A new report by the World Bank, titled “The Critical Link: Empowering Utilities for the Energy Transition,” reveals that most electric utilities in developing countries are struggling to meet rising power demands and integrate renewable energy sources, jeopardizing global goals for clean, reliable, and affordable electricity.
Examining the performance of over 180 utilities across more than 90 countries, the report finds that only 40% of utilities can cover their operating and debt service costs. The situation is most dire in low-income and lower-middle-income countries, where high costs, low tariffs, transmission and distribution losses, inefficient payment collection, and poor planning create cycles of underperformance. This not only strains government budgets but also leaves many consumers without reliable power.
These financial and operational challenges deter investors, making it difficult for utilities to secure private capital at affordable rates. This stymies essential investments in grid modernization and upgrades. The push to integrate more variable renewable energy sources like solar and wind, alongside the urgent need to provide electricity to nearly 700 million people without access today, will further strain the financial sustainability and technical capacity of weak utilities, the report warns.
“As the stewards of the world’s power grids, utilities will be at the heart of efforts to decarbonize power supply and transmit more reliable electricity that is vital to propel economies, create jobs, and improve the lives of millions of people,” said Guangzhe Chen, World Bank Vice President for Infrastructure. “Policymakers, regulators, and development financiers need to step up to empower utilities through robust policies and more long-term financing to deliver on the promise of clean and accessible energy for all.”
The report suggests that achieving global energy transition and universal energy access goals presents opportunities to enhance utility performance. However, only well-managed and well-regulated utilities can provide clean, affordable electricity to a growing customer base while ensuring a reasonable return on investment.
Governments play a crucial role by crafting supportive policies and transparent procurement rules that reduce investor risk and streamline infrastructure development. Regulators must ensure utilities can recover reasonable costs through tariffs and encourage investment in efficient, resilient networks. Utilities, even in countries with sound policies and regulations, need to improve billing, metering, and business practices, and adopt new technologies to build trust with customers and investors.
Given the limited availability of public funding, development financiers are essential in offsetting the high costs of the transition. They can provide concessional capital for utilities and risk mitigation instruments for private utility investors.
The report underscores the importance of empowering utilities to achieve sustainable power supply, which is vital for economic growth, job creation, and improving the quality of life worldwide.
