Ghana Energy Situation

Ghana 1. Situation Analysis

1.1. Energy Situation

The electricity infrastructure in Ghana is underdeveloped because of problems on both the supply and demand sides. On the supply side, low electricity generation capacity, shortages in foreign exchange, inefficiency of service providers, imperfections in energy markets and lack of infrastructure are some of the problems. Total installed capacity to date is 1,986 MW. According to the Minister for Energy (speech 21 October 2008), the total installed capacity in Ghana will reach 3,300 MW in 2013, which is 500 MW below the envisaged target... Hydro power is the major source of electricity in Ghana. In addition, gas and crude oil run power plants have been installed in recent years. The Volta River Authority (VRA), a government owned company, is the sole producer of electricity and is through its subsidiary Northern Electricity Department (NED) one out of two companies distributing electricity nationwide. In the southern part of the country electricity supply is being handled by Electricity Company of Ghana (ECG). A separate company called GridCo has been created to operate the transmission grid. Ghana boasts an extensive electricity grid. Access rates are the second highest in Sub-Sahara-Africa, only surpassed by South Africa. The proportion of households with access to electricity increased from 45% in 2005 to 54% in 2007 including more than 17 % of the rural population connected. All rural district capitals and most villages in Ghana have access to the national electricity grid. However, the grid being available in the town or village does not necessarily mean that any prospective customer can easily be connected. Distance to the next pole and unsolved land issues still remain an access barrier, especially for MSMEs. Although the grid might potentially be available in the towns, MSMEs have difficulties in accessing land where it is actually legally for them to operate, which is a pre-conditions to being connected to the grid. This results in many MSMEs not having access, even with the grid being present in the area. The per capita consumption of electricity has not increased significantly from 481kWh in 2005 primarily due to the 2007 electricity crisis. During the year under review, the average number of hours of electricity outages per consumer per year far exceeded the minimum threshold of 100 hours/year set under the Ghana Poverty Reduction Strategy II (GPRS II). These values have however been influenced strongly by a power crisis with extensive load shedding schemes. The power crisis has been overcome since 2008 and power supply has stabilised thanks to improved water levels in the Volta Lake, serving the two largest hydro power plants and the installation of emergency power generation plants. The situation is expected to further improve with the arrival of natural gas from Nigeria through the West African Gas Pipeline. Further improvements on power availability, stability and a reduction in generation cost will be achieved once the Bui hydro-power station is finished in 2012. In Ghana the tariff setting is rather complex. Several tariffs depending on consumption and type of activity apply.

In general all tariffs are cost covering for generation, transmission and distribution but not for investment and financing cost, which means, in connection with the debt accumulated during the energy crisis, that VRA and ECG cannot establish funds for future investments. Budget for new connections needs to come from the government and donor organisations, otherwise communities have to pay themselves for putting in place a distribution network (self help). VRA and ECG were mandated by the Public Utilities Regulatory Commission to charge a rural electrification levy of 1.5 – 2.0 % on tariffs. This has to be collected and transferred to the Ministry of Energy.

Distribution companies charge a connection fee of around 100 GHS, which some micro and small enterprises a have difficulty to pay. Due to their location in unauthorised places, many MSMEs presently have to rely on informal/illegal electricity connections from neighbours. These so called ―extensions‖ apart from being a serious security threat, are often extremely expensive (sometimes more than 10 times as expensive as official connections).

 Key problems of the energy sector

In the last two decades the demand for electricity has been growing by 10-15 % annually. The expanding commercial and industrial sectors are, together with the high population growth, the main drivers of this process. In order to meet the demand and promote the decentralisation of economic growth and to support the development of small industries outside the main growth centres in the capital and along the coast, it is not only necessary to build additional generation capacity, but especially to provide urgently needed transmission and distribution facilities for productive use. Even where there is sufficient generation capacity to serve the demand of commercial customers, the electricity company has problems to provide enough equipment (meters, transformers etc.) to connect commercial users and the costs for the installation exceed the financial capacities of most enterprises. Moreover, individual business people have hardly any influence and means to push their interests and applications vis-à-vis the electricity company.