Taking Stock of Economic Regulation of Power Utilities in the Developing World : A Literature Review
The model of power sector reform that emerged during the 1990s placed considerable emphasis on the creation of an independent regulatory agency, with a strong orientation toward technically-driven tariff-setting procedures. Despite widespread uptak...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/732921527773002514/Taking-stock-of-economic-regulation-of-power-utilities-in-the-developing-world-a-literature-review http://hdl.handle.net/10986/29890 |
| Summary: | The model of power sector reform that
emerged during the 1990s placed considerable emphasis on the
creation of an independent regulatory agency, with a strong
orientation toward technically-driven tariff-setting
procedures. Despite widespread uptake of regulation,
implementation has proved to be challenging in the
developing world. Regulators were seldom as independent as
originally envisaged, with widespread divergence between the
formal regulatory framework and the day-to-day practice of
regulation. In practice, many developing countries operate
with “advisory regulators” whose main role is to provide
technical support to the ultimate political decision makers.
Nevertheless, there is some evidence that regulation has had
a positive performance impact, particularly where utilities
are privatized and in middle-income settings. But the impact
is more questionable in cases where regulation is primarily
directed toward state-owned enterprises, which lack the
commercial incentives to respond to regulatory instruments.
On the choice of regulatory regimes, the ongoing debate
between price cap and rate of return regulation suggests
that the latter may be better suited to developing country
environments where the priority is to provide predictable
returns to support large capital investment programs.
Furthermore, the advent of technological disruption in the
power sector demands an adaptation of the way in which
regulatory instruments are designed and applied. Regulators
will need to pay closer attention to providing the right
incentives for utilities to innovate and become more energy
efficient, and for consumers to take economically grounded
decisions on distributed generation. Finally, the literature
leaves many important questions unanswered, such as how
regulatory design affects regulatory effectiveness and the
impact of tariff regulation on cost recovery. |
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