Providing Access to Electricity for the Unserved: A Free-Market Solution

The traditional problem often called “electricity development” is to improve and expand services from an established monopolistic electricity supplier. The lack of an effective dominant utility, however, is a defining condition for the 1.4 billion people without access for electricity, the so-called unserved. Therefore, the issues that arise are different from those of traditional utility service as a mandated monopoly. This article shows how free markets can help resolve the problem of serving the unserved. The free-market approach and empirical examples in this article may appear counterintuitive compared to the traditional solution to the access problem when a preexisting legally franchised monopoly supplier exists. In much of the developing world such franchised monopoly supply companies do exist and are often government owned and operated, but they are unreliable. Independent small distribution and supply companies offer an alternative and may come to exist, but in some countries, such as India, private free-market suppliers of electricity are illegal. Unlike the franchised monopoly supplier, such spontaneous companies can exist only if they provide a reliable supply. Typically, such insurgent companies charge higher prices than their government competitors yet are paid, while the government monopoly is often not paid at all.