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

37 Pages Posted: 9 Dec 2016

See all articles by C. Gabriel Di Bella

C. Gabriel Di Bella

International Monetary Fund (IMF)

Francesco Grigoli

International Monetary Fund (IMF)

Date Written: April 2016

Abstract

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.

Keywords: Electricity, Low-income developing countries, Subsidies, Tariffs, Supply and demand, Haiti, Nicaragua, Cross country analysis, Econometric models, Credible and Non-Credible Promises, Economic efficiency, Economic infrastructure, Electricity Sector, Electricity Theft, Haiti, Nicaragua

JEL Classification: Q43, Q47, Q48

Suggested Citation

Di Bella, C. Gabriel and Grigoli, Francesco, Power it Up: Strengthening the Electricity Sector to Improve Efficiency and Support Economic Activity (April 2016). IMF Working Paper No. 16/85. Available at SSRN: https://ssrn.com/abstract=2882649

C. Gabriel Di Bella (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Francesco Grigoli

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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