Ghana's Energy Crisis: What's the Role for Renewable Energy?
Global focus is increasingly drawn to the challenge of climate change and how best to address it. With renewable energy one of the foremost options on the table, Ghana in October held the fifth edition of its Renewable Energy Fair in the capital, Accra. Given Ghana’s current energy sector crisis questions have been raised over the potential role of renewable energy.
Situation Report
As we have previously discussed, Ghana is overproducing energy and is paying dearly for it. 2019 saw a new peak demand of some 2,781MW (including the little exported to neighbouring countries) whilst the current dependable capacity stands at around 4,700MW (installed capacity is higher still).
Ghana is paying in the region of US$1 billion annually for this excess capacity with more projects nearing completion in the next 12 months that will add at least another US$500 million to that bill. According to several opinions expressed at the renewable energy fair, this translates into USD0.13 /14 per kilowatt-hour just in charges paid to independent power producers (IPPs) for not producing.The government’s own predictions are that the total cost could reach US$12.5 billion by 2023.
The government has placed a moratorium on signing any new power purchase agreements (PPAs), the instruments used for companies to sell their power to the national grid.
There is currently only 42.6MW (0.6%) of installed renewable energy in Ghana – but the government has plans for this to increase to 10% of the total installed capacity by 2030.
A number of renewable energy projects are already underway, these were able to proceed since they were initiated before the moratorium on PPAs. Projects include the hybridisation of the Bui Dam to add an initial 50MW (to rise to 250MW in the next 3-5 years) of solar power to boost the capacity of the dam, which is suffering due to higher than expected evaporation. Hybridisation is being investigated as a potential elsewhere as the peak generating capacity of solar (when the sun is strongest) coincides perfectly with when the effects of evaporation will be most felt.
Energy sector officials at the Ghana Renewable Energy Fair made clear that there is no scope for any new large-scale, grid-connected renewable energy projects and that this is likely to be the case for the next 5-6 years at least. However, there is scope for smaller mini-grid connections (currently, 85% of the country is connected to the grid) and installations on island communities, which are a current priority according to the deputy minister of energy.
Outlook
There is still space for investment in the renewable energy sector in Ghana, just not on a large scale for the time being. The market for household photovoltaic systems and appliances (water heaters etc.) will be expanding – especially as electricity tariffs will likely rise to finance the debts arising from excess capacity.
There is a notable risk of government going too far in one direction – suspending additions to the grid whilst neglecting the fact that demand is currently growing around 10% per year. Neglecting to grow capacity in a sustained manner risks leading back to the situation that led to the current crisis – under generation leading to the panicked signing of overpriced contracts with IPPs.
To discuss further with the team, please do drop us a line: questions@songhaiadvisory.com