Publication - The Economics of Electricity Losses in Latin America and The Caribbean

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Title

The Economics of Electricity Losses in Latin America and The Caribbean

Publisher

Inter-American Development Bank (IDB)

Author

Rigoberto Ariel Yépez García, Raúl Jiménez Mori

Published in

November 2024

Abstract

Latin America and the Caribbean faces persistent challenges in consolidating efficient, affordable, and sustainable energy infrastructure markets. One of the most notable challenges is the prevalence of electricity losses. These losses not only exacerbate deficiencies in service operation and reliability but also erode the income of electricity distribution companies and, in some cases, governments. This situation negatively affects the ability to maintain and expand adequate infrastructure, which harms electrical service quality. The consequences of these deficiencies particularly affect the most vulnerable groups and limit the productivity of economies since these economies fail to offer quality services.

The high levels of electricity losses in this sector have led to significant social, environmental, and economic costs in several countries. Effectively addressing the problems that give rise to these costs involves carrying out a detailed evaluation of losses, determining their causes, and formulating appropriate policy recommendations in the specific context of LAC. This diagnosis is more relevant in the current economic environment with high commodity costs, rising inflation, and moderate economic growth projections.

This book offers an updated perspective on the operation of electricity markets, focusing on the problem of electricity losses. The authors highlight the nature of the problem, its causes, and its operational and financial impacts. In addition, they present solutions to reduce electrical losses and mitigate their impact on society. This book suggests that there are no standard solutions to address this challenge and that the underlying causes need to be recognized, which in many cases may be related to political interference in the management of electric utility companies.

The case studies presented show that strengthening regulatory frameworks, promoting appropriate incentives, implementing new technologies in electricity grids, and improving the management and governance of electric utility companies in the region contribute to reducing and controlling losses. Furthermore, these actions enable the improvement of service quality and reduce greenhouse gas emissions. The implementation of these measures must be done with a long-term perspective, taking into account both short-term and medium-term considerations. To achieve this, it is essential to ensure the commitment of all parties involved, including consumers, companies, regulators, and governments. Capitalizing the gains from minimizing electrical losses is essential for alleviating the current financial constraints in the sector. The region needs to invest more in infrastructure and in a better way in order to improve the quantity and quality of electrical services. In this sense, as this publication points out, it is essential to capitalize on the gains from minimizing electrical losses to alleviate the current financial limitations in the sector. This will increase the financial capacity of utility companies, facilitate future investments, and close financing gaps to meet infrastructure-related Sustainable Development Goals.

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