Access to affordable, reliable and sustainable energy is vital to ending extreme poverty and promoting shared prosperity. While there have been substantial strides in improving access in recent years, today more than 1.1 billion people live without access to electricity worldwide, almost all of them in developing countries.
Bringing people their first power connections and making existing connections more reliable will require a huge level of investment. The International Energy Agency (IEA) estimates that for the period through 2035, non-OECD countries will account for the most incremental electricity demand, set to increase from 11,300 terawatt hours (TWh) to just over 26,000 TWh—more than the current generation capacity of the entire world. According to the IEA, meeting the world’s growing need for energy will require an investment of $48 trillion over the next two decades.
The public sector alone cannot respond to the enormous investment needed to meet the growing demand for electricity. Bringing in the private sector through the use of public-private partnerships (PPPs) allows governments to share the burden of financing and management. During the past two decades, many developing countries have been liberalizing and introducing private sector participation in their electricity markets, in an attempt to ensure sustainable supply of energy and improve the quality of electricity services. As a result, the power sector has been one of the greatest beneficiaries of private investment through PPP projects and project financing structures.
Of course, private sector involvement does not alone solve the growing energy demand, nor is it the best option in every country or scenario. As electricity sectors are restructured, governments must ensure the system is properly regulated, with strong oversight in the transmission and distribution areas in particular. The government must set clear limits in market power of distribution utilities while allowing competition in the generation segment with the establishment of a market for energy.
Environmental and safety compliance and employment impacts are other key aspects that require public sector oversight. The development of the national electricity sectors requires, in most cases, a thoughtful restructuring exercise with clear definition of rules allowing for a cooperative process in which the government and the private sector can work together in order to bring about a positive outcome for the country and the user.