8 - The electricity subsector

Summary

Electricity is the first subsector to be discussed in some detail in this book. While not to suggest that other subsectors such as coal, oil, and gas are not important, there are three reasons for electricity to merit special treatment. The first is the technical complexity of the sector, which makes both investment planning and pricing rather more difficult than for the other major subsectors. The second is the fact that all countries need to deal with electrification issues, whereas a great number of countries do not have to deal with the problems of expanding oil, gas, or coal supply because they lack such resources. The third reason is the capital intensity of the subsector: in many countries the power sector accounts for the single largest fraction of public sector investment.

The developing countries have made significant gains in terms of access to, and per capita consumption of electricity over the last few decades. Other evidence also suggests that in many countries the power sector tends to be better organized and perform better than other sectors of the economy. However, during periods of high growth, power utilities have had to weather oil price increases and high inflation and have been hampered in their efforts to attain financial targets because governments have been slow in responding to changing conditions and in granting tariff increases. Thus, an urgent need has arisen to arrest deteriorating trends, given that power investments absorb as much as half of all public investments in some countries, and often are the cause of severe debt-related and macroeconomic stresses.