CHAPTER ONE INTRODUCTION
Background to Study
Electricity, the invisible input at the center of almost all life activities, is no longer a luxury for the rich elites that can afford sophisticated appliances but a necessity for even the rural poor that own only a mobile phone. Thondhlana and Kua (2016) asserted that energy is one of the fundamental requirements for both human life and economic development. It is at the center of a household’s basic activities and leisure enjoyment, industrial and service firms’ productivity and economic growth. Evidence of this is the outcry of citizens over indiscriminate and unannounced power outages and the efforts made by several governments to expand electricity accessibility to all citizens (Taale & Kyeremeh. 2016). Ghana, for instance, had an electricity accessibility of about 82.5% in 2016 (Kumi, 2017), with universal accessibility expected to be achieved by 2020. Though the heavy dependence on electricity can be attributed to several factors, key among them is the ongoing technological advancements that have made electricity an indispensable part of human life.
However, the quality of electricity supply in many countries, especially in Africa, is nothing to boast of. Both the production and transmission sectors are plagued with obsolete infrastructures, heavy dependence on rainwater, debt non-recoverability due to low tariff rates and illegal connections by consumers (Kumi, 2017). Most African countries have suffered from an unreliable supply of electricity over prolonged periods, which has affected the growth of their economies. In Ghana, ISSER (2015) reported that due to power crises in 2014, the country lost on average production worth about US$ 2.1 million per day. This translated to about US$ 680 million or about
2% of GDP. Similarly, the 2013 Ghana Enterprise Survey by the World Bank revealed that the provision of electricity to firms in Ghana is insufficient compared to international standards. This led to approximately 28% rise in the ownership or sharing of generators by firms from 2007 to 2012. In response to this limited supply is the continuous installation of thermal plants to augment the output from hydro sources. However, this decision comes with its own environmental repercussions that nations will like to avoid.
The aim of nations to increase the supply of electricity without compromising the quality of the environment has made end-user energy efficiency an important goal (Comer, 2008). Quaglione et al. (2017) indicated that the attitude of consumers toward energy conservation has become a great concern, influencing many national policies and deliberated in countless interdisciplinary studies. According to Filippini et al. (2014), among the top five European Union (EU) 2020 energy strategies, is an effort to increase energy efficiency. In Ghana, measures like the ban on the importation, production and sale of inefficient appliances point to the same objective (Dramani & Tewari, 2013).
Technically, electricity consumption efficiency can be achieved by reducing the use of outdated and inefficient electrical appliances. However, a good measure of electricity consumption efficiency needs to consider both technical and allocative efficiency. This is because the achievement of high technical efficiency without considering allocative efficiency will blur the expected results. A typical example is the case where one buys an energy saving bulb but leaves it on when not needed and still waste electric power. In such instances, Quaglione et al. (2017) indicated that the energy saving presumed to be obtained by the efficient appliance is partly or wholly offset by the inefficient behavior of the consumer, a phenomenon known as the ‘rebound effect’ in energy economics. Regarding this, Mizutani and Nakamura (2015) pointed out that, total
electricity demand can be divided into two sections; an irreducible amount irrespective of price and income levels and a reducible amount resulting from behavioral changes. They indicated that this consumption slack(s) will be a function of the household’s measures put in place to ensure electricity savings.
According to Carley (2012), electricity efficiency points to the use of both technology and operational measures that can yield the same or higher electricity services whiles using less electrical power. Whiles the adoption of efficient technology will reduce the technical inefficiency, operational methods adopted by a household goes a long way to influence the allocative efficiency. There is therefore a need to adopt a methodology that captures both technical and allocative efficiencies to ensure that reliable results are obtained.
Anderson (1993) indicated that paying attention to electricity consumption efficiency can lead to less expenditure on electricity, sustained supply of electricity and less greenhouse gas emission. Efficient consumption of energy has therefore been identified as one of the most cost-effective means of reducing carbon dioxide (CO2) emission, increasing energy supply security, improving industry competitiveness (Ang et al., 2010; Ozturk, 2013; Filippini et al., 2014) and sustainable economic development (Inglesi-Lotz & Pouris, 2012).
This study focuses on households’ electricity consumption partly because, both researchers and policymakers admit that, households constitute substantial consumers of energy, which results in both environmental and financial cost (Thondhlana & Kua, 2016). The Energy Information Administration (EIA) (2015), asserted that households in Organization for Economic Co-operation and Development (OECD) countries consume a third of end-user electricity. In Ghana, it is estimated that about half of domestic electricity consumption goes to the residential sector whiles the other half goes to commercial and industrial users (ISSER, 2005). This estimate might be a
little biased due to its inability to account for individuals working from home using electricity. For instance, small-scale services like corn milling, hairdressing, tailoring among others may be operated from home using electricity. However, the percentage of household electricity consumption is still high and worth considering. There is therefore the need to examine how efficiently the limited supply is being used among households. Furthermore, knowledge on the factors influencing households’ demand for electricity and their inefficiency will help policymakers implement appropriate policies to curtail the rising demand for electricity and consumption inefficiency.
Problem Statement
The importance of a reliable supply of electricity to Ghanaian homes cannot be undermined. Twerefou (2014), found that households are willing to pay 0.2734 cedis more for a kilowatt-hour to avoid electric power outages. This amount is about one and a half times more than what they were paying at that time. A study by Taale and Kyeremeh (2016) for the Cape Coast Metropolitan Area indicated a willingness to pay of 44% more, relative to the mean monthly bill for improved electricity services. The case is not different in other countries. For instance, Ozbafli and Jenkins (2015) reported that households in North Cyprus are willing to pay 13.8% more to avoid the cost of outages. All these studies reflect the extra amounts households are willing to pay to avoid electric power outages. One way to achieve this is to use what is already produced efficiently.
This is because the electricity sub-sector of Ghana is burdened with the challenge of supply insecurity (Gyamfi et al., 2018). The supply side is challenged with low generation capacity, uncertainty in rainfall, generation inefficiency and transmission losses. The Energy Commission, for instance, recommended in the 2016 Energy Sector Outlook that, the Akosombo Hydropower
station should as much as possible not be operated beyond three (3) units until adequate rains are realized during the year to ensure system stability (Energy Commission, 2016).
This influenced the Energy Commission’s recommendation for an effort to complete the on-going power generation projects. It also recommended that the decision of bringing in additional power rentals to offset the power supply deficit be hastened (Energy Commission, 2016). The persistent imbalance in the supply and demand for electricity in most African countries is not a news. Evident to this is the creation of the West African Power Pool (WAPP) to enable electricity trade among countries. Ghana, for instance, had an imbalance (shortage) of 25% of peak demand for the period 2014-2015, (Gyamfi et al., 2018).
The demand side, on the other hand, is met with a market of inefficient and high energy consuming electrical appliances, low power-saving knowledge and behavior among consumers and low concern for environmental quality (Gyamfi et al., 2018).
Even though the use of efficient appliances that consume less electricity has been encouraged over the years in Ghana, the demand for electricity by households continues to increase. Total residential electricity demand in Ghana was 1996 GWh and 3060 GWh in 2007 and 2013 respectively, a 53.31% increase over the period. Though this fell to 2772 GWh and 2436 GWh in 2014 and 2015 respectively, this cannot necessarily be attributed to a reduction in demand by households since the supply side experienced significant fall in output during those years. Recovery from the supply shock in 2016 saw residential demand rise to 3932 GWh, a 61.41% upsurge from 2015 to 2016. Generally, whiles the annual demand for fuelwood and petroleum product grows at 3% and 5% respectively, the demand for electricity grows between 6%-7% annually (Ghana Sustainable Energy for All Action Plan, 2012)
Thus, the impact of several end-user efficiency measures introduced by policymakers to ensure a reduction in electricity consumption is less felt. Factors like increase in the number of households connected to the grid, purchase of more appliances as income levels rise and so on, can be cited as reasons for the persistent rise in total residential electricity consumption (Dramani & Tewari, 2013).
However, there is still a gap in the literature on an empirical measurement of efficiency in consumption of electricity among Ghanaian households. Kwakwa (2014) noted that irrespective of the existence of some empirical predictions of the demand for electricity in Ghana, less of similar work is done on the intensity of electricity consumption to aid policymaking. This means that policymakers lack accurate information on the efficiency level of electricity consumption to help them in policy formulation. There is, therefore, the need to obtain an empirical measurement of electricity consumption efficiency among Ghanaian households and to examine the factors that significantly influence their demand for electricity and consumption inefficiency.
Research questions that emerge from the above discussion are:
- What are the determinants of electricity demand among Ghanaian households?
- Is electricity used efficiently among Ghanaian households?
- What are the determinants of electricity consumption inefficiency among Ghanaian households?
Research Objectives
The main objective of the study is to assess the efficiency of electricity usage among Ghanaian households. The specific objectives are to:
- Analyze the determinants of demand for electricity among Ghanaian households.
- Ascertain the average efficiency of electricity consumption among Ghanaian households.
- Determine factors that influence electricity consumption inefficiency among Ghanaian households
