“Restructuring The Electricity Sector”

A modern economy relies on reliable supply of electricity. There is a strong correlation between electrification and economic growth. On the other hand, a typical electricity systems, consist of Central generation facilities, long distance transmission lines, distribution networks are capital intensive. In view of the importance of electricity in meeting economic and social development needs and the scale economies involved in producing it to consumers, its market was vertically integrated and monopolistic in nature globally in the early days of the industry. In most countries, government-owned monopoly generated, transmitted and distributed electricity. This, was the case of Ghana, prior to this idea of PSP (Private Sector Participation) in the sector. Ghana has been experiencing power crises since 2006, due to old infrastructure rising from limited investments in electricity infrastructure, as a result of lack of funds form the central government. This would boost investment in infrastructure and management efficiency.

Beginning in the eighties, most governments, starting restructuring their electricity sector, allowing competition in the generation and sometimes the marketing of electricity. In most countries restructuring required taking away the state monopoly in the distribution, generation and transmission of electricity, or the privatization of all and the creation of a regulator to supervise the operations of these utilities in the new market.

The inefficiencies of the state regulated companies, the rise in new technologies for the generation of power, the rising cost of electricity, lack of funds from government to sustain the system expansion needed for economic growth, are some of the compelling reasons for the restructuring of the electricity sector globally. In Ghana there is an increasing demand from the ECG growing customer base of 3 million, this calls for continuous investment to ensure reliable grid to supply them power at all times.

Broad speaking, restructuring of the electricity sector is about separating the functions of the industry in different forms and changing the rules that allow for competition in the generation and transmission in the industry. Which is called unbundling. There are different approaches used by different countries in different ways. What we seek to do in Ghana is the unbundling of distribution, generation, transmission and marketing of functions. The traditionally vertically integrated sector is broken up to separate generation from transmission, or transmission from distribution. This would increase competition among players in the market, which would give customers the best deal to go for.

The ECG Concession is a move by the government of Ghana to bring private sector in the management and operation of the power sector. The Government of Ghana (GoG), acting through the Ministry of Power (MoP), the Electricity Company of Ghana Limited (ECG), and the Millennium Development Authority (MiDA), wishes to introduce private sector participation into the management, operation of, and investments in the Electricity Company of Ghana (ECG) through a long-term concession over ECG’s distribution business. ECG is a limited liability company wholly owned by GoG. It provides electricity distribution services to approximately 3 million customers in Ashanti, Greater Accra, Volta and Central, Eastern and Western Regions of Ghana and had revenues in 2014 in excess of GHc 3 billion (approx. US$ 750 million).

This is part of the Compact II Agreement between the Ghana government and U.S government to bring private participation in the power sector, in order that the U.S would invest $498 million in ECG under the Power Compact Two agreement through the Millennium Challenge Corporation.

In line of achieving this goal of Private Sector Participation (PSP) in the ECG, a number of companies have submitted proposals hopping to win the PSP in the ECG deal. They are CH Group, Veolia and EDF. The other foreign firms are the BXG Ghana limited, and Manila Electric Company limited which is based in the Philippines.

The structure of electricity market that has undergone restructuring and the one that has not (Fig1)

The drivers of restructuring the electricity industry have been common globally in the developed and the developing world, since the eighties and remain relevant today. In Ghana, people are worried of the restructuring, saying it would lead to job loss and market and consumers manipulation by the companies. However, the reasons for restructuring the sector are very important in the midst of the problems ECG finds itself.

Lack of investment, most countries in the developing world still lack fund to invest in electricity infrastructure. Government could not continue to pump money to inefficient state ran companies, while public debt and budget deficit increased. This has been the reason the power Pact II agreement to free government resources in the sector, allowing private sector participation to bring efficiencies and good management. With more than 1 billion people without access to electricity, and the world economies experiencing fast growth, governments’ need for private sector participation is as important as it was in the 1980s.

The International Energy Agency( IEA) estimated that the need for power sector investment to 2030 to reach $10 trillion. One study concluded that the Ghanaian power sector needs about $4 billion investment in upgrading the generation, transmission and distribution assets from 2013 to 2023

Electricity prices vary in Ghana and parts of the world, depending on the generation mix. In Ghana majority of our electricity comes from hydro, which is about half and fossil fuels the other half. Competition brings down prices and benefits the consumer. Thus, when the power sector is restructured, it would benefit the consumer. Notwithstanding. Consumers in the country have been complaining of hike in tariffs, which has become a major issues politically. In Ghana, there is a sustained over 6% demand annually which not managed can bring about shortage in the future. Industries need lower electricity prices to operate and break even. Thus, PSP would help in driving down prices.

Technological advancement has also been an argument for the privatization of the sector. Long ago, people though electricity generation depended on the economies of scales, which required the building of larger plants. But, this view is flawed, since technologies have developed in the natural gas sector that produce smaller units and increase efficiency. Technological development in the renewable energy sector such as wind, solar has made it possible for the generation of electricity. This has provided competition and the basis for the commercialization of these technologies and options in the market that increases energy efficiency, production and consumption. Blockachain is one that technology that helps in electricity distribution now and the future, which is being piloted in the advanced economies.

While others still maintain a vertically industry structure, others have unbundled the industry to allow for competition. If we approach the Power Pact II with the right strategy, we would be better off a nation