Effect of Geothermal Generation on Energy Costs and GDP

The paper is a three step analysis; it seeks to look at the impact of geothermal generation on the economy whether there is a bi-directional causality between economic growth, electricity consumption and electricity generation. Emphasis is being placed on specific source of energy-geothermalto show that it being renewable energy and a comparative least cost source of energy, it will have a significant impact on tariff reduction. By use of Vector Error Correction Model and Granger Causality Test on the data availablefor the period ranging from 1990 to 2016. Assessment is done against the different sectors of the economy to ascertain any correlation/causality between electricity tariff, electricity consumption/electricity generation and the various GDP components/sectors. The results show that reduced energy tariffs results to economic growth in the Construction sector and the Manufacturing sector specifically-bundled up to represent the goods industry and geothermal being the comparative least cost of energy source plays a significant role in increasing electricity consumption resulting from reduced costs and consequently economic growth through the Construction sector, Manufacturing sector, Wholesale and Retail-Goods Industry. Noting the findings, the government should undertake expansion focusing the least cost energy source; consider price discrimination for the low income and the manufacturing industries in order to accelerate electricity access from the current estimate of 48% of the population in both urban and rural areas so as to increase electricity consumption.