The high cost of grid power compared to the developed world

The predicament of many developing countries is difficult: not only is electricity scarce and intermittent, it is also dear. In countries such as Ghana, electricity tariffs do not cover actual generation costs, resulting in major financial losses to the utility.

Ghana’s power tariffs are based on the costs of baseload hydropower priced at $0.05 per kilowatt-hour. However, the oil-based generation used to meet incremental demand is priced at more than $0.20. Since there is no mechanism for automatically adjusting tariffs, this situation generates annual financial losses for the Volta River Authority (VRA) of $400 million — 3 percent of GDP. (IBRD, 2010)

The handicap to economic activity is considerable: in 2007, it was reported that more than 2% of GDP was sacrificed to power shortfalls in vulnerable African countries (Wines, 2007). Nevertheless, although energy consumption is rising in developing countries throughout the world, it is worth remembering that the overall quantity is low in comparison with high-income countries. ‘[T]he annual average per capita consumption of electricity in the developing world is 1155 KWh and 10,198 kWh in high-income countries’ (IBRD, 2009).