Projects in pipeline to improve grid stability in Ghana's utilities sector

Even amidst a broader economic slowdown, Ghana’s energy consumption continues to expand, underlining the urgency of boosting generation capacity and improving access to power. Over the past few years, problems with imported supply and low levels of rainfall have constricted feedstock for the country’s power plants, resulting in bouts of load shedding – known locally as dumsor. The issues are far from unique to Ghana, and other countries throughout sub-Saharan Africa face similar problems. However, Ghana is among the most advanced in its strategies to boost capacity, and while those plans have yet to fully materialise, there are a range of projects that should substantially boost generation and improve transmission and distribution. The government continues to play the largest role in the sector at all points in the supply chain; however, the private sector is taking an increasing role. Richard Badger, deputy chief executive of engineering and operations for the country’s main utility, the Volta River Authority (VRA), told OBG, “Private companies and liberalisation are having a positive influence on the power sector. They used to just provide funding for projects, but lately they have been providing feasibility studies and other support, which has been very helpful for the sector.”

Dumsor

While the government has taken a number of steps to address it – whether through short-term fixes to improve supply and rationalise consumption or longer-term efforts to diversify feedstock and boost generation – load shedding has been a particularly complicated challenge for Ghana’s utility providers. In 2014 the Institute of Statistical, Social and Economic Research forecast Ghana would lose between $320m and $924m per year in productivity as a result of power outages, and while supply reliability has improved in the years since, the system still struggles with intermittent disruptions. The issue, which is common to many of Africa’s larger economies, is multifaceted. Low water levels at Ghana’s dams, which contribute nearly half of total output, is one of the primary factors behind dumsor. Ghana has seen unusually low rainfall in recent years – a trend that is likely to continue as a result of climate change – which means its hydroelectric dams are unable to operate at full capacity.

Supply

The country also relies on thermal production for just under half of its total generation capacity, but here too it has faced challenges. According to the Ministry of Petroleum (MoPET), in 2014 the supply of natural gas from Nigeria via the West African Gas Pipeline (WAGP), which Ghana previously relied almost exclusively on for gas supply, was limited to 30m-50m standard cu feet per day (scfd), far less than the 123m scfd outlined in the initial WAGP agreement. This was the result of both infrastructure damage and the Nigerian government diverting gas for its domestic market. This has forced a number of thermal plants in Ghana to switch to more expensive heavy fuels, which drove up costs significantly.

In April 2016 in his State of the Nation address then-President John Dramani Mahama said, “If you take the eastern generating area, which is Tema, we have almost 600 MW of gas-based generation, but are not getting gas through the West African Gas Pipeline to be able to run them. One reason is because Nigeria’s demand for gas is increasing and there is regular destruction of gas infrastructure, and so we get a certain volume today, tomorrow it drops, so you cannot predict how you are running those assets.”

Local production of gas is increasing and should provide long-term relief to this issue, although technical problems and construction delays with the Western Corridor Gas Infrastructure Development Project have meant that current domestic supply is unable to make up the shortfall. Many of these problems are likely to ease somewhat as current plans for improving efficiency and capacity – many of which involve substantial changes to tariffs – pick up speed.

Oversight

Ghana’s energy industry is largely managed by state-owned entities. The MoPET is responsible for developing and implementing energy sector policy and operates the country’s reserve petroleum products through the Bulk Oil Storage and Transportation Company. The Energy Commission, established in 1997, regulates and manages the development and utilisation of the country’s energy sector. The power subsector and utilities are controlled primarily by three companies – namely the VRA, Ghana Grid Company (GRIDCo) and Electricity Company of Ghana (ECG). These government entities, along with some independent power producers (IPPs), are responsible for the generation and distribution of electricity.

The VRA operates 83% of the country’s power plants, with IPPs managing the other 17%. The authority was established in 1961 to oversee Ghana’s power generation, transmission and distribution. In 2005 the firm’s operations were unbundled – with transmission responsibilities passed to GRIDCo and distribution to Northern Electric Distribution Company (NEDCo) – and its role was streamlined to focus on electricity generation. This adjustment was made in an attempt to increase competition and private investment in the sector.

The facilities run by the VRA include Ghana’s oldest and largest dam, Akosombo; the Kpong Dam and its hydroelectric plant; a series of thermal plants near Tema; and the Magellan Plant and a combined-cycle thermal plant, both at Aboadze. It also oversees the Takoradi International Company (TICO) thermal plant as part of a joint venture with UAE-based TAQA, a state-held energy and water company. The VRA’s primary customer is the government-run ECG, but they also sell in bulk to mining companies and export to a number of neighbouring countries such as Togo, Benin and Burkina Faso. Other IPPs scheduled to come on-line in 2017 include the $900m, combined-cycle, 350-MW Kpone project, run by Cenpower Generation; and the 190-MW, combined-cycle gas turbine Amandi Power Plant, which is overseen by Amandi Energy, a part of the STL Group.

Access & Demand

Access to electricity in Ghana has improved over the last few years and is higher than most other countries in sub-Saharan Africa, where access to power averaged around 35% in 2012, according to the latest figures from the World Bank. In contrast, in 2012, 64.1% of Ghanaians had access to electricity, and by 2015 this penetration rate had increased to around 72%, according to a November 2015 report from the International Renewable Energy Agency. Access is significantly higher in urban areas, reaching around 87%, compared to 50% in rural parts of the country. The government aims to increase electricity access to 90% of the population by 2016 and has committed itself to universal access by 2020. Energy consumption has also risen rapidly, and according to the Energy Commission, demand is growing 10-15% per year. In 2013 electricity demand was 9355 GWh, and by 2015 it stood between 14,000 and 16,400 GWh. Households, commercial consumers and industry make up roughly 80% of demand, while mines and the Volta Aluminium Company (VALCO) account for 10% and 6%, respectively, according to the Energy Commission. In 2015 the industrial segment consumed 4144 GWh, followed by 2437 GWh by residential users and 1532 GWh by non-residential/ commercial. The Energy Commission reports 4% of electricity is exported to countries like Togo, Burkina Faso and Benin. However, Harriette Amissah-Arthur, executive partner at Arthur Energy Advisors, which focuses on energy projects in West Africa, told OBG, “Ghana has to strengthen domestic power production and address local consumption needs to enable it effectively export power to neighbouring countries.”

Peak demand for electricity increased from 1658 MW in 2012 to 1853 MW in 2014, before falling to 1757 MW in 2015. There are roughly 2m residential and 1150 industrial consumers of electricity. To keep pace with demand, it is predicted that Ghana will need a capacity of between 16,398 and 17,350 GWh, or an additional 4000-4200 MW.

Supply & Sources

Those figures are straining existing supply. According to the Energy Commission and the VRA, Ghana has a total installed capacity of between 3174 MW and 3644 MW, at least a 12% increase from 2014. Roughly 2434 MW is overseen by the VRA and 1210 MW is controlled by IPPs. Due to power outages and significant load-shedding Ghana’s actual total power available for transmission only reached about 11,692 GWh, a significant decrease from the 13,071 GWh available in 2014 and 12,927 GWh in 2013, according to the Energy Commission.

This reduction in available power is a significant challenge as demand continues to grow, and could potentially be associated with the country’s slower economic growth in 2015, when grid transmission of electricity comprised 98.3% generation and 1.7% imports. In terms of generation sources, hydropower comprises roughly 1580 MW and makes up around 49% of the country’s energy mix, according to the Energy Commission. Thermal – primarily via combined-cycle plants that are currently partially reliant on heavy fuel – accounts for approximately 50% and solar power for less than 1%. Traditional fuels are still used at the household level – most households continue to use firewood, charcoal and agricultural residues for household needs, especially in rural areas.

Hydro

A decade ago hydropower accounted for over half of the country’s electricity generation. Today, this figure stands at just under half, with generation largely provided by three hydro plants. The oldest and largest, Akosombo, has an installed capacity of 1020 MW, Bui and Kpong can operate up to 400 MW and 160 MW, respectively. Akosombo and Kpong are both operated by the VRA, while Bui Dam is a public-private partnership between the Ghanaian government and Chinese construction company Sino Hydro. Akosombo, which was built in 1966, continues to be Ghana’s most important power facility; however, low rainfall is hindering the plant’s ability to generate at anywhere close to capacity. As of April 2015, Akosombo was operating at 580 MW of power, according to ECG. At the beginning of 2016 water levels were at 129.4 metres, which is 1.4 metres lower than the start of 2015. As of November 2016 Akosombo Lake was at 77.1 metres, which was 3.9 metres above the minimum operating level of 73.2 metres and 5.5 metres above the extreme minimum operating level of 71.6 metres. The water level at Akosombo has fallen below the minimum operating level in the past, forcing the VRA to decrease the number of units in operation and reducing the amount of power generated. With reduced inflows and low water levels, power generation at Akosombo has been limited through 2016. To ensure some longevity for the dam and avoid water levels falling lower than the acceptable 71.6 metres, only three of Akosombo’s five units can be in operation at any one time.

Thermal

As Ghana’s hydropower has become more tenuous in recent years, the country has been forced to rely more on its thermal production. The increasing shift to more expensive thermal plants has been exacerbated by a lack of gas supply, forcing thermal plants to use more expensive heavy fuels (see analysis). Ghana’s thermal power plants are primarily clustered around Tema and Takoradi, and at the end of 2015 total installed thermal capacity was 1209.5 MW, of which 1115 MW was considered reliable, according to the Energy Commission. Ghana’s thermal plants include Takoradi Power Company (TAPCO) with 330 MW of installed capacity, Tema Thermal Plants 1 and 2 (110 MW and 49.5 MW, respectively), Mines Reserve Plant (80 MW), and IPPs TICO (330 MW), Sunon-Asogli Power Plant (SAPP), (200 MW) and CENIT Energy (110 MW). At some plants, insufficient fuel and technical issues have reduced the available capacity of thermal production over the past few years.

Feedstock

In 2015 the Atuabo Gas Processing Plant (AGPP) was commissioned, expanding the availability of feedstock for Ghana’s thermal power plants by pulling in gas from the offshore Jubilee field. Construction of the $1bn plant, which is part of the Western Corridor Gas project and located in the Ellembele District in western Ghana, began in July 2011 and was completed in 2014. Commercial operations began in April 2015 under Ghana Gas. In 2015 gas delivered to the AGPP from Jubilee averaged 72m standard cu feet per day (scfd), about twice that of 2014, according to the Energy Commission. Average flow for the first quarter of 2015 was 54m scfd, rising to an average of 74m scfd by June, then increasing to an average of 100m scfd, with maximum flow of 112m scfd recorded in December. While the plant at Atuabo has increased feedstock for Ghana’s power sector, it has yet to hit its maximum capacity of 150m scfd.

The start of AGPP’s operations means that natural gas can now be acquired domestically as well as by import through the WAGP, which runs from Nigeria to Takoradi. The 678-km WAGP was designed to transport natural gas from Nigeria to Benin, Togo and Ghana. Under the WAGP agreement, Nigeria supplies gas from the Escravos-Lagos pipeline at Nigeria Gas Company’s Itoki export terminal. Around 123m scfd is sent to Takoradi in Ghana, with the remainder offloaded in Benin and Togo. The pipeline has a maximum capacity of 474m scfd. The WAGP is owned by a consortium that includes Chevron WAGP (36.9%), Nigerian National Petroleum Corporation (24.9%), Shell Overseas Holdings (17.9%), TAPCO (16.3%), Société Togolaise de Gaz (2%) and Société Beninoise de Gaz (2%). While the WAGP used to contribute virtually all of Ghana’s gas supply, since Atuabo’s completion domestic generation has increased rapidly. In 2015 some 44% of Ghana’s gas was transported via the WAGP, while 56% was generated domestically, compared to 95.4% Nigerian gas and 4.6% domestic gas in 2014 (see Energy overview). The AGPP is likely to get a further long-term boost from the Sankofa oil and gas field, which has the potential to reduce Ghana’s dependency on energy imports by 12m barrels, according to the World Bank (see analysis). In the long run this should dramatically improve pricing and sustainability for the sector, but supply from both the WAGP and AGPP has been irregular in recent years. The WAGP is subject to supply disruptions, which have ranged from damaged infrastructure due to errant fishing boats in the Gulf of Guinea to Nigeria’s government diverting gas towards its domestic sector. Similarly, Atuabo has frequently been shut down for maintenance interrupting domestic supply.

The Energy Commission expects Ghana’s thermal plants will require between 120bn and 146.4bn standard cu feet (scf) of gas in 2016, which will likely leave a deficit of between 65.1bn and 91.5bn scf. For 2016 total gas flow is projected to reach 150m scfd, or 54.9bn scf. Gas from the WAGP is predicted to maintain its 2015 production at 60m scfd, while the AGPP is expected to average 90m scfd.

LNG: Another remedy may come in the form of additional imports. In July 2016 Alexander Mould, acting CEO of Ghana National Petroleum Corporation (GNPC), told Reuters that Ghana would start importing liquefied natural gas (LNG) in early 2017. According to his announcement, GNPC is hoping to acquire between 250m and 500m scfd of LNG to be regasified using a floating storage and regasification unit (FSRU). GNPC plans to implement a build-operate-transfer partnership with a private trader and has been in communication with Qatargas, BP, Shell and Woodside Energy, though a final deal had not been confirmed at the time of press. Two import terminal projects are also planned. Norwegian company Golar LNG, in partnership with West African Gas Limited (WAGL), has already installed a floating terminal at Ghana’s Tema Port under a five-year renewable contract. However, the FSRU is allegedly facing logistical challenges and it is unclear when it will be operational. Mould said government officials were considering adding a FSRU built by Samsung Heavy Industries and that plans to enable ship-to-ship transfers were already in place. Additionally, the Ghanaian subsidiary of international investment firm Quantum Pacific is planning to install another terminal, which is scheduled to arrive in 2017 or 2018. The WAGL project will likely supply an estimated 180m scfd, while Quantum is expected to supply 250m scfd. A subsea and onshore pipeline will transport the LNG to GNPC. This LNG will primarily be used to fuel power plants and help alleviate the country’s power crisis. First production is expected in the first quarter of 2017.

Short-Term Fixes

In the long term Ghana’s energy deficit should recede as domestic gas production increases and processing infrastructure expands, and as new generating plants, including coal and hydro, are built. However, those projects will take years to finalise – a delay Ghana cannot afford as it looks to stoke higher growth. As a result, with demand increasing 10-15% per year, according to the Energy Commission, the country has taken a number of measures to better manage the shortfall.

One of the most visible short-term remedies has been the government’s move to lease two power ships to supplement the country’s permanent energy supply. In 2014 a power-purchase agreement between ECG and Karpower Ghana, a subsidiary of Turkey’s Karadeniz Holding, was signed, guaranteeing Ghana two power barges for 10 years. Power generation from the first Karpower barge became available in January 2016. This facility, located in Tema, has an installed capacity of 250 MW and a dependable capacity of 225 MW, according to the Energy Commission. The barge operates on heavy fuel oil and requires roughly 2.8m barrels at an estimated cost of $201.6m, or $72 per barrel in 2016. If necessary, the barge could switch its fuel source to natural gas, a transition that will likely happen once the Sankofa field comes on-line (see Energy overview). The Karpower barge, which is now operating at full capacity, is producing the country’s second-most-affordable power after hydropower, according to an interview with John Jinapor, the then-deputy minister of power, by Accra-based radio station Citi News.

In July 2016 ECG and Karpower had announced they were on track to add the second barge and potentially expand Karpower’s power generation by over 150% to 675 MW by the end of 2016. A 450-MW consolidated power barge is currently being built in Turkey and is expected to arrive in Ghana by the end of 2016.

Future Projects

The government is also working on a number of projects to alleviate the country’s power crisis in the long term. The VRA has initiated feasibility studies for the construction of hydro dams with a capacity of 140 MW at Pwalugu and Juale in Ghana’s Northern Region. Additionally, the provider has entered into contracts with a number of Chinese companies for energy projects like the SAPP project. This plant, located at Kpone, is being constructed by the Shenzhen Energy Group and when completed is expected to generate 20% of Ghana’s energy supply.

Shenzhen, with funding from the China-Africa Development Fund, will also be working with the VRA to build a coal plant starting in April 2017. “Coal is important for us because it allows us to diversify our fuel sources. As we diversify, we are buying ourselves more reliability. We are hoping coal could replace hydropower eventually,” Badger told OBG. This project will be located in the Ekumfi District of Ghana’s Central Region. The first phase of the project will attempt to deliver 700 MW of capacity, while the second phase aims to deliver 2000 MW.

Transmission & Distribution

According to GRIDCo, Ghana’s transmission grid comprises 4000 km of 161-KV and 69-KV high-voltage lines. These lines are connected by 43 primary transformation and switching substations with a capacity of 2630 MVA. “Significantly expanding the transmission lines is under way, with a focus on the construction of backbones or major transmission lines,” William Amuna, CEO of GRIDCo, told OBG. Ghana’s distribution network is also connected to Côte d’Ivoire, Togo and Benin by a 225-KV line. According to the Energy Commission, transmission losses have been below 5% for at least the past eight years and dropped from 4.3% in 2012 to 3.8% in 2015.

Since its establishment in 1967, ECG has been the primary government-owned company operating under the Ministry of Power. It is responsible for electricity in six regions in southern Ghana including the Ashanti, Central, Eastern, Greater Accra, Volta and Western Region. It purchases energy in bulk from the VRA, distributes electricity, maintains electrical infrastructure and executes national electrification programmes. The majority of Ghana’s power is produced in the southern regions of the country, which leads to most transmission capacity being concentrated in the south with fewer lines reaching up to the north. ECG handles more than two-thirds of the distribution in the country, but in an intentional effort to expand access in Ghana’s northern regions in 1987 the government established NEDCo, which services 36% of the population yet distributes just 10.2% of the country’s annually consumed energy.

Paying For Power

ECG and NEDCo are both facing financial difficulties due to poor payment collection or load leakage. According to a May 2016 case study released by Africa Oil and Power, an annual event on power policy and investment on the continent, proceeds from nearly 21% of generated power in the country is lost because of deteriorating infrastructure, consumer payment failures or bypassing metering systems through illegal connections. According to ECG, around 60% of non-payment originates from government accounts. As of late 2014 the estimate was that public sector arrears to ECG totalled GHS522m ($134.7m). Efforts have been made in the past to clear these debts, and the structure of the IMF loan-and-reform package for the 2015-17 period outlines a clear process to eliminate it. This includes an auditing of public agencies’ unpaid bills and a phased payment plan that will reduce arrears to zero by 2017.

The government is also taking a number of steps to improve metering and payment collection. ECG is working to address these issues by replacing broken meters. In May 2015 ECG distributed over 60,000 prepaid metres as part of the Distribution System Losses Reduction and Associated Network Improvement Project. These new meters are intended to help increase rates of payment and reduce theft, as well as allow consumers to keep track of the amount of power they use. The implementation of the meters has also been paired with consumer training. In order to raise revenue and eliminate the debt of a number of electricity companies, including the VRA and ECG, Ghana also passed the Energy Sector Levy Law in 2015, which added a number of tariffs to the purchase of power and fuel. Fuel prices increased by between 22% and 27%, while the price of liquefied petroleum gas also rose by roughly 18%.

The government is facing a tricky balance between maintaining adequate revenue flows to the power supply chain without unduly burdening consumers, whether households or industrial. According to the Energy Commission, current prices are in the range of $0.18-0.26 per KWh for industrial users and $0. 17-0.25 for residential users. “Energy prices fluctuate and continue to gradually increase. This has been a concern of public consumers and the business community. We need to keep the cost of bulk electricity generation to about $0.10 per KWh for businesses to be profitable. For VALCO prices need to be kept down to $0.05 per KWh,” Badger told OBG.

Reforming Ecg

In July 2014 the government agreed to restructure ECG in exchange for nearly $500m worth of support from the US government aid agency Millennium Challenge Corporation. Conditions for receipt of the funds include identifying a private sector company to take over management of ECG in order to improve efficiency. There are six programmes as part of this agreement, which focus on improving the operations and finances of both ECG and NEDCo, increasing access to electricity, strengthening generation, capacity and regulation, and improving demand-side management.

In May 2016 Robert Jackson, the US Ambassador to Ghana, told Citi Business News, “The plan is to make this company more efficient, more viable financially because it is so heavily indebted at this point; and to put in place a contract for a private management for the next 25 years in order to ensure that the next generations of Ghanaians have reliable power. After the 25 years it is up to the government and the people of Ghana to decide on what to do.”

Outlook

There is a strong correlation between energy supply and economic growth, and securing more diverse and stable energy sources will be crucial for Ghana to continue its development. “To make power more accessible and the delivery of electricity more effective, more private sector involvement and independence is needed, whether in the transmission, distribution or generation segments,” Omane Frimpong, CEO of local firm Wilkins Engineering, told OBG. While the government is working to further streamline the sector and increase installed capacity to improve efficiency and ensure supply, it is also looking for private partners to assist with securing funding and reforming a number of its core projects and institutions.