Nurideen Abdulai is the author of this article
Assessment of Time-of-Use (ToU) Pricing Model in the Context of Ghana’s Electricity Tariff System.
Ghana currently employs the Increasing Block Tariff (IBT) system, a model also adopted by many countries worldwide. This system categorizes electricity consumers based on usage levels and applies progressively higher tariffs as consumption increases.
The IBT system is relatively simple to implement, particularly in environments with limited technological infrastructure. Its primary objective is not necessarily the reduction of peak load but rather the management of the power system and the promotion of affordability. Crucially, its success is contingent upon responsible consumer behavior.
However, the suitability of IBT is context-dependent. As such, some countries have transitioned to more dynamic models such as the Time-of-Use (ToU) and Real-Time Pricing (RTP) systems, which assign varying electricity prices depending on the time of consumption.
These models are designed to better reflect the cost of electricity generation and supply during peak and off-peak periods, thus incentivizing more efficient energy use.
This raises a critical question: Is the ToU pricing model appropriate for Ghana, as advocated by certain stakeholders within the energy sector?
While this paper does not seek to provide a definitive answer to this question, it aims to offer analytical insights to support evidence-based decision-making among policymakers and industry stakeholders.
It is important to recognize that the successful implementation of a ToU pricing model is highly conditional and requires the following:
1.A pronounced disparity between peak and average load demand.
2.A load profile that is heavily skewed toward specific times of the day.
3.Higher marginal costs of electricity supply during peak periods compared to off-peak times.
4.Low consumer responsiveness to environmental concerns, despite the rising carbon footprint in Ghana.
5.The availability of robust and accurate real-time load forecasting methods.
6.A modernized transmission and distribution infrastructure, including smart metering systems.
7.A well-structured policy framework that aligns with the unique needs of industrial, commercial, and residential consumers.
8.High price elasticity of demand for electricity.
9.Resolution of the significant distribution losses, currently estimated at 27%, which undermine the effectiveness of existing improvements.
10.A revision of the automatic tariff adjustment formula to incorporate temporal variations in electricity use.
11.A comprehensive customer database and effective communication systems by distribution companies for disseminating real-time pricing, cost updates, and energy efficiency tips.
12.Increased private sector participation in the distribution segment, which is currently monopolized.
13.A cost-benefit analysis to evaluate the economic viability of ToU implementation.
The critical question that remains is: Has Ghana adequately addressed these prerequisites to enable a successful transition to a ToU pricing model?
Implications of a 24-Hour Economy on Energy Demand
With the proposed implementation of a 24-hour economy, the nature of electricity demand in Ghana could evolve significantly.
Depending on the scope and effectiveness of this initiative, it is plausible that the peak load across industrial, commercial, and residential sectors will become more evenly distributed throughout the day. Consequently, the deviation between peak and average demand may narrow, potentially reducing the urgency or justification for adopting a ToU pricing structure.
In the current context, what is urgently required is a robust strategy for public education on energy efficiency and conservation.
Incentive mechanisms should also be introduced to promote responsible consumption behavior. Concurrently, a substantial reduction in technical and commercial distribution losses is imperative to enhance operational efficiency and reduce tariff pressures.
Moreover, supportive policies such as Net Metering and Feed-in Tariff (FiT) schemes should be fully implemented to enhance the competitiveness and appeal of electricity generated from renewable energy sources.
A separate discussion will be dedicated to the practical aspects of implementing the 24-hour economy, particularly as it relates to energy planning, infrastructure readiness, and demand-side management.
Executive Director, Africa Center for Energy and Environmental Sustainability (ACEES)
