Impacts of variable energy prices on the financial sustainability of water facilities: case from Ghana

Abstract

Water is conveyed to consumers through systems that generally rely heavily on energy. The dependence on energy is a major challenge to utility providers because of frequent variation in energy prices. This paper assesses the effect of energy price changes on the financial sustainability of water facilities. It further investigates the proportion of energy cost to total costs of water supply. The study is based on a field survey that targeted five small town water systems and 15 water systems existing under the urban water sector in the Greater Accra and Ashanti regions of Ghana. The results show that energy (diesel and electricity) expenditure forms substantial component of water supply cost. The proportions of energy to total supply costs for small town and urban water systems are 31% and 29%, respectively. The total operational costs per water supply stand at 1.19 US$/m3 and 0.44 US$/m3 for small town and urban water systems respectively. The energy costs per water supply for small town and urban water systems are 0.40 US$/m3 and 0.13 US$/m3, respectively. Results further show that diesel-driven water systems are more sensitive to energy price changes than those of electricity-driven systems; therefore making financial profit from diesel-driven systems is highly elastic to diesel price changes. The results thus indicate that urban water systems are more efficient than small town water systems in terms of both energy and operational costs.