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

C. Di Bella () and Francesco Grigoli ()

No 2016/085, IMF Working Papers from International Monetary Fund

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: WP; economic activity; private sector; cash flow; Credible and Non-Credible Promises; Economic efficiency; Economic infrastructure; Electricity Sector; Electricity Theft; Haiti; Nicaragua; generation cost; distribution loss; objective function; electricity tariff; Electricity; Tariffs; Oil prices; Solvency; Government subsidies (search for similar items in EconPapers)
Pages: 36
Date: 2016-04-08
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Citations: View citations in EconPapers (2)

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Journal Article: Power it up: Strengthening the electricity sector to improve efficiency and support economic activity (2017)
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