Introduction
Ghana’s power sector has undergone major reforms in the past three decades which were expected to result in a more effective regulation of the sector, increased capacity and efficiency, and provided stable, reliable and effective power generation. This saw the introduction of technical and economic regulators to the sub-sector; independent transmission companies; independent power producers (IPPs); and alternative power sources.
The reforms created a more defined and lucid participation in the sector as the Ministry of Energy (MoEn)/ Ministry of Power (MoP), the Volta River Authority (VRA), the Northern Electricity Distribution Company (NEDCo), the Electricity Company of Ghana (ECG), the Energy Commission (EC), and the Public Utility Regulatory Commission (PURC) became major agencies with defined roles. Nonetheless, Ghana’s power generation capacity has not realised any significant changes to meet its growing power needs.
The structure and dynamics of the sector
The Ministry of Energy (MoEn) was responsible for setting energy policies until recently when a power ministry took over activities under power. Prior to 2008, the Volta River Authority (VRA) was the state utility responsible for electricity generation, transmission and distribution in Ghana. Today, VRA is limited to the generation of power, whiles the Northern Electrification Distribution Company (NEDCo) remains responsible for – and is the sole distributor of – electricity in the northern regions of Ghana; the Brong-Ahafo, Northern, Upper East, Upper West, and parts of Ashanti and Volta Regions. VRA’s electricity transmission function has been passed on to the Ghana Grid Company Limited (GRIDCo) – a process completed in 2008. The Electricity Company of Ghana (ECG) established for the purpose of purchasing electricity from VRA at a bulk tariff, distributes only to the southern regions.
GRIDCo is responsible for operation of the National Interconnected Transmission System (NITS) (including dispatch), bulk power purchase of electricity from generators and sale to NEDCo and ECG. It was also intended that VRA’s distribution function in the northern regions of Ghana, currently vested in NEDCo, will be transferred to ECG, thereby creating a national distribution utility. Generators wishing to be connected to the transmission system must therefore enter into an electrical connection agreement with GRIDCo.
Currently, the dominant Independent Power Producers in the generation business are Sunon Asogli Power Limited (SAP), Cenit Energy Limited, and Takoradi International Company (TICO). Transmission of power from IPPs still rests with GRIDCo whiles Enclave Power has special arrangements to also distribute.
The Power sector in Ghana has approximately 2,923.5MW of installed capacity, shared among IPPs and State utilities. GSS Data indicates that hydro-electric generation installed capacity stands at 1,580 MW. Of this, Akosombo provides 1,020MW which accounts for about 36% of total electricity generation installed capacity, with Bui and Kpong providing 400MW (14.1%) and 160 MW (5.7%) respectively. Thermal installations such as Takoradi Power Company (TAPCO), Takoradi International Company (TICO), Sunon Asogli Power Limited, Cenit Energy Limited, Tema Thermal 1 Power Plant, Tema Thermal 2 Power Plant, Takoradi T3 and the Mines Reserve Plant together have an installed capacity of approximately 1,341MW ( 44 % of total installed capacity) with VRA Solar adding 2.5MW. This does not necessarily translate to electricity generated.
Ghana’s Power needs is projected to exceed 5000MW by 2016 as a result of increased business and household activities, GoG projection of 80% electrification by 2016, and the goal of the Ministry of Energy (MoEn)/ Ministry of Power to become a major exporter of electricity in the sub-region, amongst others. By 2030, with a projected 40 million people living in Ghana, the country’s energy demand would require the generation of between 18,000 to 25,000MW corresponding to a per capita output of approximately 3,000KWh. (Source: IID, Ghana). We must in earnest double our generating capacity to meet our short term production goals, whiles implementing strategies to move our country into self efficiency in power.
Sector Challenges
Ghana has two regulatory entities for the power sub-sector – a technical and an economic regulator. Generation licenses are granted by the Energy Commission, which is also responsible for formulating electricity policies governing the electricity sector, including a grid code. The Energy Commission is essentially a technical regulator. The Public Utilities Regulatory Commission (PURC) is responsible for the economic regulation of the sector (as well as gas and water), including the setting of tariffs.
The power generation utilities have always been short changed by the economic regulator in charging economic tariffs even though the tariff regime is suppose to be automatic. To increase their capacity to meet growing demands, state utilities continue to borrow from the market either for new investments or to shore up their forex needs to buy enough fuel to ensure continuous generation.
The VRA for instance has a bulk generation charge which is way lower than the actual cost of thermal generation. The forex depreciation situation also pose a major problem for these utilities, as only a few bulk power users pay in dollars, whiles the majority by far pay in cedis in a sector where consumable purchases such as crude are made in US dollars. The bulk generation charge from VRA for instance has decreased from 5.7486 US cent/kWh from 1st October 2013 to 4.5683 US cent/kWh as at 1st Oct 2014. This is mainly as a result of the depreciation of the cedi from 1.9988 to 3.197 within a year, eroding the any gains on generation charges.
The efficiency of generation utilities may also have to be revisited in our quest to create an optimal tariff regime that in effect will pass on the actual efficient cost of power production to the distributor and ultimately the end user. Some bulk distributors and users fail to pay utility generators on time, which also affect liquidity and efficiency of the generators. They therefore have to resort to borrowing at interest that may not be passed on to debtors. The cycle of inefficiency, indebtedness and under-recovery continues.
Opportunities
The President of the World Bank on Oct 30th 2015 in an article in reference to Ghana commented on the importance and opportunities in investing in cheap, reliable and sustainable energy. He reiterated that ‘energy rationing is a challenge in sub-Saharan Africa – the region loses 2.1% of GDP from blackouts alone. Businesses cannot thrive without access to reliable and competitively priced modern energy. Every dollar invested in power supply generates more than $15 in incremental GDP.’’
Demand for power in Ghana is estimated to linger around 8% annually. GoG, VRA and various IPPs have lined up projects earmarked for 2016 to 2024 expected to generate additional 5,699 MW. A lot more IPPs continue to throng into the country to take advantage of the opportunities that our energy crisis presents, and in response to the clarion call from our president His Excellency John Mahama for investment in the sector.
As much as we welcome these initiatives and responses, we must focus on admitting cleaner, reliable and cheaper energy source providers. We must grab the renewable energy revolution with both hands and feet. Remember sometime past Akosombo was so cheap, and its supply of electricity was in excess of our needs. We then decide to go into power generation-oblivion, and expected the power sector to expand by itself as our power needs increased. Today, we are struggling to power our nation of only 24million people.
We see a power revolution taking place in this country. And we at Strasol Global believe our focus as a nation must be on renewable energy and not fossil fuel energy generation sources. In a 2014 March 17 article in the Economy Times by Shreya Jai of the ET Bureau captioned “Solar Power: Cost of production dropped 60%; price to equal thermal power’s in three years.” And I quote: “Solar is just 14 per cent above thermal. Its price prognosis is also better. Even as coal and natural gas become costlier, solar plants bask in free and ample sunshine and falling equipment prices. All this is taking the energy sector towards a game-changing milestone: grid parity or the situation where solar costs the same as conventional sources”. Today it is actually cheaper.
Fossil-based fuels (oil, coal, and natural gas) currently provide about 85% of all the energy use worldwide, but continue to deplete and cannot be replaced. Its remaining amount is often characterized by so-called Reserves-to-Production ratio (R/P). R/P basically gives us the length of time reserves would last if their usage continues at a current rate. Today global total R/P ratios for the main conventional fuels stands at about: oil – 46yrs, natural gas – 58years, coal -118 years. (Changes with new discoveries).
Today in California massive research labs are creating better, cheaper, effective and reliable renewable energy products. Companies like Honda, PE&ECorp, Goldman Sachs, Google, Citibank, Rabobank, US Bancorp, and Credit Suisse are investing tonnes of millions of dollars in research and development into cleaner energy. Today, increased research into photovoltaic plates has made solar energy desirable, and is able to generate more power than previously envisaged. Today technological advancement has made it possible for companies such as Tesla to create batteries that are able to store power so efficiently that it almost stands at par with flowing electric current. Solar thermal generation has proven to be excitingly clean and cost effective.
Conclusion
Ghana’s power sector has gone through various structural changes that have not reflected positively on our energy poverty. The investment in the sector earmarked for 2016 to 2024 which may, if completed, lead to significant growth in our generation capacity has rather been skewed towards fossil fuel based generation. Even though most of these investments are considering gas usage, the issues confronting Ghana’s fuel purchase sustainability to power these generators, and the reliance on both our own gas production and the West Africa gas pipeline may never go away.
Societal and environmental cost embedded in conventional energy may never be realised no matter how effective the tariff regimes become. Aside being finite, energy production from fossil fuels results in by-products of combustion, or emissions. These emissions affect our environment and may have other cost implications on our existence – flash floods, high temperatures, famine, disease, etc.
In contrast, renewable energy (RE) resources are constantly replenished naturally and will never be exhausted. Their use generally has a little or no environmental impact compared to conventional fuels. That is why technologies that utilize them are often called “green”. In addition, renewable energy can boost Ghana’s energy security by lowering dependence on importation of unstable and expensive fossil fuel based consumable in the sector. All these factors, together with government incentives and mandates must result in growing interest in using alternative sources of energy – renewable energy for that matter.
As a country, we missed the opportunity to develope our nuclear energy resources. We must not repeat this rather unfortunate feat. We should pursue a stronger agenda with renewable energy than what the present Renewable Energy Act (832) seeks to achieve. We must jump at this revolution and be at the forefront of creating a greener Ghana where energy is cheap, clean and reliable; a system which would serve as a benchmark for the continent.
For us as Strasol Global, increasing participation of independent producers in cheaper and cleaner alternative sources of energy is the way to go.
Author: Kofi Owusu-Acheaw, is the founder of Avar Group; with interest in energy and natural resource marketing, research, support & development; investment advisory, etc.
Kofi is a product of the University of Ghana’s Economic Policy Management Programme, the GIMPA Business School, amongst others.
Contact: avargroup@hotmail.com
