Ghana Energy Situation

1.1 Energy Sector

The energy 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 as per today 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 under 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 one out of two companies distributing electricity nationwide. VRA has offices in all district capitals of the four northern regions, where it provides power to households and commercial businesses.

Ghana boasts an extensive electricity grid. 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. The per capita consumption of electricity has not improved significantly from 481kWh in 2005 primarily due to the 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 GPRS II.

All rural district capitals and most villages in Ghana have access to the national electricity grid. In the last two decades, however, 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 economic growth, it is not only necessary to build additional generation capacity, but especially to provide urgently needed transmission and distribution facilities. Even where there is sufficient generation capacity to serve the demand of commercial businesses, 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.

The Government of Ghana is strongly promoting the country's mining sector. This opens new market possibilities for many supporting industries, such as metal works, carpentry, etc. Originally located in the outskirts of the city and along the main roads, currently, due to the growth of population, small scale industries are situated mainly in the central areas of district capitals, contributing to high noise, pollution levels and traffic problems, as well as frequent power outages in the immediate surrounding of residential areas. There is currently development regarding the improvement of this situation by creating new remote industrial zones, providing better working conditions and infrastructure (electricity, health centres, etc.) for industries, as well as improving urban planning.

There is a number of other donor organisations involved in basket-funding in the energy sector in Ghana including World Bank, SECO , AFD and JICA.. However none of these are dealing with connecting newly developed industrial zones to the grid.

1.2 Problem Situation

The Energising Development interventions are planned in the Brong-Ahafo region. The lack of access to energy and the poor reliability of the existing power supply were identified as a bottleneck for many enterprises in the region during stakeholder workshops conducted by GTZ in the RUTIPP project. The regional and local governments have plans for the promotion of new industries and the creation of industrial zones with improved infrastructure at the outskirts of district capitals in the region. Despite the large number of donor organisations currently working in Ghana, there are no funds available to support the electrification of these new zones. This has been confirmed by the Director of Power of the Ministry of Energy. The utility company cannot pass on the investment costs to the future customers. An intervention from Energising Development, together with the GTZ RUTIPP project would make electrification of these zones possible and thus further stimulate the emerging industries in the region. The Energising Development project is a perfect complement to the ongoing DGIS basket funding initiative to improve the quality of the existing electricity services.

Activities of other stakeholders

On October 16, 2008 the World Bank, acting as administrator for the Global Partnership on Output-Based Aid (GPOBA), signed a grant agreement with the Government of Ghana for US$4.35 million to support increased electricity access through renewable energy technology for poor households in remote rural regions of Ghana. Up to 15,000 poor households or 90,000 people are expected to benefit from the scheme, mainly through solar home systems (SHS) but also through solar lanterns. The project offers a range of PV products which even on the smaller end can support several lights, a radio, and a black-and-white TV for a few hours. The GPOBA grant will make solar PV systems affordable for poor rural customers by subsidizing approximately 50 percent of the costs. But in line with the output-based approach, most of the GPOBA subsidy will be paid only after services have been delivered and verified by an independent agent. Consumers will make a small down payment at the time of purchase, and will be able to obtain consumer loans from rural banks to pay the rest. Consumer loans will be made more accessible because the GPOBA scheme is a part of the larger Ghana Energy Development and Access Project (GEDAP) which is mostly funded by the International Development Association and the Global Environment Facility. GEDAP includes a line of credit to Ghana’s ARP Apex Bank, the implementing agency for the GPOBA project, as well as measures to help develop the market for solar PV systems in remote areas. The GPOBA project will draw on funds from the UK’s Department for International Development (DFID) and the Swedish International Development Cooperation Agency (Sida).

The electricity industry in Ghana is dominated by two companies. The Volta River Authority (VRA), a state owned utility, is the main generation company. A small share of the generation is attributed to few IPPs. The Electricity Company of Ghana (ECG) and the Northern Electricity Department, a subsidiary of the VRA, are two state owned companies that were responsible for distribution (RCEER, 2005). Recently the Ghana Grid Company has been established which is responsible now for distribution. However, the process of outsourcing distribution from VRA has not been complete yet. While VRA is organized in a decentralized structure with offices in the district capitals ECG is managed centrally from Accra. To address the power shortages, the Government of Ghana installed 126 MW emergency power plants. A consortium of mining companies also procured and installed 80 MW thermal plants at Tema to augment the existing power generation capacities. The Wood-Group and Transdanubia Limited of U.K also installed 50MW power plants at Tema. A Power Purchase Agreement has been signed with Balkan Energy Company to operationalize the 125 MW Osagyefo Power Barge at Effasu - Mangyea. The Bui Hydro Power plant built by SINO Hydro at the moment and will be connected to the grid by 2011 (400 MW).

With additional 18 IPPs agreements have been signed already. The capacity of these installations varies between 20MW and 600MW, summing up to a total of approx. 2 GW within the 18 IPPs.

The power generation system in Ghana is largely dominated by hydroelectricity. From late 2006 to September 2007, due to a severe drought and underinvestment in power capacity, Ghana’s consumers were affected by endemic power cuts. The government has planned to expand national hydropower capacity by approximately 630 MW through a Build – Operate – Transfer (BOT) financing scheme. In addition to increasing the domestic electricity supply, this will allow the export of excess electricity to Burkina Faso, Mali and Ivory Coast. Ghana also plans to increase its thermal generating capacity. These projects, supported by the International Finance Corporation, will become feasible with the construction of the West African Gas Pipeline, which will deliver low priced natural gas from Nigeria and will allow the conversion of existing oil-fired facilities to natural gas.

[Source: Boosting the Electricity Sector in West Africa: An Integrative Vision By Edgard Gnansounou; http://infoscience.epfl.ch/record/121579/files/]