Ghana’s increased energy demand has led to power shortages, but the government has opened up the industry to the private sector to support investments in new generation facilities.
New analysis from Frost & Sullivan finds that the Ghanaian electricity industry earned revenues of $287.00 million in 2007 and estimates this to reach $419.00 million in 2014. The West African country’s government has begun to implement initiatives to build a reliable power sector.
“The private sector is being encouraged to diversify into thermal power and enter into power purchase agreements directly with bulk power end users such as mining companies,” Frost & Sullivan energy industry analyst Jeannot Boussougouth says. “This deregulation of the energy market will result in cost-reflective tariffs and higher returns on investment for private investors.”
Over four independent power producers (IPPs) are already at different stages of power plant construction in Ghana with approximately 1600 MW of additional generation capacity already under construction and is expected online in the short-to-medium term future.
However, the prevailing low tariffs are an important restraint to the growth of the power sector since it discourages major investment from IPPs. Moreover, the government’s existing hydropower plants are riddled with frequent breakdowns, resulting in severe power shortages.
“Ghana’s current low tariffs and the delays in establishing a sustainable tariff regime are discouraging many potential power sector investors,” cautions Boussougouth. “The current tariff regime is heavily influenced by hydropower and is not attractive to IPPs that are generating power from expensive imported oil.”
Frost & Sullivan advises IPPs investing in the Ghanaian power sector to focus on operating in the deregulated market, where project developers are allowed to enter into power purchase agreements directly with bulk power end-users with mutually agreeable tariff structures. However, the Ghanaian government must create enabling legislation for the smooth operation of this deregulated energy market.
“IPPs operating in Ghana need to find a secure source of cheaper fuel to cushion themselves from the prevailing low tariff,” advises Boussougouth. “The focus should be on developing hydropower projects, which have very low production costs as compared to expensive imported oil.”