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NewsElectricity tariffs to surge over Emissions Levy implementation - IPPs


Electricity tariffs to surge over Emissions Levy implementation – IPPs

Chief Executive Officer (CEO) of the Independent Power Producers (IPPs), Dr. Elikplim Kwabla Apetorgbor, has indicated that the implementation of the Emissions Levy, which came into effect on February 1, 2024, will lead to a rise in the cost of electricity.

According to his assessment of the Emissions Levy, set at GH₵100 per tonne of carbon dioxide (CO2), Dr. Apetorgbor cautioned that this levy will translate to increased expenses in electricity generation, thereby raising the cost per kilowatt-hour (kWh) and subsequently resulting in higher tariffs for consumers.

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“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.

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Dr. Apetorgbor further elaborated on the complexities involved in determining the amount of carbon dioxide (CO2) emitted by a 1MW gas-fired power plant, noting various factors such as plant efficiency, gas type (typically natural gas), and operational load.

For instance, 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.

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Applying the GH¢100 per tonne of CO2 levy, Dr. Apetorgbor highlighted that this would result in an increase in the cost per kWh for energy consumers by approximately GH¢0.0362. This cost increment resonates across the energy sector.

Breaking down the levy per kg of CO2, which is GH¢100 per 1,000 kg (or 0.1 GH¢/kg), he calculated that the levy for 362 kg of CO2 amounts to GH¢36.2 for 1MWh of generated electricity, factoring in the CO2 content in the natural gas volume required for 1MWh.

Translating this to consumer units, he indicated an additional cost per kWh of GH¢0.0362, calculated as GH¢36.2 / 1,000 kWh.

However, Dr. Apetorgbor cautioned that these calculations are simplified and rely on average values for numerous variables. The actual emissions and costs could vary significantly based on specific plant characteristics, natural gas quality, and operational efficiency.

Additionally, he shared the annual CO2 emissions determination formula, demonstrating 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”.

Dr. Apetorgbor highlighted that the recent change in law imposing a legal obligation on power producers is expected to result in an increase in the cost of generating electricity. He emphasized that the management and operation of power plants are highly sensitive to costs, akin 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.

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