Abstract
Confronting an energy crisis, the government of Ghana enacted a power factor correction policy in 1995. The policy imposes a penalty on large-scale electricity users, namely, special load tariff (SLT) customers of the Electricity Company of Ghana (ECG), whose power factor is below 90%. This paper investigates the impact of this policy on these firms’ power factor improvement by using panel data from 183 SLT customers from 1994 to 1997 and from 2012. To avoid potential endogeneity, this paper adopts a regression discontinuity design (RDD) with the power factor of the firms in the previous year as a running variable, with its cutoff set at the penalty threshold. The result shows that these large-scale electricity users who face the penalty because their power factor falls just short of the threshold are more likely to improve their power factor in the subsequent year, implying that the power factor correction policy implemented by Ghana’s government is effective.
Highlights
The power factor is a relevant measure of the efficiency of electrical energy use
Column (1) shows the impact of the penalty policy, measured as a gap in the power factor improvement probability between those two types of firms, namely, those whose power factor in the previous year was just above and those whose power factor was below the threshold, estimated using the full sample
The policy imposes a penalty on large-scale electricity users, labeled as special load tariff (SLT) customers of the Electricity Company of Ghana (ECG), when their power factor falls below the threshold of 90%
Summary
The power factor is a relevant measure of the efficiency of electrical energy use. A higher power factor implies efficient energy use and simultaneously ensures the safe, smooth, and efficient operation of electrical utilities. Xiong et al [16] claim that a policy to restructure the industrial organization would have a large positive impact on provincial industrial energy efficiency in China They used a slacks-based measure (SBM) that is a sophisticated variation of data-envelopment analysis (DEA), or a linear programing approach, where they allowed the existence of undesirable outputs to address the environmental burden due to inefficiency. Using a bottom-up approach, Fleiter et al [20] investigated the impact of grants for small and medium enterprises in Germany to carry out energy audits of their facilities on their energy efficiency improvements Most of these studies, either showed a correlation between policy and energy efficiency or derived the results based on models that are dependent on their assumptions. This paper, aims to add to the literature by identifying the causal impact of the power factor correction policy on energy efficiency improvement using firm-level data.
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
