Invest In New Sources Of Electricity — IMANI

IMANI Ghana has warned of a potentially precarious power situation in the not-too-distant future, if the state fails to secure investments outside hydro and thermal power generation to satisfy domestic and industrial demands.

The research body has, therefore, called for a major investment drive in new sources of electricity for the country.

IMANI researchers, Messrs Theo Acheampong and Festus Ankrah, in a paper titled ‘Pricing and deregulation of the Energy Sector in Ghana: Challenges and prospects,’ forecasted that in the short term, the load-shedding experienced during the first half of 2013 would persist to 2015 on a reduced scope.

The paper noted that the state’s inability to provide the right incentives and align regulatory structures had combined to turn away investors from the electricity sector.

Describing the current situation as ‘self-imposed,’ the two, in their paper, said it was important to revamp the transmission and distribution infrastructure to cope with the increased demand.

Demand against supply

Ghana’s current electricity supply market, the report indicated, was estimated at 10 to 15 per cent year-on-year demand.

“It is imperative, therefore, that the nation finds new generation sources which can satisfy this demand,” it said.

Quoting the 2010 Wholesale Power Reliability Assessment report, the two researchers said, “It is estimated that Ghana loses two to six per cent of GDP annually, not including a number of indirect costs of lost economic output due to insufficient wholesale power supply.”

It noted that the Akosombo and Kpong hydro stations were currently running at close to full capacity, while the resumption of operations on the West African Gas Pipeline following the 11-month shutdown for repairs after the pipeline was severed by a ship’s anchor in Togolese maritime waters had brought temporary relief to the nation.

“This, however, as well, highlights Ghana’s current generation challenges as a result of the pipeline breakdown. For instance, operations at the 200MW CCGT natural gas-fuelled Sunon Asogli Power Plant came to a standstill due to the curtailment of natural gas supply from the pipeline.”

The paper stressed the need for the Energy Foundation and the Energy Commission to be proactive in championing the introduction of energy-efficient programmes, as well as reforms initiated in the past.

It described as unacceptable, the current ratio of distribution losses to transmission, which averaged 22 per cent over the past 10 years.

Market price for power

It faulted the Public Utilities Regulatory Commission (PURC) for its current system of determining electricity tariffs, saying that it was a disincentive for investments in, especially, the generation and transmission sectors.

“The Independent Power Producers (IPPs) who generate the majority of the thermal power component of our electricity supply have cited their inability to meet the performance standards set by the regulator based on which a price review is premised, in addition to other market factors to tariff’s under recovery.

“A major contributory factor to the under-recoveries by the IPPs, who entered the market following the liberalisation of the electricity sector, has been the inefficient market structure where full operational costs, including a capital recovery factor, are not guaranteed in the tariffs set by the PURC.”

It expressed concern that in spite of the government’s promise to absorb the price markup, to instead of passing it on the consumer, it had persistently delayed in paying the distributors the subsidies.

“As at December 2012, the total Government of Ghana stock of energy arrears stood at GH¢420.99 million, comprising GH¢239.89 million indebtedness to the VRA, GH¢107.7 million to the ECG and the Northern Electricity Distribution Company, GH¢73.37 million,” it added.

Short to medium-term solution

In the short to medium term, IMANI suggested the expansion of capacity to at least 3,500MW to meet demand and reserve requirements for the next four years.

Efforts should also be made to address “the messy tariff system to give incentives for the IPPs to produce and compete at the wholesale level”.

The state, it said, should place premium on the expansion of the distribution infrastructure, incorporating private sector participation.

It further suggested the enforcement of “regulatory governance to ensure that consumers are protected from arbitrary price markups and inefficiencies from the utilities being passed onto them [the consumers]”.