By Sheldon K. AMBAAH
Ghana’s energy sector is a vital component of its economic development and social progress. Over the decades, access to reliable and affordable electricity has underpinned industrial growth, technological innovation, and improved living standards.
However, Ghana’s power sector has faced recurring crises that have exposed structural weaknesses, operational inefficiencies, and unsustainable fiscal practices. The persistent issue of energy debt has compounded these challenges, threatening the viability of key institutions and the overall sector.
A comprehensive analysis of Ghana’s energy value chain, coupled with actionable strategies, is necessary to address these issues. Such an approach must consider the entirety of the energy system—from generation and transmission to distribution and consumption—and propose sustainable solutions to ensure the sector’s long-term financial health and operational stability.
Understanding Ghana’s energy value chain
The energy value chain in Ghana consists of four key stages: energy generation, transmission, distribution, and consumption. Each stage presents unique challenges and opportunities that must be addressed to build a robust and sustainable energy sector.
Energy generation
Energy generation in Ghana involves three primary sources: thermal power, hydropower, and renewable energy.
- Thermal power: Thermal power accounts for the largest share of Ghana’s electricity generation, contributing over 60percent of installed capacity. This segment relies on natural gas, light crude oil, and diesel. While thermal plants provide a stable and reliable energy supply, their operations are cost-intensive due to the reliance on imported fuels. Supply chain disruptions and global price fluctuations frequently exacerbate these costs, making thermal power financially burdensome.
- Hydropower: Historically, Ghana relied heavily on hydropower, which once accounted for much of its electricity supply. The Akosombo Dam, commissioned in 1966, symbolized the country’s ambition to harness its natural resources for energy generation. However, climate change and inconsistent rainfall patterns have reduced hydropower’s contribution to about 35percent of the energy mix. Declining water levels in reservoirs have raised concerns about the sustainability of this source.
- Renewable energy: Ghana has set ambitious renewable energy targets, aiming to achieve a 10percent renewable energy contribution to the national grid by 2030. Despite the potential for solar, wind, and biomass energy, renewables currently account for less than 2percent of the energy mix. Barriers include high initial investment costs, limited technical expertise, and inadequate policy incentives.
Transmission
The Ghana Grid Company Limited (GRIDCo) is responsible for electricity transmission across the country. GRIDCo’s network is extensive, spanning urban and rural areas. However, transmission challenges include aging infrastructure, frequent power outages, and high technical losses (estimated at 4-5percent). These inefficiencies increase the cost of electricity delivery and reduce reliability.
Distribution
Electricity distribution is managed by two main entities:
- Electricity Company of Ghana (ECG): Operates in the southern regions, serving over 80percent of electricity consumers.
- Northern Electricity Distribution Company (NEDCo): Covers the northern regions, characterized by lower population density and higher operational costs.
Both entities face challenges with revenue collection, high operational costs, and consumer dissatisfaction. Non-payment of bills by government institutions and electricity theft exacerbate financial pressures, contributing significantly to energy debt.
Consumption
Electricity consumption in Ghana is driven by three major sectors:
- Residential sector: Residential consumers account for approximately 40percent of total electricity demand. Increased access to energy-intensive appliances and urbanization have contributed to rising residential demand.
- Industrial and commercial sectors: These sectors combined account for over 50percent of electricity consumption. Industries such as manufacturing, mining, and services rely on uninterrupted power supply for productivity but are often affected by load shedding and unreliable energy.
- Public sector: Ministries, Departments, and Agencies (MDAs) are significant electricity consumers. However, delayed payments and arrears from these institutions contribute to financial strain in the energy sector.
Ghana’s energy mix and its implications
The energy mix in Ghana is evolving, with a shift from a reliance on hydropower to a more diversified portfolio. However, the current mix poses significant financial and environmental risks.
- Dominance of thermal power: Thermal power plants provide essential energy stability but are costly to operate. The reliance on imported fuels exposes the sector to international market volatility, affecting the pricing and availability of electricity. Moreover, the environmental impact of thermal power generation is considerable, contributing to greenhouse gas emissions and air pollution.
- Hydropower vulnerability: Hydropower, although a cleaner and more affordable energy source, is increasingly unreliable due to climate variability. Prolonged droughts and changing rainfall patterns have reduced water availability for power generation, limiting its role as a dependable energy source.
- Underutilized renewable energy: Despite abundant renewable energy resources, their contribution to Ghana’s energy mix remains minimal. Expanding renewable energy infrastructure can reduce dependence on fossil fuels, lower operational costs, and minimize environmental impact. However, achieving this requires significant investments in technology, capacity building, and policy reforms.
The energy debt crisis
Energy sector debt in Ghana is a multi-faceted issue with far-reaching consequences. The debt, estimated at over US$2 billion, undermines the financial viability of key institutions and hinders the sector’s ability to invest in critical infrastructure and innovations.
Causes of energy debt
- Underpriced tariffs: Electricity tariffs in Ghana are often set below the cost of production and distribution, resulting in revenue shortfalls. While subsidized tariffs provide relief to consumers, they create unsustainable financial burdens for utility companies.
- Inefficiencies and losses: Technical and commercial losses in the transmission and distribution systems are significant, accounting for over 25percent of electricity generated. Power theft, illegal connections, and outdated infrastructure further compound these losses.
- Payment arrears: Government institutions are among the largest contributors to energy debt, with delayed payments for electricity services. These arrears affect the liquidity of utility companies and their ability to maintain operations.
- Overcapacity and Take-or-Pay contracts: Ghana’s agreements with Independent Power Producers (IPPs) require the government to pay for unused capacity, leading to financial inefficiencies. Overcapacity in the generation sector, combined with underutilized infrastructure, exacerbates the debt burden.
Strategies to address the energy debt crisis
Resolving Ghana’s energy debt crisis requires a multi-pronged approach that addresses inefficiencies, improves revenue generation, and promotes sustainability.
- Tariff reforms
- Cost-reflective tariffs: Gradual adjustments to electricity tariffs to reflect actual production and distribution costs. Subsidies should be targeted at low-income households to minimize social impact.
- Transparent pricing mechanisms: Regular reviews of tariff structures by the Public Utilities Regulatory Commission (PURC) to align with operational realities.
- Loss reduction initiatives
- Invest in modernizing transmission and distribution infrastructure to reduce technical losses.
- Deploy advanced metering systems, including prepaid and smart meters, to minimize commercial losses and improve revenue collection.
- Strengthen enforcement mechanisms to address electricity theft and illegal connections.
- Renegotiating contracts with IPPs
- Consider from “take-or-pay” to “take-and-pay” contracts to align payments with actual energy consumption.
- Prioritize contracts with IPPs that focus on renewable energy generation, reducing reliance on fossil fuels.
- Expanding renewable energy investments
- Provide incentives for private sector investments in solar, wind, and biomass energy projects.
- Develop off-grid and mini-grid systems to enhance energy access in rural areas.
- Establish partnerships with international organizations to secure funding and technical expertise.
- Improving revenue collection
- Transition to a fully prepaid metering system to eliminate arrears.
- Digitize billing systems to improve efficiency and transparency.
- Enhance public awareness campaigns to promote timely bill payments.
Roadmap for a sustainable energy sector
To achieve a robust and sustainable energy sector, Ghana must adopt a phased approach with clear milestones:
Short-term strategies (1-2 years)
In the immediate term, Ghana must focus on stabilizing the energy sector to halt further debt accumulation and restore operational efficiency. The short-term strategies aim to address pressing issues, including financial imbalances, inefficiencies, and governance challenges.
- Conduct an independent energy sector audit
An independent audit of the energy sector is critical to identifying inefficiencies, leakages, and debt drivers. The audit should:
- Assess the financial health of key institutions such as ECG, GRIDCo, and NEDCo.
- Examine the sustainability of existing power purchase agreements (PPAs) with Independent Power Producers (IPPs).
- Review the operational costs of thermal and hydropower plants to identify opportunities for cost optimization.
- Audit government arrears to utility companies and develop a clear plan for repayment.
This audit will provide a detailed diagnosis of the energy sector, enabling stakeholders to design targeted interventions.
- Clear existing arrears
Energy sector debt has created a liquidity crisis for utility companies. Immediate government intervention is required to clear arrears owed by Ministries, Departments, and Agencies (MDAs). Strategies include:
- Debt restructuring: Renegotiating terms with creditors and IPPs to spread repayments over a manageable period.
- Public-Private Partnerships (PPPs): Collaborating with private sector investors to fund critical projects while easing the government’s financial burden.
- Budget allocations: Prioritizing the energy sector in national budgets to ensure timely payments.
Clearing arrears will improve the financial stability of the utilities and build confidence among private investors and stakeholders.
- Quick-fix revenue collection improvements
Non-payment of electricity bills and electricity theft significantly affect revenue generation. Immediate steps include:
- Prepaid metering expansion: Scaling up the installation of prepaid meters for residential, industrial, and public sector customers to eliminate arrears and improve cash flow.
- Smart metering technology: Deploying smart meters to monitor consumption patterns, detect illegal connections, and streamline billing processes.
- Public awareness campaigns: Educating consumers on the importance of timely bill payments, penalties for non-payment, and the benefits of prepaid systems.
- Strengthen governance and institutional capacity
The energy sector requires strong governance structures to improve transparency and accountability. Short-term actions include:
- Leadership reforms: Appointing qualified professionals to key leadership positions in utilities and regulatory bodies.
- Digitalization: Implementing digital tools for customer management, billing, and data analytics to enhance efficiency and reduce human errors.
- Stakeholder engagement: Establishing regular communication with consumers, policymakers, and private investors to build trust and encourage collaboration.
- Increase local gas utilization
To reduce reliance on costly imported fuels for thermal plants, Ghana should prioritize the use of locally produced natural gas. Short-term steps include:
- Negotiating favourable terms for gas supply from the Sankofa, TEN, and Jubilee oil fields.
- Enhancing the infrastructure for gas processing, storage, and transportation.
- Promoting the use of natural gas for industrial applications to create an alternative revenue stream for utilities.
Medium-term strategies (3-5 years)
In the medium term, Ghana’s energy sector should focus on systemic reforms to improve operational efficiency, diversify the energy mix, and attract private sector investments. These measures will build a more resilient and sustainable energy system.
- Expand renewable energy capacity
Renewable energy offers a sustainable solution to Ghana’s energy challenges, reducing dependency on fossil fuels and mitigating environmental impacts. Key actions include:
- Incentives for private investment: Introduce tax incentives, feed-in tariffs, and low-interest loans for investors in solar, wind, and biomass projects.
- Mini-grid systems: Develop mini-grids to improve electricity access in off-grid rural areas. These systems can be powered by solar or biomass, providing affordable and reliable energy to underserved communities.
- Capacity building: Train local engineers and technicians to develop and maintain renewable energy infrastructure.
- Public-private partnerships: Collaborate with international renewable energy firms to secure funding and expertise.
By the end of the medium term, renewable energy should account for at least 10-15percent of the energy mix.
- Optimize transmission and distribution systems
Improving the efficiency of transmission and distribution systems will minimize technical and commercial losses, thereby increasing revenue generation. Medium-term actions include:
- Infrastructure modernization: Replace aging transmission lines, substations, and transformers with modern, efficient equipment.
- Grid automation: Implement smart grid technologies to monitor and manage electricity flows, detect faults, and reduce downtime.
- Regional connectivity: Strengthen cross-border electricity trade by expanding transmission infrastructure to neighbouring countries. Ghana can position itself as a net exporter of electricity, leveraging its growing generation capacity.
- Diversify the energy mix
To ensure energy security, Ghana must diversify its energy portfolio beyond thermal and hydropower.
- Natural gas utilization: Scale up investments in gas processing facilities to harness the full potential of domestic gas reserves.
- Energy storage solutions: Invest in battery storage technologies to complement renewable energy sources, ensuring a stable and reliable power supply.
- Waste-to-energy projects: Explore opportunities to convert municipal waste into electricity, reducing waste while generating clean energy.
- Strengthen regulatory frameworks
An enabling regulatory environment is essential for attracting private sector investments and ensuring accountability. Medium-term measures include:
- Comprehensive policy review: Update energy policies to reflect emerging trends, such as the global transition to renewable energy and advancements in technology.
- Simplified licensing processes: Streamline licensing procedures for renewable energy projects to reduce bureaucratic delays.
- Enhanced oversight: Strengthen the capacity of the Public Utilities Regulatory Commission (PURC) to enforce compliance with tariffs and service standards.
- Promote energy efficiency
Reducing energy wastage is a cost-effective way to optimize electricity supply and demand. Medium-term initiatives include:
- Energy efficiency standards: Establish standards for appliances, buildings, and industrial equipment to minimize energy consumption.
- Incentives for energy-saving technologies: Provide tax breaks for consumers and industries adopting energy-efficient practices and technologies.
- Public awareness campaigns: Educate consumers on the benefits of energy conservation, such as reduced electricity bills and environmental protection.
- Foster regional cooperation
Ghana can leverage regional partnerships to enhance energy security and sustainability. Medium-term efforts include:
- West African Power Pool (WAPP): Strengthen Ghana’s participation in WAPP initiatives to facilitate electricity trade and grid stability.
- Knowledge exchange: Partner with neighbouring countries to share best practices in energy generation, distribution, and management.
Long-term strategies (6-10 years)
Achieving a balanced energy mix with 50percent renewables
Ghana must transition to a sustainable energy system by diversifying its mix to include 50percent renewable energy. This involves significant investment in solar, wind, and biomass energy projects. Large-scale solar farms in sun-rich regions, coastal wind power development, and small-scale hydropower projects in river basins are critical initiatives.
Renewable energy storage technologies, including battery and hydrogen systems, will ensure consistent supply despite the intermittency of renewables. The government must provide incentives such as tax breaks, feed-in tariffs, and funding for research and development (R&D) to attract private investment and foster innovation in renewable technologies.
Fully automating transmission and distribution systems
Automation is essential for reducing technical losses and improving grid efficiency. Smart grid technologies, including Advanced Metering Infrastructure (AMI) and Supervisory Control and Data Acquisition (SCADA) systems, will enable real-time monitoring, fault detection, and demand management.
Investments in modern transmission lines, underground cabling in urban areas, and automated substations will enhance grid reliability. Digital tools like Artificial Intelligence (AI) and predictive analytics will optimize energy distribution and maintenance schedules, ensuring minimal energy waste and maximum revenue collection.
Positioning Ghana as a regional energy hub
With surplus electricity and strategic geographic location, Ghana can lead regional energy trade within the West African Power Pool (WAPP). Expanding transmission networks to countries like Burkina Faso, Togo, and Côte d’Ivoire, and harmonizing cross-border tariffs, will facilitate seamless energy exports.
Increased generation capacity, particularly from natural gas and renewables, will support both domestic needs and exports. Establishing institutions for energy trade, developing expertise in international energy markets, and creating export-friendly policies will attract foreign investment.
By achieving these goals, Ghana can secure energy independence, reduce environmental impact, and foster economic growth, establishing itself as a leader in sustainable energy and regional cooperation in West Africa.
Conclusion
The long-term vision for Ghana’s energy sector requires bold, transformative measures. Achieving a 50percent renewable energy mix, fully automating the grid, and positioning Ghana as a regional energy hub will demand sustained investments, innovative policies, and strong political will.
By focusing on renewable energy, modern infrastructure, and regional cooperation, Ghana can ensure energy security, economic growth, and environmental sustainability for generations to come. This transformation will serve as a model for other developing countries grappling with energy challenges in a rapidly evolving global landscape.
>>>the writer is a Project Management Professional (PMP) and an Energy Consultant. He can be reached via [email protected]
The post Power crisis and energy debt: the need for a comprehensive value chain analysis appeared first on The Business & Financial Times.
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