jessica.longdon_21388 Nov 07

Think Piece: IN SEARCH OF ENERGY SECURITY

The Journey Of Ghana From Generation Deficit To Excess Capacity

The critical role of energy in the lives of nations has long been established. It is no wonder that

on attainment of independence in 1957 from Great Britain, Ghana embarked upon an ambitious economic development plan to accelerate its developmental efforts and energy

security was identified as a key driver.

 

Prior to independence, power was generated from power stations to light towns like Sekondi,  Tema and Accra. Her first post-independence government under Dr. Kwame Nkrumah as part of its promise to deliver economic prosperity to the citizenry launched the 7-Year Development Plan. Industrialization featured prominently in it and without gainsaying, it had to be driven by cheap and abundant power. This gave birth to the flagship Volta River Project. Under this project, the Volta River basin was developed by damming the Volta River which takes its source from the Black Volta in Burkina Faso to generate power.  Volta Aluminium Company (Valco) was to use the cheap power to smelt the local bauxite into aluminium ingots. The 912 MW hydro -dam cost BP 170 million with half of it provided by Ghana. The rest came as loans from the World Bank, UK Board of Trade, USAID and US.

Its importance to the leftist Nkrumah Government is underscored by the fact that it reached beyond the ideological divide to source funding from the West for it. It was commissioned in the early part of 1966 and the smelter started operations in April, 1967.

This project also marks the beginning of the use of foreign capital in the energy sector which has increased over time until now.

 Most of the power was to feed the Valco smelter and the remainder used by the rest of the country. It was also meant to provide power to stimulate domestic industrialization. The strategic low price which was agreed with Valco was 40% lower than the World Bank and government advisors’ recommended one. In later years it became a source of controversy between Valco and the government. The cheap power was meant to help Valco achieve low operational   cost and generate employment. This view was vindicated because at a point, Valco alone employed over 2% of the private sector workforce. Its dollar revenue ranged between USD133 and 189 million from 1970-1992 while the country’s total exports of goods (f.o.b) (excluding aluminium) ranged between approximately USD460-1,160million for 1979-1984.

The revolutionary impact of the Volta River project itself can be likened to the world’s first central hydro-electric generating plant of 1982 at Appleton, Wisconsin in the economic and social development of USA.

The Kpong Dam added 160 MW to the generation capacity of Ghana in 1982. The period of adequate power did not last as she began to experience power shortages in the 1980s as predicted by the Kaiser Engineers’ Report of 1971 when the water levels in the dams drastically dropped due to severe drought. This forced Valco to substantially close its operations within the period. This phenomenon of shortage of power was to become a cyclical feature in the life of the country with its serious ramifications. Although the Akosombo hydro-electric station was later retrofitted and resulted in increased capacity to 1,020MW, the increased capacity was still not adequate to meet the growing demand.

In the 1990s, the World Bank and donor countries made power sector reforms, a condition for their further financial support to Ghana. The committee charged with studying the sector and make recommendations for the reforms, advised its un-bundling and introduction of private capital. The Reforms led to promulgation of the relevant legislations that created the Public Utilities Regulatory Commission and the Energy Commission as the economic and technical regulators of the sector respectively.  The Reforms eventually resulted in its present legal framework which is shown below:


Figure 1: The Legal Framework of the Power Sector of Ghana

 

 

Although the Reforms have not been seen through, it can be said that it paved the way for the introduction of key power projects such as Takoradi Thermal Plant (TICO) and TAPCO in Takoradi. The former was originally a joint venture between VRA and CMS of Michigan, USA. TAPCO was procured by VRA while the 230 MW Kpone Thermal Plant (KTPP) was originally procured by government and later assigned to VRA. The 200MW Sunon-Asorgli Phase 1 and 450 MW Karpowership from Turkey are purely private investments.

The crisis resurfaced in 1998 at the back of low inflow of water into the dams reaching record low levels.

The Rural Electrification Programme started in the 1990s to extend power to rural communities by the government as a means of wealth creation through the use of electricity for productive activities has been turned into a form of social intervention and contributed to the average 10% annual growth in demand for power. Once a community is connected to the grid, the network is handed over to Electricity Company of Ghana Limited (ECG), the main distribution company in Ghana. Thus the access to power increased  from 25% in 1989 to 82% in 2016 making Ghana rank second in Africa south of the Sahara after South Africa .  

The power crisis which occurred again in 2006 reared its ugliest head from 2012-2016.  18th  December, 2012 , 28th November,2013, 16th January, 2014 , 29th December,2015 and  2016 had peak loads of 1,728.90 , 1,942.90, 1,970.86 MW,1,933.01 and 2,087.00 MW respectively while the load shed at  various times  ranged between 100 and 500 MW . The 400MW peaking Bui Hydro-electric dam had to be operated mostly as a base-load plant. The shortfall in generation resulted in zoning of the country for rationing of power on rotational basis with consumers going without power for hours and days. The resulting net loss to industries, commercial enterprises and individuals and for that matter, the economy was estimated by various economists to run into millions of Ghana Cedis. Various  reasons have been assigned as responsible for the crisis including lack of investment in the power sector, liquidity challenges, lack or inadequacy of fuel , non-economic reflective tariff , opaque and unresponsive regulation among others.

Increasing public uproar and criticisms drew frantic efforts from government, power generators, regulators, offtakers and the consumers to fix it. ECG, the main offtaker received record unsolicited proposals from prospective power generators offering various solutions through associated technologies.

In addition to the installed capacity, a number of Power Purchase Agreements (PPAs) were therefore signed and the summary is shown below.


NB: Lead time for project development and plant construction is 3-5 years
Table 1: Summary of Power Purchase Agreement

 

With the signing of these PPAs, ECG’s contracted capacity increased to 1,935MW. The national installed capacity stands is about 4,100 MW with the dependable capacity of 3,467MW and demand around 2,000MW. Clearly, with pipeline projects also in the picture, there is a mix-match between expected supply and demand of power. The installed capacity as compared with the expected energy demand between 2012 and 2022 is depicted by the graph. 

The total installed capacity is about 4,100 MW while the peak demand load on 17th March, 2017 was 2,153 MW leaving an excess of 1,947MW. 

So from a situation of cyclical power shortages and reaching a crisis point between 2012-216, ECG and by extension the country, now has to grapple with excess capacity of about 2,900 MW and which may reach 600 MW in 2025 if the pipeline projects come on line with its attendant payment of unnecessary capacity charge payments under the “Take-or-Pay” PPAs unless innovative strategies are adopted.

Some consumers out of love for solar power or to reduce their power bills are self-generating, some even more than their needs. So the load is dropping.

In all these, can a healthy balance be achieved between generation from thermal and renewable sources which is the emerging global trend? What should the offtaker with signed renewable PPAs in its portfolio do?

Are there viable and practical strategies? The proffered solutions are not in short supply. Sell the excess power to the neighbouring countries like Burkina Faso, Mali or Niger. This is creative and will be in line with regional sharing of energy resource under the ECOWAS Lagos Treaty of 1975 but is the price competitive in the West African Sub Region? Review the tariffs in the PPAs? How lower can they go while at the same time making the projects still feasible? PURC should change the tariff structure to make it consumer friendly. Regulation of the contribution of small-scale solar, such as the system introduced in California, USA, would ensure that the assets of the distribution companies  are not rendered stranded and the tariff structure protects them even in the face of reduced demand for power. Can this seemingly difficult situation be leveraged upon?

Admittedly, this calls for offtaker rethinking of its business model, regulatory proactiveness and adaptability, power generators’ innovation, policy re-alignment   and consumers pragmatism to make all stakeholders standing and in good shape.  Definitely, there are no quick and easy answers.

 

Article by: Cephas Galley Esq; a lawyer with Post Dip (Int. Law & Dev.), LL.M in Energy Law & Policy and MBA