energies

Article
Effectiveness of a Power Factor Correction Policy in
Improving the Energy Efficiency of Large-Scale
Electricity Users in Ghana
Samuel Lotsu 1 , Yuichiro Yoshida 2, * , Katsufumi Fukuda 3 and Bing He 2
1 Akosombo Hydro Station, Hydro Generation Department, Volta River Authority, 28 February Road,
Accra GA-145-7445, Ghana
2 Graduate School for International Development and Cooperation, Hiroshima University, 1-5-1 Kagamiyama,
Higashi-Hiroshima, Hiroshima-ken 739-8529, Japan
3 Center for Far Eastern Studies, University of Toyama, 3190 Gofuku, Toyama 930-8555, Japan
* Correspondence: [email protected]




Received: 22 May 2019; Accepted: 1 July 2019; Published: 4 July 2019


Abstract: Confronting an energy crisis, the government of Ghana enacted a power factor correction
policy in 1995. The policy imposes a penalty on large-scale electricity users, namely, special load
tariff (SLT) customers of the Electricity Company of Ghana (ECG), whose power factor is below 90%.
This paper investigates the impact of this policy on these firms’ power factor improvement by using
panel data from 183 SLT customers from 1994 to 1997 and from 2012. To avoid potential endogeneity,
this paper adopts a regression discontinuity design (RDD) with the power factor of the firms in the
previous year as a running variable, with its cutoff set at the penalty threshold. The result shows that
these large-scale electricity users who face the penalty because their power factor falls just short of
the threshold are more likely to improve their power factor in the subsequent year, implying that the
power factor correction policy implemented by Ghana’s government is effective.

Keywords: energy efficiency; power factor; regression discontinuity design

1. Introduction
The power factor is a relevant measure of the efficiency of electrical energy use. A higher power
factor implies efficient energy use and simultaneously ensures the safe, smooth, and efficient operation
of electrical utilities. The power factor is the ratio between active power and its vector sum with reactive
power, where active power executes actual work such as producing heat, illumination, and moving
vehicles and machines. Reactive power is used to maintain the electromagnetic field that ensures
the accomplishment of the work of active power. Summing the active and reactive power vectorially
produces an amount of apparent power, which defines the total required energy capacity. A high power
factor therefore implies an efficient use of the electricity generation capacity, while a low power factor
reflects an abysmal use of energy. Facilities with a low power factor use more electricity than actually
needed to conduct useful work [1]. A poor power factor should be corrected to reduce waste and the
production costs of energy and thereby to help save the environment. There are ways to improve a low
power factor to a desirable level of efficiency. The most mature, economical, and simple method is
through an investment by energy consumers in capacitor banks [2]. These banks compensate for the
inductive load demand of reactive power and thereby minimize the stress or burden on the electricity
supply system [3].
Another alternative would be the use of synchronous alternators (or synchronous compensators).
By exciting or de-exciting the magnetic fields, these inject reactive power into the network so that
the voltage profiles of the system can be improved and the losses can be reduced. However, their

Energies 2019, 12, 2582; doi:10.3390/en12132582 www.mdpi.com/journal/energies

Energies 2019, 12, 2582 2 of 11

high installation and maintenance costs make them unsuitable for such applications in developing
nations. Firms can further improve their power factor by carefully considering the design of processes
and load cycles that have a repetitive nature during the design phase. Such a technique typically
uses a computer algorithm to determine the ideal compromise in the relevant design parameters for
improved energy efficiency and power factors. This approach, however, achieves a higher power
factor at the sacrifice of reduced output levels in terms of the firms’ production.
A higher power factor results in lower energy-related costs to users. According to the literature,
improving power factors in industrial set-ups results in 10% to 30% cost savings. A study [4] estimated
the cost savings of an independent power producer that carried out a power factor correction measure
of its facility. However, the necessary investment in capacitor banks places a financial burden on
users, making them reluctant to improve their power factor. Regardless, given the growing concern
about climate change and increasing demand for electricity consumption, power factor correction has
the potential to affect long-term economic and environmental gains to society [5]. Many countries,
including Ghana, therefore urge electricity users, especially larger ones, to improve their power
factor through this policy. Since 1995, the government in Ghana has imposed a policy that penalizes
large-scale electricity users, labeled as special load tariff (SLT) customers, of the Electricity Company of
Ghana (ECG) whose power factor falls short of 90%. This paper investigates the effectiveness of this
power factor correction policy implemented by the Ghana government.
Historically, Ghana has been heavily dependent on hydro power supply, only in 2016 was it
exceeded by thermal generation. Prior to that point, hydro power had accounted for the majority of
the electricity supply of Ghana over history. As late as 2010, for example, the share of hydro power
was approximately 70%, while that of thermal was just approximately 30%. Power from renewable
energy (e.g., solar) entered the supply in 2013, but it accounts only for a negligible portion of the entire
power supply [6].
In 1983, Ghana was hit by a severe drought that continued into 1984. This situation led the
Akosombo Dam to experience a shortfall of water inflows, reaching below 15% of the long-term
projected total [6]. This shortfall impacted the electricity supply, as the country’s only electricity source
was the Akosombo and Kpong hydroelectric power stations. Volta Lake did not fully recover from
the 1983 drought before it was hit by another drought in 1993–1994, which again led to a reduction in
electricity to consumers. This crisis exposed the country’s vulnerability and security issues in terms of
hydroelectric power [7].
Previous research has revealed that power factor correction measures by industrial plants, mining
establishments, firms, and large commercial buildings can release 20 megawatts of tied-up electricity in
a year [7]. At that time, Ghana’s electricity capacity was approximately 900 megawatts, with a sizable
share exported to the Republics of Togo and Benin. In addition, SLT customers represented only a part
of the entire set of electricity users in Ghana. This release of 20 megawatts capacity from SLT customers
was therefore considered to be relevant by the government of Ghana in that context. To improve the
situation by raising the power factor among its users, in 1994, the government of Ghana announced
that it would restructure tariffs to penalize those that do not adopt power factor correction measures,
and it enacted this policy in January 1995 [7]. According to the policy, a user whose power factor is
below a certain threshold is charged a penalty. The penalty policy is applied to large-scale electricity
users, namely, the ECG’s SLT customers. Tariff categories in Ghana are classified into three main
groups, namely, (i) residential, (ii) nonresidential, and (iii) SLT customers [8]. Residential consumers are
domestic users and nonresidential customers use electricity for commercial purposes with a capacity
less than 100 kV [6]. SLT customers are defined as those that use energy for industrial purposes with
loads greater than or equal to 100 kVA. According to the policy, SLT customers of ECG whose actual
power factor falls short of 90% are to be penalized in proportion to the gap and to their size, measured
in terms of the maximum electricity demand. For example, if the actual power factor falls short of the
threshold by 5%, the penalty is 5% of the electricity bill, determined based on the maximum electricity
demand of the users. Users whose power factor is above or equal to 90% are not subject to this penalty.
Energies 2019, 12, 2582 3 of 11

A relatively large body of literature has investigated the impact of energy efficiency enhancement
policies on economic outcomes. For example, Costantini et al. [5] claim that sectoral energy efficiency
gains display a negative effect on employment growth. They showed that this negative effect is
stronger, in particular, in energy-intensive industries using data from 15 European countries. Lee and
Min [9] found a negative correlation between green R&D and the financial performance of Japanese
manufacturing firms. A study by Lee and Min [9] is, in the literature, one of a few that analyzes at the
firm level to obtain the relationship between policy and firm economic performance.
On the one hand, these studies seem to indicate a negative relationship between energy efficiency
improvement and business and economic performance. On the other hand, some of the more
theory-based analyses derive opposite results. For example, by using the ASTRA model, or a dynamic,
integrated macroeconomic, transport and environmental impact model, Ringel [10] concludes that
enhanced green energy policies in Germany trigger tangible economic benefits in terms of GDP growth
and new jobs, even in the short term. Hartwig et al. [11] use an input–output analysis-based model to
show the positive growth effects and employment of energy efficiency policy in Germany. Henriques
and Catarino [12] also use an input–output-based model, called the impact of sector technologies
(ImSET) model, to conclude that green investment has the potential to increase employment and wage
income. Allan et al. [13] use a computable general equilibrium (CGE) model to measure the impact of
energy efficiency improvement in the UK.
In turn, there is a relatively smaller body of literature investigating the impact of policy on
improvements in energy efficiency. Tanaka [14] provided an extensive review of energy efficiency
policies implemented in the member countries of the International Energy Agency. Cox et al. [15]
provided a review of non-energy- related policies. Among these studies, Xiong et al. [16] claim that
a policy to restructure the industrial organization would have a large positive impact on provincial
industrial energy efficiency in China. They used a slacks-based measure (SBM) that is a sophisticated
variation of data-envelopment analysis (DEA), or a linear programing approach, where they allowed the
existence of undesirable outputs to address the environmental burden due to inefficiency. They used
a Tobit regression to reveal the positive association between industrial organization and energy
efficiency as the second-stage regression following the efficiency measurement by SBM. Villca-Pozo &
Gonzales-Bustos [17] found, at a provincial level, that tax policies to modernize the energy efficiency of
housing in Spain have a nonsignificant impact on energy efficiency. At a more micro level, Anderson &
Newell [18] found that manufacturing plants that receive government-sponsored energy audits have
improved energy efficiency.
While these papers use a reduced form regression, such as the Tobit, to obtain a relationship
between policy and energy efficiency, there are more model-based studies that construct a theoretical
model to describe the mechanism between policy and energy use. Ringel [10] investigated the
linkage between green energy policies in Germany and the country’s primary energy consumption
and greenhouse gases using the ASTRA model. Li et al. [19] used the VALDEX index that is a
measure of energy efficiency based on value added, to find the impact of policies on eliminating
low-efficiency production capacity and improving the energy efficiency of energy-intensive industries
in China. Using a bottom-up approach, Fleiter et al. [20] investigated the impact of grants for small
and medium enterprises in Germany to carry out energy audits of their facilities on their energy
efficiency improvements.
Most of these studies, however, either showed a correlation between policy and energy efficiency
or derived the results based on models that are dependent on their assumptions. For example, the Tobit
regression conducted by Xiong et al. [16] shows a correlation and does not reveal the causation between
policy and energy efficiency. In fact, relatively few studies have used appropriate empirical strategies to
determine policy impact on energy efficiency. Yu & Zhang [21] investigated the impact of a “smart city
policy” implemented in China on energy efficiency using a difference-in-differences (DID) approach at
a city level. However, DID only addresses the time-invariant heterogeneity and is still based on the
selections-on-observables assumption. In addition, many of these studies investigated the impacts of
Energies 2019, 12, 2582 4 of 11

energy efficiency policies at an aggregated level. To our knowledge, no study has investigated the
impact of a power factor correction policy on its improvement by applying a reliable identification
strategy to more micro-level data.
This paper, therefore, aims to add to the literature by identifying the causal impact of the power
factor correction policy on energy efficiency improvement using firm-level data. Specifically, this study
applies a regression discontinuity design (RDD), with a cutoff at the 90% penalty threshold stipulated
by the policy, to five years of panel data consisting of 183 SLT customers of ECG for the years following
the policy announcement in 1994 to 1997 as well as in 2012. The paper shows the effectiveness of the
power factor correction policy in Ghana: firms strictly improved their power factor if it fell short of the
required threshold. This paper is organized as follows. Section 2 discusses the data and identification
strategies. Section 3 presents the estimation results. Finally, Section 4 concludes the paper.

2. Empirical Strategy

2.1. Data
A series of power crises in Ghana, mainly due to low water inflows, were recorded during multiple
periods. The first power crisis dates back to the early 1980s, and this was followed by another in 1998.
During these periods, many large-scale electricity users did not operate at their full capacity. Hence,
we constructed our time-series data set starting from the year just before the policy enforcement up to
the year just before the second power crisis took place in 1998.
Due to power crises, some large-scale electricity users ceased operations either temporarily
or permanently. We excluded those SLT users from our data and limited it to the companies that
sustained their business during our sample period to construct strongly balanced panel data. Thus,
we constructed panel data for 183 SLT companies for five years, namely, from 1994 to 1997 and for 2012,
which comprised 915 observations. Our data included power factor values of these SLT companies
obtained from the ECG. Data collection took place in 2017.
Table 1 shows the summary statistics for these 183 companies. Our outcome was a dummy
variable that indicated whether the firm improved its power factor compared to the previous year; it
took a value of one if the firm’s power factor improvement from the previous year was strictly positive,
and zero otherwise. SLT customers are categorized in terms of the voltage with which their electricity
is supplied. High-voltage SLT customers are those firms that are supplied electricity at 33,000 volts;
medium-voltage customers are supplied at 11,000 volts; and low-voltage SLT customers are supplied
at 415 volts. The observed panel data from the ECG provide information for SLT customers in Greater
Accra, which consists of Tema, East and West Accra, as well as the Western Region of Ghana. Tema is
the industrial hub of Ghana, and most SLT customers are located in these study areas.
Figure 1 provides a box plot of the power factor distribution over the sample period and clearly
shows the overall improvement of the power factor among the SLT customers over the years. The policy
was first announced in 1994 and enacted in 1995. Table 1 shows that as many as 88.5% of firms improved
their power factor between 1994 and 1995, immediately after the policy announcement. The mean
and minimum values of the power factor among these firms continuously improved over the period.
By 2012, the average was above the penalty threshold of 90% and the minimum value had reached as
high as 74%.
Energies 2019, 12, 2582 5 of 11

Table 1. Summary statistics.

Variable N. Obs. Mean Std. Dev. Min Max

Power factor 915 0.821 0.127 0.35 0.98
Year 1994 only 183 0.765 0.127 0.35 0.96
Year 1995 only 183 0.799 0.139 0.36 0.97
Year 1996 only 183 0.810 0.132 0.37 0.98
Year 1997 only 183 0.830 0.124 0.37 0.98
Year 2012 only 183 0.903 0.042 0.74 0.97
High-Voltage SLT Customers only 395 0.818 0.142 0.35 0.98
Medium-Voltage SLT Customers only 340 0.812 0.118 0.49 0.98
Low-Voltage SLT Customers only 180 0.847 0.103 0.59 0.98
SLT Customers in Greater Accra only 520 0.842 0.106 0.44 0.98
SLT Customers in Tema only 275 0.861 0.099 0.44 0.98
SLT Customers in Western Region only 395 0.794 0.145 0.35 0.97
Improvement of power factor (a dummy variable) 732 0.701 0.458
from year 1994 to year 1995 183 0.885 0.320
from year 1995 to year 1996 183 0.623 0.486
from year 1996 to year 1997 183 0.634 0.483
from year 1997 to year 2012 183 0.661 0.475
Notes: The data includes a balanced five-year panel of 183 firms. The power factor data are provided by Electricity
Company of Ghana and measured in the incremental unit of 0.01. Year 1994 is before the policy enforcement and
years 1995 to 1997 and 2012 are after policy enforcement. Improvement of power factor is a dummy variable that
takes a value of one for the firm whose power factor has strictly improved since the previous year, and zero otherwise.

Figure 1. Box plot of power factor distribution over the sample period. A line in the middle of each box
indicates the median of the sample in each year. The left and right edges of each box show the first and
the third quartiles, respectively. Whiskers show the upper and lower adjacent values. The upper (or
lower) adjacent value is the largest (or the smallest) observation that is within 1.5 times the interquartile
range from each edge of the box. Dots are the units outside of the adjacent values.

2.2. Identification Strategies

The summary statistics above seem to indicate the effectiveness of the power factor correction
policy introduced by the government of Ghana. However, the unobserved heterogeneity between the
efficient and inefficient units may well confound our outcome in terms of whether they improved their
power factor when facing the penalty set forth by the policy. That is, we cannot simply compare the
Energies 2019, 12, 2582 6 of 11

outcomes of inefficient firms to those of more efficient firms above the threshold when investigating
the impact of the power factor correction policy on the improvement exhibited by these firms.
We bypassed this issue of potential endogeneity by conducting an RDD with a cutoff at the penalty
threshold set by the policy. RDD is a quasi-experimental method used to identify the average treatment
effect of those units around the threshold called a cutoff (please see Appendix A for more details).
In the context of RDD, treatment assignment is performed according to whether the observation units
are below or above the cutoff. RDD enables a local average treatment effect (LATE) to be identified for
those units around the cutoff, even under a situation like ours where conducting a pure randomized
experiment or randomized controlled trial (RCT) is not possible (see, for example, Moscoe et al. [22] for
details.) When the treatment assignment is unambiguously determined by whether the unit is above
or below the cutoff, it is called the sharp RDD. In our case, units will face a penalty if the power factor
is below the threshold but not if the power factor is above or equal, without exceptions. Therefore,
we must utilize the sharp RDD strategy. In turn, if the treatment assignment depends, but not solely,
on whether the unit lies below or above the cutoff, one must use the fuzzy RDD. That is, if by the
research design, noncompliers exist, fuzzy RDD is the appropriate identification strategy.
According to the policy, firms whose power factor is below 90% are charged a penalty. Note that
firms cannot independently observe their power factor precisely, which suggests that it would be
difficult for firms to precisely manipulate their power factor values. Instead, the power factor is
measured periodically by the electricity company. In the case of Ghana, the ECG reports their power
factor to the firms along with the amount of the penalty, if any. At the end of each month, ECG delivers
the electricity bills along with the amount of penalty and the power factor to the customers. The firm
then decides whether to invest in power factor improvement. Our data only contain the annual average
of the power factor reported to the customers in our sample. To allow for this time lag in decision
making by the firms, we used the power factor in the previous year as a running variable that indicated
whether the firm faced the penalty in the previous year. Although the penalty scheme designed by
the policy in Ghana exhibits a kink at the threshold because our outcome is a binary variable, we still
adopt an ordinary discontinuity design, rather than a kink RDD. Because our outcome variable is an
indicator capturing whether the firm has improved its own power factor from the previous year, the
same company should be tracked to enable our identification. As mentioned earlier, our outcome was a
binary variable that took a value of one if a firm strictly improved its power factor independently from
the previous year, and zero otherwise. This empirical strategy with lagged and differenced variables
made our working sample a four-year panel from 1995 to 1997 plus 2012 for 183 firms, consisting of
732 observations.
ECG measures the power factor of SLT customers in the incremental unit of 1%. Thus, any firm
whose power factor is equal to or less than 89% faces the penalty, while those at 90% or above do not.
We, therefore, set the cutoff of the running variable at 89.5% in our RDD to determine whether this
policy implemented by Ghana’s government indeed induced SLT customers of the ECG to improve
their power factor.

3. Results
Table 2 presents the RDD estimation results. Column (1) shows the impact of the penalty policy,
measured as a gap in the power factor improvement probability between those two types of firms,
namely, those whose power factor in the previous year was just above and those whose power factor
was below the threshold, estimated using the full sample. Column (2) shows the same impact estimated
using only the subsample from 1995 to 1997. We refer to them as Models 1 and 2, respectively.
The coefficients were significantly negative in both models, which indicated that, relative to those
immediately below the cutoff, those firms whose power factor was immediately above the cutoff in the
previous year exhibited a strictly smaller probability of improving their power factor in the current
year. In other words, the firms that were penalized were more likely to improve their power factor in
the following year.
Energies 2019, 12, 2582 7 of 11

Table 2. Sharp regression discontinuity design (RDD) estimation results.

(1) Full Sample (2) Subsample of Years from 1995 to 1997

Dependent Variable Power Factor Improvement Power Factor Improvement
Treatment −0.455 *** (0.104) −0.598 *** (0.127)
N. obs. 732 549
N. obs. above the cutoff 278 183
N. obs. below the cutoff 454 366
Effective N. obs. above the cutoff 116 76
Effective N. obs. below the cutoff 52 44
Bandwidth 0.020 0.020
Notes: Standard errors are in parentheses. Statistical significance at 1% is indicated as ***. The dependent variable is
a dummy variable that takes the value of one if a firm strictly improved its power factor since the previous year,
and zero otherwise. The running variable is the power factor in the previous year with a cutoff at 0.895. The model
in column (1) uses the entire sample of four years, namely, three years from 1995 to 1997 as well as 2012. The model
in column (2) uses the subsample of three years from 1995 to 1997 only. Bandwidths in both models are selected by a
mean-squared error optimal bandwidth selector. Kernel type of a triangular function is used in both models.

This result is also clearly shown in Figure 2, where the probability of power factor improvement
is shown on the vertical axis over the level of the power factor in the previous year on the horizontal
axis. Panel (a) shows the figure for Model 1, while panel (b) does the same for Model 2. In both figures,
there is a clear discontinuity at the penalty threshold, which is shown as a vertical line. The results
show that firms slightly below (i.e., on the left of the cutoff) were much more likely to improve their
power factor than firms that were slightly above the threshold line (or on the right of the vertical line).
Indeed, the probability of power factor improvement was approximately 90% for firms immediately
below the threshold, while only approximately half of the firms immediately above the threshold
exhibited an improvement (the gray dot shows the local average within each bin).
A closer look at the result reveals that the effect is stronger in Model 2 than in Model 1. The estimate
of the gap in the probability of power factor improvement between firms immediately below and those
immediately above the cutoff is as large as 59.8% in Model 2. Figure 2 also shows that the gap is larger
in Model 2. The plot of the probability of power factor improvement in Model 2 depicted in panel
(b) of Figure 2 shows that firms that were slightly above the threshold were less likely to improve
their power factor than the firms in Model 1 depicted in panel (a). In Model 2, we have only three
consecutive years; therefore, the resulting greater impact in Model 2 suggests a strong short-term effect
of the policy. These results imply that the policy was effective in giving a strong incentive to firms,
particularly those that fell slightly below the penalty threshold, to improve their power factor, even in
the short term.
Energies 2019, 12, 2582 8 of 11

Figure 2. Probability of power factor improvement and its discontinuity at the penalty threshold. The probability of power factor improvement is on the vertical axis,
and the level of the power factor in the previous year is on the horizontal axis. The cutoff is shown as a vertical line at 0.895 of the horizontal axis. The number of
observations used in panel (a) is 732, of which 454 are on the left and 278 are on the right of the cutoff. The number of observations used in panel (b) is 549, of which
366 are on the left and 183 are on the right of the cutoff.
Energies 2019, 12, 2582 9 of 11

4. Concluding Remarks
In confronting its energy crisis, the government of Ghana enacted a power factor correction
policy in 1995. The policy imposes a penalty on large-scale electricity users, labeled as SLT customers
of the ECG, when their power factor falls below the threshold of 90%. This paper investigated the
policy-induced improvement in these firms’ power factor by applying RDD to panel data for 183 SLT
customers. Our sample period ranged from 1994, when the policy was first announced, to 1997 and also
included data for 2012. Specifically, we defined our running variable as the value of the power factor
in the previous year, with the cutoff being the penalty threshold. Our outcome was a binary variable
indicating whether the firm strictly improved its power factor since the previous year. The results
show that the SLT customers whose power factor fell slightly below the threshold in the previous year
were indeed more likely to improve their power factor, and the effect was stronger when we limited
our sample period to a shorter term. This finding suggests that the power factor correction policy
implemented by Ghana’s government had an immediate impact on energy efficiency improvement by
the country’s large-scale electricity users.
Over the last few decades, the total power generation capacity has been constantly increasing in
Ghana, and the majority of such change is attributable to the growth of thermal power generation.
As a result, the installed capacity of hydro power is now 1584 megawatts and that of thermal is
3456 megawatts, while renewable energy is only approximately 42 megawatts [23]. With the thermal
share of the generation mix now being at 68% and hydro set to reduce further, electricity prices will
largely depend on international fuel prices; Ghana will thus be more vulnerable to global energy
shocks. Energy efficiency has become even more relevant, and power factor improvement is one of the
most important, simplest, and inexpensive strategies for achieving efficiency. For Ghana, like other
new emerging economies with low energy efficiency, an efficient and stable electricity supply is a
prerequisite for achieving its goal of consolidating its middle-income status via industrialization.

Author Contributions: Conceptualization, S.L. and Y.Y.; Methodology, Y.Y.; Software, Y.Y.; Validation, Y.Y. and
K.F.; Formal Analysis, Y.Y.; Investigation, Y.Y.; Resources, S.L.; Data Curation, S.L. and B.H.; Writing-Original
Draft Preparation, S.L.; Writing-Review & Editing, Y.Y. and K.F..; Visualization, Y.Y.; Supervision, Y.Y.; Project
Administration, Y.Y.; Funding Acquisition, Y.Y.
Funding: This work is partly supported by the Ministry of Education of Japan Grant-in-Aid for Scientific Research
#16K03628.
Acknowledgments: We thank Takahiro Ito for his constructive comments.
Conflicts of Interest: The authors declare no conflicts of interest.

Appendix A

A.1. Regression Discontinuity Design

Let Ti be the treatment variable for firm i such that
(
0, i f zi ≥ z
Ti =
1, i f zi < z

where zi is a running variable for firm i, and z is the cutoff of the running variable. In our context, Ti is
an indicator that firm i faces the penalty, and zi is the power factor of firm i in the previous year.
We then describe the outcome Yi as
K
X K
X
Yi = β0 + αTi + βk ( z i − z ) k + γk (zi − z)k Ti + ui
k =1 k =1

where α gives the causal effect of the treatment.

Energies 2019, 12, 2582 10 of 11

In estimating the causal effect α, we weight observations according to the distance to the cutoff
on the domain of the running variable. The weight is computed automatically by optimizing the
mean-squared error of the estimation.

A.2. Estimation Code

We conducted the actual estimation using STATA 15. The actual code is as follows:

rdrobust dpfpositive pf_1, c(0.895).

Here, rdrobust is the command to conduct an RDD estimation. The variable dapfpositive is an
indicator that takes a value of one if the change in power factor is strictly positive, while pf_1 is the
power factor in the previous year. The last term, c(0.895), indicates that the cutoff z in our case is 0.895,
implying that the firms with a power factor of 89% or below face the penalty, while the firms with 90%
power factor and above do not.

References
1. Oo, M.T.; Cho, E.E. Improvement of power factor for industrial plant with automatic capacitor bank.
In Proceedings of the World Academy of Science Engineering and Technology, Boston, MA, USA, August
2008; Volume 32.
2. Umesh, S.; Venkatesha, L.; Usha, A. Active power factor correction technique for single phase full bridge
rectifier. In Proceedings of the 2014 International Conference on Advances in Energy Conversion Technologies,
Manipal, India, 23–25 January 2014; pp. 130–135.
3. Kueck, J.; Kirby, B.; Rizy, T.; Li, F.; Fall, N. Reactive Power from Distributed Energy. Electr. J. 2006, 19, 27–38.
[CrossRef]
4. Adefarati, T.; Oluwole, A.S.; Olusuyi, O.; Sanusi, M.A. Economic and Industrial Application of Power Factor
Improvement. Int. J. Eng. Res. Technol. 2013, 2, 1945–1955.
5. Costantini, V.; Crespi, F.; Paglialunga, E. The employment impact of private and public actions for energy
efficiency: Evidence from European industries. Energy Policy 2018, 119, 250–267. [CrossRef]
6. Kumi, E.N. The Electricity Situation in Ghana: Challenges and Opportunities; Center for Global Development:
Washington, DC, USA, 2017.
7. Edjekumhene, I.; Amadu, B.M.; Brew-Hammond, A. Power Sector, Reform in Ghana: The Untold Story;
Kumasi Institute of Technology and Environment (KITE): Accra, Ghana, 2001.
8. Ajodhia, V.; Mulder, W.; Slot, T. Tariff Structures for Sustainable Electrification in Africa; European Copper
Institute (ECI): Arnhem, The Netherlands, 2012.
9. Lee, K.H.; Min, B. Green R&D for eco-innovation and its impact on carbon emissions and firm performance.
J. Clean. Prod. 2015, 108, 534–542.
10. Ringel, M.; Schlomann, B.; Krail, M.; Rohde, C. Towards a green economy in Germany? The role of energy
efficiency policies. Appl. Energy 2016, 179, 1293–1303. [CrossRef]
11. Hartwig, J.; Kockat, J.; Schade, W.; Braungardt, S. The macroeconomic effects of ambitious energy efficiency
policy in Germany–Combining bottom-up energy modeling with a non-equilibrium macroeconomic model.
Energy 2017, 124, 510–520. [CrossRef]
12. Henriques, J.; Catarino, J. Motivating towards energy efficiency in small and medium enterprises. J. Clean. Prod.
2016, 139, 42–50. [CrossRef]
13. Allan, G.; Hanley, N.; McGregor, P.; Swales, K.; Turner, K. The impact of increased efficiency in the industrial
use of energy: A computable general equilibrium analysis for the United Kingdom. Energy Econ. 2007, 29,
779–798. [CrossRef]
14. Tanaka, K. Review of policies and measures for energy efficiency in industry sector. Energy Policy 2011, 39,
6532–6550. [CrossRef]
15. Cox, E.; Royston, S.; Selby, J. The Impacts of Non-Energy Policies on the Energy System: A Scoping Paper; UKERC:
London, UK, 2016.
16. Xiong, S.; Ma, X.; Ji, J. The impact of industrial structure efficiency on provincial industrial energy efficiency
in China. J. Clean. Prod. 2019, 215, 952–962. [CrossRef]
Energies 2019, 12, 2582 11 of 11

17. Villca-Pozo, M.; Gonzales-Bustos, J.P. Tax incentives to modernize the energy efficiency of the housing in
Spain. Energy Policy 2019, 128, 530–538. [CrossRef]
18. Anderson, S.T.; Newell, R.G. Information programs for technology adoption: The case of energy-efficiency
audits. Res. Energy Econ. 2004, 26, 27–50. [CrossRef]
19. Li, L.; Wang, J.; Tan, Z.; Ge, X.; Zhang, J.; Yun, X. Policies for eliminating low-efficiency production capacities
and improving energy efficiency of energy-intensive industries in China. Renew. Sustain. Energy Rev. 2014,
39, 312–326. [CrossRef]
20. Fleiter, T.; Gruber, E.; Eichhammer, W.; Worrell, E. The German energy audit program for firms—A
cost-effective way to improve energy efficiency? Energy Effic. 2012, 5, 447–469. [CrossRef]
21. Yu, Y.; Zhang, N. Does smart city policy improve energy efficiency? Evidence from a quasi-natural experiment
in China. J. Clean. Prod. 2019, 229, 501–512. [CrossRef]
22. Moscoe, E.; Bor, J.; Bärnighausen, T. Regression discontinuity designs are underuti-lized in medicine,
epidemiology, and public health: A review of current and best practice. J. Clin. Epidemiol. 2015, 68, 132–143.
[CrossRef] [PubMed]
23. Energy Commission. Electricity Supply Plan for the Ghana Power System; Energy Commission: Accra, Ghana, 2019.

© 2019 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access
article distributed under the terms and conditions of the Creative Commons Attribution
(CC BY) license (http://creativecommons.org/licenses/by/4.0/).