Can Technology Help Save Developing World Utilities in the Wake of COVID-19?
By Jonathan Phillips, Dr. Robyn Meeks, and Dr. Victoria Plutshack
The worst effects of the pandemic-induced recession are hitting the most vulnerable. As if to reinforce that point, the World Bank and International Energy Agency dropped these painful figures this month:
- After two decades of uninterrupted gains, extreme poverty is expected to rise in 2020, with the COVID-19 pandemic pushing the incomes of an estimated 88–115 million additional people below $1.90 a day.
- The ranks of those without electricity in Africa—already 580 million people—are set to rise in 2020. Basic electricity service will become a thing of the past for more than 100 million people who already have electricity connections.
Unfortunately, it gets worse. What these numbers don’t capture is the longer-term damage occurring to the systems needed to support recovery, like grids and the utility companies running them. As revenue-starved utilities and governments search for places to save money, it is investments in things like maintenance, infrastructure upgrades, and improved metering technology that are getting shelved. Yet these are essential tools of utilities to increase reliability, reduce losses, and shift the culture of bill non-payment that has made the power sector Africa’s Achilles heel and slowed development for decades.
Backsliding toward “Zombie Utilities”?
Electricity delivery and reliability is dependent on the financial health of the utility, which uses revenue to improve infrastructure and service quality. Utilities unable to recoup costs—which is the case with 95% of utilities in Sub-Saharan Africa—get caught in the infrastructure quality trap, where lower service quality leads to increased non-payment and lower revenues, which in turn exacerbates utility service problems. Some call them “zombie utilities.” This is the challenge that was already facing many utilities in low- and middle-income countries (LMICs) even before the pandemic. Now that COVID-19 has crippled economies, electric utilities are facing major revenue shortfalls and rising borrowing costs.
Countries have implemented short-term fiscal policies that aim to protect the energy poor, but they’re not always designed to support the financial sustainability of the system. Early in the pandemic, many LMIC governments moved to cancel electricity bills, institute moratoriums on disconnection, and/or provide subsidies for vulnerable populations. In the Democratic Republic of the Congo, water and electricity bills were suspended for two months. In both Ghana and Burkina Faso, electricity bills were reduced by 50%, while in Cote d’Ivoire, bill payment was suspended for underprivileged groups. And this was not just in Africa—from Malaysia to Massachusetts, governments offered temporary relief measures to electricity customers dealing with economy-wide shutdowns.
Weathering the Storm
The short-term impact of the COVID shutdowns and related policy actions has devastated many utility balance sheets. Already under financial threat, Kenya Power and Light, the country’s electrical utility, expects March–June sales and collection shortfalls to drop 2020 earnings by 25%. After Uganda’s initial shutdown, its utility, UMEME, saw a 29% decline in demand.
Longer term, whether utility companies are able to bounce back—and to what extent—may depend in large part on measures they took to modernize their systems long before the virus struck.
For example, to what extent were prepaid smart meters deployed or mobile money payment options adopted that could limit face-to-face interactions and in-person meter reading, while maintaining billing and payment continuity?
Had companies adequately invested in aerial bundled cables or meter audits, or sensitized consumers to the dangers of power theft?
To what extent was required maintenance put off or essential reliability investments delayed?
These basic measures build resiliency, ensuring the power system will be there when it’s needed during times of crisis. They also increase the likelihood of the utility getting paid and surviving an economic crisis.
The Ugandan distribution utility, UMEME, is frequently cited for the progress it’s made in improving reliability while quadrupling the number of customers on the system since taking over in 2005. Underpinning this progress—and helping it turn a profit last year—has been a laser focus on reducing system losses from 40% in 2005 to 16% in 2019. While not without problems, Uganda’s electricity system is likely to emerge in a better position than some of its neighbors, and certainly in a better position than a decade ago.
Dr. Robyn Meeks and collaborators from the Kyrgyz State Technical University, Lahore University of Management Sciences (LUMS), and the Energy Access Project at Duke team are kicking off new research to better understand these important relationships. In particular, the project will measure how COVID-19 has affected electricity utility revenue collection in Pakistan and Kyrgyzstan and whether particular institutional and technological innovations, including smart meters, have mitigated challenges faced by the utilities during the pandemic. This research could illuminate ways in which innovative technology can help LMIC utilities weather the next crisis.
About the Authors
Jonathan Phillips is the director of the Energy Access Project at Duke.
Dr. Robyn Meeks is an assistant professor at Duke University’s Sanford School of Public Policy.
Dr. Victoria Plutshack is a policy associate with the Energy Access Project at Duke.
"Policy in the Pandemic" is a weekly email featuring insights from the Nicholas Institute on how the COVID-19 pandemic is affecting environmental and energy policy. Click here to subscribe.