POSTGRAGUATE PROGRAM DIRECTORATE

HARAMAYA UNIVERSITY

‘COSTS AND OTHER FACTORS THAT AFFECTS CONSUMER

PREFERENCE OF FOR ENERGY SOURCES: THE COMPARATIVE
CASE STUDY OF PUBLIC AND PRIVATE ORGANIZATIONS IN
HAROMAYA DISTRICT, EAST HARARGHE, ETHIOPIA’

MSC THESIS PROPOSAL

COLLEGE BUSINESS AND ECONOMICS

DEPARTMENT ECONOMICS
PROGRAM ENERGY ECONOMICS
MAJOR ADVISOR TEMESGEN KEBEDA (PhD)
CO- ADVISOR ABDELA MOHAMMED (PhD)
BY

BELISA ALIYI

April 15, 2022

Haramaya University, Haramaya

Ethiopia

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 Table of Contents
Table of Contents

AbbreviationsIV

CHAPTER ONE:...........................................................................................................................1
1. Introduction..............................................................................................................................1

1.1 Background............................................................................................................................1
1.2 Statement of the problem.......................................................................................................4
1.3 Objectives...............................................................................................................................6
1.3.1 General objectives...........................................................................................................6
1.3.2 Specific objectives...........................................................................................................6
1.4 Question of the study.............................................................................................................7
1.5 Significance of the Study.......................................................................................................7
1.6 Scope ans Limitation of the study..........................................................................................7
CHAPTER TWO: .........................................................................................................................8
2. Literature Review of the study.................................................................................................8
2.1 Theoretical Review................................................................................................................8
2.1.1 Definition and concepts............................................................................................ 8
2.1.2 Energy Sources.................................................................................................................8
2.1.3 The theories of private and public firm on energy sources........................................................8
2.1.3.1 Energy Consumption Theory...................................................................................8
2.1.3.2 Efficiency theories: no comparative advantage for private sector firms..........................8
2.2 The Empirical literature…………………………………………………………………….9
2.3Theoretical Framework……………………………………………………………….....…13
CHAPTER THREE: ..................................................................................................................14
3. Methodology..........................................................................................................................14
3.1 Description of study area………………………………………………………….………14
3.2 Sampling technique and sample size determination……………………………..………..14
3.2.1 Sample Size determination.......................................................................................14
3.2.2 Sample technique determination…………………………………………………….
……..143.3 Sources of data types, and method of data
collection……………………………………………………….15

II
 3.3.1 Sources and data types…………………………………………………..….15
3.3.2 Methods of data collection........................................................................................15
3.4 Methods of Data Analysis....................................................................................................16
3.5 Specification Models............................................................................................................16
CHAPTER FOUR:……………………………………………………………………..……....18
4. Work plan...............................................................................................................................18
4.3 Budget Estimation................................................................................................................19
5. Reference................................................................................................................................21

III
 Acronyms and Abbreviations
EIAED: Energy Information Administration and Energy Department
MWIE: Ministry of Water Irrigation and Electricity report of Ethiopia
WBDS: World Bank data source
EIA: Energy Information Administration

IMF: International monitory Monetary Fund

WBES: World Bank Enterprise Survey
NPC: National Planning Commission
WEO: World Energy Outlook

IV
 CHAPTER ONE: INTRODUCTION

1.1.Background of the Study

Energy plays a vital role to in socio-economic and technological development of any economy
orf a society. It affects all aspects of development: social, economic and environmental,
including livelihoods, access to water, agricultural productivity, health, population levels, and
education ([UN, 2015)]. The role of energy, especially electricity is required to run the operation
of the business, government activities, institutions, hospitals, small and medium scale
enterprises, etc. According to Akinwale et al., (2013) stated that access to modern energy is
crucial for the provision of clean water, sanitation and healthcare and for the provision of reliable
and efficient lighting, heating, cooking, mechanical power, and transport and
telecommunications services. Despite the importance of energy in humans’ life, it is miserable to
acknowledge that billions of people still lack access to the most basic energy services in the
present day and over 1.3 billion people are without access to electricity (WEO, 2012). Adding to
this, currently, about 12.65 percent of the world and Sub-Saharan Africa, 57.2 percent of the
population have no access to electricity services (EIAED, 2015). According to the IEA (2019)
only about 45 percent of the total population of Ethiopia have access to electricity of which 26.5
percent are rural residents and 85.4 percent are urban residents.

However, a sufficient and reliable supply of electricity is far from a reality in developing
countries, and this is especially a problem in Sub-Saharan Africa. Frequent and lengthy outages
characterize the electricity supply in this part of the world. Energy utilities in Sub-Saharan
African countries are mainly publicly owned and usually option to keep tariffs at a very low level
to pacify their urban constituency. The existing low electricity tariff rates make the costly
investments required to improve supply economically unfeasible (Collier and Venables, 2012).
While it is in customers’ interest to pay low electricity tariffs, the question remains whether they
would be willing to pay more for improvements in electricity service, particularly improvements
in the reliability of supply.

Energy is crucial in the fight against poverty, as it is among the greatest drivers of development.
Ancient and modern civilizations rose on the back of energy (Nikiforuk, 2012). From captive
humans to coal and oil, energy has played a central role in human progress, as it enables mass
production of goods and services. A paradigm shift in transitioning to a new form of energy
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defines human progress as well as its quality of civilization. However, a step in achieving this
progression does not happen until a society fully recognizes the heavy economic, social and
environmental costs arising from the energy form it is using.

In Ethiopia, access to the grid line may not necessarily imply reliable electricity service
connection. According to the MWIE (2017), only about 25 percent of the households have
connectivity with 100 kWh/annual per capita electricity consumption. This implies that a large
percentage of population particularly in the rural areas still reliesy on non-renewable and unclean
energy sources such as charcoal, wood, biomass, kerosene, paraffin, and other petroleum product
gases to meet their basic needs. However, these sources of energy create social, economic and
environmental hazards. Lighting services obtained as such are inefficient and often costly to the
users and cause indoor and outdoor pollution and degrade the environment besides limiting
productivity.

To alleviate these problems, the government of Ethiopia has set a path for a rural electrification
program to be provided by the grid and off-grid electricity sources (NPC, 2015). This is because
a modern energy, particularly electricity for household use provides an improved welfare status
when households are able to engage in additional income- generating activitiesy. This plan can
be feasible for Ethiopia as it has huge potentials for renewable electricity generation of up to
45,000 MW from hydro plants and 5.5 kWwh/m2/day from solar energy (Asress et al., 2013).

Currently, the government of Ethiopia is constructing the Great Renaissance Dam hydropower
plant on the Nile River, which is expected to generate 6000 MW of electric power, and boost the
total electricity production from hydropower (Taye et al., 2016). The construction of this
hydroelectric power is expected to enhance the provision of electricity and narrow down the high
demand. The predominant high demand is due to the imbalance between electricity users'
demand which results from the rapid economic growth of the country and the supply as a
(Nyasha et al., 2018). As a trend, the grid- based electricity distribution network is supposed to
be less likely to outreach the rural community because of their scattered settlement patterns. The
grid electricity is recommended for densely populated areas because of economies of scale
distribution whereas, the off-grid systems like photovoltaic systems supply for relatively less
populated and scattered areas ( Bekele and Tadesse, 2012).The identification of consumer

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preferences and their affordability level for service connection and consumption is essential for
efficient and proper planning of low-income countries.

Lack of reliable electricity service has been listed as a major source that causes to prefer different
energy sources in this district. According to WBES (2017) stated that a shortage of electricity
was a major constraint for the operations of both private firms and public sectors in Sub-Saharan
Africa. Among Ethiopian firms, an average firm lost about 47 hours of economic activity per
month as a result of outages for the same period. The estimated incurred loss in terms of annual
sales was about 7 percent for an average Ethiopian firm, while about 8.2 percent is for that of an
average Sub-Saharan African firm. Allcott et al. (2016) stated that electricity shortages reduced
average output by about 5 percent for manufacturing firms. However, the effect on productivity
was small because of the possibility of storing most inputs during outages. Fisher-Vanden et al.
(2015) find that an increase in electricity shortages has increased the unit cost of production of
Chinese firms by about 8 percent.

To mitigate the negative impacts of power outages, both private firm and public sectors have
employed different strategies in developing countries, such as invest in backup means of
producing electricity, such as diesel generators and solar. Backup diesel generators are costly,
and it has been estimated that in Sub-Saharan Africa, self-generated electricity costs three to ten
times as much as the electricity purchased from the grid (Foster and Steinbuks, 2009). Even if a
private firm and public uses a generator, it would still face output loss, since substantial time and
cost are associated with restarting machines after an outage, and the self-generated power might
not be sufficient to run production at full capacity (Beenstock, 1991). Diesel generators also have
negative impacts on air quality and noise levels. Moreover, a backup generator requires a large
honest investment cost at the time of purchase, since borrowing money for this type of
investment is difficult if not impossible in most Sub-Saharan African countries. Thus, investment
in a backup generator is most likely suboptimal, as it uses funds that could have been allocated to
increasing production capacity (Reinikka and Svensson, 2002).

Since consumer preferences are becoming more diverse with expanded supplier offers, it is
important to understand how consumers make decisions about energy products and services
when those decisions necessitate trade-offs between various benefits and costs (Yang et al, 2015
& Waechter et al, 2016). Understanding consumer preferences and identifying their potential

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differences when valuing various products and services together with their attributes is crucial
for effectively addressing consumers’ needs. Energy suppliers are therefore forced to transform
into active, consumer-oriented utilities with an emphasis on the integration of energy services,
while simultaneously promoting environmental sustainability.

Inspiring the knowledge on household energy preferences, behaviours, and attitudes is thus
crucial to enhance the effectiveness of the energy efficiency policies, which should play a central
role in the Ethiopia together with green energy and climate change goals.

It is expected that the consumer base will become even more diverse, and so knowledge about
different consumer segments is crucial to develop an adequate approach towards consumers
(Richter et al, 2012). Especially in the energy sector, the primary goal for utilities is to
understand which energy services and which attributes consumers prefer. Ideally, the energy
market should focus on the development and the awareness of efficient energy use and the use of
green energy, which may create, together with the efficient relationship management, a
competitive advantage strategy for any supplier (Lewis et al, 2016). As consumer preferences,
attitudes, and energy consumption along with consumer heterogeneity may be country-specific,
they call for country studies.

1.2.Statement of the Problem

Ethiopia has been many energy source technology as an alternative renewable energy source to
reduce excessive dependence on previously sources of energy they were used. Many of these
energy sources that more of the public and private organization in this country used for different
purpose are electric energy sources, solar energy sources and energy source that comes from
natural gasses and the same is true in the study areas. However, electric energy sources in this
country is characterized by lack of sufficient and reliable supply of electricity due to high
frequent and lengthy outages in this country. The publicly owned Energy utilities in Ethiopia
makes to keep low level tariffs that cause costly investments required to improve supply
economically unviable (Collier and Venables, 2012) and makes low access of electricity .

According to WBES, (2017) stated a shortage of electricity was a major constraint to the
operations of the private businesses and public institutions. Among Ethiopian firms, an average
firm lost about 47 hours of economic activity per month as result of outages for the same period.

4
The estimated incurred loss in terms of annual sales was about 7 percent for an average
Ethiopian firm, while about 8.2 percent for that of an average Sub-Saharan African firm. Allcott
et al. (2016) stated that electricity shortages reduced average output by about 5 percent for Indian
manufacturing firms. However, the effect on productivity was small because of the possibility of
storing most inputs during outages. Fisher-Vanden et al. (2015) find that an increase in electricity
shortages has increased the unit cost of production of Chinese firms by about 8 percent. Lack of
sufficient electricity service has been listed as a major source that cause to prefer different
energy sources in the study area.

Many organization (Public and Private Organization) that used different energy sources as
alternative at the time of electric power outage. Among them are solar energy sources and energy
source that comes from natural gasses were the common known in the study area.

Public and private organization which located near an electricity grid connection have
traditionally relied on grid power as a primary energy source. Yet power failures or outages
during periods of peak demand are a problem even in grid-connected cities and regions. This
forces organization to rely on expensive backup generators – or to remain without power. Studies
have shown that the most popular effect of electricity crises is increased operational cost
(Blanco-Delgado, 2013, p.1). Increased operational cost mainly results from the decision made
by most businesses to option for self-generation, that is, an alternative sources of energy during
shortfalls in energy supply (Karekezi & Kimani, 2002). Moreover, the cost of fuel to generate
power in organization also increases operational costs and less backing which further increases
their cost of production (Steinbuks & Foster, 2010), all the while maintaining a shortfall in
revenue (Staff, 2011).

Furthermore, most electricity crises are also accompanied by instances of poor-quality supply.
Continuous supply of substandard electricity is known to cause system failures, equipment
damages, and repeated need to repair or replace damaged equipment (Cissokho & Seck, 2013;
Scott et al., 2014). According to Ilskog (2011), other indirect complications include generators
producing hazardous exhaust fumes, noise, and accidents due to faulty refilling of fuel. What is
more, frequent and long hours of power blackouts immensely decrease customer satisfaction. To
prevent increased customer complaints, most consumer spend a lot just to maintain their standard

5
of operations. Bruch et al. (2011) indicate that most customer complaints in hotels during
electricity crises result due to interruptions in heating and cooling systems.

In off-grid settings, stand-alone diesel-powered generators have been the most common solution,
backed up mostly by kerosene lamps, candles or flashlights. Generators, however, are expensive
to operate due to the increasingly high cost of fuel and its transport and storage. As equipment
maintenance also may not be locally available, the unreliability of generators is thus a major
issue.

Overall, energy and fuel costs in many developing countries are high compared to per-capita
income levels. While few of health-sector energy costs have been undertaken, these costs appear
to consume a significantly larger proportion of operating budgets than in comparable developed-
country settings. Such stresses have been exacerbated by fossil fuel price increases over the past
decade.

Therefore, thorough understanding costs and other factors that affecting consumer preference of
energy source in Haramaya Woreda, and to what extent the energy source, which have been
available up to now, have contributed to the sustainable rural livelihood and environment are
relatively important for the next successful plans and spreading action. Limited studies have been
done on energy source in Ethiopia (Nigussie et al., 2016; Abayneh and Tasew 2017). However,
none of these studies provided due attention to the socio-economic and environmental
contribution of dissemination of domestic energy source, and factors affecting households’
decisions of energy source in the study area.

Therefore, this study has attemptedwill attempt to examine costs and other factors that affect
consumer preference of energy source in Haramaya Woreda, East Hararghe; Ethiopia.

Objectives of the Study

General objectives
The main objective of the study is to investigate the costs and other factor that affect consumer
preference of energy source used in both public and private organizations in the study area. The
general objective of this study is to investigate the consumer preference for energy sources used
in both public and private organizations in the study area.

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Specific objectives
 To establish the sources of energy used in both public and private organization during
power outages in the study area.
 To examine the factors that affect consumer preference forof energy sources
 To determine how costs and others factors affect the status of energy consumed by both
public and private organization.

Research Question
1. What are the sources of energy that to prefer during power outages in both public and
private organization in the study area?
2. What are the factors that affect consumer preferences of energy sources?
3. To what extent that costs and other factors affect the status energy consumed by both
public and private organization?

Significance of the Study

This study is instrumental in revealing the importance of having an effective energy sources that
makes well in the operation of both public and private organization during power outages, as it
challenges and opportunities of different energy sources. The findings will provide information,
which can be preferred for the organization in case of uses of electricity. Further, the study will
provide information which can be used by government institution and private firms to develop
energy and environmental policy to make modern energy technologies affordable accessible to
the organizations. Finally, the study will contribute to the existing body of knowledge on costs of
power interruption and energy sources and point for further research. It can be used as basis for
decision maker who are involved in the development of energy generation and distribution in the
study areas

Scope and Limitation of the study

This study will carry out in Haramaya District and aim at conducting costs and other factor that
affect consumer preference of energy sources used for comparing in both public and private
organization and on investigating the factor that determine the choice of energy sources in the
organization. Data collection will strictly confined within the boundaries set by the objectives of
this study. The study will limited to public and private organization in Haramaya Woreda of East
Hararghe; Ethiopia.

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 CHAPTER TWO

[2.1] THEORETICAL LITERATURE REVIEW

Definitions and concepts

This chapter discusses presents definitions and concepts related consumers preferences to energy
sourcesthe literature review in relation to the research problem. This is structured into: energy sources,
the theories of public and private firm on energy sources, factors influencing the consumer preferences
of energy source, environmental and socioeconomic impacts of energy sources, concept of cost analysis
and ends with the conceptual framework. The main purpose of the literature review work is to survey
previous studies at the current study in relation to others in the field. This activity will raise the
opportunities for articulating a critical analysis of the study topic to avoid reinventing the wheel and
helped in identifying the gaps in current knowledge.

2.1.1 Energy Sources

According to UN (2010), energy is essential to the issues of development, global security and
environmental protection. The main sources of energy are divided into two main categories: conventional
and renewable energy sources. Conventional energy sources (also called non-renewable energy) do not
renew themselves on meaningful human time frames and are mainly fossil fuels. On the other hand,
renewable energy can in general terms be defined as energy that can be derived from resources which are
naturally replenished on a human timescale and the main ones are sunlight, biogas, wind, hydropower,
tides, waves and biomass (EIA, 2008). Renewable energy sources can provide energy in four important
areas: electricity generation, cooking, hot water/space heating, transportation, and rural (off-grid) energy
services (EIA, 2008).

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2.1.2 The theories of private and public firm on energy sources

2.1.3.1 Energy Consumption Theory

Energy Consumption Theory (sometimes referred to as Energy cost theory) stated that the cost of using
energy resources in production and services business operation can be compensated by the overall
positive economic impact of these operation(Babak -Vosooghzadeh, 2020).

2.1.3.2 Efficiency theories: no comparative advantage for private sector firms

Mainstream economic theory predicts superior efficiency of private firms over public sector firms.
“Key issue is whether efficiency gains more than offset higher private sector borrowing costs.
While there is an extensive literature on this subject, the theory is ambiguous and the empirical
evidence is mixed.”(IMF, 2004).

There are now many studies of the comparative technical efficiency between public and private
firms. The results are remarkably consistent across all sectors and all forms of privatization and
out sourcing: the empirical evidence does not show that the private sector is systematically more
efficient than the public sector. (Hall and Nguyen RWER, 2018).

Electricity: no comparative advantage for private firms

There is a widespread belief that the private sector is always more efficient than the public
sector, in electricity as in other sectors. The empirical evidence includes a global study in, which
compared a lots of public and private electricity operators all over the world, and found no
significant systematic difference between public and private in terms of efficiency (Pollitt, 1995).

Electricity supply reliability has become a critical policy issue due to massive costs that
electricity users have to face due to unreliable supply (Ado & Josiah, 2015). Because of this,
quantifying the costs of power outages has been a topic of interest to many policy-makers and
researchers more especially in developing countries. The general theory of the cost of the electric
power unreliability has been a challenging area of study for the researchers (Kufeoglu &
Lehtonen, 2016).

2.2 The Empirical literature

The organizational aspect of consumer preferences of energy sources focuses on three
components: users- behavior at the institutional level, household behavior and the use of
electricity-efficient appliances. The first stating that the providing of free electricity in

9
governmental institutions makes people less likely to ready for the off greed time (Zhang et al.,
2014). According to Scherbaum et al (2008) study on at individual-level the public
environmental consciousness is an important predictor of personal environmental norms. These
affect energy consumption behavior at the workplace. In contrast, Zhang et al. (2013b, 2014)
measure the role of variables such as social and individual benefits, and the organization’s own
energy consumption types. They suggest that environmental, personal and organizational
benefits as well as the organization’s energy consumption patterns induce employees to prefer
other energy sources.

The second component examines households energy consuming behavior. According to

Abrahamsen et al (2007) studied that the consequence of personalized information, personalized
feedback and goal setting on energy consumption and consuming behavior. They show that
households that have been exposed to interventions save 5.1 percent in energy consumption
compared to households in the control group, which saved only 0.7 percent. Ek and Söderholm
(2010) argue that providing specific information on energy sources plays an important role in
energy consumption. Moreover, the willingness to consume electricity differs by age group -
retired people appear more willing to consume than the average individual.

In a similar study, Brounen et al. (2013) study the role of awareness and energy knowledge in the
behavior of Dutch households. They find that households that are more aware of their energy
consumption are also more efficient because they conserve and organize their energy
consumption better. Gyberg and Palm (2009) show that information in the residential sector can
help achieve sustainable energy systems and control excess demand for energy in people’s daily
lives.

Other studies investigate the role of socio-demographic and economic variables. Abrahamse and
Steg (2009) state that family size and income have a significant effect on households -through
direct and indirect energy consumption. Wang et al., (2011) find that smaller expenditures,
subsidized energy conservation, social norms and the experience of energy shortfalls enhance
electricity-saving behavior among Chinese households. However, the discomfort caused by
energy consume activities still has a negative effect on consumption behavior.

Ek and Matti (2015) stated that the attitudes of private electricity consumers towards green
electricity with an assumption that there is in a tendency towards green energy from a public

10
policy perspective. Most of the studies conclude that consumers prefer renewable energy sources
and also assertion consumers’ willingness to buy at a premium electricity generated using
renewable energy sources during power outages.

Investigating consumer preferences is essential because successful activation of consumers

requires a diverse offering of energy-related products and services that to meet the needs of this
various activities of organizations. Kowalska-Pyzalska (2018) and Hobman et al., 2016 examines
that the factors that may influence consumers’ energy sources-related preferences and behavior.
From an individual perspective, the adoption of different energy technologies and programs is
driven by several exogenous and endogenous factors. Exogenous factors include technological
characteristics, costs, and the monitoring framework, whereas endogenous factors cover aspects
from individuals’ knowledge and attitudes to energy consumption behavior and habits.

Consumer preferences related to energy efficiency activities are primarily affected by their
behavior toward energy use, their attitudes and habits, their environmental values, and
knowledge (Pothitou et al, 2016). Energy-efficient reflects not only an environmentally friendly
attitude but also the willingness to reduce costs, both impacting energy consumption. Research
on energy-efficient behavior has identified various non-technical determinants of energy
consumption, which may be explained by consumers’ socio-economic and socio-demographic
characteristics, as well as their environmental awareness (Frederiks et al, 2015, Belaid et al,
2019).

The third component of the literature focuses on the use of electricity-efficient appliances
(including lights, air conditioners, washing machines, refrigerators, TV sets, etc.). Guan et al.,
1997 examine the problems and prospects of energy-efficient lighting in China. They find that
lack of awareness, the cost-effectiveness of power efficiency projects, primitive manufacturing
processes and strong incentives to export energy-efficient products constrain the local use of
efficient lighting.

Government policies also have an impact on the adoption of energy-efficient appliances.

According to Ma et al. (2011) find that energy-efficient appliances and the government’s energy
efficiency polices have positive implications for energy conservation in China. Accordingly, they
suggest that energy conservation can be enhanced by subsidizing and promoting the use of
energy-efficient appliances. According to Ma et al. (2013) stated also that households prefer

11
comfort and suitability over energy sources, but that this behavior can be changed through
economic incentives such as charging higher prices for electricity or offering discounts on the
use of energy-efficient appliances.

According to Oseni and Pollitt (2015) stated that the electricity interruption affects business
activities in a number of ways as well as government activities. However, its inputs varies across
firms based on the degree vulnerability and relative generating capacity of self-generating firms
its own required electricity. The cost of power interruption also varies across firm size and types
of economic activities a firm is engaged in.

The cost of power outages also depends the nature of power interruption that firm faces. Power
outage can be characterized along a number of dimension including duration, frequency, the
timing of interruption, and advance notification. Billiton et al., (1982) and Ontario (1980) stated
that firm experiences high outage cost initially. However, the cost diminish rapidly as duration
increases’ With regard to the frequencies of interruption business enterprise prefer infrequent
along duration interruption to frequent short duration of interruption.

Scott et al. (2014) found that the probability of owning a generator is about 20% even where the
power supply is completely reliable and incentive to invest in generator and capacity of generator
installed are greatly affected by firms characteristics. Such as size, sector, corporate structure and
export orientation. However, the mitigation strategies taken by a firm partly depends on option
available to a firm and the nature of power interruption. According to Alam (2015) short run
power cuts may not induces firms to own generator. As study by Fisher- Vander et al (2015) also
show that Chinese firms were not self-generating electricity during power shortages rather they
re-optimize among production inputs by substituting material for energy.

According to World Bank (2015) state that the manufacturing firms also identify power outages
as the most critical bottleneck in Ethiopia. For household, adverse effect of power outages may
take several forms. A household may incur direct costs in the form of additional expenditures on
alternative source of energy such as candles, kerosene, charcoal, firewood, liquefied petroleum
gas(LPG) and stand by generators. A household may incur also non-monetary costs such as fear
of walking in it neighborhoods, loss of leisure time, and the inconvenience of using alternative
energy sources and the resulting adverse environmental and health effects.

12
Karekezi & Kimani (2002) stated that increased operational cost mainly results from the decision
made by most businesses to option for self-generation, that is, alternative sources of energy
during shortfalls in energy supply. First and foremost, the set-up cost involved in implementing
any form of self-generation tends to be more expensive, compared to sourcing electricity from
the grid, thus, necessitating an increase in their capital requirement for operations (Scott et al.,
2014). Moreover, the cost of fuel to power in organization also increases operational costs and
less backing is an obstruction to the organization to achieving economies of scale, which further
increases their cost of production (Steinbuks & Foster, 2010), all the while maintaining a
shortfall in revenue (Staff, 2011). Mannak (2015) also points out that most businesses tend to be
small enterprises which often lack the reserve to absorb the additional costs that come with self-
generation or finding alternate electricity supply during energy crises.

2.3Theoretical Framework
Our starting point is the standard classification of goods, which divides goods in a society into
four categories. Private goods are competed for, that is, individuals can be excluded from their
use. Common property resources are defined by two characteristics: it is difficult to exclude
users and the use of the good by one user diminishes the benefits available to other users. Non-
rival goods from which users can be readily excluded (the opposite of common property
resources) are called “spite goods” because this exclusion does not enhance welfare. Common
property resources are similar to public goods in that user exclusion is difficult, but they are also
similar to private goods in that users must compete for them. By contrast, public goods can
neither exclude users nor are users compelled to compete for them.

In most Ethiopia public sector, the consumption of electricity is divided into three categories of
use: (i) the electricity that is used in common areas such as offices, laboratories and public access
routes, (ii) the consumption of electricity specifically by employees in offices, and (iii) the
electricity used by household in residence.

In the first category, the consumption is paid for by the Bureau as public offices fees are
subsidized, that is, electricity is a “public’’ good. This means that employees and customers do
not pay for the electricity they consume during working hours. Hence, it is likely that, in the
absence of moral responsibility and the positive marginal cost of an extra unit of electricity,
customers and employees will be indifferent to whether their electricity consumption is efficient.

13
Similarly, in the third case, there is the probability of moral hazard with regard to electricity
consumption.

In contrast, private organization are run for profit and, as a consequence, resident customers are
fully liable for the costs they incur. As profit-maximizing agents, private owners will do their
best to reduce their running costs, for instance, by monitoring the unnecessary or overuse of
electricity. Moreover, the profit motive may induce them to use electricity-efficient appliances to
reduce costs. All these factors will ensure the optimal consumption of electricity in private
organization. As neoclassical economic agents, they will equate their marginal cost of electricity
with the marginal benefit of consumption. This is their incentive to avoid overuse and to use
electricity-efficient appliances in their homes.

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 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Description of study area

Haramaya Woreda (District) is located in East Hararghe Zone of Oromia Regional State. It is
located about 508 km from Addis Ababa along the main road to Harar town. Haramaya Woreda
has thirty five rural area and two urban kebeles (Sub-districts) with the total population of
271,394; among this 139,376 male and 133,018 female (CSA, 2007). It lies between latitude 41º
59´ 58´´ and 09º 24´ 10´´ South and between longitude 37º 10´ and 38º 30´ East. The altitude of
the district ranges from 1,400 to 2,340 m above sea level and it average annual rainfall is 790
mm. The mean annual temperatures ranges from 17 to 240C.

3.2 Sampling technique and sample size determination

3.2.1 Sample technique
The study will be conduct in Haramaya District of Eastern Hararghe Zones, which is located the
eastern part of Ethiopia. These District (Haramaya) are selected based on their convenience to
the off-grid and grid line accessibility. To collect the data, researher have employed a
proportional sampling technique

3.2.2 Sample determination

In this study samples taken from workers to compare public institution and business owners.
Stratified random sampling uses to select the respondents from two sectors found in Haramaya
Woreda. These are public agencies and private business sectors from three Kebeles. In these
sectors there are 350 population. Out of this 100 are public organization and 250 are private
organization.

The required sample size for collecting quantitative data was determined by using Yamane’
(1967) formula. The formula to calculate sample size is shown as

N
n= 2
1+ N (e )

15
Where ‘’n’’ is the sample size, ‘’N’’ is the target population size and ‘’e’’ is the level of
precision. By using this formula at 95% confidences level and 5% level of precisionthe sample
size are obtained as follows:

350
n= 2
=187
1+350 (0.05 )
Proportional sample size from each stratum is calculated by using the following formula:
¿=n ×∋ ¿ ¿
N

[3.3] Sources, of data types, and methods of data collection

Sources and data types

The research is relying on both qualitative and quantitative type of data. Concerning sources of
data, both primary and secondary sources will be used in generating valuable and relevant data.
Primary data will be collected through distribution of questionnaire and observation. Information
on the status of employment, income and other data is collect from the business owners,
employees and from process owner of office of public organization. Researcher uses
questionnaire and focus group discussions. Secondary data will be obtained from internet,
journals and books. The research will be designed to undertake collection of data from
respondents in both public and private organization on the different energy sources to alternative
during electricity interruption.

[3.3.1] Methods of data collection

Data collection will do using different methods depending on the specific objectives. These
included structured questionnaires and observation. The questionnaires will be divided into
components each addressing a specific objective. It will be also structured with closed and open-
ended questions to gather information from the respondents. The questionnaire will be signed to
have three important sections. The first section is questions that prompt households’ preferences
of current energy source situation. The second section is their choice of different energy
(electricity) sources alternatives (which can be reflected by the choice sets) and finally their cost
of organization that is incurred will incorporated.

16
To determine the factors influencing the choice of energy source, the study will rely on the
questionnaire which will be administered to respondents with the aim of bringing to light the
relative importance of investing in cost effective energy sources in the organization.

3.3[3.4] Methods of Data Analysis

Both qualitative and quantitative will be used in collecting and analyzing data. Qualitative data
will be obtained from open ended items in the questionnaires. The qualitative data obtained will
be grouped into different categories depending on the responses given by the respondents. These
categories will help in establishing themes which will be further coded and entered in a computer
statistical package. The study will employ the use of the Stata software. Stata will be preferred
for the study since it is easy to use and readily accepts a wide range of data manipulations to give
desired results. Data will be analyzed using descriptive statistics such as percentages, means and
frequencies and presented with the aid of tables, charts, notes and graphs.

3.5 Specification Model

3.5.1 multiple Linear regression model
The first method of data analysis is linear multiple regression model analysis with dummy
variable will be used to examine the result of independent variables on dependent variable. This
analysis will help us to describe, understand and predict the stated variables. The linear multiple
regression models will fit using analysis of private and public energy consumption as a
dependent variable. The independent variables for the study mainly include, cost and other
factors. The regression is specified as follows:

Y = β0 + β 1 X 1 + β 2 X 2 + β 3 X 3±−−∓ β6 X 6 + e

H i: at least 1=2 0

H0 : 1=2= 0

Where Y is the dependent variable household of energy consumption, are

the explanatory variables. β 0 is the intercept term it gives the mean or average effect on Y of all
the variables excluded from the equation, although its mechanical interpretation is the average
value of Y when the stated independent variables are set equal to zero β 1 , β 2 , β 3 , β 4 , .. , β6 refers

17
to the coefficient of their respective independent variable which measures the change in the mean
value of Y, per unit change in their respective independent variables. e=Error term (residual).

18
 4 RESEARCH WORK PLAN AND BUDGET BREAKDOWN

4.1 Work plan

Activities Time Frame

Nov. Dec. Jan. Feb. Mar. Apr. May. Jun.

2021 2021 2022 2022 2022 2022 2022 2022
Writing proposal x

1st draft proposal x

submission
Proposal presentation X

Preparation of x
uestionaries
Data collection x x

Data encoding and x

analysis
Analyzing of data x

Final report writing x

Submission X

Presenting the result of X

assessment

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 4.2. BUDGET PLAN

Table 1: Per Diem

No Personal expenses No. of Person No. of Days Per diem Rate(Birr) Total (Birr)
1 Researcher 1 20 171 3420
2 Data collectors 6 10 171 10260
Sub Total 13680

Table 2: Personal Expenses

No Activities No of persons Duration/No. of days Per diem/day Total Payment(Birr)

1 Major Advisor fee 1 17 206 3502
Co-Advisor fee 1 17 206 3502

Sub total 2 7004

Table 3: Supervision Fee

No Description Total Expense (Birr)

1 Supervision Fee 3000
Examination fee 8,500

Total 11,500

Table 4: Travel Expenses

N Person Departur Destinatio Cost/Trip day No. of trips Total cost

o e n (Birr) (Birr)
1 Researche HU Aweday 40 4 160
r
Sub Total 160

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 Table 5: Miscellaneous Expenses

No. Item Description Estimated Cost(Birr)

1 Thesis Binding 200
2 Printing 456
Sub Total 656

Table 6: Stationary Material

No. Item Unit Quantit Unit Price Total Cost (Birr)

y (Birr)
1 Flash disk(8Gb) No. 1 250.00 250.00
2 Printing Paper Pkt. 1 140.00 140.00
3 Binder Pkt. 1 80.00 80.00
4 CD-Rw Pkt. 1 30.00 30.00
Sub total 500

Table 7: Summary of Expense

No. Description Total Expense (Birr)

1 Supervision Fee 3000
2 Examination fee 8,500

Sub total 11,500

1 Advisor fee 7004
2 Per diem 13680
5 Travel expense 160
6 Miscellaneous expense 656
7 Stationary Material 500
Grand 33,500
total

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