Social Sciences and Humanities Open (Jan 2024)
Investigating the implications of energy transition on electricity tariffs in Ghana
Abstract
Ghana's energy transition policy framework has been a topic of debate. The policy aims to increase the use of renewable energy (RE) sources to 10% by 2030. Understanding how electricity prices are affected by electricity generation from fossil fuels and renewable energy sources is crucial in guiding the future of energy transition. The paper is driven by the importance of understanding how energy choices can affect the country's electricity costs. To this end, the study examined the impact of energy transition and electricity tariffs in Ghana. Annual time series data from 1985 to 2021 was used. The research used the autoregressive distributed lag (ARDL) (bounds test) methodology to establish the short-term and long-term relationships among variables. Based on the ARDL results, both electricity production from fossil fuels and electricity production from RE were found to have a positive and significant impact on electricity tariffs. The findings of the study indicates that, in the long run electricity production from fossil fuels is positively significant at a 5% level. This means that a 1% increase in the country's fossil fuel electricity production will increase electricity tariffs by 0.108%. In the short-run, a percentage increase in electricity production from fossil fuels will lead to a corresponding increase in electricity tariffs by 0.0436 at a significance of 5%. Thus, electricity tariffs from fossil fuels generation plants are higher in Ghana in the long and short run compared to electricity tariffs from RE sources. This emphasizes the potential economic consequences associated with continued reliance on fossils for electricity production. The study therefore recommends that Ghana should prioritize and support funding for RE projects, establish a favorable regulatory framework, and maintain policies that encourage the transition from fossil fuels to RE in power generation. The government should also encourage public-private partnerships to share the risks and costs associated with RE projects.
