Does renewable energy concentration increase the variance/uncertainty in electricity prices in Africa?

Highlights

Examined the impact of renewable energy on electricity price uncertainty.

Renewable energy increases the variance in electricity prices.

Adverse developments in macroeconomic indices increase electricity price variance.

Effect of System-wide and individual shocks on equilibrium price relation are more persistent.

There is increased negative transitory shocks in electricity price variance.

Abstract

Africa’s population is growing at a faster pace, and the growth in megacities and rate of urbanization has been very rapid. Alongside, economic growth is expected to be very robust in the future. Altogether, these will pose serious challenges for the energy system in Africa; a condition that makes the development of renewables (RES) a necessity in the continent. Though the continent is well-endowed with RES, it is least developed and deployed, partly due to limited research and development in the sector. Particularly, the macroeconomic implications of RES have not been thoroughly studied in the continent, which leaves a big literature gap for the continent. This motivates the current study to investigate into the macroeconomic implications of RES using Ghana as the case study, a country that is well-endowed with RES and one of the few in the continent that has integrated RES into their overall energy policy. Specifically, in this study, we examined the implications of RES concentration on electricity price uncertainty. Further, we investigated the persistent profile effect of both system-wide and individual shocks on the equilibrium relations. Finally, we decomposed the variance in electricity price into permanent and transitory components and explained what drives these trends.

Keywords

  • Renewable energy;
  • Electricity price uncertainty;
  • Permanent and transitory components;
  • Africa;
  • Ghana

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