Exploring the Macroeconomic Impacts of Low-Carbon Energy Transitions: A Simulation Analysis for Kenya and Ghana

The study applies purpose-built dynamic computable general equilibrium models for Kenya and Ghana with a disaggregated country‑specific representation of the power sector, to simulate the prospective medium-run growth and distributional implications associated with a shift towards a higher share of renewables in the power mix, up to 2025. In both countries, the share of fossil fuel-based thermal electricity generation in the power mix will increase sharply over the next decade and beyond according to current national energy sector development plans. The overarching general message suggested by the simulation results is that in both countries it appears feasible to reduce the carbon content of electricity generation significantly without adverse consequences for economic growth and without noteworthy distributional effects

Green Investment Diagnostics for Africa: What are the Binding Constraints to Investment in Renewables in Kenya and Ghana?

The vast potential of renewable energy is failing to be realised in many African countries, in spite of the many pledges made by donors and international financiers. This is not due to a lack of policies supporting investment. Many African countries have renewable energy targets, feed-in-tariffs (FiT), or import duty exemptions for renewable energy technologies. In some cases these policies are not fully implemented. In others they are implemented but, put in the language of this report, they are not targeting the most binding constraints to investment. Whatever the reason for their lack of success, it is clear that simply introducing formal policies is not enough. This Research Report presents the Green Investment Diagnostics methodology that aims at supporting policymakers to better target policies for the promotion of renewable energy investment. Our approach draws from the original Growth Diagnostics developed by Hausmann, Rodrik and Velasco (2004) to identify the most binding constraints to economic growth in developing countries. We adapt that approach to the particular case of the energy sector, so that we can identify the main bottlenecks faced by renewable energy investors in a particular country. We start by asking: for this particular country, at this particular time, what is preventing higher levels of investment in renewable energy generation technologies for which there is an economic rationale? To answer this question we follow a systematic approach, which starts with a decision tree analysis and continues with the cumulative building of evidence to back up potentially binding constraints. We apply the new methodology to two Sub-Saharan African countries, Kenya and Ghana, but this exercise could be replicated in any other context. In Ghana, we look for the reasons for underinvestment in renewable generation capacity. We find that renewable energy investments provide low returns in the country, disproportionate with the very high risks coming from an unreliable off‑taker, poor regulation, macroeconomic imbalances and corruption. Furthermore, there is insufficient access to finance due to scarce domestic finance and high returns expectation for short-term loans. In Kenya, we first look for factors behind the successful attraction of investment for large-scale renewables, mainly wind and geothermal. We then focus on the constraints to future investment, particularly in flexible, smaller-scale technologies more appropriate for increasing electrification rates in rural areas. Kenya offers generous returns to investment in renewables and least cost generation from geothermal and wind. However, it faces high system costs due to a lack of networking infrastructure and an inflexible generation mix. It also presents regulatory constraints at the planning and procurement stages and serious problems of social acceptance. Social problems are exacerbated by uncertain land property rights and consultation processes, inequality in access to services, and the rent-seeking behaviour of local elites. At the heart of each country’s constraints there is a stable status quo in each country: the over-borrowing state in Ghana, and a rent-capturing elite in Kenya

From Growth to Green Investment Diagnostics

The need to shift from fossil fuels to renewable energy systems is now broadly accepted, and our understanding of how different policy mechanisms can support this process is growing. To date, much of this research has focused on developed countries, but the need for this shift is increasingly being recognised as important in countries at all levels of development. The circumstances of these countries are different, however, suggesting that approaches to policy identification and evaluation may also need to be adapted. These differences are found in three areas: first, many developing country governments face severe budget constraints and competing calls on public resources to address poverty. The finances available to support policy mechanisms are therefore more limited than in many developed countries. Second, given the immaturity of financial systems, the most important obstacles to investment in renewable energy may be unrelated to the specifics of these investments, but reflect more general problems. Third, while issues of political economy are important for power sectors everywhere, they can be particularly pronounced in developing country settings. Before we can assess the potential effectiveness of different policy mechanisms to support renewable energy investment in developing countries, therefore, we need first to understand what the most important constraints to these investments are. Given the very large number of potential constraints, an approach is needed to narrow this set systematically, and identify those constraints which are most important, or ‘binding’. The research presented in this paper adapts and extends the ‘growth diagnostics’ approach developed by Hausmann, Rodrik and Velasco (2004) for this purpose, and applies this to renewable energy investment in two developing countries: Ghana and Kenya. The resulting ‘green investment diagnostics’ thus complements existing work on policy evaluation in developed countries, offering a diagnostic tool specifically designed for developing country settings that could be applied alongside these mechanisms

Gendered financial & nutritional benefits from access to pay-as-you-go LPG for cooking in an informal settlement in Nairobi, Kenya

This study investigates the association between adoption of pay-as-you-go (PAYG) liquefied petroleum gas (LPG), an emerging alternative to full cylinder LPG, and women's economic empowerment in an informal settlement in Nairobi, Kenya. From December 2021-January 2022, 293 customers of a PAYG LPG company (PayGo Energy) were surveyed on their cooking patterns, financial savings and shifts in dietary behaviors following uptake of the technology. Among PayGo Energy customers that previously cooked only with polluting fuels (N = 78; 27 % of customers), daily cooking time was reduced by an average of 42 min/day; 82 % of PayGo Energy customers that previously cooked with full cylinder LPG (N = 216; 73 % of customers) also decreased their cooking time (average of 20 min/day) when switching to PAYG LPG. The majority (58 %; N = 70) of female household heads took on additional employment after switching to PAYG LPG, compared with 36 % (N = 55) of females living in male-headed households. Among female household heads, the proportion of informal sector workers earning wages on an irregular (71 %) or daily basis (61 %) that took on new income-generating activities after transitioning to PAYG LPG was over 20 % higher than those earning monthly salaries (39 %). Increased dietary diversity and consumption of protein-rich foods (legumes, meat, fish) from cooking with PAYG LPG was reported by 15 % of female household heads compared with 5 % of those living in male-headed households. While nearly three-quarters (73 %) of PayGo Energy customers would recommend the service to others because of the added convenience it provides, only one-third (29 %) reported associated health benefits as a key reason for promoting use of PAYG LPG to community members. Female household heads were more likely than non-household heads to be socioeconomically empowered when adopting PAYG LPG, illustrating that women's agency may influence the associated benefits of clean energy transitions. Nonetheless, the time savings reported by nearly all women who switched to PAYG LPG for cooking suggests that promoting the increased convenience of cooking with PAYG LPG may be useful for accelerating its adoption