Electric Power Transmission, Distribution Losses, and Economic Growth in Ghana

Electric Power Transmission, Distribution Losses, and Economic Growth in Ghana

Samuel Adams (Ghana Institute of Management and Public Administration, Ghana), Edem Kwame Mensah Klobodu (Ghana Institute of Management and Public Administration, Ghana) and Richmond Odartey Lamptey (Ghana Institute of Management and Public Administration, Ghana)
DOI: 10.4018/978-1-5225-2364-2.ch011

Abstract

This study examined the effect of electric power transmission and distribution losses (ETL) on economic growth over the period of 1971 to 2012 in Ghana. Using bounds testing approach to cointegration and Bai-Perron test in ordinary least squares framework, we find long-run relationship between ETL, gross capital formation, inflation, trade openness and economic growth. Secondly, while ETL do not have robust impact on economic growth, trade openness exerts a positive impact on economic growth in the long-run. Inflation and gross capital formation, however, have mixed relationships with economic growth. Furthermore, ETL yield a threshold value of 2.07. Finally, controlling for the urban population reveals that ETL moderates the relationship between urbanization and economic growth; higher ETL associates with an increasing negative effect on GDP per capita.
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Introduction

Development experts and practitioners all over the world agree that infrastructure is a key driver of economic growth. The infrastructure deficit in many developing countries is what Romer (1993) refers to as the object gap. The World Bank (2010) study shows that doubling infrastructure capital raises output by approximately 10 percent. Improved infrastructure quality accounted for 30 percent of growth attributed to infrastructure in developing countries. In recent times, infrastructure investment is known to have contributed immensely to the commendable GDP growth rates observed in numerous African countries (KPMG, 2016). The KPMG report notes that investments in energy infrastructure, particularly in energy generation could catapult the Sub-Saharan Africa (SSA) to a new growth frontier to lift the mass of citizenry out of poverty. This is in light of the fact that the African continent lacks adequate energy infrastructure, and severely underperforms in the provision of power. East Africa’s most developed economy, Kenya, as well as Ghana on the West Coast of Africa perform commendably in terms of electricity generation in an African context. However, with an estimated annual per capita electricity usage of 150 kWh in Kenya and 342 kWh in Ghana, the countries perform very poorly when considered against the estimated global average annual figure of 2,550 kWh. According to the International Renewable Energy Agency (IRENA) (2012), Africa currently has 147 GW of installed capacity, a level comparable to the capacity that China installs in one to two years. In addition, average per capita electricity consumption in sub-Saharan Africa (when excluding South Africa) is just 153 kWh/year, which is roughly 6% that of the global average.

Although the consumption of energy is increasing in Africa, it is still the region with the highest energy poverty level. Africa is home to 15% of the world’s population, but it consumes just 3% of the world’s energy output, and generates less than 50% of the 74,000 MW of current peak demand requirement. Moreover, electrification rates are low with only 25% of the region’s population having access to power compared to the developing countries average of 72% (Ecobank, 2014). The International Energy Agency (IEA) recounts that energy use in SSA increased by approximately 45% to over 600 GW over the period 2000-2012 (IEA, 2014). The big problem, however, is that even when it produces or generates energy, so much of it is lost during the transmission and distribution process such that the benefits are minimal. The gap between generation and consumption, equivalent to nearly 12% of total generation, is an indication of wastages due to inefficient transmission and distribution systems (KPMG, 2015). Though the quality differential between SSA and other regions of the world has reduced in the last decade, losses attributed to transmission and distributions are still significant. Research conducted by Ecobank (2014) shows that transmission and distribution losses in SSA continue to occur between sources of supply and points of distribution, and the cost of these inefficiencies is approximately $5bn annually. The report further notes that utilities across the region actually lose up to 25% of power consumed as a result of these inefficiencies, compared to the global average of 10%. Similarly, there are startling statistics in Latin America and Caribbean (LAC) area of the world. Jimenez, Seberisky and Mercado (2014) find that each year 17% of electricity generated is lost in LAC higher than the loss levels of OECD countries (6%) or low-income countries (15%). In putting the losses in proper context and appreciation, it is further suggested that 33.3 percent of the World electricity losses occur in LAC which is the equivalent of two times the annual electricity consumption of Peru. Further, the authors pointed out that 20 of 26 LAC countries have losses above 10 percent of total electricity output while 12 of the 26 LAC countries have losses above 17%. As noted in the case of SSA where high losses occur in transmission and distribution, it is no different in LAC. It is estimated that 80% electricity losses in LAC occur in distribution subsector (Jimenez, Serebrisky & Mercado, 2014). In terms of comparison, LAC loses about 3 percentage points more than Africa as at 2012 (Ecobank 2014; KPMG, 2015; Jimenez, Serebrisky & Mercado, 2014).

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