|Energy as a Tool for Sustainable Development for African, Caribbean and Pacific Countries (EC - UNDP, 1999, 89 p.)|
|CHAPTER 2: THE SUB-SAHARAN AFRICA REGION|
CHALLENGES AND OPPORTUNITIES FOR SUSTAINABLE ENERGY
Ghanas energy sector is changing dramatically as the government tries to restructure the power sector and introduce private participation and competition. Industrial, economic, and social growth have all suffered as a result of recent power crises in Ghana, and the country has recognised that only by reforming the energy sector to address demands will the economy get back on track.
Under the World Bank/IMF Economic Recovery Programme/Structural Adjustment Programme, the government has withdrawn all subsidies on petroleum products, but electricity tariffs still do not cover current costs. Attempts to increase electricity tariffs to reflect marginal costs have largely failed. Increases in the late 1980s and early 1990s, for instance, were quickly eroded by inflation. Recent increases generated a wave of public protests which led to a suspension of the new tariffs by the government. The recently established Public Utilities Regulatory Commission (PURC) faces the difficult task of setting tariffs free of political considerations but keeping in mind the limited income of much of the urban workforce.
Raising electricity tariffs will help to overcome the most fundamental barrier that restrains independent power producers and energy service companies from entering the Ghanaian market. Tariff structures have been a disincentive to investment in energy efficiency or grid-based renewable energy options. The key challenge facing the Regulatory Commission will be to structure tariffs that encourage energy conservation and efficiency while ensuring that tariff increases are acceptable to the population as a whole.
Ghanas energy sector has some fundamental weaknesses, which are reflected in the current power crisis threatening the national economy. The National Energy Board (NEB) was dissolved in 1991, and since then the energy planning and policy analysis of the Ministry of Mines and Energy (MOME) (which had been supporting renewables) has been limited and ad-hoc. The Volta River Authority (VRA), which is responsible for generation and high-voltage transmission throughout the country, has undertaken more systematic generation and transmission planning activities, but it has been unable to secure timely approvals from government, and hence the necessary investment. Even though the VRA formally employs an integrated resource planning approach, its plans do not appear to take renewables and energy efficiency fully into account. One of the challenges facing the country as a whole, therefore, is the need to develop energy supply strategies that give due attention to renewable energy systems and energy efficiency improvement.
POLICIES TO PROMOTE SUSTAINABLE ENERGY
Energy Sector Reform
A range of reforms has been implemented quite successfully in the petroleum sub-sector. The power sector has received much attention, but so far has produced few significant results. One effect of the current power crisis is the way in which it has spurred the government into accelerating the pace of power sector reform in Ghana. Thus prodded, the MOME is implementing long-standing proposals to restructure the power sector and introduce private participation and competition. The proposals open the door for independent power producers and the creation of several distribution companies, either as subsidiaries of the Electricity Corporation of Ghana or as separate companies. The current piecemeal and crisis-driven implementation of these proposals needs to be strengthened if the full benefits of reform are to be realised.
The mobilisation of local private capital and local entrepreneurial/organisational initiatives through cooperatives and credit unions is a good way to promote local commercial development and to respond to electrification needs in low-income areas.
Promoting Sub-Regional Cooperation: Gas Pipelines and Grid Interconnection
Investments in regional energy infrastructure could yield a host of environmental and economic benefits. Examples include the proposed natural gas pipelines from Nigeria and the Ivory Coast which would displace fuel oil use at thermal generation stations, resulting in cost savings and local and global environmental benefits. West Africas largest natural gas reservoirs by a wide margin are in Nigeria, where 75% of all oil-associated natural gas is flared into the open skies. Several international schemes have been put forward to supply Ghanas combined cycle plant with the one million m3 of gas/day it would require.
Extending the regional grid (Ghana, Togo, Benin, and the Ivory Coast are already connected) to Burkina Faso, Mali, and Nigeria would also help to create a more competitive market, decrease vulnerability to drought, and increase the prospects for tapping the hydro potential in Ghana and neighbouring countries.
Integrating Renewables in the National Electrification Programme
Towards the end of the 1980s Ghana launched a programme to electrify the entire country by the year 2020. Many towns and villages have since gone the traditional route of extending the grid, with little thought for mini-grid and off-grid systems, many of which could be powered by renewables. Joint public-private sector initiatives should be developed and implemented to promote innovative, lower cost, and more rapid electrification approaches, and to increase the penetration of renewables. This could be promoted through a combination of national targets (such as system-wide quotas for renewable sources or a specified number of PV lighting systems installed in primary schools), financial mechanisms, and market transformation activities. Such an initiative could yield substantial educational, environmental, and economic benefits. Projects to convert burdensome municipal wastes and agro-industrial residues into electricity should also be further explored.
Increasing energy efficiency
The ESMAP-supported initiatives have laid a strong foundation for energy efficiency activities. Many industrial energy audits and efficiency improvement measures have been implemented by trained Ghanaian engineers and the scope for energy efficiency improvements in all sectors remains large. Demand-side programmes should be expanded, perhaps by stimulating the market for Energy Service Companies through improved access to low-cost capital. A lease-finance facility for the purchase of capacitors turned out for all practical purposes to be a failure as most consumers preferred to purchase the necessary equipment either outright or under more favourable financing terms provided by independent equipment suppliers. It is also very clear that the demand for energy efficiency improvement measures will become even higher as electricity tariffs increase as part of the Governments proposed package of solutions for the current power crisis.
Energy in Transportation
As in most African countries, Ghanas road transport stock is made up predominantly of second-hand vehicles from abroad. Fuel efficiency is generally poor, and energy policy does little to address the issues of energy and transport. Recent efforts by MOME, the National Petroleum Corporation, and retailers to promote the use of household LPG were quickly "hijacked" by car owners who began switching to LPG. Ironically, this has resulted in a new and thriving market for LPG with private companies installing specialised auto-LPG dispensers in many urban centres across the country. Promoting the further use of LPG, switching from petrol to diesel engines, and developing reliable mass transit systems, are some of the ways energy use in the transport sector could be improved. Policy and technology assessments are needed to inform the decision-making process.
Institutional Strengthening and Capacity Building
There is a dearth of professionals with both the requisite experience and the commitment to promoting sustainable energy initiatives in Ghana. The country has a good number of public and private sector institutions (including universities and research institutes as well as government agencies and non-governmental organisations) with the basic human resources and facilities for energy technology development and policy research (See Box 12)."Twinning" or linking programmes between similar institutions in different countries (NorthSouth as well as SouthSouth) could present dynamic opportunities for catalysing the change process.
Policy Discussion Groups for Generating and Nurturing New Ideas
One of the fundamental weaknesses of the energy sector in Ghana is the absence of a continuous policy debate and consultation process. Stakeholder consultative groups could be complemented by use of the Internet, a powerful forum for generating and debating new ideas. Discussions could be synthesised on a periodic basis and fed more formally into the policy-making process through a variety of channels, such as seminars, work-shops, leaflets, posters, etc.
THE ENERGY SECTOR
The Ministry of Mines and Energy has the main responsibility for energy policy formulation and coordination. The Ministry of Finance provides guarantees for loans for the utilities on behalf of the Government of Ghana and also has responsibility for reviewing and approving power sector capital investment programmes.
A competitive environment has been created in the petroleum sector, with very high private participation in downstream petroleum products retailing activities. Work is underway to introduce some competition into the electricity sector: the first independent power producer was established by the Ghana National Petroleum Corporation (Western Power Company); the Public Utilities Regulatory Commission was established in October 1997; and the government is taking steps to introduce private participation and competition in the power sector. Until late 1997, when the Regulatory Commission was established, the MOME was involved in tariff setting and project implementation as well as energy policy formulation. In December 1997 parliament approved legislation for an Energy Commission, which will license and oversee power utilities as well as petroleum and natural gas supplies.
Until very recently power generation was based almost entirely on hydropower. A major drought in 1982-1983 highlighted the need for thermal capacity for back-up, but the country still depends largely on the two hydropower plants completed in 1966-1972 (Akosombo, 912 MW) and 1981 (Kpong, 160 MW). The sector is also dominated by two power utilities:
· The Volta River Authority is responsible for generation and high-voltage transmission throughout the country, while its subsidiary, the Northern Electricity Department (NED), takes care of distribution in the northern regions.
· The Electricity Corporation of Ghana (ECG) was responsible for distribution throughout the country until the establishment of NED in 1987. ECG is now in charge of distribution in southern Ghana, where most people live.
The VRA was the main electricity exporter in the sub-region until 1992, but since 1993 it has been importing electricity from the Ivory Coast. VRAs 300 MW combined cycle gas turbine plant, the first of its kind in Africa, is at an advanced stage of construction with 200 MW of gas turbines already operational.
Energy demand has grown steadily since the onset of the Economic Recovery Programme (ERP), and electricity consumption annual growth rates have averaged over 10%. The high growth in demand with no increase in the supply capacity has led to the present power crisis, with frequent power rationing and load-shedding. Supplies to the largest single consumer, Volta River Aluminium Company (VALCO), have been drastically reduced, and it is estimated that power curtailment to the industrial sector alone could be responsible for a loss of around US$500 million to the Ghanaian economy by the end of 1998.(VALCO consumes a very large share of total electrical energy supplied by Ghanas main generator, the VRA. After commissioning in 1967, its share rose quickly to a peak exceeding 75% in 1968 and then dropped gradually over the years as other users came online, falling below 40% in 1995. From the late 1980s to the onset of the current power crisis, electricity supplied to VALCO had stabilised at around 2,800 GWh per year.)
Renewable energy development also suffers from a lack of commercial financing schemes and limited private sector involvement. An innovation in the energy sector which worked very well during the 1980s was the establishment of an Energy Fund, raised through levies on petroleum products and electricity bills. This fund made it possible for the Ministry of Mines and Energy - acting through the National Energy Board - to promote renewable energy research and development in Ghana. The fund also made it possible for the NEB to initiate, with the help of development cooperation agencies, a broad programme of energy conservation and efficiency improvements. Today, there are several successful renewable energy demonstration/pilot projects (e.g. solar battery-charging centres and biogas-electric systems) and the general public is well aware of the possibilities offered by solar energy technologies in particular. The Energy Research Group (ERG) of Ghana and the Ghana Solar Energy Society (GHASES) have also provided opportunities for policy-makers, researchers, and entrepreneurs to meet and address issues of national importance.
Ghana - The Economic Context
At independence in 1957, Ghana was the richest country in Sub-Saharan Africa, with a per capita income of US$490 (in 1980 US dollars). Over the next 25 years or so, political turmoil and economic mismanagement brought Ghana to its knees, and per capita incomes hit rock-bottom in the early 1980s. Since the launching of a World Bank/IMF Economic Recovery Programme (ERP)/Structural Adjustment Programme (SAP) in 1983, GDP growth rates have averaged about 5% per year and the structure of the economy has changed considerably.
Agriculture no longer dominates the economy: its share of GDP dropped from 55% to 40% between 1980 to 1995. The service sector is now the largest and fastest growing sector, accounting for 47% of GDP in 1995. Agriculture still accounts for 50% of export earnings, however, and 70% of employment. Cocoa alone occupies 25% of cultivated land, accounts for 20% of employment and, until gold took over in 1992, was the single largest source of export earnings.
In spite of its impressive growth rates, the Ghanaian economy still suffers some rather fundamental weaknesses. Inflation stood at 120% in 1983, and is still quite high (28% in 1997) and subject to alarming fluctuations (70% as recently as 1995). Interest rates are correspondingly high, hampering investment. The Bank of Ghana raised rediscount rates in 1995 from 33% to 45% in an attempt to squeeze credit expansion and encourage banks to invest in the money market. In such a high inflationary regime, any investments yielding returns lower than about 50% are generally considered unattractive.
When the first industrial census was carried out in 1962, industrial production contributed about 10% of GDP. By 1976 its share had risen to 21%, but it then declined sharply to around 8% in 1983, just before the ERP/SAP was implemented. During the first half of the ERP (1984-1988), the industrial sector recorded very high growth rates, averaging 11.2% per year and then slowed to 4.5% per year from 1989 to 1994. Industrial production stood at 14% of GDP as recently as 1994. In recent years, mining, quarrying, electricity production, and construction have out-paced growth in manufacturing, which accounts for over 60% of industrial value added.
The Ghanaian industrial sector is made up of many small- and medium-scale enterprises. The smaller enterprises are usually Ghanaian family businesses that operate informally and employ simple or traditional technologies. Large businesses are very often either wholly state-owned, wholly foreign-owned, or are joint ventures between foreign and local interests (both state and private). These include the Volta Aluminium Company, the largest primary aluminium smelter in Africa (with 200,000 tonnes annual capacity), and several large gold and diamond mining companies, which are among the most energy-intensive industries in Ghana. Since 1987 the government has pursued a policy of privatisation of state-owned enterprises.
Energy efficiency has been one of the cornerstones of the governments energy policies and there was an active and growing energy efficiency programme, which has been slowed down by the current power supply crisis. The latter half of the 1980s saw the implementation of a National Energy Conservation Programme (NECP) with technical assistance from the World Bank/UNDP ESMAP programme together with the Canadian International Development Agency. More recently, in 1995, an Electricity Demand Management Project (EDMP) was initiated as an integral part of the Takoradi Thermal Power Project under a financial package with the International Development Association. The primary objective of the EDMP is to promote private sector participation in the delivery of energy management services (i.e. to perform key diagnostic and design tasks, maintenance services, etc.) to industrial and commercial enterprises. An Industrial Energy Assessment Centre (IEAC) has been established at the University of Science and Technology, Kumasi, mainly to train students in energy auditing techniques. MOME, in cooperation with the Private Enterprise Foundation (PEF), has recently established an Energy Foundation with responsibility for energy issues relating to the private sector business community as well as member organisations of the PEF.