Publication: Cost Recovery and Financial Viability of the Power Sector in Developing Countries: A Literature Review
Date
2017-12
ISSN
Published
2017-12
Author(s)
Abstract
The financial viability of the power
sector is a prerequisite for attracting the investment
needed to ensure reliable energy supply, meet universal
access targets, and hasten the clean energy transition.
Adequate pricing of electricity to allow for cost recovery
is also important to minimize the power sector’s negative
macroeconomic, fiscal, environmental, and social impacts.
This paper takes stock of the empirical and conceptual
literature on the financial viability and cost recovery of
the power sector in developing countries. Time-series data
across countries are relatively scarce, but comparing the
findings from 21 studies suggests that under-recovery of
costs remains pervasive despite decades of efforts by
governments and development institutions. Large electricity
subsidies continue to burden governments, especially in the
Middle East, South Asia, Central Asia, and Sub-Saharan
Africa. Reviews by the World Bank and International Monetary
Fund on outcomes of their own engagement also conclude that
progress on cost recovery in supported countries has been
limited. Although the aggregated view obscures fluctuation
within individual countries over time, the available
evidence suggests that countries progressing toward cost
recovery may find themselves backsliding within a few years.
As for understanding the circumstances under which progress
can be made, a handful of studies point toward a correlation
between sector reforms and cost recovery, although few of
the studies address obvious endogeneity problems. To provide
more solid guidance for future efforts to improve cost
recovery, more research is needed on: (i) the determinants
and enabling conditions of progress on cost recovery; (ii)
tariff reform sequencing; and (iii) institutional
arrangements, policies, and regulations that enable
countries to sustain cost recovery once it is reached.
Citation
“Huenteler, Joern; Dobozi, Istvan; Balabanyan, Ani; Banerjee, Sudeshna Ghosh. 2017. Cost Recovery and Financial Viability of the Power Sector in Developing Countries: A Literature Review. Policy Research Working Paper;No. 8287. © World Bank, Washington, DC. http://hdl.handle.net/10986/29077 License: CC BY 3.0 IGO.”
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