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[Full text] IMANI, GIZ reform dialogue on access to affordable energy to propel economic growth

[Full text] IMANI, GIZ reform dialogue on access to affordable energy to propel economic growth
LISTEN JUL 28, 2021

The IMANI Centre for Policy and Education (“IMANI CPE”) and the Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (GIZ) on 21st July, 2021 held its 4th IMANI-GIZ Reform Dialogue on the theme “Access to Affordable Energy to Support Economic Growth and Job Creation in Ghana”.

The dialogue sought to engage relevant stakeholders in Ghana's energy space to discuss how the country can increase energy access and deepen industrialisation using competitive electricity and natural gas tariffs. Getting this right will support the country's inclusive growth and development agenda.

The event took place at the Alisa Hotel and brought together political leaders, including Ghana's Deputy Minister of Energy —Andrew Egyapa Mercer MP—, public sector leaders, private sector leaders, international agencies, academics and civil society organisations operating in the energy sector.

Recommendations on how to address various energy sector issues were provided, as summarised below:

KEY DISCUSSION POINTS

  1. Improving power reliability and reducing electricity tariffs to support MSMEs

Issues on the reliability of power supply and the reduction of electricity tariffs were foremost for consideration.

  • In his welcome address, Mr Franklin Cudjoe, Founder & CEO of IMANI, highlighted that there are weightier energy matters before the current ministry covering oil, gas, and even nuclear energy. He noted that the weightier issues regarding access to power go beyond just the availability of power, which is also the affordability of power. He noted that the nature of the challenges is the reason to have a conversation about how the affordability of power significantly impacts individual incomes and businesses.
  • Honourable Andrew Egyapa Mercer, Deputy Minister for Energy & MP for Secondi (based on the Keynote Speech read on behalf of the Minister for Energy) noted that the Ministry has a shared commitment to the growth and development of Ghana through the provision of clean and affordable electricity. He noted that factors inhibiting energy affordability include: (1) cost of power generation coupled with the substantial excess capacity and (2) current tariff structure does not favour industrialisation. He noted that with the execution of the National Electrification Scheme, Ghana's access to electricity has increased from about 15 percent at inception in 1989 to the current 85 percent, and the current government is committed to achieving universal access to electricity by the end of 2024.
  • Mr Kofi Bentil, Senior Vice President at IMANI CPE noted that he would like to extend the issues beyond affordability to cover accessibility and reliability. He indicated that one cannot discuss energy affordability in Ghana without addressing the role of natural gas in the energy mix. He postulated that gas can be divided into “big gas” and “small gas” with the former for electricity generation and the latter for homes, vehicles, and restaurants, among others. Regarding big gas, he noted that IMANI did an op-ed article which pointed out the possibility and desirability for Ghana to have a gas-driven economy due to the domestic availability of natural gas from its offshore fields. Nevertheless, Ghana has made some policy mistakes, such as negotiating relatively higher gas prices on some of the contracts, which has made electricity unaffordable due to its tariff-induced cost pass-through. On small gas he noted, while there has been a Cylinder Re-circulation Model (CRM), he expressed dissatisfaction with the sluggishness of the roll-out. He also argued that auto-gas is good for the environment and users should be engaged in a much better way. He believes that if the government is committed to solving the issues, the CRM must be rolled out by end-2021.
  • Mr Kojo Poku, Executive Director for Institute for Energy Policies and Research, noted that one of the key issues for him regarding Micro, Small and Medium Enterprises (MSMEs) is where they are situated. He expressed the opinion that MSMEs do not benefit from government relief packages. This is because MSMEs register their businesses with their residential meters instead of industrial meters — the latter benefits from government relief packages. Therefore, more education for MSMEs will go a long way in addressing this problem. Also, he remarked that Ghana Compact II — which was signed between the US Millennium Challenge Corporation Compact and the Government of Ghana in 2014 — has not achieved all its purpose of addressing affordability and reliability. This is because the challenges are still evident in the energy sector and the government has to resolve them.
  • Ms Dorothy Gordon, a Ghanaian technology activist and development specialist noted that there is no excuse in this day and age why Ghana does not have some kind of information — whether it is on a website or on some other platform — that will tell the true situation of electricity availability in any part of the country at any given time. This dashboard could show where the power distribution has failed in Ghana to ensure proper action is taken and consumers are made aware. She noted that the tech industry, for instance, is mainly dependent on continuous power availability and that power unreliability and fluctuations negatively affects their business and make them resettle to our countries. She also introduced the idea of strategic autonomy (which is used frequently in Europe) arguing that Ghanaian leaders need to defend the country and make Ghana more autonomous. She believes that just as Europe is paying attention to batteries in the energy sector, Ghana should also consider it and create the market for the African continent. She also called for more sectorally interconnected energy policy making. Regarding the use of electricity by small businesses, she noted that people do not want to register as MSMEs because they will be taxed, and if they are taxed, they cannot survive. Thus, she believes that multisectoral deliberations on the issues are paramount to finding lasting solutions to enable MSMEs to register and become formalised.

  • Reducing the persistent 25% retail electricity losses and excess capacity charges

The Ghana Grid Company, the independent network transmitter, estimates that Ghana loses between 2 to 6 percent of GDP annually from the insufficient wholesale power supply, not including indirect costs. Likewise, a persistent 25 percent of electricity generated in Ghana is lost at the retail end. These are caused by dilapidated infrastructure (technical losses) as well as electricity theft or commercial losses. Ghana's losses are more than double the sub-Saharan Africa average of 12 percent.

  • Andrew Egyapa Mercer MP noted that the government is committed to solving the current challenges such as dealing with the current power issues, facilitating additional oil discoveries, making more and cheaper gas available to key industries and restoring the financial health of the energy sector as soon as possible.
  • Mr Kojo Poku indicated that the losses for transmission, where Ghana Grid Company Limited (GRIDCo) comes in, is 5.28 percent. The 26 percent is for distribution and that one is made of 10 percent technical and 16 percent commercial. He also noted that two transmission expansion projects currently being built, namely the Volta-Achimota-Mallam Transmission Line Upgrade Project and the Kumasi-Kintampo Project will reduce the transmission losses when completed. However, he raised concerns about how commercial losses are still high when people employed and paid to work fail to collect the monies they should collect.
  • Mr Kofi Bentil also noted that when Power Distribution Services Ghana (PDS) took over the Electricity Company of Ghana (ECG), there was an immediate improvement in service. You call them, they come, and you clearly could see a change in attitude. However, when PDS left the proposed concession arrangement, things went straight back down again.
  • Mr Charles Gyamfi Ofori, Renewable Energy and Climate Change Lead at African Centre for Energy Policy (ACEP), noted a high impact of the wastage in the energy sector on consumers and even on how much is paid as tariffs. He bemoaned that almost 48 percent of tariffs are being used to recover distribution losses, and about 28 percent is being used to recover transmission losses. He believes that Ghanaian leaders have allowed politics to interfere in managing these state-owned enterprises in the energy sector. He also noted that efficiency is key and the need to tackle the waste in our system is opportune. He also noted that debt accumulation cannot be solved if we continue to levy the consumer. He further noted that government should consider robust ways for Ghana's energy sector institutions to run as a proper business concern devoid of the political interferences, thereby reducing the waste in the energy generation which has a major impact on the Treasury.
  • Professor Godfred A. Bokpin, IMANI Fellow and Professor of Finance at the University of Ghana Business School, noted that the challenges we have in the energy sector have nothing to do with money. It is rather ineffective leadership (over the years), corruption and selfishness that has brought the country to where it is now. We need a certain radical leadership that deals with corruption the same way it appears. He believes that at a certain level of inefficiency, one cannot talk about pricing, affordability and reliability. Thus, talking about affordable energy to support economic growth at a certain generation loss, transmission losses and distribution losses makes prices practically useless. He also posits that subsidising (providing cheap) electricity to businesses and households would not work as one has to guarantee a certain threshold of reliability and affordability first to both households and MSMEs. This is because they (households and MSMEs) are practically inseparable in Ghana given the lack of clear industrial zones — a lot of MSMEs operate from household settings.
  • Increase renewable energy uptake from the current less than 1 percent of the electricity mix (excluding hydro)

Renewable energy currently forms less than 1 percent of Ghana's electricity mix, excluding hydro.

  • Andrew Egyapa Mercer MP again noted that the government is deploying some strategies that include multi-grid electrification for islands and lake-side communities and standalone solar home systems for sparsely populated settlements where it is difficult to extend the national electricity grid. Ghana is also pursuing a renewable energy master plan to meet the country's sustainable development goals (SDGs) by 2030.
  • Mr Kojo Poku argued that it is difficult to use just renewable energy as a baseload due to its intermittency, thus there is the need for other thermal interventions for renewable energy to operate. He advocates for thinking global and acting local. For example, European nations are aggressively pushing the 2050 net-zero carbon emission, but Ghana needs to set its own goal for zero emissions. He argues that Ghana cannot be driven to go by the European timetable. On the Volta Aluminium Company (VALCO), he believes it can work if the government is dedicated to making the company work. He believes that Ghana cannot strategise to achieve industrialisation while aiming to do away with VALCO. Having fully functional VALCO will significantly impact value chain companies such as Aluworks with several employment opportunities.
  • Ms Sherri Thompson (popularly known as Mama Loo), a Biogas and Sanitation Advocate strongly advocated for the use of biogas, bio-sanitation toilets and other related renewable sources of energy in schools and homes. She noted that these relatively new technologies need to be supported by adequate research and development (R&D) and funding by the government and other institutions. This view was corroborated by Mr Kojo Akoto Boateng of Citi FM who explained that in the long-term, renewable sources of energy especially biogas is more beneficial. He proceeded to indicate that government could invest in these for schools across the country. Ms Dorothy Gordon further indicated that it is very complicated to get involved with the schools right now for any reason. This is known by those who try to provide internet for schools — many schools do not pay their electricity bills at all and others pay after delays. Thus, it is not that the biogas idea is bad, however, it needs to be more thought through as the solution is not for government to do, but to provide the framework that will allow private sector partners and local private sector partners to get involved. That will take much time and we need the Ministry of Education to be part of the conversation.
  • Mr Charles Gyamfi Ofori of ACEP also indicated that MSMEs facing constant or intermittent supply — aka 'light outs' — tend to pursue self-generation but the options they use are not renewable. In a recent study by ACEP , he noted that they found barriers to renewable energy in Ghana include: financial challenges, regulatory challenges, issues related to the knowledge of the renewable energy sector, and the technologies themselves. Other barriers include market-related issues — that is, the unavailability of even a market for such renewable energy companies. He posited that government needs to provide a conducive environment for the various stakeholders in renewable energy to thrive.
  • Gaps in supply dynamics, pricing and infrastructure to promote industrialisation

The other general areas of the discussion focussed on the broader issue of industrialisation, infrastructure development and other dynamics.

  • Honourable Andrew Egyapa Mercer noted that there are some measures that the Ministry is taking to address the challenges. This covers generation, distribution, tariff structure, commitment to industrialisation and upgrading of existing infrastructure. Efforts on generation cover renegotiation of Power Purchase Agreements (PPAs) to reduce uncompetitive capacity charges. Regarding distribution, he notes that although private sector participation in ECG could not materialise, there are still plans to carry out a phased approach for private sector participation. Private sector participation in the electricity retail business is expected to achieve the following benefits: increase revenue collection rates, decrease commercial distribution system losses, improve customer service, and lower financial barriers to local participation. Regarding tariffs, the Minister noted that end-user electricity and fuel tariffs for the commercial and industrial sectors are relatively expensive compared to tariffs in other West African nations. Against this background, the Ministry of Energy is looking at special industrial tariffs to sell electricity and natural gas to strategic industries such as iron and steel, bauxite and aluminium, fertiliser, and ceramics, amongst others. It is expected that these tariff reforms would support national development objectives, namely increase tax revenue, deepen industrialisation and employment creation per the government's Ghana Beyond Aid initiative.
  • Honourable Andrew Egyapa Mercer noted that his understanding is that the position that government took was to tie the Springfield unitization with the Eni gas re-negotiation because obviously, if the unitization was going on, then that would have forced the parties to come to the negotiation table and that would have led to some re-negotiation of the previous agreements. The two companies, Eni and Springfield E&P are alleged not to be co-operating and Ghana risks about $6.34 billion, according to some estmates . In addition, there are concerns for government to carry out re-negotiation of gas-related agreements with Eni. Mr Kofi Bentil disagreed noting that the unitisation is a high-level, complex, and technical issue and the government must decouple it from the challenges with the issue on re-negotiations with Eni.

About The IMANI-GIZ Reform Dialogue

The partnership between the two entities aims to carry out six (6) policy dialogues to improve Ghana's business climate. The first dialogue took place on 26 November 2020 and explored the challenges and opportunities created by the COVID-19 pandemic for Ghanaian businesses. The second dialogue took place on 16 March 2021 and explored what the African Continental Free Trade Area (AfCFTA) mean for Ghanaian businesses. The third dialogue took place on 12 May 2021 with a focus on Business Taxation and the Road to Ghana's Post-COVID Economic Recovery. Aside the recent dialogue on electricity, the remaining dialogues will explore business registration and regulation issues, and how corruption affects Ghana's business climate, among others.

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