The institutions we need for the energy transition

This is a machine translation of the original column written in Spanish

By Javier Bustos, executive director of the Association of Electricity Consumers 
(ACENOR)

This year's Nobel Prize winners in economics have reminded us of the importance of institutions for economic development. Acemoglu, Robinson and Johnson (ARJ), following the tradition of institutionalist economics, indicate that societies operate under a set of political and economic rules, sometimes implicit, that shape the incentives that people, organizations and governments have to act in one way or another. We can have inclusive institutions, which promote growth for all, or extractive institutions, which encourage the extraction of rents for the benefit of a small group of actors.

Using this conceptual framework, do we have the institutions we need for the energy transition we are experiencing in the energy sector? On the one hand, it seems so, since the current regulatory framework has allowed the attraction of investment in renewable energies, the expansion to new services, technologies and the entry of new competitors. On the other hand, in recent years, we have seen that the sector has not been able to escape the logic of short-term measures that translate into long-term costs, such as the freezing of prices for regulated customers.

We must be careful of the power that some actors can exercise to extract rents from regulations that were not designed for that purpose. Or, for example, when the risk faced by a few agents is reduced to the detriment of others that are more atomized, such as end customers.

ARJ tells us that societies that facilitate the participation of their members in activities that offer the best use of their talents and skills are more successful. In our country, the electric customer is still considered a passive consumer who does not play a greater role than consuming and paying their bill, when empowering the customer to be the manager of their own progress is going to be key in the energy transition.

Focusing on the institutionality of the sector is not a waste of time, because it is possible that energy transition objectives will not be achieved, not because they are not set, or because actions and roadmaps are not established for their achievement, but because the existing institutionality and governance are not providing the appropriate framework of incentives for this to occur.

Javier Bustos, executive director of the Association of Electric Consumers (ACENOR AG) Ph.D. in Economics from Georgetown University.

The content is the sole responsibility of the author and does not necessarily reflect the opinion of BNamericas. Those interested in participating as a guest columnist are invited to submit an article for possible inclusion. To do so, contact the editor at electric@bnamericas.com