2018/93 Supported by K NKONW A A WELDEGDEG E OL N ONTOET E S ESREI R E ISE S F OFRO R P R&A C T HTEH E NEENREGRYG Y ETX ITCREA C T I V E S G L O B A L P R A C T I C E THE BOTTOM LINE Making a Difference in People’s Lives: Grid connectivity in rural Lao PDR yields substantial benefits. Rural Electrification in the Lao People’s Democratic Republic Household income, spending, and ownership of durable assets improve substantially as a result Why is electrification important? Energy (including electricity) is useful only to the extent that it of it, as does children’s education. enables desired services and positive actions. These services and Electricity advances human welfare and development actions, in turn, are critical to the achievement of many development Policymakers should consider extending grid-connectivity to The relationship between access to electricity and economic goals. The pathways of electrification’s benefits start with the households still off the grid. For growth is well established, although the existence and direction procurement of appliances (figure 2). households already connected, of causality are debated. Data from 176 countries show a high reliability and quality of service correlation (0.69) between gross domestic product and electricity Figure 1. Per capita electricity consumption vs. economic should be improved. Based primarily consumption (figure 1). Over the past two decades, studies have development, 2014 on hydropower, grid power in provided mounting empirical evidence of the various channels Lao PDR is subject to seasonality. through which households and individuals benefit from electrifica- Logarithm of per capita electricity consumption in kWh/year Having households reduce their tion. In recognition of the beneficial role of electricity in particular, 12 electricity consumption during the and modern energy in general, the United Nations has declared dry season is a temporary solution achieving universal access to modern energy by 2030 as one of the to avoiding outages. A long-term Sustainable Development Goals. 10 solution will depend on increasing In this study, we investigate the benefits of rural electrifica- energy efficiency, adding generation tion—specifically, the socioeconomic gains of households—using data from a household survey conducted in the Lao People’s 8 capacity, and extending the grid. Democratic Republic (Lao PDR) in 2015–16. The study is an initiative of the Status of Energy Access Report (SEAR), prepared by the World 6 Hussain Samad is a Bank’s Energy Sector Management Assistance Program (ESMAP). consultant in the Energy Documenting the impact of programs that seek to expand energy Sector Management access has a twofold purpose. First, it allows stakeholders to Assistance Program at the assess the effects of electrification on a set of outcomes of interest, 4 6 8 10 12 World Bank, where he acts including poverty, income, health, productive use, education, and Logarithm of GDP per capita in constant 2010 U.S. dollars as principal investigator of the Multi-Tier the environment. Second, evaluations of the welfare effects of Framework Global Survey activities. policies and programs can inform future policies and decisions about Source: World Bank Open Data (https://data.worldbank.org). Elisa Portale is a senior Note: This is a quadratic fitted curve produced using available data from 176 countries in 2014. investments. The evaluations can also be used to compare impacts energy specialist in ESMAP , GDP = gross domestic product; kWh = kilowatt-hour. and share knowledge across countries. where she is responsible for coordinating ESMAP’s knowledge products. Making a Difference in People’s Lives: Rural Electrification in Lao PDR 2 M a k i n g a D i ff e r e n c e i n P e o pl e ’ s L i v e s : R u ral El e c t r i f i c a t i o n i n L a o P D R Figure 2. Benefit pathways of household electrification Access to grid Electrification’s benefits Purchase of radio, Purchase of Purchase of Purchase of electric Purchase of often materialize through TV, and computer light bulbs electric fan, cooking appliances tools and machinery space heater, A/C and refrigerator multiple and interrelated pathways; in aggregate, the Greater access Increased study time Increased to information, by children in the evening Greater Efficient cooking productivity benefits and their effects knowledge, and comfort and better food entertainment preservation More flexibility in doing can be significant. chores and other activities in the evening Income growth Extended business Better Higher grade health hours in the evening attainment Less use of Better kerosene, health candles for lighting Income growth Income growth Income growth Source: Authors’ illustration based on World Bank (2002). After gaining access to electricity, households may purchase a knowledge can lead to better income opportunities and more variety of appliances, starting with electric lights and followed by empowerment, especially for women. Electric fans, air conditioning, radios, televisions, computers, electric fans, air conditioners, cooking and space heaters make life more comfortable. Electric cooking equipment, and refrigerators. Electricity access may also lead to appliances and refrigerators save time and protect against the health increased and more diverse use of mobile phones because members hazards of spoiled food and household air pollution. (The latter of households with electricity can charge their mobile phones at affects women and children disproportionately, because they spend home rather than traveling to market centers or shops to have their much of their time indoors.) Finally, electric tools and machinery mobile phones charged for a fee. increase productivity and incomes. Electrical appliances yield benefits such as better lighting and the These medium-term benefits have long-term impacts. As ability to preserve food; these benefits, in turn, have medium-term children’s study hours increase, their school attendance is likely to effects. Thanks to improved lighting, children may spend more time improve, as is their grade-completion level. Higher education means on their studies and adults may engage in productive activities higher future incomes. As we can see, electrification’s benefits often such as handicrafts, or be able to keep a home business open for materialize through multiple and interrelated pathways; in aggregate, extended hours in the evening. Radios, televisions, and computers the benefits and their effects can be significant. offer information, knowledge, and entertainment. Increased 3 M a k i n g a D i ff e r e n c e i n P e o pl e ’ s L i v e s : R u ral El e c t r i f i c a t i o n i n L a o P D R How is Lao PDR faring in access to electricity? The World Bank has provided long-standing support for the development of Lao PDR’s power sector. Over the past decade, The country has experienced a dramatic increase in Bank support was the cornerstone of the Nam Theun 2 hydropower electrification in the past 25 years project, which also benefited from other donors, including the The share of Lao households with access to electricity grew Asian Development Bank, Agence Francaise de Développement, The World Bank has from 15 percent in 1995 to 87 percent in 2016 (World Bank 2018). the European Investment Bank, and the Nordic Investment Bank. As provided long-standing Electric power generation has also grown rapidly, increasing from the nation’s electrification program enters its final stages and the 33 megawatts (MW) in 1975 to 200 MW in 1996 to the current level private sector takes the lead in developing power generation, the support for the of more than 6,000 MW. This was accomplished through strong World Bank is now focusing on the next set of challenges related to development of Lao PDR’s the development of the power grid, such as improving the domestic government commitment, effective implementation of access power sector. It is now programs, a well-structured subsidy and tariff policy, and assistance market’s reliability, efficiency, and financial viability, while also scaling focusing on improving from international financial institutions. up electricity trade and investments in the regional power market. the domestic market’s The objectives of the country’s First Power Sector Policy, enacted in 1990, included increasing access to electricity through grid and off- What is the data source for this study? reliability, efficiency, and grid connectivity, making tariffs affordable, and promoting economic The findings are based on household survey data financial viability, while also and social welfare. The body responsible for its implementation is scaling up electricity trade Electricité du Laos. Incorporated in 1997, this vertically integrated The data used in this study come from a household survey carried and investments in the power utility accounts for most of the country’s generation and 100 out by ESMAP in September 2015–January 2016. The survey covers percent of its transmission and distribution. The Ministry of Energy 15 provinces and 3 regions (northern, central, and southern) of regional power market. and Mines rolled out a Power to the Poor program in 2008, targeting rural Lao PDR, as shown in table 1. Households were selected from poor households in general, and female-headed ones in particular. villages both with and without grid electricity. Overall, 3,500 house- This program promotes electrification by providing a credit to enable holds (1,500 with grid electricity and 2,000 without) were sampled households to connect to a grid when it becomes available in their from 200 villages (100 with electricity and 100 without) in 33 districts. community. Where there are no power lines nearby, the program The data were collected by Sengsavang Co. Ltd. helps communities tap the Rural Electrification Fund and also offers Table 2 shows the degree of electrification in the sample by tax breaks for the purchase, construction, and management of region, based on the collected data. The grid electrification rate in imported equipment. In remote areas, the government promotes villages with electricity is 89–94 percent. The overall electrification off-grid solutions, with an emphasis on renewable technologies. rate varies quite a bit by region—it is highest in the central region The government of Lao PDR set an ambitious goal of electrifying (82.9 percent) and lowest in the northern (63.3 percent). Table 2 also 90 percent of the nation’s households by 2020, and increasing shows the rate of adoption of off-grid sources of electricity. Overall, hydropower exports to neighboring countries. the grid electrification rate in the sample households is about 76 percent, and the use of off-grid sources of electricity is about 18 percent. 4 M a k i n g a D i ff e r e n c e i n P e o pl e ’ s L i v e s : R u ral El e c t r i f i c a t i o n i n L a o P D R Table 1. Distribution of sample households by region and grid connectivity In villages In villages with grid without grid No. No. of villages No. of villages HHs HHs HHs Province of districts with grid without grid with grid without grid without grid Total The data used in this Northern region study come from a recent Phongsaly 3 10 10 150 50 150 350 household survey covering Luangnamtha 1 5 5 75 25 75 175 15 provinces and 3 regions Oudomxay 3 5 15 75 25 225 325 Luangphabang 4 10 15 150 50 225 425 (northern, central, and Houaphanh 2 5 10 75 25 150 250 southern) of rural Lao PDR. Xaiyabouly 2 10 0 150 50 0 200 Overall, 3,500 households Central region (1,500 with grid electricity Xiengkhouang 1 5 5 75 25 75 175 and 2,000 without) were Vientiane 1 5 0 75 25 0 100 sampled from 200 villages Bolikhamxay 2 5 5 75 25 75 175 (100 with electricity and Khammouan 3 10 5 150 50 75 275 Savannakheth 3 10 10 150 50 150 350 100 without) in 33 districts. Southern region Salavan 3 5 10 75 25 150 250 Sekong 2 0 10 0 0 150 150 Champasak 2 10 0 150 50 0 200 Attapeu 1 5 0 75 25 0 100 Total 33 100 100 1,500 500 1,500 3,500 Source: ESMAP household survey, 2015–16. Note: HH = households. Table 2. Electrification rate in sample households in rural Lao PDR Villages without Villages with access to grid access to grid All villages Households with Households with Households with Households with grid electricity from nongrid electricity from nongrid Households with grid electricity from nongrid Region electricity (%) sources (%)† sources (%)† electricity (%) sources (%)† Northern 89.0 11.0 67.5 63.3 27.3 Central 93.8 5.3 66.7 82.9 12.5 Southern 94.3 5.6 81.0 80.6 16.5 All regions 92.6 7.0 70.0 75.9 18.4 Source: ESMAP household survey, 2015–16. † Major nongrid sources are mini-grids, solar home systems, and rechargeable batteries. 5 M a k i n g a D i ff e r e n c e i n P e o pl e ’ s L i v e s : R u ral El e c t r i f i c a t i o n i n L a o P D R What are the major findings? as a result of grid connection in rural Lao PDR. Households’ kerosene consumption drops by 0.33 liter per month because of grid connec- The findings point to widespread benefits of tivity; the resulting cost savings are 63–68 percent. household electrification Children’s education. Brighter lighting allows children to study We considered a range of outcomes of electrification, both at the more in the evening. And children who study more are expected Children in grid-connected household and individual levels, ranging from fossil fuel replacement to have better school attendance and eventually to perform better households in Lao PDR to children’s education. As figure 2 suggests, electrification benefits than their counterparts from households without electricity. Table materialize at different times—some are immediate, others take 4 shows that children in grid-connected households in Lao PDR do study more in the evening— longer. Our outcome findings are summarized below. For a discus- indeed study more in the evening—boys by 26–33 minutes and girls boys by 26–33 minutes and sion of how those outcomes were measured, see box 1. by 17–19 minutes—than those from nongrid households. School girls by 17–19 minutes— Reduction in fossil fuel consumption. Better lighting is one enrollment also improves: boys’ by 4–9 percentage points and girls’ than those from nongrid benefit that materializes immediately. Electric lightbulbs soon replace by 3–4 percentage points. Another interesting finding is that children households. School the dim light of kerosene lamps, which are also responsible for withdraw from household chores and family-run activities after grid indoor air pollution and greenhouse gas emissions in most develop- electrification. These children probably trade family labor for study. enrollment also improves: ing countries. Lightbulbs are most likely the first appliances house- The reduction in labor can be as much as 35 minutes per day for boys’ by 4–9 percentage holds acquire. Table 3 reports the reduction in kerosene consumption boys and 25 minutes per day for girls. points and girls’ by 3–4 points. Box 1. Measuring the effects of electrification In our estimation of the impact of grid electrification in Lao PDR, we used the propensity-score matching (PSM) technique. The impact of an intervention (such as a grid connection) on outcome variables of interest (such as household income) is the measured change in the outcome that can be attributed to that intervention and to it alone. PSM is a common technique for estimating impact using cross-sectional data. Its use to estimate the effects of electrification in Lao PDR involved the following steps: • First, grid households are compared with nongrid households. The comparison involves characteristics that are expected to influence household grid connectivity. Many characteristics at the household level (age, sex, and education of household head; amount of agricultural land; and condition of housing structure) and across the village (primary schools, secondary schools, paved roads, health centers, markets, banks, agriculture extension programs; incidence of shocks and natural disasters in preceding 12 months, such as droughts, floods, and crop and livestock diseases; and price of alternate fuels such as kerosene) are used in the comparison process to calculate what is called the propensity score, which is the probability of a household’s grid connectivity. The propensity score is created for all households—both grid-connected and not. • Only grid and nongrid households whose propensity scores are the same (called matched households) are retained; others are discarded. • The difference in mean outcomes between the matched grid and nongrid households is computed. That difference expresses the impact of grid electrification. There are different ways to implement PSM, each with its pros and cons. In this exercise, we use two methods: PSM using nearest neighbor matching (referred to simply as PSM in this Live Wire), and inverse probability weighted estimation (hereafter referred to as IPW). Unmatched households are dropped in the PSM analysis, shrinking the sample. IPW analysis creates a weight based on the propensity score and uses the weight in the estimation, without dropping any observations. 6 M a k i n g a D i ff e r e n c e i n P e o pl e ’ s L i v e s : R u ral El e c t r i f i c a t i o n i n L a o P D R Table 3. Effect of electrification on the consumption of kerosene Figure 3. Effect of electrification on household income, spending, and assets (increase) PSM IPW Outcome estimates estimates 46.0% 35.1% 32.0% PSM Change in kerosene consumption (liters/month) −0.33 −0.34 29.0% IPW Change in expenditure on kerosene −63.4% −67.6% 4.3% 8.7% Household incomes grew Source: ESMAP household survey, 2015–16. Income Spending on consumption Value of durable assets 32–35 percent because Note: IPW = inverse probability weighted; PSM = propensity score matching. See box 1 for a discussion of the PSM and IPW estimates. of grid electrification Source: ESMAP household survey, 2015–16. Note: IPW = inverse probability weighted; PSM = propensity score matching. See box 1 for a in rural Lao PDR. The discussion of the PSM and IPW estimates. Table 4. Effect of electrification on children’s outcomes corresponding growth in PSM IPW spending for consumption Figure 4. Effect of electrification on monthly work hours Outcome estimates estimates (increase) and in the value of Change in study time in the evening 33 26 (boys 5–18 years) (minutes) durable assets owned 32.0% 26.7% 28.2% PSM Change in study time in the evening 19 17 IPW was 4–9 percent and (girls 5–18 years) (minutes) 20.0% 29–46 percent, respectively. Change in current school enrollment 9.3% 4.3% (boys 5–18 years) Men Women Change in current school enrollment 2.6% 4.0% (girls 5–18 years) Source: ESMAP household survey, 2015–16. Change in time spent on household chores −35 −21 Note: IPW = inverse probability weighted; PSM = propensity score matching. See box 1 for a and income-generating activities discussion of the PSM and IPW estimates. (boys 5–18 years) (minutes) Change in time spent on household chores −18 −25 Economic outcomes. Electricity boosts household incomes and income-generating activities (girls 5–18 years) (minutes) through multiple channels (see figure 2), and the cumulative benefits can be quite large over time. As household incomes grow, growth in Source: ESMAP household survey, 2015–16. Note: IPW = inverse probability weighted; PSM = propensity score matching. See box 1 for a consumption and assets follows suit. Figure 3 shows the benefits of discussion of the PSM and IPW estimates. electrification in terms of growth in income, expenditure, and ownership of durable assets. Household incomes grew 32–35 percent Access to radio and television. Time spent listening to the because of grid electrification in rural Lao PDR, and the corresponding radio and watching television in grid-connected households is more growth in spending for consumption and in the value of durable assets than that in nongrid households, the primary reason being that owned was 4–9 percent and 29–46 percent, respectively. access to electronic media using nongrid sources of electricity Employment. Employment growth goes hand in hand with is much more expensive.1 Thus members of grid-connected house- income growth. Figure 4 shows the effects of grid connection on holds have more access to entertainment, news, and information. employment: for men, the growth is substantial, at 20–32 percent; Because of grid electrification, the time spent listening to the radio for women it is as much as 28 percent. Women spend more time increases by about 12 minutes; watching television, by about at home than men and thus are more likely to be engaged in 2 hours per day. 1 Dry cell batteries are the main alternate source of electricity for radios, and rechargeable car batteries for televisions in nongrid households. 7 M a k i n g a D i ff e r e n c e i n P e o pl e ’ s L i v e s : R u ral El e c t r i f i c a t i o n i n L a o P D R Figure 5. Duration effects: Incremental benefits of an additional Table 5. Reduction in CO2 emissions due to grid connectivity in year of electricity rural Lao PDR 9.3% 8.1% 7.9% Elements of calculation Value A. Monthly reduction in kerosene consumption 0.34 5.5% per household (liters) [from table 3] Electrification has 1.3% B. Monthly reduction in CO2 emissions 0.85 substantial environmental per household (kg) [=A*2.5] Income Spending on Value of Men’s Women’s C. Yearly reduction in CO2 emissions 10.2 benefits, too. Electric consumption durable assets employment employment per household (kg) [=B*12] lighting, by reducing the Source: ESMAP household survey, 2015–16. D. Number of grid households in rural areas 597,609† consumption of kerosene, E. Yearly reduction in CO2 emissions 6,095,612 lowers the emission of for grid adoption in rural areas (kg) [=C*D] home-based income-generating activities, which often grow after F. Yearly reduction in CO2 emissions 6,096 greenhouse gases. household electrification.2 for grid adoption in rural areas (ton) [=E/1,000] Does the duration of access matter? The electrification Source: World Bank/ESMAP Solar Home System Survey, 2015–16. impacts reported so far are the average benefits for all grid-con- † National Statistics 2015. CO2 = carbon dioxide. nected households. However, benefits may vary by the duration of grid access—that is, early adopters may benefit more than late adopters. When households are connected to the grid, they first lowers the emission of greenhouse gases. When households connect attempt to meet their lighting demand by replacing kerosene lamps to the grid for their own benefit they help lower global emissions of or candles with electric lightbulbs. Over time, they diversify their carbon dioxide (CO2).3 electricity consumption by acquiring more appliances and perhaps Based on the reduction in kerosene consumption reported in electric tools and machinery if they are engaged in home-based table 3, a reduction of about 6.1 thousand tons of CO2 emissions activities. One could argue that the gradual procurement of appli- per year can be attributed to existing levels of grid connectivity ances may yield incremental benefits for households. (table 5). Since about 76 percent of rural households in Lao PDR were Figure 5 shows that beneficial effects accumulate over time. For connected to the grid and 18 percent to off-grid sources at the time each additional year of connectivity, household incomes increase of the survey, the total possible reduction of CO2 emissions due to by 9.3 percent, spending on consumption by 1.3 percent, and the electrification, including those not connected yet to any electricity value of durable assets owned by 8.1 percent. As expected, the source, is about 8,000 tons per year. employment of household members also increases incrementally as households continue to be connected to the grid: the hours of The financial and technical support of the Energy Sector Management employment of men and women increase by 5.5 percent and 7.9 Assistance Program (ESMAP) is gratefully acknowledged. We would also percent, respectively, for each extra year of connectivity. like to acknowledge the contribution of Venkata Ramana Putti and Koffi Reduction of greenhouse gases. Thus far, we have estimated Ekouevi, previous task team leaders of the SEAR project. Voravate Tantivate provided technical support during the survey design and implementation, for the effects of grid access on household- and individual-level out- which we are grateful. Finally, we would like to thank Rutu Dave, Vilayvanh comes. However, electrification has substantial environmental ben- Phonepraseuth, and Juliette Besnard for their constructive comments. efits, too. Electric lighting, by reducing the consumption of kerosene, 2 While not reported, our findings also show that women in grid-connected households spend 3 Other greenhouse gases are also emitted by burning kerosene, but CO2 is considered the more time in income-generating activities than their counterparts in nongrid households. largest contributor to global warming. 8 M a k i n g a D i ff e r e n c e i n P e o pl e ’ s L i v e s : R u ral El e c t r i f i c a t i o n i n L a o P D R References and sources ———. 2012. “The Welfare Impacts of Rural Electrification in MAKE FURTHER Dinkelman, Taryn. 2011. “The Effects of Rural Electrification on Bangladesh.” The Energy Journal 33 (1): 187–206. CONNECTIONS Kumar, Santosh, and Ganesh Rauniyar. 2011. “Is Electrification Welfare Employment: New Evidence from South Africa.” American Improving? Non-Experimental Evidence from Rural Bhutan.” Economic Review 101 (7): 3078–108. 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