Energy was a key issue in the election campaign of Ghana’s President Nana Akufo-Addo, who began in January 2017. In particular, he promised to reduce electricity bills, improve access to and the reliability of the grid, increase private sector investment and accelerate renewables penetration in Ghana’s power sector. But the President is facing a tough task. Ghana has yet to meet its 5GW generating capacity target, which was due by 2016. It has also failed to fully implement a renewable energy law from 2011, it is set to miss its targeted 10% renewables share of capacity by 2020 (excluding large hydro) and its people are reacting to a 43% hike in the power price since 2014.
New investment into Ghana’s power sector has stalled in 2017 thanks to the President’s decision to review the Renewable Energy Act and all 43 existing power purchase agreements (PPAs) for projects yet to be constructed. To date, the government has canceled 20 and reviewed four PPAs. Low auction prices elsewhere in the region, such as the 2016 round in Zambia as part of the Scaling Solar initiative, have ignited price concerns while fears of capacity installations outpacing demand growth has led to the government revisiting estimated project commissioning windows. Price concerns were alleviated in September 2016 when Ghana held an auction for 20MW of grid-connected solar. Biotherm, the winner, secured a contract at a price lower than the available feed-in tariff but, crucially, for 20 years rather than the 10 offered under the feed-in tariff (ultimately a higher price when annualized over a 20-year project lifetime).
High on the President’s agenda will be improving the credit-worthiness of the state utility and offtaker – Electricity Company of Ghana (ECG). A companywide restructuring is underway with help from a five-year compact agreement and funding package signed with the U.S. Millennium Challenge Corporation. Despite having a generous renewables feed-in-tariff in place since 2013, Ghana has only connected two solar projects totaling 22MW and a 0.4MW wave energy plant. ECG’s mountain of debt fuelled by poor metering, not cost-reflective tariffs, theft and transmission losses, and its inability to pay existing accounts payables have prevented developers from raising finance for new projects. The private sector insists on, at least, one of a number of financial products to protect against offtaker risk, including a: put call option agreement (PCOA) and government consent and support agreement (GCSA), but these are not readily available. Austerity measures under the country’s IMF bailout package limits its ability to issue more conventional sovereign or partial risk guarantees.
Large hydro accounts for over half of the country’s 2.9GW installed generating capacity. The remainder is made up of diesel, gas and heavy fuel oil plants. Low water levels, fuel supply issues and poor maintenance have conspired to lower the capacity factors of the existing fleet. In response, the government signed expensive short-term contracts for 465MW of emergency, temporary, capacity – including a floating power plant. Since supply from the West African Gas Pipeline is unreliable and flows from Ghana’s Jubilee field inconsistent, the government is looking to invest in LNG processing and infrastructure. Another gas field, Sankofa, is also under development. Diesel and heavy fuel oil plants have curbed production thanks to cash-strapped generators being unable to cover the cost of fuel based on current tariffs.
Officially, Ghana’s electrification rate stands at around 75%. Unofficially, there are concerns over the legitimacy of the figures. In reality, electrification might mean transmission has reached a town/village but connection costs and a high residential tariff can deter homeowners from physically connecting to the grid. A hike in electricity prices has led to many prospective grid customers opting for an off-grid solar solution. In more remote communities, such as islands on Lake Volta, several mini-grid technologies have been successfully trialed. The new government has indicated it will continue to support the roll-out of off-grid products. In 2016, the government submitted its unconditional Intended Nationally Determined Contribution, committing to cut greenhouse gas emissions by 12% by 2025 and 15% by 2030 compared to a business-as-usual scenario.
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