The Economics of Electricity and Development: Planning for Growth and a Changing Climate

Many low- and middle-income countries have made tremendous gains in electrification over the past few decades. These improvements in electricity access have enabled a growing body of empirical evidence on its impacts. This article complements prior reviews on the impacts of electrification by addressing several major remaining challenges faced by the electricity sector in developing countries—impediments to maximizing electricity services᾽ economic effects, obstacles to recovering utility costs, difficulties in forecasting future electricity demand, and uncertainty regarding the future adoption of climate-mitigating technologies—and the existing microeconomic causal evidence addressing those challenges. We describe how randomized experiments have complemented the quasi-experimental evidence and then highlight some remaining gaps in the existing literature. Specifically, we highlight climate adaptation within the electricity sector in developing countries, which remains a crucial gap in both the discussion on and financing of electrification for development. We use case studies of Nepal and Pakistan in South Asia—a region that both recently experienced great electrification gains and is among the most vulnerable to climate change—to illustrate the need for additional work on adaptation in the electricity sector. We conclude by linking to recent discussions on climate adaptation finance.