Ghana establishes projects and initiatives to address energy deficit

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Based on what is currently in the pipeline, Ghana could potentially face a glut of power in less than a decade. While not every project may make it from proposal to reality, there are nonetheless 22 entities with provisional licences to build conventional plants, and another 33 with similar permits to develop renewable energy facilities, according to the US government’s Power Africa initiative. According to the group, projects that would bring an additional 2206 MW of generation capacity to Ghana are planned for commissioning between 2015 and 2018. At least 3000 MW more has been proposed in various forms. Turning these projects into realities would be aided by the continuation of sector reform, including carrying out the planned changes to the Electricity Company of Ghana (ECG) and further addressing the legal framework for independent power projects (IPPs).

Projects In Development

There are currently two power plants already under construction. One is a combined-cycle thermal plant with 220 MW of capacity at Kpone, near the Tema industrial area to the east of Accra. It is being built by the Volta River Authority (VRA), the state’s generation agency, and expected to commence generation of an initial 110 MW by June 2015.

The other plant is from Cenpower Generation Company, a private Ghanaian firm created in 2001 and now developing the Kpone Independent Power Plant (KIPP), a combined-cycle unit with a capacity of 350 MW. KIPP stands out as the first IPP in Ghana developed by Africans in the private sector and the first greenfield project-financed IPP. Upon completion – commissioning is expected in 2017 – the main shareholders will be the Africa Finance Corporation, a multilateral development financier, with 32%; Japan’s Sumitomo Group at 28%; and Cenpower at 21%. It is expected to cost $900m, of which $650m will come from debt financing and $250m from equity investment, with the majority coming from regional investors and banks.

Of the dozens of new projects that are still in the planning stages, several are looking at the potential of importing liquefied natural gas (LNG) and using vessels anchored offshore to house processing units. One such plan from Israel’s Quantum Pacific would entail a floating storage and regasification unit (FSRU) that would take deliveries of LNG from tankers, heat it from liquid to gas, and then feed it to power plants via a pipe. Plans involving FSRUs may require further study, however, to ensure that the right spots in the Gulf of Guinea are selected for the vessels to anchor at, in order to avoid areas which are known for rough water.

At the moment these LNG plans are primarily intended as a power-sector solution, yet they could lay an eventual foundation for gas supply to bulk customers at Ghana’s two primary industrial zones, according to Jabesh Amissah-Arthur, business-development manager for Arthur Energy Advisors. “If you put a FSRU where it can serve areas already zoned for industry, that would be a very strong signal to the market that Ghana is serious about economic development.”

More Ships

Some of the other proposals look at shorter-term fixes to bridge the power deficit until larger projects are fully up and running. One such example is a recently finalised deal to establish a floating power plant, owned by the Turkish conglomerate Karadeniz Holding.

The company has been converting existing vessels into plants and has signed a 10-year supply agreement with the Ghanaian government to dock two of them offshore and supply 450 MW of additional capacity for the grid using gas or oil. The first of the two ships will arrive in late 2015, according to Karadeniz. Terms of the deal were not fully shared, and the firm told media in June 2014 that it would need to secure financing. The deal would qualify as the Turkish company’s first contract in Africa. It has a fleet of seven power-producing ships currently serving Iraq and Lebanon, with a combined generation capacity of 1100 MW.

However, while the immediate impetus for the project is to cater to the current generating shortfall, Orhan Karadeniz, the company’s chairman, told media that the firm was open to a second 10-year supply agreement with Ghana, and to possibly exporting power from the ships to other African countries over the grid. Ghana maintains grid connections with its neighbours and participates in the regional West Africa Power Pool, which facilitates trading in power. “The West African Power Pool is beneficial even in the short-term, as it incentivises utilities to develop large-scale generation plants that can achieve economies of scale” Harriette Amissah-Arthur, executive partner at Arthur Energy Advisors, told OBG.

Imports

Another import-reliant project proposal has come from Sunon Asogli, the existing owner of an IPP in Ghana. Asogli, a subsidiary of China’s Shenzhen Energy Group, has proposed a 700-MW power station that would make use of imported coal from South Africa. Construction would require a dedicated coal port at Takoradi that is capable of handling the 2m tonnes of coal per year that would be brought in to supply the plant.

In renewables, the British developer Blue Energy plans to build Africa’s largest solar facility, at 155 MW, near Nzema in south-western Ghana. An April 2015 clarification on renewables policy capped total capacity at 150 MW, which suggests the project may not proceed, however, Blue Energy officials have told trade publications that it will.

Laws & Regulations

While not all of the 55 currently licensed projects will be built, improving the legal and regulatory regime can help ensure that enough come to fruition to meet rising demand levels. One potential change would be to increase tariffs, assuring generating companies of reasonable returns, although given the large cost-sensitive population and the populist debate over power tariffs, drastic raises are unlikely in the near term. Another reform that would help, according to a sector report by the international law firm Norton Rose Fulbright, would be a more systematic approach to IPPs. Currently a power-purchase agreement can be signed with the VRA, ECG or GridCo, the operator of the transmission grid, and in one case an agreement was signed directly with the Ministry of Energy. “There is no consistent approach to providing government support for the IPPs that have been developed in Ghana to date,” according to the law firm’s report.

The creditworthiness of consumers is also a significant risk for generating companies, given the challenges that the ECG has faced in collections from both household and industrial users.

Aid from US development agency the Millennium Challenge Corporation (MCC) could help address this. This deal is worth up to $498m and would work to improve capacity at the relevant government agencies. The first phase of the arrangement would include $180m spent on data collection, software and other systems to improve the functioning of the bureaucracies. For the funds to be fully disbursed, the government would have to agree to pay off ECG’s debts, or shift them elsewhere.

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The Report: Ghana 2016

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