By Owura YEBOAH
Ghana’s former Energy Minister Matthew Opoku Prempeh put the country’s energy quandary succinctly: “We stand at the crossroads of history.
Ghana has to monetize its hydrocarbon resources while progressively embracing the inevitable green transition” (Ministry of Energy, 2023).
This conveys the balancing act that Ghana — like many developing countries, endowed with substantial fossil fuel reserves — must negotiate in a world increasingly aware of the climate crisis.
Ghana’s development from an electricity deprived country to an energy hub for West Africa is compelling. The discovery of the Jubilee Field in 2007 transformed the economic outlook for the country.
But as renewable investment becomes the preferred choice for global markets, Ghana is faced with a binary choice: extract oil and gas while it can, or pivot to renewable investments that would be sustainable, but need significant investment.
Approximately 15% of the population in Ghana still lacks access to reliable electricity, with rural electrification lagging urban areas (Energy Commission of Ghana, 2022).
Additionally, reliable and affordable power is critical for industrial development, and the current infrastructure simply cannot deliver consistent power.
Ghana’s Hydrocarbon Picture
The petroleum sector has expanded since the start of commercial production at the Jubilee Field in 2010, and in 2022 accounted for approximately 3.8% of GDP and 10.5% of government revenue produced by the sector (Ghana Statistical Service, 2023).
The country produces about 170,000 barrels of oil per day from three main fields, and it has proven reserves of approximately 660 million barrels (Petroleum Commission Ghana, 2024).
The recent developments have created both excitement and debate. In September 2021, Eni Ghana made a major oil discovery in the Cape Three Points Block 4, with preliminary estimates suggesting recoverable resources of approximately 550-650 million barrels of oil equivalent (Eni, 2022).
“Ghana is running out of time to extract the maximum value from its hydrocarbon resources. International demand projections indicate oil consumption could peak between 2030-2035, when many assets may be stranded late in their development cycle” (Acheampong, 2023).
This urgency to develop Ghana’s hydrocarbon resources has generated several recent policy initiatives, most notably streamlining the Pecan field development, which is expected to produce approximately 110,000 barrels a day by December 2025 (Ministry of Energy, 2024).
The natural gas market has a very different context for Ghana. Natural gas reserves are estimated to be 9.93 trillion cubic feet underground; Ghana has earmarked gas for transitional fuel and feedstock for its industrialization ambitions (Ghana National Gas Company, 2023).
The completion of the Tema LNG terminal in 2022 – the first terminal in West Africa to import liquefied natural gas – is significant and will now allow Ghana to import liquefied natural gas to supplement its domestic production.
The Renewable Revolution
Ghana’s renewable energy landscape has changed substantially since the passage of the Renewable Energy Act in 2011.
The government has made ambitious targets, such as achieving 10% renewable energy contribution to its generation mix by 2030 (not including large scale hydro) and ensuring universal electricity access by December 2025 (Energy Commission of Ghana, 2023).
Solar has grown the fastest among renewable energy sources and will already contribute 154 MW of installed capacity in 2023, with the most recent addition being the 50 MW of capacity from the Bui Solar project (Renewable Energy Association of Ghana, 2024).
After years of delays the Ayitepa Wind Farm project began construction in 2023; with a planned generation capacity of 225 MW upon completion (Lekela Power, 2023).
The African Development Bank’s participation in Ghana’s Scaling-up Renewable Energy Program as well as the European Investment Bank’s €170 million financing package for renewable projects demonstrate this shift (AfDB, 2022; EIB, 2023).
The fiscal implications are huge. The oil industry directly employs about 7,000 Ghanaians, with an additional 20,000-30,000 employed indirectly (Petroleum Commission Ghana, 2023).
While renewable energy has the potential for a higher jobs intensity per dollar spent, it employs considerably less at the present time (approximately 3,500 direct jobs) (Renewable Energy Association of Ghana, 2023).
There are also implications for the government revenue. Oil revenues accounted for 10.5% of the total government receipts in 2022, and was an important generator of hard currency when other components of the economy were challenged (Ministry of Finance, 2023).
While it is strategically important for the government to invest in renewables, in terms of short run fiscal benefits, there is no comparison.
Policy Frameworks
In Ghana’s energy policy space, there are competing objectives. In response to increased competition for exploration capital, the Petroleum Exploration and Development Act was revised in 2019 to speed up the licensing process for oil and gas; (Parliament of Ghana, 2019) corresponding to a revised Renewable Energy Master Plan, which included ambitious targets for clean energy deployment of 1,363.63 MW of installed renewable capacity by 2030 (Energy Commission of Ghana, 2022).
Finally, the renewable energy Feed-in Tariff scheme was implemented in 2022, allowing qualified renewable generators to obtain long-term (20-year) agreements for purchase (Public Utilities Regulatory Commission, 2022). While the net metering code was approved in 2020, it has not been implemented to date.
Most critically, Ghana created its second carbon pricing instrument in Africa, taking effect in 2023 for power and industry (Environmental Protection Agency, 2023). The instrument will have an initial carbon price of $7 per ton, which the EPA plans to incrementally increase to $20 by 2030.
As noted by Dr. Ishmael Ackah, Executive Secretary of Public Utilities Regulatory Commission, “Ghana’s policy paradigm might most accurately be labelled as ‘all of the above.’ Here we are developing hydrocarbons as well as expanding renewable energy sources, and with the market moving to favour lower carbon alternatives as economic fundamentals change” (PURC, 2023).
International Context
Ghana’s updated Nationally Determined Contribution made under the Paris Agreement includes a commitment to a 24.6% reduction in emissions by 2030 from a baseline of business-as-usual emissions (Environmental Protection Agency, 2023).
In this plan, the energy sector is a key player, with an estimated carbon savings of 11 million tons of CO2 equivalent as the result of the expanded renewable energy.
The financial flows are increasingly being aligned to these climate commitments. Ghana successfully accessed the Green Climate Fund in 2022, receiving $52.8 million in funding for climate-resilient energy infrastructure (Green Climate Fund, 2022).
The country also has positioned itself within the framework of the Just Energy Transition Partnership document with a preliminary discussion of support for predicated amounts of $3 billion for fast-tracked decarbonization (Ministry of Finance, 2023).
And while there is the official climate finance deliberation and alignment, the market is actually beginning to fundamentally change the investment circumstances.
An indication of the seriousness of the challenges of climate change, international companies have been diversifying.
International oil companies have been diversifying in their operations in Ghana, with Eni Ghana opening its 50 MW solar plant in Tamale in 2023, as part of its own net zero initiative (Eni, 2023).
Case Studies
Hydropower in the form of renewable energy has traditionally played a significant role in Ghana’s electricity generation.
The fact that the Bui Power Authority has transitioned from an organization focused on hydropower to one that embraces multiple renewable energy technologies, can be considered institutional adaptation.
The Bui Power Authority installed 50 MW of floating solar on its existing hydropower infrastructure and plans to add another 150 MW of floating solar by November 2025 (Bui Power Authority, 2023).
Ghana’s total installed electricity generation capacity is about 5,300 MW, of which hydropower accounts for approximately 38%, thermal power provides approximately 60%, and the rest comes from solar and other renewable sources (Energy Commission of Ghana, 2023).
The proposed additional 154 MW of solar installations by the Bui Power Authority would mean considerable additional capacity to Ghana’s renewable energy mix.
By comparison, Ghana Go Solar, a program set up to install photovoltaic systems on government buildings in 2022 has reduced public sector electricity costs by approximately GHS 22.4 million annually and developed a steady pipeline of potential projects (Energy Commission of Ghana, 2023).
The Tema LNG terminal, by contrast, highlights transition risks. The terminal was completed in 2022, yet the project faced immediate headwinds as demand for African gas in Europe turned out to be more variable than anticipated.
As of June 2023, the terminal remained underutilized, and use rates remained below 40% of capacity (Institute for Energy Economics and Financial Analysis, 2023).
Moving Forward
As Ghana develops its energy future, it could take one of three potential pathways:
- Hydrocarbon Maximisation; Ghana continues to accelerate its development of its remaining oil and gas reserves and prioritizes extracting as much government revenue as possible from fossil fuel export activities before a possible sharp fall in fossil fuel demand
- Managed Transition: Ghana cautiously pursues any further form of hydrocarbon development but at the same time accelerates its renewable developments and utilises the petroleum royalties and revenue to help fund the clean energy transition.
- Leapfrog: Ghana aggressively leaps forward to position itself as a leading renewable energy developer in the region and ceases any further investment into fossil fuel infrastructure.
An analysis conducted by the Energy Center at Kwame Nkrumah University in 2023 concluded that the Managed Transition approach produced the best risk adjusted outcomes across economic, social, and environmental dimensions (KNUST Energy Center, 2023).
This analysis produces several recommendations:
- Implement Selective Hydrocarbon Development: Focus remaining oil and gas investment on projects where payback is fast and break-even prices are lower.
- Accelerate Renewable Energy Development: Linearly adapting to grid stability challenges requires energy generation that is focused on targeted upgrades to infrastructure and investments in storage.
- Reform Energy Subsidies: Gradually shifting fossil fuel subsidies towards renewables for deployment and consumer protection for the most vulnerable.
- Add Local Content to Clean Energy: Find targeted industrial policy that makes Ghana a player in the regional renewable supply chain.
- Build Climate Finance Access: Develop a climate finance team which can improve Ghana’s capacity for accessing funding internationally.
Conclusion
Ghana’s energy crossroads is a microcosm of the dilemma faced by many developing countries where immediate development pressures butt up against future sustainability. The evidence is clear that neither a wholesale commitment to renewables or a faith-based fixation on hydrocarbon development will achieve the best outcome for Ghana in isolation.
Moreover, Ghana’s best opportunity is likely to exist in the politically-managed transition and the leveraging of existing hydrocarbons to pay for clean energy infrastructure, and the careful sequencing of investment to avoid stranded assets while positioning Ghana to take advantage of emerging opportunities within the new energy economy.
As Benjamin Boakye, Executive Director of the Africa Centre for Energy Policy, lamented: “The stone age did not end because we ran out of stones, and the oil age will not end because we run out of oil. Whether the future energy system looks like coal, oil, gas or nuclear -Ghana will determine its fate- not by which resources they have below the soil, but by how they smartly use them to create the infrastructure for the future”. (ACEP, 2024).
It could not be more serious. Ghana stands at a crossroads in energy decision-making that will determine the country’s economic competitiveness, environmental sustainability, and social development for the next several decades, in a world that is increasingly defined by climate imperatives and technological disruption.
References
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KNUST Energy Center. (2023). Ghana’s Energy Transition Pathways: Analysis.
Lekela Power. (2023). Ayitepa Wind Farm: Construction Commencement Report.
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Ministry of Energy. (2024). Pecan Field Development Approval: Economic Assessment.
Ministry of Finance. (2023). Annual Report on Petroleum Funds.
Parliament of Ghana. (2019). Petroleum Exploration and Development Act Amendment.
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PURC. (2023). Energy Transition Policy Brief.
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The writer is an Engineer Manager
