a mini-grid. In recent years, several countries have allowed mini-grids to develop, especially in regions not yet connected to the centralized grid network.

In Nigeria, poor service provision of the centralized grid has driven the growth of both mini- and off-grid solutions. Estimates of private captive generation capacity of 14 gigawatts serving some 100 million people significantly exceed the official capacity of the system 13 gigawatts, of which nearly two-thirds are usually not available (Ferrero 2018; Enerdata 2024). While traditionally forbidden, there is now a move to more independent localized systems, not only in remote areas but also in the largest city, Lagos. The government of Lagos state has promoted local power plants exploiting the local distribution system to wheel power to local customers. Private developers can also feature mini-grids for their housing projects.

# **5 Conclusions**

Over the past four decades, alternatives to integrated monopolies have been deployed in all types of countries. More and more countries are moving toward allowing private sector participation in their power market, citing the need to address performance issues and to meet significant funding needs in the face of high growth in demand and tight fiscal space.

In 1989, the VIU model was the dominant market structure adopted by 215 countries. Today it remains the second most used structure, but its usage has significantly reduced to 72 countries. Countries mainly retain VIU structures either as a policy choice or due to exogenous binding constraints. It is the preferred structure especially by small economies and island states, some of which have retained the VIU structure but put it under private management and ownership.

In contrast, SBM and competitive wholesale market structures have been increasingly adopted. SBM, often viewed as an intermediary step in market liberalization, has become the most prevalent structure, adopted by 87 countries. Wholesale-retail competition models are less widespread (69 countries) but more common in advanced economies.

There is no one-size-fits-all solution to design and implementation of a smooth transition between stages. It takes time to design power markets that provide clear, correct signals that encourage private sector entry. This paper has taken a uniquely comprehensive global historical stock-take of different market structures and design options countries experimented with in the past 35 years. Their experience highlights some common principles that have enabled countries to successfully transition to more competitive power market structures. These include (a) as the first step, creation of a regulator or an independent body empowered with new missions and new business strategies; (b) optimal market size; (c) preconditions for a transparent market platform including sector restructuring by unbundling transmission; and (d) strong political will. Below we summarize the policy recommendations for enhancing the operationalization of each market structure based on the global experience to date. Further information on these strategies can be found in an upcoming IFC report (IFC 2024).

## **Policy recommendations for implementing private VIU structures**

Countries may opt to retain VIU structures either as a policy choice or due to exogenous binding constraints. Based on the global experience with this structure, several key insights can be discerned:

- VIU market structures should be designed to engender commercial principles and create a genuinely arms-length relationship between the VIU and its owner(s), especially in cases where the state retains partial ownership.

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