Social and Environmental Implications - Economics of Electrical Generation: Global Perspective

Abstract

The major changes in electricity consumption over the next 20 years will be in non-OECD countries. Almost all of the total world increase in electricity generation will be in developing or Central and Eastern European (CEE) countries. Yearly growth rates of energy demand of between 5 and 7 percent are quite possible for sustained periods in the coming thirty years. Given this rapidly growing electricity demand, major financial constraints, and widespread environmental problems, developing and CEE countries are experiencing increased pressures to produce and consume electricity more efficiently. Experience has shown that when power sector programs and projects appear technically sound but fail to deliver results, the reasons in many instances are conflicting social objectives, overall weak country institutions, lack of an adequate legal framework, damaging discretionary interventions by governments, uncertain and variable policy frameworks, and a closed command-and-control decision-making process without adequate checks and balances. While all of these constraints are significant, it can be argued that the fundamental underlying sectoral problem relates to undue government interference in those day-to-day organizational and operational matters which should be under utility control. Such interference has undermined the accountability of those responsible for day-to-day management functions. It has influenced procurement decisions, mitigated against least-cost fuel choice, resulted in an inability to raise power tariffs to meet revenue requirements, restricted utilities' access to foreign exchange, mandated low managerial and technical salaries that are tied to low civil service levels, and promoted excessive staffing and political patronage. Today, these large capital investment requirements, ingrained power sector inefficiencies, and desperate financial circumstances of many developing and CEE country power utilities have generated pressures for fundamental change. New approaches revolve around a framework for addressing the sector's financial, regulatory, and institutional issues, and around such effective reform mechanisms as greater transparency and public accountability in governing power sector institutions. Various approaches are being discussed and adopted in developed, developing and CEE countries. Among these are regulatory change, organizational change, commercialization and subsequently corporatization, and increased private sector participation in the power sector. In the context of this changing industrial structure in the power sector in many parts of the developed and developing world, it can be argued that nuclear power will have difficulty competing with other energy sources at least over the next 20 year period. Even in countries that contemplate the nuclear power option in their electric generating mix, prospects for nuclear power are limited unless governments, regulators, utilities, and the nuclear industry together take coordinated action. The future of the nuclear industry will also depend on its ability to resolve issues such as public confidence, investment risk, and public acceptance of waste disposal and decommissioning plans. If nuclear power is to retain or obtain a role in the generating mix of countries contemplating the nuclear option, then the nuclear power industry must work closely with the public as well as all other concerned players.