On the determinants of electricity power losses: empirics from Ghana

• Author: Paul Adjei Kwakwa
• Published date: 01 March 2018
• Date: 01 March 2018
• DOI: http://doi.org/10.1111/opec.12105

On the determinants of electricity power

losses: empirics from Ghana

Paul Adjei Kwakwa

School of Business and Economics, Presbyterian University College Ghana, P. O. Box 57, Abetifi Kwahu,

Eastern Region, Ghana. Email: pauladkwa@gmail.com

Abstract

This paper empirically examines the determinants of electricity power losses (EPL) for the

Ghanaian economy. Since 2001, EPL for the economy has been more than 20% of the total

electricity generated which already is inadequate to meet growing electricity demand. The Fully

Modified Ordinary Least Square was used to estimate the drivers of Ghana’s EPL, using annual

time series data from 1971 to 2013. The results showed that education, price of electricity, capital

investment, income, manufacturing and population have significantly influenced the trend of

Ghana’s electricity losses over the years. The paper recommends the need to intensify capital

investment in the power sector as well as public education to deal with EPL.

1. Introduction

The role of electricity (energy) to the growth and development process of an economy is

well documented in the literature (Kwakwa, 2012; Adom and Bekoe, 2013) as it offers

complementary role to capital, labour and technology. Consequently, policy makers and

governments always make conscious efforts to make available adequate electricity to

citizens for residential and non residential purposes. Despite that, the probl em of

inadequate electricity power supply has been a common feature of the electricity sub

sector in many developing countries. Ghana’s electricity power sub sector for instance,

has for about three decades been unable to meet the growing demand from households

and industries, resulting in recurring power rationing and unannounced outages. The

adverse effects of such power rationing and outages on households and firms in the

country are enormous. They range from the additional increasing cost of production to

the loss of Gross Domestic Product (GDP).

What complicates the case of Ghana in recent times is that there is a disturbing trend

of electricity power losses (EPL), consisting of technical and non-technical losses, in the

midst of inadequate power supply. It must be recalled that in the mid-nineties, Ghana

transformed its power sector towards ensuring a competitive and reliable power sector.

Since then, the generation, transformation and distribution of power in the country has

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been “undundled”with a mixture of private and public participation. Accordingly, the

following public institutions –Volta River Authority (VRA), Bui River Authority,

Electricity Company of Ghana (ECG), Northern Electricity Department (NED) Ghana

Grid Company (GRIDCo), Public Utilities Regulatory Commission (PURC), Ministry of

Energy and the Energy Commission (EC) –and private institutions –energy foundation

and Independent Power Producers –have been set up to perform specific roles. For

instance, the VRA, Bui River Authority and the independent Power Producers have been

responsible for power generation; the ECG and the NED are in charge of distribution

while the transmission of power is in the hands of GRIDCo. In addition, the PURC sets

rates and tariffs, monitors performance, establishes performance standards for utilities

and promotes fair competition; the EC issues licenses, ensures efficiency, offers

technical advice and establishes performance standards for utilities; and the Energy

Foundation ensures energy efficiency and conservation.

This notwithstanding, the power supply has been largely unreliable especially in

recent times, and data from the World Bank’s World Development Indicators (WDI,

2015) shows that electricity power losses (wastage) which saw a decreasing trend from

6.11% of total electricity output in 1971 to 3.2% in 1984 and then to 1.9% in 1999 took

an upward trend in the years after. Thus, in the year 2000, the country’s power losses got

to a double figure of 19% and after that it has remained more than 20%. The objective of

the paper is therefore, to examine the influential drivers of Ghana’s EPL. Knowledge on

the factors of EPL in the country is essential to offer policy guidelines to tackle the

increasing EPL whose effects on utility companies, power supply and monetary cost to

the national economy have been documented in the literature.

For instance, Jamil (2013) has noted the following as some of the effects of EPL: (i)

it adversely affects the profitability of utility companies; (ii) it puts restrain on new

investment for the capacity development of utility companies; (iii) it impacts the quality

of power service; and (iv) it affects the financial conditions of utility companies. Similar

and many more effects such as loss of government revenue have been highlighted in

Golden and Min (2012). Although there is no readily data available on the monetary cost

of EPL on Ghana’s economy, the Wholesale Power Reliability Report by Gridco in 2010

showed that inadequate and unreliable electricity supply of which EPL contributes

partly, costs the nation between 2 and 6% of its gross domestic product. Adom (2016)

also considers EPL as one of the two critical challenges confronting Ghana’s electricity

sector. According to the author, EPL whose current figure exceeds the 5% threshold has

become prevalent in Ghana contributing to the increasing demand–supply gap in the

power sector.

The above negative effects of EPL make it critical to identify the determinants of

EPL in Ghana. However, empirical studies to unravel what the contributing factors of

EPL in Ghana are, remain unknown. Some few empirical studies like Adom (2016) and

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4Paul Adjei Kwakwa