Emissions Levy will drive up electricity tariffs – IPPs warns

The Chief Executive Officer (CEO) of the Independent Power Producers (IPPs), Dr. Elikplim Kwabla Apetorgbor, has signalled that the cost of electricity will go up with implementation of the Emissions Levy which took effect on February 1, 2024.

In his analysis of the Emissions Levy of GH₵100 per tonne of carbon dioxide (CO2), he warned that the levy will result in an increased cost for electricity generation – cost per kilowatt-hour (kWh), resulting in higher tariffs for consumers.

“Every change in law that has cost implications on power generation will definitely have a consequential impact on end-users through the tariff.

“It is therefore important for our decision-makers to foresee effect of the economic consequences before implementing such laws,” he admonished.

While the amount of carbon dioxide (CO2) emitted by a one (1MW) gas-fired power plant depends on several factors – including efficiency of the power plant, the type of gas used (typically natural gas) and the plant’s operational load – he explained that a 1MW natural gas-fired power plant operating at 50 percent efficiency emits approximately 362 kg of CO2 for every megawatt-hour (MWh) of electricity generated

Applying the GH¢100 per tonne of CO2 levy will therefore lead to an increase in the cost per kWh for energy consumers of approximately GH¢0.0362 – a figure that resonates across the entire energy landscape, he argued.

Given that the Emissions Levy per kg of CO2 will be GH¢100 per 1,000 kg (or 0.1 GH¢/kg), he said the levy for 362 kg of CO2 will amount to GH¢36.2 for 1MWh of generated electricity, considering the CO2 content embedded in the natural gas volume required for 1MWh.

Also, he said the levy per kWh, translating this to consumer units – additional cost per kWh – is GH¢0.0362, calculated as GH¢36.2 / 1,000 kWh.

He however underscored the simplification inherent in these calculations, cautioning that they rest on average values for numerous variables. The actual emissions and costs, he notes, could exhibit significant variations based on specific characteristics of the power plant, the quality of natural gas used and the operational efficiency.

Dr. Apetorgbor also shared the annual CO2 Emissions determination formula to demonstrate how much CO2 a gas-fired power plant emits each year. “Assuming the plant operates at full capacity for 24 hours a day over a year (which is 8,760 hours annually), and using the rough estimate of 0.231kg CO2/kWh, as emission factor, for natural gas: Multiply the power output in megawatts (MW) by the number of hours in a year (8,760), and by the emission factor of 0.231 kg CO2/kWh.”

Meanwhile, in an earlier statement, the Chamber lamented that per the Power Purchase Agreements (PPAs) the legislation “is a political risk (an increased cost event) mitigated by an increased costs clause in the agreements, which suggests a pass-through mechanism whereby economic consequences go to the end-user”.

According to Dr. Apetorgbor, due to the change in law that imposes a legal obligation on power producers, the cost of generating electricity is likely to increase. He said the management and operation of power plants is sensitive to costs, similar to the downstream petroleum sectors.

“Specifically, the levy will be added to the operational costs build-up of the power plants,” he stated, adding that: “Implementing the Emissions Levy Act, 2023 necessitates an equal measure of review for the electricity generation tariff to ensure predictability of cash flow for the power producers.”

This adjustment, he noted, is essential to cover the increased operational costs induced by imposition of the Emissions Levy, Act 2023 (Act 1112) to ensure operational reliability and sustainability.