The energy world today
The turn of the century has brought to the fore discussions concerning the sweeping changes facing the world as a result of the continued dependence on fossil fuels. Climate change, previously dismissed as a hoax, a sham and a conspiracy theory, is now a prominent agenda point for discussions on international fora. The evidence is undeniable. There are hotter temperatures across the globe, more severe storms, increased drought, floods, etc. We need not look far, but at our polluting activities, to find a cause for this phenomenon.
One thing is clear, the age of oil and gas is steadily coming to an end. Aside from the deleterious effects of reliance on fossil fuels, the increasing demand for energy as a result of a growing population has led to the increasing depletion of the finite resources that are fossil fuels. A green energy transition is gradually rearing its head. It is heartening to know that the international community has taken this threat seriously and has committed to the pursuit of a ‘Net Zero’ agenda as underlined by the 2015 Paris Agreement and other international treaties and conventions.
The big picture objective lies in lowering emissions and facilitating a transition to the use of alternative sources of power supply, and countries all over the world are unified in charting this global climate effort. The call for the resort to alternative sources of fuel is clear and as states are making moves to do so, it behooves companies, businesses and enterprises to also make strides in doing so.
The need for businesses to adopt renewable energy: the Ghanaian perspective
Ghana, like many African countries, has expressed its commitment to joining the green transition and reducing its carbon footprint on the world. In line with this, Ghana has embraced the United Nations Sustainable Development Goals (SDGs); particularly SDG 7, which is geared toward ensuring universal access to affordable, reliable and modern energy services.
Under its Nationally Determined Contributions (NDC), the country also aims to increase its reliance on renewable energy. The shift to alternative sources of fuel is imperative considering the rise in the population of the country and the rise in energy demand, which is projected to outstrip supply in the next decade. Ghana has committed itself both locally and internationally to replace conventional fuels with cleaner and more reliable sources of energy supply.
Despite an abundance of renewable energy sources in Ghana, the 2021 published Energy Statistics indicate that power generated from renewable sources accounts for less than 1 percent of the total installed capacity of Ghana. This is, however, exclusive of energy generated from hydropower which accounts for a greater portion of the installed capacity of Ghana.
Between 2006 to 2015, Ghana instituted several policies and measures aimed at promoting the development of renewable energy technology. Some of these policies include the Strategic National Energy Plan (SNEP) 2006-2020, National Energy Policy (NEP) 2010, Energy Sector Strategy and Development 2010, The Sustainable Energy for All Action Plan (SE4ALL) 2012, and the Bioenergy Policy.
In recent times, Ghana has adopted the Renewable Energy Master Plan, which seeks to accomplish all the targets enumerated in the previous with a few additions by the year 2030. The primary objective remains at pushing energy generation from renewable sources to 10 percent before the end of 2030.
The dependence on fossil fuels is a cancer to businesses in an increasingly hard economy for a number of reasons. The overhead cost of energy is a key operating expense in the budget of every business. Factoring in the usage of electricity and the expense on petroleum as well as other sources of fuels that a business may rely on, together with taxes charged on the use of such resources, businesses need to be strategic in their approach to energy usage. Businesses must embrace opportunities to reduce risk, improve and create new value for themselves in this regard.
The rise in prominence of Economic, Social and Governance (ESG) considerations in business trends and their linkage to environmental safety as well as global discussions surrounding climate change and carbon regulation mean that businesses must be particularly concerned about the role they play in such conversations.
Questions concerning corporate environmental performance and innovations in energy technologies in a business model must be a topic of discussion. Not only does the management of its carbon footprints have positive implications for its cost structure, but it also serves as a point of differentiation between similar businesses, which is an increasing drawing factor for consumers and investors alike. It serves as a positive badge of distinction and gives businesses a leg up in the sourcing of funds from investors.
The move to convert to an alternative source of energy requires a careful evaluation of the existing energy supply situation of a business and its prospects. Weighing the pros and cons and making a data-driven decision is the way to go. How much energy does the business need and what does it cost? What will it cost to implement renewable energy power generation? How does this align with the vision of the business and the expectations of its clientele and investors? What are the moves being made by our competitors? There is no doubt that investment in renewable energy can be a boon and a long-term investment that provides a good return.
All these questions, however, are hinged on the energy ecosystem in Ghana and the enabling conditions that will provide adequate support for a transition to alternative fuel sources. In simple terms, does the policy and regulatory climate in Ghana make investments in alternative energy sources a good investment decision for businesses? In what follows, we provide an insight into the renewable energy climate in Ghana.
The ‘renewable energy climate’ in Ghana
Sound legal framework: The Government of Ghana has established a legal and regulatory framework through which the renewable energy goals of the country can be achieved. The Renewable Energy Act, 2011 (Act 832) as amended by the Renewable Energy Amendment Act, 2020 (Act 1045) which is the primary legislation governing the sector, was enacted in furtherance of the commitment of the country to boosting growth and development in the sector.
Section 1 of the Act establishes that the cardinal objective of the Act shall be to provide for the development, management and utilisation of renewable energy sources for the production of heat and power in an efficient and environmentally sustainable manner.
Act 832 also establishes the Renewable Energy Authority as the regulatory body to govern the sector. Among the key provisions in the Act are the creation of the renewable energy fund, research and development, off-grid electrification for remote communities, net metering distributed generation, renewable energy purchase obligations, etc.
Other key legislations affecting the renewable energy sector include the Energy Commission (Local Content and Local Participation) (Electricity Supply Industry) Regulations, 2017 (L.I 2354), The Renewable Energy Sub-Code for National Interconnected Transmission System Connected, among others
Licensing regime: Act 832, as amended, also provides that any person or organisation that wishes to engage in commercial activity in the renewable energy industry must obtain a license from Energy Commission before doing so.
The establishment of a licensing regime ensures that prospective investors in renewable energy can strategise to meet the specific requirements of the activity that they wish to engage in. It ought to be noted that licenses are only granted to citizens of Ghana, a body incorporated and registered under the Companies Act, 2019 (Act 992) or under any other law of Ghana, or a partnership registered under the Incorporated Private Partnership Act, 1962 (Acy 152).
To aid in this process, the government has also formulated licensing manuals that detail the license application projects for utility scale projects and non-electricity renewables, including importation licenses, wholesale electricity supply licenses, installation and maintenance licenses, etc. The varied licensing regime also spells out the potential business avenues that businesses interested in pursuing renewable energy projects can venture into.
Competitive procurement: The Renewable Energy Act 2011 (Act 832) established a ‘feed-in tariffs’ (FiTs) scheme which sought to provide payment to businesses and households that generated their source of electricity from renewable sources.
Although this has been repealed by Act 1045, consumers can now benefit from the reduced cost of electricity generation from renewable sources through competitive procurement instead of the feed-in tariff scheme. This scheme sets up a tender and auction process intended to attract competitive market rates for the energy produced from renewable energy sources.
Mandatory Purchase and Connection Policy: The Renewable Energy Amendment Act 2020, (Act 1045) also encourages small-scale self-generation and net-metering from renewables. The net-metering scheme is intended to encourage self-generation on a power cost reduction or climate mitigation basis and not for income generation
In addition to this, Act 1045 further mandates fossil fuel-based wholesale electricity suppliers, fossil fuel producers and other companies that contribute to greenhouse gas emissions to complement the global effort of climate change mitigation by investing in non-utility scale renewable energy technologies, particularly for off-grid electrification.
This shall be done upon consultation between the Renewable Energy Board, the Public Utilities Regulatory Commission and Distribution Utilities. In the same manner, the transmission and distribution system operators are obliged to provide connection services for electricity from renewable energy.
Increased financing options: The Renewable Energy Act also established the renewable energy fund which is intended to provide financial resources for the promotion, development, sustainable management, and utilisation of renewable energy sources.
In furtherance of this, money from the fund shall be applied primarily to the provision of financial incentives, feed-in tariffs, capital subsidies, production-based subsidies, and equity participation for all renewable energy projects as well as research into renewable energy technology, programmes, and any innovative approaches to the development and utilisation. Although the fund is yet to be operational, it is targetted at offering much-needed financial support to investors in alternative energy sources.
Other sources of funding, both internal and external, which can be explored by prospective investors – or which the government can leverage to provide support – in the renewable energy sector include the Petroleum Fund, the Ghana Infrastructure Investment Fund (GIIF), the Multilateral Development Banks, Green Climate Funds, Africa Renewable Energy Fund, Grants and Loans, among others.
Tax exemptions and benefits: The Renewable Energy Master Plan (REMP) 2019 also contains some incentives that the government seeks to provide in support of renewable energy, such as tax breaks, capital subsidies and loan guarantees.
For instance, there are tax exemptions on the manufacturing and assembling of components for renewable energy generation; import of plant and plant parts for electricity generation from renewable energy resources shall be exempted from import duty and VAT; the expansion of venture capital trust fund to provide soft loans to local industries.
Investment guarantees: Under Ghana’s investment regime, businesses engaged in renewable energy generation can benefit from protections, schemes, and guarantees – such as locational incentives in the form of tax rebates for manufacturing industries and companies generating electricity located in regional capitals outside Accra and other approved zones, free transferability of capital, profits and dividends, insurance against non-commercial risks, among others.
Infrastructure development and technical capacity training: The Renewable Energy Master Plan underlines the necessity of successfully integrating renewable energy electricity into the national grid through a robust National Interconnected Transmission System (NITS) which can handle the variable loads from wind and solar facilities.
In this regard, GRIDCo has been tasked to modernise its operations to synchronise with weather forecasting stations in all utility-scale variable renewable energy installations. The government has also committed to supporting GRIDCo to obtain financing to aid in this cause. On mini-grids, the government will invest as well as provide opportunities for the private sector to invest in generation and distribution infrastructure. The government also intends to explore opportunities to provide a sustainable water transportation system to support the transportation of mini-grid facilities to islands and lakeside communities.
All this cannot be achieved without the necessary technical expertise. Thus, the government has also committed to providing the necessary human and institutional capacity-building and training required to successfully implement both the short-term and long-term goals of the Renewable Energy Master Plan. Government shall also provide support to institutions and centres engaged in renewable energy research and development to flourish and develop on their core mandates.
Renewable energy usage is on the rise. Aside from its many benefits, including cutting overhead business costs, reducing energy dependency, providing tax benefits, and placing a business in an advantageous position as regards ESG considerations, it also offers a competitive advantage to businesses. Not all businesses are ready to make the leap into alternative sources of energy.
The most that such businesses can do is track energy usage at all levels and find ways to minimise their carbon footprint and emissions while doing so. It is important to note that inasmuch as private individuals and businesses can incorporate renewable energy in their business models, much needs to be done on the part of the government in terms of creating a conducive environment that can incentivise the private sector to invest in renewable energy sources. Clean energy is the way forward and all persons, businesses, and governments must embrace the transition.
The age of oil and gas may be nearing its end; however, businesses are not alone in this transition to alternative energy sources as the government is working intently to create the right environment for renewable energy to thrive in Ghana.
>>>the writer is an Associate at Sustineri Attorneys PRUC, with an interest in Commercial Transactions, Intellectual Property, Energy & Mining, Sustainability, and Dispute Resolution. He welcomes views on this article at [email protected]