Rebalancing subsidies in market-based electricity sectors: synergies and obstacles in transition economies

There is increasing pressure on governments for energy policy to converge around efficiency, sustainability, affordability, and access in recent years, However, these objectives have largely been addressed in separate ‘silos’, rather than within an integrated policy framework which has widened the policy trade-offs and conflicts. The emergence of market-based reforms and progress in renewable energy technologies has created potential synergies to achieve the above objectives. In this chapter, we develop a simple analytical framework based on economic efficiency and social welfare arguments for a purposeful reallocation of subsidies from fossil fuels to renewable energy. This reallocation is also facilitated by the need to remove the fossil fuel subsides given that these are often poorly targeted and generate greater environmental costs. The focus is placed on utilising the synergies between market-based electricity reforms and renewables, as the electricity sector lies at the confluence of these multiple objectives. We then illustrate our framework using experiences from four emerging-economies, drawing important lessons for policymakers pursuing supply diversification through renewables.