Peer-to-peer enforcement among businesses to assure electricity payment in Nigeria: a lab-in-the-field experiment

Roy, Pallavi; Tres Vilanova, Mariona; Zarazua, Miguel Nino; Olajide, Adebayo; Animashaun, Najim; Adigun, Henry; Thomas, Rahila

Abstract

Since its privatisation in 2013, the Nigerian Electricity Supply Industry (NESI) has been constrained by persistent inefficiencies, corruption and liquidity challenges. Micro, small and medium enterprises (MSMEs) have faced high operational costs from the unreliable grid supply, they have been forced into rule-breaking behaviour like non-payment of bills, and they have resorted to costly and polluting self-generation of electricity. This has reduced the competitiveness and sustainability of MSMEs.

A previous study conducted by SOAS University of London’s Anti-Corruption Evidence consortium (SOAS-ACE) concludes that a national grid-based solution is not feasible in the short to medium term to address energy scarcity in Nigeria (Roy et al., 2020; Roy et al., 2023). Instead, a decentralised and embedded grid model could provide SMEs with reliable electricity, powered by solar photovoltaics, battery storage and compressed natural gas. Our Power–Capability–Interest (PCI) framework (Khan and Roy, 2022) demonstrates that it is feasible to attract competent private investors to local SME grids, and that this would foster horizontal accountability between suppliers and users. MSMEs are currently reliant on diesel generators, but they exhibit willingness to pay for power at higher rates if the reliability of grid-supplied energy improves. A peer-to-peer monitoring mechanism within MSME clusters could ensure compliance with payment obligations, and encourage self-enforcement of rules and sustainable power provision.

There is funding available in Nigeria for distributed renewable energy projects (small-scale and located near end-users). However, donors are hesitant to fund such projects in MSME clusters given certain financial disincentives. This includes the low creditworthiness of businesses, their lack of adequate collateral and the informal nature of transactions in such clusters. This is the case even to fund a small intervention to fit out some MSME units with solar panels.

Evidence is needed to: 1) convince MSMEs of the feasibility of a decentralised and embedded grid model, and 2) to convince funders that it is possible to de-risk the embedded project by eradicating corrupt behaviour like non-payment of bills. To this end, we operationalised a lab-in-the-field

experiment to test different mechanisms from individual contracts to group contracts with joint liability and incentives. This field-based behavioural experiment helps quantitatively validate our hypothesis of rule-following behaviour.

The objective is to explore how MSMEs respond to different group contracts with positive incentives, punishments, shared responsibility (joint liability) and peer-monitoring mechanisms in modelled scenarios. The findings show how these contract features influence electricity bill payments. Within a scenario of improved electricity provision, our theoretical prior is that group contracts based on horizontal enforcement will increase compliance with, and payment of, electricity bills. Our companion scoping study (Roy et al., 2025) suggests that monitoring will ensure timely payments, which will allow the solar provider to supply good-quality electricity at a price SMEs are willing (and able) to pay. The result is increased rule-following by SMEs as they no longer need to use non-compliant methods to access electricity, as well as higher productivity and revenue for these businesses.

The next phase of the research will test the embedded model and refine contracting mechanisms to ensure financial viability, environmental sustainability and reduced corruption incentives. The overarching aim of the initiative is to provide a scalable solution to Nigeria’s MSME energy crisis.

Citation

Roy, P., Tres Vilanova, M., Zarazua, M. N., Olajide, A., Animashaun, N., Adigun, H., & Thomas, R. (2025). Peer-to-peer enforcement among businesses to assure electricity payment in Nigeria: a lab-in-the-field experiment

• Working Paper Type: Working Paper
• Acceptance Date: Mar 3, 2025
• Online Publication Date: Mar 3, 2025
• Publication Date: Mar 1, 2025
• Deposit Date: May 26, 2025
• Publicly Available Date: May 27, 2025
• Pages: 1-35
• Series Title: ACE Working Paper
• Series Number: 54
• Keywords: Anticorruption, electricity payments, lab-in-the-field experiment, Nigeria
• Publisher URL: https://ace.soas.ac.uk/publication/peer-to-peer-enforcement-among-businesses-to-assure-electricity-payment-in-nigeria-a-lab-in-the-field-experiment/