Did low electricity prices trigger development in the Global North?

Cheap electricity has been a quiet engine of the Global North's development — and it worked through two distinct but reinforcing channels. The first was industrial: cheap power lowered the cost of production, attracted energy-intensive manufacturing and funded further grid investment. The second was domestic: when households spend less on electricity, they have more income left to spend on other things and activities. Low residential tariffs freed up disposable income, expanded consumer markets and drew more people into the formal economy as both earners and spenders. These two effects — industrial competitiveness and household consumption — amplified each other. Both are enabled by the same factor: affordable power for consumers.

Through the post-World War II decades, when today's advanced economies were industrialising and electrifying their homes, residential power was strikingly cheap. Between 1965 and 1985, the industrial heartlands of North America and Scandinavia enjoyed some of the world’s lowest household electricity prices — abundant, affordable power that helped underpin rising living standards through greater access to appliances, heating and lighting.^[2]

Meanwhile, developing economies paid far more for power. In 1980, Guatemala, Barbados, Panama and Honduras charged households two to four times what Norway or Canada did — despite far lower incomes. These were small, import-dependent grids reliant on shipped diesel and heavy-fuel oil, lacking the hydro, nuclear and domestic-coal endowments that made Northern power cheap.

The advantage compounded over time. Cheap power in the North attracted energy-intensive industry, which funded further grid investment, which kept unit costs low. At the household level, the same dynamic played out: as real incomes rose on the back of growth enabled by cheap power, electricity consumption grew, which spread fixed grid costs across more units, reducing prices further still. It is a virtuous cycle that the Global South, which has been paying a premium from the start, could rarely access. Where the North electrified cheaply and early, the South has had to industrialise against the headwind of expensive power.

Bottom line: Low electricity prices were not a by-product of development — they were one of its enablers. The Global North built its prosperity on cheap, reliable power during its formative industrial decades; the absence of that same cheap-power foundation remains a structural disadvantage for the Global South today.

If cheap power drove development, why don't developing countries simply lower their prices? Because electricity almost never pays for itself — and without public support, there is no cheap power to offer.