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27.09.2018 Feature Article

Confronting The Power Storm In Ghana - Are We Making The Right Decisions?

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Economic growth requires the utilization of energy to generate technological advancement and productivity growth, because energy can be drawn on as complement to other factors of production and also serve as the interface between technological advancement and productivity using production function and the general equilibrium approaches. Electricity consumption may be induced by economic growth in many ways. Also, economic growth promotes business participation in economic activities which induces the usage of electricity. Any causality between them will substantially aid in fashioning energy and growth policies for Ghana’s economy and to maintain the middle-income status chalked recently.

Managerial deficiency or lack of maintenance culture that result to in-plant break downs and regime or policy changes in the course of development is also affecting electricity supply. Electricity consumption may also experience extreme variations by the modification of energy policy. The hydroelectric plants at Akosombo and Kpong which for a long time have been the main source of power generation in the country were plagued by seasonal variations in water levels that created periods of severe electricity crises in 1983, 1993, 1998 to 1999 , 2006 to 2007 , 2012 and 2015 .

Shocks and regime changes caused the economy of Ghana to a recession and this compelled governments to focus on implementing energy conservation measures by closing down some part of VALCO in 1983 and introduced six million pieces of energy saving bulbs in 2008 to 2009 and the introduction of rebate refrigerators as well as banning and seizing of second hand coolers in 2013 and 2014. These measures altered the pattern of electricity usage by most Ghanaians since the variations in electricity usage may be a contributory factor to plant break downs in electricity growth.

Volta River Authority is Ghana’s main source of hydroelectric. With the discovery of natural gas the electricity industry in the country is expected to transform from a largely hydro-based system to a largely thermal-based with natural gas as the main source of fuel. Currently the country relies on the West African Gas Pipeline and Atuabo gas plant to transport her energy fuels. Hydroelectricity is arguably the cheapest form of energy in the country.

Electricity demand is rising at a rate between 10% and 12% a year. In 2012 the demand was at 1400MW, which was expected to rise by 1500MW of new electricity capacity over the following five years. In terms of renewable energy sources, Ghana’s target is to have 10% of all sources coming from renewable energy supplies in the medium to long term but with determination this target could be ambitiously increased to 50% by 2030 as long as we are prepared to research.

Electricity Traded in Gwh
Year 2006 2007 2008 2009 2010 2011 2012 2013
Import 629 435 275 198 106 81 128 27
Export 754 246 538 752 1,036 691 667 122
Net Import -125 189 -263 -554 -930 -610 -539 -95

Source: energy commission
NB: negative net import means net export
Privatisation is portrayed as means of improving efficiency and bringing in funds for investment. Privatisation means that utilities are in the hands of increasingly powerful Multinational Companies. Privatisation does not mean that the government no longer has responsibility to provide stable and affordable electricity. Privatisation of distribution for example, is one aspect of electricity restructuring, which means unbundling the sector into: generation, transmission and distribution.

The reasons for privatization are usually to reduce high distribution and transmission losses, large investment requirements to support load growth and reduce system losses and high equipment failure rates ( distribution and power transformers fail frequently due to unauthorised load extensions, pilferage and inadequate maintenance, under recovery of bills – amounts outstanding are way beyond the normal billing cycle and efforts in this are impede by lack of resources and external influences, inadequate tariffs).

The main reason for both ECG and VRA current financial positions are low levels of debt recoveries and persistent gap between regulated realised tariffs level and the cost of electricity supplied. There is a huge shortfall between average electricity supply cost and revenue realised from sales of power.

Even though privatisation may be good, this is no good reason for privatising ECG. Because Private companies are looking for a commercial return, they have little interest in maintaining supplies for socially responsible reasons. If tariffs are too low to make enough profit, private companies will want to increase them. This is no supernatural formula and government itself could implement such policies. The problem is that high increase in electricity price is often something that governments want to avoid for economic, political and social reasons. Electricity is a substantial input into most production processes and price fluctuations may have major knock-on effects. Privatisation does not remove the government’s need to provide affordable power and its social responsibility to ensure that the poor are not excluded from the electricity supply because of costs.

It presents a difficult challenge as there is a delicate balance to be achieved in allowing prices to be high enough for investors to cover costs and make an adequate return and low enough to be affordable so as not to harm the domestic economy. The conflicting pressure on governments and companies means that setting prices is always likely to be a thorny issue because price levels are essentially political issues. However, Governments can subsidise distribution and can impose limits on what the distributors can charge. In this case private sector distributors waste no time in ensuring that supplies are disconnected to those that do not pay. Government may still subsidise electricity even after privatisation, rather than expose the nation to the full prices charged by private firms. The problem here is that one of the reasons for privatising is that government owned distributors get into debt because they fail to pass on the full cost to consumers. If the utility is privatised, governments may still accumulate debts if it continues to subsidise consumption. In fact they may get into more debt if they have to subsidise at a rate which guarantees a profit to the private firm. For many people privatisation means supply disconnection and this will come with a significant social cost. Efficiency is not the same as profitability which can be increased by simply raising prices. In terms of technical efficiency there is no empirical evidence that the private sector performs better than the public sector Privatisation of ECG will create private monopoly rather than competition. This presents a clear opportunity for the private firms to exploit its position against the public interest. The solution put forward is to regulate the privatised monopoly, This has been the approach in the UK. (The Journal of International Regulatory Economics and Utilities Policy).

Eg, ten years since privatisation, Ofgem UK is struggling to prevent market abuses by private firms. How much more difficult will it be for PURC in Ghana where its workers are poorly paid with little exposure to international corporate activities. PURC has little at hand in the way of sanctions, should the firm refuse to adhere to the rules.

Privatising ECG could be dangerous if government is not able to manage the electricity utility sector, it is equally not likely to be able to effectively control the activities of multinational companies. Weak government institutions need to be strengthened and not replaced by the private sector. Electricity is an essential input into national economies and those that control it need to be democratically accountable.

MANAGING VERSUS FIXING THE PROLEM-implementing the master plan

Global energy revolution for the next 50 years has been partition into two. Thus from 2000 to 2025 and 2026 to 2050. Western economies such as USA, Japan, Germany and China have being rethinking their energy path towards a renewable energy future. Ghana has a programme for herself up to 2026. Meanwhile in the wake of the energy crises government of Ghana has not done enough to restore power to the local industry and citizenry in the short run (short run defined here as 4 years period beginning 2012). Apart from the 400mw Bui hydro dam, 2mw solar from Navrongo, the 20 MW in April 2016 by a Chinese technology company, Beijing Xiaocheng Company (BXC), the Atuabo gas plant that came on stream in November 2014, some repairs and maintenance of the eight thermal plants, the government of Ghana has not inject more fresh watts to the already existing for the period. Even though more IPPs are coming on board they are coming in a slow pace. For instance a local IPP company, Meinergy Ghana Ltd added a 20 MW at Gomoa Onyaadze near winneba in 2018. ENI is also planning a 20MW project in Tamale. Also, VRA is planning to fund some 8 MW and 4 MW solar projects in Kaleo and Lawra respectively. All these are directed towards achieving a 10% share of renewables coming from the country’s total energy mix by 2020. Photovoltic energy is expected to be adding 10mw yearly from 2013 to 2026. Cumulatively Ghana should have 65mw of energy coming from solar and 150mw from wind by 2018. But this is not the case. Launching the renewable energy master plan by the Ministry of Energy is long overdue. A critical study of the Gridco master plan released in 2012 suggests that meeting over 5000mw by 2026 is unlikely as government has already lost out its targets in the previous years.


927201871121 23041q5dcx 20180927 170330

Source: Gridco 2012
As Ghana’s population is expected to reach 45 million in the next 40 years, global population projected to reach 8 billion by 2030 with 5 billion in urban communities, Global spending by the middle classes will move from USD 21 trillion in 2010 to USD 56 trillion in 2030. World electricity generation is forecast to grow by 70% from 22,126 terawatt-hours (TWh) in 2011 to 37,000 in 2030. Electricity demand is expected to more than double as more people move into the middle class and consume greater quantities of power. From the last 4 decades the world’s population grew from 4 billion to 7 billion people with significant proportion being the middle class. Whiles electricity generation grew by more than 250% within the same period. While the outlook for power is uncertain, and Ghana is expected to go industrial in the next 40 years according to the national development planning commission and the one district one factory programme coming on board. We need to rethink the mechanisms which have brought us up to this point and prepare for the next stage of this global transformation, as individuals, governments and businesses seek a cleaner, more diverse and more secure energy mix, International Renewable Energy Agency (IREA).

Renewable energy will be the obvious choice. It has gone midstream and is advancing at extraordinary speed. Cost is reducing, millions of jobs are being created, and growth in clean power is outpacing all competitors. Combine with international efforts to curb climate change calls for universal and a growing demand for investing in renewable energy to ensure energy security. (IREA).

If we continue as a country on the path we are currently on and fuel our growing economy with outmoded ways of thinking and acting, politicking every contribution from individuals and civil society organisations and defending the defenceless, we will not be able to avoid the most serious impacts of blackouts (Dumso) in the years to come.

Renewable energy deployment in emerging countries is supporting growth globally. Investment in new renewable capacity has also exceeded investment in new fossil based power-generation capacity for three years running. Global investment in renewable generating capacity has increased five-times over the last decade, from USD 40 billion to USD 214 billion between 2004 and 2013. The rapid expansion in deployment is spurred by declining costs of renewable energy technologies. Renewable energy is often competitive with fossil fuel power at utility scale, and is generally cheaper in decentralised settings. As this becomes more widely recognised, markets will expand and costs are expected to fall further. Moreover, renewable energy is sheltered from volatile global fossil fuel costs, and has a proven technological viability that ensures long-term cash flows for investors. Renewable energy can increase energy security and reduce risks. Scaling up renewable energy diversifies a country’s energy mixes, mitigating the impact of price volatility and helping to allay geopolitical risks. Financial and economic risks for governments and businesses are reduced through a more predictable cost base for energy supply. (IREA).

Policies that promote renewable energy can simultaneously address economic, social and environmental objectives. There is a common view that while renewable energy is more environment friendly, it is too expensive. Effective analysis of the costs and benefits of different forms of energy should take into account a much wider view of economic development including the balance of trade, industrial development, and growth in gross domestic product (GDP), employment, energy access and health.

For fuel-exporting countries with subsidised domestic fuel prices, renewable energy deployment can minimise domestic fuel consumption and maximise the amount available for exports. The deployment of renewable energy may not impact the trade balance positively in the short term. A deployment policy that reduces imports of fossil fuels may increase imports of renewable energy equipment which could initially result in a negative impact on the trade balance. However, imported renewable energy technologies would enable the reduction of fossil fuel imports for a significant period of time, so that the long-term effect on the trade balance is likely to be positive. (IREA).

A number of countries require that investments in renewable energy projects include local content to maximise value to their economies. While countries differ substantially in their level of industrial development and expertise, many can contribute a significant share of manufacturing. Ghana can provide significant local value added through the installation and maintenance of renewable energy systems. A country’s potential to produce renewable energy products depends on several factors, including its natural resource endowment, its stage of economy (Ghana has reached a middle income country status and her credit rating has increased) and industrial development( Ghana has been branded the gate way to Africa, the most matured democracy in the continent and has an excellent investment destination), and the size of domestic renewable energy market, policies that govern deployment, education, research and development and export-oriented manufacturing, (IREA).

The impact of renewable energy on GDP is positive, particularly if renewable energy is cheaper than alternatives, or creates local industries that are competitive. In Malaysia, the current feed-in-tariff for selected renewable energy technologies is expected to generate cumulative income of about USD 22 billion by 2020. In China, the PV industry generated about USD 52 billion in 2013. Renewable energy deployment provides an opportunity to alleviate some employment concerns.

As renewable energy spreads, so does employment in the sector. The top renewable energy employers are also the leading nations in local technology deployment – China, Brazil, the United States, India, Germany, Spain and Bangladesh. Employment in solar PV in particular is showing substantial growth in other countries including Japan, Malaysia and Australia. (IREA).

All forms of energy supply have an impact on the environment. However, the impact is far lower for renewable than for non-renewable energy from manufacturing to decommissioning- air pollution, land-use change and on ecosystems. It is associated with the lowest risk of disaster potential, especially when compared to coal mining, oil spills or nuclear accidents.

At the centre of the power storm in Ghana is the quest to finding means of providing reliable and affordable electricity supply, due to the fact that current generation levels have proven woefully inadequate in meeting the basic power needs of the Ghanaian citizens and industry, . In addition, there is chronic shortage of infrastructure for power delivery.

Ghana as part of the global village is interested in reducing her dependence on imported fossil fuels. By reducing energy imports, avoiding potential supply disruptions, high energy prices and price fluctuations. Also, majority of the people rely on traditional biomass and cooks use traditional stoves and firewood that cause severe health impacts and domestic accidents.

Attracting investments will depend on the cost competitiveness of renewable in Ghana, which is strongly influenced by research into her renewable energy potential, cost of technology and risks of financing renewable energy. The viability of renewable energy projects are greatly affected by a market’s risk profile. Risk stem from regulatory and policy frameworks, and limited experience with new technologies. Compared with fossil power generation, most renewable energy technologies have a high ratio of upfront capital costs to operating costs, making their viability particularly sensitive to the cost of capital, (IREA).

Mahama Hudu
Mail; [email protected]
Tel: 0506734457

Mahama Hudu
Mahama Hudu, © 2018

The author has 8 publications published on Modern Ghana.Column: MahamaHudu

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