Robust electric utilities are the key to universal clean energy

Only 40% of utilities in developing countries are financially sustainable, compromising energy transition and energy access goals.

WASHINGTON, June 18, 2024 – Most electric utilities in developing countries are not prepared to meet growing energy demand and add more renewable energy to the grid, hindering the goals of the global energy transition to provide clean, reliable and affordable energy for all electricity, says the World Bank in a new report published today.

The report, titled The Critical Link: Empowering Utilities for the Energy Transition, examines the performance of more than 180 utilities in more than 90 countries. It shows that only 40% of public utility companies are able to cover the costs of their operations and debt servicing. Low-income and lower-middle-income countries face the most serious challenges as high costs, low tariffs, transmission and distribution losses, inefficient payment collection and poor planning perpetuate cycles of underperformance, straining government budgets and leaving many consumers without reliable energy .

These financial and operational hurdles also act as a deterrent to investors, preventing many utilities from raising private capital at affordable rates and holding back critical investments in grid modernization and modernization. The report warns that the accelerated move to transmit more variable renewable energy, including solar and wind, combined with the urgent need to provide electricity to the nearly 700 million people currently without access to electricity, will further strain the financial stability of weak utilities. and will put their technical capabilities to the test.

“As managers of the world’s electricity grids, utilities will be at the center of efforts to decarbonize the energy supply and transmit the more reliable electricity that is needed to power the economy, create jobs and improve the lives of millions of people,” said Guangzhe Chen, vice president of the World Bank for infrastructure. “Policymakers, regulators and development financiers must step up to empower utilities through robust policies and longer-term financing to deliver on the promise of clean and accessible energy for all.”

The goals of the global energy transition and universal energy access also create opportunities to improve utility efficiency. However, only well-managed and well-regulated utilities will be able to provide affordable clean electricity to an ever-growing customer base while achieving a reasonable return on investment.

Building the foundation for sustainable energy businesses starts with governments, which can develop supportive policies and transparent procurement rules that reduce investor risk and improve infrastructure development. Regulators must ensure that utilities are able to recover reasonable costs through tariffs and encourage investment in efficient and resilient networks. Even in countries with sound policies and regulations, utilities need to improve their billing and metering and adopt better business practices and new technologies to build customer and investor confidence. Given the paucity of public financing, development financiers have a key role to play in offsetting the high costs of switching to concessional capital for utilities and risk-mitigation instruments for utility investors.

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