Plans to improve connectivity and gas supply in Ghana

The expansion of the oil and gas sector adds momentum to a trend that has seen Ghana move from traditional forms of energy, such as firewood and charcoal, towards energy provided by the national grid. The share of biomass in Ghana’s energy mix declined from 52% of total primary energy supply in 2009 to 37% in 2016. Conversely, Ghana’s grid-supplied energy usage has increased, and at the end of 2017 the nation had an installed generation capacity of around 4310 MW. Thanks to this, Ghana has one of the highest electrification rates in sub-Saharan Africa; 84% of the population has access to electricity, including around 95% of the urban population and 70% of rural dwellers.

GENERATION INFRASTRUCTURE

In 2017 around 63%, or 2730 MW, of Ghana’s generation capacity was accounted for by around 10 thermal power plants, the largest of which is the 560-MW Sunon Asogli plant located near the port city of Tema, which came on-line in 2010. The second-largest thermal power plant in the country is the 470-MW Karpower barge moored at Tema fishing harbour, which is fed with at least 30,000 tonnes of imported oil each month. The Karpower plant’s location has become a source of controversy in recent years. Interviewed in the local press in late 2018, the minister of energy, John Peter Amewu, questioned the decision to place the barge in a location that would necessitate the import of fuel oil at a cost of $9m per year when gas feedstock would soon be freely available in the west of the country. A 200-km coastal transfer of the power barge to Sankofa, where a recently constructed gas plant is seeking customers, is therefore a possibility in the short term. The remaining nine thermal plants use a combination of oil, natural gas, diesel, and heavy or residual fuel oil.

Ghana’s largest power plant, however, is not a thermal unit, but one which takes advantage of the nation’s relatively high level of rainfall: the 1020-MW Akosombo hydropower facility. The construction of the Akosombo Dam, also known as the Volta Dam, in the 1960s flooded part of the Volta River Basin and led to the formation of Lake Volta, the world’s third-biggest man-made lake. The project has been central to Ghana’s modernisation efforts in the post-colonial era and was linked operationally to the nearby Volta Aluminium Company (VALCO), owned by a number of US and UK aluminium conglomerates. In return for the investment made by VALCO, the Akosombo hydropower facility was licensed to provide low-cost power to the smelter for a period of 30 years – an arrangement that became politically sensitive over the subsequent decades. In 2003, however, VALCO closed due to its inability to negotiate a supply of electricity, and by 2008 the smelter was brought under government ownership. The Akosombo Dam, meanwhile, remains the centrepiece of a large hydropower segment, which accounts for around 36% of Ghana’s installed grid capacity, and also includes plants at Kpong and Bui of 160 MW and 400 MW, respectively.

Lastly, two solar power plants make up the renewable energy infrastructure that accounts for around 0.6% of total grid generation capacity. The Navrongo solar plant, located in the Upper East Region of Ghana, became the first grid-connected solar facility in the country when it was inaugurated in 2013. With a capacity of 2.5 MW, it was also at the time the largest photovoltaic (PV) plant in West Africa besides those in Cape Verde. The first large-scale solar project in Ghana, however, was connected to the grid as recently as 2016. The 20-MW solar power plant operated by BXC Ghana – a subsidiary of China-based industrial conglomerate Beijing Fuxing Xiao-Cheng Electronic – is an important component of the government’s plan to increase its output of renewable power sources to 10% of the energy supply by 2020.

Transmission Lines

All of Ghana’s major generation plants are connected to the nation’s 64 bulk supply points by approximately 5300 km of transmission lines, collectively known as the National Interconnected Transmission System. The majority of the network is made up of 161-KV line, although there remains a small amount of 69-KV line and 364 km of 330-KV line. Additionally, lines of varying voltages connect Ghana with neighbouring Côte d’Ivoire and Togo. The system control centre in Tema is charged with operating and monitoring the entire Ghana power network, and is also responsible for cross-border power exchanges with neighbouring countries.

Ghana’s transmission system has been the focus of a sustained capacity-building effort, as the state has sought to connect more of its citizens to reliable power. As of 2017 the network had 127 transformers installed at various load centres across the country, four more than the total in 2016. Transmission losses, meanwhile, have run at a relatively low level throughout this period of expansion. In 2010, according to the Energy Commission, around 3.7% of gross transmission was lost, and in 2017 this stood at approximately 4.1%.

Sector Control

Over the past decade Ghana’s power and utilities subsector has undergone a process of liberalisation that has resulted in almost half of the nation’s generation capacity being provided by private participants. For nearly four decades after Ghana’s independence, a single body controlled the provision of electricity to the market. The state-owned Volta River Authority (VRA) was established in 1961 and given a mandate to generate, transmit and distribute electricity across the country. Following a major legislative change in 2005, however, the market was opened up to attract independent power producers (IPPs) to the domestic utilities arena. The VRA has maintained its mandate to generate electricity, and controls some of the country’s most important power plants, including the Akosombo and Kpong hydrogeneration stations on the Volta River, as well as a number of thermal and solar facilities. As of 2019 the VRA shared the generation space with eight IPP projects, the first of which to enter the market was the Takoradi power station, constructed in Aboadze in 2004. Since then another six thermal players have entered the market, including the Karpower barge, as well as solar operators such as BXC Ghana. In the case of the Takoradi thermal plant, the VRA formed a joint venture with Abu Dhabi National Energy Company, a government-owned energy and water provider, establishing another model by which external funding can be channelled into the domestic sector.

The growth of privately funded power plants, however, has not been without the occasional setback. Ghana’s largest IPP project to date was put on hold in 2018 due to a dispute between Ghanaian power company Cenpower Generation and South African construction company Group Five. The disagreement centred on a range of issues including missed construction deadlines, design changes and quality concerns. In November 2018 the companies terminated their contract, but Cenpower continued to make a $60.5m claim against Group Five the following month, of which $43m has been paid. Although there have been some challenges, Ghanaian companies are confident that they will continue to attract international investors. François Bacci, managing director of energy company Orsam Oil and Gas, told OBG, “What really makes the market attractive to international firms is the significant domestic demand, and indeed the capacity that will come on-line in the years to come.”

The 2005 legislative amendment which opened up the sector to private participation saw the VRA’s control over Ghana’s transmission system hived off to the Ghana Grid Company (GridCo), established in 2008 to provide “fair and non-discriminatory transmission services” to power generators and bulk consumers who make up Ghana’s distribution system. The most significant bulk customers in the power market are the Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCo), as well as a number of large mining operations. The ECG is wholly owned by the government of Ghana and is the major distribution company in the country, claiming a market share of over 70%. NEDCo was established as a subsidiary of the VRA to distribute power in the northern part of Ghana. The only privately owned distribution company in the market is Enclave Power Company, which feeds power to industries in the Tema free zone.

Demand-supply Balance

A range of factors, from maintenance issues to supply challenges, combine to influence the grid system’s dependable capacity. The Energy Commission’s projection for installed capacity for 2018 stood at 4759 MW, while its estimate for dependable capacity was 4322 MW. This forecast took into account 13 separate instances of planned maintenance, including at the Karpower barge and the Akosombo hydropower plant, where six units were slated for shutdowns of 18 days each. In recent years Ghana’s electricity system has struggled to keep up with rising demand for power. Until recently, chronic load shedding threatened economic growth and even social stability: in 2015 several thousand opposition supporters marched in Accra to protest shortages.

More recently, however, increased domestic capacity has alleviated this problem. “In 2015 power used to be 12 hours on, 12 hours off, an issue referred to locally as dumsor,” Murat Çaptuğ, country manager at AKSA Energy, told OBG. “Since then, an increase of IPPs has bolstered the output from the public sector, resulting in far fewer major outages in Ghana.” The total projected electricity demand for 2018 was 16,304.8 GWh, according to the Energy Commission, compared to an estimated supply of 16,305 GWh. System demand is broadly even throughout the year, with the nation’s Joint Electricity Supply Plan foreseeing demand for 2523 MW of electricity in December 2018, compared to 2306 MW the previous January. Although the demand-supply margin remains tight, the chronic load shedding that had plagued the system is less of a likelihood that it previously was.

Supply Issues

While Ghana’s installed capacity is adequate, the power segment faces ongoing challenges to supply that threaten to undermine performance. The provision of gas is a particular concern to the industry and, according to the Energy Commission, is one of the major risks to reliable electricity supply. Despite expecting gas from all of Ghana’s major oil fields in 2018, the commission forecast a gas shortfall for the year. A lack of gas supply for thermal plants has in the past resulted in increased strain on other parts of the power generation system. For example, in the first quarter of 2017 Ghana’s hydropower reservoirs were depleted beyond their recommended levels in a bid to compensate for the power deficit caused by a shortfall from Ghana Gas. Despite good prospects for rainfall, in 2018 the Energy Commission recommended that the nation’s hydropower plants be operated below capacity and their reservoirs not drawn down beyond their minimum operating levels, to ensure sustainable operations in the coming years.

The inability to meet demand using the domestic supplies has prompted Ghana to move ahead with building the infrastructure to import liquefied natural gas (LNG). In September 2018 two Chinese companies were contracted to build the onshore facilities that are expected to receive LNG sourced from Russian oil giant Rosneft, with the first imports anticipated in 2019.

Perhaps the most intractable challenge to supply, however, is mounting debt throughout the power supply value chain, which by mid-2017 was estimated to stand at more than $2bn. The bulk of the money owed is attributable to short-term loans contracted by power producers and the inability of distribution companies to collect adequate revenue to cover their operations. At the close of 2017 the CEO of GridCo stated that the ECG and VALCO owed his company GHS540.4m ($116.8m) and GHS30.7m ($6.6m), respectively, and claimed that the non-payment of the debt was limiting the ability of GridCo to carry out new projects. In turn, the ECG is facing problems in collecting its own debts. The government has attempted to address the problem through the introduction of a cash waterfall mechanism (CWM), intended to facilitate the equitable distribution of all cash collected in the power sector. However, the CWM, while a welcome advance, is designed primarily to distribute the limited cash resources in the system, not tackle the fundamental challenge of the EGC’s inability to collect all of the revenue owed to it. The government has also gone to the bond market in a bid to solve the payment issue, issuing seven-year and 15-year instruments in April 2017. While the sale did not meet the target of GHS6bn ($1.3bn), part of the GHS4.7bn ($1bn) it attracted was used to clear a portion of the sector’s debt.

Outlook

A number of developments promise to boost the supply of gas feedstock to Ghana’s thermal power stations in the short term. Most significantly, the offshore Sankofa field has the potential to increase domestic power generation capacity by 1000 MW, and for a price considerably lower than that paid for gas imported from Nigeria through the West African Gas Pipeline (WAGP). The WAGP Reverse Flow Project, meanwhile, is due for completion in June 2019, and will allow gas from oilfields off the western coast to be transported to thermal plants sited in Tema, east of Accra. Regional connectivity is set to enhanced, according to an announcement by GridCo in 2018, by the extension of transmission lines to Burkina Faso. GridCo plans to export around 50 MW of electricity at first, and estimates that the interconnection could sustain an export level of 400 MW in the future. While these developments are welcome, the principal challenge faced by sector governing bodies is the successful resolution of the payment backlog, which could inhibit much-needed private sector investment.

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The Report: Ghana 2019

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