IFC Report Urges Power Market Reform to Achieve Global Clean Energy Goal

The report emphasizes that private sector investment is vital to accelerating renewable energy adoption and improving energy systems, particularly in emerging markets.

A new report by the International Finance Corporation (IFC), "Repurposing Power Markets: The Path to Sustainable and Affordable Energy for All," highlights the urgent need to modernize power markets to meet clean energy targets and extend electricity access to over 685 million people worldwide who still live without it. The report emphasizes that private sector investment is vital to accelerating renewable energy adoption and improving energy systems, particularly in emerging markets.

The report underscores that transitioning from traditional, vertically integrated utility models to more competitive structures—such as single-buyer models or wholesale-retail competition—yields significant benefits. These include improved electricity access, increased generation capacity, and higher adoption rates of renewable energy.

For example, the report finds that each additional year under a wholesale-retail market structure correlates with:

A 3.3% increase in total installed electricity capacity.

A 0.6 percentage point rise in the share of renewable energy.

In regions like Latin America and East Asia-Pacific, private sector participation through independent power producers (IPPs) has driven substantial gains in electricity access and renewable energy generation.

Shaping the Future: Decentralization, Digitalization, and Decarbonization (3Ds)

The electricity sector is undergoing a major transformation driven by three trends:

Decentralization: Increased reliance on distributed generation like rooftop solar and microgrids.

Digitalization: Enhanced efficiency through technologies like smart grids and energy management systems.

Decarbonization: The global shift toward renewable energy sources to reduce greenhouse gas emissions.

These changes call for rethinking power market structures to leverage private capital and innovative technologies effectively.

Challenges and Solutions for Attracting Private Investment

The report identifies four major constraints hindering private sector engagement in the power sector:

Cost: High upfront investments in renewable energy technologies.

Complexity: Regulatory and operational challenges in transitioning to competitive market models.

Corruption: Mismanagement and lack of transparency in some markets.

Lack of Cost Recovery: Inadequate pricing mechanisms that fail to cover costs or incentivize investments.

To address these issues, the IFC report recommends:

Adopting investor-friendly policies that encourage long-term private sector participation.

Leveraging technological innovations like energy storage solutions and distributed energy systems.

Strengthening regulatory frameworks to ensure market transparency and efficiency.

Developing mechanisms for cost recovery to make investments in the sector viable.

Calls to Action for Policymakers and Stakeholders

Valerie Levkov, IFC Global Industry Director for Energy, Metals & Mining, and Sustainable Infrastructure Advisory stated: “The private sector plays a crucial role in scaling renewable energy and expanding access to reliable electricity for millions of people worldwide. Modernizing power markets is essential to unlocking private capital and delivering sustainable energy solutions—a mission that aligns closely with IFC's ongoing efforts to advance sustainable, resilient power systems across emerging markets.”

The report urges global policymakers, development finance institutions, and private investors to collaborate and scale resources to meet electrification and decarbonization goals. Proven innovations such as smart grids, digital solutions, and decentralized energy systems should be deployed more widely.

Scaling Success Stories

Examples from countries that have successfully transitioned to competitive market structures illustrate the report's recommendations. In India, for instance, reforms to deregulate the electricity sector have enabled significant private investments in renewable energy, leading to one of the world’s fastest-growing clean energy markets. Similarly, Kenya’s focus on decentralized solutions has brought electricity to remote areas using mini-grids and solar installations.

A Global Imperative

The findings from the IFC report reaffirm the urgency of modernizing power systems worldwide. As global economies strive to meet climate goals and provide universal electricity access, unlocking private sector capital through competitive market reforms and innovative energy solutions is critical to achieving a sustainable and equitable energy future.