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.

This paper investigates the economic impact of an energy efficiency improvement policy on electricity-intensive firms in Ghana. The policy imposed a penalty on these electricity-intensive firms, which are referred to as special load tariff (SLT) customers, when their power factor was below 90%. This paper applies the regression discontinuity design (RDD) to the panel data of these SLTs ranging from 1994 to 2012, excluding those years characterized by energy crisis. The results show adverse impacts of the policy on the employment and salary levels of the firms in the long run, in particular, the small- and medium–voltage firms. The results indicate that small- and medium–voltage firms are economically vulnerable to the penalty policy in the long run and recommend two policies to overcome this challenge. Firstly, the penalty for power factor improvement should not be imposed identically across firms with different voltage levels. Secondly, firms that satisfy the power factor standard should receive subsidies to improve their competitiveness in the market.