IPPs Argue that the Emissions Levy will Drive up Electricity Costs
Dr. Elikplim Kwabla Apetorgbor, CEO of the Independent Power Producers (IPPs), has indicated that the cost of power will rise with the adoption of the Emissions Levy, which went into force 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 increase the cost of energy generation – cost per kilowatt-hour (kWh), resulting in higher prices for customers.
“Every change in law with cost consequences for power generating will undoubtedly have an impact on end customers via the tariff.
“It is therefore important for our decision-makers to foresee effect of the economic consequences before implementing such laws,” he said.
While the amount of carbon dioxide (CO2) emitted by a single (1MW) gas-fired power plant depends on several factors, including the 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 fee will boost the cost per kWh for energy customers by around GH₵0.0362, a figure that resonates across the energy sector, he claimed.
The Emissions tax per kilogramme of CO2 is GH100 every 1,000 kg (or 0.1 GH/kg). For 362 kg of CO2, the tax will be GH36.2 for 1MWh of generated energy, taking into account the CO2 content incorporated in the natural gas volume necessary for 1MWh.
He further stated that the fee per kWh is GH₵0.0362, which translates to GH₵36.2 per 1,000 kWh.
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He did, however, emphasise the simplification inherent in these computations, warning that they rely on average values for multiple factors. He stresses that real emissions and prices may vary significantly depending on the power plant’s individual characteristics, the grade of natural gas used, and operational efficiency.
Dr. Apetorgbor also revealed the annual CO2 Emissions Determination Formula, which shows how much CO2 a gas-fired power station releases per 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 bemoaned that according to 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 proposes a pass-through mechanism whereby economic implications go to the end-user”.
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Dr. Apetorgbor believes that the cost of generating electricity will rise as a result of a change in the law that imposes a legal responsibility on power producers. He stated that, like the downstream petroleum sectors, power plant management and operation are cost-sensitive.
“Specifically, the levy will be added to the operational costs build-up of the power plants,” he said. He went on to say: “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 modification, he stated, is required to offset the higher operational costs caused by the application of the Emissions Levy, Act 2023 (Act 1112), ensuring operational reliability and sustainability.
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