The impact of increase in block pricing on electricity demand responsiveness: Evidence from Ghana

Abstract

The implementation of Increase in Block Pricing (IBP) policy is premised on the assumption that consumers adjust their behavior to save energy in response to electricity price increases. However, consumers often lack a comprehensive understanding of the pricing schedules, leading to inaccurate consumption predictions. This study utilizes monthly electricity billing data from the administrative records of urban residential consumers of the Electricity Company of Ghana Limited to estimate the causal effect of IBP policy schedules on electricity consumption. To achieve this, we employed the Regression Kink (RK) design identification strategy to explore the kink structure of the policy function. This paper finds an inelastic causal relationship between IBP policy and electricity consumption. The results show a treatment effect of 0.41 KWh with an associated p-value of 0.473 at a robust 95 % confidence interval. Thus, IBP policy has no causal effect on electricity consumption at the 50 KWh lower block threshold. Notably, electricity consumers do not respond significantly to price increments, rendering IBP policy ineffective in achieving energy saving at the lower block threshold. This research contributes to a deeper understanding of the effectiveness of IBP policy in promoting energy savings and informs researchers, policymakers, and stakeholders in the energy sector. Results can be used to develop evidence-based policies that contribute to energy conservation and climate change mitigation.