The Ministry of Finance in Ghana and CENIT Energy Limited (CEL) have agreed to amend their power purchase agreement (PPA), opening a new chapter in the country’s electrification journey.
CEL began its commercial operation in Ghana in 2012. It has agreed to convert the CENIT thermal power plant in the Tema Industrial Enclave into a tolling structure. Transferring it to the Electricity Company of Ghana should result in cost savings to the national distributor. The Ghanaian independent power producer will also lower its capital recovery tariff of 38,9%, which should result in total savings to the government in excess of $200 million over the remaining life of the PPA.
In a statement released last Friday, the Ministry said CEL’s commitment is crucial to reinforcing the Ghanaian government’s efforts to build a balanced sustainable energy sector. At present Ghana pays in excess of $500 million a year for unused electricity. Most of the country’s current PPAs are legacy agreements entered into under the previous administration in an uncoordinated fashion. The Ministry stated last year it would actively seek to renegotiate existing contracts and would from 1 August 2019 only pay IPPs for power consumed (on a take and pay basis) not generated (on a take or pay basis) in future contracts.
Ghana’s minister of finance Ken Ofori-Atta said they welcomed CENIT Energy’s commitment to Ghana and its role in regenerating the country’s energy sector.
Ghana on a roll to change their energy sector
“We encourage other IPPs to join CENIT in collaborating to help reduce onerous debts and to provide stable energy supply for the people of Ghana. We are committed to building a competitive and dynamic energy sector where private investments can thrive and the interests of the Ghanaian people and business continue to flourish,” said Ofori-Atta.
Ghana, in collaboration with the World Bank, has created an Energy Sector Recovery Programme (ESRP) which identifies the policies and actions necessary for their energy sector to recover its financial footing. The government will take steps to institute a competitive bidding process for future additional capacity and develop tariffs in line with expected pricing benchmarks.
The programme is made up of several sector-wide initiatives and reforms, including the implementation of the Cash Waterfall Mechanism (CWM) in April this year. This mechanism will allow the Electricity Company of Ghana’s revenue to be distributed in a transparent manner and manage arrears payments. The ESRP steering committee is negotiating new agreements with IPPs and gas suppliers. Taking its cue from Ghana, Kenya has also started changing its stance on PPAs, as has South Africa.
Eskom CEO Andre de Ruyter confirmed in a briefing in May this year the parastatal is pushing ahead with renegotiation efforts with IPPs. Last week, Kenyan MPs in Parliament raised the idea of renegotiating a loan to build a railway line because of the impact of the COVID-19 pandemic on the country’s finances. Kenya, through Kenya Power and Lighting Company, has also switched to a take and pay for new contracts in the energy sector.
Ghana’s Energy Sector Recovery Programme is a five-year plan which started in 2019 and is meant to run to 2023.