What are the key indicators of successful reforms? A

comparative analysis of United Kingdom (UK) and Ghana

Table of Contents

Abstract ............................................................................................................... 4

Table of abbreviations ......................................................................................... 5

Introduction .......................................................................................................... 6

3.1. What is “full-scale reform” and the “reforms process”? ................................. 6

3.2. Rationale for the research topic? .................................................................. 8

Literature Review ............................................................................................... 11

4.1. Degree of private participation .................................................................... 11

4.2. Degree of adherence to elements of reforms .............................................. 13

4.3. Degree of competition and market power ................................................... 15

4.4. Degree of marginal cost based tariff ........................................................... 15

4.5. Degree of propensity of physical assets for reforms ................................... 16

4.6. Degree of sustainability of reforms .............................................................. 17

4.7. Degree of technical efficiency ..................................................................... 19

Methodology ...................................................................................................... 21

5.1. Key assumptions behind framework & index development ......................... 21

5.2. Selected indicators of the reforms ............................................................... 21

Results and interpretation .................................................................................. 25

6.1. Results ........................................................................................................ 25

6.2. Interpretation & Recommendations ............................................................. 28

Conclusion ......................................................................................................... 31

Bibliography ....................................................................................................... 32

Table of Figures

Figure 1: Reforms process ......................................................................................... 7

Figure 2: Region wise private investment in electricity sector (in $ billions) ............. 12

Figure 3: Segment wise investments from 1990-2012 (in $ billions) ........................ 12

Figure 4: Main steps in a generic reform model ....................................................... 13

Table of Tables

Table 1: Key elements of full-scale reforms ............................................................... 7

Table 2: Framework for electricity sector reforms sustainability ............................... 17

Table 3: Technical parameters of efficiency ............................................................. 19

Table 4: The Jena-B (JB) Reforms Framework ........................................................ 22

Abstract

Since the last two decades, substantial resources and efforts have been invested both

in developed and developing countries to undertake electricity sector reform. The

objectives of such reforms include mainly; the protection of consumer interest,

introduction of institutional efficiency into the sector as well as to increase access to

electricity. The major question is; given the pervasiveness and vigorous pursuit of such

reforms how do countries measure how successful they have been in implementing

them? Due to the lack of universally accepted indicators or measures of successful

reforms, it has become a difficult task to measure the success of such reforms. To fill

in this gap, this paper pools together several key elements and indicators of reform

and develops a coherent framework and index for measuring the success of electricity

sector reforms. It applies this framework in analysing the success of reforms adopted

by Ghana and the United Kingdom and finds that the United Kingdom has been more

successful in implementing reforms in its electricity sector.

Word count: 5280 (excluding word count for Bibliography)

Table of abbreviations

CCGT Combined Cycle Gas Turbine

ECG Electricity Company of Ghana

GCV Gross Calorific Value

GRIDCO Ghana Grid Company

IEA International Energy Agency

ILO International Labour Organisation

IPP Independent Power Producers

ISO Independent System Operator

Kcal Kilo Calories

Kg Kilograms

Kj/Kg Kilo joules per Kilowatt hour

Kj/Kwh Kio joules per Kilowatt hour

Kwh Kilowatt Hour

MIGA Multilateral Investment Guarantee Agency

NED Northern Electricity Department

OECD Organization for Economic Co-operation and Development

PLF Plant Load Factor

PURC Public Utilities Regulatory Commission

SB Single Buyer

TAPCO Takoradi Power Company

TPA Third Party Access

VRA Volta River Authority

Introduction

The International Energy Agency, 2005, in its report noted that electricity sector reform

is a continuous process which has not been completed anywhere in the world,

however, there is a general lesson to be learned which is stated as follows:

“Electricity market liberalisation is not an event. It is a long process that requires strong

and sustained political commitment, extensive and detailed preparation and

continuous development to allow for necessary improvements while sustaining on-

going investment.”

Given that the electricity sector reform process is an ongoing one across the world, it

is important to quantify the degree of success of initiatives already taken to keep

various stakeholders committed in order to realise the broader objectives of the

process which is to increase total social welfare. The succeeding paragraphs explain

the rationale for quantification of reforms.

3.1. What is “full-scale reform” and the “reforms process”?

Full scale electricity sector reforms are crucial for bringing economic efficiencies to the

sector and to ensure the enhancement of environmental & social welfare (Jamasb, et

al., 2005). In the last two decades almost half of the countries of the world have

introduced electricity sector reforms and billions of dollars have been spent on

liberalising the sector (Erdogdu, 2013) with the objective of enhancing access to and

improving the reliability of electricity services for the populace; funding maintenance &

capacity additions, releasing of public resources for other pressing needs and raising

of immediate revenues for government through sale of assets (Bacon & Besant-

Jones, 2001). Further, it is estimated that an investment of $10 trillion is needed in the

electricity sector in between 2001 to 2030 to meet growing demand. (IEA, 2003). It is

important to understand the key elements of full-scale reforms. These elements are

presented in Table 1:

Table 1: Key elements of full-scale reforms

Sl. No.

Element Remarks

1. Operating as per commercial principles

a. Obligation extends to state utilities as well b. Supply companies procure electricity in

wholesale market and sell to consumers c. Utilities pay taxes and market interest rates d. Earn market returns on their equity e. Utilities have complete autonomy

2. Competition in all possible segments of value chain

a. Competition in generation & distribution and natural monopoly in transmission

b. Consumers must be able to switch between suppliers at low costs

3. Restructured/unbundled entities

a. Separated entities operating in competitive wholesale market

b. Laws against cartel formations

4. Privatisation of unbundled entities

a. Privatisation under separate ownerships b. Private entities to bring technical, financial and

managerial capabilities

5. Economic Regulations a. Independent regulator for the sector b. Prevention of anticompetitive abuses in

wholesale market c. In retail market, balancing the interests of

supplies with captive customers

6. Government focus on policy formulation

a. Government formulates policies and executes them

b. Government gives up the roles of operator and investor in entire value chain

Source: (Bacon & Besant-Jones, 2001)

The reforms process generally progresses from Model 1 through Model 4 to achieve

the full scale reforms and as presented in Figure 1:

Figure 1: Reforms process

Source: (Hunt & Shuttleworth, 1996)

3.2. Rationale for the research topic?

Electricity sector reform is a continuous process and there seems to be no universal

definition of a “Successful reform”. However, it could be observed that there are two

school of thought for measuring successful reforms:

1. Nearness of market structure to retail competition: As per Jamasb,

improved sector efficiency, lower prices and better quality services are

indicators of successful reforms (Jamasb, 2004). In OECD countries the

success of reforms were measured in terms of economic performance

optimisation because these countries already had robust legal & institutional

framework along with a functional political system (Williams & Ghanadan,

2006). Further, for non-OECD countries, the success of reforms was measured

in terms of private investments in the sector (Williams & Ghanadan, 2006).

Model 1: Monopolistic system

• Single monopolist at all points of electricity value chain

• No competition at all

Model 2: Monopsonistic system

• Single buyer model. Single utility buys from independent power producers

• The utility onsells the power to conumers without competition

Model 3: Wholesale Competition

• Distribution companies buy directly from competing generators

• They retain access over retail consumers

• Open access to transmission wires

Model 4: Retail competition

• Consumers choose suppliers

• Open access to transmission and distribution networks

• Competitive retailing

These authors focus on the process of changing the initial conditions of the

sector and achieving various milestones till full scale reforms are observed.

2. Sustainability of reforms: Nearness to retail competition consisted of property

rights redistribution (removal of politics/intervention from functioning of sector)

and promoting competition. Benavides argues that:

a. changes in the initial condition may be erratic,

b. the new competition rules may be ignored if not implemented properly;

and

c. The incentive proposed by the regulators may not be conducive to the

regulated entities if they disclose true information even before the

second tariff revision and the politics may require removal of lower price

caps which will deter the introduction of efficient technologies.

Therefore it is important that greater weightage is given to supporting the reform

process once begun to ensure sustainability (Benavides, 2003). Sustainability

measures the propensity of the reforms process to move to the next level of

market structure. If the reform process is not sustainable, it may fail to deliver

its objectives.

In light of above challenges to quantifying successful reforms, this research paper-

“What are the key indicators of successful reforms? A comparative analysis of

United Kingdom (UK) and Ghana” seeks to develop a simple a framework which

combines these two schools of thoughts for measuring the success of reform

programmes. This framework captures the degree of nearness to the retail competition

and degree of sustainability of reforms programme. Further, this paper conducts a

comparative analysis for UK and Ghana using this framework. The developed

framework could become an important tool used by citizens & regulators to press for

better governance of the sector and to seek for further reform.

The second chapter presents the literature review for identifying key indicators of

successful reforms in the electricity sector followed by methodology for measuring

success of reforms. The fourth chapter presents a comparative analysis of UK and

Ghana using the framework and presents the results, interpretation and

recommendation. The fifth chapter presents the conclusion.

Literature Review

Economists, international agencies (such as World Bank (World Bank, 1993), the

Inter-American Development Bank & World Energy Council (World Energy Council,

2004) etc.) and private sectors have great interest in assessing the state of electricity

reforms in various countries. While the objective of the private sector is to compare

the conduciveness of countries for power sector investments, the objective of

international lending agencies is to assess the effectiveness of electricity sector

reforms and whether further funding of new reform initiatives is feasible. However, it

is prudent to mention that, each entity followed their own methodologies to assess the

degree of success of reforms. Amidst the differences in approach to capture the

degree of success, the fundamentals of measuring reforms remains the same. The

elements which indicate the degree of reforms are discussed below:

4.1. Degree of private participation

Many developing and under-developed regions of the world need to create additional

generation, transmission and distribution capacities to increase access and reduce

shortages of electricity supplies which otherwise have a significant economic and

social cost. The economic theories clearly indicate that if public expenditure (e.g.

investing in power plants) is funded through additional taxes there is loss in social

welfare because of dead weight loss (Jamasb, 2004). This presents a strong case for

private funding in electricity sector investments. Further, the electricity sector is most

likely to observe cost reduced system losses, lower prices, cost efficiency and

improved revenue collection with increase in private participation, competition and

economic regulation (Newbery, 2002). However, the theoretical and empirical

evidences for privatisation in relation to commerciality of infrastructure reforms are still

indecisive (Jamasb, et al., 2005). It may, however, be noted that the electricity sector

is attracting private sector investment as it is being reformed. The trend of private

investment in electricity sector is as shown in Figure 2:

Figure 2: Region wise private investment in electricity sector (in $ billions)

Source: Subsector data for electricity, Private participation in infrastructure sector, The World Bank group1

Also, the private investments are majorly focussed on Greenfield projects, divesture

and concessions. The segment wise investments is presented in Figure 3:

Figure 3: Segment wise investments from 1990-2012 (in $ billions)

Source: Subsector data for electricity, Private participation in infrastructure sector, The World Bank group

1 http://ppi.worldbank.org/explore/ppi_exploreSubSector.aspx?SubSectorID=3

-

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

East Asia and Pacific Europe and Central Asia Latin America and the Caribbean

Middle East and North Africa South Asia Sub-Saharan Africa

0 50 100 150 200 250 300 350 400 450 500

Electricity generation and transmission

Electricity distribution and transmission

Electricity distribution and generation

Electricity distribution, generation, and transmission

Electricity distribution

Electricity generation

Management and lease contract Greenfield project Divestiture Concession

4.2. Degree of adherence to elements of reforms

The elements of reforms may be deducted from the reforms model based on the

framework suggested by Newbery, 2002 which is presented in Figure 4.

Figure 4: Main steps in a generic reform model

The indicators are discussed below:

1. Existence of electricity law: As per Jamasb, 2004, successful reforms are

usually initiated by enacting a law or act which provides the legal basis for

restructuring, private participation and creation of regulatory bodies. Such laws

reduce the issues related to property rights and conflict addressing mechanism.

Enactment of electricity law was one of the key questions for measuring degree

of reform by the World Bank in its survey of 115 developing countries (Bacon,

1999).

2. Restructured sector: Separation of generation, transmission and distribution

is identified as one of the key elements of reform (Jamasb, 2004). World Bank

has also identified it as one key indicator (Bacon, 1999). The rationale of

restructuring is to introduce competition in generation and distribution business

while transmission business usually operates as natural monopoly. Also, as

most of the inefficiencies originate from distribution business, it is important that

Enactement of electricty law

• Institution of regulator

Separate and regulate distribution

•Ensure access/ commercial pricing

Separate and regulate transmission

•Ensure access/ commercial pricing

Split generation

•Create power market

Privatise

•Generation, transmission and distribution

it is unbundled firstly. Further, it is also desirable to identify the number of

distribution entities at this stage. More the number of distribution entities,

greater the competition and multiple are the sources of information for

regulators (Jamasb, 2004).

3. Regulated distribution business: Incentive regulation of distribution business

leads to increase in efficient distribution (Joskow, 1998). The cost plus method

of tariff determination helps in reducing cross subsidies. Further, the collection

efficiencies may go up with introduction of privatisation (Jamasb, 2004) and

distribution franchisees. Also, the provisions for access (including third party

access) to the distribution network should be introduced at this stage (Newbery,

2002).

4. Separated transmission business: Separation of transmission business from

electricity generation is key to developing competition in the generation activity

(Jamasb, 2004). It is important that transmission networks are operated under

incentive regulation to promote capacity building. Further, rules for accessing

transmission network must be clearly spelled out. An independent system

operator (ISO) for dispatch and network stability is also an essential

requirement for increasing competition. It may however be noted that the World

Bank survey didn’t include any question on separate transmission to measure

the success of reforms (Bacon, 1999). Further, existence of congestion

management principle and congestion pricing are indicators of positive reforms.

5. Multiple electricity generators: A wholesale electricity market comprising of

multiple generators is a key indicator of reform (Zhang, et al., 2008). The

generators compete among themselves to conclude supply contracts with

distributors either in a single buyer market or marginal cost based pools or price

based spot market (Jamasb, 2004). However, some authors argue that

establishing wholesale market doesn’t necessarily indicate a highly reformed

market as it cannot be readily quantified in physical or monetary terms (Jamasb,

et al., 2005). Allowing entry of independent power producers (IPPs) is also a

key indicator of successful reform.

4.3. Degree of competition and market power

One of the important assumptions for competitive markets is that, there is a large

number of players. It may be important to mention that electricity sectors across the

world were vertically integrated and this fostered economies of coordination. Any

unbundling activity or competition in the market must ensure that efficiencies

generated exceed the economies of coordination (Joskow, 2004). The market share

of large firms is also an indication of market power. Smaller the share better it is for

the sector (Jamasb, 2004). The concentration of ownership gives rise to market power

(Rudnick & Montero, 2002). To avoid concentration of power in the hands of few

players, Argentina has placed a cap on market share for generators (10%).

It is also important that access to transmission and distribution networks are well

defined either through regulated third party access or negotiated third party access.

Most of the developing countries have chosen regulated third party access. Further,

to ensure competition, it is important that the rules for the allocation of transmission

charges, pricing of congestion and arrangements for financing of transmission network

are well laid out.

4.4. Degree of marginal cost based tariff

Prices send strong signals for efficiency of electricity market. It is important that the

prices of electricity reflect the actual cost of services and in the long run, must tend to

long run marginal costs where super normal profits are absent. (Benavides, 2003). In

developing countries, where access to energy is a significant challenge, government

generally offers subsidies. Greater the degree of subsidies, more difficult it is for

reforms to work in the short term (World Energy Council, 2004). Carefully designed

subsidies for low income groups is generally accepted by consumers. However, every

reform must target removal of subsidies because economic theory suggests that

welfare gains by those who benefit from removal of subsidy is usually greater than the

welfare loss to consumers who would have enjoyed subsidy (Joskow, 2004). The ratio

of actual tariff and marginal cost could be an important indicator for measuring reforms

(Newbery, 2002).

4.5. Degree of propensity of physical assets for reforms

In many developing countries the physical assets are very few. In such situations it is

important to clearly analyse if the efficiency gains due to vertical unbundling (splitting

into generation, transmission and distribution units) and horizontal splits (dividing into

several competing generation units or distribution units) out-weighs the increased

transaction costs of competition and economies of scale. For example, though coal

fired plants are available in different sizes, the trend of installing plant of size of 300

MW or more has been increasing since the last 15 years (Matthias, et al., 2012). If

coal fired plants of smaller sizes are installed to increase competition, there are

chances that the power prices may increase compared to situations where there is just

one plant of requisite size. Therefore ratio of demand and economic size of power

plants would be an important indicator of power sector reforms.

4.6. Degree of sustainability of reforms

The degree of sustainability of reforms is considered to be one of the most important

indicators of reform (Benavides, 2003) (Bhattacharyya, 2007) (Millán & M. von der

Fehr, 2003). The framework for measurement of the degree of sustainability may be

illustrated as below (Bhattacharyya, 2007):

Table 2: Framework for electricity sector reforms sustainability

Su

sta

inab

le R

efo

rms

Politically

Acceptable

Desirable

Feasible

Credible

Socially

Desirable

Accessible

Affordable

Minimises social costs

Environmentally

benign

Fuel & technology choice

Consumption behaviour

Location and risk

Implementable

Simple processes

Ease of transition

Simple legal changes

Economically

efficient

Efficiency

System adequacy

Signal

Financially

Viable

Reduced state support

Revenue adequacy

Cost economy

Source: (Bhattacharyya, 2007)

The framework presented in Table 4 is explained below:

1. Degree of political acceptability: A reform process is politically acceptable if

it is desirable, feasible and credible (World Bank, 1995). The desirability of

reform stems from the changes in ideologies. The feasibility of the reforms

process is ensured when there is enough political support for the reforms

process. The credibility aspect is measured by analysing if the political

promises have been kept or not. Most of the reforms process require high

degree of political support (Bhattacharyya, 2007).

2. Degree of social desirability: The degree of social desirability requires

reducing the social costs of reforms. It is often observed that when reforms are

introduced subsidies are gradually removed, this might lead to accessibility

issues for the population who are economically weak. It is important for

government to protect these sections of society either through a policy or

through innovatively structuring subsidies (including inviting bids where service

providers contract for providing required number of connections at least

subsidy) (Wellenius, et al., 2004).

3. Degree of being environmentally benign: Reforms process ultimately leads

to electricity price reduction and hence to increased demand and this leads to

increase in emissions (Vrolijk, 2004). If a reform process directly or indirectly

leads to low carbon generation (including promotion of clean coal technologies,

CCGT etc.) and promotion of renewable energy then it is considered as

environmentally benign (Byrne & Mun, 2003)

4. Degree of implement-ability: The success of any reforms process lies in its

simplicity for implementation. The legal changes must not be very complex and

it must provide for simple transition infrastructure and processes

(Bhattacharyya & Dey, 2003)

5. Degree of economic viability and financial feasibility: The degree of

economic viability is indicated by increase in competition and market

determined prices which has been already covered in sections 4.2, 4.3 and 4.4.

The financial feasibility could majorly be presented by private investment in the

sector for capacity creation and reduced state supports (Bhattacharyya, 2007).

4.7. Degree of technical efficiency

Degree of technical efficiencies provide information about the efficiency in running

capital assets which have direct bearing on the marginal costs of generation. Some of

the parameters which could be used for measuring technical efficiencies are presented

in Table 3:

Table 3: Technical parameters of efficiency

Parameters Remarks

Plant load factor

Degree of loading provides information on utilisation of

capital assets and it is measured by plant load factor. Plant

load factor (PLF) is measured in terms of actual output

divided by the installed capacity expressed in terms of energy

generated (Klimstra, 2013) (Cental Electricity Regulatory

Authority, 1999). Higher the PLF better it is for the economy

as it helps in reducing cost of generation and helps in

reducing wasteful investments in additional capacities.

Capacity factor Capacity factor is measured as the ratio of the installed

capacity to the peak demand. Nearer the capacity factor to

Parameters Remarks

unity better it is for the market. However, sometimes reserve

capacities are needed to tackle situations of planned or

breakdown maintenance. Even with the reserve capacities

the capacity factor should be near to unity.

Fuel Efficiency

Fuel efficiency is an important measure of technical

efficiency. It could be measured as the ratio of average

station heat rate (kWh/kcal) and the heat value (GCV

expressed as kcal/kg) of the fuels. Lesser the value, better it

is for the economy.

Labour productivity

A study reported by the IEA/OECD observed a clear

decreasing trend in the work force for all the countries under

study with the introduction of liberalisation implying that,

fewer people were needed to generate, transport and sell

more and more electricity. Increased labour productivity thus

enhanced overall efficiency in the sector as a result of

liberalisation, however, there have also been important social

costs in the wake of this development (International Energy

Agency, 2005)

The next section presents the methodology adopted for the purpose of this research

paper.

Methodology

5.1. Key assumptions behind framework & index development

This paper chooses the key indicators discussed in the literature review section and

presents them in a framework. The main assumptions of the framework are as follows:

1. Every indicator has equal weightage. World Bank in its studies has taken a

similar approach (Bacon, 1999).

2. Each indicator is assumed to have maximum score of one (1) and minimum

score of zero (0).

3. Wherever the indicators are difficult to quantify they are indicated as high,

moderate or low. High indicator is given a mark of 1, moderate is given a mark

of 2/3 and low indicator is given a mark of 1/3.

4. Also, values less than 1/3 are highlighted as red, in between 1/3-2/3 are

highlighted as yellow and 2/3 to 1 are highlighted as green. Red represents an

area of significant potential improvement, yellow represents an area of

moderate potential improvement and green represents area of low potential

improvement for realising reform objectives.

5. All the scores are then added and divided by maximum possible score and

multiplied by 100 to get the index value.

5.2. Selected indicators of the reforms

This paper choses the key indicators discussed in the literature review section and

presents them in the following framework named the “Jena-B (JB) Reforms

Framework”.

Table 4: The Jena-B (JB) Reforms Framework

Sl. No. Indicator Calculation methodology and remarks

Degree of private participation – Maximum marks: 1

1 Degree of private

participation

Formula: (Generation capacity owned by

private sector/ total capacity)

Remarks: As per figure 3, maximum private

investments have happened in generation

segment, therefore only generation is

considered for this paper.

However, if investment in transmission and

distribution are also high as per segment

investment characteristics then they may

separately be considered as indicators

Degree of adherence to elements of reforms – Maximum marks: 9

1 Existence of electricity

law requiring reforms

Yes ( 1 mark)

No (0 marks)

2 Existence of electricity

sector regulators

Yes ( 1 mark)

No (0 marks)

3 Restructured electricity

sector

High (1 mark)

Moderate (2/3 marks)

Low (1/3 marks)

4 Multiple distributors or

distribution franchisees

High (1 mark)

Moderate (2/3 marks)

Low (1/3 marks)

5 Regulated distribution

business

Yes (1 mark)

No (0 marks)

6 Incentive regulation for

transmission

Yes (1 mark)

No (0 marks)

7 Independent system

Operator

Yes (1 mark)

No (0 mark)

8 Wholesale electricity

market

High (1 mark)

Moderate (2/3 marks)

Low (1/3 marks)

9 No barriers for IPP entry High (1 mark)

Moderate (2/3 marks)

Low (1/3 marks)

Degree of competition and market power – Maximum marks: 5

1 Ownership of 3 largest

players in generation

Formula: 1 – (Generation capacity owned by

three largest firm/total generation capacity)

Sl. No. Indicator Calculation methodology and remarks

Remarks: The formula represents the capacity

which is free from market power

2 Ownership of 3 largest

players in transmission

1 – (Transmission capacity owned by three

largest firm/total transmission capacity)

3 Ownership of 3 largest

players in distribution

1 – (Distribution capacity owned by three

largest firm/total distribution capacity)

4 Rules for third party

access have been laid

out

Yes (1)

No (0)

5 Provisions of congestion

pricing is available

Yes (1)

No (0)

Degree of marginal cost based tariff – Maximum marks: 2

1 Industrial tariff Formula: If recent industrial tariff/ marginal cost

is less than 1 then 1 mark should be allocated,

otherwise indicator value is 1/( Recent industrial

tariff/ marginal cost)

Remarks: Generally it is observed that

industrial tariffs are greater than marginal cost.

The formula brings the indicator within range 0

and 1.

2 Residential tariff Formula: If (recent residential tariff/ marginal

cost) is less than 1 then value of indicator is

equal to the calculated value. Otherwise the

indicator value is 1 mark.

Remarks: Generally it is observed that

residential tariffs are less than marginal cost

due to subsidies. The formula brings the

indicator within range 0 and 1.

Degree of propensity of physical assets for reforms – Maximum marks: 1

1 Propensity of physical

assets for reforms

If total physical asset is greater than 3752 MW

then 1 Mark else 0 Mark

Degree of sustainability of reforms – Maximum marks: 5

1 Politically acceptable This paper uses Worldwide Governance

Indicators published by World Bank to measure

political acceptability. The scores are

2 Size of efficient and environment friendly CCGT plant - http://www.siemens.com/sustainability/en/environmental-portfolio/products-solutions/fossil-power-generation/combined-cycle-power-plants.htm

Sl. No. Indicator Calculation methodology and remarks

calculated as (summation of all the six

indicators/63)

2 Government considered

removal of subsidy in

phased manner

High (1)

Medium (2/3)

Low (1/3)

3 Percentage of

renewables in energy

mix

(Installed capacity of renewables/total installed

capacity)

4 Efficient technologies

like CCGTs have been

introduced

Yes(1)

No (0)

5 Legal framework

provides for

implementation

Measured as average of government

effectiveness, rule of law and government

effectiveness as published by World Bank

under World Governance Indicators

Degree of technical efficiency – Maximum marks: 4

1 Average Plant load

factor

(Actual output (kWh)/Installed Capacity (kWh))

2 Capacity Factor (Peak Demand /Installed capacity)

3 Fuel Efficiency 1 – (Station heat rate(Kj/kwh)/Heat Value of

major fuel(Kj/kg))

4 Labour productivity Formula: 1 – Labour force participation rate

(as published by International Labour

Organisation)

Remarks: Assumption lesser the labour force

participation greater is the productivity

The above framework is populated for Ghana and United Kingdom in next section and

a comparative analysis is made.

3 http://info.worldbank.org/governance/wgi/index.aspx#reports

Results and interpretation

6.1. Results

Sl.

No. Indicator Ghana United Kingdom

Sources/

Remarks

Degree of private participation – Maximum marks: 1

1 Degree of private

participation 0.00 1.00

Ghana: (Volata

River Authority,

2014)UK:

(Pique., 2006)

Degree of adherence to elements of reforms – Maximum marks: 9

1

Existence of

electricity law

requiring reforms

1.00 1.00

Ghana: (KUSI,

2005);

UK (UK

Government,

2011)

2

Existence of

electricity sector

regulators

1.00 1.00

3 Restructured

electricity sector 1.00 1.00

4

Multiple distributors

or distribution

franchisees

0.00 1.00

5 Regulated distribution

business 1.00 1.00

6 Incentive regulation

for transmission 0.00 1.00

7 Independent system

Operator 1.00 1.00

8 Wholesale electricity

market 0.00 1.00

9 No barriers for IPP

entry 0.00 1.00

Sub-total 5.00 9.00

Degree of competition and market power – Maximum marks: 5

1

Ownership of 3

largest players in

generation

1.00-1.00

= 0.00

1.00-

(0.15+0.13+0.12)

= 0.60

Ghana:

(Graduate

School of

Business,

Capetown,

2014); UK:

2

Ownership of 3

largest players in

transmission

1.00-1.00

= 0.00

1.00-1.00

= 0.00

3

Ownership of 3

largest players in

distribution

1.00-1.00

=0.00

1.00-0.48

=0.52

(Pique., 2006),

(Sheffield

Energy

Resources

Information

Services, 2012)

4

Rules for third party

access have been

laid out

1.00 1.00

Ghana: (Energy

Commission,

2006); UK: (UK

Government,

2011)

5

Provisions of

congestion pricing is

available

0.00 1.00

UK

(Perekhodtsev &

Cervigni, 2010)

Sub-total 1.00 3.12

Degree of marginal cost based tariff – Maximum marks: 2

1 Industrial tariff 1.00 1.00 Ghana: Cost

plus IPP tariff is

considered to be

long run

marginal tariff

for Ghana which

is 95.79 Cedis

(Jenkins, 2007),

(PURC, 2013)

UK:

(Government of

UK, 2012),

(Parsons

Brinckerhoff,

2010)

2 Residential tariff 45.34/95.79

=0.47 1.00

Sub-total 1.47 2.00

Degree of propensity of physical assets for reforms – Maximum marks: 1

1

Propensity of

physical assets for

reforms

1.00 1.00

In both countries

cumulative

physical assets

are greater than

350 MW

Degree of sustainability of reforms – Maximum marks: 5

1 Politically acceptable

(0.60+ 0.50

+0.52+0.55+

+0.54+0.56)/6

= 0.55

(0.92+0.6

+0.92+0.95

+0.93+0.92)/6

=0.87

(Voice and

accountability+

Political

Stability+

Government

effectiveness+

Regulatory

quality+ Rule of

law+ Control of

corruption)/6

2

Government

considered removal

of subsidy in phased

manner

0.33 1.00

Ghana (UK Aid,

2012); UK is

taking steps to

remove

subsidies in

even

renewables

3

Percentage of

commercial

renewables in energy

mix

0.06 0.11

Ghana: (Seth, et

al., 2012); UK

(Ecotricity,

2013)

4

Efficient technologies

like CCGTs have

been introduced

1.00 1.00

In both the

countries such

technologies

have been

introduced

5

Legal framework

provides for

implementation

(0.50+0.55

+0.54)/3

= 0.53

(0.92+0.95

+0.93)/3

=0.93

(Government

effectiveness+

Regulatory

quality+ Rule of

law)/3

Sub-total 2.47 3.91

Degree of technical efficiency – Maximum marks: 4

1 Average Plant load

factor 0.69 0.66

Ghana:

(Seckley, 2004)

(TAPCO, 2009)

(Energy

Commission

Ghana, 2006)

UK: (UK Govt,

2013)

2 Capacity Factor

1729 MW

/2280 MW

=0.75

57490MW

/81778 MW

=0.70

Ghana: (Energy

Commission,

Ghana, 2013)

UK: (UK Govt,

2013)

3 Fuel Efficiency

1.00 -

(10876/43000)

=0.75

1.00 –

7385/38000)

= 0.80

Ghana: (MIGA,

2009)

UK: (Roques, et

al., 2006)

4 Labour productivity 1.00-0.71

= 0.29

1.00-0.62

=0.38 (ILO, 2010)

Sub-total 2.48 2.54

Total – Maximum marks: 26

Grand total of individual

countries 13.42 22.57

Jena-B Reform Index (13.42/26)*100

=51.61

(22.57/26)*100

=86.80

6.2. Interpretation & Recommendations

1. Jena-B Reform Index: The JB Reform index for the United Kingdom is 86.80

whiles that for Ghana is 51.61. This indicates that, UK has experienced more

successful electricity sector reform than Ghana.

Recommendation: Ghana has to take more concrete actions to attain higher

levels of success in electricity sector reform. The key areas of improvement are

highlighted below.

2. Degree of Private Participation: From the framework analysis it was found

that the degree of private participation in electricity generation in Ghana is

almost nil. The government should make further efforts to reduce barriers of

entry into generation by independent power producers (IPPs). For instance the

power pricing for IPPs should follow long run marginal pricing rather than pricing

adopted for the old hydroelectric power projects in Ghana which have low costs

of generation (Jenkins, 2007). Further, effective public-private partnership

models in generation such as those adopted in India may be promoted (Ministry

of Power, 2004).

3. Degree of Adherence to elements of Reform: Ghana scored less than UK

for this indicator. The key areas in which Ghana lagged behind UK were, the

number of distributors or distribution franchisees, incentive regulation for

transmission, the existence of wholesale electricity market and the barriers to

entry for IPPs.

Recommendation: Ghana may try to introduce competition in distribution

business either by splitting the Electricity Company of Ghana (ECG) into a

number of small distribution companies or by privatising the distribution

services through distribution franchisees. ECG and Northern Electricity

Department (NED) may be combined and put under incentive regulations for

distribution which provide for long run marginal cost pricing, incentives for loss

reductions and capacity additions (KUSI, 2005). Further, KUSI, 2005 suggested

that the transmission business may be brought under incentive regulations and

development of rules for electricty market.

4. Degree of Competition and Market Power: Ghana scored significantly less

than UK for this indicator. Ghana needs improvement in the following areas;

market share of the largest players in generation, distribution and transmission

and provisions for congestion pricing.

Recommendation: The Volta River Authority, VRA (generation utility) may be

split into smaller entities controlled separately that is, separate ownership for

each entity and GRIDCO (transmission utility) may be brought under incentive

regulation. The Public Utilities Regulatory Commission (PURC) may introduce

time-of-the-day pricing for the transmission networks.

5. Degree of Marginal Cost based Tariff: Ghana needs to improve its residential

tariff to reflect the marginal cost. Further, the subsidies should be innovatively

removed. The subsidy removal may include inviting bids (on the basis of

subsidies) from service providers who may provide quality services at the least

subsidy.

6. Degree of Sustainability of Reforms: For this indicator, Ghana performs more

poorly as compared to the UK.

Recommendation: The reform process in Ghana requires more political

support. This could be attained through such means as good governance

(effective implementation of proposed policies by all agencies concerned).

Also, the reforms process must directly address the need to increase the share

of commercial renewables in the energy mix in the sector.

7. Degree of Technical Efficiency: As revealed by this indicator, both Ghana

and UK are at par when it comes to the degree of technical efficiency.

Recommendation: New technologies requiring less labour intervention may

be introduced by both countries.

Conclusion

This study sought to identify key indicators of successful electricity sector reforms and

to measure them based on a framework using the degree of nearness to retail

competition and the degree of sustainability of the reforms programmes. The key

indicators of successful reforms have been identified and presented as a framework

named the “Jena-B (JB)” Reforms Framework. They consist of 26 key parameters

based on which the degree of success of reforms may be measured.

The framework was used to conduct a comparative analysis of Ghana and UK and it

was found that the UK is comparatively more successful in its electricity sector reform

endeavours. The key areas of improvement for Ghana included augmenting private

participation in the sector, splitting of its largest generation utility into smaller entities

to foster competition, introducing incentive regulation in the transmission and

distribution segments and garnering enough political support for the reforms process.

The JB reform framework is a fairly simple framework which could be developed from

secondary information. However, the possible limitations are stated as follows:

It has been assumed that each parameter of reform contributes equally to the

reform process. This might not be the case and actual weightages may be

derived from country specific situations.

Where the parameters were difficult to quantify, a ranking strategy of “high,

moderate and low” ranks with corresponding marks of 1, 2/3 and 1/3 were

assigned respectively. These qualitative parameters could further be improved

with primary surveys.

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