Ghana Energy Situation

Republic of Ghana
Ghana Flag.gif	800px-LocationGhana.svg.png
Capital	Accra (5° 33′ 0″ N, 0° 15′ 0″ W)
Official language(s)	English
Government	Constitutional Presidential Republic
President	John Atta Mills
Vice-President	John Dramani Mahama
Total area	238,535 km2
Population	24,233,431 (2010 estimate)
GDP (nominal)	$31.2 billion (2010 estimate)
GDP Per capita	$1,318.36
Currency	Ghana cedi (GH₵) (GHS)
Time zone	GMT (UTC0) Summer (DST) GMT (UTC0)
Calling code	+233

Overview

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 about 2,185.5 MW; half from the large dams on the Volta Lake, with the rest coming from thermal plants. According to the Minister for Energy (speech 21 October 2008), the total installed capacity in Ghana will reach 3,500 MW in 2013, which is 500 MW below the envisaged target of 4,000MW. The government hopes to have 5000 MW of generating capacity in 2015, some from small hydro and renewable energy sources.

A key objective of the Government’s energy policy focus is to ensure universal access to electricity by 2015—although it seems overly ambitious. Due to their poor financial situation, both VRA and ECG have no funds to connect new residential or commercial areas. To realise connections three financial schemes apply:

• Government Projects:

The Government (Ministry of Energy) allocates budgets for new connections, the distribution companies will carry out the projects mainly with support from donors.

• Self Help Electrification:

Theself help electrification project (SHEP) requires communities use their own budget to build a distribution network (poles), while lines and controls are financed by the ministry to install hardware to connect their distribution network to the grid

• Private investment:

Households or companies fully finance the hardware and installation to be connected to the grid.

Non-residential (commercial/industrial) customers do not qualify for most government and donor initiatives. In situations where the entrepreneurs (or others) provide and install all the necessary equipment, VRA-NED or ECG will connect the area to the grid. is the major source of electricity in Ghana; however to meet the rising demand, the government has increasingly relied on diesel, crude oil and nartural gas. An additional 265 MW is planned to be added in 2012 with the completion of the Bui Dam and the Takoradi 3 thermal Project. 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 secon 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, to 55% in 2008, including more than 17 % of the rural population connected. According to government esimates, was 72% in 2011. 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. Furthermore, they most often have access to a single phase network, although productive activities often require three-phase power.

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.

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In Ghana the tariff setting is rather complex. Several tariffs depending on consumption and type of activity apply. Non-residential customers, i.e. MSMEs, pay a higher rate beginning with the service charge, which is 0.267 GHS a month for businesses and only 0.165 GHS for households; continuing to the tariffs, a company using under 300 kWh a month pays 0.2611 GHS per KwH, while a household pays only 0.1707 pesewas. (A pesewa is approximately 2/3 a US cent, or ½ a Euro cent.) 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).

Installed Capacity in Ghana

Name	since	Capacity [MW] (available)	type/fuel	location (coordinateS)	owner/operator
Akosombo 1-4	1965	588	hydro		VRA ?
Akosombo 5-6	1972	324	hydro		VRA ?
Kpong	1991	160 (140)	hydro
TEMA 1	1990	126	LCO/NG/diesel
TAPCO (Takoradi Power Company		330 (200]	LCO/NG/diesel
TICO (Tacoradi Intern. Company)		220 (200)	LCO/NG/diesel
Sunon–Asogli Power (SAPP)		200 (180)	NG
Tema 2		49 (40)	NG/diesel
Mines Reserve Plant		80 (45)	NG/diesel
Bui Power plant	not yet	400	hydro

[NG-Natural gas; LCO – Light crude oil]

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 necessary to build additional generation capacity, and also 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.

Other problems include:

• Much of the country’s high voltage transmission system is ageing badly and increasingly unreliable; the risk of outages remains significant as electricity demand continues to rise faster than the rate of economic growth. Upgrading of the transmission system is a clear investment priority for the sector.
• The electricity distribution sub-sector (ECG and NED) suffers from poor commercial and operational performance, with high losses due to old and overloaded networks in many areas, combined with problems of metering, billing, electricity theft and inadequate revenue collection.

Both issues are being addressed under the WB/AfDB/SECO Energy Access & Development Project (GEDAP) (USD 200m).

Policy Framework, Laws and Regulations

National Energy Policy

A national energy policy was approved by Cabinet in late 2009 and is being pursued by the GoG. A key objective of the Government‘s energy policy focus is to ensure universal access to electricity particular for the rural communities in a reasonable time period. The Ghanaian government also embarked on a project to extend electrification to more than 5 communities in every district of the country. The government projects to achieve universal access by 2015, but this seems hardly realistic. Due to their poor financial situation both VRA and ECG have no funds to connect new residential areas and industrial zones.

To realise connections three financial schemes apply:

• Government Projects: The Government (Ministry of Energy) allocates budget for new connections, the distribution companies will carry out the projects.
• Self Help Electrification: The self help electrification project (SHEP), requires communities use own budget to build a distribution network (poles) while lines and controls are financed by the ministry to install hardware to connect their distribution network to the grid. 
• Private investment: Households or companies fully finance the hardware and installation to be connected to the grid.

The same financial constrains apply to connecting new industrial zones to the grid. In situations where the entrepreneurs (or others) provide and install all the necessary equipment, VRA-NED or ECG will connect the area to the grid.

The broad policy objectives of the government as outlined in the Medium Term Development Framework (MTDPF) include the following:

• Improving and sustaining macroeconomic stability,
• Expanding productive infrastructure,
• Accelerating agriculture modernization and agro-based industrial development,
• Developing human resources for national development,
• Ensuring transparent and accountable governance,
• Reducing poverty and income inequalities.

There is a clear focus on:

• Energy supply – To ensure increased access of households and industry to reliable and adequate electricity. This will involve diversifying the national energy mix, including the use of indigenous sources of energy and ensuring efficient management of the energy sector.
• Poverty Reduction – To promote income generation opportunities for the poor and vulnerable including food crop farmers; facilitate and enhance the empowerment of the poor in terms of their economic, social and human rights and environmental protection and security; promote inclusive development processes through decentralization and gender equity; develop and enhance social protection for the poor by ensuring fair and equitable distribution of national wealth.

Another key element of the governmental policy is the Private Sector Development Strategy (PSDS II). The objective of the PSDS is to foster the development of sustainable corporate strategies for enterprise growth and job creation. The Endev 2 intervention has been planned within the framework established by the Second Private Sector Development Strategy (PSDS II) Concept Document of the Ministry of Trade and Industry (Lead Executing Agency). This concept document was recently affirmed by the President. The concept paper sets out the framework for the design and development of the second phase of the Medium-term Private Sector Development Strategy (PSDS II). The GTZ-supported Programme for Sustainable Economic Development (PSED) will provide support for the implementation of the PSDS II. EnDev Ghana activities will be incorporated into the structure of the bi-lateral Programme for Sustainable Economic Development to ensure alignment. There is a draft National Renewable Energy Strategy together with a draft Strategic National Energy Plan 2006 – 2020. The strategy set the target to achieve 10% of renewable energy (not including large hydro power) in the energy mix by 2020, including wind, mini-hydro, modern biomass resources and solar-PV. Ghana has significant potential for hydropower, biomass, wind and solar power. A renewable energy law is under preparation and yet to be finalised. The objective is to develop and enforce standards and codes for renewable energy technologies. This will include standards for bio-fuels, solar lighting and solar water heaters. This draft renewable energy bill was ready for submission to Cabinet as of December 2008. It has to be reviewed again by the new administration to reflect their vision for the energy sector. As the national policies and strategies on renewable energy are still being established, EnDev Ghana will for the time being continue to focus on the energy for productive use interventions started under EnDev I and not include further activities in the field of renewable energy. There are plans under World Bank co-funded GEDAP to create a new institutional and policy platform from which to launch an innovative, multi-faceted approach for expanding electrification in Ghana. This includes the establishment of an independent Rural Electrification Agency (REA), which will coordinate all rural electrification programmes and determine areas to receive electrification based on transparent eligibility criteria and commercial principles.

Renewable Energy Strategies and Laws

A renewable energy law is in parliament and is expected to be passed soon. The BMZ is prepared to support the implementation of the law and establishment of appropriate legislative instruments such as a feed-in tariff. As the national policies and strategies on renewable energy are still being established, EnDev Ghana will continue to focus on the energy for productive use interventions. Support the use of renewable energy for productive use for example in the wood-working sector or in agro-processing could be considered once the RE law is implemented,

Electricity Access and Rural Electrification

The EnDev intervention is consistent with current GOG activities to intensify rural electrification and the Productive Uses of Electricity (PUE) Programme, which is being implemented by the Ministry of Energy (MoEn). The project will continue to work within the existing framework to rollout the extension of electricity to selected industrial zones. The project will also liaise with the MOEn and others to seek further collaboration in the area of Productive Use of Electricity.

Institutional Set Up in the Energy Sector, Activities of Other Donors

The electricity sector in Ghana is run through 6 institutions:

• Ministry of Energy (MoE):

The MoE is the body responsible for the formulation, coordination, monitoring and review of policies and programmes for the overall development and utilisation of energy resources in Ghana.

• Volta River Authority (VRA):

VRA is the state-owned electricity utility responsible for the generation and transmission of electricity in Ghana and supplies electricity in bulk to its subsidiary NED, and to ECG.

• Northern Electricity Department (NED):

NED is the subsidiary of VRA responsible for the distribution of electricity in the northern part of Ghana.

• Electricity Company of Ghana (ECG):

ECG is the utility responsible for the distribution of electricity in the southern part of Ghana. According to the provisions of the Statutory Corporations (Conversion to Companies) Act, 1993 VRA and ECG have been converted into companies under the Companies Code.

• Ghana Grid Company (GRIDCO):

GRIDCO is a Power Transmission Utility company formed as part of the Power Sector Reforms to be responsible for the Operation and Maintenance of all Transmission Lines. This was to enable the VRA to focus on its core task of generation. The objective is to ensure an open access to national grid by all generators of electricity, particularly Independent Power Producers (IPPs). This provides a level playing field for both private and public sector investors in the electric power generation to be able to enter into power purchase agreements with consumers.

The current regulatory framework for the electricity industry is provided by Acts 538 and 541 which established the Public Utilities Regulatory Commission and Energy Commission (EC) respectively; to ensure the proper functioning of all players in the electricity sector and to create the required environment for stakeholders and for private investment in the sector.

Licensing decisions rendered by the EC are subject to appeals to the Minister of Energy or the courts, but tariff decisions are not subject to appeal.

Public Utilities Regulatory Commission (PURC)

PURC has been set up as a fully independent body to regulate the setting of tariffs for and enforcement of customer service obligations of all public utilities. The PURC‘s regulatory mandates are:

• To provide guidelines on rates chargeable for electricity services. These guidelines provide a transparent and predictable mechanism for setting rates. An Automatic Adjustment Formula has been introduced to allow for quarterly revision of tariffs to reflect fluctuations in crude oil prices and foreign exchange rates, the hydro-thermal generation mix and changes in the consumer price index. Major tariff reviews take place every four years. The tariff review process is quite transparent and the public and consumers are involved through the public hearings system. Nevertheless, there has been a fair degree of political interference in the tariff setting process in the past years. In 2008, a dispute between government and PURC over the setting of end-user electricity prices led to the resignation of the then PURC president,
• To examine and approve the tariffs,
• To protect the interests of consumers and providers of public utility services,
• To monitor the standard of performance of these utilities,
• To promote fair competition among service providers in electricity, as well as in water.

Energy Commission (EC) The EC‘s regulatory mandates are:

• Advise the Minister on national policies for the efficient, economical, and safe supply of electricity, natural gas and petroleum products having due regard to the national economy,
• To receive and assess applications and grant licenses to utilities for the transmission, wholesale supply and distribution of electricity, and to qualified operators in the energy sector,
• To establish and enforce, in consultation with PURC, standards of performance for the relevant utilities,
• To promote and ensure uniform rules of practice for the transmission, wholesale supply and distribution of electricity.

Energy Foundation (EF)

The Energy Foundation Ghana is a non-profit, public-private partnership institution, devoted to the promotion of energy efficiency and renewable energy, as a key strategy to managing Ghana's growing energy needs in a sustainable manner. It was established in November 1997, by the Private Enterprise Foundation in collaboration with the Government of Ghana to promote sustainable development and efficient consumption of energy in all of its forms in Ghana.

Activities of Donors

A number of donors are providing financial and technical support to the Government of Ghana through her implementing agencies. These include the World Bank (IDA), African Development Bank (AfDB), Global Environmental Fund (GEF), Switzerland, Japan, France, Spain, India and China. The biggest energy sector project which is running currently is the Ghana Energy Access and Development Project (GEDAP) which consolidates funding from Multilateral, Bilateral and Government.

Within this framework, the participating donors are providing support in the areas of

(1) national level institutional, policy development, organisation and capacity building;

(2) Generation sub-sector organisation, capacity building and upgrading of facilities;

(3) Transmission sub-sector organisation, capacity building and upgrading of facilities;

(4) rural electrification and renewable energy development, institution, policy, organisation, business model and new facilities.

The coordination of donor support takes place within the framework of the Donor Sector Group, established under the Multi Donor Budget Support (MDBS) framework. The Energy Sector group meets every other month to coordinate activities within the sector. Donors that are very active in the sector group include: The World Bank (Sector Lead), France (AFD), Switzerland, African Development Bank, Japan (JICA). To a very large extent there is division of labour. The EnDev Team in Ghana attends the Sector Group Meetings as observers to share information and to ensure that interventions are in line with current policy and programmes of the MoE. The EnDev Team will continue to participate in the Sector Group Meetings and will coordinate activities with donor colleagues and policy makers at the MoE with regard to the Productive Uses of Energy.

Short explanation to which degree EnDev will be in line with capacity development needs of the partner

Capacity Development for local governments:

• Local governments recognize the need for small industrial development through the planning and dialogue sessions, this will improve their internal planning and budgeting processes; Local governments will improve private sector involvement in participatory planning processes. They will also appreciate of the needs of the micro small businesses and re-orient themselves towards meeting these need by pursuing local economic development vigorously and improving the public services delivered to businesses,
• Local physical planning units will gain experience in providing space for local economic development activities,
• Local governments will also gain understanding of the (electricity) infrastructure needs of enterprises and customers and seek to provide them alongside other social infrastructure. Hitherto infrastructure development in the local area was mainly to meet the social needs to the neglect of productive infrastructure, and
• Local Governments will learn how to use synergies between larger infrastructure interventions and EnDev.

Capacity Development for business associations:

• Members of local business associations will be supported to improve their general business skills, especially in cash-flow-management and book-keeping. This is achieved through a tailor-made adaptation of the CEFE methodology, taking into account the special needs of the pre-dominantly illiterate target group,
• Business associations will develop the capacity to adequately manage the industrial areas in an economically and environmentally sustainable way,
• Local businesses are enabled to better voice out their needs and concerns towards the local administration through public-private dialogue.

Capacity Development on national level:

• The Ministry of Trade and Industry will use the industrial zones as an example for a decentralized economic growth strategy. The project will assist the Ministry in using the experiences for the development of national policies and strategies,
• The Ministry of Energy will be supported in better addressing small enterprises‘ needs within its Energy for Productive Uses Project, The Ghana Environmental Protection Agency is being supported in tackling environmental issues, resource and energy efficiency in MSMEs in a business friendly manner, through a series of educational materials. So far, only large enterprises have been within the focus of EPA‘s activities.

Other Activities of BMZ and DGIS

Apart from EnDev, neither Germany, nor the Netherlands are supporting the Energy Sector in Ghana.

Under its Multi-Annual-Strategic Plan, the Dutch Embassy supports Ghana in the following sectors and priority themes:

• general budget support
• health/HIV Aids,
• environment/natural resources,
• education and school meals,
• water and sanitation,
• gender,
• good governance.

BMZ has defined the following focal areas for the development cooperation with Ghana:

• Agriculture,
• Good Governance and Decentralization,
• Sustainable economic development
• Employment-Oriented Private Sector Development.

Within these focal areas, EnDev Ghana is closely co-operating with the BMZ financed Programme for Sustainable Economic Development (PSED). EnDev is part of PSED‘s activities in the field of local and regional economic development.

Further Information

• Ghana - Information Sources