Power It Up: Strengthening the Electricity Sector to Improve Efficiency and Support Economic Activity
IMF Working Papers, April 8, 2016
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- Power It Up: Strengthening the Electricity Sector to Improve Efficiency and Support Economic Activity
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Bibliographic details
- Authors: Gabriel Di Bella, Francesco Grigoli
- Published: April 8, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484322437.001
Overview
- Poor performance of the electricity sector remains a drag to economic efficiency and a bottleneck to economic activity in many low-income countries.
- The paper proposes a number of models that account for different equilibria (some better, some worse) of the electricity sector.
- Authors: Gabriel Di Bella, Francesco Grigoli.
Analytical framework and models
- Models incorporate:
- Policy choices affecting insolvency prospects, rules for electricity dispatching, and tariff setting.
- Stochastic generation costs.
- Initial conditions that influence investment in generation and electricity supply.
- Models generate multiple equilibria for the electricity sector, reflecting interactions between policy credibility, theft enforcement, investment, and supply.
Main findings
- Credible (non-credible) promises of stronger enforcement to reduce theft lead to:
- larger (smaller) electricity supply;
- lower (higher) government subsidies;
- lower (higher) tariffs;
- lower (higher) distribution losses.
- These outcomes in turn affect overall economic activity and economic efficiency.
- Policy credibility and initial sector conditions can tip a country into better or worse equilibria of generation investment and service provision.
Country illustrations
- Haiti:
- Characterized as stuck in a bad equilibrium of insufficient supply, high prices, and electricity theft.
- Nicaragua:
- Described as gradually transitioning to a better equilibrium of the electricity sector.
Policy implications and recommendations
- Strengthen enforcement credibility to reduce theft, which can:
- increase electricity supply;
- reduce the need for government subsidies;
- lower tariffs and distribution losses.
- Reform tariff-setting and dispatching rules to improve insolvency prospects and investment incentives.
- Recognize role of stochastic generation costs and initial conditions when designing sector reforms to ensure movement toward better equilibria.
Gabriel Di Bella and Francesco Grigoli, "Power It Up: Strengthening the Electricity Sector to Improve Efficiency and Support Economic Activity", IMF Working Paper No. 2016/085, April 8, 2016.
Content in this bundle
- Appendix I. Nicaragua: A Medium-Term Framework