Supply and Demand of Electricity in the Developing World

This paper reviews the literature that has sought to quantify the determinants of electricity demand and supply efficiency in developing countries. We examine the causal relationship between electricity consumption and economic growth, price and income elasticities of demand, and the barriers to adoption of energy-efficient equipment. We also examine the performance outcomes of economic policies affecting the electricity sector, including institutional reforms such as privatization and regulation. We find that electricity demand is driven by GDP, prices, income, the level and characteristics of economic activity/urbanization, and seasonal factors. The magnitude of their effects differs across countries, time periods, and studies even for the same country. These demand studies suffer from a number of limitations, including data availability and price distortions that limit responsiveness of demand to price signals. The literature is inconclusive on whether reforms, particularly privatization, improved supply efficiency. Effective regulation, competitive markets, and appropriate sequencing of reforms are important factors that influence the outcomes of privatization. There is a need for more quantitative analysis of the social welfare and distributional impacts of privatization of the electricity sector in developing countries.