Beyond Revenue Adequacy: Why Ghana Should Adopt Cost-Reflective Electricity Tariff Design To Promote Competitiveness, Efficiency And Financial Sustainability

Abstract

Ghana's electricity tariff debate has been dominated by the question of whether regulated utilities recover their approved revenue requirements. That question is necessary, but it is not sufficient. A tariff can recover aggregate cost while remaining economically inefficient, commercially distortive and socially regressive if charges do not reflect the costs caused by different customer classes, voltage levels, usage periods, load profiles, service qualities and network locations. This paper argues that the Public Utilities Regulatory Commission (PURC) should move beyond a predominantly cost-recovery-centred framework toward a cost-reflective tariff architecture. The proposed reform does not abandon revenue adequacy; it embeds revenue adequacy within a more disciplined system of cost causation, marginal-cost signalling, performance incentives and targeted social protection. Using Ghanaian regulatory documents, sector data, international regulatory practice and the electricity-pricing literature, the paper shows that an average-tariff approach can transfer losses and inefficiencies to productive customers, weaken demand response, encourage inefficient network expansion, penalise high-load-factor industrial users and obscure the fiscal cost of universal or social obligations. A cost-reflective structure would unbundle customer, energy, capacity, network, loss, reliability and policy costs; introduce time- and voltage-differentiated rates; replace blunt cross-subsidies with transparent, targeted support; and condition allowed revenues on efficiency and service-quality performance. The paper proposes a phased five-year implementation programme built on a modern cost-of-service study, advanced metering, coincident-peak analysis, loss-disallowance trajectories, industrial demand-response products, tariff impact testing and independent ex-post evaluation. Properly designed, the reform can improve utility solvency while reducing the system cost of serving Ghana's economy. The central policy conclusion is that cost recovery answers how much revenue the sector requires, whereas cost reflectivity determines who should pay, when they should pay and what behaviour the tariff should incentivise. Ghana now requires both.