Industry Agenda

The Future of Electricity in

Fast-Growing Economies
Attracting Investment
to Provide Affordable,
Accessible and
Sustainable Power
January 2016
Contents In collaboration with Bain & Company

Preface 3
Letter from the Chairs 5
Executive Summary 6
Growth in Electricity Shifts to 10
Fast-growing Markets
Best Practices across Fast- 14
growing Markets
Fuelling India’s Potential 22
Taking Mexico to Full Potential 26
Conclusion 30
References 32
Acknowledgements 34

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REF 141215
Preface

The World Economic Forum is pleased to present the second Future of

Electricity report – a set of recommendations for policy-makers, regulators
and businesses to attract investment to the electricity sector in fast-growing
economies.

In January 2015, the World Economic Forum, in conjunction with Bain

& Company, published The Future of Electricity, examining how mature
economies would continue to attract the investment needed to meet
their energy goals. The 2016 report builds on the previous year’s work by
examining the electricity sectors in fast-growing economies.

The electricity landscape is undergoing a significant transformation, becoming

Roberto Bocca, more complex than ever before with rapidly evolving technologies, declining
Senior Director, costs, shifting regulatory landscapes and, in fast-growth economies, rising
Head of Energy demand. The Forum has established the Future of Electricity platform to help
Industries, World countries, companies and societies learn and reflect as they undergo this
Economic Forum transformation: a space for fact-based, yet informal dialogue on the transition
to a new electricity landscape among the key stakeholders involved.

The initiative was launched at the World Economic Forum Annual Meeting
2014 in Davos-Klosters, Switzerland. Subsequent discussions involved
stakeholders from industry – incumbent utilities, renewable developers,
supply and demand equipment manufacturers – and beyond, including
policy-makers, regulators, academics and investors. The spirit of
multistakeholder collaboration is underscored throughout this report, seeking
to develop a holistic understanding of the evolving electricity landscape with
recommendations focused on achieving energy policy objectives which
balance the energy trilemma of energy access and security, economic
development and environmental sustainability.

As in 2015, the World Economic Forum and Bain & Company have identified
successful policies, regulations and business and investment models that can
help markets attract the investment capital required to achieve their energy
goals. This adds to the Forum’s efforts aimed at understanding and shaping
industry transformation across all sectors through Global Challenge initiatives.

The Future of Electricity 3

4 The Future of Electricity
Letter from the Chairs

To continue unlocking economic potential and improving living standards,

the world’s fast-growing economies must deliver electricity in an accessible,
affordable, reliable and sustainable manner. To do so, they will need to unleash
a new level of capital and human resources to move the energy system towards
more efficient business models with the least environmental impact. While
some see this as a challenge, we see it as an opportunity for these countries to
optimize their energy options, using lessons learned and technological progress
to shift towards a cleaner and more affordable generation and distribution
system.

At the World Economic Forum Annual Meeting 2015, global leaders discussed
Ignacio S. Galán, how these countries can attract $13 trillion in necessary investment through
Chairman and 2040. Several recommendations outlined in last year’s The Future of Electricity
report on mature markets are also applicable to this case. These include
Chief Executive
pursuing supply and demand-side “no regret” investments, ensuring a level
Officer, Iberdrola,
playing field that recognizes the full value and cost of different technologies, and
Spain
leveraging innovative financing.

At the same time, differences emerge. Fast-growing economies have the

opportunity to pursue more efficient pathways to desired policy outcomes.
They are less restricted by existing infrastructure, and therefore can develop
an optimal balance of central and distributed, conventional and renewable
resources. They will begin to generate more electricity from renewable
technologies, and this will require new storage and back-up solutions, as well
as smarter grids and more interconnections. To this end they can ride the
technology cost curve, taking advantage of declining costs and more efficient
generation. In addition, they can implement financial measures and transparent
market mechanisms to drive down the cost of capital. And with emerging digital
technology, all of us can chart together new paths for electricity system design
and operation.
Steve Bolze,
President and This report highlights how fast-growing economies can attract the necessary
investment to achieve universal access to secure, sustainable and competitive
Chief Executive
power. It also presents a detailed analysis of the progress that India and
Officer, GE Power,
Mexico have made in evolving their electricity systems, as well as making
USA
recommendations for further progress. We hope it will help guide discussion and
decisions among relevant stakeholders as they seek to define their country’s
energy agendas.

The Future of Electricity 5

Executive Summary

6 The Future of Electricity

Electricity markets in fast-growing economies face different To attract the necessary capital, fast-growing economies
challenges than those in more mature markets. Mature will need to improve the viability of investment in their power
markets with stable demand for electricity are transitioning sectors. Eight recommendations have been identified for
to a more sustainable mix of power generation technologies policy-makers, regulators and businesses to do this, just
while continuing to support economic growth with as the 2015 The Future of Electricity report focused on
affordable and secure power. Fast-growing markets are improving the investment climate in OECD countries.
trying to serve voracious new demand for electricity as their
economies grow, as more customers are connected to the Policy-makers
grid and as per capita consumption grows.
Pursue the most efficient pathway to policy objectives
This report recognizes the need for policy to balance the
Policy-makers have an important role to play in encouraging
objectives in the Forum’s energy architecture triangle:
the electricity sector to pursue the most efficient paths
security and accessibility, short- and medium-term
to achieve energy goals. They should develop roadmaps
affordability, and environmental sustainability. The fact
that balance generation sources among conventional and
that 1.2 billion people lacked access to electricity in 2012,
renewable, and also across centralized and distributed
combined with the scale of poverty, will inevitably focus
models. They should catalyse “no regrets” investments in
attention on accessibility and affordability. But even as
infrastructure that move fast-growing economies closer to
they make progress on achieving reliable universal access,
universal access. By encouraging the adoption of energy-
fast-growing markets will need to develop roadmaps that
efficiency technologies, both on the demand side (for
take advantage of new technologies to make their power
example, more efficient equipment and buildings) and on
affordable while increasing environmental sustainability.
the supply side (by upgrading inefficient power plants), they
Meeting the electricity demands of residential, commercial help reduce the need for investments in new generation
and industrial consumers in these fast-growing economies capacity. Through all these measures, policy-makers
will require an unprecedented level of investment in support economic competitiveness while reducing the risk
fuel supply, centralized and distributed generation, and of policy instability due to adverse fiscal or stakeholder
networks across the whole value chain. Much of the pressure.
new capacity in fast-growing countries will come from
Develop integrated policies that ensure parallel
renewables, which requires large capital investments
development of the power value chain
upfront and correspondingly lower operational costs.
Policies need to be integrated across the power value chain
The combined effects of growing demand for electricity and
to ensure that development of the upstream fuel supply,
rising capital intensity will mean that non-OECD countries
generation assets, transmission and distribution develop
will have to double their investments in electricity from about
in harmony and investors are not left with fully operational
$240 billion1 annually to $495 billion annually between 2015
but stranded assets that cannot earn a return due to lack of
and 2040 – $13 trillion in total – to satisfy growing demand
fuel supply or lack of customer access. Integrated policies
and meet energy policy objectives, outspending OECD
need to consider not only the operational aspects such as
countries by 2 to 1.
planning regulations, but also the economic ones such as
Where debates in these growing markets used to focus import duties and regulated tariffs that impact the viability of
on importing commodities to fuel conventional power various participants in the value chain.
stations, today’s discussions focus on importing capital
Take advantage of declining technology cost curves
to build renewable power alongside conventional power,
as captured in the Intended Nationally Determined As costs decline, non-OECD countries will add 34% more
Contributions (INDCs) submitted for the Conference of the non-hydro renewables capacity than the OECD countries
Parties hosted in Paris in December 2015. This is also fully between 2015 and 2040. Moreover, the increasing
in line with UN’s Sustainable Development Goals. digitization of energy assets offers the potential to improve
operational efficiency and reliability, thus reducing both the
Unfortunately, fast-growing economies have a very mixed
delivered cost of electricity and emissions. Policy-makers
record of attracting private capital, with volatile returns
should take advantage of declining technology cost curves
in many of the largest markets and significant concerns
driven by the rapid rates of global deployment and avoid
among long-term investors about the transparency and
the urge to promote unique technologies that will likely
reliability of policies and regulations, particularly where
remain at high cost due to a lack of scale. On the demand
policy-makers have shorter-term political priorities.
side, policy-makers should also take advantage of new
Although 60% to 70% of the investment in electricity technologies to improve energy efficiency.
infrastructure in non-OECD markets has derived historically
Regulators
from governments or state-owned utilities, the scale of the
investment necessary in the future will force policy-makers Provide a level playing field for technologies, reflecting
to look to private investors to fund most of the investment. carbon abatement and security of supply appropriately

Regulators should structure power markets in ways that

recognize the full value and costs of technologies, including
carbon pricing. Regulations should be technology agnostic,
1 This report uses the International Energy Agency’s New Policies Scenario from the
taking into account issues including flexibility, reliability,
World Energy Outlook 2015, which assumes “continuation of existing policies and
measures as well as the implementation (albeit cautiously) of policy proposals, even if
they yet to be formally adopted” (IEA WEO 2015).

The Future of Electricity 7

carbon-abatement properties, land use and the cost of Invest in education and R&D to close knowledge and
securing fuel supply. This may also mean removing fuel human capital gaps
subsidies that support specific conventional generation
technologies. In special circumstances, regulators might The private and public sector should work together to foster
support new technologies that show promise in their the development of universities and research institutes that
particular market but only if there is a credible plan for the produce the talent which will innovate, develop and manage
technology to become competitive in the medium term, and the power sector in the decades ahead.
subsidies phased out.
Each country will prioritize these recommendations
Ensure technically and financially viable operations differently based on its energy policy objectives across
across value chain energy access and security, economic development and
environmental sustainability. Prioritization depends on its
Regulators can ensure the viability of the value chain economic and natural resources, the maturity of energy
by keeping it clear of financial obstacles. They should markets, and its policy objectives. In particular, this report
work with suppliers to reduce losses from non-metered looks closely at two fast-growing economies, India and
supply and ensure that tariff subsidies or progressive tariff Mexico, both at critical points in the development of their
structures are fully funded. They should ensure that the power markets:
viability of generators is not threatened by fuel tariffs that
can distort margins or raise demand for electricity beyond –– India’s rapidly growing economy has fuelled an
their capability to provide it. intensifying demand for electricity with which supply has
struggled to keep pace. Where investment in the past
Business and investors has come from government sources, in the future India’s
policy-makers want to attract the majority of funding
Create effective public-private partnerships to attract from private investors, which means addressing some
private sector capital of the structural issues such as unprofitable distribution
companies, along with fuel issues and regulatory
Private sector – businesses and investors – should engage
obstacles. Recognizing these challenges, India’s
with policy-makers and regulators to make the governance
government has embarked on a series of progressive
and regulations around public-private partnerships clear,
reforms, including integrated policies to ensure even
transparent and independent in order to ensure that
development through the value chain, addressing
investors can be confident in committing long-term capital.
losses that hinder the viability of the transmission and
Nurture favourable investment environment distribution businesses, nurturing a more favourable
investment environment by decreasing finance costs,
The private sector together with the public sector should and recognizing the important role of renewables.
put measures in place to reduce risk and decrease the cost
of capital, allocating risks to the most appropriate market –– Mexico’s economic growth over the last decade
participants. The private sector should proactively engage has been held back in some cases by the
with the public sector to align expectations for power sector regulatory structure of some key sectors, including
profitability. Innovative financing schemes and a balanced telecommunications, financial services and energy. To
approach to local content requirements will also help address these barriers and encourage the country’s
encourage investment. economic development, Mexico has launched a series
of reforms. In electricity, the reforms are guiding a
transition from a state-owned electricity system to a
new model that opens the door for private investment
and multiple players in power generation selling into
an efficient wholesale market. To ensure the viability of
investment, Mexico is pursuing an integrated approach
that supports development across the entire value
chain and improves the flow of funds through the power
value chain. Mexico will also need to ensure that the
new market functions smoothly, enables appropriately
attractive returns to investors and attracts the required
scale of investment in conventional and renewable
power.

8 The Future of Electricity

The Future of Electricity 9
Growth in Electricity
Shifts to Fast-growing
Markets

10 The Future of Electricity

Electricity markets in fast-growing economies face different
challenges than those in more mature markets. Mature
markets with stable demand for electricity are transitioning
to a more sustainable mix of power generation technologies
while continuing to support economic growth with
affordable and secure power. Fast-growing markets are
trying to serve voracious new demand for electricity as their
economies grow, as more customers are connected to the
grid and as per capita consumption grows.

This report recognizes the need for policy to balance the

objectives in the Forum’s energy architecture triangle:
security and accessibility, short- and medium-term
affordability, and environmental sustainability. The fact
that 1.2 billion people lacked access to electricity in 2012,
combined with the scale of poverty, will inevitably focus
attention on accessibility and affordability. But even as
they make progress on achieving reliable universal access,
fast-growing markets will need to develop roadmaps that
take advantage of new technologies to make their power
affordable while increasing environmental sustainability.

Meeting the electricity demands of residential, commercial

and industrial consumers in these fast-growing economies The combined effects of growing demand for electricity and
will require an unprecedented level of investment in fuel rising capital intensity will mean that non-OECD countries
supply, generation and networks across the entire value will have to double their investments in electricity across the
chain. Moreover, much of the new capacity in fast-growing value chain from about $240 billion annually to $495 billion
countries will come from renewables which, although annually between 2015 and 2040 – $13 trillion in total – to
increasingly competitive with conventional generation satisfy growing demand and meet energy policy objectives,
over its lifetime, needs a robust commitment from the outspending OECD countries by 2 to 1 (see Figure 1).
regulatory authorities to make possible the intensive capital
investments these technologies require.

Figure 1. Investment in non-OECD markets will double over next few decades, rising to 1.9 times the investment
levels of OECD markets.

OECD NON-OECD
OECD projected annual investment by fuel type Non-OECD projected annual investment by fuel type
Investment required to Investment required to
$600B meet policy objectives $600B meet policy objectives

528p.a.

451p.a.

400 400

288p.a.
266p.a. 260p.a.
244p.a.
T&D
200 188p.a. 200
Other Renewable

Wind & Solar

Hydro
Nuclear
Fossil
0 0
2000–06 2007–14 2015–25 2026–40 2000–14 2015–25 2026–40

~$3T ~$7T ~$4T ~$13T

Note: 2014 investments assumed to be equal to average annual investments in 2007-2013 for OECD and 2000-2013 for non-OECD
Source: IEA World Energy Outlook 2015

The Future of Electricity 11

Transmission and Distribution (T&D) investment in non- Historically, 60% to 70% of the investment in the power
OECD markets is expected to reach $5.8 trillion – much sector of non-OECD countries has come from the public
higher than investment within OECD countries, which sector compared to 45% in the European Union, 25% in
will invest $2.5 trillion. Similarly, fossil fuel generation still Japan and 20% in the US. Private investment is likely to
accounts for a large share of investments in non-OECD play a more significant role over the next few decades.
countries, about $2.1 trillion, compared to only $750 billion For example, India’s five-year plans through 2017 aim to
in the OECD from 2015 through 2040. In the same period increase the private sector share of capacity from 13% in
non-hydro renewables – wind, solar, biomass and others 2007, to 27% in 2012 up to 43% in 2017. In the future, the
– will total $2.9 trillion in non-OECD countries, about 10% scale of the investment necessary will impose a strong
higher than in the OECD. need for policy-makers to look to private investors to fund
most of the investment.
Where debates in these markets used to focus on importing
commodities to fuel conventional generating stations, As the power sector seeks to attract ever increasing
today’s discussions focus on importing capital to build amounts of investment it will have to compete with
renewable power alongside the conventional. markets that are more predictable, transparent and friendly
to investors – both in other sectors within fast-growth
Utilities in the largest fast-growing economies have had economies and in the power sector within mature markets.
difficulty attracting private investors as utility stocks have
performed below the average market (see Figure 2). The
power sector is capital intensive with long-term investment
horizons. Long-term investors are particularly concerned
about the transparency and reliability of policies. Their
concerns stem from policy-makers’ short-term political
priorities, the stability of market design and regulation,
mitigation of financial risks such as currency and debt
market volatility and the participation of state owned
enterprises.

12 The Future of Electricity

Figure 2: Power companies in the BRIC countries have struggled to match the performance of broader markets. Utilities in
smaller developing countries have performed better.

Indexed market data (1st Jan 2009 = 100)

300

200
Emerging markets – All stocks
BRIC – All stocks
Emerging markets – Utilities

100 BRIC – Utilities

0
Jan ‘09 Jan ‘10 Jan ‘11 Jan ‘12 Jan ‘13 Jan ‘14 Jan ‘15

Note: BRIC – All Stocks: MSCI BRIC index; BRIC – Utilities: BRIC electric utilities index (X4BIUC$); Emerging market – All stocks: MSCI Emerging Market Index; Emerging Markets
utilities index - Bloomberg M1EF0UT Index
Source: Datastream; Bloomberg

The Future of Electricity 13

Best Practices across
Fast-growing Markets

14 The Future of Electricity

To become more competitive in global capital markets and As highlighted in the 2015 report on OECD power
attract the investments needed to achieve their energy markets, power prices are a critical driver of economic
goals, fast-growing markets need to improve the investment competitiveness and an important policy issue for
viability of their electricity markets, learning from success residential customers. Policy-makers are expected
stories around the world. Towards that goal, examples from to develop long-term roadmaps that take advantage
20 of the largest fast-growing electricity markets have been of a country’s natural resources – to both fossil fuels
identified that have successfully improved the security, and renewables – and low cost imports, whether via
affordability and access to electricity, or that have improved interconnection or by importing fossil fuels.
the sustainability of power generation. Based on lessons
from these markets, eight recommendations have also been For example, Mexico has long been dependent on fuel
identified for policy-makers, regulators and businesses oil for power generation resulting in industrial electricity
and investors to improve the attractiveness of the power prices that have been 77% higher than in the US. Recently,
sector in developing markets, just as the 2015 The Future Mexican energy policy has recognized the extensive gas
of Electricity report focused on improving the investment reserves domestically and in the US, as well as excellent
climate in OECD countries. wind and solar resources across the country (solar in the
west, wind in the south and along the Caribbean coast). By
Policy-makers prioritizing investments in gas and electricity transmission
from the north to the south of the country, combined with
Pursue the most efficient pathway to policy objectives
new efficient conventional and renewable generation,
Policy-makers have an important role to play in encouraging Mexico has already been able to reduce its wholesale
the electricity sector to pursue the most efficient paths electricity prices by 33%, closing the gap with the US by
to achieve energy goals. They should develop roadmaps 58% – providing a significant stimulus to the economy.
that balance generation sources among conventional and
renewable, and also across centralized and distributed The most efficient pathways will vary depending on
models. They should catalyse “no regrets” investments in the particular needs and advantages of each country.
infrastructure that move fast-growing economies closer to Indonesia, for example, must develop new power sources
universal access. By encouraging the adoption of energy- to sustain its continued economic growth and address
efficiency technologies, both on demand-side and on the electrification challenges across its archipelago. Its recent
supply side by upgrading inefficient power plants, they commitment to add 35 gigawatts (GW) will use a range of
help reduce the need for investments in new generation sources, including large central gas and coal power plants,
capacity. Through all these measures, policy-makers gas reciprocating engines, and barge-mounted power. The
support economic competitiveness while reducing the risk large centralized plants will supply low cost electricity to the
of policy instability due to adverse fiscal or stakeholder population centres in Java, while smaller, mobile distributed
pressure. solutions will provide power in remote and less populated
areas throughout the archipelago. Such an approach
seeks to minimize expensive transmission and distribution
construction, take advantage of local fuel sources, and
ensure affordable access to all.
The Future of Electricity 15
Indeed, providing universal access to power is a substantial The development of the China power sector over the
challenge faced by all fast-growing markets. The required past decade is a good example. With economic growth
investment in transmission and distribution infrastructure around 10% annually, demand for electricity has grown at a
represents nearly 45% of the projected capital expenditure comparable rate, about 12% each year from 2002 to 2012
over the next 25 years and roughly two times the level with per capita consumption of electricity nearly tripling
of investment in the OECD. Executing on the priority to over this period. To meet this demand, China implemented
provide universal access remains a challenge for many fast- an integrated energy strategy that started with a plan for
growing markets, but the experience of Brazil in the 2000s domestic fuel production, diversifying the fuel mix while also
illustrates the impact when well executed. After privatizing locking in long-term supply agreements for fuel imports.
the power sector in the 1990s, Brazil invested about $7 Between 2004 and 2014, China has also added 911 GW
billion in the 2000s to expand the grid, through its “Light in generation, including 175 GW of hydro and 151 GW of
for All” programme, which connected 3 million Brazilian renewables (wind, solar, biomass), more than any other
households over the decade and moving connection rates country to date. The country also intends to add substantial
in rural areas from 73% in 2002 to 97% by 2012. amounts of nuclear capacity from 17 GW in 2013 to 145
GW in 2040. Although China historically struggled to
In addition to developing new capacity, fast-growing connect wind farms to transmission lines, it made large
markets will continue to optimize the operations of their investments in T&D, comprising 29% of all non-OECD
existing installed base. In many cases, upgrading the investments in T&D and 31% of total power investments in
existing generating fleet is the fastest and lowest-cost China between 2000 and 2013. As a result of its integrated
way to generate more power sustainably. Upgrading gas policy, China increased access to electricity from 94% in
turbines, for example, can improve efficiency, reduce the 1990s to 100% in 2012, with the quality of supply rank
emissions and limit the need for new fuel supplies. Often, improving from 81st to 56th from 2007 to 2015, according
the incremental power comes online in a few months rather to the World Economic Forum Global Competitiveness
than years, making it a very efficient way to increase a report.
country’s installed capacity. Improving energy efficiency,
through new and existing technologies, will also reduce the Countries such as Mexico and Turkey are also good
need for investment in power generation. examples of the transformational impact of integrated
energy policies. Mexico is seeking to tap into the North
Policy-makers also have a critical role to play in balancing American shale gas revolution and the natural wind and
between conventional generation and renewables, taking solar resources in the country. To exploit these resources,
advantage of the natural resources available to each Mexico is spending $11 billion on gas transmission pipelines
country – for example gas and wind in Mexico, or hydro, (2011-2018) and $33 billion on power transmission and
wind and solar in Brazil – as well as the right balance distribution lines (2015-2029). Similarly, Turkey is looking to
between centralized and distributed generation, as in exploit its pivotal position for multiple gas trade flows and
Indonesia. By monitoring how technologies are deployed significant potential in renewables like wind generation.
around the world, policy-makers can make better bets on To ensure a secure electricity supply, it aims to diversify
the technologies that are likely to reach scale, and they its gas supply, triple its gas storage capacity, increase the
can pursue “no regrets” investments that align with policy share of renewables in its energy mix to 30% and add coal
objectives and offer the quickest payback for investors. generation capacity.
Develop integrated policies that ensure parallel Given the fast growth of power demand in these markets
development of the power value chain and the need for investment across the value chain,
policy-makers need to have a clear and integrated view
Policies need to be integrated across the power value chain
of the factors necessary to deliver not only on fuel supply,
to ensure that upstream fuel supply, generation assets,
generation, storage and T&D infrastructure, but also the
transmission and distribution develop in harmony and
supporting infrastructure – cranes, tools and instruments,
investors are not left with fully operational but stranded
construction and project management capabilities – and
assets that cannot earn a return due to lack of fuel supply
the regulatory frameworks in areas such as carbon,
or lack of customer access. Integrated policies need to
wholesale power trading and planning permits. By adopting
consider not only the operational aspects such as planning
integrated policies that allow for balanced development
regulations, but also the economic ones such as import
along the value chain, policy-makers can ensure that no
duties, regulated tariffs that impact the viability of different
group of investors are left stranded at one point along the
participants in the value chain.
value chain while other points are left under developed.
One of the unique challenges of fast-growing markets is
ensuring that investment occurs at a similar rate across
the full value chain, avoiding potential obstacles that could
constrain growth. In turn, this will ensure that investors
of one asset class are not left without an opportunity to
recover their investment because of constrained growth in
another part of the value chain. At the end of the day, the
rate at which energy policy priorities are delivered is only as
fast as the slowest point in the chain.

16 The Future of Electricity

Take advantage of declining technology cost curves Similarly Brazil is investing in wind power to complement
hydro generation and satisfy growing demand. Wind
As costs decline, non-OECD countries will add 34% more generation is complementary to hydro as rain and wind
non-hydro renewables capacity than the OECD countries seasons occur at different times. Brazil has large wind
between 2015 and 2040. At the same time, there will be resources currently estimated at nearly 300 GW, of which
significant investment in conventional generation, which is only 6 GW is currently installed. To encourage development
becoming more efficient and producing fewer emissions. of wind generation Brazil has established a framework
Moreover, the increasing digitization of energy assets of centralized capacity auctions, initially technology
offers the potential to improve operational efficiency and specific and later allowing wind to compete with other
reliability, thus reducing both the delivered cost of electricity technologies. Competitive auctions, technology advances
and emissions. Policy-makers should take advantage of and improvements in supporting infrastructure (tools and
declining technology costs curves driven by the rapid rate instruments, local capabilities) have driven the price of
of global deployment and avoid the urge to promote unique wind power down – and at nearly $60/MWh in 2017-2019,
technologies that will likely remain high cost due to a lack very close to low cost hydro generation at $41-$47/MWh.
of scale. On the demand side, policy-makers should also Brazil plans to invest $71 billion in wind and add 40 GW in
take advantage of new technologies to improve energy between 2015 and 2040.
efficiency.
In addition to improved efficiencies and lower costs for
Over the next 25 years, non-OECD countries will add thermal and renewable technologies respectively, fast-
about 1.7 terawatts of non-hydro renewable capacity, 34% growing countries should consider deploying digital
more than in the OECD. China leads the world in deploying technologies to help optimize electricity delivery. For
renewable generation, investing $84 billion in non-hydro example, using digital solutions like integrated hardware
renewables in 2014 alone to grow renewable capacity to and software, fast-growing countries can reduce power
433 GW more than the entire capacity of the European system operating costs, thus generating a higher return
Union’s renewables including hydro. This rate of global on investment. The software can proactively identify
deployment is rapidly driving down the cost of renewables, maintenance issues across energy assets, adjust operating
by 6% each year for wind and 20% for solar photovoltaic parameters to maximize output and reduce emissions
over the last five years. Further decline of the levelized cost given a specific fuel input, and ensure minimal outage
of electricity (LCOE) for solar PV is estimated at 4% to 5% time and reliable electricity delivery. Kenya will be using
annually, and for onshore wind at 1% to 2% annually over digital technology to site and operate wind farms that will
the next decade. generate 20% more output on average than farms without
software. Meanwhile, Pakistan will be installing advanced
In India, domestic fuel resources cannot satisfy the
thermal plants that will use software to adjust operating
growing demand for electricity, so it depends on fossil
parameters to maximize efficiency while providing valuable
fuel imports for about 30% of its primary energy supply,
grid services.
with projections to reach 40% by 2040. But India has
extensive wind and solar resources available, with high Beyond improving operational efficiencies and asset
wind speed locations and average irradiation on par with performance management to lower delivered electricity
the best locations in Spain and Italy – two of Europe’s cost and emissions, digital technology can help reshape the
sunniest countries. In 2015, it is already cheaper in many energy system in fast-growing economies. Software can
parts of India to generate electricity from solar panels help determine the optimal location and improve operations
than from diesel generators, even without subsidies. So of central and distributed generation. When combined with
India’s government has set an ambitious plan to deploy demand-side management tools (including demand-side
100 GW of solar generation by 2022, taking advantage of hardware and software, energy efficient buildings, lighting
the declining cost of solar technology, alongside its 260 and appliances) these measures can help balance demand
GW of thermal and nuclear generation and 62 GW of hydro with the most affordable, reliable and sustainable supply.
capacity. To encourage investment in solar, the government
is considering incentives such as accelerated depreciation, Few markets have sufficient scale to go it alone with a
purchase incentives and obligations for distributors and new technology, deploying enough capacity to make it
industrial users, and feed-in tariffs to allow solar users to sell cost competitive. Instead, policy-makers will need to follow
supply back into the grid. The Ministry of Finance estimates the deployment decisions of mature and fast-growing
that over the next five years India will require renewables markets to understand the likely cost reductions in different
investments worth $160 billion. Additionally, according to technologies over the next few decades so they can identify
IEA estimates, India will invest about $845 billion in T&D the right mix for their country. By using proven low-cost
networks between 2015 and 2040 to ensure universal hardware and emerging digital solutions, policy-makers can
access to power for customers. minimize the capital required.

The Future of Electricity 17

Regulators Similarly in Brazil, with relatively high electricity prices
and good wind load factors, wind energy has been able
Provide a level playing field for technologies, reflecting to compete in recent years with conventional generation
carbon abatement and security of supply appropriately without subsidies or feed-in tariffs. As a result, the
contracted electricity prices at auction fell from $84/MWh to
Regulators should structure power markets in ways that
$60/MWh between 2009 and 2011.
recognize the full value and costs of technologies, including
carbon pricing. Regulations should be technology agnostic, Regulators should seek to level the playing field in power
taking into account issues including flexibility, reliability, generation by ensuring that subsidies, carbon pricing
carbon-abatement properties, land use and the cost of or tax mechanisms appropriately reflect the value of
securing fuel supply. This may also mean removing fuel decarbonization and do not unnecessarily distort markets,
subsidies that support specific conventional generation thereby undermining economic competitiveness. The IEA
technologies. In special circumstances, regulators might estimated that in 2013 fossil fuel subsidies for electricity
support new technologies that show promise in their generation amounted to about $130 billion and subsidies
particular market but only if there is a credible plan for the for renewable generation amounted to about $121 billion
technology to become competitive in the medium term, globally. The regulators also need to set grid prices
and subsidies phased out. Recent capacity auctions in appropriately. Equally customers who generate much of
Latin America have demonstrated how technology-agnostic their own electricity, but still rely on the grid for backup
processes can bring down overall costs and avoid distorting electricity need to pay an appropriate fee to the grid to
the market. reflect the value of access to reliable backup electricity and
thereby ensure the ongoing viability of the grid.
In Chile, where demand for electricity has grown at 4% to
5%, most of the fossil fuels for generation are imported, A critical component of a level playing field is the
resulting in volatile and high prices. To reduce the cost mechanism for valuing decarbonization. Carbon pricing
of electricity and secure a steady supply, the Chilean is gaining increasing support in fast growing countries,
government adopted new policies that aim to develop with China launching regional pilot programmes for
renewables, which will also improve the country’s energy emission trading in 2014, with plans to roll out nationally
security. The government also launched capacity auctions in 2017. Mechanisms such as carbon taxes have also
structured to allow different technologies to compete with been deployed in markets such as Japan and Chile to
each other, taking into account the total costs of each provide a clear signal to the power sector and industry to
technology. At these auctions, renewable generators
won bids with prices 7% below competing bids from
conventional generators.
18 The Future of Electricity
decarbonize. Clarity and certainty in the carbon pricing
signals is critically important in the power sector with
long investment time horizons. By limiting the effects of
subsidies and using other tools like grid standing charges,
feed-in tariffs and carbon pricing mechanisms regulators
can ensure that artificial measures do not distort capital
allocation, thus ensuring that investors have a level playing
field to achieve a competitive level of returns on their
investments.
Ensure technically and financially viable operations
across value chain
Regulators can ensure the viability of the value chain by
keeping it clear of financial obstacles. They should work
with distributors to reduce losses from non-metered
supply and ensure that tariff subsidies or progressive tariff
structures are fully funded. They should ensure that the
viability of generators is not threatened by fuel tariffs that
distort margins or security of supply.
The integrated nature of the value chain affects not only
the physical flow of electricity but also the financial flows.
If there are obstacles preventing the flow of funds from
customer to companies to other stakeholders (including
investors) then future investment will also stall. Historically,
the obstacles have occurred when there are substantial
physical non-technical losses in the system or where
regulatory interventions squeeze the viability of particular
industry participants and funds do not flow properly.
Reducing distribution losses is an important step in
ensuring financial viability of an electricity system. Losses
vary greatly across fast growing markets from 2% to 50%
largely as a result of unmetered supplies and exempt
categories of customers. Across fast-growing markets,
there are a range of examples where countries or states Business and investors
have systematically attacked non-metered supply with
impressive results – and significant improvements in Create effective public-private partnerships to attract
attracting further investment in the system. private sector capital

China reduced losses over two decades from 10% in 1989 The private sector – businesses and investors – should
to 6% in 2012 through constant improvements in payment engage with policy-makers and regulators to make
discipline and, in recent years, through a systematic the governance and regulations around public-private
programme installing smart metres. Some Indian states, partnerships clear, transparent and independent in order to
including Gujarat, Madhya Pradesh and Andhra Pradesh, ensure that investors can be confident in committing long-
have also made improvements, with state distribution term capital.
companies reducing their distribution losses from almost
40% down to 25% to 30% in just a few years, with In some fast-growing markets, businesses are more
continued reductions expected. susceptible to interventions by governments and regulators
than they are in OECD countries. These risks are particularly
In Colombia, Codensa, the country’s largest electricity acute in long-term, highly capital intensive sectors such as
distributor in terms of number of customers, launched an power generation, transmission and distribution. Investors
extensive programme to reduce its losses through non- need to engage with policy-makers and regulators to agree
metered supply, cutting them in half in just three years, on appropriate governance, regulatory and contractual
from 22% of supply to only 12% in 2000, and eventually to mechanisms to mitigate these risks.
7% in 2013 – close to the average rate across the OECD.
Codensa inherited an ineffective distribution network From 2002 to 2012, Brazil’s economy and its demand
when in 1997 it was created by unbundling a state- for electricity both grew at about 4% annually. To attract
owned vertically integrated utility. To reduce the theft of private capital to build the required capacity, in 2004 Brazil
electricity, Codensa developed an integrated approach adopted new regulations on public-private partnerships
across all company activities: work with authorities on that defined the rules of engagement with private investors
regulation, commercial and technical management, staff in infrastructure and power projects. The public-private
training, community management, IT upgrades and law partnership framework defined rules for competitive bidding
enforcement. The reduction in distribution losses had two and contracting private suppliers at the federal and state
major positive effects on the utility – increased collection of levels, while also appropriately allocating risks between
payments and a permanent decrease in power demand. public and private stakeholders (for example, a dedicated
Efforts like these give investors confidence that distribution fund guaranteeing government financial obligations under
systems will be able to recover their costs to ensure viability.
public-private partnership agreements). Clearly, defined The Brazilian Development Bank has offered low-cost
rules of public-private partnerships and financing support funding to finance about 60% of the power projects there,
provided by the Brazilian Development Bank (BNDES) – a amounting to a $35 billion loan portfolio for electricity and
government institution used for investments in the Brazilian gas in 2014 or about 17% of its portfolio. This disciplined
economy – enabled the large-scale addition of generation approach has attracted $42 billion of capital in addition to
capacity and a decrease in the cost of electricity, until BNDES financing from 2003 to 2012, and has achieved
the rules changed in 2012. In the five years following the higher or comparable returns on assets and returns on
adoption of the public-private partnership framework Brazil equity than for peer banks in other markets.
was able to attract $118 billion for more than 172 public-
private partnerships across industries. International development institutions like the World
Bank, Inter-American Development Bank and the Asian
Similarly, South Africa has recently made substantial Development Bank are among other sources of low-cost
progress in attracting private investment into its wind financing for power markets. Engagement with these
and solar sector. By carefully structuring public-private institutions is especially important for large projects in fast-
partnerships – defining a responsible independent growing markets.
government authority to manage auctions and providing
government guarantees for signed public purchase National governments can help reduce credit risks by
agreements – the South African regulator has attracted offering sovereign guarantees for power purchases where
nearly $16 billion in investment from 2012-2014 into these appropriate. South Africa was able to trigger investments
sectors. of around $16 billion in renewables from 2012 to 2014
by launching a Renewable Energy Independent Power
Nurture favourable investment environment Producer Procurement programme with government-
guaranteed power purchase agreements that serve as a
The private sector together with the public sector should reliable source of long-term cash flow. As a result, three bid
put measures in place to reduce risk and decrease the cost rounds attracted investments from both local (86%) and
of capital, allocating risks to the most appropriate market global players (14%), including banks, insurance companies,
participants. The private sector should proactively engage utility companies and such development institutions as the
with the public sector to align expectations for power sector International Finance Corporation (IFC).
profitability. Innovative financing schemes and a balanced
approach to local content requirements will also help Similarly, investors can engage with domestic or
encourage investment. international institutions to seek support for power projects
in fast-growth countries through export financing and
In recent years, countries have witnessed an expansion export credits to support deployment of technology, or risk
in the range of financial instruments that they can use to insurance to help reduce the cost of credit.
finance investments in the power sector. As in mature
markets, good governance and contractual mechanisms Another important factor that affects investor returns in fast-
can mitigate some of these risks and attract long-term, growth economies is exchange rate risk. To address this,
low-risk capital, such as pension, sovereign wealth and countries are coming up with innovative schemes, such as
insurance funds. the US dollar-denominated solutions in Mexico, ensuring

20 The Future of Electricity

that revenue of power companies is not affected by To support the renewables initiative, the Masdar Institute is
currency depreciation risk. Similarly, India recently launched investing to create a domestic pool of talent to drive R&D in
several initiatives to address exchange risk. One of these renewables. Since its establishment, Masdar has generated
is a foreign currency-denominated tariff plan for solar to six US patents, 54 patent applications, 600 papers in
protect investors from currency fluctuations. Another recent peer-reviewed journals and five start-up companies. The
development is the launch of country-specific bonds sold efforts of the institute, along with other initiatives by the
to offshore buyers to fund specific projects, such as green UAE to build its knowledge-based economy, has raised the
power projects. For example, India’s so-called “masala country’s global innovation ranking in the World Economic
bonds” are rupee-denominated and backed by an IFC AAA Forum’s Global Competitive Index from 52nd place in 2008
rating. to 24th in 2015.

Invest in education and R&D to close knowledge and Businesses can also collaborate with local governments
human capital gaps and schools to establish educational programmes
focused on power management and services, to ensure
The private and public sector should work together to foster the availability of local capabilities. For example, in India
the development of universities and research institutions and Indonesia businesses and educational institutions
that produce the talent which will innovate, develop and jointly developed dedicated programmes for power sector
manage the power sector in the decades ahead. employees, focusing on the skills needed to expand access
to electricity.
The scale of investment required in the power sector
over the next 25 years in the non-OECD markets is
unprecedented and will require an equally large deployment
of human capital across the power sector value chain in Each country will prioritize these recommendations
construction, operations and maintenance. Mature markets differently based on its energy policy objectives across
have also faced a shortage of engineers, project managers energy access and security, economic development and
and other skilled talent in the power sector, and these gaps environmental sustainability. Prioritization depends on
are being addressed by promoting education in this field. economic resources, the maturity of energy markets, and
Similarly, in fast-growing markets industry and government the policy objectives.
will need to work together to ensure that the knowledge and
human capital gap is closed.

For example, the United Arab Emirates has established the

Masdar Institute to funnel investment to the development of
researchers and professionals focused on the renewables
industry. The UAE has one of the largest carbon footprints
per capita worldwide, largely due to the country’s electricity
generation from fossil fuel. In 2009, the UAE approved
policies to diversify its power generation, aiming to generate
15% of its power from renewables by 2030.
Fuelling India’s
Potential

22 The Future of Electricity

India’s power sector is at an inflection point, given the –– The private players who enter the distribution market will
government’s conviction that electricity is a critical enabler be able to help improve the viability of the distribution
for economic growth. India’s government recognizes the network in several ways. They are most likely to
need for private investment in the power sector and is introduce new technologies in the grid, such as outage
planning to adopt progressive policies on renewables management systems (OMS), distribution management
and the sector overall. Alignment between federal and systems (DMS) and demand management systems
state government objectives is critical, as India devolves (including matching power purchase agreements
significant power to its states. to demand curves), while also helping to accelerate
adoption of smart grid and metre technology. Private
Recommendations identified in the best practices section players can bring the capabilities to develop integrated
of this report are all relevant for India, but there are also regional or national systems that will yield substantial
four key imperatives that India can focus on to improve the benefits in load and supply forecasting. They can also
sector’s attractiveness to investors. help establish an integrated peak power capacity to
stabilize the grid and a national ultra-high voltage (UHV)
1. India needs to fix the viability of its distribution system.
network.
–– Policy-makers can help by developing and promoting a
framework conducive to public-private partnerships in
electricity transmission, distribution and generation. In
the short-term, basics need to be fixed – for example,
separate electricity infrastructure for different industries
(feeder segregation), and metering systems and
collection systems, all of which require strong political
will to execute.

–– Regulators can help by ensuring a level playing field

for private players that enter the market, and working
to stem non-technical losses. They can ensure
transparency in overall industry governance and clear
separation between policy-makers and regulators.
Regulators also can ensure the delivery of open access,
which is the ability of large commercial and industrial
customers to purchase power from an open market.

Figure 3: Forecast growth of India’s power generation capacity and India power markets stock performance.

India power capacity projections (GW) CAGR CAGR Indexed BSE Sensex & BSE Power Index
(13–20) (20–40) (January 2008 - December 2015)

8% 5%
1,250
200
Other
renewables 7% 5%
1,000
Wind & 150
Solar 18% 7%
BSE Sensex
750
Hydro 4% 3%
100
Nuclear 8% 7%
500

50
Fossil 6% 4% Power
250

0
0
5
Ju 11
Ja ‘11
Ju 08
Ja 08
Ju 09
Ja ‘09
Ju 10
Ja 10

Ju 12
Ja 12
Ju 13
Ja ‘13
Ju 14
Ja 14
Ju 15
ec 5
‘1
D l ‘1

2013 2020 2025 2030 2035 2040

‘
‘
l‘

‘
l‘

‘
l‘

‘
l‘

‘
n
l
n

n
l
n

n
l
n

n
Ja

Source: IEA WEO 2015 Note: Data for beginning of corresponding months; The S&P BSE India Power Index is a free
float weighted Index, comprised of power companies in the BSE-500 Index. It includes
companies such as Tata Power, Reliance Power, Adani Power, CESC Ltd., NTPC, etc.
Source: Bloomberg, BSE

The Future of Electricity 23

2. India needs to address its fuel supply challenge. –– With potential government support, private players
could help build a world-class technology cell to assess
–– Policy-makers have an important role to play by and commercialize new technologies (for example
moving upstream industries towards the free market underground mining), which could help attract more
and attracting more participation from the private skilled technological talent to the industry.
sector. Initiatives such as a streamlined and viable coal
auction process, defined risk-reward frameworks to 3. India’s plan to add 175 GW of capacity from renewables
attract global majors with the right technologies and by 2022 can succeed only if the relevant stakeholders act in
capabilities, and adopting free market driven pricing will ways that encourage investment in this part of the sector.
all help increase supply.
–– Policy-makers should develop the blueprint for the
–– Indian regulators can also optimize and scale the model country’s renewable energy capacity by 2022 and
of Mine–Develop–Operate by accelerating the MDO provide policy support to foster investment in solar
award process, adopting single-window clearance power. They can help attract external capital by reducing
through a coordinated approach across ministries. borrowing costs through strengthening the state
electricity boards. They can also boost the solar industry
–– Businesses and investors have an important role to play by simplifying rules and regulations of the construction
in improving the operational efficiency of Coal India, Ltd. of distributed solar power across many different types
(CIL) by streamlining processes, improving productivity of infrastructure. Similarly, land acquisition regulations
and implementing more efficient managerial practices. should be simplified to accelerate growth of wind and
A new long-term strategic model for CIL needs to be solar power generation.
adopted with a better capital management and asset
strategy, including potentially breaking out parts of CIL. –– Regulators should enable distributed generators to feed
Power infrastructure needs to be optimised with more excess power into the grid and receive payments or
pithead plants, which generate power from coal at the discounts for it. Regulators can enforce the mechanisms
mines, and UHV lines from coastal locations. underlying renewable purchase obligations (RPOs)
and renewable generation obligations (RGOs), while
–– Private players will likely build much of the additional also promoting open access for wind power. Critically,
capacity to alleviate bottlenecks in the coal distribution they should ensure long-term tariff consistency with no
system at the ports and in the railways. Building rail retroactive changes or flip-flops.
corridors dedicated to coal, dedicated LNG ships,
regasification terminals, and dredging deeper sea berths
for larger ships will also be required.
24 The Future of Electricity
–– Investors and businesses can contribute in all areas.
There are opportunities to set up large solar and wind
power plants on idle land through both bilateral and
auction routes, promote rooftop PV through solar
leasing models supported by feed-in tariffs and tax
benefits, and develop the infrastructure to support new
capacity. These will require businesses to incubate
new technologies (for example, for wind, higher
capacity turbines, gearless generators, offshore masts,
central and distributed storage technologies and
wind generation forecasting tools) and launch training
programmes to create the skills base required for the
next wave of investment

4. Even with the huge investments in renewables, most of

the electricity consumed in India over the next two decades
will be generated by burning fossil fuel, and India can
do much to improve the efficiency of the existing power
infrastructure.

–– Policy-makers should develop an integrated outlook for

India’s energy, including targets for fuel mix, emissions
and sector progress, and set a government body to
monitor progress. Tariffs and rates for fuel pricing,
costs that are passed through to customers, and peak
power policies and pricing should all be transparent and
consistent across India’s states.

–– Policy-makers should continue their work on improving

demand-side energy efficiency, extending efforts such
as the domestic lighting initiative to include other sectors
of the economy.

–– Regulators should define clear guidelines for public and

private sector participation and develop “single-window
clearance” for large projects like Ultra Mega Power
Projects (UMPP), assigning to developers only those
risks that they can control.

–– The private sector is best suited to define blueprints for

systems that include large coal and gas plants and the
coastal infrastructure to import coal and LNG.

–– Businesses also play a critical role in promoting efficient

new technologies, such as ultra-super critical boilers,
particularly as they become more financially viable.
They can also help optimise the use of the coal through
coal-to-power system efficiency initiatives such as heat
rate optimization, gangue re-use, washed coal and fire
minimization. They will also be the training ground for
the next generation of skilled workforce for the energy
industry.

The Future of Electricity 25

Taking Mexico
to Full Potential

26 The Future of Electricity

Mexico’s energy reforms promote key structural changes 1. In upstream, a viable market in natural gas is required
that open up new opportunities in the power sector. to encourage stability and predictability that will attract
However, the degree of change will present considerable the required investment to build out the infrastructure
challenges for policy-makers, regulators and the business for bringing the supply of fuel to the power generators.
and investment communities who will all need to work The energy reforms allow private companies to build
together to transform the country’s electrical ecosystem. and own their own pipelines, and the private sector will
The country aims to invest $146 billion by 2029, with most be instrumental in meeting this infrastructure challenge
of that going towards generation with natural gas and under certain regulatory conditions:
renewables, gas pipeline infrastructure and strengthening
the distribution system (see Figure 4). –– Policy-makers will need to create incentives for
new infrastructure for gas production and storage.
To attract the necessary capital, Mexico will need to finalize Policies will need to create a truly competitive gas
its plans for the power market and continue to signal policy market with multiple producers and suppliers and a
stability to investors. There are critical roles for policy- secondary gas transportation market.
makers, regulators and private businesses and investors
across the value chain, in upstream roles (fuel, equipment –– Regulators will need to ensure that the new
and development), power generation, and transmission government agencies regulating and managing the
and distribution. Most of the eight best practice gas market are aligned. In accord with the spirit
recommendations above are applicable to Mexico, but in of energy reform, they should continue to identify
the short term power market stakeholders in Mexico should and remove redundancies in regulation, promoting
focus on three key recommendations. simplification and homogenization in regulation.
Creating an index of gas prices across Mexico will
help create a domestic market in gas and decouple
the country’s gas prices from the Henry Hub price
in the US. Regulators also have a role to play in
lining up anchor tenants for new and proposed
pipelines, so investors and operators can estimate a
predictable cash flow.

–– Policy-makers should encourage the creation of

diverse financial instruments to increase the depth,
robustness and liquidity of wholesale markets. The
private sector should explore long-term contracts to
tackle gas price volatility and market liquidity.

Figure 4: Mexico plans to invest $146 billion in the electricity system by 2029.

Planned investment
(2015-2029, B USD)
150 146

Distribution An investment of $33 billion will strengthen the T&D networks,

reducing losses, increasing connectivity and helping fuel
Transmission supplies reach power generation sites.

Other renewables
100

Wind & Solar

A $113-billion investment in generation will help create an

Hydro energy matric based in natural gas and renewables, adding 5
GW in hydro, 16 GW in other renewables, 12 GW in nuclear
50
and cogeneration, and 26 GW in gas.
Nuclear

Other fossil fuel

CCGT

0
Source: Mexico Ministry of Energy (SENER) National Power System Development Plan (PRODESEN) 2015-2029

The Future of Electricity 27

2. In power generation, Mexico should continue working on
implementation of energy reform, in particular focusing
on the following:

–– Policy-makers need to define clear targets for the

generation mix and demand-side management.

–– Regulators should also finalize the outline of a

clean energy market, detailing the criteria for clean
technologies and specifying detailed bidding criteria
before the launch of clean energy certificates that
will be issued to renewable energy generators for
the power they generate, and which many industry
participants will be obliged to buy to support
renewable generation.

–– Regulators will need to structure the market and

provide stability by setting minimum amounts for
capacity and energy from suppliers in long-term
contracts, and creating and calibrating the auctions
for renewables. Regulators should create new
institutions that will be responsible for monitoring the
market operations and ensuring policy and regulation
stability.

–– Mexico’s energy regulator Comisión Reguladora

de Energía (CRE) has a large role to play also
in eliminating or reducing regulatory barriers to
investment in power generation and putting in place
governance mechanisms that ensure independence
from government and state-owned enterprises

28 The Future of Electricity

3. As in many other fast-growing countries, Mexico has
much work to do restoring the viability of its transmission
and distribution systems in order to make it more reliable
and efficient while reducing loss:

–– Mexico needs to adopt a “smart follower” strategy on

new technologies, encouraging adoption of proven
technologies that support its T&D development and
are within the scope of the energy system’s financial
capability. Policy-makers should also be seeking
out and creating opportunities for interconnections
with neighbouring countries. They can also help
coordinate the efforts of the various relevant
government entities working to modernize and
improve the country’s regulatory structure, which will
also help the T&D network grow. Moreover, policy-
makers could help manage demand by developing
energy efficiency regulations that would help begin to
level out the growth of the country’s energy demand.

–– Regulators have an important role to play in reducing

the loss of electricity, both by encouraging the
adoption of better technology and setting the precise
mechanisms to minimize non-technical losses. They
should also encourage sharing of best practices
across the T&D network to improve efficiency and
reduce operating costs, including higher participation
of private players. Regulators can also improve the
transparency and clarity of the tariff structure for the
private sector.

–– Businesses and investors have an important role to

play in bringing in fresh capital that will deliver new
technology and efficiency to the T&D system. Smart
grids and other technologies that manage demand
and outages, as well as customer management
systems that can help reduce non-technical losses,
are prime targets for investment. The private sector
can be invited to contribute to Mexico’s T&D sector
by engaging in public-private partnerships and other
investment vehicles that tap less traditional pools of
capital.

–– Regulators need to simplify subsidies frameworks

and ensure that they are targeted towards end users
that need them the most.

The Future of Electricity 29

Conclusion

30 The Future of Electricity

Of all the challenges that fast-growing economies face will help to improve the investment attractiveness of the
as they build the electricity sector to power their growth power systems of fast-growing economies and help them
– removing obstacles, stemming losses, ensuring access achieve their social and economic objectives including
– perhaps none is greater than the shift in mind-set from universal access to reliable and affordable power, and
acquiring commodity fuels to attracting capital at the scale environmental sustainability.
that will be required. The recommendations set out above

Figure 5: Key recommendations.

1.  Pursue the most efficient pathway to policy objectives.

2.  Develop integrated policies that ensure parallel
development of the power value chain.
3.  Take advantage of declining technology cost curves.

Policy-
makers

4.  Provide a level playing field 6.  Create effective public-

for technologies, reflecting private partnerships to
carbon abatement and Business & attract private sector capital.
security of supply Regulators
Investors 7.  Nurture favourable
appropriately. investment environment.
5.  Ensure technically and 8.  Invest in education and R&D
financially viable operations to close knowledge and
across value chain. human capital gaps.

The Future of Electricity 31

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32 The Future of Electricity

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Acknowledgements

34 The Future of Electricity

Lead Authors
Bosco Astarloa, Associate Director, Head of Energy Technologies, World Economic Forum
Julian Critchlow, Partner, Head of Utilities & Alternative Energy practice, Bain & Company
Lyubomyr Pelykh, Project Manager, Bain & Company

Project Team
Roberto Bocca, Senior Director, Head of Energy Industries, World Economic Forum
Juan Carlos Gay, Partner, Bain & Company
Ramya Krishnaswamy, Director, Head of Energy Utilities, World Economic Forum
Rodrigo Rubio, Partner, Head of Mexico Office, Bain & Company
Amit Sinha, Partner, Head of Industrial Goods & Services Practice in India, Bain & Company

Additional acknowledgements: Usman Akhtar, Innocent Dutiro, Antonio Farinha, Kim Petrick, David Sims

Steering Committee
Steve Bolze, President and Chief Executive Officer, GE Power
José Manuel Entrecanales, Chairman, Acciona
Ignacio S. Galán, Chairman and Chief Executive Officer, Iberdrola
Gérard Méstrallet, Chairman and Chief Executive Officer, ENGIE
Alex Molinaroli, Chairman and Chief Executive Officer, Johnson Controls
Ratul Puri, Chairman, Hindustan Powerprojects
Enrique Ochoa, Managing Director, Comisión Federal de Electricidad
Christian Rynning-Tønnesen, President and Chief Executive Officer, Statkraft
Anders Runevad, President and Chief Executive Officer, Vestas
Tulsi Tanti, Chairman, Suzlon Energy
Jean Pascal Tricoire, Chief Executive Officer, Schneider Electric

Working Group
Sara Arguello Rodriguez, Acciona Energía
Markus Boll, Project Manager Energy 2020 Strategy, Siemens
Ricky Buch, Strategy, GE Power
Jose Miguel Cantos, Iberdrola
Carlo Germano, Senior Vice-President, Innovation and Markets, Veolia
Michael Horn, Strategy, GE Power
Lalit Jain, Hindustan Powerproject
Sudeep Maitra, Director of Group Strategy, Centrica
Ragnvald Naero, Senior Vice-President and Director, Business Development, Statkraft
Cesar Ortiz Sotelo, Vice-President & Deputy Director, International Department, ENGIE
Juan Pardo, Head of International Affairs, Chairman’s Office, Iberdrola
Andreas Regnell, Head, Strategy and Environment, Vattenfall
Milagros Rivas, Director Strategy and Innovation, Acciona
Katya Somohano, CFE
Guillermo Turrent, CFE
Harry Verhaar, Head, Global Public and Government Affairs, Philips Lighting

The Future of Electricity 35

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