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Strong electric utilities essential for clean energy transition

By: Chloe Emanuel 19/06/2024 World Bank

Cables General Windfarms

The World Bank has highlighted a critical barrier to global energy transition goals: the financial un-sustainability of electric utilities in developing countries. According to a new report titled The Critical Link: Empowering Utilities for the Energy Transition, only 40% of utilities in these regions can cover their operating and debt service costs.

The report, which assesses over 180 utilities across more than 90 countries, points out that low-income and lower-middle-income countries face severe challenges. High costs, low tariffs, transmission and distribution losses, inefficient payment collection, and poor planning lead to underperformance and strain government budgets, leaving many without reliable power.

These financial struggles deter investors, hindering utilities from securing affordable private capital necessary for grid modernisation and upgrades. The push to integrate more renewable energy, such as solar and wind, and the need to provide electricity to nearly 700 million people currently without access, will further strain these utilities.

“As the stewards of the world’s power grids, utilities are crucial to decarbonising power supply and delivering reliable electricity, which is vital for economic growth, job creation, and improving lives,” said Guangzhe Chen, World Bank Vice President for Infrastructure. “Policymakers, regulators, and development financiers must empower utilities with robust policies and long-term financing to achieve clean and accessible energy for all.”

The report suggests that opportunities exist to enhance utility performance. Governments can support this by crafting policies and transparent procurement rules to reduce investor risk and streamline development. Regulators should ensure utilities can recover costs through tariffs and encourage investment in efficient, resilient networks. Utilities must also improve billing, metering, and business practices to build trust with customers and investors.

Development financiers play a crucial role by providing concessional capital to offset the high costs of the transition and risk mitigation instruments for private investors. Only with these concerted efforts can utilities provide clean, affordable electricity to a growing customer base while ensuring financial sustainability.

For more information about offshore wind farm projects across the globe, click here.

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Strong electric utilities essential for clean energy transition

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