The World Bank's new report, "The Critical Link: Empowering Utilities for the Energy Transition," highlights the crucial role of electric utilities in achieving global energy transition and universal access goals. The report calls on policymakers, regulators, utilities, and financiers to address the challenges faced by many electric utilities in developing countries. These challenges include meeting growing power demands and integrating renewable energy sources into their grids.
According to the report and its accompanying UPBEAT dashboard, which examines over 180 utilities in more than 90 countries, only 40% of utilities in low- and middle-income countries can cover their operating and debt service costs. Developing countries face acute challenges such as high costs, low tariffs, transmission and distribution losses, inefficient payment collection, and poor planning. These issues contribute to cycles of underperformance that burden government budgets and leave many consumers without reliable power.
The financial and operational difficulties of these utilities deter investors, complicating efforts to raise private capital at affordable rates for grid modernization and upgrades. The push to integrate more renewable energy sources like solar and wind, along with the need to provide electricity to nearly 700 million people without access, further strains the financial sustainability and technical capacity of these utilities.
The report suggests that achieving global energy transition and universal access goals presents opportunities for improving utility performance. However, this requires well-managed and well-regulated utilities capable of providing clean, affordable electricity while ensuring a reasonable return on investment. Policymakers are urged to create supportive policies and transparent procurement rules to reduce investor risk and streamline infrastructure development. Regulators must ensure that utilities can recover reasonable costs through tariffs while encouraging investment in efficient networks.
Even with sound policies in place, utilities need to improve billing practices, adopt better business practices, embrace new technologies, and build trust with customers and investors.
Development financiers have a critical role in offsetting the high costs associated with the energy transition by providing concessional capital for utilities and risk mitigation instruments for private utility investors.