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The Future of Electricity in Fast-Growing Economies

Core Content

This report, The Future of Electricity in Fast-Growing Economies, published in January 2016 by the World Economic Forum in collaboration with Bain & Company, outlines strategies for attracting investment to provide affordable, accessible, and sustainable electricity in fast-growing economies. It builds on the 2015 report, which focused on mature economies, and provides insights into the unique challenges and opportunities faced by developing markets.

The electricity landscape is evolving rapidly due to technological advancements, declining costs, shifting regulations, and rising energy demand in fast-growing economies. These countries must balance energy access and security, affordability, and environmental sustainability to meet their energy goals.

Main Views and Key Information

Investment Needs

• Global Investment Requirement: Fast-growing economies are projected to require $13 trillion in electricity investments from 2015 to 2040, significantly outpacing OECD countries.
• Non-OECD Investment Growth: Non-OECD countries will need to double their annual electricity investments, from $240 billion to $495 billion, to meet rising demand and sustainability goals.
• Investment Distribution:
  • Transmission and Distribution (T&D) investments in non-OECD markets will reach $5.8 trillion by 2040.
  • Fossil fuel generation will account for $2.1 trillion in non-OECD investments.
  • Non-hydro renewables (wind, solar, biomass) will represent $2.9 trillion in non-OECD markets, 10% higher than in OECD countries.

Policy Recommendations

Policy-Makers

1. Pursue the Most Efficient Pathway to Policy Objectives

   • Develop integrated roadmaps that balance conventional and renewable energy sources.
   • Encourage "no regrets" investments in infrastructure to achieve universal access.
   • Promote energy efficiency on both supply and demand sides to reduce the need for new generation capacity.

2. Develop Integrated Policies Across the Power Value Chain

   • Ensure coordinated development of fuel supply, generation, transmission, and distribution.
   • Address financial and operational barriers to avoid stranded assets.
   • Consider both economic and regulatory factors in policy design.

3. Leverage Declining Technology Cost Curves

   • Take advantage of falling costs of renewable technologies to increase their adoption.
   • Avoid promoting niche or high-cost technologies due to lack of scale.
   • Use digitalization to improve operational efficiency and reduce emissions.

Regulators

1. Provide a Level Playing Field for Technologies

   • Structure power markets to reflect the full value and cost of different technologies, including carbon pricing.
   • Ensure regulations are technology-agnostic, focusing on flexibility, reliability, and security of supply.
   • Remove fuel subsidies that distort market competition.

2. Ensure Technically and Financially Viable Operations Across the Value Chain

   • Eliminate financial obstacles that hinder market viability.
   • Ensure tariff subsidies or progressive structures are fully funded.
   • Protect generator margins from fuel price volatility and ensure they can meet demand.

Businesses and Investors

1. Create Effective Public-Private Partnerships

   • Work with policy-makers to create transparent, independent, and clear governance structures.
   • Align expectations with the public sector to ensure profitability and investor confidence.

2. Nurture a Favourable Investment Environment

   • Reduce risk and lower the cost of capital.
   • Allocate risks appropriately among market participants.
   • Implement innovative financing and balance local content requirements.

3. Invest in Education and R&D

   • Collaborate with public and private sectors to develop talent and innovation in the power sector.
   • Support universities and research institutes to meet future energy challenges.

Case Studies: India and Mexico

India

• Challenges: Struggles with supply lagging behind demand, unprofitable distribution companies, and regulatory barriers.
• Reforms: Government has implemented integrated policies to ensure balanced development across the value chain, reduce losses, and improve the investment environment.
• Renewables: Emphasizes the role of renewables, with a goal to increase private sector investment in power capacity.

Mexico

• Challenges: Regulatory constraints in key sectors such as energy, telecommunications, and finance.
• Reforms: Transitioning from a state-owned electricity system to one that allows private investment and multiple players in the generation sector.
• Investments: Spent $11 billion on gas transmission and $33 billion on power transmission and distribution between 2011 and 2029.
• Energy Mix: Prioritizing gas and renewable energy to reduce electricity prices and improve sustainability.

Conclusion

Fast-growing economies face unique challenges in attracting investment for their electricity sectors. However, they also have the opportunity to leverage declining technology costs, digitalization, and integrated policies to create more efficient and sustainable systems. The report emphasizes the importance of a balanced and transparent approach to investment, policy, and regulation to ensure long-term success in the power sector.

References and Acknowledgements

• The report draws on insights from 20 of the largest fast-growing electricity markets.
• It aligns with global initiatives such as the UN's Sustainable Development Goals and the Paris Climate Agreement (INDCs).
• Acknowledgements are made to various stakeholders, including policy-makers, regulators, and industry leaders, for their contributions.