UNIVERSITY OF GHANA COLLEGE OF HUMANITIES FIRMS’ DECISIONS ON ENERGY SYSTEMS UTILISATION AND IMPLICATIONS ON BUSINESS PERFORMANCE IN THE GREATER ACCRA REGION FROM 2015 TO 2021 BY INNOCENT S. K. AGBELIE (ID. NO. 10194747) THIS THESIS IS SUBMITTED TO THE UNIVERSITY OF GHANA, LEGON IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF DOCTOR OF PHILOSOPHY IN DEVELOPMENT STUDIES DEGREE INSTITUTE OF STATISTICAL, SOCIAL AND ECONOMIC RESEARCH (ISSER) APRIL 2023 University of Ghana http://ugspace.ug.edu.gh i DECLARATION I hereby declare that this thesis is the result of my independent investigation undertaken with meticulous supervision. I have consulted and used other scholarly works which have been duly acknowledged. I confirm that this thesis is original and has never been submitted, in part or whole, at the University of Ghana or any other institution for the award of an academic degree. University of Ghana http://ugspace.ug.edu.gh ii ABSTRACT According to the Intergovernmental Panel on Climate Change, keeping global warming below 1.5°C is necessary for human continuous survival because each of the last four decades has been successively warmer than any decade that preceded them since 1850 due to anthropogenic factors. Central to achieving this target is Goal 12.6 of the SDGs which encourages intentional transformation of world economies from fossil-fuel dependent economies to green economies, where the utilisation of renewable energy and energy efficiency technologies drive growth and development. This green agenda is, however, threatened by scholars who argue that Africa will need its newly discovered oil and gas resources to expand its economies, significantly lift millions of its citizens from poverty trap, and close the gap between itself and the developed world. Businesses, like governments all over the world, are therefore faced with the important decision of investing in the right energy systems that are either friendly to the environment, facilitate growth or both. In the local context, Ghanaian enterprises are very reliant on the national grid system for their electric power needs, supported by own power generations. However, there is very little evidence on the utilisation of RETs by Ghanaian firms despite the abundance of RET resources and the fact that RETs are fast becoming the lowest-cost sources of power generation in recent times. After sampling 404 businesses and 15 key informants in the Greater Accra Region, the study explored the fundamental reasons behind Ghanaian firms’ energy decisions, and how their financial and environmental performances are consequently affected from 2015 to 2021. Blackouts and voltage fluctuations are undesirable energy services of the grid system that limit the productivity of capital and labour factors. The firms in the Greater Accra Region experienced these unwanted services for about 621 and 1,070 hours per month during the power crisis era. The fixed-effects regression results reveal that blackout hours decreased both financial and environmental performances of firms in the power crisis (2015-2017) and post- University of Ghana http://ugspace.ug.edu.gh iii crisis (2019-2021) eras, whereas the environmental performance of firms was negatively affected by firms that use generators. On the other hand, energy efficient machinery, lighting, and air-conditioning systems are useful energy services that are as important as capital, labour, information technology (IT) and research and development (R&D). These factors were positively associated with the financial and environmental performances of the firms from 2015 to 2021. The grid system was overwhelmingly subscribed because it was regarded as a relatively cheaper and guaranteed system with sheer monopoly presence that makes it every firm’s first choice. About 22% of the firms used generators because they can afford to do so, and because of the unreliability of the grid system. Alternative systems like renewables were less utilised because of their high upfront and maintenance costs. Beyond costs, the lack of trust in RETs due to very few well-functioning systems in existence and poor-quality installations, unsupportive policies, and shallow knowledge of the technologies among businesses have greatly limited the popularity, and use of RETs among firms in the region. Renewable energy policies should be tailor-made to enforce international standards in RET materials importations and installations while targeting the grassroot stakeholders for RETs educational campaigns. There should also be an industrial energy efficiency strategy targeting the firms’ machinery systems for sustainable productivity. Keywords: firms’ decisions, RETs, energy efficiency technologies, enterprises performance. University of Ghana http://ugspace.ug.edu.gh iv This work is dedicated to my God, family, and friends. University of Ghana http://ugspace.ug.edu.gh v ACKNOWLEDGEMENT I would like to express my profound gratitude to the German Academic Exchange Service (Deutscher Akademischer Austauschdienst – DAAD) for the financial sponsorship of my doctoral studies, and the entire staff of the host institution (ISSER), from the Directors, Prof. F. Asante (past) and Prof. P. Quartey (present), the PhD Programme Coordinators, Dr. M. Awo (past) and Dr. A. Fenny (present), Senior Members and the support staff for the facilities, services, counsel and diverse supports I have immensely benefited from. A special thank you also goes to my supervisors, Dr. Simon Bawakyillenuo, Dr. Richmond Atta-Ankomah, and Dr. William Bekoe who is of blessed memory. Their guidance, advice, constructive criticisms, and meticulous reviews afforded me clear direction throughout this journey. The participation of the firm representatives, the key informants from the Ministry of Energy, Energy Commission, Electricity Company of Ghana, AB Solar Africa Ltd., and Tino Solutions Ltd. in the data collection phase of the study is deeply appreciated. I have been privileged to be in the company of Rahman, Petronella, Victoria, and Stephanie, who readily provided intellectual atmosphere, encouragement, and social support during my entire study period. I could not imagine a better class. A big thank you. Last but not the least, my wife, Irene Emefa Ofori, and my children, Elikem, Bubune, and Mawufemor have been great sources of motivation throughout this journey. They coped with my absentness sometimes, tolerated me working at home, absorbed my school frustrations at most times, and on top of that, provided a home for me to reset, re-equip, and match on. I say a very big thank you. God bless you. University of Ghana http://ugspace.ug.edu.gh vi TABLE OF CONTENTS DECLARATION ........................................................................................................................ i ABSTRACT ............................................................................................................................... ii ACKNOWLEDGEMENT ......................................................................................................... v TABLE OF CONTENTS .......................................................................................................... vi LIST OF FIGURES ................................................................................................................... x LIST OF TABLES .................................................................................................................... xi LIST OF ABBREVIATIONS ................................................................................................. xiv CHAPTER ONE ........................................................................................................................ 1 INTRODUCTION ..................................................................................................................... 1 1.1 Background information ............................................................................................. 1 1.2 Statement of the problem ............................................................................................ 4 1.3 Aim and objectives ...................................................................................................... 7 1.3.1 Aim ...................................................................................................................... 7 1.3.2 Specific objectives ............................................................................................... 8 1.4 Research questions ...................................................................................................... 8 1.5 Testable Hypotheses .................................................................................................. 10 1.6 Justification of the study ........................................................................................... 10 1.7 Organization of the study .......................................................................................... 12 CHAPTER TWO ..................................................................................................................... 14 LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK ........................................ 14 2.1 Introduction ............................................................................................................... 14 2.2 The concepts of energy systems and firms’ performances ....................................... 14 2.3 Overview of Ghana’s energy systems and business sector development ................. 17 2.3.1 An overview of productive energy systems in Ghana ....................................... 17 2.3.2 An overview of Ghana’s historical economic and business structure ............... 26 2.4 Review of Empirical Literature ................................................................................. 29 2.4.1 Energy systems and preferences by firms .......................................................... 29 2.4.2 The productivity impacts of different electricity types and energy efficiency technologies ...................................................................................................................... 38 2.5 Review of theories on firms’ decision and choice making related to energy and productivity .......................................................................................................................... 44 2.5.1 Theory of decision-making: The Bounded rationality and Satisficing .............. 45 University of Ghana http://ugspace.ug.edu.gh vii 2.5.2 Rogers’ Diffusion of Innovation Theory ........................................................... 48 2.5.3 Energy and productivity: Quality adjusted multi-factor productivity theory .... 51 2.6 The firm, the choices, and the performances framework .......................................... 54 2.7 Conclusion ................................................................................................................. 56 CHAPTER THREE ................................................................................................................. 57 METHODOLOGY .................................................................................................................. 57 3.1 Introduction ............................................................................................................... 57 3.2 Philosophical Underpinnings .................................................................................... 57 3.3 The Research Design ................................................................................................. 59 3.4 The Study Site ........................................................................................................... 61 3.5 Data Requirement, Sources and Collection Process ................................................. 63 3.5.1 Quantitative data needs: type, instrument, and procedures ................................ 64 3.5.2 Qualitative data needs: type, instrument, and procedures.................................. 67 3.6 Sampling procedure and selection of respondents .................................................... 68 3.6.1 Sampling for the quantitative design ................................................................. 68 3.6.2 The qualitative sampling methods and sample size ........................................... 74 3.7 Analytical methods .................................................................................................... 75 3.7.1 Quantitative analytical methods ......................................................................... 76 3.7.2 Qualitative analytical methods ........................................................................... 92 3.8 Conclusion ................................................................................................................. 94 CHAPTER FOUR .................................................................................................................... 96 UNDERPINNING FACTORS OF ENERGY SYSTEMS CHOICES BY FIRMS IN THE GREATER ACCRA REGION OF GHANA ........................................................................... 96 4.1 Introduction ............................................................................................................... 96 4.2 Profile of the study participants ................................................................................ 96 4.3 Energy systems used by firms in the Greater Accra Region of Ghana ..................... 99 4.3.1 The energy systems used during the 2012-2016 power crisis period ................ 99 4.3.2 The energy systems used in the post-power crisis period ................................ 103 4.4 Business establishments and grid electricity ........................................................... 104 4.4.1 Factors accounting for the use of grid-electricity ............................................ 104 4.5 Business establishments and generator-electricity system ...................................... 113 4.5.1 Factors accounting for the use of generator-electricity systems ...................... 114 4.6 Business establishments and renewable energy technologies ................................. 119 4.6.1 Benefits of investing in RETs according to the respondents ........................... 120 University of Ghana http://ugspace.ug.edu.gh viii 4.6.2 Factors accounting for the non-usage of RETs ................................................ 122 4.6.3 Government’s initiatives that are either promoting or discouraging the adoption of RETs in Ghana according to the respondents in the qualitative study ....................... 131 4.7 Conclusion ............................................................................................................... 134 CHAPTER FIVE ................................................................................................................... 136 FINANCIAL PERFORMANCES OF FIRMS IN THE GREATER ACCRA REGION FROM 2015 TO 2021 VIS-À-VIS THE UTILISATION OF DIFFERENT ENERGY SYSTEMS . 136 5.1 Introduction ............................................................................................................. 136 5.2 Key characteristics of the surveyed firms in the Greater Accra Region as of 2021 136 5.3 Capital, Labour, and Technological factors of production for firms in the G/A Region ................................................................................................................................ 138 5.3.1 Capital resource endowments of the firms....................................................... 138 5.3.2 Labour resource endowments of the firms....................................................... 139 5.3.3 Research, development, and information technology inclination of the firms 141 5.4 Electricity factor of production for firms in the G/A Region .................................. 144 5.5 The level of energy efficiency technologies usage by firms in the Greater Accra Region of Ghana................................................................................................................. 149 5.6 The determinants of firms’ financial performance in the G/A Region from 2015 to 2021 152 5.7 Conclusion ............................................................................................................... 164 CHAPTER SIX ...................................................................................................................... 165 ENVIRONMENTAL PERFORMANCES OF FIRMS IN THE GREATER ACCRA REGION FROM 2015 TO 2021 VIS-À-VIS THE UTILISATION OF DIFFERENT ENERGY SYSTEMS ............................................................................................................ 165 6.1 Introduction ............................................................................................................. 165 6.2 Environmental actions implemented by the firms from 2015 to 2021 .................... 165 6.3 The determinants of firms’ environmental performance in the G/A Region from 2015 to 2021 ....................................................................................................................... 167 6.4 Conclusion ............................................................................................................... 172 CHAPTER SEVEN ............................................................................................................... 174 SUMMARY, CONCLUSION, AND RECOMMENDATIONS ........................................... 174 7.1 Introduction ............................................................................................................. 174 7.2 Summary of key findings of the study .................................................................... 174 7.3 Key contributions of the study ................................................................................ 176 7.4 Limitations of the study........................................................................................... 177 University of Ghana http://ugspace.ug.edu.gh ix 7.5 Suggestions for future research ............................................................................... 178 7.6 Recommendations ................................................................................................... 178 References .............................................................................................................................. 181 APPENDIX A ........................................................................................................................ 202 HAUSMAN SPECIFICATION TEST OF FE-RE MODELS FOR THE EMPIRICAL MODELS ............................................................................................................................... 202 APPENDIX B ........................................................................................................................ 203 DURBIN-WU-HAUSMAN ENDOGENEITY TEST FOR SUSPECTED VARIABLES ... 203 APPENDIX C ........................................................................................................................ 204 FE-RE MODELS OF THE FINANCIAL AND ENVIRONMENTAL PERFORMANCE, WITH DIFFERENT EETS FOR THE DIFFERENT FIRM SAMPLES .............................. 204 APPENDIX D ........................................................................................................................ 214 SURVEY INSTRUMENTS................................................................................................... 214 Appendix D1: Quantitative Survey Questionnaire............................................................. 214 Appendix D2: In-Depth Interview (IDI) Guide (for selected business representatives).... 242 Appendix D3: Key Informant Interview (KII) Guide (for policy makers) ........................ 243 Appendix D4: Key Informant Interview (KII) Guide (for fuel suppliers) ......................... 244 APPENDIX E ........................................................................................................................ 245 APPROVAL LETTER FOR ECH 350-21-22 ....................................................................... 245 University of Ghana http://ugspace.ug.edu.gh x LIST OF FIGURES Figure 2.1: Grid electricity generation (GWh) 2000-2021 ...................................................... 19 Figure 2.2: Average electricity end-user tariff ......................................................................... 20 Figure 2.3: Electricity tariff categories for the non-residential sector ..................................... 21 Figure 2.4: Crude oil imports and exports (2000-2021) .......................................................... 22 Figure 2.5: Natural gas production and imports (2000-2021) ................................................. 22 Figure 2.6: Petroleum products production, imports, exports, and consumption (2000-2021) .................................................................................................................................................. 23 Figure 2.7: Average ex-pump prices for petroleum products (2000-2021) ............................. 24 Figure 2.8: Time dimensions of different categories of adopters of an innovation ................. 50 Figure 2.9: The firm, the choices, and the performances framework ...................................... 55 Figure 3.1: The adopted explanatory sequential mixed methods design ................................. 61 Figure 3.2: The map of Greater Accra Region with spatial distribution of establishments among its 16 administrative districts as of 2016 ...................................................................... 62 Figure 3.3: The three-stage sampling approach used by the study .......................................... 70 Figure 3.4: Conditions under which fixed or random effects are appropriate ......................... 80 Figure 4.1: Diagrammatic representation of the reasons why businesses use grid electricity ................................................................................................................................................ 112 Figure 4.2: Diagrammatic representation of the reasons why businesses use generator- electricity systems .................................................................................................................. 119 Figure 4.3: Diagrammatic representation of the factors accounting for the non-usage of renewable energy technologies .............................................................................................. 130 Figure 5.1: Primanry markets where businesses sell their products/services as of 2021 ...... 138 Figure 5.2: Proportion of firms that offered training opportunities to their staff and proportions of staff regarded as highly skilled and experienced as of 2021 .......................... 141 Figure 5.3: Average monthly expenditure on different electricity sources vis-à-vis crisis era ................................................................................................................................................ 146 Figure 5.4: Average hours of blackouts and voltage fluctuations experienced by firms within a month................................................................................................................................... 148 Figure 5.5: How often multiple phases on the grid-connected electricity were used and the reported reasons ..................................................................................................................... 149 University of Ghana http://ugspace.ug.edu.gh xi LIST OF TABLES Table 2.1: Financial and environmental performance indicators and measurements .............. 17 Table 3.1: The quantitative data collection activities .............................................................. 65 Table 3.2: The qualitative data collection activities ................................................................ 67 Table 3.3: Total business establishments in the industry and services sectors in the Greater Accra Region as of 2015 .......................................................................................................... 70 Table 3.4: Power analysis of sample size that detects minimum effect................................... 72 Table 3.5: Sampled qualitative participant groups .................................................................. 74 Table 3.6: Objectives aligned with analytical designs ............................................................. 76 Table 3.7: Summary of variable descriptions and measurement issues in the quantitative component ................................................................................................................................ 88 Table 3.8: Codebook for the first and second cycle codes ...................................................... 94 Table 4.1: Profile of respondents in the qualitative study ....................................................... 98 Table 4.2: Electricity sources used by firms vis-à-vis the eras .............................................. 100 Table 4.3: Why firms chose to invest in grid electricity vis-à-vis firm size and power crisis eras ......................................................................................................................................... 105 Table 4.4: End uses of grid electricity by firm size and power crisis eras ............................ 105 Table 4.5: End uses of self-generated electricity by firm size and era .................................. 113 Table 4.6: Why firms chose to invest in generators vis-à-vis firm size and power crisis eras ................................................................................................................................................ 114 Table 5.1: Some charateristics of the sampled firms in the study as of 2021 ........................ 137 Table 5.2: Estimated value category of capital assets owned vis-à-vis firm size and era, as of 2021........................................................................................................................................ 139 Table 5.3: Average number of employees of the sampled firms as of 2021 ......................... 140 Table 5.4: The levels of R&D and IT investment of the sampled firms ................................ 142 Table 5.5: The intensity of R&D and IT engagement of the firms ........................................ 143 Table 5.6: Areas firms researched/developed over the 2015-2021 period ............................ 143 Table 5.7: Aspects of grid and generator electricity services that are obstacles to firms vis-à- vis crisis era............................................................................................................................ 145 Table 5.8: Average monthly revenue of firms by size and era .............................................. 146 Table 5.9: Average monthly electricity costs of the sampled firms in the G/A Region ........ 147 Table 5.10: Energy efficient technologies used by businesses in the GA/R vis-à-vis firm types and era .................................................................................................................................... 151 University of Ghana http://ugspace.ug.edu.gh xii Table 5.11: Perceived percentage of the firms’ electricity end-uses that are using energy efficient technologies ............................................................................................................. 151 Table 5.12: The Fixed-Effects Models (FEMs) of the Financial Performance of the firms regressed on grid system’s characteristics and other control variables ................................. 153 Table 5.13: FE-RE Models of Financial Performance of firms in the G/A Region, with different energy efficient technologies (full sample: 2015-2021) ......................................... 158 Table 5.14: Fixed-Effects Models of Financial Performance (represented by Profit) of the firms in the Greater Accra Region of Ghana ......................................................................... 162 Table 5.15: Stochastic Frontier Models of financial performance of firms in the Greater Accra Region of Ghana .................................................................................................................... 163 Table 6.1: Environmental policies/plans implemented by businesses in the GA/R from 2015 to 2021 ................................................................................................................................... 166 Table 6.2: Fixed-Effects Models of Environmental Performance of firms in the Greater Accra Region of Ghana .................................................................................................................... 168 Table 6.3: FE-RE Models of Environmental Performance of firms in the G/A Region, with different energy efficient technologies (full sample: 2015-2021) ......................................... 171 Appendix A: Hausman Specification Test Results for the empirical models ........................ 202 Table B: Durbin-Wu-Hausman Endogeneity test results....................................................... 203 Appendix C1: FE-RE Models of Financial Performance of firms in the G/A Region, with different energy efficient technologies (Power crisis era sample: 2015-2017) ..................... 204 Appendix C2: FE-RE Models of Financial Performance of firms in the G/A Region, with different energy efficient technologies (Post-power crisis era sample: 2019-2021) ............. 205 Appendix C3: FE-RE Models of Financial Performance of firms in the G/A Region, with different energy efficient technologies (Micro-sized firms’ sample) .................................... 206 Appendix C4: FE-RE Models of Financial Performance of firms in the G/A Region, with different energy efficient technologies (Small-sized firms’ sample) ..................................... 207 Appendix C5: FE-RE Models of Financial Performance of firms in the G/A Region, with different energy efficient technologies (Medium-Large-sized firms’ sample) ...................... 208 Appendix C6: FE-RE Models of Environmental Performance of firms in the G/A Region, with different energy efficient technologies (Power crisis era sample: 2015-2017) ............. 209 Appendix C7: FE-RE Models of Environmental Performance of firms in the G/A Region, with different energy efficient technologies (Post-power crisis era sample: 2017-2021) ..... 210 Appendix C8: FE-RE Models of Environmental Performance of firms in the G/A Region, with different energy efficient technologies (Micro-sized firms’ sample) ............................ 211 University of Ghana http://ugspace.ug.edu.gh xiii Appendix C9: FE-RE Models of Environmental Performance of firms in the G/A Region, with different energy efficient technologies (Small-sized firms’ sample) ............................. 212 Appendix C10: FE-RE Models of Environmental Performance of firms in the G/A Region, with different energy efficient technologies (Medium-Large-sized firms’ sample) .............. 213 University of Ghana http://ugspace.ug.edu.gh xiv LIST OF ABBREVIATIONS Abbreviation Meaning 1D1F One District One Factory AAF Automatic adjustment formula AC Air conditioning system AfDB African Development Bank AMERI Africa Middle East Resources Investment ATK Aviation turbo kerosene CAPI Computer assisted personal interview CEO Chief Executive Officer CFL compact florescent lights CI Confidence interval CL Confidence level CO2 Carbon dioxide EC Energy Commission of Ghana ECG Electricity Company of Ghana Ltd. EE Energy Efficiency EETs Energy efficiency technologies EP Environmental performance ERP Economic Recovery Programme FDI Foreign direct investment FE(M) Fixed-effects (model) FP Financial performance FPSO Floating production storage and offloading G/A (R) Greater Accra (Region) GDP Gross Domestic Product GHG Greenhouse gas GLSS Ghana living standard survey GPRS I Ghana Poverty Reduction Strategy University of Ghana http://ugspace.ug.edu.gh xv GPRS II Growth and Poverty Reduction Strategy GSGDA Ghana Shared Growth and Development Agenda GSS Ghana Statistical Service IBES Integrated Business Establishment Survey IDIs In-depth interviews IEA International Energy Agency IMF International Monetary Fund IPCC Intergovernmental Panel on Climate Change IPPs Independent power producers IRENA International Renewable Energy Agency KIIs Key-informant interviews KLEMS Capital, Labour, Energy, Materials, and Services LPG Liquefied petroleum gas MBV market-based view NDCs Nationally determined contributions NDPC National Development Planning Commission NGOs Non-governmental organisations OECD Organisation for Economic Cooperation and Development OLS Ordinary least square PPP Purchasing power parity PSRP Power Sector Reform Programme PURC Public Utilities Regulatory Commission QUAL Qualitative QUAN Quantitative RBV resource-based view RE Renewable energy RE(M) Random-effects (model) RETs Renewable energy technologies RFO Residual fuel oil SAP Structural Adjustment Programme University of Ghana http://ugspace.ug.edu.gh xvi SDGs Sustainable Development Goals SLT Special load tariff SMEs Small and medium scale enterprises SSA Sub-Sahara Africa (n) StdDev Standard deviation SUREP Scaling-up renewable energy project TEN Twenneboa, Enyenra, and Ntomme TOR Tema Oil Refinery UN United Nations UNDP United Nations Development Programme USA United States of America Unit Meaning GHp Ghana Pesewas GHS Ghana Cedis GW Giga Watt kWh Kilowatt hours m2 Meter-squared MW Mega Watt University of Ghana http://ugspace.ug.edu.gh 1 CHAPTER ONE INTRODUCTION 1.1 Background information Human activities are estimated to have caused about 1.0°C of global warming above pre- industrial levels, and the warming level is projected to reach 1.5°C between 2030 and 2052 at the current business-as-usual rate of emissions (IPCC, 2018). In his address to the United Nations (UN) General Assembly in 2018, the Secretary-General, António Guterres pointed out that “Climate Change is moving faster than we are …we must listen to the Earth’s best scientists” (IPCC, 2018 p. v). According to scientists, widespread and rapid changes in the atmosphere, ocean, cryosphere, and biosphere have unequivocally occurred due to human activities (IPCC, 2021a). It is also reported that each of the last four decades has been successively warmer than any decade that preceded them since 1850 (IPCC, 2021b). These changes have had and continue to have adverse effects on the human society, environment, ecosystem, and biodiversity (IPCC, 2021a; Wei et al., 2016). Keeping a global warming below the target of 1.5°C, therefore, became a global priority for human continuous survival (IPCC, 2018). In Paris on December 12, 2015, 160 countries took the decision to cut down on emissions in what has become known as the Paris Agreement. In the development of the intergovernmental climate change mitigation policy, mitigation targets are assigned to countries based on the ‘common but differentiated responsibilities’ approach (Wei et al., 2016) in which countries are grouped by economic status or historical contribution to greenhouse gas (GHG) emissions. This approach acknowledges the fact that some countries are major contributors and should assume more responsibilities. Historically, advanced countries have been generally identified to have contributed more to climate change than developing countries. For example, (den Elzen et al., 1999) found that developed and University of Ghana http://ugspace.ug.edu.gh 2 developing countries should bear 54% and 46% of the historical contribution to global warming from 1890 to 2000 respectively. Höhne and Blok (2005) also estimated the contribution of developed countries to climate change at 60% from 1750 to 2000 after they used the GHG concentrations and their effects on radiative forcings and changes in global temperature. Recent evidence suggests that the two largest economies in the world currently, China and the United States, are the biggest CO2 emitting economies in the world (11.5billion metric tons of CO2 emitted by China and 5.0 billion metric tons of CO2 emitted by the U.S in 20211). The combined emissions from these two countries account for about 45 percent of the global 36.4 billion metric tons of CO2 emitted in 20212. Accordingly, the United States pledged to cut economy- wide emissions of GHG by 26-28 percent below its 2005 level by 2025 per the Paris Agreement. China also pledged to increase non-fossil fuels to 20% of its energy mix and reduce carbon emissions per unit of gross domestic product (GDP) to 60-56 percent by 2030. Other significant pledges made by countries to cut GHG emissions include: India’s pledge to reduce GHG emissions intensity by 33-35% from its 2005 levels by 2030; the European Union’s pledge to reduce GHG emissions to at least 40 percent below 1990 levels by 2030; Brazil’s pledge to reduce economy-wide GHG emissions by 37 percent below its 2005 levels by 2025 while South Korea, Indonesia, Japan, and Australia had all pledged to cut GHG emissions by 37%, 29%, 26%, and 26-28% by 2030 respectively (IPCC, 2021b). These pledges have been turned into various nationally determined contributions (NDCs) with clear strategies for cutting down on GHG emissions to meet the 1.5°C global warming target. Sine qua non to achieving this 1.5°C global warming target is a significant transformation of world economies from fossil-fuel dependent economies to green economies, which emphasises 1 Statistics obtained from https://www.statista.com/statistics/270499/co2-emissions-in-selected-countries/ [Accessed: 16/03/2021] 2 Statistics obtained from https://www.statista.com/statistics/276629/global-co2-emissions/. [Accessed: 16/03/2021] University of Ghana http://ugspace.ug.edu.gh https://www.statista.com/statistics/270499/co2-emissions-in-selected-countries/ https://www.statista.com/statistics/276629/global-co2-emissions/ 3 the utilisation of renewable energy technologies (RETs) like solar photovoltaic and wind to drive growth and development (Richter, 2013). However, the compelling evidence of the growth success of advanced countries since the industrial revolution at the back of heavy reliance on fossil fuel, particularly petroleum and coal (Li & Hu, 2017; Osborne & Gupta, 2013; Song et al., 2018) has challenged this green economy agenda. Additionally, poverty reduction in developing countries in recent history is known to go with increased carbon emissions. For instance, as the number of extremely poor people in East Asia and the Pacific declined from 1.1 billion to 161 million between 1981 and 2011, per capita CO2 rose from 2.1 tons to 5.9 tons (Davey, 2016). Abokyi et al. (2019) also show how uni-directional causality runs from fossil fuel consumption to emissions of CO2 during the financial sector development in Ghana. Many African economies are heavily dependent on fossil fuel development for their economic growth. Other scholars argue that Africa will need its newly discovered oil and gas resources to expand its economies, create jobs for millions of its unemployed youths, and significantly lift millions of its citizens from poverty trap (Cooper, 2019; Eigen, 2014; Khatib, 2014). Not only governments, but enterprises, especially in developing countries are, therefore, faced with the important decision of investing in the right energy systems that are either friendly to the environment or facilitate economic growth. This is because energy is at the heart of all production and consumption activities (Asghar, 2008; Twerefou et al., 2018). Fossil fuels that propelled industrialisation in Europe and Asia are considered cheap and readily available productive energy systems (Ai et al., 2021; Y. Li & Xia, 2013; Perkins & Tang, 2017; Stern & Kander, 2012; Zafar et al., 2020; Zhou et al., 2012). However, they are also responsible for most of the GHG emissions that have unsettled the global climate (IPCC, 2021b). Cheng et al. (2021) argue that investing in low-carbon energy resources is a green initiative but places industries at a cost disadvantage compared to those using fossil fuels. However, research and University of Ghana http://ugspace.ug.edu.gh 4 development have ensured that low-carbon energy resources like renewables are fast becoming the lowest-cost sources of power generation in recent times (International Renewable Energy Agency [IRENA], 2021). Additionally, the application of energy efficiency technologies (EETs) in both developed and developing countries has been found to significantly enhance firm productivity in the long run (Filippini et al., 2020; Zhang & Wang, 2008). Understandably, the choice of businesses regarding energy systems utilization could have implications on their ability to achieve their business objectives, the environment, and the climate. Studying why certain fuels are preferred by businesses to others and the effects of such preferences is, therefore, crucial to the businesses themselves, policy makers and the international community. Successive governments in Ghana have attempted to strengthen the capacity of firms and the private sector in general through policies like the Private Sector Development Strategy (Danida, 2018), Public-Private Partnership (Government of Ghana [GOG], 2011), and recently, the One District One Factory initiative. Critical to these policies achieving their set targets is the investment in reliable, efficient, and cost-effective fuel systems. Understanding the decisions of businesses in Ghana regarding energy systems utilisation has, therefore, become imperative. 1.2 Statement of the problem The Sustainable Development Goals (SDGs), Goal 12.6 specifically encourages companies to adopt sustainable practices including mainstreaming sustainability information into their reporting cycle. Tracking the progress of these targets were to be assessed by the number of companies publishing sustainability reports, adopting sustainable energy practices, and minimizing waste generation through prevention, reduction, recycling, and reuse of materials (United Nations, 2018). According to (Bang et al., 2000), consumers are consciously rewarding University of Ghana http://ugspace.ug.edu.gh 5 businesses that address environmental concerns with loyalty and this is encouraging companies to ‘green-market’ their products with ‘made with renewable energy’ labels to enhance the image of their brands (Brannan et al., 2012; p.1). Additionally, Esty and Winston (2009) suggested companies that operate with an environmental lens are generally more innovative and profitable than their competitors. These varied positions highlight the potential benefits of investing in sustainable energy systems. Scanty evidence across different geographical regions suggests that firms are appreciably answering to the global sustainability call. A cross-sector study of 220 United Kingdom small and medium scale enterprises (SMEs) by Revell et al. (2010) suggests that a high percentage of owners-managers are actively involved in recycling, energy efficiency, alternative clean energy sources and other practices in a bid to reduce carbon emission. Millar & Russell (2011) examined the adoption of sustainable practices of 76 manufacturing companies in the Caribbean. A little over 50 percent of the sample were found to invest in energy efficiency and renewable resources to improve both the quality of their products and production efficiency, increase market share, differentiate products, and lower cost of production. In 2012, Brannan et al. (2012) found that nearly 50 companies in the Unites States of America are communicating the use of renewable energy in their production process to their customers via product packaging and their products are identical to other conventional products in quality and performance. Sehnem et al. (2016) surveyed 300 enterprises in Southern Brazil and argued that sustainable practices, and eco-innovations like the use of clean energy and energy efficiency technologies are being adopted by these enterprises in satisfaction of regulatory requirements, pressures from customers, shareholders, and Non-Governmental Organisations (NGOs), in order to increase operational efficiency, reduce cost, and impact the corporate image. Unequivocally, the sustainability practices, be they sustainable energy, reuse, reduce, and recycle strategies, have been adopted more by firms in the developed world. Specifically with University of Ghana http://ugspace.ug.edu.gh 6 energy strategies, firms in developing countries have been heavily reliant on fossil fuel systems despite their cost related challenges and the perceived harm they cause to the climate. Ghana boasts of an estimated total oil reserve of 700 million barrels and 800 billion cubic feet of gas (Tallow Oil, 2017 cited in Skaten, 2018). However, much of the refined petroleum products like petrol, diesel, and liquefied petroleum gas (LPG) consumed by business enterprises are imported and, thus, exposed to international crude price volatility. The ex-pump price for petrol, diesel and LPG increased from 310.1 GHp/Liter, 301.9 GHp/Liter, and 268.3 GHp/kg respectively in 2015 to 589.9 GHp/Liter, 589.8.2 GHp/Liter, and 686.8 GHp/kg respectively in 2021 (Energy Commission [EC], 2022). By November 2022, the prices respectively rose to 1,799 GHp/Liter, 2,349 GHp/Liter, and 1,210 GHp/kg3. These volatilities have cost implications for businesses that use petroleum products. Businesses in Ghana also rely heavily on the national electricity grid for their electric power needs regardless of its reliability and high tariff characteristics. The power crises experienced in the 2007 and 2012-2016 periods are still fresh in the memories of most businesses and households due to the widespread cost implications they came with. Limited power was distributed among businesses and residential customers through a load- shedding exercise that infamously came to be known as dumsor4. These power crises have been estimated to cost the Ghanaian economy about 1.8-2% loss in Gross Domestic Product (GDP) (Ackah, 2017) and about 10% output loss for businesses (Abeberese et al., 2017, 2021). Costs comparisons across Africa also shows that electricity tariff for commercial and industrial establishments in Ghana (which averages $0.24) is higher than the African average of $0.14 and some specific countries 3 Available online at https://citinewsroom.com/2022/11/fuel-prices-up-again-as-diesel-hits-gh%C2%A223-49- per-litre/. Accessed: 02/11/2022 4 This translates as ‘off-on’ in the Akan Language in Ghana University of Ghana http://ugspace.ug.edu.gh https://citinewsroom.com/2022/11/fuel-prices-up-again-as-diesel-hits-gh%C2%A223-49-per-litre/ https://citinewsroom.com/2022/11/fuel-prices-up-again-as-diesel-hits-gh%C2%A223-49-per-litre/ 7 like South Africa ($0.08-0.10 per kWh) and Cote d’Ivoire (US$0.15 per kWh) as of 2019 (PURC, 2022). Meanwhile, very little is known about Ghanaian businesses’ investments in sustainable energy options. As of 2010, the country was known to be endowed with about 832 million tonnes of biomass, 4.4-5.6 kWh/m2/day of monthly average solar radiation, 5,640 MW of gross wind resource potential, 837 MW of small- and mini-hydropower energy, and over 5,000 tonnes of organic municipal waste generated daily (Aboagye et al., 2021; IRENA, 2015). Altogether, these potential renewable energy resources can generate about 10,044 GWh of electricity annually as the production cost of renewable energy technologies (RETs) continues to decline (Pueyo et al., 2016). Despite the abundant resource base of renewable energy generation and utilisation in the country, there is a paucity of empirical evidence about businesses’ interest in investing in renewable energy technologies in Ghana. On the contrary, existing literature reveals that other energy systems like the national grid electricity (Bawakyillenuo, 2012), petrol/diesel powered generators (Abeberese et al., 2021; Kumi, 2017), and to some extent energy efficiency technologies (Gyamfi et al., 2018; Owusu et al., 2022), are preferred by businesses in Ghana, particularly in the big cities like Accra, Tema and Kumasi. Understanding the dynamics of the energy systems used by businesses in relation to the per unit of output costs and reliability issues vis-à-vis the implications on financial and environmental performances is, therefore, imperative to the sustainable development of the business sector in Ghana. 1.3 Aim and objectives 1.3.1 Aim The overarching aim of the research is to examine selected business establishments in the Greater Accra Region of Ghana to understand the factors that underpin their decisions University of Ghana http://ugspace.ug.edu.gh 8 regarding the different energy systems they utilise for their productive activities and their relative effects on financial and environmental performances from 2015 to 2021. 1.3.2 Specific objectives Specifically, the thesis seeks to achieve the following objectives: i. To explore the underlying factors behind the decisions of firms to invest, or not invest in different energy systems during the most recent power crisis period (2015-2017) and post-power-crisis period (2019-2021) in the Greater Accra Region of Ghana. ii. To assess the effects of the per unit of output costs and reliability of different electricity sources as well as different energy efficiency technologies utilised by firms on their financial performances in the Greater Accra Region from 2015 to 2021. iii. To examine the effects of the per unit of output costs and reliability of different electricity sources as well as different energy efficiency technologies utilised by firms on their environmental performances in the Greater Accra Region from 2015 to 2021. 1.4 Research questions Achieving the set objectives stated in the preceding section is essential to understanding and finding solution to the following questions that have inspired the researcher’s interest in exploring the dynamics of Ghanaian firms’ energy decision-making. These questions (and sub- questions) essentially define the scope of the research work, determine the methodology, and guide all stages of the inquiry, analysis, and reporting of the findings. • What factors underlie the utilisation of different productive fuels and energy efficiency technologies among businesses in the Greater Accra Region of Ghana during the most recent power crisis and post crisis period (2015-2021)? The sub- University of Ghana http://ugspace.ug.edu.gh 9 questions explored include: Which electricity types did firms in the G/A Region predominantly utilised during the most recent power crisis period (2015-2017)? How did the electricity utilisation change in the post-crisis period (2-19-2021)? Why did the firms decide to invest in these electricity sources during these periods? What energy efficiency technologies (EETs) did firms in the G/A Region invest in during the 2015- 2021 period? Why are other alternative energy systems not considered by these firms during the most recent power crisis and post-power-crisis periods? • To what extent did the per unit of output costs, and the reliability of different electricity sources used by firms in the Greater Accra Region affect their financial and environmental performances from 2015 to 2021? The sub-questions investigated include: How did the per unit of output costs of the different electricity sources utilised by the firms in the G/A Region of Ghana vary from 2015 to 2021? How reliable, in terms of the hours of outages experienced, were the different electricity sources to the firms’ operations from 2015 to 2021? To what extent did the per unit of output costs and the reliability of the different electricity sources affect the financial and environmental performances of firms from 2015 to 2021? • To what extent did the different energy efficiency technologies adopted by businesses in the Greater Accra Region affect their financial and environmental performances from 2015 to 2021? The sub-questions explored include: What were the levels of utilisation of the EETs in the productive activities of the firms? To what extent did the utilisation levels of the different EETs affect the financial and environmental performances of the firms in the Greater Accra Region from 2015 to 2021? University of Ghana http://ugspace.ug.edu.gh 10 1.5 Testable Hypotheses Based on the specified objectives two and three stated in sub-Section 1.3.2, the following hypotheses were statistically tested during the analysis stage of the study. Only the null hypotheses are stated below. The respective alternative hypotheses (unspecified) are the opposite of the null hypotheses. i. Ho: The per unit of output costs of the electricity sources utilised by firms in the G/A Region from 2015 to 2021 did not significantly influence their financial and environmental performances. ii. Ho: The reliability of the grid-power system utilised by firms in the G/A Region from 2015 to 2021 did not significantly influence their financial and environmental performances iii. Ho: The adoption of energy efficiency practices by firms in the G/A Region from 2015 to 2021 did not significantly impact their financial and environmental performances. 1.6 Justification of the study Scholars have explored the energy-development nexus in different regions across the globe during different periods. Electricity usage has been identified as a catalyst for growth in Sub Sahara Africa (Bildirici, 2013; Enu & Havi, 2014; Esso, 2010) and developing the oil and gas industry is considered vital to the growth and development of the continent (Ba Geri et al., 2019; Graham & Ovadia, 2019). Meanwhile, grid electricity is widely used by businesses in Africa even though there are fundamental issues with its accessibility and the supply infrastructure (Ebhota, 2019; Hafner et al., 2018). Ghana’s electricity access rate of 87% as of University of Ghana http://ugspace.ug.edu.gh 11 2021 (EC, 2022), is well above the sub-Sahara African (SSA) average of around 40%5 and tipped to become one of the SSA countries to soon achieve its target of universal access to electricity (Bukari et al., 2021; Kemausuor & Ackom, 2017). However, unfavourable climatic conditions (like low volumes of rainfall), infrastructure challenges (such as disruption in the transmission of gas from Nigeria due to damage caused to the West African Gas Pipeline), and exponential growth in electricity demand have resulted in electricity supply shortages to the growing customers (Kumi, 2017), hence, the power crisis experienced in 2007 and 2012-2016. Short term measures were vigorously pursued to reverse the power crisis because of public outcries and political pressures. Some ad hoc emergency power contracts were signed by the government which resulted in excess power available at higher costs with increased debt (International Monetary Fund [IMF], 2021). Tariffs charged to electricity consumers, particularly business enterprises are among the highest in the sub region (Acheampong et al., 2021). Yet, very few scholars like Abeberese et al. (2021), Pueyo et al. (2020) have explored the impacts of energy, specifically, electricity used by businesses on their performances in Ghana. Additionally, there is very little information regarding firms investing in alternative energy systems such as renewables that are rapidly becoming competitive with the traditional fuels. It is, therefore, worth investigating the behaviour of firms regarding their energy choices and how those decisions affected and continue to affect their financial and environmental performances during the power crisis and post-power-crisis periods. Understanding these energy choice dynamics will inform policy decisions at the national and firm levels towards sustainable development of the business sector. 5 World Bank Data (2022). Available at https://data.worldbank.org/country/ghana?view=chart University of Ghana http://ugspace.ug.edu.gh 12 1.7 Organization of the study The study is structured in seven (7) different chapters as described below. Chapter One – Introduction: This chapter sets the tone for the research. It provided a brief background to the subject matter from a global to local perspective and clearly described the problem statement. The aim and objectives of the study were clearly stated followed by the delineation of the research questions, and the testable hypotheses. The chapter concluded with the justification, and organization of the study. Chapter Two – Literature review and Conceptual framework: The chapter begun with a brief overview of Ghana’s energy systems and business sector development. This was followed up with a description of the theories that explain firms’ investment decisions, adoption of new technologies and their productivity. Related empirical studies that have been done in Ghana, SSA and the rest of the world were reviewed next. Finally, the researcher’s conceptual framework developed out of the reviewed theoretical and empirical literature was presented in the last section of the chapter. Chapter Three – Methodology: Beginning the chapter was a description of the researcher’s philosophical disposition. This determined the research design, the research subjects and types of data required, as well as the methodological procedures that the study adopted. Chapter Four – Underpinning factors of energy systems choices by firms in the Greater Accra Region of Ghana: This is the first empirical chapter. It explored the fundamental reasons why certain energy systems were preferred and others ignored by firms in the Greater Accra Region during the most recent power crisis and post crisis periods. Chapter Five – Financial performances of firms in the Greater Accra Region from 2015 to 2021 vis-à-vis the utilisation of different energy systems: This is the second empirical chapter that examined the effects of the costs and reliability of different electricity sources, as well as University of Ghana http://ugspace.ug.edu.gh 13 the different energy efficiency technologies used by firms in the Greater Accra Region on their financial performances from 2015 to 2021. Chapter Six – Environmental performances of firms in the Greater Accra Region from 2015 to 2021 vis-à-vis the utilisation of different energy systems: This is the third empirical chapter that explored the relationship between the environmental performances of the firms and the different energy systems used in the Greater Accra Region from 2015 to 2021. Chapter Seven – Summary, Conclusion, and Recommendations: This chapter concluded the research. The entire work was summarised and conclusions as well as recommendations were drawn out of the empirical findings presented and discussed in the empirical chapters. The limitations of the work were clearly stated in addition to the opportunities for future studies. University of Ghana http://ugspace.ug.edu.gh 14 CHAPTER TWO LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK 2.1 Introduction This chapter discusses theories, facts and works of other scholars that give context to the study. The chapter begins with a discussion of the concepts of energy systems and firm performance. This is followed by a review of Ghana’s energy systems and development of the business sector. The next section reviews empirical works that have been done by other scholars on why firms prefer certain energy systems to others, and the implications on their performances. To provide theoretical context to the empirical literature, relevant theories that explain businesses’ decision-making regarding key production inputs and how such decisions affect their performances are reviewed in the next section. The study is, therefore, grounded on these theories that serve as its backbone The last section presents and discusses the conceptual framework which draws on the theoretical foundations and empirical studies reviewed. 2.2 The concepts of energy systems and firms’ performances Energy system is understood to mean the flow of different types of energy and energy services in a defined space according to Bruckner et al. (2014) and Kullmann et al. (2021). It is described as a complex system because it involves combinations of different types of energy, sourced differently, and used variedly for different anthropogenic purposes (Bruckner et al., 2014). In this study, energy systems are conceptualised and operationalised into two broad categories: • Fuel, which include electricity from the national grid, mini-grid, generators, and renewables like solar, wind, biogas; petroleum fuels (diesel, petrol, LPG); coal (if any); and nuclear (if any). University of Ghana http://ugspace.ug.edu.gh 15 • Energy efficiency technologies, which include technologies such as energy efficient lighting, refrigeration, air-conditioning systems, as well as other energy efficient machineries or technologies that are used in the production process. The study assesses the impact of the per unit of output cost and reliability of different fuels and energy efficiency technologies used by firms on their performances, where fuel is treated as a generic term to include national grid electricity, generators, renewables, petroleum fuels and others. Each of these energy sources would, therefore, be understood and used as ‘a fuel’ in this study. When firms switch between these fuels or continually use multiple fuels, they are eventually practicing fuel stacking (Yadav et al., 2021). The study, therefore, assesses the extent of fuel stacking among firms in Ghana, which fuels are often stacked, and how these fuel stacking services affect the performance of the firms. The performance of companies is essential for sustainable growth and development because profitable enterprises create value, generate opportunities, employ people, promote innovation, and generate revenue for the government through taxes (Lazăr, 2016). It has, therefore, attracted a substantive interest from scholars across the fields of corporate finance, economics, and development. The discourse broadly discusses firm performance from two theoretical perspectives: market-based view (MBV) and resource-based view (RBV) (Lazăr, 2016). Whiles MBV places emphasis on the firm’s external environment and market characteristics (Cano et al., 2004; Grinstein, 2008) RBV focuses on firm-specific resources such as assets, capabilities, organizational processes, firm attributes, information, and knowledge available to the firm to enhance its performance (Barney, 1991; G. S. Day, 2011; Peteraf, 1993). Though there is overwhelming evidence of the RBV in which firm-specific factors matter more than market characteristics partly due to the instability in most market indicators even in market economies (Grant, 1991; Hawawini et al., 2003; Makhija, 2003), the present study combines both RBV and MBV perspectives, yet, maintaining the dominance of the firm-specific factors. University of Ghana http://ugspace.ug.edu.gh 16 The reason for the combined perspective is that external factors and market conditions play a critical role in cost structures, especially when energy is involved as an input, and resource acquisition which ultimately affect the performance of the firm. In the literature, firm performance is mostly measured as a financial ratio such as return on asset, return on investment, earnings per share, net income, and net income to asset ratio (Asimakopoulos et al., 2009; Makhija, 2003; Yazdanfar, 2013). This study, however, considers the performance of the firm beyond its financial muscles to include its environmental performance, adopting the methods of Selvam et al. (2016) in the process. As Neely and Adams (2000) noted, including both financial and non-financial performance measurements provide better perspectives in linking performance systems to organizational strategy. This approach, thus, looks at the performance of the firm with a sustainable development lens rather than just with a financial or economic lens. Selvam et al. (2016) developed a subjective model of the determinants of firm performance after reviewing extant literature on the subject. They identified nine (9) different performance indicators that can be treated as unidimensional or multidimensional: ‘profitability performance, growth performance, market value performance, customers’ satisfaction, employees’ satisfaction, environmental performance, environmental audit performance, corporate governance performance and social performance’ (p. 93). They were further classified into two dimensions: financial performance (which consist of the first 3 performance indicators) and strategic performance (which consist of the last 6 performance indicators). The measurement indicators of the profitability and strategic performance dimensions are shown in Table 2.1. The study primarily used monthly revenue as a proxy for financial performance. This is because it is easier for firms to keep records of total revenue, which makes data gathering on this indicator relatively easy. Some previous studies like Prajogo and Sohal (2006) and Baker and Sinkula (1999) have utilised total revenue as a proxy for firms’ financial success University of Ghana http://ugspace.ug.edu.gh 17 while others like Topalova and Khandelwal (2011) and Melitz (2003) have used total revenue as a measure of firms’ output. For the purposes of reliability and robustness, monthly profit (that is, revenue minus costs) was also used as a proxy for financial performance to assess how the monthly profit model compares to the monthly revenue model. Environmental performance was selected to represent the strategic performance of the firms. Accordingly, an environmental performance index was generated from nearly all the measurement indicators in Table 2.1 to represent the firms’ environmental performance. Table 2.1: Financial and environmental performance indicators and measurements Broad dimension Specific dimension Measurement indicators Financial performance Profitability performance Return on Assets, EBTIDA Margin, Return on Investment, Net Income/Revenues, Return on Equity, Economic Value Added (EVA) Strategic performance Environmental performance Number of projects to improve or recover the environment, Level of energy intensity, Use of recyclable materials, Recycling level and Reuse of residuals, Volume of energy consumption, Number of environmental lawsuits Source: Adapted from Selvam et al. (2016) 2.3 Overview of Ghana’s energy systems and business sector development 2.3.1 An overview of productive energy systems in Ghana This sub-section provides an overview of the different electricity sources available to business enterprises in Ghana. 2.3.1.1 The power (electricity) sector The power sector in the period before the 1980s in many SSA countries was fraught with years of protracted rigidity, stagnation as well as poor financial and technical performance (Acheampong et al., 2021). As a result, major reforms were undertaken in the 1980s and 1990s as part of the structural adjustment and economic transformation policies with the purpose of creating a vibrant power sector capable of truly supporting private sector development, University of Ghana http://ugspace.ug.edu.gh 18 economic growth, and poverty reduction in the sub region (Acheampong et al., 2021). The sector got liberalised and the market became favorable for private sector participation. Ghana adopted the Power Sector Reform Programme (PSRP) in 1995 which decoupled the generation, transmission, and distribution sub-sectors and to be managed by different institutional frameworks but with strong coordination among them. This reform introduced competition into the power sector through the introduction of the independent power producers (IPPs) scheme (Acheampong et al., 2021). The supporting policy instruments that were developed to guide the development of the sector include the 2010 National Energy Policy, which is closely linked to the 2010 Energy Sector Strategy and Development Plan, the Strategic National Energy Plan (2006 – 2020), the 2015 Sustainable Energy for All Action Agenda and the 2019 Renewable Energy Master Plan (EC, 2006, 2015; Ministry of Energy [MOE], 2010a, 2010b, 2019). The energy reforms led to a notable development in the power supply infrastructure in Ghana. The total electricity installed generation capacity significantly increased from 1,652MW in 2000 to 5,481MW in 2020. There were as many as 15 installed thermal plants constituting about 68 percent of the total installed generation capacity in 2021 compared to only 7 installed as of 2012 (EC, 2022). While the role of the reforms in the development of the power sector has been significant, it can be argued that the increased investment in the power infrastructure can be attributed partly to the response by the government of Ghana during the power crises experienced in 2007 and 2012-2016 in the country. For example, during the 2012-2016 power crisis era, the government entered into some emergency power purchase agreements including, the Karpowership, AKSA Power, Africa Middle East Resources Investment (AMERI) Group and Early (Bridge) Power to ensure guaranteed supply of electricity to the country (Acheampong et al., 2021). As depicted in Figure 2.1, electricity sourced from thermal plants dominated the grid electricity landscape in Ghana since 2016. Although some renewable University of Ghana http://ugspace.ug.edu.gh 19 energy (RE) resources have been added since 2013, the share of renewables in the total grid generated electricity as of 2021 is about 0.55 percent (EC, 2022). Figure 2.1: Grid electricity generation (GWh) 2000-2021 Source: Author’s construct based on Energy Commission (2022) The electricity generation sources have implications on power pricing in Ghana. Power from thermal plants via IPPs that guarantee reliable supply usually has higher generation costs compared to power generation from the traditional hydro plants. An automatic adjustment formula (AAF) which considers the fuel mix (crude oil, natural gas, or distillate fuel), the Ghana Cedi-US Dollar exchange rate, hydro-thermal generation mix, and changes in consumer price index, has been introduced since 2002 to compute end-user tariffs in Ghana (Public Utilities Regulatory Commission [PURC], 2011). However, the AAF had not been used effectively due to government’s intervention in the market to cushion the consumer rather than passing on the true cost of electricity to the end-users (Acheampong et al., 2021; Gyamfi et al., 2018). This move was a major disincentive to power generation especially for the IPPs who feared they might not be able to breakeven. 0 2000 4000 6000 8000 10000 12000 14000 16000 Hydro Thermal Renewables University of Ghana http://ugspace.ug.edu.gh 20 Despite the government absorbing some part of the electricity cost, end-user tariffs have grown at an average of about 10% per annum since 2000 from US$ 0.024 per kWh to about US$ 0.13 per kWh in 2021 (see Figure 2.2), reflecting the growing thermal proportion in the power generation mix. Broken down further, non-residential activities with 0-300 kWh consumption range were charged 25 GHp/kWh in 2011 compared to 80 GHp/kWh in 2020. Activities with 600+ kWh consumption were charged 42 GHp/kWh in 2011 compared to 134 GHp/kWh in 2020 (see Figure 2.3). These non-residential tariffs combined with their corresponding service charges (1,243 GHp/month in 2020)6 were among the highest in the sub region (EC, 2022). Figure 2.2: Average electricity end-user tariff Source: Author’s construct based on Energy Commission (2022) 6 According to the Bank of Ghana, the average exchange rate for 2020 was 1 US$ equivalent to GHS 5.57. Available at https://www.bog.gov.gh/treasury-and-the-markets/historical-interbank-fx-rates/ (Accessed: 09/11/2022) 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 AVERAGE ELECTRIC ITY END -USER T ARIFF GHS/kWh US$/kWh University of Ghana http://ugspace.ug.edu.gh https://www.bog.gov.gh/treasury-and-the-markets/historical-interbank-fx-rates/ 21 Figure 2.3: Electricity tariff categories for the non-residential sector Source: Author’s construct based on Energy Commission (2022) 2.3.1.2 The petroleum sector The petroleum sub-sector has been a major contributor to Ghana’s growth and development in recent years. Ghana grew at an average of 5.5 percent in the pre-oil production era (2001-2009) but averages 8 percent per annum since oil production began in 2010 (Ghana Statistical Service [GSS], 2018). Ghana started production of oil from the Jubilee Field in 2010 before the Twenneboa, Enyenra, and Ntomme (TEN) fields came onstream in 2016 and Sankofa field in 2017. These additional fields have an estimated 740 MMbo and 1.846 trillion cubic feet of gas in reserves7. Unlike crude oil which is mostly exported (see Figure 2.4) per the production contract agreement, natural gas is produced and transported via the Kwame Nkrumah floating production storage and offloading (FPSO) to the onshore Atuabo Gas processing facility to be processed mainly for the domestic gas needs of households and thermal power plants for electricity production. 7 These were reported by Tullow Oil (2017), ‘TEN fields’. Sourced from https://www.tullowoil.com/operations/west-africa/ghana/ten-field (Accessed: 21/08/2020) 0 20 40 60 80 100 120 140 160 180 D E C , 2 0 1 1 O C T , 2 0 1 3 J A N , 2 0 1 4 J U L , 2 0 1 4 O C T , 2 0 1 4 A P R , 2 0 1 5 J U L , 2 0 1 5 D E C , 2 0 1 5 O C T , 2 0 1 8 J U L , 2 0 1 9 O C T , 2 0 1 9 O C T , 2 0 2 0 ELECTRIC ITY TARIFF FOR NON -RESIDENTIAL SECTOR 0-300(GHp/kWh) 301-600(GHp/kWh) 600+(GHp/kWhh) University of Ghana http://ugspace.ug.edu.gh https://www.tullowoil.com/operations/west-africa/ghana/ten-field 22 Figure 2.4: Crude oil imports and exports (2000-2021) Source: Author’s construct based on Energy Commission (2022) Figure 2.5: Natural gas production and imports (2000-2021) Source: Author’s construct based on NPA and Petroleum Commission data (2022) Various petroleum products have been produced, imported, exported, and consumed in Ghana. These include liquefied petroleum gas (LPG), gasoline, kerosene, aviation turbo kerosene (ATK), gas oil, and residual fuel oil (RFO). As observed in Figure 2.6, imports and consumption of petroleum products have trended in a similar pattern. This is because most of 0 10000 20000 30000 40000 50000 60000 70000 80000 TH O U SA N D B A R R EL S CRUDE OIL IMPORT AND EXPORT Import Export 0 10 20 30 40 50 60 70 80 90 100 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 2 0 2 0 TB TU NATURAL GAS PRODUCT ION AND IMPORT Production Import University of Ghana http://ugspace.ug.edu.gh 23 the petroleum products consumed are imported since the Tema Oil Refinery (TOR) has remained ineffective for years. As a result, not many of the final products of petroleum are produced for domestic consumption or exportation. Figure 2.6: Petroleum products production, imports, exports, and consumption (2000-2021) Source: Author’s construct based on EC (2022) The international crude oil prices have trended irregularly since 2010. It increased from 43.3 US$/lt in 2008 to 125.9 US$/lt in April 2012, plunged to 31 US$/lt by January 2016 before averaging 64.2 US$/lt in 2019 and 70.8 US$/lt in 2021 (EC, 2022). The international crude oil prices affect the Ghanaian economy in two-folds. Firstly, increased crude oil prices since 2010 means increased revenue from the 12.5 percent royalties, 48.64 percent carried and participating interest, and 35 percent corporate income tax that comes to Ghana from the oil proceeds (Ministry of Finance, 2019). However, since Ghana remains a net importer of crude oil and petroleum products, increased crude oil prices translate to inflated prices of other goods and services which eventually lead to increased cost of doing business. Evidence from the ex- 0 500 1000 1500 2000 2500 3000 3500 4000 4500 P E T R O L E U M P R O D U C T S P R O D U C T I O N , I M P O R T S , E X P O R T S A N D C O N S U M P T I O N Production Import Export Consumption University of Ghana http://ugspace.ug.edu.gh 24 pump price statistics in Figure 2.7, the ex-pump prices of all the petroleum products have steadily been increasing from 2000, peaking in 2019, slumping in 2020 largely as a result of the global COVID-19 pandemic, before rebounding again in 2021. Figure 2.7: Average ex-pump prices for petroleum products (2000-2021) Source: Author’s construct based on EC (2021) 2.3.1.3 Energy efficiency and renewable energy systems Outside of the conventional energy systems discussed above, there are relatively new energy systems that are being discovered, developed and available to energy users in Ghana due to the advancement in technology. Ghana is well endowed with solar, wind, mini-hydro, biomass, and waste resources that could generate substantial electric power to complement the traditional grid system (Aboagye et al., 2021; Asumadu-Sarkodie & Owusu, 2016; Gyamfi et al., 2018; IRENA, 2015a; Kuamoah, 2020). To support the development of these resources and the promotion of the use of renewable energy, the Renewable Energy (Amendment) Act, 2020 (Act 1045) was passed and assented to by the President as a supportive framework to create 0 100 200 300 400 500 600 700 800 Premium Gasoline (GHp/lt) Gas oil (GHp/lt) Kerosene (GHp/lt) LPG (GHp/kg) University of Ghana http://ugspace.ug.edu.gh 25 the enabling environment that will attract investment in the renewable energy sector (Government of Ghana [GOG], 2022). Additionally, the 2019 Renewable Energy Master Plan (MOE, 2019) and 2015 Sustainable Energy for ALL Action Agenda (EC, 2015) were specifically designed with clear policy targets to promote the adoption of renewable energy technologies in Ghana. The Ghana Renewable Energy Handbook, which is updated periodically, offers comprehensive information on major policies governing the renewable energy market in the country. One of the primary RE targets is 10% renewable energy in the energy mix by 2030. However, very little had been achieved at the national level regarding the achievement of this target since there was only 0.55% of renewable in the energy mix as of 2021 with only nine (9) years remaining till the end of the target period (EC, 2022). Additionally, very little has been documented on the adoption of RETs at private levels. Some limited businesses, especially those in the hospitality industry, have been reported to have installed solar water heating systems while others have also installed solar panels to power lights and other non-heavy equipment. The most cited reason for the adoption of these technologies is cost saving (I. K. Ofori et al., 2022; Pueyo et al., 2016) and the most reported factor for the non-adoption is again installation and maintenance costs (Asante et al., 2021; I. K. Ofori et al., 2022; Pueyo et al., 2016; Willis et al., 2011). The other technologies that have received far more recognition are energy efficiency technologies. Following the passing of the air-conditioners and compact florescent lights (CFLs) regulation in 2005 and the Energy Efficiency Standards and Labelling Regulation in 2010 in Ghana, different energy efficient technologies with respect to refrigeration, air-conditioning, and lighting have been adopted by businesses in the country (Gyamfi et al., 2018). To stimulate the adoption of these technologies by businesses and households, the Energy Commission (EC) led the CFL replacement programme in 2007 which saw some 6 million incandescent lamps replaced with CFLs leading to the reduction of 124 MW in peak load and saved about US$ 33million annually (EC, 2019). University of Ghana http://ugspace.ug.edu.gh 26 The EC also championed the Refrigerator Rebate and Exchange Scheme in 2012 for Ghanaians to replace their old power-consuming refrigerators with new energy-efficient ones. The scheme reportedly saved 400 GWh of electricity, 1.1 million tonnes of Carbon dioxide and recovered 1500kg of Chlorofluorocarbon for the country (EC, 2019; Tamakloe, 2022). 2.3.2 An overview of Ghana’s historical economic and business structure Ghana’s business sector players include individuals, small and big organizations, private and public actors whose activities cut across local, national, and international levels either as part of informal or formal sectors (Hoedoafia, 2019). The business sector has gone through many developmental phases akin to Ghana’s economic development. In the pre-independence and immediate post-independence eras state-owned enterprises were established with the intention of transferring them to the private sector only after the latter had become a viable entity (Killick, 2010). As early as 1960, this idea was abandoned as the state-owned enterprises were deemed best for Ghana’s industrialization drive and as many as 280 state-owned enterprises were in operation as of 1980 (Brownbridge et al., 2000), some of which were tasked to produce goods that can substitute for imported goods at the time (Fosu, 2013b). But this strategy proved unsustainable as Ghana witnessed poor performances of the state enterprises that contributed to negative growth rates recorded in the 1970s (African Development Bank [AfDB], 2011; Fosu, 2013b). The Washington Consensus was adopted in 1983 in the forms of the Economic Recovery Programme (ERP) and the Structural Adjustment Programme (SAP). It was sponsored by the Bretton Woods institutions led by the World Bank and the International Monetary Fund (Fosu, 2013a; Hoedoafia, 2019). At the heart of this reform was the minimum role that government was supposed to play in formulating conducive policies while the private sector and market University of Ghana http://ugspace.ug.edu.gh 27 forces were charged to drive growth and development (Sawyerr, 1999). Over 70 percent of some 324 state owned enterprises were diversified by 2000 (Appiah-Kubi, 2001) and the real economy improved steadily following the adoption of the SAP/ERP. The purchasing power parity (PPP) adjusted per capita income which was lower than the SSA average by 1983 increased steadily from US$ 1,387 in 1983 to US$ 2,300 by 2006 (Fosu, 2013a). Beyond the SAP/ERP, other economic policies have contributed to the development of the business sector in Ghana. The Ghana Poverty Reduction Strategy I (GPRS I: 2003 – 2005) and the Growth and Poverty Reduction Strategy II (GPRS II: 2006 – 2009) aimed to increase the capacity of firms to be able to operate efficiently and effectively through medium term Private Sector Development Strategies I & II (National Development Planning Commission [NDPC], 2005). The Ghana Shared Growth and Development Agenda I & II (GSGDA I: 2010-2013; GSGDA II: 2014 – 2017) sought to improve the private sector’s domestic and global competitiveness, pursue accelerated industrial development, develop micro, small, and medium enterprises, pursue and expand market access among other strategies (NDPC, 2010, 2014). The Coordinated Programme of Economic and Social Development Policies (CPESDP): Agenda for Jobs I (2017 – 2024) and Agenda for Jobs II (2021 – 2025) sought to revamp Ghana’s economic and social infrastructure, transform the agriculture and industry sectors. One of the industrial-focused initiatives under the CPESDP is the “One District, One Factory (1D1F)” which is to be implemented through public-private partnerships to establish at least one industrial enterprise in each of the 216 districts in Ghana. This initiative was launched in 2017 with the intention of changing the Ghana’s economy from one of import dependence and export of unprocessed goods to one that focusses on manufacturing, value addition and export of processed goods. The business sector has generally improved in terms of number, size, and performance over the years. From a documented 26,493 industrial establishments censused in the 2003 national University of Ghana http://ugspace.ug.edu.gh 28 industrial census report (GSS, 2006), the number of industries has increased to 108,242 as of 2014 (a 309% increment) whiles 527,161 and 2,831 services and agricultural establishments were also reported in 2014 respectively (GSS, 2017). Businesses in the services sector continue to dominate the business landscape in Ghana with wholesale and retail trade; accommodation and food; education; financial; and insurance as some of its dominant activities. Manufacturing; construction; mining and quarrying; electricity and gas; water supply; sewerage; and waste management are the main activities of the industry sector while crops and livestock dominate the agricultural sector (GSS, 2017). Business enterprises across all sectors are categorised into large-sized (More than 100 persons engaged), medium-sized (31-100 persons engaged), small-sized (6-30 persons engaged), and micro-sized (5 or less persons engaged) by the Ghana Statistical Service (GSS, 2017). As of 2014, nearly 80% of all business establishments are micro-sized followed by small-sized firms (18%) (GSS, 2017). In terms of profitability, all establishments in the three sectors have together kept profit margins above 60 percent with gross revenues far exceeding gross costs incurred in the production of the goods and services (GSS, 2015, 2017). Finally, about 3,383,206 persons (representing about 23% of the adult population of Ghana) were engaged by the business establishments as of 2014 (GSS, 2015, 2017). There has been noticeable growth in the business sector since 2003 in terms of the population of enterprises and employment generation. However, the sector has fallen short of delivering the level of domestic and global competitiveness that guarantees accelerated industrial development as envisioned in GSGDA I & II. Ghana remains a net importer with little or no value being added to its export commodities which often results in a significant pressure being placed on the local currency (Ghana Cedi) against other trading currencies (Okyere & Jilu, 2020). Additionally, Ghanaian firms are deemed to produce under capacity with high inefficiencies and are often hindered by University of Ghana http://ugspace.ug.edu.gh 29 the lack of adequate finance to expand and power supply challenges that interrupt productive activities (Ackah, 2015; Kumi, 2017). 2.4 Review of Empirical Literature Under this section, studies that analytically explored the reasons why firms choose to invest in certain energy systems are reviewed as the first strand. This review concentrated on the various energy systems including grid electricity, self-electricity generation systems, RETs, and energy efficiency technologies that are commonly used by firms within a developing country context like Ghana. The second strand of the review focused on empirical studies that examined how firms’ performances are affected by the different energy systems. For each strand, the review process focused on available studies within the global context (that is, countries outside the African Region), followed by regional level studies (African countries), and finally, those that looked at Ghana only. In some cases, the review was undertaken on the lines of developed and developing contexts. 2.4.1 Energy systems and preferences by firms 2.4.1.1 Grid electricity Electricity has been described as an indispensable economic driver (Preuninger, 2014). Predominantly supplied by states’ grid facilities, electricity is viewed as a major factor in the overall economic development success of many economies across all regions (Preuninger, 2014; Stern, 2019). The International Energy Agency [IEA] (2020) assessed the global electricity market with clearly delineated regional analysis covering how much of electricity is supplied and consumed in 2020 and by which sectors. What is reported by IEA is that the industrial/commercial sectors are the most electricity intensive sectors across Europe, University of Ghana http://ugspace.ug.edu.gh 30 Americas, Asia Pacific, Southeast Asia, and Africa because businesses are very dependent on the national grid electricity system, albeit, at different degrees. In the developed world, states’ grid power is extensively used by firms because of their comparative cost advantage, reliability, and accessibility. According to Preuninger (2014), ‘electricity is almost always on short list of cost considerations when companies scout locations for offices, manufacturing plants and e-commerce hubs’ (p. 42). The researcher made an example out of Data centers in the U.S.A as facilities that require massive amounts of power from the state’s grid and, therefore, gravitate a lot in Texas where they are assured of affordability and reliability. Bardazzi et al. (2015) assessed how manufacturing firms in Europe, specifically in Italy react to relative price changes before investing in different fuels. By estimating factor and fuel demand elasticities using a microeconomic panel in a two-stage translog model, the researchers concluded that general substitutability exist between electricity, natural gas, and gasoil (except for medium low technology sectors) but electricity and natural gas exhibit lower elasticities because they are more difficult to replace than the other inputs. Apparently, grid electricity in Europe is considered difficult to replace --which encourages increased investment in it-- because they are readily available, easily accessible, and have lower relative prices (Bardazzi et al., 2015; Solnørdal & Foss, 2018). Similarly in developing countries, firms depend on grid electricity for a large part of their production activities (Baurzhan & Jenkins, 2016). For a long period, it has been studied as a sole proxy for energy and proven to positively impact growth through enhanced productivity from industries and services sectors (Fried & Lagakos, 2020; Twerefou et al., 2018). As of 2018, the combined total electricity production capacity for the SSA sub-region is around 80 GW and South Africa alone accounts for about half of it (Vessat, 2018). Additionally, the per capita production capacity of the sub-region is about 0.08 GW, far lower than per capita production rates in some developed countries for instance 1.94 GW in France (Vessat, 2018). University of Ghana http://ugspace.ug.edu.gh 31 Firms in developing countries invest in grid electricity for the same reasons observed in developed countries, except for reliability. Eberhard et al. (2011), Fried and Lagakos (2020), and Scott et al. (2014) observed that grid electricity is highly unreliable in developing countries unlike in advanced economies. Yet, most businesses and households find it more convenient to be connected to the national grid electricity in the sub-region because of the ease of access, and the fact that there exist already established grid infrastructure systems (Blimpo & Cosgrove-Davies, 2019). Bawakyillenuo (2012) for instance, observed that potential power consumers (businesses and households) in rural areas in Ghana without electricity will rather wait for the national grid electricity to get to them naturally even if that will take a while instead of accepting other alternative power systems such as off-grid power supply system. Even though studies have found an increased willingness-to-pay for reliable alternative fuels (Deutschmann et al., 2021; Gunatilake et al., 2012), grid electricity is still a first-choice power source for businesses in most developing countries. 2.4.1.2 Own-power generation (diesel/petrol powered generators) Aside from transportation, firms also depend on petroleum products, particularly diesel, petrol, and LPG for various productive activities. Predominantly, these fuels are used in self-power generation to supply a back-up power if the primary source fails (Fried & Lagakos, 2020). The most pronounced reason for their usage is reliability even if investing in them comes at a relatively higher cost. Alby et al. (2012) reported that most developing countries are unable to meet the energy demands of their businesses due to the unreliability of their first-choice energy source, the national grid electricity. Accordingly, the average power outrages from the national grid per year are as many as 132 in South Asia and 61 in SSA. Also, nearly half of all the firms sampled in their study experience over 30 outages per year (Alby et al., 2012). Because of these power outages, the firms have invested in diesel- and petrol-powered generators as alternative power sources. The researchers used data from enterprise surveys for 87 countries covering a University of Ghana http://ugspace.ug.edu.gh 32 total of 46,606 firms over a 5-year period of 2002-2006. The investigations reveal that 37 percent of all firms selected from SSA own or share a generator compared to 62 percent in South Asia. In an earlier pooled study, Foster and Steinbuks (2009) examined the prevalence of in-house electricity generated by firms in SSA using the World Electric Power Plants database and the World Bank’s Enterprise survey database. The study found that own power generation constitutes 6 percent of the total installed power generation capacity in SSA, exceeding the share in the United States (3.7%) and almost equal to the entire Europe (7.3%). They also found out that the proportion of self-generation power increases to 12 percent for low-income SSA countries. For example, in Mauritania, Equatorial Guinea, D.R Congo, Nigeria, and Swaziland, self-generation power accounts for more than 20 percent of the respective total installed generation capacities. Foster and Steinbuks (2009) and Oseni (2012) identified firm size, the need for emergency back-up and export regulations as key factors that inform the decision to own and operate a generator. Based on these determining reasons, firms in SSA are projected to continue depending on self-generation of power generation because of the inherent structural challenges with the power supply infrastructure (Steinbuks & Foster, 2010). Oseni and Pollitt (2015) carried out a similar firm-level analysis of outage costs for 2665 firms in eight (8) SSA countries. They observed that owing to the unreliable power supply system in these countries, self-generation of power is very common among SSA countries. As high as 86 percent of the firms selected in Nigeria own generators while 63, 51, 32, 28 and 25 percent of firms selected from Kenya, Senegal, Mali, South Africa, and Ghana also own and use generators respectively. Similarly, Abdisa (2018) reported that firms in Ethiopia adapt to the increased cost of power outages by investing in self-generation plants whiles Abeberese et al. (2021) also found that about 26 percent of 885 small and medium-sized firms surveyed in Ghana used generators as a result of power outages. University of Ghana http://ugspace.ug.edu.gh 33 2.4.1.3 Renewable energy technologies (RETs) RETs are more utilised in advanced economies than in emerging and developing economies (Halkos & Tzeremes, 2014). It is established that substitution of fossil fuels by renewable technologies is a cost-intensive investment that will only be undertaken by firms if relative costs of fossil energy sources rise significantly, or hefty subsidies are provided for renewable energy technologies (Horbach et al., 2012; Popp et al., 2010). In effect, a fundamental motivator for investing in RETs is the decreasing cost of the technologies relative to existing energy systems. Germany is one the countries following a decentralised approach of green transition where energy consuming firms are adopting renewable energy technologies thereby actively driving the transition process (Horbach & Rammer, 2018). Having combined Community Innovation Survey 2014 data and district-level data on renewable energy plants in Germany, Horbach and Rammer (2018) found a high and positive correlation between investment in renewable energy technologies and orientation of a region towards green issues, as well as geographical proximity to the renewable energy resources. They concluded that diffusion of renewable energy in firms is not solely driven by hard regulation measures but also the firms’ regional environment in the diffusion process. Nonetheless, the impact of policies and regulations cannot be downplayed in influencing the adoption of renewable energy innovations. Johnstone et al. (2010) analysed the effects of different policy instruments on the development of renewable energy technologies using a patent data for 25 countries spanning 1978-2003 period. Their analysis reveals that feed-in- tariffs led to the development of solar technologies by firms in these countries over the period but more cost-competitive technologies such as wind power are not triggered by this policy instrument. Groba and Breitschopf (2013), Cantner et al. (2016