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publicationJune 18, 2024

The Critical Link: Empowering Utilities for the Energy Transition

The Critical Link cover image

Empowering Electric Utilities for the Energy Transition

To date, the goals of the energy transition and universal access have received more attention than the importance of electric utilities in achieving them. Filling this gap, the World Bank's new report, The Critical Link: Empowering Utilities for the Energy Transition, serves as a call to action for policymakers, regulators, utilities, and financiers. It shows that many electric utilities in developing countries struggle to meet growing power demands and integrate renewable energy sources into their grids. This shortfall undermines the global goals of providing clean, reliable, and affordable electricity to all.

The Utility Performance Gap

The report and UPBEAT dashboard examine over 180 utilities in more than 90 countries. The data reveal that only 40% of utilities in low- and middle-income countries can cover their operating and debt service costs. The most acute challenges are faced by developing countries, where high costs, low tariffs, transmission and distribution losses, inefficient payment collection, and poor planning perpetuate cycles of underperformance. This not only burdens government budgets but also leaves many consumers without reliable power.

Weak Utilities Deter Investors  

Utilities’ financial and operational challenges deter investors, making it more difficult for them to raise private capital at affordable rates and invest in grid modernization and upgrades. The push to integrate more renewable energy, like solar and wind, and the urgency to provide electricity to nearly 700 million people without access, will further strain the financial sustainability and technical capacity of these utilities.

As the stewards of the world’s power grids, utilities will be at the heart of efforts to decarbonize power supply and transmit more reliable electricity that is vital to propel economies, create jobs, and improve the lives of millions of people. Policymakers, regulators, and development financiers need to step up to empower utilities through robust policies and more long-term financing to deliver on the promise of clean and accessible energy for all.
Guangzhe Chen
World Bank Vice President for Infrastructure

Laying the Foundations for Stronger Utilities 

The global energy transition and universal access goals present opportunities for improving utility performance. However, only well-managed and well-regulated utilities can provide clean, affordable electricity to a growing customer base while ensuring a reasonable return on investment. Building sustainable power utilities will require concerted efforts from policymakers, regulators, development financiers, and utilities.  

Governments can 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 and encourage investment in efficient, resilient networks. Even with sound policies, utilities must improve billing and metering, adopt better business practices, and embrace new technologies to build trust with customers and investors.

critical link infographic
The Critical Link infographic

The Role of Development Financiers

With public funding scarce, development financiers play a crucial role in offsetting the high costs of the transition. They can provide concessional capital for utilities and risk mitigation instruments for private utility investors, helping to facilitate the necessary investments in the energy sector.

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