Government needs to get more innovative with its policies if it is to arrest the many challenges threatening sustainability of the energy sector, the Africa Centre for Energy Policy (ACEP) has said.
In a statement titled ‘ACEP’s Analysis’ on energy sector issues in the supplementary budget, the think-tank noted the need for a holistic relook at policies within the energy space to enable government come up with a sustainable solution.
According to ACEP, government’s assessment of the energy sector challenges and measures for addressing them have always been a rehash of old issues which were known to it since 2017.
“The measures outlined by government in the supplementary budget to deal with these challenges need to be re-examined, to determine whether they are capable of addressing the challenges and will not end up creating further problems in the future,” said the statement signed by ACEP’s Executive Director, Benjamin Boakye.
“The most significant challenges facing the energy sector are the excess procurement of power generation systems which the country does not need, and gas – both on Take-or-Pay bases. The effect of this is that government is saddled with huge debt burdens,” it said, adding that “the difference, however, is that this time the energy sector bills have crystalised, sending panic waves through government’s finances.”
The prospect of debt recurrence in the energy sector, from any objective assessment, it observed, threatens the country’s socio-economic development and hence must be treated with the urgency it deserves.
“Unfortunately, what is happening today is not an event. ACEP is on record as having cautioned government on many occasions, since 2015, of the catastrophic commitment to more power than could be reasonably projected to be the country’s demand. At the same time gas supply commitments were generated on wrong assumptions, which ACEP has extensively written on.”
Among the issues affecting the sector, ACEP noted, is the subscription to many unwarranted Power Purchase Agreements (PPAs) – which has resulted in excess dependable capacity of about 1900 MW.
The excesses, which are consistent with a World Bank projection in 2017, has created a situation where about 60 percent of the take-or-pay capacity sits unutilised.
This translates to a debt burden of US$500million a year for the taxpayer, according to the budget.
The Finance Minister stated that the contracts were inherited, hence making an admission that the problems are not new. This raises questions as to government’s delay in taking action since January 2017. ACEP observes that not much urgency was attached to addressing the issue until it reached a crisis point.
The key measure proposed by the minister is to convert all Take-or-Pay contracts to Take-and-Pay contracts effective August 1, 2019. This means government has taken a unilateral decision to suspend its obligation of the terms in the Take-or-Pay contracts.
“Needless to say, this will amount to a breach of government’s contractual obligations under the affected PPAs – with potential judgment debt liabilities. Of course, ACEP estimates that abrogating some of the take-or-pay contracts and incurring the resulting liability will still be cheaper than sticking with the Take-or-Pay obligations for the duration of the PPAs.
“If this is also the position of government, a better way would have been to communicate with the companies its decision before making a public announcement,” the statement further read.
Other measures proposed by government to deal with the excess capacity include increasing power exports and increasing productive uses of electricity through industrialisation.
On the issue of increasing power for exports, ACEP is of the opinion that the market is largely limited for the quantum of excess supply the country is faced with.
It said the country’s excess capacity is bigger than the total power needs of Togo, Benin and Burkina Faso, which are the primary targets of Ghana. Additionally, in those countries, access to electricity is very limited; 35%, 29% and 20.3% respectively. The total electricity consumption from these countries is about 1034MW, which is significantly below their installed capacity of 2478MW.
More significantly, ACEP indicated that the transmission infrastructure to extend electricity to those countries remains a medium- to long-0term aspiration, defeating Ghana’s short-term projections for export of power, while it continues to pay for capacity charges.
Another impediment to the country’s hopes of power export, ACEP noted, is price-competitive advantage from Nigeria and Ivory Coast for the sub-regional market – because Nigeria and Ivory Coast export cheaper power in the sub-region.
While Nigeria sells to Benin between 6-7 cents/kwh and that of Côte d’Ivoire is about 10 cents/kwh, conversely, Ghana’s generation cost averages 12-15 cents/kwh. This reduces the available market to Burkina Faso, and marginally to Benin and Togo where Ghana has infrastructural advantage.
The statement also said medium- to long-term generation dynamics in the targetted countries may not augur well for Ghana: “The countries Ghana expects to export electricity to already have medium- to long-term plans to generate their own electricity.
“In some instances, donor programmes such as the Power Africa Programme of the United States of America has initiated plans to accelerate access through off-grid solutions and installation of thermal plants.
“Therefore, Ghana cannot hope on taking advantage of increases in access for those countries in the long run.
“Again, with consistent decline in price of solar, which has higher yield in the Sahel regions, high cost of electricity in Ghana will struggle to compete with solar – which can be deployed quickly for small- to medium-scale firms.”