Ghana’s electricity industry
July 23, 2007
By Felix Ankomah Asante, Institute of Statistical, Social & Economic Research and Ezekiel Attuquaye Clottey, Resource Centre for Energy Economics and Regulation, University of Ghana
Ghana’s electricity consumption has been growing at 10 to 15% per annum for the last two decades. It is projected that the average demand growth over the next decade will be about 6% per year. As a result, consumption of electricity will reach 9,300 GWh by 2010. This projected electricity growth assumption has profound economic, financial, social and environmental implications for the country.
Electricity accounts for about 11% of the nation’s final energy consumption. With a customer base of approximately 1.4 million, it has been estimated that 45-47% of Ghanaians, including 15-17% of the rural population, have access to grid electricity, with a per capita electricity consumption of 358 kWh.
All the regional capitals have been connected to the grid. Electricity usage in the rural areas is estimated to be higher in the coastal (27%) and forest (19%) ecological zones than in the savannah (4.3%) areas of the country.
In 2004, Ghanaians consumed 5,158 GWh of electricity. It is estimated that about half of this amount is consumed by residential consumers for household uses, while commercial and industrial users account for the rest. The majority of the customers are in service territories of the Electricity Company of Ghana (ECG) and the Northern Electrification Department (NED) and they are regulated. Deregulated consumers such as mines and aluminium companies account for one third of total consumption. One industrial entity, the aluminium smelter VALCO, can account for most of this amount when it is operating normally. Access to electricity in Ghana is 43.7% compared to an average of 17.9% for West Africa.
Ghana’s supply of electric power is obtained primarily from hydropower generated at the Akosombo and Kpong dams and two thermal plants (light crude oil fired) at Aboadze in the Western Region.
Electricity is also obtained from renewable energy sources, in particular, solar energy in remote rural communities.
The key entities in the Ghanaian electric power industry are:
• The Ministry of Energy, responsible for development of electricity policy for Ghana
• The Volta River Authority (VRA), a state-owned entity responsible for generation and transmission of electricity in Ghana. VRA operates the largest generation facility in Ghana, the Akosombo hydroelectric plant
• The Electricity Company of Ghana (ECG), a state-owned entity responsible for distribution of electricity to consumers in southern Ghana, namely Ashanti, Central, Greater Accra, Eastern and Volta Regions of Ghana. ECG is the entity that consumers interact with when they receive and pay their bills or when they have service questions (billing, metering, line connection etc.)
• The Northern Electrification Department (NED), a subsidiary of VRA responsible for power distribution in northern Ghana namely, Brong-Ahafo, Northern, Upper East and Upper West Regions
• The Public Utilities Regulatory Commission (PURC), an independent agency that calculates and sets electricity tariffs, educates customers about electricity services as well as energy efficiency and conservation and ensures the effectiveness of investments
• The Energy Commission, an independent agency that licenses private and public entities in the electricity sector. The EC also collects and analyses energy data and contributes to the development of energy policy for Ghana
• The private generators, including domestic and international entities that build power generation facilities. They sell their electricity to VRA or ECG
• The Energy Foundation, a Ministry of Energy-Private Enterprises Foundation (PEF) initiative, which was set up in 1997 to promote energy efficiency and conservation programmes. Initial activities have focused primarily on the provision of technical support to industries, introduction of compact fluorescent lamps (CFLs), and public education.
Since most of the electricity is generated from hydro facilities that were built several decades ago, the cost of generation was rather low (about 2 to 2.5 US cents per kWh). But, as demand grew and VRA experienced difficulty supplying electricity during years of low rainfall, new thermal plants were built in the late 1990s. These plants have costs ranging from 4.5 to 8 US cents per kWh, and sometimes higher, depending on the cost of imported fuels such as light crude oil, raising the average cost of generation from about 2 US cents per kWh in the mid-1990s to about 6 US cents in 2002. However, tariffs to end-users have not always reflected these costs due to government’s subsidised tariff policy.
Electricity supply is divided into bulk electricity (transmission level) and final electricity (distribution level). The average bulk electricity price was below 4 US cents per kWh in the early 1990s until 1998, when it went up to between 4 to 4.5 US cents per kWh, below the cost of generation.
After its establishment in 1997, the PURC started setting electricity tariffs, in consultation with key stakeholders comprising the generators, distributors and representatives of major consumers. The PURC developed a transition plan to trigger a gradual adjustment to economic cost recovery by 2003.
The automatic price adjustment formula of the Transition Plan was affected once in 2003 and twice in 2004, with the latest adjustment in 2004 affecting only the bulk supply tariff (BST) and the distribution service charge (DSC). The sum of the BST and the DSC is the end user tariff (EUT) charged by the distribution companies. The addition of thermal generation has pushed up the EUT to about 8.2 US cents per kWh, with a BST of about 4.8 US cents (including a ‘postage stamp’ transmission charge of about 0.9 US cents) and a DSC of about 3.4 US cents.
There are different tariffs for industrial, commercial (nonresidential) and residential customers. The tariff for residential customers has a lifeline tariff for low consumption, which was set at 100 kWh per month maximum in 1989/90 but was downgraded to 50 kWh per month maximum by 2000, which is still high compared to some neighbouring countries (for example, 20 kWh for Benin and 40 kWh in Togo). The lifeline tariff is about US$1.50 per month. The government of Ghana subsidises the lifeline consumers to the tune of about US$1 per month but it has been unable to make regular and timely remittances to the utilities. The total subsidies owed by the government to the distribution utilities by the end of 2003 ranged from US$400,000 to US$1.4 million.
The average tariff for final electricity was below 5 US cents per kWh until 1998 when it shot up to between 5.2 to 8.2 US cents per kWh. However, at a level above 8 US cents per unit, though relatively low compared to some neighbouring countries, the tariff is not attractive to high level commercial and industrial usage. At the same time, industrial customers subsidise residential consumers.
These policies are hampering the development of an industrial base in Ghana that can compete in regional and global markets, and fuel economic growth.
There are a number of other challenges in fixing the distortions in electricity tariffs. First, utilities need to improve their operational efficiencies so that they can be financially sound while lowering tariffs for consumers of electricity. A second and related challenge concerns the average tariff collection efficiency, which has ranged from 75% to 85%. The PURC has a benchmark of 95%. Although utilities are called upon to improve their customer relations and service quality, consumers need to act responsibly as well. Otherwise, the electricity system cannot be expanded reliably to meet the growing demand.
HISTORY OF ELECTRIC POWER IN GHANA
There are three main periods of electricity in Ghana. Interestingly, the problems of each period usher in the next phase. The first period ‘Before Akosombo’ refers to power generation in Ghana before the construction of the Akosombo hydroelectric power plant in 1966. The second period, ‘The hydro years’ covers the period 1966 to the mid-eighties, the Volta Development era. By the mid-eighties, demand for electricity had exceeded the firm capability of the Akosombo and the Kpong hydro power plants, ushering in the third period ‘Thermal complementation’, which is characterised by efforts to expand power generation through the implementation of the Takoradi thermal power plant as well as the development of the West African Gas Pipeline.
BEFORE AKOSOMBO (1914 to 1967)
Before the construction of the Akosombo hydroelectric plant, power generation and electricity supply in Ghana was carried out with a number of isolated diesel generators dispersed across the country and stand-alone electricity supply systems. These were owned by industrial establishments such as mines and factories, municipalities and other institution (e.g. hospitals, schools, etc.).
The first public electricity supply in the country was established in Sekondi in the Central Region of Ghana in 1914. The Gold Coast Railway Administration operated the system, which was used mainly to support the operations of the railway system and the ancillary facilities that went with its operations. In 1928, the supply from the system was extended to Takoradi, less than 10 km away. Between 1922 and the eve of independence, many towns and communities across the country benefited from public electric supply mostly through the Public Works Department (PWD).
In 1947, an Electricity Department within the Ministry of Works and Housing was created to take over the operation of public electricity supplies from the PWD and the Railways Administration. One of the major power generation projects undertaken by the Electricity Department was the construction of the Tema diesel power plant. The plant was built in 1956 with an initial capacity of 1.95 MW (3x 650 kW units). This was expanded between 1961 and 1964 to 35 MW with the addition of ten 3 MW diesel generators and other units of smaller sizes.
When completed, the plant was the single largest diesel power station in Black Africa and served the Tema Municipality. In addition, through a double circuit 161 kV transmission line from Tema to Accra, the Tema diesel plant supplied half of Accra’s power demand.
THE HYDRO YEARS (1967 – MID-1980S)
AKOSOMBO HYDROELECTRIC PROJECT
The Volta River Authority (VRA) was established in 1961 with the enactment of the Volta River Development Act, 1961 (Act 46) and charged with the duties of generating and supplying electricity through a transmission system from the river Volta.
Construction of the Akosombo dam formally commenced in 1962 and the first phase of the Volta River development project with the installation of four generating units with total capacity of 588 MW each was completed in 1965 and formally commissioned on 22 January 1966. In 1972, two additional generating units were installed at Akosombo bringing the total installed capacity to 912 MW. By 1969, the Volta Lake, created following the completion of the Akosombo dam, covered an area of about 8,500 km2, thus becoming the world’s largest man-made lake in surface area at the time. The lake is about 400 km long and covers an approximate area of 8,500 km2, i.e. 3% of Ghana, with a capacity of over 150,000 million m3 of water at its full supply level (FSL). The drainage area of the lake comprises a land area of approximately 398,000 km2, of which about 40% are within Ghana’s borders. The other portions of the Volta Basin are in Togo, Benin, Mali and Côte d’Ivoire. The average annual inflow to Lake Volta from this catchment area is about 30.5 MAF (37,600 million m3).
KPONG HYDROELECTRIC PROJECT
In 1971 VRA commissioned Kaiser Engineers of USA to prepare a planning study, ‘The Ghana power study: Engineering and economic evaluation of alternative means of meeting VRA electricity demands to 1985’, which recommended among other options the construction of the Kpong hydroelectric project, with the dam located upstream of the Kpong Rapids and the power station at Penu about 18 km upstream of Kpong. However in 1974, when VRA commissioned Acres International of Canada to carry out a review of the Kaiser Study, the plant site was changed to Akuse. A major benefit of the change was the drowning of the Kpong rapids as a result of the dam construction. This eliminated the terrible insect, simulium damnosum, the agent of river blindness. The Kpong project was successfully commissioned in 1982 and gave an additional 160 MW of installed capacity to the existing hydroelectric capacity.
In 1983, following the drought, VRA as part of its generation and transmission planning process undertook a comprehensive expansion study, the ‘Ghana Generation Planning Study’ (GGPS). This engineering planning study, which was completed in 1985, confirmed the need for a thermal plant to provide a reliable complementation to the hydro generating resources at the Kpong and Akosombo power plants. A major consideration for complementing the hydro sources was the natural and inherent characteristic of the Volta River to have highly variable flows from year to year.
The study concluded that by adding thermal complementation, the vulnerability of the all-hydro power system in Ghana would be significantly reduced. In addition to thermal complementation, the study also recommended the rehabilitation of the 30 MW Tema diesel station as an immediate and short term measure to support the operation of the hydro plants and consequently reduce the risk of another exposure to poor rainfall and reduced power generation. The Tema diesel plant faced delays in its rehabilitation but work was completed in 1993. Given its state and importantly the cost of generation, the Tema plant has been used intermittently and
currently is not in commercial operation.
Various studies were commissioned to determine the optimal technology for the thermal plants to be developed, especially in the light of the profile of the rapidly growing power demand in Ghana. The ‘Takoradi thermal plant feasibility study’, completed in 1992, recommended the construction of a 600 MW plant, with an initial 300 MW combined cycle plant and a 100 MW combustion turbine unit to be commissioned by 1995. There were, however, delays in financing approvals by the International Development Association, which eventually resulted in the first 330 MW tranche of the Takoradi plant being commissioned in 1999.
FUTURE CHALLENGE – INCREASING GENERATION
The domestic electric energy consumption is about 6,004 GWh. It is projected that the average local load growth in Ghana over the next decade would be about 6% as a result of which local consumption of electricity will reach 9 300 GWh by 2010. There is also potential for significant electricity exports and supply to
VALCO as the smelter resumed operations in early 2005 under a new management structure.
The firm capability of the hydro system of about 4 800 GWh represents about half of the projected domestic consumption for the year 2010. This implies that at least 50% of Ghana’s electricity requirement by the year 2010 would be provided from thermal sources. On the basis of the studies carried out, the next generation addition is the completion of the expansion of the Takoradi power station. This involves the addition of 110 MW steam unit in order to complete the combined cycle arrangements for the TICO power plant. In the medium to long term, up to 600 MW of additional generating capacity will be required by 2012. It is planned that this additional capacity will be met through the establishment of thermal as well as hydro plants such as the Bui hydro project. An Indian company formally approached the Ghanaian government to fund the construction of the Bui hydroelectric dam. Currently, the Takoradi thermal power station is fuelled with light crude oil, which has appreciated significantly on the world market (between US$70 – 80 in August 2006).
In order to secure a sustainable and cost-competitive fuel source, Ghana is involved in the West African Gas Pipeline (WAGP) project for power generation. The WAGP project involves the construction of a natural gas pipeline of about 600 km to supply natural gas from Nigeria to meet the energy requirements of Ghana and other West African countries. The countries presently involved in the project with Ghana are Nigeria, Benin and Togo. The WAGP project, which will provide a source of clean fuel for VRA’s thermal generating facilities and other future thermal plants, is expected to deliver the natural gas fuel at relatively lower costs than the current light crude oil. It is expected that the first gas will be delivered to the Takoradi plant by December 2006.
In addition, Ghana is involved in the development of the West African Power Pool (WAPP), aimed at establishing a regional market for electricity trade. The WAPP is expected to allow the sharing of available energy resources and increase the reliability of electricity supply in the West African region. If the WAPP initiative succeeds, its benefits will yield several billions of dollars over the next couple of decades.
First published in ESI Africa magazine, issue 3 2006, September 2006