Review Power Purchase Agreements – ACEP

Mohammed Amin Adam, Executive Director, ACEP

Government has been advised to review and prioritize some of its Power Purchase Agreements (PPAs) to reduce the liability and over-exposure of the Electricity Company of Ghana (ECG).

The advice follows ECG’s endorsement of many PPAs, most of which are not translating to energy delivery.

The Africa Centre for Energy Policy (ACEP) gave the advice in its assessment of the Early Power project deal, which was originally designed as an emergency project but has since been changed to a regular long-term IPP.

The original project consisted of a 20-year Power Purchase Agreement (PPA) with the Electricity Company of Ghana (ECG) covering 344MW plant. 142.5MW was part of the simple cycle plant.

However, it has been reviewed with the new project consisting of a 400MW plant, involving a conversion of the 142.5MW simple cycle to combined cycle that will add 50MW steam turbine.

After 25 years of the operation of the facility, ownership will be transferred to the government of Ghana or its nominated agency at a price of $1 billion.

Currently, Parliament is considering the request by government to approve a Put-Call Option Agreement (PCOA) intended to provide a risk guarantee against default termination of the contract.

ACEP’s fear

“Signing another PPA which does not bring energy on-stream will be worrying. Therefore, whether this project is necessary or not should be matched against ECG’s capacity to off-take the produced power in the medium term if Akosombo and other existing plants increasingly become available as hydrologic conditions improve.

“At the moment, there are shortfalls in power production caused by low water levels, gas supply interruption from Nigeria and more recent issues with gas supply from Jubilee. However, the project remains an important one if government and VRA are unable to fix the aged and failing power infrastructure and the water levels in the hydro power dams do not improve.”

Advantages

ACEP has indicated that the project will have a positive impact on Ghana in both the short and long terms.

Some of these include its affordability of short-term supply by which it will rapidly deploy an initial power of 144MW in six months from contract signing. This will help meet near term shortages, it indicated.

ACEP said that the project will impose no financial burden since it provides a flexible arrangement such that ECG does not have to escrow funds to raise a Letter of Credit for default bill payments as required under most recent PPAs.

It also promises fuel supply infrastructure and security since its investors are responsible for fuel supply.

“The project therefore provides for the construction of an LPG import and storage infrastructure which increases Ghana’s fuel diversity and security.”

Unlike many PPAs, capacity charge under the project is not tied to the contracted capacity.

It will be based on the capacity ratio computed from available capacity relative to contracted capacity.

Project cost

Government has reported that the cost of the project is $953.4 million from $647.7 million as a result of the upgrading of the simple cycle plant to a combined cycle plant and the addition of LPG infrastructure.

According to ACEP, it is unable to estimate the additional EPC cost of the revised project design, since government has not provided a break-down of the original project cost of $647.7 million.

“However, estimating non-EPC cost at 30% (industry standards) of the original project cost, the EPC cost could have been put at $453 million. Therefore, with a revised EPC cost of $636.8 million, the additional EPC cost of the steam installation could be put in a range of $150-$190 million, which is on the high side for an additional 50MW.”

By Samuel Boadi

[email protected]

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