Analysis of the drivers of Ghana's energy demand change using the Laspeyres index method of decomposition: Q‐effect, I‐effect and S‐effect

• Date: 01 September 2018
• DOI: http://doi.org/10.1111/opec.12137
• Author: Benjamin Akrofi,Daniel Sakyi,Ishmael Ackah
• Published date: 01 September 2018

Analysis of the drivers of Ghana’s energy

demand change using the Laspeyres index

method of decomposition: Q-effect, I-effect

and S-effect

Benjamin Akrofi*, Ishmael Ackah**

,

*** and Daniel Sakyi**

*Department of Economics, Aburi Girls Senior High School, Kumasi, Ghana. Email:

benjaminakrofi@yahoo.com

**Department of Economics, Kwame Nkrumah University of Science and Technology, Aburi, Ghana. Email:

Ackish85@yahoo.com Email: dsakyi2003@yahoo.com

***Institute for Oil and Gas Studies, University of Cape Coast, Cape Coast, Ghana. Email:

Ackish85@yahoo.com

Abstract

Since independence, Ghana has experienced four major power crises as a result of the low water

level in the hydro dams to generate the required amount of power for the country as well as limited

and expensive supply of crude oil and gas. These energy supply constraints make it imperative for

the country to rely on demand-side management policies to address the energy crisis of the country.

However, demand-side management policies that are applied in generic terms without knowing the

exact cause are likely to fail. This study therefore decomposes the factors that influence energy

consumption into activity effect, intensity effect and structural effect, so that policymakers will

know which factor(s) and also the sectors of the economy that are responsible for the large increases

in energy consumption. This way, policymakers will apply the appropriate demand-side

management policy to a particular factor(s) and the sectors causing the increase to get the desired

results. The study finds that activity effect is the main driver of energy consumption in Ghana.

1. Background to the study

Between 1976 and 1982, there was adequate and reliable supply of energy in Ghana and

therefore, emphasis was not placed on demand-side management policies (VRA Annual

Report, 1990). Indeed, between 1965 and 1972, Ghana was able to export power to

Benin and Togo after meeting its domestic and industrial energy needs. However, in

1983/84, Ghana experienced its first power crisis as a result of the 1983 drought which

reduced the generating capacity of the Akosombo dam (Eshun and Amoako-Tuffour,

2016; Adom, 2017). This led to power rationing and reduced power export to

neighbouring countries like Togo and Benin. The power crises occurred again in 1998,

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