Conference Agenda

Unplanned and frequent power blackouts are critical factors that hinder the productivity and growth of all types of firms in developing countries. Enterprises and households invest in fossil fuel-powered backup generators to cope with frequent power interruptions. We use exogenous variation in the frequency of electricity interruption in a geographical regression discontinuity setup in Lagos state (Nigeria) and identify the impact of power interruption on the use of backup generators, fossil fuel consumption, and emission of greenhouse gases by micro and small enterprises. We find that enterprises with unstable electricity supply are 19% more likely to own a backup generator, consume 35% more fossil fuel, and pay 117% more for fuel. We estimate that enterprises with unstable electric supply emit about 2.3 tonnes of CO2/ year. However, we show that because of their high upfront cost and inattention to the cost savings by firm owners, willingness-to-pay (WTP) for solar home systems is substantially lower than for fossil fuel-powered generators. Our back-in-the-envelope calculation shows that micro and small firms can avert about 12.8 million tonnes of CO2 worth USD 2.4 Billion each year through the transition to solar technologies. Our findings have significant implications for green growth policies and the role of governments and other stakeholders in facilitating the transition to and investment in clean energy sources.