Powering Ghana’s future: unraveling the dynamics of electricity generation and the path to sustainable energy

Abstract

This study investigates powering Ghana’s future: unraveling the dynamics of electricity generation and the path to sustainable energy by estimating endogenous parameters and employing an unrestricted Vector Autoregression (VAR) model. The model examines the linear lead–lag relationships between variables in the Ghanaian electricity sector and power consumption, using data from 2002 to 2021. The results reveal structural long-and-short-run headwinds for the unrestricted models and indicate that the growth rate of the Gross Domestic Product (GDP) and electricity from fossil fuels are directly correlated. Granger causality analysis highlights a feedback relationship between GDP growth rate and electricity from fossil fuel sources. The impulse response function reveals that the GDP growth rate is sensitive to exogenous shocks with lasting effects. Variance decomposition results show that renewable energy without hydropower explains a minimal variance due to shocks, while total global greenhouse emissions account for a significant proportion of the variance due to headwinds. Electricity from fossil fuel sources explains a substantial part of the variance due to headwinds, suggesting Ghana’s overreliance on conventional energy sources. The study forecasts that installed renewable energy capacity will experience considerable growth by 2036, accounting for most of the energy mix. To promote a sustainable energy future, the study recommends implementing fiscal instruments that incentivize renewable energy consumption, gradually diversifying the energy mix towards natural gas as a medium-term transition fuel for grid electricity generation and shifting entirely to renewables in the long time. This research contributes valuable insights into the dynamics of electricity generation in Ghana and provides policy recommendations for sustainable energy development.