Abstract This paper reviews the literature on the policies of aid donors towards the performance of the electricity sector in developing countries. Much of the donor community is currently reassessing its policies in the light of shifting priorities and the difficulties of ensuring the sustainability of individual power sector investments within a difficult macroeconomic environment. Particular attention is given to examining the policies of the World Bank. In addition to being the major source of finance for power sector development in the Third World, the World Bank in effect sets the intellectual agenda for thinking about power sector development and is also the most sustained contributor to that agenda. The paper describes changes in donor policy from an emphasis on individual capital projects to a concern with the performance of the whole sector. It examines how the policy agenda is influenced by competing explanations for the current decline in the performance of many power utilities, and how the current emphasis on efficiency is influenced by the current need to respond to acute capital shortages, and the growing concern with environmental issues. The paper concludes with a discussion of a new focus for aid policies that fully recognizes the role of the power sector in the wider economy, and which stresses the development of local human capabilities over the long term, rather than the short-term expedients of the project cycle which emphasizes the short term, the sale of hardware, and the use of expatriate staff.