t e d . I t i s convenient t o measure u n i t s of l i g h t i n terms of kWh i n p u t i n t o a s t a n d a r d e l e c t r i c l i g h t b u l b , and c o n s i d e r t h e changes i n t h e q u a n t i t y and v a l u e of l i g h t consumed f o l l o w i n g e l e c t r i f i c a t i o n . I f i n i t a l l y Qs u n i t s of l i g h t a r e consumed from a s u b s t i t u t e s o u r c e of l i g h t a t a t o t a l s u p p l y p r i c e of Ps, and t h e n Q , u n i t s of e l e c t r i c l i g h t a r e con- sumed a t a (lower) u n i t p r i c e of Pe, we can s a y t h a t t h e n e t g a i n t o t h e consumer c o n s i s t s of two p a r t s : 11 . '. - '$the reduced c o s t of t h e amount of l i g h t h e p r e v i o u s l y bought: Qs (Ps Pe) - -- - . 2- . a. - 2tiht s e v a l u e t o him of extra cost. t h e e x t r a l i g h t h e now buys f' < ! I ' 4 , S i n c e he w i l l v a l u e e a c h e x t r a u n i t somewhere between t h e o l d p r i c e (which was t o o h i g h f o r him t o choose t o buy the@) and t h e new p r i c e (which i s low enough t o make t h e e x t r a purchase worthwhile) and s i n c e each e x t r a u n i t w i l l c o s t him t h e new p r i c e , t h i s second p a r t approximately e q u a l s : b v e r a g e Value E x t r a Cost \ These n e t g a i n s t o t h e consumer a r e something h e does n o t have t o pay f o r - the:. a r e o v e r and above t h e revenues - and a r e o f t e n r e f e r r e d t o a s t h e c o n s u n e r ' s surplus benefits. 2.4 E l e c t r i c l i g h t , however, i s o f t e n p r e f e r r e d t o s u b s t i t u t e s even i f i t c o s t s more. Ic i s i n o t h e r words s u p e r l o r i n q u a l i t y . Hence t o t h e tvo p a r t s of s u r p l u s b e n e f i t s s o f a r mentioned, - t h e reduced c o s t of t h e amount of l i g h t t h e consumer p r e v i o u s l y bought, - t h e e x c e s s of t h e v a l u e t o him of t h e e x t r a l i g h t over i t s e x t r a c o s t a t h i r d p a r t should b e added: - . t h e v a l u e of t h e h i g h e r q u a l i t y :ight. I t f o l l o w s t h a t t h e sum of t h e t e r n s : w i l l b e a n underes?'imate of t h e s u r p l u s belle£ i t . It could, i n a n extreme c a s e , even b e n e g a t i v e when t h e t o t a l s u r p ~ u sb e n e f i t was p o s i t i v e . T h i s would happen i f t h e consumer p a i d more p e r u n i t of l i g h t t h a n b e f o r e (Pe exceeding P s ) , valued t h e improvement of q u a l i t y h i g h l y - b u t d i d n o t much i n c r e a s e h i s consumption. 2.5 D i s c o n t i n u i t i e s a r e e v i d e n t l y a s i g n i f i c a n t f e a t u r e of t h e demands of i n d i v i d u a l consumers. Demand i s l i n k e d t o t h e a p p l i a n c e s t o c k and, i n t h e c a s e of farms and a g r o - i n d u s t r i e s , t o t h e technology and o u t p u t of t h e pro- d u c t i o n p r o c e s s ; demand f o r a p a r t i c u l a r a p p l i c a t i o n i s e i t h e r z e r o o r some l e v e l which i s more o r l e s s c o n s t a n t ; e l e c t r i c i t y f o r i r o n s , r e f r i g e r a t o r s and pumps a r e examples - e i t h e r t h e y a r e n o t bought a t a l l o r a r e bought and used a t a p a r t i c u l a r r a t e . L i g h t i n g demands a r e o f t e n l e s s discon- t i n u o u s because one, two, t h r e e o r more e l s c t r i c l i g h t s may b e used w i t h v a r y i n g i n t e n s i t y ; even h e r e , however, t h e demand i s o f t e n f o r one o r two e l e c t r i c l i g h t s o r none a t a l l , p a r t i c u l a r l y i n r u r a l a r e a s . N e v e r t h e l e s s , i t i s e a s y t o show t h a t t h e s u r p l u s b e n e f i c s s t i l l have one o r more of t h e t h r e e components i d e n t i f i e d above: reduced c o s t s , t h e v a l u e of h i g h e r q u a l i t y l i g h t , and t h e v a l u e of e x t r a l i g h t t a k e n on account of i t s h i g h e r q u a l i t y a n d / o r reduced c o s t s . (b) Benefits - Uses i n General 2.6 A s i m i l a r approach can b e a p p l i e d t o p r o d u c t i v e u s e s of e l e c t r i c i t y . Here, however, t h e e l e c t r i c i t y c o n t r i b u t e s t o o u t p u t , which can b e v a l u e d d i r e c t l y , r a t h e r t h a n t o domestic convenience which cannot. Hence t h e p r a c t i c a l problems of measurement a r e s i m p l e r . ---__ I 2.7 Consider f i r s t e l e c t r i c l r e f r i g e r a t i o n qn a shop, f o r which no sub- s t i t u t e i s u s u a l l y a v a i l a b l e s o t h ' z t - r e f r i g e r a t e d goods cannot b e s o l d a t a l l unless e l e c t r i c i t y is a v a i l a b l e . I f , with a r e f r i g e r a t o r , t h e gross a n n u a l p r o f i t on s a l e s of r e f r i g e r a t e d goods .is K and t h e annual c o s t of t h e r e f r i g e r a t o r and e l e c t r i c i t y i s L , t h e n t h e s u r p l u s b e n e f i t i s simply K-L. Such a b e n e f i t i s a common r e s u l t of e l e c t r i f i c a t i o n i n r u r a l a r e a s i n h o t climates. r' 2.8 The u s e of & c t x k - i n s t e a d of d i e s e l pumpsets. f o r i r r i g a t i o n p r o v i d e s an a l t e r n a t i v t 6 e X m p l e where c o s t - s a v i n g s a r e t h e b e n e f i t s . D i e s e l can produce t h e same o u t p u t a s e l e c t r i c pumpsets, though o f t e n a t a h i g h e r c o s t , and s t i l l e n a b l e f a r & t o make a good p r o f i t . I f e l e c t r i c pumpsets reduce t h e farm's a n n u a l c o s t from D t o E , t h e n (D-E) i's t h e s u r p l u s b e n e f i t . 2.9 For p r o d u c t i v e u s e s , most of t h e s u r p l u s b e n e f i t s of e l e c t r i c i t y can b e i d e n t i f i e d and e s t i m a t e d a s above. The f i r s t s t e p i s t o s t u d y t h e p r o c e s s and determine: output; - t o t a l c o s t s , broken down i n t o ' e l h c t r i c ' and 'non-elec tr i c ' components ; i i - prof i t s . - The second s t e p i s t 6 c o n s i d e r p r a c t i c a b l e : : u b s t i t u t e s and examine t h e i r p o s s i b l e e f f e c t s on c o s t s , o u t p u t and p r o f i i - s ; t h e cnanges i n p r o f i t s g i v e s t h e consumer's s u r p l u s b e n e f i t s . The s u b s t i t u t e s a r e g e n e r a l l y obvious once t h e p r o c e s s i s understood ( e l e c t r i c i t y i s g e n e r a l l y used only f o r f o u r t h i n g s : h e a t , l i g h t i n g , r e f r i g e r a t i o n o r motive power) . When e l e c t r i c i t y is i n d i s p e n s i b l e- as w i t h l i g h t i n g on a l a r g e s c a l e , o r a s when e l e c t r i c motors a r e embodied i n t h e technology, a s i s o f t e n t h e c a s e f o r t h e l a r g e r and more modern a g r o - i n d u s t r i e s - t h e p r a c t i c a b l e s u b s t i t u t e i s a l o c a l auto- generator. 2.10 For domestic u s e s t h e consumer's s u r p l u s b e n e f i t s can o n l y be deduced from an econometric a n a l y s i s of consumer demand f o r e l e c t r i c i t y ; t h i s approach i s d i s c u s s e d f u r t h e r i n Chapter 1 0 . 2.11 I n a l l c a s e s , b o t h domestic and non-domestic, t h e n a t u r e of t h e s u r p l u s b e n e f i t s t a k e s one o r more of t h e t h r e e forms d i s c u s s e d e a r l i e r i n connection w i t h l i g h t i n g : i t i s sometimes cheaper than t h e a l t e r n a t i v e s ; i t i s g e n e r a l l y of s u p e r i o r q u a l i t y t o t h e a l t e r n a t i v e s and on account of t h i s i s valued more h i g h l y ; and i t makes q o s s i b l e new o r e x t r a a c t i v i t y - a t e l e v i s i o n , a r e f r i g e r a t o r , o r more l i g h t i n g and i r o n i n g , f o r example. These b e n e f i t s a r e a l s o i n e x c e s s of t h e amounts p a i d f o r e l e c t r i c i t y ( t h e direct benefits). 2.12 A s a general conclusion, t h e r e f o r e , t h e gross b e n e f i t equals t h e amount paid f o r by t h e consumer f o r h i s e l e c t r i c a l i n p u t s p l u s h i s s u r p l u s b e n e f i t . The l a t t e r c o n s i s t s of one o r more o f : -- - c o s t savings r e l a t i v e t o t h e a l t e r n a t i v e ; - t h e v a l u e of t h e d i f f e r e n c e i n q u a l i t y ; * - t h e v a l u e of any e x t r a o u t p u t o r a c t i v i t y generated by lower c o s t s and/or a change i n quality. 2.13 Considering a range of a c t i v i t i e s , t h e consumer's s u r p l u s b e n e f i t s g e n e r a l l y have t h e f o l l o w i n g s i g n when e l e c t r i c i t y i s adopted: Cost Quality Extra Application Substitutes Savings Benefits Activity Domestic Lighting Candles, Kerosene Iron Flat Iron Refrigeration Generally None Fans None Radio Batteries Television None Farms, Agro-industries Motive Power , Diesel, Steam, Animals + Lighting Autogenerator + Refrigeration Kerosene, Autogenerator + Commerce Lighting Kerosene Refrigeration Kerosene, Ice (c) Migration 2.14 One commonly discussed benefit of rural electrification is that, as mentioned earlier, it is thought to contribute towards stemming migration from rural to urban areas by making rural areas more desirable to live in; The effect of this is to raise the individual's demand curves for electricity in rural areas; the benefits perceived by individuals are thus fully reflected in the supply and demand models discussed above. The only question which re- mains is whether people are mistaken about the advantages of rural areas and that the benefits are higher than they perceive. We know no way of quantify- ing such benefits; and while the possibility of them might be accepted, and some allowance made when the criterion for project acceptability is decided upon, this should be weighted against the following: that most people mi- grate for good reasons, principally in search of jobs (see Chapter 10 for example). This question about the possibly mistaken values of people, how- ever, raises a more general point about the use of demand and supply models. (d) Assumptions of the Demand Supply Models 2.15 The point is whether the demand curves over or understate the benefits on account of: - external benefits which consumers ignore; - irrational values of the-consumers. We have, however, found little evidence to show that these possibilities are important for rural electrification pr2)jects. There seem to be no .significantexterna; benefits analagous to, for example, the community health b e n e f i t s of p o t a b l e water s u p p l i e s . Also, d u r i n g t h e course of e x t e n s i v e f i e l d w o r k , i t was found t h a t low income groups i n p a r t i c u l a r weighed d e c i s i o n s t o spend w i t h e x c e p t i o n a l c a r e , and t h e r e was n o r e a s o n t o suppose t h a t t h e demand and s u p p l y models w e r e i n v a l i d on a c c o u n t of consumers b e i n g i r r a t i o n a l (though t h e r e i s , o f c o u r s e , as many c o u n t r i e s r e p o r t , always a need t o promote t h e s e r v i c e and d e m o n s t r a t e how i t c a n b e used t o good e f f e c t ) ; t h e work of t h e a n t h r o p o l o g i s t , R i c a r d o F a l l a , which l a i d t h e b a s i s f o r t h e s u b s e q u e n t f i e l d w o r k a l s o s u p p o r t e d t h i s c o n c l u s i o n [h] . 2.16 I n f a c t , t h e a s s u m p t i o n s most of t e n q u e s t i o n e d a b o u t t h e approach are t h e f a m i l i a r o n e s r a i s e d by income d i s t r i b u t i o n ( d i s c u s s e d l a t e r , u c d e r t h e c r i t e r i o n f o r p r o j e c t a c c e p t a b i l i t y ) and by p r i c e d i s t o r t i o n s ( d i s c u s s e d under shadow p r i c i n g ) . (el The Problem o f J o i n t Demand ( M u l t i p l e I n p u t s ) 2.17 So f a r , a g g r e g a t e s u p p l y p r i c e s have been t a k e n f o r t h e e l e c t r i c and s u b s t i t u t e s o u r c e s o f power and energy,, though s u p p l y h a s , of c o u r s e , many e l e m e n t s . The c o s t t o t h e consumer of t h e e l e c t r i c a l t e r n a t i v e , f o r example, i s made up o f : - theelectricitybill; - t h e c o s t of c o n n e c t i o n and w i r i n g ; - t h e c o s t s o f t h e e l e c t r i c a l equipment; and - any m a i n t e n a n c e and o t h e r c o s t s of owning and r u n n i n g t h e equipment. S i m i l a r l y , t h e c o s t t o t h e consumer of t h e s h b s t i t u t e i s made up o f : - t h e c o s t of f u e l ; - t h e c o s t o f t h e equipment; - i n s t a l l a t i o n c o s t s ; and - any m a i n t e n a n c e and o t h e r c o s t s of owning and r u n n i n g t h e equipment. When t h e s e a l t e r n a t i v e s a r e b e i n g compared, t o o b t a i n , f o r example, c o s t - s a v i n g s o r d i f f e r e n c e s i n v a l u e , a l l s u c h c o s t s o b v i o u s l y have t o be t a k e n i n t o account. 2.18 Since t h e f i n a l output of e l e c t r i c i t y - o f l i g h t , of r e f r i g e r a t e d goods, of motive power, e t c . , - i s a j o i n t p r o d u c t of a l l s u c h i n p u t s , t h e q u e s t i o n a r i s e s of how t o r e l a t e t h e b e n e f i t s s p e c i f i c a l l y t o t h e i n p u t of e l e c t r i c i t y . The answer t o t h i s o l d problem i s t o b e found i n M a r s h a l l ' s P r i n c i p l e s of Economics (Chapter 6 ) . -ge",gf-its, a r e t h e a r e a under t h e d e r i v e d dernand c u r v e f o r e l e c t r i c i t y , and e q u a l ; -- , * - .- . ' . . > I - t h e t o t a l s u r p l u s b e n e f i t s of t h e j o i n t p r o d u c t ; p l u s - t h e amount p a i d f o r e l e c t r i c i t y ; t -\.-.-. . . . ' 1 t h e s u r p l u s b e n e f i t s of t h e j o i n t p r o d u c t b e i n g t h e ones d e s c r i b e d i n s e c t i o n s ( a ) and (b) above. (The r e a s o n why t h i s r e s u l t h o l d s i s t h a t t h e aim i s t o t e s t w h e t h e r , o t h e r t h i n g s g i v e n , e l e c t r i c i t y i s w o r t h w h i l e , and i t must b e t a k e n t h a t a l l j o i n t b e n e f i t s would b e l o s t w i t h o u t e l e c t r i c i t v . T h i s d o e s n o t mean t h a t a l l b e n e f i t s have been ' a t t r i b u t e d ' t o e l e c t r i c i t y ; f o r i f a n o t h e r i n p u t were b e i n g t e s t e d , o t h e r t h i n g s g i v e n , i t must b e s i m i l a r l y t a k e n t h a t t h e j o i n t b e n e f i t s would b e l o s t w i t h o u t i t . A l s o , i t d o e s n o t mean t h a t no b e n e f i t s c o u l d b e o b t a i n e d w i t h o u t e l e c t r i c i t y , s i n c e , a s shown above, a l t e r n a t i v e s can g e n e r a t e b e n e f i t s t o o ; however, i t does mean t h a t a l l n e t b e n e f i t s ( r e l a t i v e t o t h e a l t e r n a t i v e s ) would b e l o s t , t h e s e n e t b m E . . T e i n g t h e a r e a s under t h e d e r i v e d demand cui%ei;) - - . -- 2.19 I f , t o t a k e a n example, t h e a n n u a l amounts p a i d f o r i r r i g a t i o n pumping b r e a k down a s f o l l o w s : With ' E l e c t r i c i t y With D i e s e l Pump 1,000 1,000 Motor 1,000 800 Maintenance 100 1,000 E l e c t r i c i t y Costs Fuel Costs 500 - - 900 Then : Surplus Benefits ( c o s t savings i n f h i s case) = 1,100 E l e c t r i c i t y Revenues = 500 T o t a l B e n e f i t s of E l e c t r i c i t y = $1,600 S u r p l u s B e n e f i t s a s % of Revenues = 220% A s i m i l a r p r o c e d u r e can b e a p p l i e d t o o t h e r c a s e s . (f) Aggregating t h e B e n e f i t s from Sample S t u d i e s 2.20 The a g g r e g a t e b e n e f i t s of r u r a l e l e c t r i f i c a t i o n , i g n o r i n g p r i c e d i s t o r t i o n s and o t h e r c o m p l i c a t i o n s f o r t h e moment, a r e t h e sum of r e v e n u e s and consumers' s u r p l u s e s . The r e v e n u e s can of c o u r s e b e o b t a i n e d d i r e c t l y from t h e b i l l i n g and a c c o u n t i n g r e c o r d s ; b u t t h e s u r p l u s b e n e f i t s have t o be o b t a i n e d from sample s t u d i e s of p a r t i c u l a r u s e s of e l e c t r i c i t y and i t s substitutes.- The approach adopted i n t h i s r e p o r t f o r o b t a i n i n g a g g r e g a t e consumers' s u r p l u s b e n e f i t s i s a s f o l l o w s . The consumers a r e f i r s t grouped a c c o r d i n g t o t y p e and t o l e v e l of consumption. A s m a l l sample i s t h e n t a k e n - 1/ I n p r i n c i p l e , a g g r e g a t e b e n e f i t s can b e e s t i m a t e d d i r e c t l y from demand a n a l y s i s of aggregate d a t a ; b u t i n p r a c t i c e s u c h d a t a a r e r a r e l y a v a i l a b l e f o r an i m p o r t a n t number of v a r i a b l e s , i n c l u d i n g d a t a on t h e u s e of s u b s t i t u t e s . -from each group, and f o r each consumer i n t h e sample t h e s u r p l u s b e n e f i t s a r e c a l c u l a t e d a s a p e r c e n t a g e of h i s e l e c t r i c i t y b i l l . I f R j i s t h e t o t a l revenues from consumers i n group j , and S j i s t h e p e r c e n t a g e s u r p l u s b e n e f i t s f o r t h e a v e r a g e consumer i n t h e group, t h e t o t a l b e n e f i t s a r e t h e n : T o t a l Revenues +z j Rj Sj1100 I f , f o r example, 85% of revenues a r e from i r r i g a t i o n and 15% a r e from domestic consumers, and t h e s u r p l u s b e n e f i t s f o r t h e average i r r i g a t i o n con- sumer a r e 220% t i m e s h i s e l e c t r i c i t y b i l l , t h e n t h e t o t a l b e n e f i t s e q u a l : 100 + 85 x 220/100 = 287% times t o t a l revenues, n o t c o u n t i n g the s u r p l u s b e n e f i t s t o domestic consumers. (g) C o s t s of Supply 2.21 Engineering, a d m i n i s t r a t i v e and o t h e r f e a t u r e s of t h e c o s t s of supply a r e d e a l t w i t h i n Chapter 6 . Here only two p o i n t s need t o be men- t i o n e d . F i r s t , t o round o f f t h e d i s c u s s i o n on c o s t s and b e n e f i t s , t h e c r i t e r i o n f o r a c c e p t i n g pro j e c t s on economic grounds i s t h a t : Revenues + S u r p l u s B e n e f i t s 2 C o s t s of Supply, s u b j e c t of c o u r s e t o any shadow p r i c e a d j u s t m e n t s t o a l l o w f o r d i s t o r t i o n s i n t h e economy. I f , t h e r e f o r e , p r i c e s a r e c o s t r e f l e c t i n g and i n c o r p o r a t e revenue r a i s i n g e l e m e n t s , p r o j e c t s can b e j u s t i f i e d on economic grounds with- o u t t h e need f o r measurements of s u r p l u s b e n e f i t s . Moreover, even i f s u b s i d i e s o c c u r , i t may only be n e c e s s a r y t o measure s6me of t h e s u r p l u s b e n e f i t s f o r p r o j e c t s t o c r o s s t h e t h r e s h o l d , s o t o speak, and be j u s t i f i e d . On t h e o t h e r hand, revenues may sometimes be s o f a r below c o s t s t h a t p r o j e c t s a r e un- j u s t i f i a b l e on i n s p e c t i o n . T h e r e f o r e , though i t i s a n aim of t h i s r e s e a r c h paper t o e s t i m a t e b e n e f i t s a s f a r a s p o s s i b l e , t h i s i s merely t o e x p l o r e t h e problems of measurement and t o l e a r n something about b e n e f i t s ; i t i s n o t t o suggest t h a t successful a p p r a i s a l r e q u i r e s a l l b e n e f i t s t o b e e s t i n a t e d ( i f a t t e n t i o n i s p a i d t o making p r i c e s c o s t - r e f l e c t i n g , a p p r a i s a l can be enormously simplified) . 2.22 The second p o i n t is merely t o h i g h l i g h t some f e a t u r e s of c o s t s and how t h e y change w i t h demand. There a r e f i v e main components t o c o s t s : (1) Capacity c o s t s which i n c r e a s e d i s c o n t i n u o u s l y o v e r t i m e , b u t d e c r e a s e markedly p e r u n i t of c a p a c i t y demand on account of economies of s c a l e and i n c r e a s i n g l o a d d e n s i t i e s ( t h e s e a r e c h a r a c t e r i s t i c of s u b t r a n s - m i s s i o n and d i s t r i b u t i o n network i n v e s t m e n t s ) ; (2) Capacity c o s t s which i n c r e a s e more o r l e s s i n p r o p o r t i o n t o t h e peak kW demand of t h e r e g i o n ( c h a r a c t e r i s t i c of b u l k supply c a p a c i t y c o s t s ) ; (3) Energy (kwh) r e l a t e d c o s t s i n c r e a s i n g i n p r o p o r t i o n t o kWh demands; (4) A d m i n i s t r a t i o n , maintenance and o t h e r b i l l i n g c o s t s i n c r e a s i n g w i t h t h e number of consumers and v a r y i n g w i t h consumer d e n s i t y ; (5) Fixed c o s t s of c a p a c i t y and a d m i n i s t r a t i o n which do W demands o r w i t h t h e number n o t v a r y w i t h kWh o r k of consumers. On account of ( I ) , (4) and (51, a v e r a g e and i n c r e m e n t a l c o s t s , which a r e i n i t i a l l y v e r y h i g h , t e n d t o d e c r e a s e q u i c k l y w i t h t h e growth of demand. Another f a c t o r which r e d u c e s a v e r a g e c o s t s and improves r e t u r n s i s t h a t l o a d f a c t o r s t e n d t o improve o v e r t i m e . (h) The Growth of Aggregate C o s t s and B e n e f i t s Over Time 2.23 Both c o s t s and b e n e f i t s grow o v e r t i m e w i t h t h e growth of demand. The growth of c o s t s can b e c a l c u l a t e d from s t u d i e s of what i s r e q u i r e d i n terms of network i n v e s t m e n t s , of a d m i n i s t r a t i v e and b i l l i n g arrangements, and of t h e energy and c a p a c i t y demands on t h e g r i d system. The revenue element of b e n e f i t s a l s o f o l l o w s q u i t e o b v i o u s l y from t h e f o r e c a s t s of demand. A n a l y s i s of t h e growth of a g g r e g a t e consumer's s u r p l u s b e n e f i t s r e q u i r e s t h a t t h e d i s t i n c t i o n ( r e f e r r e d t o i n ( f ) above) between t h e v a r i o u s consumer groups needs t o b e r e t a i n e d i n t h e f o r e c a s t . Thus i f , f o r example, t h e r e are t h r e e p r i n c i p a l groups, t h e n t h e weighted a v e r a g e consumers' s u r p l u s , u s i n g t h e e a r l i e r n o t a t i o n , changes a c c o r d i n g t o : The growth of revenues from one c a t e g o r y of consumer i s o f t e n much f a s t e r t h a n from a n o t h e r , c a u s i n g l a r g e s h i f t s i n t h e weighted a v e r a g e consumers' s u r p l u s ; t h i s i s o f t e n t h e c a s e , f o r example, when i r r i g a t i o n o r a l a r g e agro- i n d u s t r y i s i n t r o d u c e d i n t o a r e g i o n . The v a l u e s of S . may a l s o change o v e r t i m e d u e , f o r example, t o changing incomes i n households and b u s i n e s s e s ; b u t t h i s i s a c o m p l i c a t i o n which, i n t h e absence of s u i t a b l e t i m e series i n f o r m a t i o n , we were u n a b l e t o t a k e i n t o account. (i) Shadow P r i c e s 2.24 The most i m p o r t a n t d i s t o r t i o n s i n t h e p r i c i n g system, a s f a r a s t h e i r e f f e c t s on r u r a l e l e c t r i f i c a t i o n i s concerned, r e l a t e t o c a p i t a l , i f o r e i g n exchange, l a b o r , t a x e s and s c a r c i t y of c r e d i t . The approach used i n t h i s p a p e r i s elementary and f o l l o w s c u s t o a a r y p r a c t i c e s ; a more r e f i n e d approach d i d n o t seem warranted. (i) C a p i t a l . The i n t e r e s t r a t e f o r p r e s e n t worth c a l c u l a t i o n s c o r r e s p o n d s t o t h e one recommended f o r p u b l i c s e c t o r p r o j e c t e v a l u a t i o n ( a b o u t 10% i n E l S a l v a d o r ) . (ii) F o r e i g n Exchange. A s i t h a p p e n s , no shadow p r i c e a c j u s t - ments were needed f o r t h i s i t e m i n E l S a l v a d o r ( s e e Chapter 1 4 ) . F o r e i g n exchange e a r n i n g s from c o f f e e and s u g a r , i n p a r t i c u l a r , have b e n e f i t e d from r i s i n g p r o d u c t i o n and r i s i n g world p r i c e s ; and f o r s e v e r a l y e a r s , t h e r e h a s been no f u n d a m e n ~ a ld i s - e q u i l i b r i u m i n t h e b a l a n c e of payments o r u n u s u a l l y heavy p r o t e c t i o n . However, a s r e g a r d s p r i n c i p l e s , t h e f o l l o w i n g can be s a i d f o r c a s e s where shadow p r i c e a d j u s t m e n t s a r e r e q u i r e d : t h e a d j u s t m e n t s a p p l y t o e l e c t r i c a l a p p l i a n c e s and equipment a s w e l l a s t o t h e c o s t s of p r o d u c i n g e l e c t r i c i t y ; o f f - s e t t i n g a d j u s t m e n t s a l s o a p p l y , of c o u r s e , t o s u b s t i t u t e s o u r c e s of e n e r g y and equipment. I n p r a c t i c e , t h e most s i g n i f i c a n t c a s e s a r e t o b e found i n farm and a g r o - i n d u s t r i a l demands ( e s p e c i a l l y a u t o g e n e r a t o r s , d i e s e l e n g i n e s and r e f r i g e r a t o r s ) . (iii) Labor. The main element i s t o b e found i n t h e c o n s t r u c t i o n of t h e e l e c t r i c a l n e t w o r k s , where u n s k i l l e d l a b o r c o s t s may form a b o u t 25% of i n v e s t m e n t c o s t s , depending on t h e t e r r a i n . The e x c e s s of wages o v e r shadow wages i s deducted from t h e c o s t stream. " ..- (iv) fiet Tax Revenueg. These are p a r t of t h e Government's p r o f i t s %gemming, m o s t l y , from sales of e l e c t r i c a l a p p l i a n c e s and equipment; t h e y a r e counted - i-- w i t h " t h e b e n e f i t s ( o r d. n- - e-.-d ..--u c t e d .,I * from t h e c o s t s k - These r e v e n u e s a r e o f f s e t t o some e x t e n t by ;educed t a x r e v e n u e s due t o a reduced h s e of s u b s t i t u t e s ; mainly t h i s i s o n l y s i g n i f i c a n t f o r farms and a g r o - i n d u s t r i a l demands which o t h e r w i s e u s e t a x e d i t e m s such a s a u t o g e n e r a t o r s , d i e s e l e n g i n e s and a l t e r n a t i v e s o u r c e s of r e f r i g e r a t i o n . (v) C r e d i t . L o c a l i n q u i r i e s o f t e n show l o c a l i n t e r e s t r a t e s much %Ygher t h a n t h e o p p o r t u n i t y c o s t of c a p i t a l . -.-. I f .I* d e n o t e s ~ a c t u a l i n t e r e s t payments on equipment and I t h e i n t e r e s t which would b e p a i d w i t h b e t t e r c r e d i t f a c i l i t i e s , (I* - I ) needs d e d u c t i n g from t h e c o s t stream. By t a k i n g a sample of c a s e s I* and I can e a s i l y be c a l c u l a t e d a s a p e r c e h t a g e of t h e e l e c t r i c i t y b i l l p a i d t o r u n t h e equipment; a g e n e r a l p e r c e n t a g e a d j u s t m e n t term c a n t h e n b e a p p l i e d t o e l e c t r i c i t y r e v e n u e s from t h e whole consumer p o p u l a t i o n . (j) Summary 2.25 The t i m e s t r e a m s of c o s t s and b e n e f i t s , which need t o b e added a l g e b r a i c a l l y and p r e s e n t worthed, a p p e a r as f o l l o w s : Benefit Streams: - electricity revenues; surplus benet its to farms, agro-industries and commerce, calculated from studies of processes, outputs and profits, and of how profits would change if substitutes were used; i..?'' j ;,/;5 - surplus benefits to households, which can be estimated, in principle, from econometric studies of household demand. Cost Streams: - capital costs of bulk supply, related to the area's peak kW demand ; - capital costs of subtransm~ssionand local distribution networks ; - energy costs (kWh related) ; - administration, billing and maintenance costs. Shadow Price Adjustments Streams: - net tax revenues; - net foreign exchange penalties; - shadow wage adjustments to labor costs; - adjustments for scarcity of credit. Having calculated the present worth of net benefits in this way, and also estimated an economic rate of return (by considering different discount rates), the next question to consider is: What is an acceptable criterion? The Criterion for Project Acceptability 2.26 Calculations of costs and benefits concentrat'e only on economic factors and only on what can be quantified. In several cases the estimated rate of return may be above the opportunity cost of capital and sufficient to justify the project on economic grounds. This happens if a strong demand develops from: - a number of villages, not too widely scattered (so that costs are not too high); and - farms, agro-industries and rural commerce; and if proper attention is paid tc keeping costs down, to pricing policy, and to identifying proje~tswhich are related to the economic development priori- ties of the area. 2.27 However, a number of p r o j e c t s o f t e n show r e t u r n s c l o s e t o b u t below t h e o p p o r t u n i t y c o s t of c a p i t a l . A s a p o i n t of p r i n c i p l e , i t would g e n e r a l l y be wrong t o r e j e c t s u c h p r o j e c t s : g e n e r a l l y i t i s n o t p o s s i b l e t o q u a n t i f y a l l of t h e n e t economic b e n e f i t s , and s o c i a l arguments may b e i m p o r t a n t . The f o l l o w i n g , f o r example, may merit a l l o w a n c e s : - t h e s u r p l u s b e n e f i t s t o households, i f they cannot be estimated; - t h e v a l u e judgment t h a t low income and s m a l l b u s i n e s s consumers m e r i t s p e c i a l help, so t h a t a s u b s i d y on e l e c t r i c i t y s a l e s is d e s i r a b l e a t low l e v e l s of consumption; - i n s t i t u t i o n a l b e n e f i t s i n t h a t t h e investment is a s t i m u l u s t o p u b l i c and p r i v a t e i n s t i t u t i o n s , a s w e l l a s t o t h e area i t s e l f , t o take a stronger interest i n t h e a r e a ' s development; t h i s s h o u l d f e e d back p o s i t i v e l y on t h e r e t u r n s t o t h e p r o j e c t b u t t o a n immeasurable e x t e n t (an example 'of P r o f e s s o r Hirschman's d i c t u m t h a t t h e b e n e f i t s of u n i n t e n d e d s i d e e f f e c t s on i n s t i t u t i o n s a r e o f t e n more f a r - r e a c h i n g t h a n t h o s e of t h e i n t e n d e d e f f e c t s of p o l i c y [ 6 ] ) ; - t h e e x p e c t e d r e t u r n s may be lower t h a n t h e o p t i m i s t i c r e t u r n s ; b u t an o p t i m i s t i c view of t h e p r o j e c t s h o u l d b e t a k e n : t h e s o c i a l consequences of n e g l e c t i n r u r a l a r e a s outweigh t h e r i s k s of l i m i t e d s u c c e s s . 2.28 The a l l o w a n c e s f o r such arguments depend on t h e c o u n t r y , a n d i n p a r t i c u l a r on i t s f i s c a l s t r e n g t h . For t h i s r e a s o n , how much lower t h a n t h e o p p o r t u n i t y c o s t of c a p i t a l t h e r a t e of r e t u i n c r i t e r i o n can be p e r m i t t e d t o go i s a m a t t e r b e s t l e f t t o e x p e r i e n c e , d i s c u s s i o n and judgment. But t h e r e a r e s e v e r a l r e l a t e d arguments f o r not p e r m i t t i n g i t t o go t o o low, i n a d d i t i o n t o t h e obvious p o i n t t h a t i t s i g n i f i e s an i n e f f i c i e n t i n v e s t m e n t . F i r s t l y , i f r u r a l e l e c t r i f i c a t i o n i s t o c o n t r i b u t e towards economic o u t p u t and wages i n r u r a l a r e a s , i t must b e couched i n a p r o d u c t i v e c o n t e x t . LF,nere i t i s , t h e demands from a g r i c u l t u r e , a g r o - i n d u s t r i e s and commerce w i l l b e l a r g e , and t h e r e v e n u e s and s u r p l u s b e n e f i t s from t h e s e s h o u l d p r o v i d e a good economic r e t u r n t o t h e i n v e s t m e n t . I n t h i s r e s p e c t , e l e c t r i c i t y i s s i m p l y a f a c t o r i n p u t t o a g r i c u l t u r e and r u r a l commerce, s o t h e economic r e t u r n s s h o u l d b e comparable t o o t h e r i n v e s t m e n t s i n tkiese s e c t o r s . On t h e o t h e r hand, where t h e r a t e of r e t u r n i s low i t is a s i g n t h a t demands f o r p r o d u c t i v e u s e s may be low and t h a t i t s c o n t r i b u t i o n towards r a i s i n g p r o d u c t i v i t y and incomes i n t h e a r e a s i s l i m i t e d . 2.28 Secondly, and c l o s e l y r e l a t e d t o t h i s , i s t h a t a low r a t e of r e t u r n may s i g n a l t h a t t h e r e i s i n s u f f i c i e n t a t t e n t i o n t o t h e development of l o c a l i n f r a s t r u c t u r e and a g r i c u l t u r e : poor o r no c r e d i t f o r example, o r bad r o a d s . E l e c t r i c i t y i s o n l y one of many f a c t o r i n p u t s needed f o r development. I f t h e complementary i n p u t s a r e n e g l e c t e d , t h e c o n t r i b u t i o n of e l e c t r i c i t y t o d e v e l o p ment i s diminished. 2.29 T h i r d l y , p r o j e c t s having low r a t e s of r e t u r n can a l s o l e a d t o d i s i l l u s i o n m e n t among b o t h i n v e s t o r s and consumers. One r e a s o n f o r t h i s i s t h a t even s u b s i d i z e d e l e c t r i c i t y and t h e a p p l i a n c e s t o u s e i t o f t e n c o s t f a r more t h a n people a n t i c i p a t e ; t h i s can be e x c e p t i o n a l l y unwelcome s e t - back f o r low income households, and a h i g h r a t e of d i s c o n n e c t i o n r e s u l t s . Another r e a s o n i s t h a t where development i s e x p e c t e d , b u t n o t r e a l i z e d , t h e r e i s cynicism ( t h i s s t u d y and a l s o an A I D sponsored s t u d y i n Costa Rica and Colombia have found s o l i d evidence of t h i s [ 5 ]) . 2.30 F o u r t h l y , where t h e r e i s a s t r o n g demand from households and b u s i n e s s e s , a low r a t e of r e t u r n probably i n d i c a t e s t h a t t a r i f f s a r e too low and wrongly s t r u c t u r e d . Some of t h e l a r g e r household consumers i n v i l l a g e s a r e o f t e n above-average p e r c a p i t a incomes, w h i l e many of t h e l a r g e r farm and b u s i n e s s consumers make q u i t e good p r o f i t s . I t i s sometimes t h e c a s e , h o w e v e r , t h a t s u b s i d i e s c o n t i n u e even though such consumers a r e a b l e and w i l l i n g t o pay more. T a r i f f s can be r e s t r u c t u r e d s o a s t o h e l p t h e lower income groups more w h i l e e n a b l i n g t h e u t i l i t y t o e a r n a b e t t e r f i - n a n c i a l r e t u r n and extend s e r v i c e more widely; t h e measured r a t e of r e t u r n would a l s o be h i g h e r . 2.31 F i n a l l y , t h e b a s i c r e a s o n s f o r low r a t e s of r e t u r n a r e low l e v e l s of u s e of high-cost p r o j e c t s . It i s p o s s i b l e i n such c a s e s t h a t a l e a s t - c o s t s o l u t i o n h a s n o t been found. Low demand stemming from simple u s e s l i k e l i g h t i n g , i r o n i n g and one o r two r e f r i g e r a t o r s i n v i l l a g e shops, can b e met by s m a l l d i e s e l o r micro-hydro powered a u t o g e n e r a t o r s a t r e l a t i v e l y low c o s t s . When such a l t e r n a t i v e s a r e adopted, t h e r a t e of r e t u r n i s n o t - o n l y good b u t t h e schemes a r e o f t e n f i n a n c i a l l y p r o f i t a b l e . 2.32 I n sum, t h e r a t e of r e t u r n ( o r p r e s e n t worth) c a l c u l a t i o n p r o v i d e s some u s e f u l messages. A high r e t u r n s i g n i f i k s a good investment. A r e t u r n somewhat below b u t approaching t h e opportuliity c o s t of c a p i t a l d e s e r v e s t o l e r a n c e s i n c e t h e r e a r e s e v e r a l b e n e f i t s of importance which cannot b e q u a n t i f i e d . Low and v e r y low r e t u r n s on t h e o t h e r hand may s i g n a l an in- e f f e c t i v e o r badly prepared p r o j e c t , wrong p r i o r i t i e s o r t h e p o s s i b i l i t y of disillusionment . CHAPTER 3 BACAGHOUND INrl3mfION ON EL SALVADOR - - Economic Growth 3 -1 El Salvador's economic growth and output has h i a t o r i c a l l : ~ dependell on ;tgriculture, and in p a r t i c u l a r on the export of coffee, of which E l Salvador is t h e s i x t h l a r g e s t producer. While, however, agril-~rlture s t i l l provides t h e l a r g e s t share of GNP, t h e r e has been a p a r t i c u l a r l y marked developnent of manufacturing, commerce and finance which together now provide ( i n 1974) nearly h a l f t h e GNP. Table 3.1 Sonrces o f GNP, 1960 and 1970 Current P r i c e s 1962 P r i c e s Increase Share Sector #1960 1970 1960 1970 % 1970 Agriculture Minerals Manufacturing Construction Utilities Transp.& Communications Commerce F3n an ce Housing Government Other Services Total The r a t e of economic growth increased from 4.3% p e r year in t h e 1950 ' S , t o 5.6% p e r year in t h e 1960's. AS one might expect, both a cause and a consequence of t h e high r a t e of growth in commerce and manufacturing has been the emergence of a young and r e l a t i v e l a r g e e n t r e p r e n e u r i a l class. 3 -2 The rapid economic growth o f t h e p a s t twenty f i v e years h a s n o t , however, s i g n i f i c a n t l y b e n e f i t t e d the low income groups, though some attempt t o spread t h e b e n e f i t s through minimum wage l e g i s l a t i o n were i n i t i a t e d in the 1960's ( i n 1972, t h e minimum wages were j u s t l e s s than one d o l l a r per day). One reason f o r this i s t h a t population has grown rapidly a t 3.5% p e r year, and t h e present population density of L30 persons p e r square mile ( t o t a l population i s 3.7 m i l l i o n ) i s one of t h e highest i n t h e world. The o t h e r reasons a r e t h a t , p o l l i t i c a l awareness of economic and s o c i a l needs have developed slowly and r e l u c t a n t l y . The averzge Salvadorean has t h e lowest p r o t e i n i n t a k e i n Central America; i l l i t e r a c y , although diminishing, i s above 40%; and, a s i n d i c a t e d by the -, following data, poverty, s t a g n a t i o n of r u r a l incomes, and p r e s s u r e OR the land a r e driving increasing numbers t o urban areasr- 1970 Increase Flural Workhg Population Urban Working Population Total Rural Incomes, @ per capiLa 292 2 99 2% Urban Incomes, $ p e r c a p i t a -1,SOO ~1,F00 26% Average per c a p i t a income, 6 660 6F0 5% For a long time, goverrnnent support was highly concentrated i n t h e i n t e r e s t s of a few l a r g e producers o f coffee and cotton; and only r e c e n t l y has more support been provided t o t h e d i v e r s i f i c a t i o n of i n d u s t r y and a g r i c u l t u r e . And, though q u i t e l a r g e programs f o r economic reforms were conceived i n the e a r l y 1960 I s , s e v e r a l of t h e s e were o f t e n abandoned o r unaccomplished. 3 -3 Nevertheless, t h e r e have been growing F n i t i a t i v e s t o widen and deepen development. The government has made s p e c i a l e f f o r t s t o launch a number of s o c i a l programs in public housing, h e a l t h and education; a number of r u r a l i n f r a s t r u c t u r e p r o j e c t s , p a r t i c u l a r l y in roads and e l e c t r i f i c a t i o n , have progressed w e l l over r e c e n t y e a r s (though extension public water supplies seems t o have lagged very badly); t h e r e a r e various programs t o support p r i v a t e a g r i c u l t u r e and provide c r e d i t in r u r a l areas (though a program of land reform has been postponed i n d e f i n i t e l y ) ; i n v e s t - ment i n a s e r i e s of l a r g e public i r r i g a t i o n p r o j e c t s has begun, which, once completed should r a i s e t h e area of land i r r i g a t e d f i f t e e n - f o l d t o over 300,000 ha; and, as our survey of productive uses of e l e c t r i c i t y - shows (in chapter 12) t h e r e seems t o be q u i t e a lot of growth of commerce and agro-industries i n r u r a l areas. Even s o , there i s a long way t o go. Q u i t e a p a r t from t h e problems of i l l i t e r a c y and p r o t e i n deficiency mentioned above, i t should be noted t h a t a l a r g e p o r t i o n of t h e labour force i s employed f o r l e s s than half t h e working days of t h e year; and t h e public investment programs in r u r a l a r e a s have s t i l l reached only a minority of t h e people - over 70% of r u r a l roads a r e s t i l l dirt-roads, f o r example, o f t e n impassable in the wet season; the e l e c t r i f i c a t i o n program, which r i g h t l y concentrated on t h e l a r g e r v i l l a g e s f i r s t , has reached perhaps no more than 10% of t h e r u r a l population, and t h e majority of t h e people do not have access t o s a f e drinking water o r h e a l t h service. I n 1970, t h e p e r c a p i t a income d i s t r i b u t i o n was a s follows : - $ Share of National Income V Lowest 0, Next 30% Per Capita Income 6 221 16% Next 15% Top 55 A P r i c u l t u r e , Land Tenure, Orgafiisation of rZural Labor 3 -4 The a g r i c u l t u r a l s e c t o r continues t o b e s h a r p l y divided in terms of techniques and o r g a n i s a t i o n , between production f o r e x p o r t , which i s g e n e r a l l y modern and e f f i c i e n t l y organised, and which has high y i e l d s ; and p r o d u c t i o n f o r t h e domestic market (mostly corn, beans, r i c e and sorghum), which i s predominvltly i n t h e hands o f m a l l h o l d e r s , g e n e r a l l y c u l t i v a t i n g t h e poorer s o i l s and having l i m i t e d a c c e s s t o c r e d i t and how-how. This dichotomy i s r e f l e c t e d in t h e s u b s t a n t i a l i n c r e a s e in o u t p u t of t h e e x p o r t crops ( c o f f e e and c o t t o n in p a r t i c u l a r ) ; and in t h e poor performance i n domestic food production, which has n o t k e p t up with t h e l e v e l o f p o p u l a t i o n growth i n t h e l a s t two decades, h i t h t h e r e s u l t t h a t food imports have r i s e r . I n 1970, c o f f e e formed h a l f t h e value added h a g r i c u l t u r e , c o t t o n lo.?%, and corn, t h e l a r g e s t domestic crop, s. Table 3.2 Output i n ~ gi cru l t u r e , 1960-1970 (fl :,I c u r e r i t p r i c e s ) Coffee Co t i o n Corn Se m s Sugar Rice Others Total A s l a t e r discussed 2.:; 2. I 5 e r 1 2 , t'nere i s q u i t e a l a r g e p o t e r i t i a i ?rc7>--,h from i r r i g a t i o n . 3 .5 It i s not p o s s i b l e t o ~ ~ q d e r s t a nagricc15ure d i n ?1 Salv;'!r,r wi - i n t h e main v i l l a g e s b u t i n low d e n s i t y and m a i l settlemen5s; as a r e s u l t i t i s very expensive to extend s e r v i c e t o them. I n addition, t h e colonos do n o t own t h e i r property and so can only have s e r v i c e n t t h e ins-tiga" klon of the property owner. F i n a l l y , t h e migrant workers generally cons t r i l c t ( o a t of wood and miscellaneous m a t e r i a l s ) temporary houses; t h e r e i s l i t t l e permanence o r s o l i d i t y i n t h e i r dwellings, Kith the r e s u l t t h a t extension of s e r v i c e to them i s r a r e l y worthwhile. The n e t r e s u l t i s t h a t i t i s very d i f f i c u l t t o j u s t i f y extension of s e r v i c e t o n e a r l y two t h i r d s of the v i l l a g e - r u r a l working population - a s K i l l be seen l a t e r i n t h i s r e p o r t . I l a n ~ @taucr i n g 3 -7 Though i t can be shown t h a t t h e r e i s p l e n t y of m3n f o r economic growth i n a g r i c u l t u r e , the shortage of lnnd w i l l pmbably make E l Salvador i n c r e a s i n g l y dependent on food imports, p a r t i c u l a r l y froin o t h e r Central American countries, and Fncreasingly dependen5 on manufacturing f o r growth. 3 -8 A s mentioned e a r l i e r , manufacturing has grown r a p i d l y over the l a s t f i f t e e n y e a r s , and together with comerce and f i n a n c e provides nearly h a l f t h e GW. It i s a l s o absorbing an i'ncreasing f r a c t i o n of t h e labour Zorce, as t h e following t a b l e i n d i c a t e s : - Table 3.3 b l o y m e n t in E l Salvador (.thousands) Agriculture and Fishing - IJIand ac t u r L ~ g Factory - Handicraft Construction Utilities Transport Comer ce Services Other Total Zhployed Unexplopent -Jneqlo>men+, 3 Total iJo?L%g Population The high growth i n d u s t r i e s , financed makily by coffee producers and foreign i n v e s t o r s , have been t e x t i l e s , food products, shoes'and chemicals. A number of small i n d u s t r i e s have a l s o expanded r a p i d l y , in p a r t i c u l a r f u m l t l ~ r e ,p r i n t i n g paper products, t a i l o r i n g and simple metal goods. There a r e a l s o a number of import substi-Luting i n d u s t r i e s , including those which produce e l e c t r i c a l appliances and :;mall e l e c t r i c a l equipment f o r power supply. - Trade 3.9 For many y e a r s E l Salvador h a s been a b l e t o balance i t s paynents and expand i t s t r a d e . One reason f o r t h i s h a s been t h e rising ou';pu'; and p ~ i c e s o f coTfee. Also, E l Salvador h s s bee:^ v e r y s u c c e s s f u l in d i v e r s i f y i n g and e x p a n d h e i t s e x p o r t s . I n 1950, c o f f e e accounted f o r 67% o f e x p o r t s a l e s ; by 1973, though t h e vol~une of coffee s a l e s had doubled, t h e y accounted f o r 44% o f exports: Table 3.4 P r i n c i p a l Exports (current prizes) Agriculture: Coffee Cotton Shrimps Others Total Industrial: Processed Sugar Cotton 'I'l--read a n d Yarn Cotton Fabric Clothing Chemical Produc ~,s Other Total Other ( u n c l a s s i f i e d ) T o t a l Exports (f .o.b.) 2 93 Source: I3F.D Economic ;.lemoranu~,on E l Salvador, :lo . ~ ~ L - S S 3.10 This expansion of L q o r % s h a s p e r m i t t e d I;he impor5 o f manufactured goods, and helped f i n a n c e e;cpansj.nn of mznufacturing, i n f r a - s t r u c t u r e and agro-industries. In comon v i t h m;ur TescZerm sources: varljus g o m r m o t e g e n c i e s pnd Census C f f l c e . ;am d a t a on s o c l d servl:?. e 7 d housilg urr from f i e l d t r i p s . E l e c t r i c i t y con-ptlon data are our urn campilatl~n.. i' - There are I r a M l j four h i c d r 2i I r c l l l n q : the b e s t qulua1lr.j ?ncs !!aye c i l e d roofs and are nrO. of >rick, cement sad s t o n e , and 'ladrlllo-mi:exnl. md atrraCYLve. Fext are r k e ones m e of " M o u c " aM " b s n r r r ? ~ c " ,n l n r w m d , ~d ard nrl:ka h e l o v e s t :u.lity m e s , r h l c h w e ' W V f co-o * I L L f r m e a cade o u t oP rrce b r ~ l c h e r . I-, the mr.l arc.., rc1:-forced r l f h straw; orten t h e y u r W n t c d white. and ImL s m ' o r t a b l e ~ ' r ; d on the ~ , . r s a i r C 01' h . - wl:h I r o n I r a . ( l o d l y the:, u e hm u " n l r t o " c v i l l s g e s , are h ana . "ranchos" and arc no mrr thrn straw O u r. I I (1) Juayua i s a l a r g e and r e l a t i v e l y prosperous c e n t r e of regional growth, s i t u a t e d in a c o f f e e growing area. Many organisations keep r e g i o n a l o f f i c e s in Juayua (which was only e l e c t r i f i e d in 1965). The commercial s e c t o r i s well developed: on the domestic e l e c t r i c i t y t a r i f f alone, t h e r e a r e 85 shops; t h e non- I domestic s e r v i c e s include 8 l a r g e shops, 21 s e r v i c e s f o r Sakeries, r e s t a u r a n t s , a cinema and a gas s t a t i o n ; and s e v e r a l o t h e r s e r v i c e s . I n f r a s t r u c t u r e and houses are good: a l a r g e p o r t i o n of the houses have piped water, t h e r e a r e good schools and a w e l l equipped h e a l t h centre. In c o n t r a s t with sany a r e a s , t h e r e a r e l e s s absentee landlords, and s e v e r a l landlords l i v e in t h e cabecera. Coffee used to be processed elsewhere, but now t h e r e a r e s e v e r a l m i l l s near t h e cabe- cera. There i s some domestic i n d u s t r y , b u t only on a small s c a l e ; t h e goods 3re sold mostly w i t h i n t h e municipio. (2) Xosario de l a Paz was t h e f i r s t v i l l a g e t o be e l e c t r i f i e d by CEL. It i s a l a r g e , p l e a s a n t and f a i r l y prosperous v i l l a g e , 37 Km from San Salvador, and t h e good mad connection (one can reach the c a p i t a l by bus in l i S minutes) i s s a i d t o have been an important f a c t o r i n t h e v i l l a g e ' s development. It i s a l s o a f a i r l y densely populated area, where t h e average spacing between t h e cabeceras i s about 6 KI. The q ~ i a i i t yof housing i s good, a?d t h e r e i s a l o t of new construction; an o l d an3 deficien: g r a v i t y system of water s u p p l i e s was r e c e n t l y replaced by a w e l l and pqmp system. Agriculture i s mainly cotton, c o ~ mand c a t t l e . Except f o r t h e cotton f i e l d s , holdings a r e small; most people work the cotton f i e l d s , and r a i s e corn, beans o r c a t t l e on small p l o t s + z i n g t h e r e s t of t h e year. Q e ut i a few i n h a b i t a n t s l i v e i n Flosario but work i n San Salvador, while o t h e r s f i n d employment i n a nearby r i c e m i l l . A s w i l l be seen in l a t e r chapters, commercial and o t h e r small business a c t i v i t i e s a r e important, though generally they serve only l o c a l markets. (3) Candelaria de l a Frontera i s a l a r g e and f a i r l y prosperous v i l l a g e c l o s e to t h e boarder with Guatemala. Housing q u a l i t y i s good, even in t h e out- skirts. The i n f r a s t m c t u r e , however, i s of mixed q u a l i t y : good schooling i s a v a i l a b l e ; t h e r e i s a h e a l t h centre; b u t some s t r e e t s a r e bad; the q u a l i t y of water and l a c k of adequate sewerage a r e considered a problem. Candelaria i s an o l d b m , and i t i s s a i d t h a t i t s b e s t period has passed now t h a t i t i s bypassed by a new highway t o Guatemala. The land i s devot'ed t o c a t t l e , corn, beans and, f u r t h e r north, to coffee; holdings a r e small, and most people r e n t land i n t h e r a i n y season, moving n o r t h t o work on t h e coffee p l a n t a t i o n s during t h e d-qy season. There i s some small s c a l e Fndustry. Commerce i s s t i l l imporfant, b u t n o t as much as in the days b e f o r e t h e new highway was constlucted; t h e e x t e n t t o which shops can serve t h e l o c a l markets i s l i m i t e d s i n c e Santa Ann can be . r e a d i l y reached; t h e r e i s , nevertheless, a v a r i e t y o f customers on the commercial e l e c t r i c i t y t a r i f f s ( ~ 4 ) ( 4) San Juan Talpa i s a medium sized v i l l a g e , c l o s e to Rosario de l a Paz, 35 Krn from San Salvador. Road access i s reasonably good, though, until recently, t h e 3 *%n feeder road which linjcs i t t o the highway was of very poor q u a l i t y . The q u a l i t y of housing in t h e v i l l a g e centre i s q d t e good, but i s poor on t h e o u t s k i r t s . The i n f r a s t r u c t u r e has been g r e a t l y improved i n recent years; a h e a l t h c e n t r e was b u i l t in 1966, s t r e e t s have been improved, t h e r e i s a good water system and a well-equipped school. Ihplojrment p a t t e r n s a r e s i m i l a r t o Rosario, though i t i s p o s s i b l e t h a t t h e average v i l l a g e income i s somewhat l e s s . Commercial and o t h e r small businesses which serve t h e v i l l a g e a r e q u i t e w e l l developed. (5) San Luis Talpa i s a small v i l l a g e s i t u a t e d near t h e coast, on a good road, 35 Km from San Salvador, and in t h e c o t t o n area n o t f a r from Rosario de l a Paz. The quality of houses i s good, w i t h piped water o f t e n available. Both t h e school and the h e a l t h centre, however, are not w e l l equipped. b c a l a g r i c u l t u r e i s predominantly cotton; the farms a r e l a r g e , highly productive and r e q u i r e l a r g e q u a n t i t i e s of l a b o r f o r picking during t h e dry season. During t h e wet season, t h e workers rent land f o r growing cereals. Most of t h e farm workers in t h e area buy t h e i r n e c e s s i t i e s from San Luis Talpa, and this has been a stimulous t o commerce. There i s a l s o a measure of a g r o - i n d u s t r i a l a c t i v i t y nearby. (6) S e s o r i i s a small, i s o l a t e d and very o l d v i l l a g e i n t h e e a s t e r n p a r t of the country. The houses a r e n o t bad q u a l i t y , b u t a r e old. There i s only one access road a n d i t i s i n bad condition; water s u p p l i e s a r e poor; t h e r e i s a school and a h e a l t h c e n t r e , b u t both are understaffed and poorly equipped. Nevertheless, recent economic growth i s t b u g h t to have been considerable, t h e r a i s i n g of c a t t l e being t h e main impetus. Also, t h e r e i s q u i t e a lot of commerce, S e s o r i being t h e p r i n c i p a l market c e n t r e in t h e region. (7) Jayaque i s a very old v i l l a g e 43 Km from San Salvador. It i s not poor, b u t i t i s stagnant. Its modern development began a t t h e end of t h e l a s t century when t h r e e l a r g e coffee farms were being developed and required a lot of labour. These t h r e e farms s t i l l domhate t h e area, though t h e r e a r e a few s m s U holdings; in t h e i r p r e s e n t stage, t h e farms can o f f e r l i t t l e e x t r a growth and employment. Road access i s r a t h e r good, a p a r t from t h e l a s t 3 Km of feeder road, which i s i n bad condition. Housing i s r a t h e r poor, though t h e water s x p l i e s , the h e a l t h centre and t h e school a r e reasonable. Most people f i n d employment dxdng t h e coffee picking season (when t h e r e i s a l s o a l o t of migration t o t h e a r e a ) . There a r e f o u r coffee mills nearby, p l u s a number of shops and small businesses (e.g. corn grinding) which serve t h e v i l l a g e . (8) Chirilagua i s a l a r g e b u t poor v i l l a g e in t h e remote southeastern c o a s t a l plane o f t h e country. Road access i s good; t h e school o f f e r s education up t o a high grade, but i t s u f f e r s from a very high d e s e r t i o n r a t e , p a r t i c u l a r l y among i t s r u r a l students who a r e o f t e n needed a t home o r s u f f e r i n t e s t i n a l diseases; and t h e r e i s a l s o a h e a l t h centre. The supply and q u a l i t y of potable water i s a major problen; a t p r e s e n t t h e r e a r e only a few standpipes. Agricul- t u r e i s mixed; t h e r e a r e some l a r g e cotton holl.lings, and s e v e r a l m a l l holdings f o r corn, beans and l i v e s t o c k (pigs, caws and chickens,mainly). Nost people work i n t h e cotton f i e l d s in t h e dry season, and r e n t small p l o t s t o grow corn and beans in t h e wet season. There i s no i n d u s t r y and only a few shops. (7) Salcoatitan i s a small, poor v i l l a ~ es i t u a t e d - k R coffee area; i t co1iL3. be consideyed a silburb of t h e nuch l a r g e r -zillage o'f Juajr~a (discussed above) which i s only 2 Km away. Road c o n n e c t i ~ n sare good; t h e r e i s a bus service; almost a l l f d l i e s have p r i v a t e a c c . 3 ~ to~ potable water; t h e present school i s n o t w e l l eq-sipped, b u t i s t o be *roved; the~e i s no h e a l t h centre, but t h e one i n Juayua i s e a s i l y reached and t h e r e i s a l s o a p r i v a t e p r a c t i c e i n S a l c o a t i t a n i t s e l f . I n t h e surrounding areas :here a r e l a r g e , modern, highly productive coffee farms, owned by f i v e f a m i l i z s , and which provide most of t h e employment. There i s l i t t l e domestic i n d u s t r y , b u t the comnercial s e c t o r i s of some inportance. For most goods, Juayua i s of course t h e main p o i n t of a t t r a c t i o n , but s i n c e S a l c o a t i t a n l i e s along orie of Juayua ' s access roads some of t i e r e g t o n a l narket i s served by S a l c o a t i t v l r a t h e r than by Juayua. Though Salcoatit,an does n o t +pear on s i g h t t o be a czntre of economic growth, i t s population, l i k e t h a t of Juayua, h a s grown markedly in r e c e n t t i n e s ; and here i s q u i t e a s t r o n g e l e c t r i c i t y demand stenrming from commerce. (10) San Antonio P a j o n a l i s a s m a l l v i l l a g e , poorer than S a l c o a t i t a n , n o t f a r from Candelaria de l a ~F-contera. Road connections t o o t h e r municipios a r e poor, w i t h t h e result t h a t t h e people in t h e surrounding a r e a s tend t o shop i n San .4ntonio r a t h e r t h a n elsewhere. The s t r e e t s a r e in very bad z o n d i t i c n , piped water i s a v a i l a b l e though n o t in s u f f i c i e n t s:lpply, and theye i s a school; never- t h e l e s s , perhaps because of much worse c o n d i t i o n s i n t h e surrounding rural a r e a s , t h e r e h a s been c o n s i d e r a b l e m i g r a t i o n t o t h e v i l l a g e . The land, which i s abundant, i s mainly devoted t o corn and c a t t l e ; almost a l l holding except those f o r c a t t l e a r e small, and much of t h e farming i s f o r s u b s i s t e n c e . Thera i s some domestic inctustry, and, a s explained above, q u i t e a l o t o f com.nercia1 a c t i v i t y , i n c l u d i n g shops and t h e processing of animal food, corn, n i l k 7nd cheese; this has, i t dl1 be seen, given r i s e t o quite 3 r a p i d growth cf e l e c t r i c i t y denand. (11) San Juan Tepezontes i s a s m a l l , very poor v i l l a g e i n a c o f f e e growing area. The f a m s a r e very small; new techniques a r e only p a r t i a l l y u t i l i s e d ; t h e c o f f e e t r e e s a r e q u i t e o l d ; and t h e r e i s n o t nuch p r o t e c t i o n against. erosion. ihe growers have l i t t l e c r e d i t and t e c h n i c a l a s s i s t a n c e , thoug!? t h e g o v e m e n t r e c e n t l y began t o h e l p by c r e a t i n g co-operatives; a l s o , a g o ~ e r m e n % agency was e s t a b l i s h e d to c o l l e c t c o f f e e and improve p r i c e s . Road access i s s t l l l rough; t h e houses a r e very poor; t h e h e a l t h s e r v i c e s a r e p r a c t i c a l l y non-existent; t h e s c h o o l house could n o t be worse; and t h e r e i s no p o t a b l e water supply sysfem. There i s a l s o no i n d u s t r y and commercial a c t i v i t y i s very l i m i t e d . (1 2) San Francisco Chinameca i s t h e most economically backuard v i l l a g e in our sample. It seems t o be d e c l i n i n g , though it i s only 2 1 Krns from San Salvador and road access i s reasonably good. The q u a l i t y o f housing v a r i e s redeljr: t h e r e a r e s e v e r a l made o f adobe ( d r i e d mud) , and look q u i t e good; t h e r e s t s r e primLtive. There i s , as in a l l t h e cabeceras, p z b l i c l i ~ h % i nb a~ C U, no p o t a b l e water o r sewerage facilities; water i s byought over considerable d i s - n n c e s from wells. There is no h e a l t h c e n t r e and t h e absence o f good q u a l i t y whter has had s e r i o u s h e a l t h e f f e c t s . The s c h o o l i s ill-equi?ped, has s s h o r ~ s g eo f t e a c h e r s and a problem of absenteeism. Coffee i s t h e na-in source o f i n c ~ m eand . employment, b u t c o f f e e growing s d f e r s from t h a same problems a s irl Jlxn Tepe- zontes People in t h e r u r a l a r e a s supplement t h e i r (highly season2l) Lncolle earned from t h e coffee h a r v e s t by growing c e r e a l s on renA,ed land in t h e -nlnjr season. Q ui t e a few people a r e a l s o involved in t h e b u s i n e s s o f c o f f e e c o l l e c t - . i n g , w e i g h i ~ g , drying and t r a n s p o r t i n g t h e seeds on a small s c a l e . Small i n d u s t r y i s v i r t u a l l y non-existent Commercial a c t i v i t y a l s o amounts t o l i t t l e ; t h e r e a r e q u i t e a few shops, e a r n i n g very l i t t l e p r o f i t , which c a r r y small assortments of b a s i c n e c e s s i t i e s . 5.4 The l a s t ; t h r e e cases in p a r t i c u l a r show how a r e a s can and do remain backward in t h e absence of s e v e r a l k i n d s o f i n - r e s h e n t . San Francisco Chiname- ca and San Juan Tepezontes, f o r example, have had electricity s u p p l i e s f o r over t e n y e a r s , and Chinameca h a s a good road; y e t l o c a l a g r i c u l t u r e and o t h e ~ Fnfrastruct.ure have been badly neglected. This has n o t o n l y r e s u l t e d i n ths a r e a s remaining backward, w i t h o s t e n s i b l y l i t t l e s i g n s of development, buk a l s o a very poor r e t u r n on t h e e l e c t r i c a l invesA'ments. CHAPTER 6 EXECTRICITY DEMAND ON THE PROJECTS Introduction 6.1 Consumers in mil areas can be grouped i n t o six categories (according t h e t a r i f f categories described in Chapter 4): domestic, commercial, low and high voltage i n d u s t r i a l ( "motive power11), i r r i g a t i o n and p u b l i c l i g h t i n g , In 1972 the number and annual consumption of those' supplied by C E L were:- Table 6.1 - Tariff - No MWh A- kWh/consumer D-3 Domestic 12,963 5,452 36% 421 G-4 General ( c o m e r c i a l ) 1,707 3,591 2 k% 2,100 F-5 LV :4otive Power 306 2,Il8' lL% 6,930 F-6, 9 HV Yotive Power 3.L 2,922 20% 208,700 R-U. Lrrigation 13 300 2% 23,100 No ,8 Public Lighting 109 594 4% 5,400 6.2 P r a c t i c a l l y a l l t h e domestic and commercial consumers and, o f course, p u b l i c l i g h t s , a r e located in the v i l l a g e s ; while p r a c t i c a l l y a l l t h e motive power and, of course, i r r i g a t i o n consumers, a r e in t h e farms and agro-industries i n t h e outlying r u r a l areas. ( ~ exception n t o t h i s i s t h a t t h e r e a r e sometimes domestic consumers in small hamlets ( c a s e r i o s ) e l e c t r i f i e d i n the outlying areas; but we have only been able t o study these on a sample b a s i s during f i e l d t r i p s ( s e e chapter 3) and not on an aggregate l e v e l ) . The followtng discussion o f e l e ~ t ~ c i consumption ty on t h e p r o j e c t s i s accordingly divided into:- - Domestic and Commercial Consumption in t h e Villages; - Agro-Industrial and Farm Consumption Outside t h e Villages. Domes t i c and Comrnerci a1 Consumption i n t h e Villages 6 -3 For each of t h e 12 v i l l a g e s , t a b l e 6.2 displays t h e l e v e l and growth of demand, number of consumers and t h e consumption per consumer. The v i l l a g e s are ranked in mugh order o f l e v e l of development a s described : aChapter 5 , ' with Juayua being t h e most highly developed and San Francisco Chinameca t h e most backward. Table 6.2 - 1/ Domestic and Commercial Consumption in the Villages ( ~ a b e c e r a s ) No. of Consumption, k~dh/consurner/ Village Consumers ?IWh/mon t h month (Year ~ l e c t r i f i e d ) 1967 1972 1967 -1972 1967 iF7C (1) Juayua (1965) 569 67L 22.9 38.6 J0.2 52 .? (2) Rosario de l a Paz (1963) 178 2L8 6.9 13.l 38.8 52.8 (3) Candelaria de l a Fron- t e r a (1966) 197 331 6.1 1-1.3 31.O 3L.l (L) San Juan Talpa (1963) 137 16L 3.7 7.0 27 .0 h2 .? (5) San Luis Talpa (1963) 9h 1 22 3 -0 8.7 31.9 71.? (5) S e s o r i (1967) 5L 87 1.3 6.L 24.1 73.5 (7) Jayaque (1965) 109 228 5-5 lC.3 29.1 h5.l (8) Chirilagua (1967) 69 157 2A 5.9 2h.8 37.5 (10) San Antonio Pajonal (1966) 115 18L 3 *8 6.1 33.0 33.2 (11) San Juan Tepezontes (1963) 103 ll6 (1 2) San Francisco k i n a - meca (1963) 78 101 lp3 2.1 16.7 20.8 t ~ oa 1 m7 - 5 TTZ 6?.2 rn 33.7 -EZ 1/ F'uil Time S e r i e s Data Available in University Report " E l e c t r i f i c a c i o ?ursl" Universi- dad Centroamericana, San Salvador 197L. 6.L The more highly developed v i l l a g e s have ( a s one might expect) responded b e t t e r t o t h e p r o j e c t s . This i s r e f l e c t e d in uniformly high growth r a t e s o f demand, l a r g e r average l e v e l s of consmption and a g r e a t e r f r a c t i o n of people requesting s e r v i c e , a s shown i n t a b l e 5 . 3 . Table 6.3 - Response o f t h e Villages to Electrification kWh/month/ Homes Annual Growth Rates, $ consumer Electri- No. Con-s m~t i o- cn-/ . Village 1972 f i e d ,'72 Consumers Consumer Total B e t t e r Developed Villages (1) Juayua ( 2 ) Rosario (3) Candelaria (b) San Juan Talpa (5) San Luis Talpa Int,ermedia t e (6) S e s o r i (7) Jayaque (8) Chirilagua Sackward ( 9 ) Salcoatitan h6.9 L2% h 5 9 (10) San Antonio Pajonal 33.2 9% 10 0 10 ( i l ) San Juan Tepezontes 31.0 b$ 2 3 5 ( 1 2 ) San Francisco Chinameca 20.8 2 6% 5 5 10 Urban Area : San Salvador Uo n.a. n.a. n.a. % Follordng t h e c l a s s i f i c a t i o n of chapter 5 (paras.5.4 et.seq.1 t h e v l l l a g e s have been grouped into ' b e t t e r developed' , 'intermediate1. and 'backward. 6-5 A general p o i n t i s t h a t t h e growth r a t e s , eren in t h e backward v i l l a g e s , tend to be high - as f a s t as experienced in urban areas f o r example, though from lower l e v e l s . I n t h e ' b e t t e r developed1 and 'intermediate' v i l l a g e s , t h e high growth r a t e s a r e s l s o combined Kith q u i t e a l a r g e b a s i c load per consumer, already approaching o r exceeding 50% of t h a t t y p i c a l f o r urban areas, and growing much more quickly; Candelaria i s an exception, possibly because of a v e r y high number of small consumers. 6.6 Of t h e t h r e e 'intermediate' villages, S e s o r i in p a r t i c u l a r has responded well. W e think t h z t t h i s i s explained p a r t l y because i t i s t h e main market centre in a f a i r l y remote region, and a c e n t r e of s o c i a l i s a t i o n , and p a r t l y by t h e growth of incomes from c a t t l e r a i s i n g a c t i v i t i e s in t h e region. C h i r i l a - gua (which i s y e t more i s o l a t e d and has poor i n f r a s t r u c t u r e ) and Jayaque (which i s n o t poor but stagnant) have both provided a quickly groKing source of demand, though fmm low l e v e l s . 6.7 A s regards t h e 'backward' v i l l a g e s , t h e good response of S a l c o a t i t a n i s 'he exception t h a t proves t h e r u l e . A s noted i n Chapter 5, i t i s s i t u a t e d on t h e road t o Juayua, and tends t o take some commercLa1 business away from t h e l a t t e r ; t h i s i s c l e a r l y revealed i n t h e high l e v e l 02 demand f o r e l e c t r i c i t - J f o r c o m e r c i a l uses, shown in t a b l e 6.5, now to be discussed. 6.8 Commercial and o t h e r non-domestic demands a r e an import,ani. element in a v i l l a g e ' s demand ( t h e y a r e discussed comprehensively i n s t u d i e s o f 'product- i v e uses of e l e c t r i c i t y 1 in Chapter 10). The 1971 Census revealed 820 s m a l l i n d u s t r i a l and c o m e r c i a l u n i t s in t h e twelve v i l l a g e s , an average o f 58 p e r v i l l a g e and one p e r 125 people in t h e municipios; they include: 320 general shops, k5 meat shops, 35 corn m i l l s , 108 s l a u g h t e r i q and f a t renderlng .unit.s, 27 b a k e r i e s , 58 t a i l o r s , and v a r i o u s phannacies, b a r b e r s , r e p a i r shops, e t c . Ye f o m d t h a t about kO$ had e l e c t r i c i t y , and s e v e r ~ o l t h e r s would probably t u r n t o i t in f u t u r e (see chapter 10). The a c t u a l breakdown between comnerc:ial and domestic consumption i s roughly i n d i c a t e d in t a b l e 6.5. Table 6.5 Breakdown Between b m e s t i c and Commercial Consumption Village No,Hornes Consumption - k ~ m o n t h ,Dec ,1572 Comer c i al - 1971 - Totd Domestic (33) Commercial ( G L ) ~ % (1) Juayua (2) Rosario (3) C a n d e l ~ r i a (4) San Juan Talpa (5) San Luis Talpa (6) S e s o r i (7) Jayaque (8) Chirilagua (9) SalcoatFtan (10) S,Prtonio Pa j o n d (ll)S. ~ u a n TepeY qontes (1 2)S.FYancisco Chinameca 9 Actually, t h e r e a r e q u i t e a number of commercial consumers on t h e dcrnestic and v i c e versa; so the above d i v i s i o n i s o n l j approxim;~te. 6.9 Provided economic growth proceeds i n t h e v i l l a g e s , t h e potent.ia1 consnmp'~lc?n of both dorr.est,ic and commercial consumers i s q u i t e high, and i s l i k e - l y t o i n c r e a s e rapidly. Yost consumers tend to i n c r e n s e cons,mption over time, ond t h e r e i s no s i g n of s a t u r a t i o n even a t high l e v e l s of consumption; t h e s e p o l n t s a r e shown in t a b l e 6.6 below. Table 6.6 Consumption Ranges of Domestic and Commercial Consumers Monthly kWh No .of Consumers Con- tion - 1967 1972 - 1226 244 Average Consumption 122 21 3 in 1972 = 35 W m o n t h Commercial: 0 - 50 107 126 \ 51 - 100 36 101 - 200 20 Aver age Consumption 201 - 300 19 i n 1972 175 klNmonth 301 - 400 5 ll 401 - 500 4 7 .> 500 -2 13 193 266 6.10 Surmning up: (1) There has been a l i v e l y response t o e l e c t r i f i c a t i o n in a l l but t h e most backward v i l l a g e s ; t h i s i s r e f l e c t e d i n q u i t e high l e v e l s and very high r a t e s of growth of demand in t h e l e s s - backward v i l l a g e s . (2) Output and productivity i n l o c a l a g r i c u l t u l e seems t o be t h e important f a c t o r explaining the v i l l a g e s ' response; complementary i n f r a s t r u ~ t u r e ~ t h o u gof h course e s s e n t i a l ' f o r a v i l l a g e s o v e r a l l developnent, seems t o have a weaker effect - otherwise t h e "intermediate" v i l l a g e s would have responded poorly. (3) I n t h e less-backward villages,bo t h domestic and commercial consumers (of which t h e r e i s a s u r p r i s i n g l a r g e number and v a r i e t y ) increase consumption l e v e l s q u i t e quickly, and t h e r e i s no obvious s i g n of s a t u r a t i o n even a t q u i t e high l e v e l s of consumption. Explanations of t h e t h i r d p o i n t a r e offered in subsequent chapters dealing with the household surveys and with the productive uses of e l e c t r i c i t y i n r u r a l areas. Farm and Agro-Industrial Consumption Outside t h e Villages 6.11 Nearly 40% of t h e e l e c t r i c i t y demand on CELts r u r a l networks has stemmed from consumers on t h e motive power and i r r i g a t i o n t a r i f f s o u t s i d e t h e r u r a l areas. A s shown i n t a b l e 6.1 t h e r e were 333 such consumers i n 1972, with consumption l e v e l s ranging from a few thousanci t o s e v e r a l hundred thousand k Wh p e r year. Sometimes, t h e demand of one l a r g e consumer -a l a r g e slaughterhouse, f o r example, o r a l a r g e p r o c e s s o r of c o t t o n o r r i c e - may exceed t h e aggregate demand o f f i v e o r t e n v i l l a g e s i n a region; t h e following s t a t i s t i c s f o r CEL in 1972 i n d i c a t e t h e s i z e and s i g n i f i c a n c e o f such demand nodes o u t s i d e t h e villages: - No. o f Total kWhper Consumer Group Consumers NJh Consumer 2/ V i l l a g e 1/ 9b village: 9,637 10'2,50~)/village FS (LV moTive ~ o w e r )t a r i f f s 3/ 396 2,113 6, g00 ~6 (HV motive power) +Jariffs F9 (HV motive power) t a r i f f s z/ b 10 1,99b 928 S00,OOO 92,800 3 l l (irrigation) t a r i f f s 13 300 23,100 - 1/ i n c l u d e s domes t i c and commercial consumers and p u b l i c l i g h t i n g . - 2/ Cabeceras only - i.e. excludes about 200 c a s e r i o s o u t s i d e t h e s e head v i l l a g e s . - 3/ A few of t h e s e , as explained i n para. 6.2 a r e i n t h e v i l l a g e s . W - The l a r g e s t of t h e s e consumers i n 1972 was a s l a u g h t e r h o l ~ s ewhich c o n s m ~ d about one m i l l i o n kWh. The p o t e n t i a l demand from consumers o u t s i d e t h e cabeceras, and t h e r a t e of pro;ith of t h e i r number and demand l e v e l s , a r e a l l l i k e l y t o b e q u i t e l a r q e ( s e e chapter Y;.). The main f a c t o r s behind this a r e t h e modernization of a g r i c u l t u r e and the iri-:rer;ing l e v e l s of a g r o - i n d u s t r i a l a c t i v i t y in t h e r u r a l areas. 6.12 The s i g n i f i c a n c e of t h e s e l a r g e a d d i t i o n a l demand nodes, from t h e e l e c t r i f i c a t i o n progrsm's viewpoint, i s t h a t they improve t h e u t i l i s a t i o n , economies of s c a l e , and thus t h e economic r e t u r n s t o investments in t h e sub- translrission networks (which j o i n t l y supply both t h e e l l a g e s and t h e demand nodes o u t s i d e them). 6.13 The e x t e n t and n a t u r e of demands o u t s i d e t h e v i l l a s e s v a r i e s markedly between regions: Table 6.7 1/ Number a d Locations of Large Agro-Industries, 1971- Depart amento - Cotton - Rice Coffee 0t h e r s - Tot a 1 Ahuachap an 29 Sonsonate 2/ 24 Santa Ana San Salvador La Libertad 2/ Chalatenango La Paz 2/ San Vicente Cabanas Usulutan San Miguel 2/ - . Morozan La Union Cuscatlan Total - 1/ Compiled from maps and interviews. - 2/ Departamentos corresponding in which t h e 12 cabeceras studied a r e situated.- The region with most a g r o - i n d u s t r i a l a c t i v i t y i s s t i l l San Salvador, though t h e l e v e l of a c t i v i t y i s q u i t e l a r g e in o t h e r regions and has been increasing in r e c e n t years. W e estimate t h a t 92 of t h e above agro-industries a r e in t h e Cabeceras Depart,ment.?i (and so a r e r e a l l y urban based), the o t h e r 169 being in the r u r a l areas adjacent t o t h e v i l l a g e s . 6 .Uc A n~unberof d i f f i c u l t i e s stopped u s from c a l c u l a t i n g t h e exact number and growth of consumers connected t o the subtransmission networks supplying the twelve v i l l a g e s studied in t h i s report. Some estimates were p o s s i b l e , however. The t o t a l f r a c t i o n of demand on the subtransmission networks emanating o u t s i d e t h e v i l l a g e s s t u d i e d , i s roughly a s follows: % T o t a l Demand Region Around Departamento from O u t s i d e V i l l a ~ e Juayua Sonsona t e Salcoatitan Sonsona t e San Ant,onio P a j o n a l S a n t a Ana C a q d e l a r i a de l a F r o n t e r a S a n t a Ana Jay aque La L i h e r t a d 6% San IiYancisco Chinameca La Paz San Juan Talpa La Paz San Juan Tepezontes La Paz San L u i s Talpa La Paz Rosario de l a Paz La Faz Chirilagua San Yiqtiel Sesori San : ? i s e l A s mentioned e a r l i e r , and f o r r e a s o n s explored i n P a r t 111, these demnds a r e growing f a s t e r t h a n t h o s e of t h e commercial and domestic conslzners i n s i d e t h e villages. THE COSTS OF SUPPLY Introduction 7.1 The c o s t s o f supply a r e g e n e r a l l y grouped i n t o f o u r items: - t h e bulk supply c o s t s of generation and high voltage transmission; - the c o s t s of subtransmission and medium voltage distribution; - the. c o s t s of low voltage l o c a l d i s t r i b u t i o n ; - l o c a l administration, b i l l i n g and maintenance costs. The costs o f each of these items up t o 1972 w i l l be discussed below; f u t u r e c o s t s i n r e l a t i o n t o f u t u r e demand a r e projected i n the next chapter, which considers f i n a n c i a l returns. 7.2 These break down i n t o t h e c o s t s p e r KJJ of i n c r e a s i n g and m a i n t a h i n g new g e n e r a t i m c a p a c i t y , and t h e c o s t s p e r k14-1 of generating energy. In Chapter L (paras. L.9 et.seq.) it was indicated t h a t t h e energy c o s t s were roughly: - zero i n t h e wet season, except a t peak demand, when i t would r i s e t o over 2 centavos/kldh, corresponding t o the marginal c o s t s of generating energy ff-om gas t u r b i n e s o r steam p l a n t ; - about 2 centavos /k W h i n t h e d r y season, corresponding t o t h e marginal c o s t s of generating energy from steam p l a n t . For t h i s study, w e have taken a f i g u r e of 2 centavos p e r k\Jh throughout t h e year. The reason f o r t h i s s i m p l i f i c a t i o n i s t h a t most of t h e agro-industries o p e r a t e in t h e d r y season, while most of the v i l l a g e demand i s in t h e peak period. I n 1972 p r i c e s , $0.02f~Wh should be a good average. I n f u t u r e t h i s average may drop once t h e Cerron Grande Hydro p r o j e c t i s conpleted (though t h e drop w i l l , of course, be o f f s e t t o some extent by t h e October '73 o i l p r i c e i n c r e a s e s ) . 7.3 The capacity c o s t s were estimated t o be: Ne w Steam P l a n t $2 50 /IIW ~ansmission costs S SO/KW $300/~ Mith an allowance of is,$f o r O M , 3 f o r transmission l o s s e s and 20% f o r spare capacity, t h i s works o u t a t $426 per KW, o r , a t SL% annuity, $b7 p e r KW p e r year (fl17/K~/year). 7 .b The e f f e c t on bulk supply coats of load f a c t o r s in r u r a l a r e a s (where t h e peak demands g e n e r a l l y coincide K i t h system peak demands) i s considerable. Thus in an a r e a where t h e -average kWh demand i s 2000 W K W , corresponding t o a load f a c t o r o f 23%, t h e bulk supply c o s t s amount to: b u t when, i t r i s e s t o 4000 k N h / ~ i ~ corresponding , t o a load f a c t o r of 45$, the b d : < supply c o s t s drop t o + 0.02 = 0.949 centavos /kwh. lE , Load f a c t o r s tend t o improve markedly o v e r time i n r u r a l areas, with a marked e f f e c t on t h e long' run r e t u r n s t o t h e invesLnents. S u b t r z ~ s m i s s i o nand ?Tedium Voltage D i s t r i b u t i o n (a) Unit Costs 7 05 The subtransmission and medium v o l t a g e d i s t r i b u t i o n networks c o n s i s t of: - p r i n a r y s u b s t a t i o n s o f 115/22 o r d Li KV connecting t h e region t o t h e g r i d (115 KV); - HV l i n e s (22 o r 44 KV) f o r subtransmission t o t h e main conwming a r e a s ; - secondary s u b s t a t i o n s with trans!ormation from 22 OF && KV t o 13.2 KV f o r medium v o l t a g e d i s t r i b u t i o n ; - theN,Jdistributionnetworks,~hi~htak upplies se d i r e c t l y t o t h e v i l l a g e s and t h e l a r g e consmers. 7.6 @ 1972, CEL had c o n s t m c t e d 1289 Krn of medim ;roltage d i s t r i j u " ' b33E lines, 15 secondary s u b s t a t i o n s , p l u s 248 Km of HV subtransmission l i n ~ s t o the grid. Average c o s t s p e r Km o f ?7d i s t r i b u t i o n l i n e were a s follows: Cost p e r Km of - Ie t m Voltage Investmen% ?.TJ Di,strij:;tfcn HV 3clbtransmission l i n k s 22 o r &b KV g! 10.32 M 6 8,905 Secondary Substations 22 o r hW13.2 KV g! 1.28 M 993 MV D i s t r i b u t i o n networks 13.2 KV 6 2.68 M Total 5 14.28 H Table 7.1 Cost Breakdown of 13.2 KV and 44 KV Lines (3 phases; average conditions ) Cost / Km / d - Item 13.2 KV UKV P1anning Right o f Way Materials: Poles ( 9 per ~ m ) Conductors Fixtures P r o t e c t i o n Equipment Personnel: Labour Supemrision Transport oy X a t e r i a l and Equipment Other Equipment Other Costs Total Table 7.2 Substation Costs ( h 4 t o 13.2 KV s u b s t a t i o n s ) Item Plamling Land : teri.21 s a d Equipment a Personnel : Labour Supervision Transport, of Materials and Equipment Ot h e r To +,a1 (It i s p o s s i b l e t o express these c o s t s on a p e r KW demand b a s i s ; b u t we lacked t h e d a i l y demand d a t a t o t h i s .) 7.7. The c o s t s of t h e s e networks vary considerably with road access and t e r r a i n ; in d i f f i c u l t t e r r a i n , time and Iahonr c o s t s may double, and the spacing of t h e p o l e s i s narrower and t h e i r h e i g h t i s g r e a t e r . M f f i c u l t t e r r a i n and poor access may i n c r e a s e t o t a l c o s t s , we e s t i m a t e , by 50% o r more. Table 7.1 and 7.2, o v e r l e a f , p m v i d e c o s t breakdowns of t h e l i n e s and s u b s t a t i o n s . ( A comparison between t h e c o s t s of IrL and 13 .2 KV l i n e s provides a good i n d i c a t i o n of economies of s c a l e in t h e investments; t h e former a r e capable o f carrying t e n times t h e power o f t h e l a t t e r , y e t c o s t s a r e l e s s than 30% higher - the c o s t s of p o l e s , labour, planning and r i g h t of way a r e t h e same f o r t h e two cases; only t h e c o s t s of conductors, f i x t u r e s and f a u l t p r o t e c t i o n a r e s i g n i f i c a n t - l y , b u t l e s s than p r o p o r t i o n a t e l y , l a r g e r . ) ( b ) Costs p e r V i l l a ~ e( ~ a b e c e r a s ) 7 -8 The mediin -,mltage d i s t r i b u t i o n networks in CEL1s system a r e routed towards t h e head v i l l a g e s (cabeceras), and then branch out a s needed t o t h e l a r g e farms and a g r o - h d u s t r f a 1 consumers, and t o t h e c a s e r i o s (minor v i l l a g e s ) For purposes of c o s t a n a l y s i s , i t i s convenient t o t h i n k of the l i n e s t o t h e . v i l l a g e s a s being t h e backbone networks, shared by a l l consumer?, a n d t h e MV d i s t r i b u t i o n l i n e s t o c a s e r i o s and l a r g e consumers as being extensions. In 1972, t h e l e n g t h s o f $he l i n e s on the MV d i s t r i b u t i o n system a r e s h a m in t a b l e 7.3 Table 7.3 Km of 13.2 KV l i n e No. of Km t o ~ a b e c e r a s / -- Zone 1/ t o Cdoecer;~ ( a ) Others 2/ Total Cabeceras (b) Cabeceras ( a ) / ( b ) 2. West 2/ 3. IJ.West 8.1 11. J 15. 41 I South 17. C e n t r a l 0t h e r Totals - I/ Corresponding t o S3L1s c l a s s i f i c a t i o n ( s e e a l s o t a b l e h.6). - 2/ Others a r e c a s e r i o s and l a r g e consumers o u t s i d e t h e cabeceras. -/ 3 drea of San .Antonio Pajonal and Candelaria de l a Frontera; a l s o of Juny-ua and Salco a t i t an (served by ~ 4 ~ 0 ) . - b/ Area of San f i a ~ c i s c oChinameca, San Juan Talpa, San Luis Talpa, Rosario de l a Paz a d San Juan Tepezontes. '7 2 1 r e a of Chirilagua. /AArea of SesoA. Area o f Jayaque. The s u b t r a n s n i s s i o n and MV d i s t r i b u t i o n c o s t s of t a k i n g . e l e c t r i c i t y i n t o t h e cabe- c e r a s a r e obtained by nnlltiplying t h e l a s t column (of Km o f l i n e p e r v i l l a g e ) by t h e c o s t p e r Km of $ 11,078 f o r subtranzmission and mediim v o l t a g e d i s t r i b u t i o n (para.7 - 6 ) . ( c ) Costs p e r Large Consumers ( o u t s i d e t h e ~ a b e c e r a s ) 7.9 CEL had 33b consumers on t h e motive power and i r r i g a t i o n t a r i f f s in 1972; about 250 t o 300 of these (say 275) were l o c a t e d o u t s i d e t h e cabeceras. T o reach than, i t i s estimated t h a t C E L constructed about 200 Kms of M V distribu- t i o n l i n e . The average of lilV d i s t r i b u t i o n l i n e s p e r l a r g e consumers t h u s works o u t t o be, approximately: 200 x 11,078 = $ 8,057 p e r consumer. ( 1 t i s probable t h a t t h e r e i s some r e g i o n a l v a r i a t i o n in this f i g u r e , though we did n o t e s t i m a t e i t . ) (d) Costs p e r Caserio (minor v i l l a g e ) 7.10 C E L had e l e c t r i f i e d about 200 minor v i l l a g e s by 1972, r e q u i r i n g about 500 Km of MV d i s t r i b u t i o n network extensions. The c o s t extending s u b t r a n s n i s s i o n and MV d i s t r i b u t i o n to then thus works o u t a t about: - 200 x 11,078 = $ 27,700 p e r c a s e r i o . Again, t h e r e i s probably a marked r e g i o n a l v a r i a t i o n in t h e s e costs. 7. l l AI important p o i n t which emerges from t h i s c o s t e s t i m a t e i s t h a t , once t h e backbone networks t o serve t h e principaA demand c e n t r e s have been completed, t h e marginal c o s t s o f extensions t o smaller loads a r e r e l a t i v e l y s m a l l . In t h e case of t h e c a s e r i o s , the marginal c o s t s of extending t h e sub- transmission and d i s t r i b u t i o n networks a r e l e s s than 30% of t h e c o s t s of i n i t i a l - l y extending s e r v i c e t o t h e head v i l l a g e s . T h i s explains t h e + r a l e l e c t r i f i c a - t i o n s t r a t e g y of many countries, including E l S a l v a d o r ' s , which g e n e r a l l y has t h r e e phases : - t o e l e c t r i f y t h e main and l a r g e s t load c e n t r e s f i r s t , so as t o j u s t i f y and develop t h e backbone networks; second : - t o branch o u t t o t h e s m a l l e r denand c e n t r e s , near t h e s e networks, a t r e l a t i v e l y Icw marginal cost; and - to r e i n f o r c e t h e system as needed a s load develops. (e) :A General Point on t h e Decllne of Costs Over Time 7 .12 Subtransmission and medium voltage networks a r e g e n e r a l l y designed to meet s e v e r a l years of growth of demand - 10 t o 15 years i s t y p i c a l in many countries, someLimes l a r g e r ( a s w e b e l i e v e i s t h e case f o r CEL). Furthermore, u p r a t i n g Lhe net-dorics can be accomplished a t a r e l a t i v e l y low marginal c o s t ( a s i s a p p a r e n t from t a b l e 7.1 and p a r a g r a p h 7 -7). It f o l l o w s t h a t t h e c o s t s p e r u n i t demand, and p e r consumer s e r v e d , r e s p e c t i v e l y d e c l i n e more o r less i n v e r s e l y w i t h t h e grodh o f demand and consumers served. Low Voltage L o c a l D i s t r i b u t i o n 7 013 Low v o l t a g e d i s t r i b u t i o n networks a r e t h r e e phase a t 400/220 v o l t s ; t h e 13.2/3.4 t r a n s f o r m e r s which supply t h e n a r e z e n e r a l l y s u f f i c i e n t t o s e r v e 20 o r 30 household and s m a l l b u s i n e s s consumers; t h e l a r g e r consumers have i n d i v i d u a l t r a n s f o r m e r s . Crener a l l y , t h e i n i t i a l networks a r e c o n s t r u c t e d cover t h e n a i n a r e a o f t h e v i l l a g e ; d u r i n g t h e following t e n y e a r s o r s o , i n v e s t - ments o n l y c o n s i s t o f t r a n s f o r m e r s , m e t e r s and n i n o r e x t e n s i o n s and r e i n f o r c e - a e n t s ; i t i s o n l y a f t e r t h i s p e r i o d , when t h e load h a s b u i l t up t o q u i t e l a r g e l e - ~ e l s ,t h a t f u r t h e r i n v e s t m e n t s i n reinforcement and expansion become s i g n i f i c a n t . 7.11: The networks of f i v e o f t h e v i l l a g e s have been c a r e f u l l y c o s t e d ( i n t h e absence o f good r e c o r d s f o r each v i l l a g e , t h i s was done by on s i t e s t u d i e s o f c o n s t r u c t i o n procedures and c o m p i l a t i o n of equipment i n v e n f o r i e s from e l e c t r i c a l maps); t h i s g i v e s u s an e s t i m a t e o f t j ~ i c a u l n i t c o s t s , from which t h e c o s t s o f LV d i s t r i b u t i o n i n o t h e r v i l l a g e 9 a r e e s t i m a t e d . Our c o s t e s t i m a t e s f o r t h e f i v e v i l l a ~ e sa r e shown in t a b l e 7.3. Table 7.3 LV D i s t r i b u t i o n Cost E s t i m a t e s f o r Five V i l l a g e s Consumer Year 1 Year 11 Year 11- Average Narginal - 1/ S a n F r a n c i s c o Chinameca 18,571 21,735 1 07 20 3 80 San Juan Talpa 319 532 37,407 1 72 217 93 Iiosario de l a Paz 39,592 67,063 277 2 44 195 Chirilagua 59,612 84,251 359 241 88 Candelaria de l a F r o n t e r a 71,566 102,572 468 219 104 - 1/ I n c r e a s e in cumulative investment d i v i d e d by no. o f consumers. Table 7 .$ shows a breakdown o f c o s t s , and t a b l e 7.5 s h m s t h e r e l a t i o n between ' -4. line l e n g t h s , number o f consumers and a r e a served. 7 -15 Investment p e r consumer in t h e e l e v e n t h y e a r i s about $230 o n average; in t h e f i r s t y e a r , i t i s much more v a r i e d , on account o f d i f f e r i n g i n i t i a l l e v e l s of consumer response. Table 7.4 - It e m $ of Total Costs d Planning 3 Land 2 Material and Equipment: Poles Conductors Fixtures Transformers Meters h Lamps (public ~ i g tine;) Persr~nnel: Labour . Supervision Transport of Materials and Equipment General Table 7.5 Relationships Between No .of Consumers, Lenqths of Line and Area Covered No.of Length of Area Consumers Lines, served, (Year 11) meters Km 2 San F'rancisco Chinameca San Juan Talpa Rosario d e l a Paz Chirilagua Candelaria de l a F'rontera 7.16 Although a f t e r a number of years (eleven years i n t h e above cases) f u r t h e r investments t o extend and r e i n f o r c e t h e network3 again become q u i t e l a r g e , cumulative investment p e r unit of Fd peak dem.md continues t o decline. The main reasons f o r t h i s a r e t h e l a r g e economies o f s c a l e i n equipment - r a t i n g s , p a r t i c u l a r l y when s i z e s a r e small a 50 KVA transformer, f o r example, c o s t s perhaps only 50% more than a transformer o f 10 KVA; t h e sane p o l e s and s i m i l a r f i x t u r e s can b e used + a c a r r y wires of l a r g e r r a t i n g ; t h e c o s t o f switches, p o l e f i x t u r e s rvld p r o t e c t i o n equipment a l l i n c r e a s e slowly with r a t i n g ; and labour c o s t s a r e i n v a r i a n t with r a t i n g . Administration, B i l l i n g and Other Costs (Running Costs) 7.17 The o p e r a t i n g and maintenance c o s t s o f generation and transmission a r e alreed-1 allowed f o r i n t h e e s t i m a t e s of bu3.k supply costs. The d i r e c t c o s t s of mint t h e program i n 1972 we= $679,003, o r $h5 ( $ 1.5) p e r service per year; i t , was much higher i n e a r l i e r y e a r s . This high f i g i r e should d e c l l n e i n f u t u r e y e a r s a s t h e number and d e n s i t y of consumers i n c r e a s e ; the hizh f i g v e i s p a r t l y a r e s u l t of t h e wide s e n z r a p h i c a l spread (which cannot, i n c r e a s e much f u r t h e r ) of C 3 ' L f s p r o g r m . Other co1.m5ries have experlence.3 zunnin,? c o s t s of l e s s than $25 ($10) per s e r v i c e p e r y e a r , and i t , i s p o s s i b l e t h a t CELfs w t l l d e c l i n e t o t h i s l e v e l (in 1972 p r i c e s ) . In t h i s study we t a k e a s t r a i g h t average of $L3 f o r t h e f i r s t t e n y e a r s , $35 f o r t h e l l t h , droppinc t o $30 by t h e 25th year. L/ of Lnvestmerlt S o s t s by V i l l a g e S~mary 7.18 The emulative investment c o s t s o f s u p p l m g t h e v i l l a g e s only (i.e. igno-ring extensions t.o farms, a ~ r o - i n d u s t r i e s and c a s e r i o s ) a r e c a l c u l a t e d b ,t a b l e 7.6 f o r the f i r s t , e l e v e n t h and twenty-fifth years. Average investment costs per a r e a l s o c a l c u l a t e d , and amount to: Average Costs, Centavos / MJh F i r s t Year El~venth Year Twen5y -DL'i_fthYear :-los t Developed : Juapa ?.osario de l a Paz C.mdalaria de l a FYonhera 3ai Juan Talpa San L u i s Talpa Int~rnediate: Sesori Jay sque Chi,n',lae;uci aac'kward: Salcoatitan San Ant,onin Pajonal San Juan Tepezontes San Francisco Chinameca Average C&:4 c o s t s f o r t h e program tend t o S e ' h i g h e r than t h i s on account o f t h e extensions t o t h e c a s e r i o s , where road access i s poor. S.lco.tltan Ear .4ntoni= ??.jonal :Yi irw,i':SC3 Chi: r2ei.r . iirerqe *r.r.ulll -ost,centavor p e r Km -.. By - h e Ele'ienLh Year :lo. 31' C-csmers ? o r a l '.w i,, y e a r st: c 3- ~ Pulb I p p l y Sub-Trw.3.6 " i>imtr. L'J :lstr:bu:im Paxer Loraas T0t.1 Piierwa h u a l Cos:, centavos prr 11.3 13.0 15.6 16.7 12.7 13.6 1L.7 V.3 22.4 15.5 -1.c 23.3 .'-+. I.=: 9)' 'ie Tven'.:!-r'lrtb. .Q. '13?1t: of ,:or.rumerr ::+ E&lk Supply in ; ~ m r ''ear 15co 3033 603 720 750 712.5 3W 285 ?M 260 25C 5m 370 Lo7 659 422. j 30 2bc 250 2~o 1% i 26 ?. 0 ico Sut-:ra?a.& '5' 2ir:r. L'i ? i r t r i b u r l a n Parer Lasses r0z.i A v e r c e A n l l r l Cost, c e n t a w a per khh 5.5 6.6 7.6 8.2 7.5 7.5 8.3 14.7 2.3 2.2 .?.5 L5.L --- - :3rrc:ete cost l a t a r3r t h e r e v l l l w e r ; I F. o t h e r , : l l l w e s , LV network l n v e s I P m t coats were eat:maceC rrom u n l r .roar darn, taking 2 2 9 per Y m s u r Par Cke e l e v e n t h year: %greyate c o s t s i n the f i r s : y a w to te 7 1 of the e l s m n t i l Y e u assresate, and s -t colt i n ,ll eases of eim per cor.3-r I n the r m t y - P l f t h y e a r . ** Sulk s-pply e l s t n ~ u e d >: a flk~reor 1 / 2 W t:d prr kwh for the f l r s t .nd eleventh y e w ; and value* r q l a g horn 1/35W t o 1/25Oo 13r the twenty-ilPtr. y e a r Cree chapter 3). *- *r lagsea cDIted st 2% of bulk r u ~ l y coat*. -*' Equlllr a"r7ulLy >I' 11%:ines tct11 :,d&t:ie 1r.vest.mt cants (1.a. l* i n t e r e s t r a r e , V ?gear p r o j e c t l i f s t i r u ! . .-+* See :Laptcr i f o r 4e:aIlr of pro.:ecrlons. 7.19 The f i r s t y e a r average c o s t s a r e a s t o n i s h i n g l y h i g h , except i n t h e two "most developedft v i l l a g e s , and range f r o m s to 116 centavos ( 6 t o 46 c e n t s ) p e r kWh; t h e s e f i g ~ r e s exclude energy a n d running c o s t s . (The f i n a n c i a l problems t h i s can cause i n t h e e a r l y y e a r s can be judged from t h e f a c t t h a t t a r i f f s may be l i t t l e more t h a n 10 centavos p e r K?Jh sold.) A s t h e load develops, however, i t can be absorbed by l i t t l e e x t r a investment, except i n g e n e r a t i n g c a p a c i t y , w i t h t h e r e s u l t t h a t aveyage c o s t s drop q ~ i c k l yt o nuch lower l e v e l s e b y t h e e l o ~ r e n t hye:ir they have, dropped t o 1 1 to 16 centavos ( 4 t o 6 c e n t s f , except i n t h e backdard v i l l a g e s , and by t h e twenty f i f t h y e a r to 6 t o 15 centavos ( 2 .!t t o L.0 c e n t s ) . 7.20 Ln t h e ftmost developed" and t f i n t e r m e d l a t e t fv i l l a g e s , t h e c o s t s drop more q u i c k l y and t o lower l e v e l s than i n t h e "backcrardTfv i l l a g e s , on a c c o m t of the h ! + c$~ l e v e l and growth of demand. The c o s t s i n t h e a r e a s where v i l l a ~ e s a r e tsitle1iy spread - C h i r i l a g u a Lelng t h e extreme excunple - remain v e r y high, however, on account, of t h e s l & s t u l t i a l InvesLnent in s : ~ b t r a n s n d s s i o n and I.llr dlstribu:ion l i n e s needed to reach them. 7.31 Average c o s t s , we expect, w i l l continue t o drop w i t h f u r t h e r load g r o l ~ t hand load f a c t o r improvements. The inmediate e f f e c t of load f a c t o r i.m?;.~>vementYs i s t o rpduce t h e b u l k supply c a p a c i t y c o s t s p e r u n i t s o l d (an Lrrrp~ovenent from 2% t o IrO$ f o r e x m p l e woxld half t h e s e average c o s t s ) ; u l t i n a t e l y , load f a c t o r improvements would a l s o c u t t h e average c a p a c i t y c o s t s . of' d i s t - i b u t i q n i q v e s t n e n t s The above ave-age c o s t e s t i m a t e s a l s o i g n o r e t h e denmtis of t h e f a m and a y r o - i n d u s t r i a l consumers, who s h a r e many o f t h e sllb:r~nsmissiorl a n d 3 7 d i s t r i b u t i o n netrmrks o f t h e v i l l a g e s - t h i s too c u t s average c o s t s con::iderably. These p o i n t s w i l l emerge from t h e f i n a n c i a l a n a l y s i s of t h e p r o j e c t s in t h e n e x t chapter. CHAPTER 8 FINANCIAL RETURNS 8.1 In t h i s chapter, annual revenues a r e compared with t h e annual c o s t s of supply in t h e e a r l y , mid' and l a t e y e a r s of the p r o j e c t ( s p e c i f i c a l l y , y e a r s 1, 11 and 25'). In t u r n , t h e . n e t revenues a r e estimated for: (a) The Villages ( ~ a b e c e r a s ) (b) Farm and Agro-industrial Demand Outside t h e Villages; (c) . Minor V i l l a g e s ( ~ a s e r i o s ) Though these a r e discussed s e p a r a t e l y , a l l t h r e e share the same subtransmission netr~orks. It wo?rirl be uneconomical t o slipply any one kind of consumer alone, such ns ( a ) o r (b) f o r example; buk i t m a y be, and o f t e n i s , economical t o supply moye than one together. That i s , i t i s t h e t o t a l n e t revenues what m a t t e r s most, not t h e n e t revenues t o each element. 8.2 To deal with t h e j o i n t c o s t problem, we have f i r s t determined ( a s i n Cnapter 7) t h e c o s t s of routing t h e backbone subtransmission and ! N distribution . . networks t o t h e v i l l a g e s and then considered t h e marginal c o s t s of extendins then t o f aims, agro - i n d u s t r i e s and caserios (2) Net Severnos from The Villages ( ~ a b e c e r a s ) 8.3 Table 8.1 presents the revenue-cost c a l c ~ i l a t i o n sf o r each v i l l a g e . For years 1 and 1 1 t h e reven7Je d a t a a r e f a i r l y concrete, those f o r the I l t h year r e q u i r i n g only a s h o r t e x t r a p o l a t i o n from e x i s t i n g records. Data f o r t h e 25th year were based on simple hand e x t r a p o l a t i o n s of, present trends of the growth i n t h e number of consumers and conasimption p e r consirme?, modified by (a) allow- ances f o r s a t u r a t i o n and (b) our guesses a s t o t h e p o t e n t i a l f o r load growth in t h e v i l l a g e . aOh The f i r s t f e a t u r e t h a t s t a n d s ou'c i s t h a t annual revenues a r e generally lower, o f t e n .substantially lower, than annual c o s t s ; t h e comparisons a r e shown on a percentage ail~j average b a s i s i n t a b l e 8.2 :- 6 4 ,: ?! ? B 2 '- k : : 7 2 5 5 , . 7- = - 2 P 4 - 4 = # . - C c $ 9 . 5 2 c . 9 5 : . - 3 ? z 7 - .. u ., ? ; > -~.k - , A o * - - r " ": e t , 4 2 a . ;:< 7 ~ . . i - V j * 7.:: : :' LJJ '~.- - i . L " . -- G + 2 m -i - - . - C ? ,6 m 3 s - a ? , . 2 - ?f > 5 "3' c 2 3 * -. - F - ? E c t :? $ ; 5 2, :" i 2 i0 "?, 4 P - : Y I : . C d Y EL 5 2 4 4 L . 3 '-1 I C ce s * , , . u m - = L E < - 3 - x7 . Y - 2 - '" d l ) ., z - - . g .- ; \. -*. d ' I 6 -I . . hl -1 - Table 8.2 Price Net Revenues a s $ of Revenues Ave .Cost, centavos/khlh Cent avos/ Village Year 1 Year 1 1 Year 2$ Year 1 Year 1 1 Year 2 5 kwh B e t t e r Developed: Juayua Rosario Candelaria San Juan Talpa San L u i s Talpa Intermediate: Sesori Jay aque Chirilapa Backward : Salcoatitan Pa j o n a l Tepezontes C'ninameca 8-5 The p r i n c i p a l reasons f o r t h e low revenues, d e s p i t e t h e good l o a d g r a r t h in mst o f t h e v i l l a g e s , a r e a s follows: (1) Load f a c t o r s a r e l o w , maldng t h e average c o s t s of g e n e r a t i o n and t r a n s m i s s i o n very high. For example, we e s t i m a t e t h a t t h e s e a r e only about 2000 klJh f o r each I C d peak demand in t h e e a r l y y e a r s , r i s i n g to about I 3500 f o r t h e more developed v i l l a g e s ( i . e . l o a d f a c t o r s o f 23% and hO% r e s p e c t i v e l y ) . I n urban a r e a s , l o a d f a c t o r s a r e 50% t o 60$, s o t h e average bulk supply c o s t s a r e about h a l f t h o s e f o r v i l l a g e s . (2) The p r i c e s o f C S do n o t r e f l e c t t h e lower l o a d f a c t o r s of conslmers i n r u r a l a r e a s ; a l s o they d e c l i n e q u i t e markedly w i t h t h e growth of each i n d i v i d u a l consumer's demand. Both f a c t o r s , of course, g e n e r a t e f i n a n c i a l l o s s e s . In g e n e r a l , revenues a r e low because p r i c e s a r e too low. (3) Subtransmission and i4V d i s t r i b u t i o n c o s t s a r e very h i g h in a r e a s where vill.sg?s a r e f a r a p a r t ( t h e case of C h i r i - l a g u a , i n p a r t i c u l a r , i l l u s t r a t e s this p o i n t ) . (h) Load growth and load f a c t o r improvements, i i i t h e case o f t h o b a c h a r d v i l l a g e s , a r e s i n p l y n o t good enough. 1 Two o t h e r reasons why p r i c e s and thus revenues a r e low a r e f i r s t t h a t CEL have based t h e i r p r i c e s using an i n t e r e s t r a t e of 65 when valuing asset,^, r a t h e r than t h e 10% we have used; and second, t h e accounting c o s t s on which p r i c e s a r e based a r e backward looking, in t h a t t h e o l d e r p r o j e c t s which appear i n CEL's I accounts a r e cheaper than t h e 1972 p r o j e c t p r i c e s t h a t we have used. I 8.6 A s mentioned e a r l i e r , t h e v i l l a g e s share t h e same subtransmission and MV d i s t r i b u t i o n networks a s t h e farm and a g m - i n d u s t r i a l consumers, wha add I n e a r l y SO$ t o t h e t o t a l k'dh demand and tend t o have l a r g e r load f a c t o r s . Hence - i t i s necessary t o a s s e s s t h e n e t revenues from t h e s e consumers i n o r d e r to o b t a i n a proper impression of o v e r a l l r e t u r n s . (b) Net Revenues from F a n and Agro-Industrial Consumers 8.7 3y 1972, 200 Km of subtransmission and d i s t r i b u t i o n l i n e s had been extended t o reach t h e 3311 farm and a g r o - i n d u s t r i a l consumers (on t h e motive power and i r r i g a t i o n t a r i f f s ) , roughly 275 of whom were o u t s i d e t h e cabeceras - an extension of C.6 Km/consumer. The demands of t h e s e consumers have grown with p a r t i c u l a r r a p i d i t y ; and, a s our survey of farm and a g ~ o - i n d u s t r i a l a c t i v i t i e s i n Chapter 10 shows, they a r e l i k e l y t o grow very quickly f o r s e v e r a l y e a r s , provided -. . bj . t h e r e i s no major s e t back t o t h e growth, a n d develop- . / > , ment . of . - a g r i c u I t u r e i >....n E l Salvado,r. Thus a l a r g e and quickly growing demand, , , with a r e l a t i v e l y sood load f a c t o r , can be reached a t a low margirial cost. Table 8.3 shoris ou? p r o j e c t i o n s and calcul;rt.ions . 8.8 Net revenues a r e negative, d e s p i t e t h e rapid growth o f a f a i r l y good load f a c t o r demand. The b a s i c reason f o r t h i s i s t h a t p r i c e s a r e too low: i t i s t h e p r i c i n g p o l i c y , r a t h e r than t h e b a s i c p r i n c i p l e of extending s e r v i c e t o - many of t h e s e c o n s m e r s , which seems t o be a t f a u l t . 1 / The p r e s e n t system of: - declining block t a r i f f s (which drop considerably - s e e t a b l e 4.2) ; and - making p r i c e s comparable t o t h o s e i n urban a r e a s , d e s p i t e b e t t e r load f a c t o r s and lower d i s t r i b u t i o n c o s t s in t h e l a t t e r , m i s t of course u n d e h e n e t revenues. ( ~ l s o ,again, our c a p i t a l c o s t s a r e worked out 1972 c o s t s valued a t lo$, r a t h e r thzn h i s t o r i c a l c o s t s valued a t 6% t h a t i s used f o r p r e s e n t p r i c i n g policy.) ( c ) Extensions t o Winor V i l l a g e s ( ~ a s e r i o s ) 8.8 i.Je have n o t e s t i i n a ~ e dt h e dennnds of these v i l l a g e s ; we have only been a b l e t o ccnsider them i r , t h e sa?rple surveys, discussed i n t h e next chapter. Nevertheless, i t i s apparent t h a t i t dl1 be d i . f f i c u l t t o j u s t i e extension of - I/ It remaim t o be discussed, in t h e c o n c l u d k g chapter, i f t h e farm and agro- i n d u s t r i a l loads the v i l l a g e l o a d s a r e t c g e t h e r s u f f i c i e n t t o j u s t i f y the projects. Table 8.3 Calculations of Net Revenues from Farms and A m - I n d u s t r i e s Year 5 Year 10 Year 25 l1967) (1972) (1987) NO. of Consumers 85 33L 1,000 k\Jh/knsumer/year 9,200 16,000 35,000 'rota1 Demand, M bh J 781 5,340 35,000 kWh/KW demand a t peak 1/ 4000 hours 4000 hours 5000 hours Average P r i c e , gk5Jh 0.07 0 -07 0.07 Revenues , $000 ' s 5L.7 373.8 2L50.0 Investment Costs, $000 's: Distribution 2/ Bulk Supply I/ Total Annual Value (Y$) Energy Costs 4/ $ 0 0 0 ' ~ Totai Costs $ o m ' s N e t Revenues, 6000 % Total Revenues Average Costs, $/MJh 1/ Individual peaks generally occur i n the daytime, and t h e i r KW demvld a t system peak, which i s in t h e evening, a r e somewhat l e s s than t h e i r own peak. - 2/ Based on an average marginal extension of 0.6 Krn of l i n e p e r consumer. By 1972, 200 K rn of l i n e had been extended t o roughly 275 l a r g e consumers o u t s i d e the cabeceras; t h e o t h e r 60 o r so were i n s i d e t h e cabeceras, requiring l i t t l e extension of the networks. L/ Including 20% allowance f o r power l o s s e s a t peak (marginal cost = 1.2 x fiO63/KW). - b/ Including 15%allowance f o r energy l o s s e s (marginal cost ,= 1.15 x O.O?$/k\:'h). s e r v i c e to them unless they a r e very c l o s e t o t h e e x i s t i n g networks. To take an example, a b o u ~ o n s u m e r s only may be expected in these v i l l a g e s , and, on average, they a r e l i k e l y to take l e s s than abou% 250 Hh/year, generatinp; t,otal revenues of !i?lS00 per year. This i s l i t t l e more than the annual c o s t of 1 Km of : . ? r i b u t i o n l i n e ; t o this must be added the c o s t s o f bulk supply, d i s tI o p e r a t i o n and maintenance, and energy. PART I11 HOTJSE OL2 SUillEYS CHAPTER 9 SAMPLE STUDIES OF HWJSEIDLD CONSUMPTION Introduction 9.1 O r i g i n a l l y , t h e household surveys had t h r e e o b j e c t i v e s ; t h e s e were: - t o d e t e n n i n e t h e e x t e n t and g r o w t h o f household u s e s of e l e c t r i c i t y ; - by analysing t h e s o c i a l a n d economic c h a r a c t e r i s t i c s o f both e l e c t r i f i e d and n o n - e l e c t r i f i e d households, t o f i n d t h e main determinants o f housenold consumption; and - td e s t i m a t e t h e q u a n t i t a t i v e economic b e n e f i t s of e l e c t r i c i t y t o households, a s measured by consumers1 w i l l i n g n e s s to pay ( s e e Chapter 2 ) . I n r e s p e c t of t h e t h i r d o b j e c t i v e , t h e e f f o r t was u n s u c c e s s f u l f o r two reasons. F i r s t l y , the consumption f u n c t i o n s proved to be d i f f i c u l t t o s p e c i f y on account of t h e d i s c o n t i n u i t i e s i n consumption ( e . g . households do o r do not have c e r t a i n k b d s of appliances); though w e were a b l e t o s e e how t h e s e d i f f i c u l t i e s could be overcome, i t was e v i d e n t t h a t s t a n d a r d e c o n m e t r i c prograns could n o t be used f o r e s t i m a t i n g and t e s t i n g t h e models 1/: new e s t i m a t i o n and t e s t i n g procedures were r e q u i r e d which would have been t o o c o s t l y and t i m e consuming t o develop. Secondly, t h e raw d a t a o b t a i n e d from t h e f i e l d were simply n o t a c c u r a t e enough f o r p r i c e e l a s t i c i t i e s t o be e s t i m a t e d , given t h a t p r i c e s do n o t v a r y much ( t h e e f f e c t s o f incomes and o t h e r v a r i a b l e s were much e a s i e r t o see) ; ihough w e might have p a r t i a l l y g o t round t h i s problem by s t r a i g h t c o s t - comparisons between e l e c t r i c i t y and i t s s u b s t i t u t e s , t h e comparisons f a i l e d because e l e c t r i c i t y was g e n e r a l l y more expensive - i,e. i t s main b e n e f i t s a r e n o t f e l t i n cost-savings, b u t through less t a n g i b l e q u a l i t y e f f e c t s ( s e e Chapter 2 ) - 9.2 Hence t h i s c h a p t e r c o n c e n t r a t e s on t h e f i r s t two o b j e c t i v e s o f looking a t t h e p a t t e r n s and growth o f household consumption and then a n a l y s i n g t h e explanatory v a r i a b l e s , First, however, a s h o r t d e s c r i p t i o n o f t h e sampling procedures i s presented. Sample S e l e c t i o n and Procedures 9.3 Over 300 f &lies were surveyed d u r i n g t h e s t u d y , o f t e n w i t h q u i t e a l o t of r e i n t e r v i e w i n g to improve accuracy and remove obvious i n c o n s i s t e n c i e s and i n t e r v i e w i n g e r r o r s . O f t h e s e , 232 gave f a i r l y r e l i a b l e i n f o r m a t i o n , of which 1/ S p e c i f i c a l l y t h e model had t o be s e t up i n P r o b i t form w i t h simultaneous e q u a t i o n and covariance a n a l y s i s f a c i l i t i e s . - 111 were e l e c t r i f i e d households; md - 121 were n o n - e l e c t r i f i e d . 9.L The sample covered e i g h t commimit,ies, six with, two without ' e l e c t r i c i t y . Five of t h e communities were cabeceras ( a l l e l e c t r i f i e d ) , t h e &hers being c a s e r i o s (minor v i l l a g e s , of which only one was e l e c t r i f i e d ) 3/. communities cover a wide range of s i 5 u a t i o n s as regards: - The - l e v e l of economic d e v e l o p e n t ; - r a t e of economic growth; - population and population growth; - years e l e c t r i f i e d and l e v e l s of e l e c t r i c i t y and consumption. Three o f t h e cabeceras anLuis Talpa, San Juan Talpa, and Candelaria de l a ~ r o n t e r a )were s t u d i e d on an aggregate l e v e l i n t h e preceding f o v chapters. ( ~ g g r e g a t ed a t a were not obtained f o r t h e o t h e r communities.) 9.5 The interviewing technique tauk a lrhi2e t , ~ 1-lc.-ielop. Questionnaires (completed by t h e interviewers) were f i r s t t r i e d , but had t o be abandoned because people were h o s t r i e t o them, because they were too s t i f f and i n f l e x i b l e , and y because they were u n r e l i a b l e (indeed, f a m i l i e s of t e n d e l i i ~ e r a t ~ e lgave wrong answers 1 / . ) Informal conversations with t h e f a m i l i e s , w i t h a modicum of note t a k i n g , proved t o be f a r more su.ct.essful: i t gave t h e i n t e r v i e w e r f a r more f l e x i b i l i t y , and enormously irrcreased t h e rapport between i n t e r v i e w e r and family. 9.6 The Lnformation obtained r e l a t e d to: 2/ - - locatior,, c o n m i c a t i o n and contact w i t h o t h e r a r e a s ; - personal and cornunity aspirations; - ownership, s i z e and q u a l i t y of housing; - family s i z e , age and sex composition; education l e v e l s , number and occupations of those worklng; migration data; - e l e c t r i c a l data: d a t e connected, c o n s q t i o r i l e v e l s (from b i l l i n g records), types arid p r i c e s of appliances bought, reasons f o r connection; - data on e l e c t r i c a l s u b s t i t u t e s : kFnds used and t h e i r c o s t s , why they a r e prefered t o e l e c t r i c a l alternativmes; l/ Xargaret Haswell reported s i m i l a r d i f f i c u l t i e s in I n d i a llEconomics of Village Development i n India." F ~ u t l e d g eand Kegan-Paul. 1967. - 2/ A d e t a i l e d l i s t i n g i s provided in t h e U n i v e r s i t y ' s Report PI. A/ Table 3.U l i s t s some fea';ures o f v i l l a g e s sanpled. - family incomes ( i n c l u d i n g incomes received from o r , s e n t from emigrants) p r i n c i p a l e x p e n d i t u r e s , a s s e t s . A s t u d y of t h e s e v a r i a b l e s r e q u i r e d t h e sample t o cover a broad range of family l i v i n g c o n d i t i o n s ; s t u d y i n g f a m i l i e s in d i f f e r e n t communities p a r t l y helped t o e n s u r e t h i s ; another method of ensuring a broad sample was t o t a k e f ami.1l es w i t h d i f f e r e n t housing q -u a l i t i e s . Analysis ( a ) : i ~ i nUses of E l e c t r i c i t ; ? and i t s S ~ b s t ~ i t i i t e s 9.7 The main domestic uses of e l e c t r i c i t y , we found, a r e f o r l i g h t i n g , i r o n i n g , r e f r i g e r a t i o n , r a d i o s and t e l e v i s i o n . Sometimes, people purchase a r e f r i g e r a t o r i n o r d e r t o s e l l cold d r i n k s t o supplement t h e i r incomes; and t h e r e were a few s a s e s where people had i n s t a l l e d a s m a l l corn m i l l ( f o ~ tortillas) ; b!~\ t h e s e c a s e s formed a s m a l l p e r c e n t a ~ eof t h e sample. The d i s t r l h u t i o n of app1i:mce ownershi?, a n d t h e k i n d s of s ? l b s t i t u t e s used by non-owners, weFe a s follo1,rs : - - Table 9.1 Tjse o f E l e c t r i c i t y and I t s S u b s t i t u t e s $ Households l!sina i t "ibe S l e c t r i f i e d &'?Jon-Elsctrified Lights 100% Kerosene 105 100% Irons 58% Flat Iron 35% 915 Television 3% - - - 3 e f ri:eldators 305 Kerosene - 1% F...iai5s I/ 235 Battery lA2$ 5L$ Sle~ders 1 0: ?Janiinl no5 estinated Stoves 4% Gas 18% kg {!bod 7 8% 96s 2 2% Other $ 1 25s 11% - 1/ SaTlple s i z e s 111f o r electrified, 121 f o r non-electrified. 2/ - E l e c t r i f l e d households g e n e r a l l y continue to u s e s u b s t i t u t e s (even f o r l i g h t i n g ) f o r many purposes. - 3/ I n c l a d e s radio-record p l a r e r s . - h/ Reco-d p l a y e r s ( U s ) , w a t e r h e a t e r s , c l o c k s , musical ins',nunents, motors, s n a l l n i l l s , serdn,= machine (one only) , e LC. Z/ Candles o c c a s s i o n a l l y used. The kerosene l q s a r e u s u a l l y a p i e c e o f r a g , used a s a wick, inser5ed i n f o a t i n ; kerosene vapor l a p s a r e o n l y found o c c a s s i o n a l l y . - 6/ a l l s.ample) . This irlr:llides q u i t e 2 number of hand d r i v e n sewht: machines (about 15%of 9.8 Evidently s u b s t i t u t e s a r e a v a i l a b l e and extenstvely used. Even e l e c t r i f i e d households continue t o use t r a d i t i o n a l forms of energy, p a r t i c u l a r l y f o r cooking where wood i s found to be much cheaper and q u i t e abundant i n t h e rtral areas. Its main advantages a r e found i n l i g h t i n g and ironing, where t h e s u b s t i t i l t e s a r e i n f e r i o r , and in t e l e v i s i o n and r e f r i g e r a t i o n , where p r a c t i c a l substitutes are not readily available. (b) Chanees in t h e Use of E l e c t r i c i t y and i t s S u b s t i t u t e s Over Time 9.9 The b i l l i n g records on t h e cons~urrptionof iihividual consumers confirm 01- e a r l i e r a n a l y s i s of Chapter 6 t h a t t h e r a t e of growth o f demand p e r consumer i s q u i t e high. The average r a t e of growth a f t e r connection to 1972 was about 102 p e r ;ear p e r consumer, though t h e r e i s q u i t e a b i t of variance in this fisre. For t h e six communities with e l e c t r i c i t y : Table 9.2 Level and Srowth of Consumpt,ion/~onsrlrner k~.Jh/ Initial Years .4nnual Sample Consumer Ki/ Connected Growth -- S i z e 1/ 1972 Consumer L/ (~verage) Rate Bette? Developed: Agxilares 20 753 n.a. n.a. n.a. Candelaria de l a F'rontera 17 / 525 403 h% 6% S a n Juan Talpa 23 400 157 8 12% Saq Lui3 Talpa 8 729 170 8 20% Backward : San Miguel Tepezontes 8 158 168 6 1 -: Comalapa 7 409 157 & 12% - 1/ Less than size of t o t a l sample of 1 a r e omitted. 11 s i n c e cases where records were incomplete - 2/ One y e a r a f t e r connection. 1 Excluding 1 one very l a r g e consumer, whose consumption declined s l ~ b s t a n t i a l l y following migration 02 family menhers. Looking $ 5 t h e in1ll-sid11a1 reco-tjs, i : i s p o s s i b l e >o f i n d q u i t e a l o 5 o f yandom v a r i a t i o n s i n consumption l e v e l s from one y e a r t o %h? n e x t , a n d in some c a s e s , s y s t e m a t i c tieclines. 3u:, o v e r a l l , indiyCduzl conmiiiYion 1svei.s a r e growin!; r a p i d l j . A s one might e x p e c t , cons~rmptionl e v e l s a r e h l z h e r i n :.he be t t . e r developed co.mimit,ies. 9.10 The growth of consumption i s r a t h e r o!)viously ~ s s o c i a t e dwith t h e ?youth o f appliance sto-i;, a s t h e s u b s = i t u t e s a r e z r a d u d l y i-eplaced by e l e c t r i c a l ,;ypliznres. S l c c t r i c i t y i s f i x : used f o r l i g h tin!; ?.nd ironins;, af-ce- x!?ich a o r e e q x ? ~ s i r eapplinnhes a r ? ;iriderl - nc?r; o r l e s s i n t h e o r , l e r h e i c a i e d i n 1 1 a . Thp f o l l n s i n q :able in,zllcates the 3dist,r5.busi.ono f a p p l i r r l r e si,ock ' ln tk'e six e i ~ c t ~ ~ i f : io d ~ n i t i e s a n d i % s e f f e c t a n ::ons~lmytion l e v e l s . em 7ons-motion Levels 2n.i fipyliance St& < 3 r ~ ~ with l e imuli,mces Hette- Develope:: 3:ick~ard Aver nqe i:',,!h Comurlit%s - 1/ 7onun:ulStles 2/ 1972 A/ 1/ - 5x1 ,?z:lii3iq+-s, ;,I.' '3 Talpa, S-?n Juan T a l p a , 2 , S , x p l e :,ctal = 39 :/ - @+,her 2pplj.nnces incl!?:de r a d i o s , m i x e r s , e t c . - ':/ % e r e i 3 :yfite :ii a r y vr,-%ance (over 2 607) in some o f t h o s e f i g x y e s 5et:reen one conscxer and ano k e r . -he i~7::er app i . i ;.nces, i t can h e s e e c , l n c r e a s e :ivernce coils-lm?:ion l e v e l s c ~ ~ nds ej r- :,:itv,. >n(! i n c-cnseql1cnce t h e avera7e :ier~-,nr?s in -che b e t t e r de7elopej v i l l a ~ ~ :i:.as .... .:-,TT~-~: cin':s t h o s e of th? jackward v i l 1 a z e . j . (c) Income E f f e c t s on Consumption 9.11 The main f a c t o r which detennines appliance ownership, and t h u s t h e l e v e l and growth of e l e c t r i c i t y consumption, i s family income. There i s a marked c o r r e l a t i o n between appliance ownership and t o t a l and p e r c a p i t a family incomesr- Table 9.4 owners hi^ Relations Between Household Consumtion. b ~ l i a n c e and Household Incomes II Y Appliance : / Connec- tion 2 / Costs, Appli- ances Elect- ricity Annual Total r/ Family Inaome & , P e r Capita Family In- come 6 Annual Cos'u - Fam.Income L i g h t s (L) 60 58 15 35 1,590 365 2.2% L + I r o n s (I) 60 88 21 50 2,480 59 2 -0% L + I + T V 60 837 37 182 3,390 770 5.32 L + I +nefrig. (R) 1150 10 1 304 7,960 990 3 8% L + I + ? + T V 75 7 5 2088 105 LS7 11,060 2,270 4.1% - 1/ Each item lisiied a l s o includes o t h e r appliances (which are r e l a t i v e l y i'ew) such a s r a d i c s , mixers, e t c . - 2/ Including housewiring. - 3/ Annuities of I l$ and 1 6 s f o r connection and appliances r e s p e c t i v e l y ; t h e aIlTl~a1 c o s t s of l i g h t bulbs, which a r e a l s o included in this f i g u r e , a r e about $5 p e r year f o r small consumers and $10 p e r year f o r l a r g e consumers. - L/ Sample group means. - 5/ Sample group means. Connections and appliances a r e t o t a l c o s t s , e l e c t r i c i t y i s an a n n m l cost. 9.1 2 Total family expenditures on e l e c t r i c i t y and e l e c t r i c a l appliancee a r e about 2% (on average) f o r ismall consumers, r i s i n g to o r 5% i f a t e l e v i s i o n o r a r e f r i g e r a t o r i s purchased. But expenditure on e l e c t r i c i t y forms a minor f r a c t i o n of t h i s : i t amounts t o around only one percent o f f amjly income, o r l e s s . 9-13 It i s p o s s i b l e , t h e r e f o r e , t h a t f a m i l i e s would be both a b l e and willing ( i f t h e p r i c e s were higher) t o pay more f o r e l e c t r i c i t y . A s suggested i n Chapter 8, t h e low f i n a n c i a l r e t u r n s computed f o r many p r o j e c t s reflect more on t h e (low and badly structured) p r i c i n g p o l i c y than on t h e investmen%s. The l i v e l y response of consumers t o t h e program, r e f l e c t e d in high r a t e s of grohl;h of demand, and t h e low f r a c t i o n of family income t h a t i s spent on e l e c t r i c i t y , both suggest t h a t p r i c e e l a s t i c i t i e s may be low. Table 9.58 D i s t r i b . ~ t i o n of R u r a l Incomes and R e l a t i o n s h i p t o E l e c t r i c ~ t yConsumption T o t a l Sample Wi:h Electricity WithouL E l e c t r i c i t y ' Family Income-k'dh Clnsumption Data F d l y iGroup Group Croup Group Aver%-e FFamily Income 3 a n g e , l - NO. Incoze. t ho. Income,$ No. I..coue,t xyh Incovle kk'h/Family Tabla 9.5b As Above, b u t on R r Capita 1r.corne Basis Family per Total w l e Kith E l e c t r i c i t y Without E l e c t r i c i t y R r C a p i t a Income-k3b Consumptior. A t a C a p i t a Incorns ;roup ;roup lroup "up i:.erage i m l y ;sag, 2 - R 0 :.come ,d - :,a. Incow,$ ~ncome,$ I n c o ~ ~ 6'-%/fdly L loo 26 lt,?Y3 3 1,713 23 LC1- 220 72 5 . 5 s 1 2?,5?1 53 201- 2c9 44 61.2~ 16 28,51? 26- 331- i03 24 h ,792 i3 27,506 11 2'31- 509 19 5!2,410 13 4%,456 5 531- 600 55,633 13 52,634 2 <01- "00 5 l5 lh,143 5 14,143 - 7~1- iioo 3 12,073 % 8,958 1 "01- yx 1 3,54c 3,540 - 5m1-1,\~0@ 100; -1,500 5 3 32,302 4.232 J H 32,802 44,232 -- > ;,jOr) -11 2bO i'.l -11 26c 111 - 7~talS 232 6i3,j5L lli mh ~i A g w d c r o p o r r i c n of t h e t'amilies ui:i.JuT e l e c t r i - i r y e l i v i n d i n the c a s e r l a s v i t h o u t ser-.,ice ( s e e Tsble 3.1) (d) Income D i s t r i b u t i o n E f f e c t s on Consrunption 9.1.11 Income d i s t r i b u t i o n curves f o r r u r a l a r e a s , according t o o u r measure- m e n t s , seem t o follow t h e same shape - though a t a much lower g e n e r a l l e v e l as- those f o r t h e country. Incomes, in o t h e r words, a r e n o t uniformly low; and t h e r e i s , indeed, a very wide range of income l e v e l s t o be found. This e x p l z i n s t h e wide range in consumption l e v e l s i n t h e sample, and a l s o why r e l a t i v e l y l a r g e consumers can s o m e t h e s be found in q u i t e backward communities. 9.15 Table 9.5a shows t h e income d i s t r i b u t i o n of f a m i l i e s in o u r sample; i t a l s o compares t h e income d i s t r i b u t i o n of t h o s e with e l e c t r i c i t y with t h s d i s t r i b u t i o n o f those without, and g i v e s t h e e l e c t r i c i t y consumption l e v e l s of each g o u p . The curves a r e a l s o p l o t t e d in f i g u r e s 9.1 and 9.2, and compared with a s k e t c h o f t h e income d i s t r i b u t i o n cu.rve f o r t h e whole count,ry. Table 9._% p r e s e n t s t h e same information on a p e r c a p i t a income b a s i s . 9.16 Families begin t o consume e l e c t r i c i t y , i t can be seen, a t very low income l e v e l s of around $100 ($40) p e r c a p i t a ; this i s in t h e lowest d e c i l e of p e r c a p i t a incomes in E l Salvador ( a v e r ~ g e p e r c a p i t a income was $320 in 1972). The number of f a m i l i e s connected and t h e i r average consumption l e v e l s r i s e very r a p i d l y w i t h income l e v e l-a doubling, of family o r p e r c a p i t a family income n o r e than doubles average consumption. The income e f f e c t , moreover, i s apparent a t a l l income l e v e l s up t o $800 ($320) p e r c a p i t a when some s i g n s of s a t u r a t i o n (which a r e not apparent in u r b u l a r e a s ) begin t o appear. 9.17 The d i f f e r e n c e i n consumption l e v e l s between t;he ' b e t t e r developed' anci 'backward' v i l l a g e s a r e a l s o explained by d i f f e r e n c e s i n t h e i r income distributions : Table 9.6 Incone D i s t r i b u t i o n of E l e c t r i f i e d Families i n D i f f e r e n t Communities Per Capita B e t t e r Developed Income m g e $ Comrnilni t i e s 1/ Backward 2/ - 1/ Sample s i z e 78 (Candelaria, Aguilares, San Luis Talpa and San Juan ~ a l ~ a ) . - 2/ Sample s i z e 33 an itiguel Tepezontes, Comalapa, C u c h i l l a Comalapa) (~ote a g a k t h a t some f a m i l i e s with incomes of l e s s th,m n 0 0 ($40) p e r capLta a r e connected). 9.18 The b e n e f i t s o f e l e c t r i f i c a t i o n t h u s do seem t o reach low income groups and r i s e q u i t e quickly with t h e i r incomes. The main o b s t a c l e t o e x t e n s i o n of s e r v i c e t o many o f then i s not t h a t they would b e unwi.lling t o purchase t h e s e r v i c e , b u t t h a t , i n m a n y p o t e n t i a l demand c e n t r e s , p o p u l a t i o n d e n s i t i e s and p o p u l a t i o n l e v e l s a r e very low, so t h a t - aggregate demands would b e t o o low, and - c o s t s o f s e r v i c e would be too h i g h , t o j u s t i f y s e r v i c e from t h e g r i d . Autogenerators, a s many c o u n t r i e s have found, a r e t h e only economic a l t e r n a t i v e f o r p r c v i d i n g s e r v i c e i n t h e s e circumst,ances. P u b l i c s u p p l i e s from t h e g r i d c m o n l y be J u s t L f i e d i n t h e h i g h e r p o p d a t i o n densitay, h i g h e r demand regions. ( e ) Gczupations and E l e c t r i c i t y Consumption - /: - 4 9.19 The type o f occupation o f t h e f a m i l y wage-earner s e m s t o have some irifl.uence on consum?tion. It was n o t i c e a b l e , during t h e course of t h e fieldwork, t h a t people working I n a g r i c u l t u r e were l e s s h c l i n e d t o o b t a i n e l e c t r i c i t y t h m t h o s e of s i n i l a r incomes working o u t s i d e a q r i c u l t u r e . The follotring d a t a seem t c b e a r t h i s out: Table 9.7 Occupations and t h e Cecision t o Connect Main Vase Earner Vorkinp: i n : Agricnl t,ure Non-Agricult,ure Number of Cases !h.mber E l e c t r i f i e d Porcent E l e c t r i f i e d Averc~gePer Capit, a Incomes : Those )Jot E l e c t r i f i e d Those E l e c t r i f i e d - 61% $500 w $19 $600 1/ - Txcl~ldingf o u r l a r g e Earners. 9.20 A minor reason f o r t h i s , i t i s b e l i e v e d , i s t h a t agr;c:LLtu-a1 workers a r e more c u s x m bound. 'i'wo f a r more important r e a s o n s , however, a r e ( i ) t h a t many f n m wor!cers a r e migrant workers, and a r e fhr less i n c l i n e d t o s e t t l e i n a p a r t i c ~ l l a rarea; ( t i ) okher farm workers d o n o t ocm t h e i r house, which i s provided t o t h e n ( a s a payment in kind, so t o speak) by t h e l a n d l o r d . Both t h e s e poFnts a r e a l s o r e f l e c t e d in t h e q u a l i t y and t y p e o f ~ b m e r s h i pof t h e house. - 4:-/ Oc~*~:pr.-.lonal s t r i i c t u r e o f s,y?ple ( e l e c t r i f i e d and n o n - e l e c t r i f i e d r e s p e c t l v e l v ) : s m r l l farriers, 12 a n d 1 C % ; rnedilur, f~ r m e r s ,5 and 2%; l a r g e T a m e r s . h and 0%; f a n workers, 17 and 53%; commercial, 33 and l?)?:; t r a d e and c r a f t s , 7 and 11%; t e a c h e r s , c l e r i c a l , o t h e r s , 2 2 and 5%. ( f ) Quality and h e r s h i p of Dwelling and E l e c t r i c i t y Consumption The m a j o r i t y o f e l e c t r i c a l consumers, we found, l i v e d in s o l i d l y t e d houses of moderate o r good q u a l i t y . They were variously made of (painted mud b r i c k s , reinforced with straw), wood and adobe, o r b r i c k s ; n e a r l y a l l had t i l e d roofs; and a few had indoor s a n i t a t i o n . I n c o n t r a s t , the dwellings of most f a m i l i e s without e l e c t r i c i t y a r e temporary s t r u c t u r e s , c a l l e d "ranchos", made o u t of t r e e branches with straw thatching. Table 9.8 Quality of House and The Decision t o Connect 1/ Sample Distribution- House a a l i t y Electrified Non-Electrified ~ a n c h o s(very poor) S o l i d ; adobe and wood, outdoor sanitation Brick; indoor s a n i t a t i o n - 1/ Sample size; Electrified 111; n o n - e l e c t r i f i e d 121. 9.22 The f a m i l i e s l i v i n g i n t h e ranchos a r e n o t n e c e s s a r i l y the poorest (tilough frequently t h i s i s so); migrant workers ( j o r n a l e r o s ) , who form a very l a r g e f r a c t i o n of the labour f o r c e , commonly l i v e in them. 9.23 A l a r g e p m p o r t l o n of the houses, including those of s o l i d construction, a r e not owned by the family, and t h e decision t o connect r e s t s with t h e landlord; 20% of o u r e l e c t r i f i e d sample f a l l s i nto this category, In t h e r u r a l areas o u t - s i d e t h e v i l l a g e s , house ownership ( a p a r t from t h e ranchos) i s much l e s s common; s i n c e t h i s covers t h e m a j o r i t y of t h e v i l l a g e - r u r a l poplllation, some remarks on i t a r e appropriate. (g) Note on Service to Small Farmers and Fann IJorkers Outside t h e V i l l a g e s 9.2L Nearly two t h i r d s of t h e population of EL Salvador l i v e o u t s i d e t h e main v i l l a g e s ( a s noted in Chapter 3, para. 3-10) - t h e s m a l l farmers, the workers (colones) l i v i n g on the l a r g e farms, and a good proportion of t h e migrant workers, For two reasons i t i s very d i f f i c u l t t o extend s e r v i c e t o them: (i) they a r e s c a t t e r e d , l i v i n g i n small c l u s t e r s , so t h a t c o s t s a r e high and demand low; except i n t h e minority of cases where t h e small farms h d population c l u s t e r s a r e c l o s e -b t h e e x i s t i n g networks, extension of s e r v i c e to them i s uneconomical; (ii) t h o s e l i v i n g i n l a r g e farms a r e not e n t t t l e d (by law) to ownership of t h e house, and s e r v i c e i s e n t i r e l y a t t h e d i s c r e t i o n of t h e landlord. Both f a c t o r s , u n f o r t u n a t e l y , c u t o f f a l a r g e proportion of t h e population from t h e p o s s i b i l i t y of r e c e i v i n g s e r r i c e . o n an economical b a s i s . Income Transfers : m n i . . r 2 t = 9.25 Lou income f a m i l i e s commonly r e c e i v e f b a n c i a l support from family members [.rho have migrated; higher income f a m i l i e s , on t h e o t h e r hand, commonly provide f i n a n c i a l support t o those who have miqrated (mainly f o r education, a s discussed l a t e r ) . The incoine t r a n s f e r s appear t o be q u i t e l a r g e and widespread: 40% of t h e hol~seholdssurveyed were senders o r r e c e i v e r s (inchiding over 50% of those e l e c t r i f i e d ) ; t h e incomes of low income households were augmented on average by 36%; a d h i g h e r income households t r a n s f e r r e d .an average 10% of t h e i r incomes. The e x t e n t and s i z e o f t r a n s f e r s a r e s h a m i n t a b l e 9.9. Table 9.9 Income Tra:lsfers Sending Iieceivin~ No. of f a m i l i e s involved 1/ Aggregate Income $ T o t a l of Incanes s e n t o r received Average Income: $ p e r family ! p e r family Average Sent o r 3eceiveti: E $ Sent o r Received Average Per Capita Income, 6 2/ Average Per Capita Income Transfer, kf 2/ - 1/ Sample s i z e 232. - 2/ a c l u d i n q f o u r high income f a m i l i e s , the percentage ofsincome t r a n s f e r r e d was higher, averaging 1&% of t h e f a m i l y ' s income. Further, e i g h t f a m i l i e s Kith incomes in t h e range of $1000 t o $4000, s e n t over 25% of t h e i r incomes to migrants. r/ Family Income $ No. a t Home. Low income r u r a l f a m i l i e s o f t e n b e n e f i t considerably, t h e r e f o r e , from' 9.25 t h o s e who have migrated (mainly t o urban areas) and t o encourage i t , i s obviously very strong - . The .motivation t o migrate, a s one would expect from t h e c u r r e n t e x t e n t of rural-urban migration. 9.27 Migrants ( i n our sample) a r e younger, mainly s i n g l e , move mainly in search o f education o r jobs, and mainly go t o urban a r e a s o r l a r g e towns. Of t h e 220 migrants of t h e f a m i l i e s surtreyed: - 70% were under 25 y e a r s of age; - h a l f were women; - 70% were s i n g l e ; and - 47% had migrated to t h e metropolitan area, % abroad, and t h e r e s t t o towns and o t h e r = a 1 areas; The reasons f o r migration were declared to be: f o r education, 17% of sample; t o f i n d work, 31%; t o form a new home, ll$; various,bl%. ( i ) G i f t s and Purchases o f E l e c t r i c a l Appliances 9.28 Often, migrants a l s o buy e l e c t r i c a l appliances, and sometimes pay f o r connection, a s a g i f t t o t h e i r f a m i l i e s ; one in f i v e appliances i s obtained i n this manner. Second hand appliances a r e o f t e n bought (about one i n six cases). N ew appliances, purchased in cash o r with c r e d i t , a r e however t h e most common: Table 9.10 Sowces o f Appliance Ownership Number of Cases in Sample - - Connection Irons Refrigerators T V s 0ihe1- -eta, Gifts 6 - 10 I/ 3 6 1l.r L/ :cj Second ?land 25 g/ 6 - 1: a8 New - with C r e d i t 1 23 21 9 .-. 4 New - cash - 1/ Includes one item given as p r i z e by shop (prom.tion). - 2/ These a r 3 cases where e l e c t r i f i e d house. was purchased. C r e d i t , ' L t can be seen, i s g e n e r a l l y used o n l y f o r t h e more expensive appliances (connection and t h e smaller appliances c o s t only a s m a l l f r a c t i o n of f a i l ; ? incone). (j) P r i c e and Willingness-to -Pay 9.29 P r i c e s probably have q u i t e a s t r o n g i n f l u e n c e on the d e c i s i o n to purchase and use e l e c t r i c a l appliances - t h e r e l i a n c e on g i f t s and second hand purchases, people becoming connected and building up t h e i r appliance stock only gradually, t h e preference f o r cooking with wood r a t h e r than e l e c t r i c ( o r gas) s t o v e s , a r e a l l symptomatic of t h i s . 9.30 An e l e c t r i c a l appliance, and t h e e l e c t r i c i b ~ t o m it, are complementary goods: one cannot function without t h e o t h e r . So i t i s t h e combined p r i c e of e l e c t r i c i t y and t h e appliance which matters when considering p r i c e e f f e c t s . The combined p r i c e s f o r some a p p l i c a t i o n s a r e compared in t a b l e 9.11 w i t h those of t h e s u b s t i t u t e s . Table 9.11 Total Cost Comparlsons Between E l e c t r i c i t y and i t s S u b s t i t u t e s E l e c t r i c a l Appliance Substitute Costs $ Annual 1 / Annual DE- Connection Appliance E l e c t r i c i t y ~ o t a l , K Costs, (I l_~ype) 2/ 21 Lights 60 S/Ye a r 10 22 7 t o 13 (kerosene) Irons 60 35 7 20 5 ( f l a t iron) Ref r i g e r a t o r 75 1200 80 260 500 (kerosene) Cooking 75 300 70 120 75 (wood) 1/ - Annuity of 1 1% f o r connection, 15% f o r appliance. Inclllding connection c o s t s i n each case s l i g h t l y oversbates, of course, t h e e l e c t r i c i t y cost. - 2/ Light bulbs ( f i x t u r e c o s t s included i n connection c o s t s ) . - 3/ The higher p r i c e a p p l i e s t o vapour lamps; t h e lower p r i c e t o wick-lamps. The e l e c t r i c a l a l t e r n a t i v e i s more expensive i n t h e case o f l i g h t s and i r o n s ; i t i s used on account of q u a l i t y and convenience. Kerosene r e f r i g e r a t i o n i s much more expensive, and i s r a r e l y found. E l e c t r i c cooking i s a l s o more expensive; i t , too, i s r a r e l y found. 9.31 How high could e l e c t r i c i t y p r i c e s go b e f o r e people would p r e f e r s u b s t i t ~ l t e s ? Since e l e c t r i c i t y forms t h e l e s s e r and o f t e n a .small p o r t i o n of t o t a l c o s t s (30% o r l e s s in t h e case o f r e f r i g e r a t i o n ; only 15%in t h e c a s e of TVS) i t i s p o s s i b l e t h a t t h e e f f e c t s o f e l e c t r i c i t y p r i c e s a r e correspondingly d i l u t e d . However, t h e o n l y c o n c r e t e evidence on how much people would be w i l l i n g t o pay i s provided by t h e h i s t o ~ i c a ld a t a o f p r i v a t e d i s t r i b u t i o n companies, where p r i c e s have been very much h i g h e r in t h e p a s t . Table 9.12 p r e s e n t s some d a t a . Table 9.12 Data on P r i c e Levels f o r Domestic Consumers Main Pr'lces i n ?.ane;eT Centavos / kWh Yonthly kWh Range 0 -30 30 100 - Over 100 CXL -1972 12 10 t o 12 5 9 kbh ranges t o which t a r i f f s apply d i f f e r c o n s i d e r a b l y from one p e r i o d and from one comp.uly t o another. * PNKO s e r v e Juayua and S a l c o a t i t a n ( s t u d i e d i n e a r l i e r c h a p t e r s ) ; DEUSM s e r v e Usulutan, a low income region i n t h e s o x t h west. For commercial and f o r l a r g e domestic consumers on t h e commercial t a r i f f s , t h e r a t i o s of p a s t +& p r e s e n t p r i c e s was even h i g h e r . 9.32 The u t i l i t i e s have t h u s been a b l e to charge much h i g h e r p r i c e s in t h e p a s t (when ave-age c o s t s were high) t h a n now o b t a i n ; indeed, t h i s i s t h e o n l y way t h e p r i v a t e u t i l i t i e s have been a b l e t o make a p r o f i t . In t h e 1 9 4 0 ' s and ' 5 0 f s , p r i c e s were two o r t h r e e times p r e s e n t l e v e l s (more i f one allows f o r L y f l a t i o n ) , r e f l e c t i n g t h e h i g h average c o s t s o f supply f r o n a u t o g e n e r a t i o n . I n t h e 1 9 6 0 ' s , load growth LTI each o f t h e p r i v a t e u t i l i t i e s we have s t u d i e d was h i g h , even thoxagh p r i c e s were 1.5 times t h o s e o f CEL, o r 1.7 times if one allows f o ~ i n f l a t i o n ( c .f. RAMCO 's p r i c e s i n 1966 w i t h t h o s e of CEL i n 1972) ; p r i c e r e d u c t i o n s weye l a r g e l y a consequence of t h e growth o f demsnd r a t h e r , t h a n a cause o f i t , on account o f economies o f s c a l e b e i n g generated by load growth. . h d i n 1972, R E 3 C O ' s p r i c e s were s t i l l 30% h i g h e r than CEL1s. 9.33 On t h e f a c e of i t , t h e r e f o r e , i t does seem t h a t CEL could have charged, - s a y , 50% rno-e w i t h o u t s e r i o u s l y choking back demand. I / But s i n c e CZL k e p t p r i c e s low, t h e i r revenue l o s s e s became t h e consumers' g a i n s - on t h e above assumption 1/ W e d i d n o t have d a t a on consumption and incomes in t h e y e a r s of h i g h e r p r i c e s s o a s t o e n a b l e u s 50 e s t i ~ a t e price elasticities. they received surplus b e n e f i t s amounting 50% o r more.of revenues. Tdhile some consumers would have probably cut back on conslxnption i f p r i c e s had been higher, t h e evidence i s t h a t o t h e r s would have been prepared t o pay considerably inore, and indeed have done so. 9.34 This evidence t h a t people a r e prepared to pay more i s p a r t i c u l a r l y important. k a l y s i s (in Chapter 8) o f f i n a n c i a l r e t u r n s t o s e l e c t e d p r o j e c t s showed very poor revenues f r u n many o f them. In p r a c t i c e this does not mean t h a t t h e inves'ments a r e u n s a t i s f a c t o r y : i n many cases, i t can now be seen, i t means simply t h a t p r i c e s a r e too low. (k) Estimation of I4onet ary Benefits 9.35 ' I n addition t o consumers s u r p l u s b e n e f i t s , t h e s a l e o f e l e c t r i c a l appliances has generated t a x revenues f o r the government. Domestically produced appliances a r e untaxed; b u t imported appliances carry a t a x of LO;"; o r more. Table 9.13 provides d e t a i l s . Table 9.13 P r i c e s , Taxes on Appliances IJeighted Annual Ownership P r i c e s , k? Taxes, k? Value of Appliance Domestic Foreiqn Domestic Foreign Domestic Foreim Taxes, $ * Iron LO% &% '22 36 - 10 1 Refrigerator 20$ 80% 1125 1200 - 350 L2 ; 'lr - loo$ - 735 - 250 37 - - - - i.c Tax times 15%Annuity times $ foreign owned. 9.36 The t a x revenues a r e q u i t e l a r g e i n r e l a t i o n t o t h e revenues from e l e c t r i c i t y s a l e s , a s can be seen from t h e following c a l c u l a t i o n s : Tax Revenues a s 5 of E l e c t r i c i t y Costs Annual - Appliance kWh to Electricity . h u a l Tax Tax Revenues a s Run i t Costs L Revenues, $ 5 of Elect.Costs Iron 70 7 1 1b% Refrigerator 800 80 L2 52% TV 150 15 37 250% The t a x revenues a r e next calculat,ed a s a percentage. of t h e e l e c t r i c i t y b i l l f o r combinations of appliance ownership i n t a b l e 3.1b; and a s a percentage o f t h e t y consumers i n our sample, in t a b l e 9.15. t o t a l amount paid f o r e l e ~ t ~ r i c i by 9.37 m e t u r revexues, i t car, be seen, add s u b s t a n t i a l l y t o t h e financi;:l r e t u r n s t o t h e program - by 65$, f o r t h e consumers we have samplecl. For t h e b e t t e r developed v i l l a g e s (where t h e r e a r e more cf t h e more expensive a p p l i a n c e s ) , revenues w i l l be higher than t h i s ; they w i l l of course be lower in t h e nore back- ward v i l l a g e s . 1 / 9.38 The monetary b e n e f i t s of t h e program can now be s t a t e d a s being t h e sum of: - revenues from e l e c t r i c i t y s a l e s ; - t a x revenues from t h e s a l e s of appliances, amounting t o about 65% o f e l e c t r i c i t y revenues; ?/ - (supplus) b e n e f i t s passed onto consumers in t h e form o f a r t i f i c i a l l y low p r i c e s , mounting t o , we cpess, about 50s o r n o r e of e l e c t z i c i t y revenues. If t h e l a t t e r gdess i s r i g h t , then t o t a l monetary b e n e f i t s a r e over 2.15 times revenues. (1) Other A s ~ e c t sof Consumer Response 9.39 The surveys a l s o looked a t l i t e r a c y ( c o r r e l a t e d with incomes but not independently wfth cons:imption); age (younger f a m l l i e s more l i k e l y t o become consumers) ; family u n i t y (fragmented f a m i l i e s l e s s i n c l i n e d t o develop t h e i r homes) ; f m i l y wj.shes f o r various kinds of p u b l i c faci1i:ies ( h e a l t h , water and roads had high p r i o r i t i e s and, in s e v e r a l cases, p u b l i c marketing f a c i l i t i e s ) ; and . prudence when purchasine goods and s e r v i c e s (low income f a m i l i e s , a s one might expect, f a r more prudent in spending) The main p o i n t t o emerge, from t h e viewpoint of t h e present, study, was t h a t tuhe c o n s m e r s ' response t o the e l e c t r i - f i c z t i o n program was q u i t e enlightened; t h e r e was no reason t o suppose t h a t valuing monetary b e n e f i t s on the b a s i s o f consmer Yesponse was i n v a l i d . ( i n - come d i s t r i b u t i o n might obviously be oll+s$ioneti; b u t t h i s i s a separqt,e i s s u e . ) - I/ I n f u t u r e t a x revenues may decline s i n c e more untaxed domestic appliances w i l l 'se boxght. %esc mag be ( a ) p a r t l y passed ontc t h e consumers i n the form of lower p r i c e s , thus adding t o c o n s m e r s ' surp1.u~b e n e f l t s ; ( b ) a r t l y passed 7 o n w 2omestic producers, in the form of higher p r o f i t s ; a n d ( c p a r t l y absorbed by t h e economy i r i the f o m of higher c o s t s . T o the extent that (c) i s t r u e , we will 'nave overestimated t h e monetary b e n e f i t s . - 2/ ?tather t h v l dealing with tax revenues i n the customzqr way of s u b t r a c t i n g them from s ~ p p l y . c c s t s , we have added them t o benefits,mainly a s a matter of expository convenience I Table 9.14 Tax Revenues as $ of E l e c t r i c i t y B i l l f o r Combinations of Appliance Ownership ~nnual k\lh % Annual Value of 1/ Weighted Average Appliances (respectively) Taxes ( r e s p e c t i v e l g r of Tax Revenues g/ 14% o f bill i 145 of bill I \ L, I, TV 100, 70, 150 14, 14, 2.50 117% o f h i l l ! L, I, R 100, 70, 800 14, l h , 5'2 45$ of b i l l L , I , 9, ?"J 100, 70, 800, 150 a,14, 5 2 , 250 73% o f b i l l l~' i.e. as 5 of e l e c t r i c i t y c o s t s . - 2/ throughout. Vsing a uniform p r i c e of 10 centa~ros/It(ifilh - 3/ Revenues from l i g h t s have been taken t o be t h e sane a s those from irons. Table 9.15 Tax Revenues a s % of Total E l e c t r i c i t x B i l l f o r Consumers Sampled &/ Average Tax Tax Revenues a s $ o l T o t a l Appliances k>h 4/ A $ Revenues, B $ B i l l . of Sample, EcA$.. 3/ l4% 1.0% U-I$ 1.4% U7% 16.4% 45% 5.8% 7 35 40.2% Total w - 1 / 1U Consumers. - 2/ A s in Table 9.14 - 3/ ~ss~uning a ; uniform p r i c e f o r each use. L/ - Includes o t h e r a p p l i m c e s , which have been t r e a t e d pro r a t n throughout. (i) The h i g h r a t e s of growth of demand r e p o r t e d e a r l i e r , and which a r e l i n k e d t o t h e growth o f e1ectrls:~G. ippl.i.ti~ce . s t o c k , a r e a l s o r e f l e c t e d in t h e sample s u r v e y s o f domestic co nsune rs (ti) The m:dn determinant o f t h e l e v e l and growth o f consumption i s fa mil;^ income. F a m i l i e s b e g i n t o consume a t around $100 ($LO) p e r c a p i t a , and 2 doubling o f income more t h a n doubles t h e l e v e l of consumptior! ( o v e r a wide r>inge o f i . n . - m e s ) . (iii) Income t r m s f e r s and g i f t s (of e l e c t r i c n l ?.pF113noez) a l s o s i g n i ? i c . z n t l y a f f e c t . i:onsumption. Income t r a n s f e r s from f m i l y members who have m i g r a t e d ,mainly t o u.rban a r e e s , appear t o b e common and l a r z e ; on t h e o t h e r h a d , a number o f f a m i l i e s l i v i n g 5 r u r a l a r e a s p r o v i d e f i n e n r i a l supper:, f o r t h e e d u c a t i o n o f younger nembers l i v i n g in u r b m a r e e s . (iv) A g r i c u l t u r a l workers, we found, were l e s s i n c l t n e d t o consurr~e th,m n o n - a g r i c u l t u r 2 1 workers, though income l e v e l s were o f t e n comparr.ble ; t h e r e a s o n s a r e t h ?t many a g r l c u l t , i l r ~ l:;lo17kers - r e m i g r a n t workers, w i t h t e n p o r a r y ( v e r y par) tl-.;el-lirlqs, w h i l e many o t h e r s do n o t own t h e i r homes; f u r t h e r , a l a r , y e n.unber o f t h e homes 2 r e s c a t t e r e d and i s o l a t e d , mnking i t u n e c o ~ o m i c a l t o e x t e n d s e r v i c e t o them. (v) General>., e l era: , - 7 l ? , y supply i s mainly souqht when t h e r e i s 1 some s o l i d i t y , pelnmnence and q ~ z i i t yi n t h e house ; ~ , r n c t l ~ r e , =d wher! i t i s owned b y t h e r e s i d e n t . (vi) P r i c e s , t o o , a r e import,u.t, b u t e l e c t r i c i t y p ~ F c e s prc~babl;r have r e l a t i v e l y l e s s e f f e c t on dknand t h m t h s e q f t h e a p p l i a n c e s s i n c e e l e c t r i c i t y f o m s a minor p a r s of cot:.l costs. (vii) Cur judgement i s t h a t $he monetary b e n e f i t s n f -;:..pyl:' -,?c o v e r %;'Lee a c t u a l revenues, f o r two r e a s o n s : 0r.e i s ;i!al; -ax , . revenues f?om a p p l i a n c e s z l e s have beer: q u i 5 e l a r s e ; ? : ' ; L. . I I::, i s t h a t e l e c t r i c i t y p r i c e s have been u n r i e c e s s a r i l y lcr: - wlch lower 'cn,u: I : ? :>as' - . r . ~ 1t h e r e v e r n e l o s s e s t o CxL h ~ v e bee^ revenue gains to t h e consumers, (viii) Y?ie f ? e l r ! -.r~z-!i- ! 1 : : . ; :.?-;'.:-:. % h a t f m i l y d e c i u i ? n c t o purchr.so -cads and s e - v i c e s a r e enliyhtenec!, 2 ii6 t h a t econonic bene.?:.: c a l c u l a t i o n s based on c o n s m e r r e s p c n s e seem tc b e w e l l founded . CHAPTER ic THE EXTENT AND GROWTH OF PRODUCTIVE USES OF ELECTRICITY I N RURAL AREAS 1c.1 The economic r e t u r n s t o r u r a l e l e c t r i f i c a t i o n programs v a r y con- s i d e r a b l y w i t h t h e e x t e n t and g r o w t h of p r o d u c t i v e u s e s o f e l e c t r i c i t y . One r e a s o n i s t h a t p r o d u c t i v e u s e s t e n d t o h a v e h i g h e r l o a d f a c t o r s and h i g h e r consumption at off-peak, t h u s improving c a p a c i t y u t i l i z a t i o n ; a n o t h e r r e a s o n i s t h a t , by r a i s i n g t h e l e v e l o f c o n s u m p t i o n by l a r g e a m o u n t s , t h e y r a i s e t h e e c o n o m i e s of s c a l e o b t a i n e d f r o m t h e i n v e s t m e n t ; b o t h f a c t o r s , o f c o u r s e , improve economic r e t u r n s . T h i s i s p r o b a b l y why M r . V e n k a t a p p i a h , o f t h e Rural E l e c t r i f i c a t i o n Corporation of I n d i a , h a s s t r e s s e d t h e p r a c t i c a l im- portance of couching r u r a l e l e c t r i f i c a t i o n investments i n a productive context [ 3 ] . 10.2 T h i s c h a p t e r p r e s e n t s some f a c t u a l m a t e r i a l on t h e p r o d u c t i v e u s e s of e l e c t r i c i t y and i t s s u b s t i t u t e s i n r u r a l a r e a s . I t was g a t h e r e d f o r pur- p o s e s o f f o r e c a s t i n g , and a l s o s o t h a t a r e p r e s e n t a t i v e s a m p l e of p r o d u c t i v e u s e s could be chosen f o r c o s t - b e n e f i t a n a l y s i s . However, t h e m a t e r i a l i s o f i n t e r e s t i n i t s own r i g h t , b e c a u s e i t i s g e n e r a l l y s c a r c e , and b e c a u s e t h e e x t e n t and growth o f p r o d u c t i v e u s e s o f e l e c t r i c i t y i n r u r a l a r e a s i s f a r g r e a t e r t h a n i s commonly t h o u g h t . W e b e g i n by d i s c u s s i n g t h e l e v e l and growth of demand from CEL's c o n s u m e r s , and c o n c l u d e by l o o k i n g more w i d e l y a t e n e r g y u s e i n r u r a l a r e a s s o a s t o form a n i m p r e s s i o n o f f u t u r e demand. CEL's Consumers 10.3 Over h a l f o f t h e kWh demand h a s stemmed from p r o d u c t i v e u s e s , and d e n a n d s from b o t h d o m e s t i c and p r o d u c t i v e u s e r s h a v e s h o w h i g h g r o w t h r a t e s . T h e s e p o i n t s a r e i l l u s t r a t e d i n T a b l e ?".I:- Table 1c .1 CEL's E l e c t r i c i t y Consumers and t h e L e v e l and Growth of T h e i r Consumption . , 1 1, 1967 1972 kk% / k'&/ Tariff- No. ?.ilJh Consumer No. >IG;h Consumer Total 6,213 3,085 497 15,112 14,977 991 S o u r c e : CEL ( D a t a a r e f o r a n n u a l c o n s u m p t i o n ) 1/ t i o t e s : T a r i f f s a r e d e f i n e d i n C h a p t e r 6 . Roughly, D-3 a r e d o m e s t i c t a r i f f s - w i t h some commr-rcial consumers i n c l u d e d ; G-4 a r e g e n e r a l coumt.rcia1 t a r i f f s w i t h some d o m e s t i c consumers i n c l u d e d ; F-5, .F-6, F-9 a r e v a r i o u s c a t e g o r i e s o f ' m o t i v e power' t a r i f f s f o r l a r g e r u s e r s ; R-11 i s f o r i r r i g a t i o n ; and No. 8 t a r i f f s a r e for public lighting. The number o f d o m e s t i c consumers more t h a n doubled between 1967 and 1 9 7 2 , as d i d t h e number of non-domestic consumers; d u r i n g t h e same p e r i o d t h e l e v e l of consumption p e r consumer a l s o more t h a n d o u b l e d , though from low l e v e l s , r e - f l e c t i n g t h e h i g h rates o f growth of demand which o c c u r r e d w i t h i n a r e a s once t h e y had been e l e c t r i f i e d . The l a r g e i n c r e a s e of t h e a v e r a g e consumption l e v e l s due t o non-domestic consumption i s a l s o a p p a r e n t from t h i s t a b l e ; i n 1972 t h e a v e r a g e l e v e l of consumption f o r a l l consumers was r o u g h l y 2.4 t i m e s t h a t of d o m e s t i c consumers. 10.4 I t i s i n f o r m a t i v e t o c o n s i d e r i n more d e t a i l t h e k i n d s of consumers u s i n g e l e c t r i c i t y f o r p r o d u c t i v e p u r p o s e s on e a c h of t h e above t a r i f f s . (a) Consumers on t h e H o t i v e Power T a r i f f s (F-5, F-6, F-9) 1O.5 From b i l l i n g r e c o r d s and f i e l d t r i p s i t was p o s s i b l e t o i d e n t i f y what e a c h of t h e consumers used e l e c t r i c i t y f o r , and how t h e i r consumption had changed o v e r t i m e . The d a t a a r e l i s t e d i n Table 13.2 ( f o r t h e month of December, t h e c o f f e e p r o c e s s i n g s e a s o n ) , and show a f a s c i n a t i n g and d i v e r s e r a n g e of a c t i v i t i e s . C o f f e e p r o c e s s i n g forms a l a r g e s o u r c e ( a b o u t 45%) of demand, a s one might e x p e c t . O t h e r l a r g e and q u i c k l y growing s o u r c e s of demand stem from: - grinding corn f o r t o r t i l l a s ; - d o m e s t i c ( p r i v a t e ) and p u b l i c w a t e r pumps;- 1/ - a l a r g e number of s m a l l b u s i n e s s e s and p r o c e s s e s of various kinds; a few l a r g e consumers, p r i n c i p a l l y egg and c h i c k e n f a r m s ; a s l a u g h t e r h o u s e w i t h r e f r i g e r a t i o n ; some l a r g e s c a l e c o f f e e p r o c e s s o r s ; a r i c e p r o c e s s o r ; and a p r o d u c e r of c r u d e s u g a r from s u g a r c a n e . The a v e r a g e consumption p e r consumer on t h e s e t a r i f f s r o s e from r o u g h l y 9,000 t o 1 6 , 0 0 0 kwh p e r y e a r between 1967 and 1 9 7 2 , a growth r a t e of 12% p e r year. (b) Non-Domestic Uses on t h e Domestic and G e n e r a l T a r i f f s (D-3, G-4) 10.6 Hany p e o p l e o n ' t h e s e t a r i f f s u s e e l e c t r i c i t y f o r non-domestic p u r p o s e s . The a c t u a l e x t e n t , however, i s unknown, though we have b e e n a b l e t o e s t i m a t e i t f o r t h e 12 v i l l a g e s s e l e c t e d f o r t h e c o s t - b e n e f i t s t u d y . A l l 1/ - It i s thought t h a t underinvestnent i n p u b l i c water s u p p l i e s i n r u r a l a r e a s may have l e d t o t h e l a r g e i n c r e a s e shown i n T a b l e 1 0 . 2 of ~ r i v a t e l y i n s t a l l e d pumps. -88- Table 10.2 Consumen on t h e % t i r e Power T a r l f f s 1%7-72 Ua .Consumers Cons\mption 1[Yh Sal- (a Industry 1/ Doc. 1967 Doc. 1972 Armual Growth 5 kc. 1967 Dsc. 1972 Annual , Growth S Dee. 1%7 Doc. 1972 AMU.1 Gmwth J Tariff F 3 Corn Mills ( t o r t i l l a dough) H m e r Mills (Poultry Food) Fodder C u t t e r s (Animal Food) 2/ M i lk Coolers Domestic Water Pumps Public Water Punps (MU)r/ Other Agric.Uses Coffee R o c e a s i n g Small Sugar U s ! t/ Sugar Processing Mechanical and Welding S h o p Gas S t a t i o n s Carpenters Road Corn t r u c t i o n S e r r i c e f i b e r B t r a c t a r s (Hsnequen) Leather Workshops Cement P u l v e r i z e r s I c e Makers Cooking O i l W e r s Poultrg Falms I r r Q a t i o n Pumps P i g Farns Slaughterhouse Others Sub-Total ( T a r i f f F-5) Tariff P d Coffee Processing 0 1 Rice Proceesing 0 1 Road Constmction Service 0 1 Sl~ughterhouseheffigeration Sub-Total (TarFif P d ) -0 - 1 h y- Coffee Processing 3 10 27.0 83,600 2h9,169 25.0 5,925.1r6 17,256.26 Su a r Processin b sub-%otal ( ~ a r l f F-9) 0 3 1 11 - l3.520 83.600- 262,689 5,925A6 1,h33.86 18,6p3.12 v2h.0 - y P r i n c i p a l Product i n d i c a t e d in brackets - 2/ 1[Mwn a s "Plcadoras de Zacata" A d d d s t r a c i o n Nacional de Acueductos y AlcantarFUados. Known a s "Mollendas de Cana". The juice Is used ta mak6 an unrefined b r o m sugar f o r dcmestic consumption. y Consumption in June, 1972. known b u s i n e s s e s , s e r v i c e s and community c e n t e r s were v i s i t e d d u r i n g t h e c o u r s e of t h e f i e l d work and some u n d e r s t a n d i n g of t h e t y p e and s c a l e of a c t i v i t y o b t a i n e d f o r each c a s e . The r e s u l t s of t h e e x c e r c i s e a r e summarized i n T a b l e 1 0 . 3 and show t h a t t h e v i l l a g e s a r e n o t w i t h o u t a l a r g e number and a wide r a n g e of a c t i v i t y . I n t h e 12 v i l l a g e s , over 900 a c t i v i t i e s were i d e n t i f i e d including : - 353 s m a l l i n d u s t r i e s , 133 (38%) b e i n g e l e c t r i f i e d ; - 320 s h o p s , 159 (50%) b e i n g e l e c t r i f i e d ; - 102 o t h e r forms of commercial a c t i v i t y , most of which (92) were e l e c t r i f i e d ; - 65 s e r v i c e s , 52 b e i n g e l e c t r i f i e d ; - about 100 p u b l i c community c e n t e r s , i n c l u d i n g 20 s c h o o l s , 28 c h u r c h e s , b u t o n l y 6 h e a l t h c e n t e r s ( a n o t i c e a b l e de- f i c i e n c y of t h e s e i n r u r a l a r e a s ) . 10.7 Unpublished census d a t a i n d i c a t e t h a t t h e number of s m a l l i n - d u s t r i e s was about t h e same i n 1961 a s i n 1971 ( s e e Table 10.3) and t h e same might b e t r u e f o r some of t h e o t h e r a c t i v i t i e s l i s t e d . These v i l l a g e s were n o t e l e c t r i f i e d then, though a u t o g e n e r a t i o n was o f t e n used on a s m a l l s c a l e , s o i t i s e v i d e n t t h a t much of t h e growth of demand came from s u b s t i t u t i o n . I n a d d i t i o n , however, t h e growth of demand p e r consumer has been r i s i n g q u i c k l y , and i t i s p r o b a b l e t h a t t h i s o r i g i n a t e d from growth and d i v e r s i f i c a t i o n w i t h i n t h e a c t i v i t i e s . I n t h e f u t u r e i t i s l i k e l y t h a t demand w i l l c o n t i n u e t o grow q u i c k l y f o r a l o n g time due t o : - f u r t h e r s u b s t i t u t i o n ( l e s s t h a n h a l f of t h e c a s e s t a b u l a t e d above a r e e l e c t r i f i e d ) ; - continued growth of t h e s c a l e of non-domestic and social activity. One r e a s o n f o r t h e l a t t e r i s t h a t f a m i l y incomes i n t h e v i l l a g e s , which a r e perhaps t h e primary i n f l u e n c e on t h e l e v e l s of economic and s o c i a l a c t i v i t y , may be expected t o i n c r e a s e a s o u t p u t i n a g r i c u l t u r e and a g r o - i n d u s t r i e s i n - c r e a s e s ; a l s o , v i l l a g e i n f r a s t r u c t u r e i s b e i n g improved i n some r e s p e c t s and v i l l a g e s i z e s a r e i n c r e a s i n g , b o t h f a c t o r s t e n d i n g t o ' r a i s e t h e l e v e l of a c t i v i t y (c) I r r i g a t i o n ( T a r i f f s R-11) 10.8 I r r i g a t i o n h a s s o f a r o n l y l e d t o a s m a l l , though q u i c k l y growing s o u r c e of e l e c t r i c i t y demand i n r u r a l a r e a s . I n 1970 t h e r e were o n l y 1 3 con- sumers p r o v i d i n g 2 % of t h e e l e c t r i c i t y demand i n r u r a l a r e a s s e r v e d by CEL; i n c o n t r a s t , t h e r e were o v e r 3,250 farms i r r i g a t i n g 12,500 h e c t a r e s i n 1961, about h a l f of t h e s e b e i n g i n CEL's a r e a s ; and by 1971 t h e m b e r had r i s e n t o perhaps o v e r 4,000 farms i r r i g a t i n g o v e r 22,000 h e c t a r e s . Some s t a t i s t i c s a r e provided i n Table 1 0 . 4 . Yo. 19ll ( b r e & d m l >the? i n f o r m t i o n 4cflilry No. 1761 so. 1 1 hot serrd 0-3 d-L F-5 Typicrl W e , ?m(e 1971 Am- 11 Typi-rl Rmge m :1972! *rerqa 1 isng. Typical Elec~rici*y Aver%. Last : , - ->wc.:c \mlr ~3710PS ;i ? l o r Stores - 1. * I S icnao1. 21 ::.ircnes 21 6 0 - 3% .:**1in ce>cr:3 . \ ._ . I- - " *Cr-.l:e: : 9 2 575 U5 - 4090 - -50 i Hi~licipaii..; 140 - '150 1) Tclecormun,c.tlons 103 - G,i 2 1 h l i e c 115 - dl? o:?l"c5 #?-:,*:e' I ."' .c Re*arlz,--latl -ercres ; , . Fer >-.l"pr.:. . ."4 1 I.1-r ,' - * r W.d H-.r Hill, =&?: ' Y.3-d : Jd:ls - l! nest are -)7.~.1.cut aver%. ?.l,ies; a ?ill lample r u -or n r a : l a t l r . -i l s c d 1.1 ieLerqent muluIacturl+i. ? a t u h e . car. 1201 ioe 1cC1v:L:ea l n h e l l c d "~tnerr." ' ' -.lara:ea or . a :.reivc wic:;lril'le,. T a b l e 10.4 Farms and Areas I r r i g a t e d i n E l S a l v a d o r 1961-67 1/ ETA'S- Program: 1961 1964-67 1971 No. of Farms Additional No. of Farms S i z e of Farm Using Hectares Farms Hectares Using Hectares Hectares Irrigation Irrigated Irrigated Irrigated Irrigation Irrigated Total 3,254 12 503 2,526 20,073 Sources: D i r e c c i o n G e n e r a l E s t a d i s t i c a y Censos E s t u d i o d e C r e d i t o d e META, 1969 1/ META - - Progrzma d e Mejoramiento d e T i e r r a s , M i n i s t e r i o d e A g r i c u l t u r a y G a n a d e r i a 10.9 Q u i t e a l a r g e program of i r r i g a t i o n i s planned f o r E l Salvador. It i s e s t i m a t e d t h a t p o t e n t i a l i r r i g a b l e land i s 323,000 Ha, of which 60% should be s t r a i g h t f o r w a r d t o i r r i g a t e , 30% more d i f f i c u l t and 10% v e r y d i f f i - cult - t h a t i s , n e a r l y 300,000 Ha of good i r r i g a b l e l a n d , of which l e s s than 7% h a s s o f a r been i r r i g a t e d . The expanding program i s being supported i n two ways by t h e Government. One way i s through a system of c r e d i t f o r medium s i z e d p r i v a t e f r m s s u p p l i e d i n t h e p a s t by t h e P r o g r a m d e Mejoramiento d e T i e r r a s (META)$? of t h e M i n i s t e r i o d e A g r i c u l t u r a y Ganaderia; t h e o t h e r i s a program of 1 0 l a r g e p u b l i c p r o j e c t s , l i s t e d below, t o b e developed by t h e same Ministry:- Z a p o t i t a n (completed i n 1972) 4,230 Olomega ( i n p r e p a r a t i o n ) 9,000 Usulutan - Vado Maria 10,000 Sonsonate - Banaderas 7,600 Bajo Lempa 38,400 Jucotal - San D i o n i s i o 7,000 San Miguel - San Esteban 7,000 A l t o Lempa (planned f o r 1977) 23,000 Jiboa 15,000 Ahuachapan - Santa h a .11,000 Total 132,230 h e c t a r e s 10 . l o The e x t e n t of t h e p o t e n t i a l pumping l o a d v a r i e s . For META's p r e v i o u s schemes, about 45% of t h e a r e a i r r i g a t e d r e q u i r e d pumps, t h e remainder b e i n g g r a v i t y and d r a i n a g e schemes. For t h e government's p r o j e c t s i t i s e s t i m a t e d t h a t t h e a r e a s w i l l b e i r r i g a t e d a s follows:- s u b t e r r a n e a n s o u r c e s , r e q u i r i n g pumps 27,000 g r a v i t y , pumps, d r a i n a g e (mixture) 27,230 drainage only 54,400 gravity 23,600 Total 132,230 h e c t a r e s 1/~ow - by Fond0 de D e s a r r o l l o Economico, Banco C e n t r a l de Reserva. I t i s t h o u g h t t h a t most of t h e pumping demands f o r t h e government's p r o j e c t s w i l l b e s u p p l i e d by CEL, a s f o r Z a p o t i t a n and A l t o Lempa. Taking a s t a t i s t i c of 1 , 6 0 0 kWh needed t o i r r i g a t e one h e c t a r e p e r y e a r ( t y p i c a l f o r E l S a l v a d o r ) s u g g e s t s a p o t e n t i a l demand from t h e s e p r o j e c t s a p p r o a c h i n g 50 GWh, which i s a b o u t 170 t i m e s t h e p r e s e n t demand from i r r i g a t i o n , and 3 . 5 t i m e s t h e p r e s e n t demand from a l l consumers on t h e r u r a l n e t w o r k s . I n a d d i t i o n , t h e r e may b e a s t r o n g growth from p r i v a t e consumers d u e t o ( a ) some s u b s t i t u t i o n f o r d i e s e l - though t h i s h a s been s u r p r i s i n g l y low i n t h e p a s t , even f o r q u i t e l a r g e f a r m s - and (b) new i r r i g a t i o n schemes, some of which w i l l b e s n p p o r t e d by Fondo d e D e s a r r o l l o Economico. 10. il I n c o n c l u s i o n , i t seems t h a t q u i t e a l a r g e and q u i c k l y growing demand f o r e l e c t r i c i t y may d e v e l o p from i r r i g a t i o n , p a r t i c u l a r l y i n view o f t h e p o t e n t i a l f o r i r r i g a t i o n and p u b l i c e f f o r t s t o d e v e l o p i t f u r t h e r . So f a r , CEL h a s s u p p l i e d a v e r y s m a l l f r a c t i o n of p o t e n t i a l demacd. G e n e r a l E x t e n t and Growth of A g r o - I n d u s t r i a l A c t i v i t y 10.12 I n 1972 CEL had r o u g h l y 300 consumers which might b e c l a s s i f i e d as a g r o - i n d u s t r i a l ( n e a r l y a l l a r e on t h e m o t i v e power t a r i f f s ) . S i n c e CEL s u p p l i e s l e s s t h a n o n e - t h i r d of t h e e l e c t r i c i t y demand i n r u r z l a r e a s , and m o s t i y i n t h e p o o r e r a r e a s , around 1 , 2 0 0 a g r o - i n d u s t r i e s a a y b e e l e c t r i f i e d i n t o t a l . T h i s i s , however, l e s s t h a n one-half of t h z a g r o - i n d u s t r i e s t l l a t employ 5 o r more p e o p l e , and less t h a n o n e - t e n t h of t h e t o t a l number of a g r o - i n 2 a s t r i e s . 16.13 The 1 9 6 1 c e n s u s l i s t s a b o u t 1 8 , 7 0 0 a c t i v i t i e s which can b e c l a s s i f i e d a s a g r o - i n d u s t r i a l o r c l o s e l y r e l a t e d a c t i v i t i e s ; some 2,700 of t h e s e employed 5 o r - m o r e p e o p l e . D e t a i l s from t h e 1 9 6 1 c e n s u s of t h o s e o f t e n s e e n i n r u r e i a r e a s a r e p r o v i d e d i n T a b l e l o .5. S i n c e t h e major p a r t of t h e r u r a l e l e c t r i f i - c a t i o n program d i d n o t b e g i n u n t i l t h e mid-60's i t i s a p p a r e n t t h a t s u b s t i t u t e s t o e l e c t r i c i t y a r e a v a i l a b l e and h a v e b e e n e x t e c s i v e l y used i n t h p r u r a l a r e a s : t h e e x p e n d i t u r e on c o m b u s t i b l e s by t h e s e a c t i v i t i e s c o n f i r m s t h i s : - E x p e n d i t u r e dM, i n 1 9 6 1 Combustibles E l e c t r i c i t y -1/ A c t i v i t i e s w i t h 4 o r l e s s employees 2.01 0.36 A c t i v i t i e s w i t h 5 o r more employees Total 7.55 5.32 To p u t t h e above f i g u r e i n p e r s p e c t i v e , a v e r a g e i n v e s t m e n t i n r u r a l e l e c t r i f i - c a t i o n was a b o u t d3M p e r y e a r from 1962-72. The above f i g u r e s a l s o e x c l u d e , of c o u r s e , t h e c o s t s of e n e r g y f r o n s o u r c e s o t h e r t h a n c o m b u s t i b l e s and e l e c t r i c i t y . (e. g a n i m a l and manual e n e r g y ) . 1/ Note t h a t many of t h e a c t i v i t i e s l i s t e d i n t h e c e n s u s a r e p r o b a b l y i n towns Ghich were e l e c t r i f i e d a t p r i v a t e i n i t i a t i v e b e f o r e 1961. Imble 1 9 5 n E l Salramr Selectlor o f Mmuf.crcrlrri,q Induetrira : I ( s e l e c t e d becord?nd t o Prehainance in wrl k e s . -) [ b r a in t h a ~ n - d s or collnrr) 4 o r less em'.w.ea 5 md -11. employeen A C T 1 6 IT; ': m'bcr -J atuatlt?es 5sc.Ererw ROmlct101 beer :ooouar;'iles . ?e. :%r .gy Rodua tlon 17: la-.-'fer?-,g i s t i t l i c l 501- sla.~ncsr??qlorlratel 115: 2.0 c ) l ~ ~ 1'%- a d &on 3.1 ~015 SUI$.P. 11 0.2 ?OI~ Lard :4:n 153.9 . 4 2-1 il~-a:-,; :ea Food ::. -'43 ;the' k a Good 691 lrZ.7 189.6 ,w.2 3 0.0 2.1 ill. ' .4 -.a ~.. 3 0.5 6.2 1 , " o i " . l " q , ue.~11,.. rtc. TcILIL.. '11 .-!,m,,-e;Z~r, '31j .'31 :.>raL ~ J S S ?m.-r.L' :Ti 'e.:F : F" *~C.se>-'i 135 ..: ihtractlmn ,- - -- Lhe ., , ' . :&: tL- ,?> - -3' I,: : -. '-d?rs :u2c . 10.14 Much of the growth of demand for electricity has stemmed from substitution (though unfortunately the 1971 census data were not available for us to examine this as closely as we wished). For example, of the 852 non-domestic activities listed in Table 10.3, nearly 50% had turned to using electricity for one reason or another by 1972. When we were undertaking the case studies of particular activities, presented in the next chapter, it also became apparent that quite a lot of substitution had occurred. Moreover, there is still quite a lot to occur, since there are still many large and small activities using diesels or autogenerators installed before the rural electri- fication program began. la .15 A quickly growing source of demand is also stemming from the rising outputs from agro-industries, commerce and farms; and the potential demand due to this is very large (though again, the statistics which show these points are rather fragmentary). Irrigation, discussed above (paragraphs 10.8 to 10.11), is one example. The output and demands from large agro-industries have also grown rapidly. Of the 2:70C agro-industries employing 5 or more people in 1961, it is estimated that 300 required large quantities of energy and motive power; by 1971 their number had increased to only 313, partly be- cause several of the coffee, sugar and cotton processors merged; but in each industry, total output increased. Classifying these large industries by location, it is found that the following are located within the rural areas (none are in villages) :- coffee almost all the 163 sugar 13 of the 14 cotton 4 of the 15 rice 4 of the 25 beef slaughtering 2 out of 2 poultry 3 of the 25 cheese 2 out of 2 fibre (henequen) all 7 shrimp all 3 All these are growth products. 10.16 Small and medium sized activities are expanding, too. Corn grind- ing for tortillas, refrigeration in shops and milk cooling on farms are prominent examples. Ten years ago, there was practically no small scale re- frigeration in rural areas; today, milk cooling on farms accounts for an annual consumption of over a million kWh, producing electricity revenues of around k100,OOO per year. The F u t u r e Demands of Non-Domestic Consumers 10 . 1 7 I t i s h a r d t o p u t a p r e c i s e f i g u r e on t h e e x p e c t e d growth of e l e c t r i c i t y demand from non-domestic consumers. Between 1967 and 1 9 7 2 , t h e demand from t h e s e consumers i n c r e a s e d f i v e - f o l d , a growth r a t e of n e a r l y 402 p e r y e a r ; b u t i t i s h a r d t o i m a g i n e t h a t t h i s c o u l d c o n t i n u e , b e c a u s e much of i t stemmed from n e t w o r k e x t e n s i o n s and s u b s t i t u t i o n , t h e r a t e s of which v i l l d e c l i n e i n f u t u r e y e a r s . The l e v e l of demand p e r consumer i n c r e a s e d from 1 , 7 6 0 t o 4 , 4 0 0 k t l h l y e a r i n t h e same p e r i o d , a growth r a t e of 20% p e r y e a r . But t h e growth i n f u t u r e y e a r s might b e h i g h e r t h a n t h i s f i g u r e b e c a u s e i t d o e s n ' t a l l o w f o r t h e growth o f demand stemming from new consumers; on t h e o t h e r h a n d , s a t u r a t i o n may s e t i n d e p e n d i n g on t h e s u c c e s s of t h e g o v e r n m e n t ' s program t o develop a g r i c u l t u r e - p a r t i c u l a r l y the large i r r i g a t i o n projects discussed a b o v e - and r u r a l i n f r a s t r u c t u r e . I t seems r e a s o n a b l e t ? e x p e c t . however, t h a t t h e demand may c o n t i n u e t o grow a t o v e r 20% p e r y e a r f o r a t i m e , and t h e n g r a d u a l l y d e c l i n e t o somewhat o v e r 1 0 2 p e r y e a r , which i s t h e r a t e e x p e r i e n c e d i n t h o s e r u r a l a r e a s i n E l S a l v a d o r which h a v e been e l e c t r i f i e d ( a t p r i v a t e i n i t i a t i v e ) f o r o v e r 20 y e a r s ; i f a n y t h i n g 70% d e c l i n i n g t o 10:; p e r y e a r i s l i k e l y t o b e on t h e low s i d e . 10.18 The a b o v e e s t i m a t e s of f u t u r e demand a r e a v e r a g e s . The a c t u a i l e v e l and growth o f demand w i l l o f c o u r s e d i f f e r from o n e r e g i o n t o a n o t h e r on a c c o u n t of r e g i o n a l d i f f e r e n c e s i n : - (a) transport costs; (b) market a c c e s s i b i l i t y ; (c) t h e development of l o c a l a g r i c u l t u r e ; (dl t h e type of l o c a l a g r i c u l t u r e . The i n v e s t m e n t program i n f e e d e r r o a d s i s l i k e l y t o r e d u c e t h e d i f f e r e n c e s i n ( a ) and ( b ) hetween one r e g i o n and a n o t h e r i n t h e f u t u r e . A l s o , though a g r o - i n d u s t r i a l and a g r i c u l t u r a l development h a s s o f a r b e e n c c n f i n e d t o 2 few and w e l l d e f i n e d a r e a s , such r e g i o n a l d i s p a r i t i e s a r e l i k e l y t o b e l e s s i n t h e f u t u r e on a c c o u n t of t h e r a n g e of i n f r a s t r u c t u r e i n v e s t m e n t s now u n d e r way and o f t h e government s p o n s o r e d a g r i c u l t u r a l p r o j e c t s d i s c u s s e d a b o v e . 10 . 1 9 A l a r g e and c o n t i n u a l l y growing s o u r c e of demand and r e v e n u e s h a s s t e m e d from non-domes t i c u s e s i n Farms, a g r o - i n d u s t r i e s and commerce. Brf o r e t h e maln t h r u s t t o e l e c t r i f y t h e r u r a l a r e a s began i n t h e 1 9 6 0 1 s , a l a r g e number o f t h e s e a c t i v i t i e s w e r e u s i n g o l d e r o r s u b s t i t u t e forms o f power and e n e r g y ; s u b s t i t u t i o n of e l e c t r i c i t y f o r th'ese f a r m s h a s p r o v i d e d a s t r o n g s o u r c e o f demand. A q u i c k l y r i s i n g s o u r c e o f demand h a s a l s o stemmed from t h e r i s i n g number and o u t p u t s o f c o m e r c i a l , f a r m and a g r o - i n d u s t r i a l a c t i v i t i e s . The f u t u r e demand from s u b s t i t u t i o n a n d from t h e growth of economic a c t i v i t y i n r u r a l a r e a s i s l i k e l y t o b e v e r y l a r g e . The p r e s e n t r a t e of g r o w t h o f demand, which is over 20% per year per non-domestic consumer, will probably decline gradually to somewhat over 10% per year, though the rate will differ from one region to another; these figures probably understate the rate of growth of aggregate demand. CHAPTER 11 - S OF PROWJCTl3E USES OF ELECTRICITY Sample Selected 11-1 In t h i s chapter t h e aim i s t o estimate t h e n e t economic b e n e f i t s obtained from various productive uses of e l e c t r i c i t y in r u r a l areas. Xeasured in monetary terms, t h e s e b e n e f i t s a r e t h e n e t additdons to p r o f i t s made p o s s i b l e by e l e c t r i c i t y ( a s discussed in Chapter 2). They a r e thus estimated by comparing t h e producer's p r o f i t s if e l e c t r i - c i t y i s used with t h e p r o f i t s i f an a l t e r n a t i v e were chosen such as:- - a s u b s t i t u t e source o f power and energy; - no action (e.g. no r e f r i g e r a t i o n o r no . motive power e i t h e r from e l e c t r i c i t y o r a substitute) 11.2 Since t h e r e i s a very l a r g e number and v a r i e t y o f productive u s e r s of e l e c t r i c i t y , each using i t on a d i f f e r e n t s c a l e , i t was p o s s i b l e only t o study a sample of cases. M e took a sample of 33; a t t h e time, 12 of these were using t h e si~bstit.r.:t.e t o e l e c t r i c i t y , and provided u s / with concrete i n d i c a t i o n s o f t h e condi t.ions under which t h e a l t e r n a t i v e s were prefsrreri. TLP cases were chosen according t o two c r i t e r i a : they had t o be r e l a t e d t o an important product of r u r a l areas, such as coffee, silgzir, r i c e and corn; and they had t o be s i g n i f i c a n t ( o r p o t e n t i a l - l y s i g n i f i c a n t ) e l e c t r i c i t y consumers, such as farms with i r r i g a t i o n and businesses with r e f r i g e r a t i o n . The following i s t h e sample of a c t i v i t i e s covered : - No. of No. With Activity Cases Electricity Coffee Processing Sugar Processing ( l a r g e s c a l e ) Sugar Processing (small s c a l e ) 9 i c e Processing Corn Ifills Poultry Farns Irrigation Farm Machinery i.lilk Cooling Refrigeration i n Shops Potable Water m i n e ; Total (Two conspicuous omissions from t h e above sample a r e ~:rit.tonprocessing and r e f r i g e r a t i o n in s l a u g h t e r houses. Cotton- i s an important crop in 51 Salvador and t h e f o u r l a r z e prol;a$srrl-:: a r e all l a r g e consumers; b u t i t turned o u t t o be d i f f i c u l t t o o b t a i n t h e information t o study them. Live- s t o c k i s r a p i d l y i n c r e a s i n g i n importance and l i k e l y t o r e s u l t in l a r g e demands f o r e l e c t i i c r e f r i g e r a t i o n ; however, t h e two l a r e units t h a t now e x i s t a r e q u i t e new, and i t was too e a r l y t o study them. I 11.3 The d i f f e r e n c e s in p r o d u c e r s 1 p r o f i t s when e l e c t r i c i t y and t h e alternatives a r e compared a r e shown i n t a b l e 1 11 f o r each o f t h e 33 . cases s t u d i e d ; d e t a i l s o f t h e c a l c u l a t i o n s a r e provided i n t h e addendum t o t h i s c h a p t e r in t a b l e s 11.2 t o 11.12. 1 1 .b An immediately s t r i k i n g f e a t u r e of t h e r e s u l t s i s t h a t , w i t h o u t e x c e p t i o n , t h e a l t e r n a t i v e i s a c t u a l l y used i n a l l c a s e s when p r o f i t s would b e r e d x e d i f e l e c t r i c i t y were used; and whenever p r o f i t s were o r would be i n c r e a s e d , e l e c t r i c i t y was used except i n t h o s e c a s e s where t h e producer had a l r e a d y bought t h e s u b s t i t u t e b e f o r e e l e c t r i c i t y was a v a i l a b l e . This i s a remarkable confirmation o f t h e p r o d u c e r ' s c o s t conciousness and c a r e in s e l e c t i n g an energy source which i s righ: f o r his p a r t i c u l a r :leeds - even though energy, and tke eq:iipr.er;: t3 use i t , g e n e r a l l y f o m only a s m a l l f rac5ion of t o t z l c o s t s . 11.5 Another f e a t u r e o f t h e r e s u l t s , and which s t p 3 r e s wtth c ~ r n m n experience, i s t h e v a r i e t y o f energy sources and t h e p o h t Lhnt no one s o u r c e i s u n i v e r s a l l y b e t t e r t h a n another; sometines e 1 e o t 1 - l c i t y i s b e k t e r and s ~ m e t i n e sd i e s e l s , a u c ~ g e n e n t o r s ,c o n n e c t i r , ~rods 50 t r a c c c z i , o r , f o r element,ary o p e r a t i o n s , animals. The r e l a t i v e advantages o f t h e -rarl?_.l:s s o u r c e s change o v e r time with r e l a t i v e p r i c e s , technical p r 3 ~ r e s s s c a l e o f o u t p u t . To show t h i s arid t o understand t h e f a c t o r s Lehind t h e producers' choice, i t i s n e c e s s a r y t o l o o k a t t h e c a s e s in more d e t a i l . 11.6 Each o f t h e cases a r e now d i s c u s s e d i n t u r n ; a s h o r t d i s c u s s i o n o f t h e p r o d u c t i s provided in each c a s e ar"ter which t h e c o s t b e n e f i t c a l c u l a t i o n s a r e d i s c u s s e d . In each case t h e n e t b e n e 9 t s o f ele:t,rlcfty t o t h e consimer (which a r e t h e consumers1 s u r p l u s b e n e f i t s equal t h e i n c ~ e a s ei n b u s i n e s s p r o f i t s ) a r e e q r e s s e d a s a 7ercerl;age of t h e consuqer's e l e c t r i c i t y b i l l ; a s explained i n Chapter 2 (?ara. 2.30) t h i s makes i t e a s i e r t o g r o s s up t h e sul-plus b e n e f i t s o v e r t h e cons:zrre? popdstion. ( a ) Coffee Processinq 11.7 Coffee p r o c e s s i n g i s t h e l a r g e s t economic a c t i v i t y in E l S a l - vador. Value added in t h e c o f f e e s e c t o r now amount.s t o 6 3CO M ($120 M) , representing ! r$ of t h e o u t p u t i n a g r i c u l t u r e and 10% o f GNF; i t i s a l s o O t h e l a r g e s t erqloyer o f labour. 11.8 The p r o c e s s used in E l S a l v a d o r i s t h s "wet process.I1 The f i r s t s t a g e i s t o s o f t e n and remove t h e husk of t h e f r e s h l y picked beans by mixing t h e n w i t h water and p a s s i n g t h e p u l p through s e p a r a t o r s . The bean i s t h e n d r i e d e i t h e r i n t h e sun o r by a machine which u s e s wood o r f u e l o i l f o r h e a t . A f t e r d r y i n g t h e bean i s 'mown a s llpergamino." F i n a l l y ( o f t e n in another m i l l ) a t h i n b a r k i s removed t o produce wha: (about 550 i s i n t e r n a t i o n a l l y known a s "green c o f f e e , " o r l o c a l l y as 110r3u 1Ss of picked beans a r e needed t o produce 100 l b s o f green c o f f e e ) The . d--O -=- o 3 m n j CC2? IT* NV)C m c ylm moo- +*On nmr- CV)+ 5 . %%-$.%$ $- . $4: .hi m a r N 4myl4 A O 2% d {{{ ... CJ T yl - NNC>- - 0 ! 4 - 3 3 A c>NN V) " 4 2 rim 4 ?, .3 >-A w - E I I - " u \ > l n-OIL OAC *c:w ;?S3. T - - - -0 , - h n $2- A ;$-?? N m O N : ?;- . dm- $g ylmmc344 %qT<-$;qq ~ r n O m ~ O m *,>,C ~- mm3 mNN "On- AN 8&mCz V) 2: 5:-2 P S L d+AC Y IC L " > Y . " 0 " +-.A I . & > " " d - 4 A - L A - e r v v y ; . , ( O , , - L d d o q b : C 8 " 8 C YCC";; d L r a') C - C ih C . . u r r r " Y Y + i d - r a w 4 ... E C Z IYau.4 IY 'U E E $I G 4 6.4 r u r r "" 4 - L L ",a " , > Y 5 Y Y " 3Qrn 0 0 " r n U t U . J Y " Y e , - 0 0 0 0 0 0 C I L 3 U I - Y 0 v 0 - w V O O U Y ~ V u u w " r " u U O ( V Y Z G ; ~ G ( V U C g;az 0" 3 2 3- Gzzz ------ ri?.-. A , - ? " d m 2 N omO-->NO m onoc- C ? ? ?C E C ? :'Sb: N"I A A>YIZ*NN hmN* bean i s g e n e r a l l y exported a t t h i s s t a g e ; it i s g e n e r a l l y t o a s t e d and gmlmd i n t h e consuming areas. 11.9 The mills a r e g e n e r a l l y l o c a t e d in t h e producing a r e a s so as to minimise t r a n s p o r t c o s t s . There a r e about 230 i n t h e country, 15'0 producing pergamino, t h e r e s t green coffee; they c u r r e n t l y process 1 L r a i l l i o n tons p e r y e a r , and i n c r e a s e by 10% t h e value added i n coffee p r o d u c t i m . Capacity and output of t h e m i l l s , though n o t t h e i r number, have increased in recent years i n l i n e with c o f f e e production. 11.10 Motive power i s needed f o r pumping water and operating t h e s e p a r a t o r s and drying machinery. Steam and d i e s e l engines were common in t h e p a s t , and a r e o f t e n seen today; e l e c t r i c motors a r e more common now, fed from autogenerators o r p u b l i c supplies. E l e c t r i c i t y i s used only f o r motive power a i d l i g h t i n g . 11.1 1 The t h r e e c o f f e e producers studied ( s e e t a b l e l l . 2 ) represent, t h r e e d i f f e r e n t eyas so f a r as energy use i s concerned, though a l l use t h e same b a s i c (wet) process t o produce pergamino a s described above. The f i r s t i s LO years o l d , uses steam engines and produces 0.5 m i l l i o n lbs/year; t h e second 20 y e a r s o l d , uses a l a r g e d i e s e l engine (with b e l t s and p u l l e y s t o d r i v e t h e v a r i o u s equipment) and produces 1.2 m i l l i o n lbs/year; t h e t h i r d i s modern and a l l e l e c t r i c , and produces 2.2 m i l l i o n lbs/year. I n t h e f i r s t two cases e l e c t r i c motors could be s u b s t i t u t e d f o r steam and d i e s e l motors; in t h e t h i r d , autogeneration f o r p u b l i c st~pplies . 11.1 2 S t e m t u r n s o u t t o be cheaper than e l e c t r i c i t y in t h e f i r s t case because t h e m i l l i s f a r from t h e l i n e , requiring q ? l i t e a l a r g e investnent i ? a d i s t r i b u t i o n l i n e t o connect it. E l e c t r i c i t y would be cheaper tnan t h e e x i s t i n g d i e s e l motor i n t h e second case, bu2 t h e l a t t e r i s now a sunk c o s t t o t h e producer. In t h e t h i r d case, where e l e c t r i c i t y i s a c t u a l l y used, i t i s cheaper than autogenerators, giving surplirs b e n e f i t s of aboat 58%. ~c e (b) Sugar Processing ( ~ a r s ale) 11.1 3 Sugar mills a r e h i g h l y mechanised and r e q u i r e l a r g e q u a n t i t i e s of s t e a n and motive power - though most of t h i s can be provided by t h e mills themsel-~es. The cut sugar cane i s weighed, conveyed t o r o t a t i n g c u t t e r s and shredders, an3 hen t o r o l l i n g mills which e x t r a c t t h e juice. The j u i c e i s p u r i f i e d by heating t o aboat 220oF and by t h e a d d i t i o n of milk of lime. The mixture i s then s e n t t o tanks where t h e 'muddyt j u i c e i s contin~louslyskimmed o f f t h e ' c l a r i f i e d ' j u i c e ( t h e muddy j u i c e i s then r e f i l t e r e d ) . The c l a r i f i e d juice i s concentraked i n evaporators inCuo a raw syrup mixture, and then b o i l e d under vacum f o r f u r t h e r concentration; a t t h i s s t a g e , raw sugar begins t o c r y s t a l - l i s e o u t of the syrup. The raw-sugar crys'uals a r e f i n a l l y separated from t h e r e s i d u a l syrup by c e n t r i f u g a l machines. he r e s i d u a l syrup i s a black t r e a c l e known a s molasses and i s used f o r animal food.) ll.14 During t h e 1960's t h e number of mills i n E l Salvador f e l l from 20 t o 13, a s t h e small and i n e f f i c i e n t units were closed. Yost of t h e mills s t i l l i n o p e r a t i o n a t t h e end of t h e decade were modernised t o i n c r e a s e e f f i c i e n c y and capacity. Sugar o u t p a t increased from 140 m i l l i o n pounds i n 1961/62 to 340 m i l l i o n pounds in 1970/71. $1 1t h e mills a r e located i n sugar producing a r e a s on account of t h e high c o s t s of t r a n s p o r t i n g sugar cane. There i s a l s o a p o l l u t i o n e f f e c t t o be considered, which r e q u i r e s l o c a t i o n of t h e mills away from l a r g e popula- t i o n centers. 11.1 5' The mills generate t h e i r own steam by burning waste pulp and f u e l o i l (waste pulp alone cannot generate s u f f i c i e n t h e a t ) , and t h e i r own e l e c t r i c i t y f o r motive power needs by passing some of t h e steam through turbo-generators. Nevertheless they a r e a l l connected t o t h e g r i d f o r purposes o f s t a r t i n g o p e r a t i o n s , i.e. u n t i l t h e b o i l e r s a r e heated, and i n case o f emergencies. Once s t a r t e d , some mills a c t u a l l y have t h e capacity t o generate e l e c t r i c i t y i n excess of t h e i r own require- ments, and thus to s e l l it t o l o c a l areas ( h i s t o r i c a l l y , t h i s has been a common source of e l e c t r i c i t y in r u r a l areas in many p a r t s of t h e world). 11.1 6 In t h e t h r e e s u g a r mills s t u d i e d , a l l u s e steam turbo- generators t o supply motive power needs. I n t h e f i r s t case, t h e m i l l i s n e a r l y 100 y e a r s o l d and t h e motive power f o r cnishing t h e cane i s s t i l l obtained from t h e o r i g h a l steam engine, t h e o t h e r motors having been replaced by e l e c t r i c motors over t h e years; p u b l i c s u p p l i e s a r e needed f o r s t a r t u p , c o n t a e n c y and occasionally to s~pplement,t h e o u t p c t of t h e autogenerator; about 20% o f t h e e l e c . t r i c i t y needs a r e purchased. I n t h e second case t h e m i l l i s l a r g e , modern and s e l f s u f f i c i e n t e l e c t r i c - a l l y , s e l l i n g 20% o f i t s e l e c t r i c i t y generated t o CEL; steam turbo- generators a r e used f o r r e g u l a r o p e r a t i o n s with a small d i e s e l auto- generator f o r s t a r t u p and contingency. The t h i r d case i s a l s o modernj. b u t r e l i e s on p u b l i c s u p p l i e s f o r s t a r t u p ind contingency, and buys only a small f r a c t i o n of i C v s e l e c t r i c i t y needs. 11.17 Most sugar mills could reduce f u e l - o i l con.mmption and e l i m i n a t e t h e c a p i t a l and maintenance c o s t s o f a turbo-generator by using p u b l i c e l e c t r i c i t y supplies. It i s p o s s i b l e t h a t this i s n o t common, even i z new m i l l s , because they have u s u a l l y been located in areas without p u b l i c s u p p l i e s , and t h e i r design philosophy i s linked t o this. However, this i s t h e case we exanine below. (In r e t r o s p e c t , we can now s e e t h a t i t would have been more r e p r e s e n t a t i v e t o look a t t h e more common case of p u b l i c s u p p l i e s vs, d i e s e l autogenerators f o r s t a r t u p and contingency .) 11.1 8 For t h e two new mills t h e c a l c u l a t i o n s (&I t a b l e 10.3) show t h a t f u l l e l e c t r i f i c a t i o n would r a i s e c o s t s and reduce p r o f i t s . The reason i s t h a t by using t h e waste pulp of t h e sugar cane f o r f u e l t h e c o s t s of e l e c t r i c i t y generation in t h e m i l l s a r e low. The only exception (and which proves t h e r u l e ) i s t h e very o l d m i l l which uses a steam engine of very low thermal e f f i c i e n c y f o r i t s main motive power needs. Public supplies a r e thus indeed only u s e f u l f o r s t a r t u p and contingency, and t h e i r advantage r e l a t i v e t o d i e s e l autogeneration depends ( a s in the case of .the c o f f e e producers above) i f they a r e c l o s e to t h e p u b l i c networks. (c) Sugar Processing (Small s c a l e ) 11.1 9 A common a c t i v i t y i n r u r a l a r e a s , though i t i s s t e a d i l y being replaced by the l a r g e r m i l l s , i s t h e production of crude brown sugar f o r l o c a l domestic consumption. The cane i s crushed on rmdimentary m i l l s ( " t r a p i c h e s " ) d r i v e n by animals o r by d i e s e l o r e l e c t r i c motors of about 10 HP. The j u i c e i s heated i n capsules and c r y s t a l l i s e s i n t o crude brown sugar on cooling; wood and crushed cane a r e used f o r heating. The process takes ? l a c e in t h e dry season, from December t o Yay. 11.20 I n t h e two cases s t u d i e d ( t a b l e 11.b) one uses t h r e e p a i r s of oxen (borrowed from a neighbour a t a token f e e of one colon (LO cents) p e r ox p e r day) f o r 18 days each y e a r to prodirce about 8 tons of sugar; a m a l l e l e c t r i c motor i s an a l t e r n a t i v e . In t h e o t h e r case, the m i l l provides a s e r v i c e t o small farms nearby, o p e r a t i n g f o r 125 days p e r y e a r to produce 97 tons of sugar; a small d i e s e l engine i s t h e a l t e r n a t i v e . 11.21 The e l e c t r i c a l t e r n a t i v e i s cheaper than d i e s e l on account of i t s much lower c a p i t a l and maintenance c o s t s ; surplus b e n e f i t s a r e n e a r l y 70% o f t h e e l e c t r i c b i l l . The t r a p i c h e using oxen b a r e l y makes a p r o f i t on account of t h e low q u a n t i t y of sugar produced. I f more output and p r o f i t s weye d e s l r e d , o r i f the farmer had t o pay the f u l l r e n t f o r t h e oxen, he would have t o t u r n t o d i e s e l o r e l e c t r i c i t y (indeed he r e c e n t l y sold t h e m i l l ! ) . M i l l s d r i v e n by animals a r e in f a c t r a p i d l y disappear- ing. (d) Rice Processing 11.22 Once t h e r i c e has been gathered, i t has t o b e d r i e d ( i n t h e sm o r by machine) b e f o r e processing. I n the p r o c e s s , the h u l l i s separated from t h e r i c e g r a i n , and provides two by-products (granza md pulimento) which a r e used f o r p o u l t m food.' The r i c e i s then polished, c l a s s i f i e d and packsd. A number o f small motors a r e needed t o convey t h e g r a i n be+uween processes and t o o p e r a t e t h e s i f - c e r s , s e p a r a t o r anrj p o l i s h e r s . A l l n i l l s use t h e ?.me b a s i c process. 11.23 The production of r i c e in E l Salvador has come a fid1 c i r c l e , r e f l e c t i n g t h e v i c i s s i t u d e s of t h e C e n t r a l American Common Yarket, from 18,000 t o n s in t h e e a r l y 19601s, t o 50,000 tons in 1967/58, and down t o 23,000 tons in 1972/73. In 1973, production was e x c l u s i v e l y f o r t h e domestic market, amounting t o 16 l b s p e r c a p i t a p e r year. 11.24 Four m i l l s a r e s t u d i e d i n t a b l e 11.5, t h r e e being e l e c t r i c a l l y powered with d i e s e l a s an a l t e r n a t i v e , t h e o t h e r being d i e s e l powered with e l e c t r i c i t y as an a l t e r n a t i v e . Tuo o f t h e e l e c t r i c m i l l s a r e q u i t e new, a n d o p e r a t e f o r most of t h e y e a r ; t h e o t h e r two a r e o l d e r and o p e r a t e much l e s s ( t h e d i e s e l m i l l f o r only 3 months p e r y e a r ) . I t i s i n t e r e s t i q g t h a t though t h e d i e s e l m i l l (which i s r a t h e r old fashioned, and uses b e l t s and p u l l e y s t o d r i v e the machinery) prod~lcesconsiderably l e s s than t h e o t h e r s , i t r e q u i r e s more inotive powey (80 HP a s a g a i n s t 50 H? i n t h e e l e c t r i c m i l l ) . 11.25 Evidently, r i c e processing can and does t a k e p l a c e without electricity - a s with t h e processing of a l l major crops. The main advantages of e l e c t r i c i t y a r e t h a t c a p i t a l and maintenance c o s t s a r e much l e s s than d i e s e l s , and i t is more r e l i a b l e . Cost s a r h g s y i e l d s u r p l u s b e n e f i t s t o the consumer of 10 t o 30%; however, r e l i a b i l i t y a n d convenience probably make i t worth more than t h i s . ( e l Corn ills 11.26 Locally c a l l e d "molinos de 3ixtamalt1 t h e s e mills a r e used t o cmish corn f a make cornbread, " t o r t i l l a s , " a b a s i c element of t h e n a t i o n a l d i e t . The seed i s f i r s t separated from t h e cob, boiled and then milled; t h e crushed damp corn i s then baked f o r consumption. A p e r s o n ' s r a t i o n i s t y p i c a l l y six t o nine t o r t i l l a s d a i l y . ll.27 The m i l l i s elementary, using r o t a t i n g d i s c s powered by small motors (about 5 HP) f o r t h e crushing. T r a d i t i o n a l l y t h e corn has been crushed by hand with s t o n e s o r hand m i l l s . But w i t h i n t h e l a s t 20 years t h e use of motors has spread considerably; man3 v i l l a g e s have f o u r o r f i v e m i l l s , and t h e number has more than doubled i n t h e l a s t l.0 years. Consumption of e l e c t r i c m i l l s i s t y p i c a l l y i n t h e range 100 t o 1000 k'dh p e r month. One person g e n e r a l l y runs t h e m i l l t o .process t h e corn brought by l o c a l f a m i l i e s ; t h e m i l l s a r e always l o c a t e d i n t h e villages. ll.28 In t h e t h r e e cases s t u d i e d ( i n t a b l e 11.6) e l e c t r i c power i s g e n e r a l l y much cheaper than d i e s e l ; c o s t savings a r e 30 t o 60% of costs. P r o f i t s a r e o f t e n q u i t e modest, and t h e income o f t h e m i l l o f t e n accounts f o r a major p a r t of t h e f a m i l y ' s income. By c u t t i n g c o s t s and being c l e a n e r and more r e l i a b l e , i t i s thought t h a t q u i t e a l o t o f e x t r a m i l l i n g has been made p o s s i b l e by e l e c t r i c i t y (e.g, i n t h e t h i r d case t h e m i l l couldn ' t make a p r o f i t with t h e d i e s e l a l t e r n a t i v e ) . People a l s o say t h a t t h e quiteness of an e l e c t r i c motor, i n t h e m a l l rooms in which they work, i s a l s o very much appreciated. (f) Poultry F a n s 11.29 Poultry farms in E l Salvador a r e e x c l u s i v e l y f o r t h e production of eggs and chicken meat. Egg production increased from 150,000 d a i l y i n 1962/63 t o 904,000 d a i l y i n 1968/69, b u t dropped t o 700,000 in 1971/72 due t o l o s s of s a l e s i n t h e C e n t r a l American Common Yarket; t h i s i s one egg p e r c a p i t a every f i v e days. In 1972, 643,000 l b s of chicken meat were produced. 11.30 Many o f t h e farms a r e n e a r t h e towns, but some have been l o c a t e d i n r u r a l a r e a s in recent years. All t h e f a m s have e l e c t r i c energy, e i t h e r bought o r aufagenerated; i t i s used f o r l i g h t b g , m a l l motors and Fncubation. Only incubation (fumigation, cooling, heating) r e q u i r e s much energy. 11.31 I n t h e two farms s t u d i e d ( t a b l e 11.6) one uses e l e c t r i c i t y only f o r l i g h t i n g and small motors; i t consumes about l 4 O O kWh y e a r l y , which i s b a r e l y as much a s a household w i t h a small r e f r i g e r a t o r , t o produce 1.3 m i l l i o n eggs p e r year. The o t h e r fumigates and cools t h e eggs in r e a d i n e s s f o r incubation elsewhere, and consumes about 34,000 k'dh y e a r l y f o r a production o f 4 m i l l i o n eggs. Both u s e p u b l i c s u p p l i e s ; autogeneration i s t h e only p r a c t i c a l s u b s t i t u t e . Net s u r p l u s b e n e f i t s (cost, savings) a r e 93% f o r t h e small consumer and 31% f o r t h e l a r g e consumer - t h e former r e f l e c t i n g t h e very high unit c o s t of small auto- generators. (g) I r r i g a t i o n 11.32 The p o t e n t i a l f o r e l e c t r i c pump i r r i g a t i o n i n 51 Salvador i s qui t e l a r g e , a s discussed in Chapter 10. So f a r , only a small f r z c t i o n (7%) of good i r r i g a b l e land (amounting t o 300,000 to 3$,000 h e c t a r e s ) has been i r r i g a t e d . The i n c r e a s e s in value added and fa-m, p r o f i t s following i r r i g a t i o n a r e very l a r g e , a n d i r r i g a t i o n can and does t a k e p l a c e using d i e s e l s i f no cheaper a l t e r n a t i v e i s a v a i i z b l e . 11-33 E l e c t r i c pump i r r i g a t i o n i s much cheaper i f t h e farms a r e c l o s e t o t h e neCYworks o r i f t h e a r e a covered i s l a r g e . The f o u r cases cf pump and spray i l - r i g a k i o n shown in t a b l e 1:~.8 confirm 2 l i s p o i n t . Eie:;eis and e l e c t r i c pumps a r e compared; in t h r e e supplementtiry c a l c u l a t i o n s , t h e c o s t s o f t h e e l e c t r i c l i n e a r e omitted t o show t h e i r i m p o r t a x e . In t h e f i r s t case t h e area i r r i g a t e d i s small (2 ha) ; b u t i t i s c l o s e t o t h e l i n e , and q u i t e l a r g e s u r p h i s S e n e f i t s o f 75% a r e c a l c u l a t e d . I n the next t h r e e cases t h e farms a r e a l l about 1 Km from t h e l i n e ; o n l y in t h e l a r g e s t farm (67 ha) i s e l e c t r i c i t y cheaper, providing s l l r p l ~ i sbenefit's o f 35%. (iihen t h e l i n e c o s t s a r e omitted from t h e o t h e r two c a s e s , e l e c t r i c i t y i s again much cheaper.) (h) Farm Machinery 11.34 The main u s e of e l e c t r i c i t y i s f o r s m d l c e r e a l t h r a s h e r s , fodder c u t t e r s (picadoras de z a c a t e ) and hammer m i l l s (moiinos d e n a r t i - I l o ) f o r preparing animal food. The motive power needs i r e only ?...bout# 5' HP, and i f a t r a c t o r with a s u i t a b l e coupling i s not a v a i l a b l e o r convenient, a small d i e s e l o r e l e c t r i c mot,or i s used. :iioathly consumption of t h e e l e c t r i c motors i s a few hundred kT+Ih. The number o f u n i t s operating in t h e country, however, i s i n c r e a s i n g very r a p i d l y s i n c e r a i s i n g l i v e s t o c k i s b e c o d n g t n c r e a s i n g l y important. 11.35 In t h e t h r e e cases s t u d i e d ( i n t a b l e 11.9) two use t r a c t o r s ( a t zero mamnal c a p i t a l c o s t t o t h e farm) t o d r i v e t h e machinery a n d t h e o t h e r ul e l e c t r i c motor. ill1 produce about 200 t o n s of fodder and maize each year, mostly f o r t h e fa-m i t s e l f (though some i s o f t e n s o l d ) ; mo1,crs of 5' H P a r e s u f f i c i e n t . The c o s t s of e l e c t r i c motors a r e compared with those of using t r a c t o r s o r m a l l d i e s e l n o t o r s . E l e c t r i c motors a r e cheaper and more convenient ( i f , of course, the farm i s c l o s e t o the line), mainly because o p e r e t i o n and maintenance c o s t s a r e s o much lower; when a t r a c t o r i 3 used, f u e l a?d o p e r a t i n g c o s t s tend t o r i s e s i n c e L t i s a b i g engine (e.g. ,SO - 100 W ) f o r such a purpose. !Elk Cooling on Farms 11.36 X i t h i n t h e l a s t f i f t e e n y e a r s , milk cooling on c a t t l e farms, o r a t nearby v i l l a g e s , has increased r a p i d l y in E l Salvador, and provides q u i t e a l a r g e demand f o r e l e c t r i c i t y in r u r a l areas. Though only small m o t o ~ sof 3 o r h HP a r e needed, they o p e r a t e c o n t i n u a l l y throughout t h e y e a r , c r e a t i n g demands of 10,000 t o 20,000 k Tdh p e r year. 24ost of t h e cooled milk, p a r t i c u l a r l y from t h e l a r g e r farms, i s destined f o r f u r t h e r processing and consumption i n c i t i e s ; t h e smaller farms tend t o c a t e r f o r t h e r i s i n g demands i n r u r a l areas. 11.037 Before e l e c t r i c i t y was a v a i l a b l e , t h e few farms t h a t cooled m i l k used d i e s e l motors o r autogenerators t o d r i v e t h e compressors; auto- generators were g e n e r a l l y p r e f e r r e d s i n c e they a l s o provided e l e c t r i c i t y f o r l i g h t i n g . However, p u b l i c e l e c t r i c i t y i s now much cheaper, a s o u r s t u d i e s of f o u r farms i n t a b l e ll.10 show; mainly t h i s i s because i t i s easy t o l o c a t e t h e coolers n e a r t h e d i s t r i b u t i o n l i n e . Also i t i s found t o be c l e a n e r , more convenient a n d r e l i a b l e . Even n e g l e c t i n g t h e s e advantages of q u a l i t y , however, t h e consumer's s u r p l u s b e n e f i t s of e l e c t r i c i t y seem to be q u i t e l a r g e accordirig t o o u r c a l c u l a t i o n s . - about 100 t o 130% of revenues, ( j ) T e f r i g e r a t i o n in Shops I.1..38 A v i l l a g e of f i v e hundred households and i t s neighbouring a r e a s i n E l Salvador may s u s t a i n t h e commercial a c t i v i t y o f twenty t o t h i r t y foodshops, two t o f i v e general s t o r e s , o f t e n a pharmacy, two o r t h r e e corn mi1l.s (studied above) and a workshop o r two (see t a b l e 10.3 f o r example). The small v i l l a g e s and hamlets,which a r e much poorer a n d more numerous, have i i t , t l e commerce o f course, and r e l y on t h e l a r g e r v i l l a g e s i f they a r e ne:zby; l a r g e v i l l a g e s , on t h e o t h e r hand, may have considerably more a c t i v i t y . The main uses of e l e c t r i c i t y in t h e shops a r e f o r l i g h t - LIE, r e f r i g e r a t i o n and sometimes t e l e v i s i o n ( t o a t t r a c t custom o r as an added s e r v i c e f o r which a small f e e may be charged). Food i s r a r e l y kept i n the r e f r i g e r a t o r s ; they a r e use f o r cooling water and drinks. 11.39 Before e l e c t r i f i c a t i o n , r e f r i g e r a t i o n was very r a r e i n r u r a l areas. Kerosene r e f r i g e r a t o r s were a v a i l a b l e b u t were too c o s t l y t o j u s t i f y t h e investment s i n c e t h e shops' p r o f i t s a r e small. E l e c t r i c r e f r i - g e r a t i o n i s much cheaper and can provide a modest p r o f i t . In t h e two cases studied in t a b l e '&I1 p r o f i t s ( t h e consumer's s u r p l u s ) amounted t o about 120% of t h e e l e c t r i c b i l l . Today, r e f r i g e r a t i o n i n , shops i s q u i t e extensive, and p r o f i t s can he expected t o r i s e a s incomes r i s e i n r u r a l areas. (k) Potable Water Punrpin,q ll.40 I n h a l f of E l Salvador's v i l l a g e s , p o t a b l e water i s s t i l l delivered on ox c a r t s , o r brought by hand o r horseback from neighbouring areas - o f t e n over q u i t e a d i s t a n c e a t considerable t o i l . Yuch o f p e o p l e ' s time and e f f o r t i s s ~ e n i t n getting; water i n t h i s way. Public and p r i v a t e w e l l s w i t h buckets o r manual pumps a r e a l s o common in many v i l l a g e s . I n c r e a s i n g l y , if too slowly, however, d i e s e l o r e l e c t r i c motors a r e used by t h e p u b l i c weter supply a u t h o r i t y t o s e r v e p u b l i c standpipes and house connections, and a number of households have i n s t a l l e d t h e i r own. The p u b l i c pumps are t y p i c a l l y 25 HP, d e l i v e r i n g 20 m i l l i o n g a l l o n s p e r y e a r , r e q u i r i n g around 75,000 KvJh p e r y e a r - enough t o double t h e e l e c t r i c i t y load o f a v i l l a g e o f two o r t h r e e hundred households. The p r i v a t e pumps are f r a c t i o n a l W motors, and t y p i c a l l y d e l i v e r 100,000 g a l l o n s , r e q u i r i n g only a few hundred k T h . I I. - 4 1 The case study in t a b l e il .l 1 o f a p u b l i c pump f o r t h e v i l l a g e of San Juan Talpa (population 6,000) shows t h a t t h e e l e c t r i c pump i s somewhat cheaper than d i e s e l , t h e c o s t savings amounting t o n e a r l y 50% of he ~ l e c t r i c l t y b i l l . The small 0.33 HP p r i v a t e d i e s e l pump s e r v i n g a household, i n t h e case shown, turned o u t t o be cheaper than t h e e l e c t r i c a l t e y n a t i v e because i t w a s bought second hand; in o t h e r cases, t h e e l e c t r i c a l t e r n a t i v e can be shown t o be cheaper. 11.L2 The c o s t s o f more t r a d i t i o n a l ways of d e l i v e r i n g water a r e conpared ( i n t a b l e 1l.12) with t h e c o s t s and d e l i v e r y capacity of small e l e c k r i c pumps; one case i s d e l i v e r y from an ox c a r t , t h e o t h e r i s d e l i v e r y f r o n a bncket well. (For t h e sake of argument, labour c o s t s i z t h e l a t t e r a r e taken t o be h a l f the minimum wage r a t e of i? 2.25 (90 c e n t s ) p e r day). 'fie c o s t savings, t h e savings i n t i n e and labour, and t h e i n c r e a s e i n water d e l i v e r y , can be q u i t e enornous. Delivery ~ost/000 - Case ,onls/"~re?.r gallons Cart ~ l u W,OOO Z 7.6 1/3 T E l e c t r i c Pump ( 1 hour p e r day) S 93,000 0.97 Bucket ::!ell 33,000 $6 5 -1: 1/3 KF E l e c t r i c Pump (8 hours p e r day) 274,000 0 .06 x- It i s of course impossible t o o b t a i n a s much from t h e bucket w e l l a s from small pumps. 11.43 There a r e , t h e r e f o r e , enormous g a k s from e l e c t r i c pumping -- o f m e o r two o r d e r s of magnitude. !Jhile these g a i b s can be made a t a somewhat higher c o s t frcm d i e s e l motors, t h i s should n o t be allowed t o obscure %he ~ o i n t h a t modern forms of motive power can r a i s e t h e water n'eliv~i-; ates L r~ i r = a l rreas enomoilsly. E f f e c t s of Taxes on Fuel-Oil and Equipment 1 1.&4 The above c a l c u l a t i o n s were based on a c t u a l p r i c e s ( i n c l u d i n g taxes) so . as to i n d i c a t e the e f f e c t on producers' p r o f i t s of using e l e c t r i c i t y o r i t s alternative But from an economic viewpoint, t h e t a x e s make p r i c e s above resource c o s t s (unless they a r e imposed a s a device t o r e s t r i c t demand i n times o f s c a r c i t y ) , and so need t o be excluded from t h e economic c o s t c~mparisons. 11 .&5 The main items a f f e c t e d by t a x e s a r e t h e f u e l c o s t s of running d i e s e l motors o r a u t o g e n e ~ a t o r s , where taxes were 30% of t h e p r i c e ( i n i972) ; and e l e c t , r i c r e f r i g e r a t o r s , where taxes were 33% of the p r i c e . Other e l e c t r i c a l machinery was taxed a t more o r l e s s t h e same r a t e a s t h e s u b s t i t u t e s ( a t 10% t o 15%) 11.46 The c a l c u l a t i o n s were t h u s adjusted f o r {axes i n t h e cases w h ~ r e e l e c t r i c i t y was used, and a r e summarised i n Table 11.14. The general e y f e c t of f u e l o i l taxes i s t o make the economic b e n e f i t s of e l e c t r i c i t y , i n absollite terms, ztmut 10$ to 20% lower. The taxes on r e f r i y e - a t i o n i n c r e a s e t h e n e t b e n e f i t s by 50 t o 60% ( t h i s corresponds q u i t e w e l l with t h e calculaf ed n e t t a x revenues f o r domestic r e f r i g e r a t o r s ) . Average Bet Benefits f o r Small and Large Conslxners 1 1 .b7 Although t h e r e a r e f i v e t a r i f f c a t e y o r i e s f o r productive iisers of e l e c t r i c i t y , small s i z e of our s~~rllple r e s t r i c t s us to considerinp; n n l y +:GO groups, ons f o r l a r g e and one f o r small consumers. Taking t h e cases w h e x e l e c t r i c i t y ( n o t tine s u b s t i t u t e ) i s a c t u a l l y used, we estimate t h e f o l l o r i n y weighted average n e t b e n e f i t s (consumers! s u r p l u s p h i s t a x revenues) f o r each group : A B Net Benefits Relative Per Consumer 1_/ - Importance 2/ A x B $ Small Cons-fmers : Corn : ? i l l s Shops ?filk Cooling lJater Pumping Fann ??achinery Small Sugar Processes Poultry Large Cons:Jmers : Coffee Sugar Irrigation Rice 135 4.3 $ Total = l f A s percentage of e l e c t r i c i t y b i l l (estimates a r e averages of f i g u r e s ifi table l l . 1 4 i n addendwn! , 2 ~' Rased on estimates of r e l a t i v e t o t a l kWh consumed by each group. The lower b e n e f i t s ( i n % terms) f o r t h e l a r g e r consumers a r e probably a r e s u l t o f t h r e e f a c t o r s : g r e a t e r remoteness from t h e l i n e t h a n i s t h e c a s e f o r s m a l l c o n s m e r s , lower u n i t maintenance c o s t s f o r t h e d i e s e l and a u t o g e n e r a t o r a l t e r n a - t i v e s , and more e f f i c i e n t d i e s e l e n g i n e s and a u t o g e n e r a t o r s . 1 1 .L8 These e s t i m a t e s o f b e n e f i t s a r e i - n i n i m ~ u n v a l u e s , s i n z e they a r e based on c o s t and p r o f i t c a l c u l a t i o n s alone. I n most c z s e s , u s e r s s a i d t h a t $hey valued t h e r e l i a b i l i t y and convenience o f t h e e l e c t r i c a l t e r n a t i v e h i g h l y , q u i t e a p a r t frorn any c o s t o r p r o f i t advantages i t may have. It i s i n t e r e s t i n g t h a t , i n t h e p a s t , t h e commercial and motive power t a r i f f s o f t h e p r i v a t e u t i l i t i e s were more t h a n double those now charged by CEL (though the:: have s i n c e 5een lowered on account of l o a d growth reducing average c o s t s ) implying a g r e a t e r w i l l i n g n e s s t o pay t h a n we have e s t i m a t e d . S u m i n y 'Jl, (i) There a r e g e n e r a l l y s e v e r a l a l < e r n a t i v e s to e l e o t r i : ; power f o r p r o d l ~ r t i v eu s e s i n r u r a l a r e a s . !?my b u s i n e s s e s can a n d do 1~;e a u l u o g e n e r ~ t o r s , d i e s e l e n 3 i n e s , o r , i n s p e z i a l c a s e s suzh a s s u g a r and c o f f e e pro,:e:;:,-i::g, ste-.XI e n z i n e s i f electricity i s n o t a v 2 , i l a b l e ; t h e s e a l t e r n a t i v e s z r e c f ten cheaper. ?or v e q r m a l l o p e r a t i o n s a n - h a 1 o r mvlual energy i s w e d , buf It is d l s t i r i . c : t l y i n f e r i o r in terms of c o s t s , o u t p u t a d convenience, and i s rkpicj3.y 'r;ek.tg replrr:er.: Sy d l e s e l or elec5ri.r: power. (ii) I n every c a s e s t u d i e d , t h e u s e r hod made a completely r ? t , i o n a l c i ~ o i c e between e l e c t r i c i t y and i t s a l t e r n a t i v e s : wherever e l e c t r i c t t y st1.t c o s t s and/c Y i n c r e a s e d p r o f i t s , i t was used, and wherever i t did n o t , t h e a l t e r n a t 8 i 7 ? ew a s .r.serl. The o n l y e x c e p t i o n s t o t h i s prove t h e r u l e ; i n a nlunber of c a s e s where t h e r;j.ter- n a t i v e was S e i r g nsed, b u t e l e c t r i c i t y would have been b e t t e r , tine u s e r i:ad i n s t a l l - e d h i s e q u i ~ n e n tb e f c r e e l e c t r i c i t y was availzlble and so h s d srmk cos4,s. (iii) E l e c t r i c i t y Is g e n e r a l l y cheaper and b e t t e r than t h e a1tern;it3ives, provided t h e consumer i s f a i r l y c l o s e t o t h e l i n e . D i e s e l engines a n d j c r auL,n- g e n e r a t o r s =e t h e most comrnorl a l t , e r n ~ t , i v e s ;they a r e more expelisive, ' e::s r e l i , ' n l e and c c s t i y t o m a l n t a l n , a n d a r e s e n e r a l l ; ~S u s t i = i e d o n l y f - . use:.s I n ~ e m o k ea r e a s . (i v ) 0 ~ e rs t i m a t e s of c o n s ~ m e r ' s s u r p h l s b e n e f i t s , a:l;justeci f c r !.:i.~s, a r e r.ol.lgh1.l; 9,3$ o f t h e e l . e c t r i c l ' v y b i l l f o r m a l l u s e r s , nr1.f 1CT: G!' the ii;:..! for la,-ge csers. These e s t i x z t e s do not, hovever, ~ l l o wfor t h e v a l u e ; f i.!:~ ,;!.-ied r e l l . a b i l i i - . ? tiqd c o n ~ ~ c n l e n coef elcc4,ricit:r supply, which inixly u s e r s s a i d Were iqortmt. CHAPTER 12 COST-BEN P I T CALCULATIONS < Introduction 12.1 I n this chapter, t h e f i n a n c i a l r e t u r n s c a l c u l a t e d ( i n chapter 8 ) f o r selected projects a r e adjusted f o r - b e n e f i t s , and con~umers'sur~lus - shadow p r i c e s i n order t o provide an estimate of t h e economic r e t u r n s . 12.2 The a n a l y s i s begins by considering t h e r e t u r n s t o t h e co onents of "P t h e program ( v i l l a g e s , farm and i n d u s t r i a l consumers, minor v i l l a g e s and then d i s c u s s e s o v e r a l l and r e g i o n a l r e t u r n s . F i r s t , however, a resum'e of shadow price^ and consumers ' s u r p l u s b e n e f i t s i s presented. ue Resum6 of ~ o n s u m e r s ' ~ u r ~ lB s n e f i t s and Shadow P r i c e s . 12.3 C a p i t a l c o s t s , throughout, have been estimated using a 10% i n t e r e s t r a t e . Foreign exchange camponents of t h e p r o j e c t have been estimated u s i n g a c t u a l p r i c e s s i n c e , a s explained i n Chapter 3, balance of payments have g e n e r a l l y been more o r l e s s i n equilibrium f o r many y e a r s a t t h e p r e s e n t exchange r a t e , - 4 t h o u t abnormal p r o t e c t i o n p o l i c i e s . Turning t o labour c o s t s , we should, i n p r i n c i p l e , make adjustments f o r u n s E l l e d labour c o s t s involved i n manufacturing concrete p o l e s and c o n s t r u c t i n g t h e networks. However, i t appears t h a t t h e s e amoupt t o no more than 25% of d i s t r i b u t i o n network investment c o s t s , and l e s s than 1 0 %of o v e r a l l program c o s t s ; even i f we used a shaduu p r i c e of zero, t h e r e f o r e , our conclusions would n o t be m a t e r i a l l y a f f e c t e d ; so we have neglected it. R n a l l y , shadow p r i c e adjustments due t o l a c k of (or t o t o o expensive) c r e d i t have been neglected since, during t h e f i e l d work,it was n o t a n o t i c e a b l y s i g n i f i c a n t f a c t o r . 12.b The main shadow p r i c e adjustments have been t o allow f o r t a x revenues. The main items a f f e c t e d were t a x e s on e l e c t r i c a l appliances f o r shops and house- holds ( t h e s u b s t i t u t e s generating n e g l i g i b l e t a x revenues); and t a x e s on d i e s e l o i l f o r d i e s e l motors a n d autogenerators, which a r e t h e common s u b s t i t u t e s t o e l e c t r i c i t y f o r productive uses ( t a x e s on e l e c t r i c a l and s u b s t i t u t e equipment a r e about t h e same and so tend t o b e . o f f s e t t i n g ) . 12.5 The adjustments t o e l e c t r i c i t y revenues' t o allow f o r consumers'surplus b e n e f i t s , and a l s o f o r t a x e s , were estimated f o r households and businesses i n c h a p t e r s 9 and 1 1 r e s p e c t i v e l y . In sum, t h e adjustments were estimated t o be a s follows (expressed a s a percentage o f t h e e l e c t r i c i t y revenues): For households : Surplus Benefits 2 50s Taxes Total For Small P r o d u c t i v e Users: T o t a l For Large P r o d u c t i v e Users: T o t a l Economic Returns t o t h e Components of t h e Program 12.6 A s d i s c u s s e d in Chapter 8 , t h e r e i s a j o i n t c o s t problem i n t h a t t h e v i l l a g e s , and t h e f a n - a n d i n d u s t r i a l . . c o n s u m e r s o u t s i d e them, s h a r e t h e same . (backbone) s u b t r a n s m i s s i o n networks Hence what count a re t h e o v e r a l l economic r e t u r n s i n r e l a t i o n t o o v e r a l l c o s t s . On t h e o t h e r hand, t h e r e t u r n s and t h e n o n - j o i n t c o s t s o f s e r v i n g d i f f e r e n t consumer g m u p s a r e h i ~ h l yv a r i e d , so i t i s l b p o r t a n t , t o examine them i n d i v i d u a l l y a s w e l l a s in t h e a g ~ r e g a t ~ eFor . this r e a s o n , t h e f o l l o w i n g a n a l y s i s proceeds (much a s i n Chapter 8) by calculatinp; t h e economic r e turns from (a) villages; (b) e x t e n s i o n s t o farm and agro-indus t r i a l canswners ; (c) e x t e n s i o n to minor v i l l a g e s . A s b e f o r e , t h e c o s t s of supplying t h e v i l l a g e s i n c l u d e t h e c o s t s o f r o u t i n g t h e s u b t r a n s m i s s i o n networks t o them. S i n c e , however, t h e s e networks a r e shared by t h e farm and i n d i v i d u a l conslmers, and by minor v i l l a g e s , o n l y t h e i n c r e m e n t a l c o s t s o f extend in,^ t h e networks t o t h e s e consumers a r e incl-ulded in t h e s~1ppl;r c o s t s . ( a ) Economic S e t u r n s from t h e V i l l a g e s 12.7 The economic r e t u r n s a r e c a l c u l a t e d i n , Table 12.1 f o r t h e t w e l v e v i l l a g e s whose f i n a n c i a l r e t u r n s were analysed i n Chapter 8. It w i l l b e rscall.ed t h a t t h e s e twelve v i l l a g e s , in s o c i a l and economic terms, could be grouped ( s e e Chapter 5 ) i n t o : - f i v e " b e t t e r developed" v i l l a g e s : - t h r e e "intermediate" v i l l a g e s ; - f o u r "backward1' v i l l n 2 e s . .. i k '; iZ,,< #, To a l l o w f o r t h e p r o b a b i l i t y of h i g h e r s u r p l u s b e n e f i t s and t a x revenues generated ' i n t h e b e t t e r developed v i l l a g e s , e l e c t r i c i t y revenues were tidjusted upwards by ,fcr . 125% ( i . e . s l i g h t l y above average t h e f i g u r e suggested in p a r a g r s p h 1 2 , s ) ; f o r .. i t h e intermediate v i l l a g e s , t h e upwards adjustment was 100%; and f o r bhe bnckdsrd v i l l a g e s , 75%. 1 / 12.8 The economic r e t u r n s work o u t a s f o l l o w s : - 1/ In paragraph 12.5 t h e average .adjustments suggested a r e 115% f o r households and 93% f o r s m a l l b u s i n e s s e s in t h e v i l l a g e - s a y 10% on average. Tax revenues n o t e , as a p e r c e n t a g e o f e l e c t r i c i t y revenues, a r e somewhat h i g h e r a t lower l e v e l s o f consumption on account o f t a x e s on TVs. T a b l e 12.1 Eco!lornic C o s t - B e n c r l l C a l c u l a t ~ o n sfor I.' Vlll.%ges Jueylla Roaarlo de l a Paz C a n d c l a r l a de l a F r o n t e r a San JIIWIT a l p a San Lula T a l p a Sesorl -- Yeu 1 Year 11 Yc.r?:, -- Year 1 Year 11 Year?S Yearl Year 11 Year 2 5 Year 1 Year 11 Year 2 5 Year 1 Yew 11 Yeu 25 - Yeu 1 -11 - Year 2 5 Year T o t a l D w d HYh/yeu 19 168 500 Annual Supply c o s t 1(K10'*: Actual I'resent Worth k i n u a ~Hcvenuea COW'S 2 1 hnual Econdc ~enefit; I Ri of Annual Economle B e n e h t B Net Yearly Return*. 8000's N o f Net Yearly R e t u r n s 4' T o t a l Ri of C o s t a 21 T o t a l RI o f Eeonrirnlc B c n a f l t s Met Euonoolc B c n e f l t e .iq6okte Chirllap. S.lcuatitl~~ San Aritonio m j o l l a l Sara Miguel Tcpezorltes Sun FTanclsco Chln-ca Y & Y e u 11 Y e u 25 Year 11 Year 25 Year 1 Year 11 Year 2 5 - - Year 1 Year 1 1 Y- e u 25 - Year 1 - Yeu 11 Your Year 1 Year 1 1 Year 2 5 Tot& Del-d m/Year 32 84 240 16 34 103 Annual Sapply Coat $OOO1a Actual i-resellt Worth Aet 'Yearly R e t u n s e m ' . Ri d l llet Yearly Relurna TuLal Hi ol' C o s t s 5 / T o t a l N of ~ c a n o n i rk n e f l t s Net Econmilc R e n e f l t e I/ 2/ Taken from t a b l e 8 . 1 , rhlcli g i v e s d e t a l l s on c o s t b r e a k d a m s . a l ~ o A/ Annual revenues times adjustment I'actors .,f 2.25, 2.0 or 1.75 d e p ~ d i n gon l e v e l o f developnerrt ( s e e t e x t ) . - 4/ All p r e s e n t r u l . t l # s referred t o y e u 1 , r t 10$ I n t e r e a t . 5 1 T o t a l p r e a e n t r o r t t j s c a l c u l a t e d by a l n p l e I l n e a r l n t e r p o l a t l v i l u s i n g t h e furnula: SrRi rear 1+12.5 r RI Year 11 + 7.2 1 IW Year 25. Table 12.2 ",st- t o p;er,era L e ecr.,- .mi(: r e f u r n s which even c l o s e l y mat& t h e l a r y e i n v e s t i n n t c o s t s o f rl~t:.rork ext,pnsions. 1/ - 1 ; This -2i:;es t h e obvious q x e s s i o n o f whether FS +roulcl h - v e been b e t % e r t o supply vi;l2ges I n t h i s a r e a by a c t o g e n e r a t i o n . Tha c,-ite~Lon :or t h i s i s diaclissed Ln t h e addendcm 'o :hapeer 2 . 12.10 I n t h e economically backward v i l l a ~ e s ,t h e p i c t u r e i s q u i t e d i f f e r e n t . It t a k e s 20 t o 25 g e a r s o r more f o r t h e y e a r l y economic r e t l r n s t o spprozch t o t a l y e a r l y c o s t s of supply. The r e s u l t i s t h a t , once everything has beer. present. worth, t h e b e n e f i t - c c s t r a t i o s a r e very poor. 1 / A p a r t i a l exception i n 'he above case i s S a l c o a t i t a n ; but, i t i s an exception \rt-,ic h , as we f o m d i n e a r l i e r c h a p t e r s , proves t h e r u l e : S a l c o a t i ~ a ni s almost a suburb o f Juayua, and picaks up q u i t e a l o t of J u a p a ' s commercial t r a d e . 12.1 1 It seems reasonable t o conclude, then, t h a t v i l l a g e needs alone c a ~ m o t j u s t i f y t h e investments - w i t h t h e important, exception o f those ~ i l l n c e s which a r e s o c i a l l y and econonic?.lly q u i t e w e l l developed, o r a r e developing quickly, a s r e f l e c t e d in g e n e r a l l y good i n f r a s t r u c t u r e , s o l i d l y constructed housing and r i s i n g o u t p u t in l o c a l a g r i c u l t u r e and commerce (which i s s a w d Yj 2 dzg @ - ! \ ? " : m m m f f f Table 1 1.9 Three Case S t u d i e s of F a m '2;achiner~ - Case M 1 z12 . Source of Power T r a c t o r (751iP) 'i'rsctor ( t 5 W ) ElecD~.ic (5HP) Altern; t i v e E l e c t r i c (SIP) E l e c t r i c (SIP) D i e s e l (5-1 Consumption o f E l e c t r i c Al:.~m;~tive 1,872 K W y r 3,515 k;ih/yr Tons 0," Wcider a n d ;Iaize 200 120 Vnlue (:iTFroximate) @ n.2. 16,000 Common S o s t s $/year E:nef*s:y Cc s t s , $/;re:Lr Fuel/Electricity 0 and 7 1. C a p l t a i (motors) Total Fu'ue?-/3lectriclty 0 afld '4 CapIta1 Tot 3 1 Total ' h a t s (hctual) -- Table 11.10 Fo-oilr Case S t u d i e s o f ! e l k G o o l i n ~ - Case NC 1 YC 2 O7:tpi1=, Bot,tiss/jrea:. 775,625 711,690 4l14,oOO S t , $ 232,688 152,994 95,st;c; Capnc't:; of Cooler 16C,ors, HP 3-25 3.5 L.75 'T k n ~onsLm po n ti 19,685 22 ,421 13,320 Source o f Power Electric Electric Electric Electric A l t e r n a t i v e Source Autogen. Autogen. Autogen. Diesel ?Elk Input Labor Ca p i 5 n l 0ti:er.s Tot-.l ",ect,ricity 0 and "7 C a p i t a l (conr.ections) Total .) C a p i t a l (motors/~.u.utogen~ m ~ot;+i T o t a l Costs Frofits ( ~ c t u a l j Ijet i2enefl;s as 5 of Z l e c t r i c Y i l l 98% 1255 A 12 Table U . ? L 1/ Two Case S t u d i e s of R e f r i g e r a t i o n in Vill'age shops- Case- S a l e s , $/year 1,355 1,846 Capacity o f r e f r i g e r a t o r , cu.ft. ll 13 k-,Jh pet. Year 95s 1,OU m e Electric Electric Alternative Kerosene Kerosene .:osts of Unrefrigerated Goods, $/year E l e c t r i c 3 e f r i g e r a t o r Costs, $/year: - electricity Kerosene 3eC.r; gerw '.(.:, Costs, $ / y e ~ r : - kerosene - refrigerator To t s l T o t a l Costs (E1ect:ris) T o t a l Costs (Kerosene) P r o f i t s with Electrlr: ? e f r i g e r a t o r P r o l ' i t s with Kerosene S e f r i ~ e r ~ t o r )Jet, a e n e f i t s of E l e c t r i c i t y ?let B e n e f i t s a s % of E l e c t r i z i t y >ill - 1/ Notes ~n(l 3eet;lil.j. 1Y? p r i c e s . Annuities based on 10s inherest, and 7 y e a r l i f e t i n e s for e l e c t r i c refriqernt,ors, 5 y e a r s for kerosene. Table 11.I 2 ' Two Case S t u d i e s o f Pota'o+ !.later pump in^ KL Private ,kblic ' ~ 2P - Case Pump - Pump - QW Gasoline 1/ Electric S~d>s?.itllts Electric Die:; e l Size 1/3 HP 25 a Q u a n t i t y delivere:? ?all/jrear 1 22,000 20,300,000 Aver,. v Time Cperated 1.5 hours/day 1 0 hollrs/dng k',?~neede l L q erlewh:rnative 1-59 78,COG No .oi' Feople Sel-v~c! Z;uzilj of 5 97 fnmi'lies p1-1.5 10 sta~:lpipes Diesel Alternative : - Fuel 3!: - notor 10h - maintenance Total +a .,7 Cost S a v i n g s ( ~ l e c t r i c dlternative) -.!ll 1,505 Net S e n e f i t s o f 'j.ect,ricity as o f Z1ec:tricit;r E i l l - 1/ Gasoline no:or bought, second hand. iLmiiities 5sspd o r ~t h e s e c o ~ l dhzn:! a 5 jie.!ie l i f e t i i i e . .rice ar.d Table L 1 3 Two Sase Studies Comparing Potable Water Delivery by E l e c t r i c Pumps r d t h Animal and Nanual Energy - Case KLectric Pump, Power 0.33 HP 0.33 HP Delivery, gallons/year 90,000 27L,OOO Head 18 f e e t 50 f e e t k i h p e r year 100 aoo T h e o f Operation 1 hour p e r day 8 hours p e r day Annual Costs -e - lectricity e l e c t r i c motor Alternative Ox Cart Bucket4Jell Delivery, gallons/ye ar 90,000 33,000 Annual Costs - transport - - labor capital Net Cost Savings of E l e c t r i c i t y 6 597 6 6 - 1/ Notes and Details. The a c t u a l data a r e from case s t u d i e s , t h e bucket-well s t i l l b e i n g used in ~ J L ; t h e ox cart was once used in b.13, but has s i n c e been replaced by t h e e l e c t r i c pump. Labor costs,uhich a r e i l l u s t r a t i v e , a r e equal to t h e man-hours times 50% of t h e 1972 minimwn wage of $2.25 p e r day. The a c t u a l delivery in gallons of t h e ox c a r t i s unknown, so t h e c o s t were estimated by studying t h e v a r i o u s f a c t o r s involved in t r a n s p o r t i n g 90,000 gallons p e r year over a d i s t a n c e of 1 Km by ox c a r t to t h i s house. Table U.14 E f f e c t s o f Taxes on Net B e n e f i t s in Cases Where E l e c t r i c i t y i s Used L/ 1Je5 B e n e f i t s a s $ of E l e c t r i c i t y 1 311 1 With Taxes 'dithout Taxes Case and P r o c e s s e s ~3 Coffee Processing 5 8% 3 h4: T2 Small S c a l e Sugar Process L/ 675 56s F1. Rice P m c e s s i n g 15% -&i? 3 3 Rice Processing 11% -% Iib W c e Processing 31% 3% . 1 : 2 Corn "11s 31% ILL$ hi3 Corn b2% 2b% P - 3 P o u l t r y Farm 93% 75% PF2 P o u l t r y Farm 31% llj: 11 I r r i g a t i o n ( c l o s e t o Lines r/) 752 30% M3 Farm ?!achinery 123% 107% MCI ilk Cooling 98s 64% MC2 Milk Cooling 125% 90% I'eIC3 '.Elk Cooling 121$ 87% 3 C 4 Milk Cooling 131% 106% Rr"l R e f r i g e r a t i o n i n Shops 12b% 175% W2 3 e f r i g e r a t i o n i n Shops 113% 1 75% \i2 ;later Pump 475 12% - 1/ Large sugar p r o c e s s e s g e n e r a l l y do n o t use d k s e l f u e l oil, and have been excluded. - 2/ Cases where e l e c t r i c i t y i s n o t used do not, of course, l e a d t o l o s t t a x revenues from d i e s e l o i l . - 3/ This c a s e i s n o t an e l e c t r i c a l u s e r , b u t we b e l i e v e t h a t t h e c a l c u l a t i o n b e s t r e f l e c t s r e l a t i v e c o s t s when t h e consumer i s c l o s e t o t h e l i n e .