Electricity largely runs on public subsidies – not market returns

Electricity infrastructure does not fund itself. The capital required to build power plants, lay transmission lines and maintain distribution networks has to come from somewhere — and across geographies and time, that money has overwhelmingly come from the public coffers. Governments finance electricity through direct budget transfers, state-owned utilities that absorb losses, regulated tariffs set below yearly costs, and price-support subsidies that cover the gap between what consumers pay and what supply actually costs. The private sector participates in specific activities like generation, and usually has benefited from public guarantees ensuring bankability. Strip away the public money, and the grid — in countries in the Global North as much as in the South — does not get built.

The numbers are not small. In 2022, 132 countries spent USD 502 billion suppressing energy prices.^[3] This was not an emergency exception: price support is the structural norm even in the world's wealthiest economies. Eighteen of the G20's nineteen members set or subsidise power prices. Russia alone spent USD 63 billion — USD 439 per person — subsidising electricity that year. The United Kingdom spent USD 9 billion, Germany USD 3.4 billion, France USD 2.5 billion.  Private sector investments in  electricity infrastructure are only possible when there are regulated returns, state-built networks and public guarantees that de-risk the asset before private capital arrives.

Africa is no exception to this pattern — but it subsidises from a position of acute fiscal weakness. IMF estimates fossil-fuel and electricity subsidies in sub-Saharan Africa at roughly 5.6% of regional GDP, a higher share than most advanced economies manage. Nigeria alone spent close to USD 10 billion subsidising fuel in 2022 — equivalent to roughly 40% of its total government revenue that year, yet 40% of the population still remain without energy access^[4]. The IEA finds that price spikes risk doubling energy subsidy burdens in African countries, an untenable outcome for many facing debt distress. Additionally, the weighted average cost of capital for electricity access projects in Africa can be up to four times higher than for transmission and distribution projects in advanced economies, making private investment structurally more expensive, precisely where it is most needed. African governments are spending heavily to keep electricity prices down, but without the fiscal depth, the grid infrastructure, or the institutional capacity that made the same approach work in the Global North. The result is the worst of both worlds: fiscal strain without affordable power to enable development.

The contradiction

This creates an asymmetry when extrapolating policies and programs from more advanced economies to developing ones. Advanced economies — which have relied on public subsidies, state utilities and regulated returns to build their own grids — transpose today’s policies, including liberalizing the electricity market and moving towards cost-reflective tariffs, to African governments. Electricity sector liberalization has produced mixed results: an analysis of expected outcomes shows that cheap electricity prices is not one of them, and liberalization was never implemented before reaching a high level of development. The prescribed policies and the historical record point in opposite directions.

The bigger picture

The 2022 subsidy snapshot is part of a far larger pattern. During the global energy crisis linked to an increase in gas prices, governments allocated roughly USD 900 billion across more than 1,600 consumer affordability measures in 68 countries — on top of pre-existing subsidy programmes. This support is predominantly a Global North phenomenon: advanced economies account for about 85% of all consumer affordability spending tracked. Yet many of these same governments, along with the international institutions they fund, have long urged lower-income countries to move toward cost-reflective electricity pricing - even as they shielded their own consumers from energy price spikes. Even with new policies, the electricity sector in Global North countries is heavily subsidized and will remain the same.

Electricity has always fundamentally been a public business, built and sustained by massive state subsidies and de-risked capital—a reality that persists even today across the wealthiest, most developed nations. African governments attempt to subsidize their own grids from a position of acute fiscal vulnerability, without the deep balance sheets that enabled rich-world electrification. Transposing modern Global North policy prescriptions, like strict cost-reflective tariffs and pure market liberalisation, ignores this reality: it asks developing economies to achieve through private market forces what developed nations built, and still heavily subsidise, with public money.