Growing demand for electricity and rising capital intensity will mean that developing countries will have to double their investments in electricity generation by 2040.Fast-growing economies will need to increase spending on electricity infrastructure from about US$240 billion to US$495 billion annually between 2015 and 2040 to satisfy growing demand and meet energy policy objectives, outspending developed countries by two to one.
This is according to a report 'The Future of Electricity in Fast-Growing Economies: Attracting Investment to Provide Affordable, Accessible and Sustainable Power,' released by the World Economic Forum (WEF) in conjunction with Bain & Company, this January.
The report builds on the WEF’s previous report 'The Future of Electricity' which examined how mature countries would continue to attract investments required to meet their energy goals.
Electricity investments in fast growing economies
In the paper, the WEF gives recommendations stakeholders in the energy sector need to implement to improve viability of investments and enhance the sector’s landscape.
The report suggest that to boosts countries' electricity investments, policy makers need to pursue the most efficient pathway to policy objectives by developing roadmaps balancing generation sources between conventional and renewable energy sources as well as between centralized and distributed models.
Policy makers need to catalyse investments which would shift fast growing economies closer to universal access.
The report suggest that they implement policies encouraging the adoption of energy efficiency technologies on the demand and supply sides to help reduce the need for investments in new generation capacity.
Establishment of integrated policies that ensure parallel development of the power value chain to ensure that fuel supply, generation assets, transmission and distribution networks develop in harmony and investors are not left with fully operational but stranded assets that cannot earn a return due to lack of customer access would result in increased investments in the power sector, states the report.
The report recommends policy makers to take advantage of declining technology cost curves in implementing smart grids as a result of the increase in global deployments of the unique technology.
Regulatory impacts on electricity investments
On the side of regulators, the report recommend that they structure power markets in a manner recognizing full value and costs of technologies, including carbon pricing.
The WEF suggest that regulations should be skeptical of technologies regarding their flexibility and reliability.
Business and investors will need to create effective public-private partnerships to attract private sector capita as well as ensure investments in education and R&D human capital.
But most importantly, the study recommends that they nurture favourable investment environment through creation of innovative financing schemes and a balanced approach to local content requirement.
In Mexico, the report suggest that policy makers adopt to a 'smart follower' strategy on new technologies, encouraging adoption of proven technologies that support its transmission and distribution developments.
The study says by seeking out and creating opportunities for interconnections with neighbouring countries will also boost the country's power sector.