Power It Up: Strengthening the Electricity Sector to Improve Efficiency and Support Economic Activity

April 8, 2016

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Gabriel Di Bella, and Francesco Grigoli. Power It Up: Strengthening the Electricity Sector to Improve Efficiency and Support Economic Activity, (USA: International Monetary Fund, 2016) accessed November 8, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Poor performance of the electricity sector remains a drag to economic efficiency and a bottleneck to economic activity in many low-income countries. This paper proposes a number of models that account for different equilibria (some better, some worse) of the electricity sector. They show how policy choices (affecting insolvency prospects or related to rules for electricity dispatching or tariff setting), stochastic generation costs, and initial conditions, affect investment in generation and electricity supply. They also show how credible (non-credible) promises of stronger enforcement to reduce theft result in larger (smaller) electricity supply, lower (higher) government subsidies, and lower (higher) tariffs and distribution losses, which in turn affect economic activity. To illustrate these findings, the paper reviews the experience of Haiti, a country stuck in a bad equilibrium of insufficient supply, high prices, and electricity theft; and that of Nicaragua, which is gradually transitioning to a better equilibrium of the electricity sector.

Subject: Commodities, Electricity, Expenditure, Financial sector policy and analysis, Government subsidies, Oil prices, Prices, Solvency, Tariffs, Taxes

Keywords: Cash flow, Credible and Non-Credible Promises, Distribution loss, Economic activity, Economic efficiency, Economic infrastructure, Electricity, Electricity Sector, Electricity tariff, Electricity Theft, Generation cost, Government subsidies, Haiti, Nicaragua, Objective function, Oil prices, Private sector, Solvency, Tariffs, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/085
Stock No:

WPIEA2016085
ISBN:

9781484322437
ISSN:

1018-5941

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