Ghana’s economy has suffered from inadequate electricity generation resulting in chronic power outages, which have had negative effects on economic growth. With a current annual growth in electricity demand of about 10%, the country needs to meet the existing deficit and go the extra mile to create additional supply to meet demand. This will require private sector participation in electricity supply, which will only happen if there is motivation through profits. Thus electricity tariffs will need to be economic and based on sustainable consumer willingness and ability to pay.
In recent times, there have been serious disagreements between government and organised labour unions over tariff increases. The issue of pricing electricity has assumed serious social, political, and economic dimensions in Ghana’s economy. Policymakers believe consumers must pay higher tariffs to end the current energy crisis. Some consumers argue that the energy crisis still persists despite a series of past tariff increases, hence their reluctance to pay. Other consumers believe they simply cannot pay higher tariffs, even though an analysis of their ability to pay has not been scientifically determined. The value Ghanaians assign to electricity will to a large extent determine their willingness to pay (WTP) higher tariffs for electricity.
This study seeks to assess the total economic value assigned to electricity in Ghana, which is theoretically proportional to willingness to pay for electricity. Such a value has not been available to guide policymakers on the extent to which tariffs can be raised in order not to make consumers worse off. The less value people assign to electricity, the less WTP that can be harnessed for economic growth.
- The study will employ the Contingent Valuation Method (CVM) to elicit WTP responses from 3,000 heads of household through a bidding game approach in rural and urban Ghana.
- It will also ascertain the factors that determine the willingness and ability to pay for electricity in Ghana.
- Finally, the study will derive demand and total revenue curves for electricity in Ghana through analysis toward private sector delivery of electricity.