Reflecting on Ghana’s dark days and the battle to supply electricity

Reflecting on Ghana’s dark days and the battle to supply electricity
Source: Marie-Noelle Nwokolo | The Brenthurst Foundation | Email:
Date: 16-01-2020 Time: 05:01:43:pm

The story of electricity in Africa almost always elicits an eye-roll; we have heard it all before and we are tired of it. Yet, poor and erratic energy is a reality for many people on the continent.

When the power suddenly goes out at 6pm in Accra, especially when many – mostly men – have gathered to watch whatever game is on, there is collective “OOHHH” that rings loudly across the capital as darkness, with the speed of a plague, blankets most areas.

This is followed by the standard barrage of insults: “ECG has done it again”. In those moments, Ghanaians bond. They bond over why the government of the day can’t seem to get it together and ensure a stable supply of electricity. Once the lights come back, the refrigerators start humming and radios start blaring the song of the month, we forget all that.

After all, the lights are back, for now. This narrative is quite common on the continent. Of the roughly 1 billion people without electricity in the world, close to 600 million of them are in Sub-Saharan Africa. Poor access to energy has been a major constraint in the growth narrative of several African countries. Compared to the United States and Europe with per capita consumption of energy at 13,000kWh per capita and 6,500kWh respectively, Sub-Saharan Africa stands at a paltry 180kWh per capita.

Ghana dark days

The continent reached total installed electricity capacity of 168 GW in 2016, compared to Japan’s 291 GW in the same year. Since 2010, access to electricity has only grown 7.5% per year. Considering the existing backlog and the current rate of population growth at 2.8%, achieving Sustainable Development Goal (SDG) 7 - access to modern, affordable, clean and reliable energy for all by 2030 appears a fleeting goal, at such a slow pace.

The effects of this are not simply that approximately 670 million people on the continent will be without electricity, but electricity is core to solving many of the continent’s development challenges: industrialization, connectivity, modernizing agriculture, and providing economic opportunities for the burgeoning population.

Without strong access to electricity these development goals may remain just that – goals. In fact, Ghana, with an electrification rate upwards of 79%, might well be a star performer if you consider that the Sub-Saharan Africa average electrification rate is around 45%, 30 plus percentage points below Ghana’s.

Ghana dark days

A closer look shows that this figure may not be complete. The national electrification is skewed by a considerable gap between electrification rates in urban households (91%) versus rural households (50%). For many, these gaps are then filled by private generators which produce electricity at an estimated cost of $0.35 per kWh, 10 times the cost of grid electricity.

Those who cannot afford this, typically in more rural areas, rely on traditional wood-based biomass energy (fuelwood and charcoal) for cooking, lighting and energy needs. Most who leverage these methods are mostly unaware of the health and environmental implications of such energy sources. This is an alarming reality and there is a lot to be done. Resolving Ghana’s electricity deficits is key to environmental, social and economic wellbeing of the nation.

With installed electricity capacity over 4,000 MW, actual availability rarely exceeding 2,400 MW, and peak load at about 2,200 MW, power cuts and load shedding should be unlikely. Today, however, power cuts are not uncommon in Ghana although the situation is much better today than during the 2012 – 2015 period, commonly known in Ghana as “dumsor” -- . an expression that translates as “off-on”. In the thick of the power crisis, within a 36-hour period, 79 98 45 89 0 10 20 30 40 50 60 70 80 90 100 Access to Electricity in 2017 (%) Ghanaians were guaranteed 12 to 13 hours of power supply. In addition, faulty equipment ensured that ‘surprise’ power outages also added to the misery of Ghanaians.

The Institute of Statistical, Social and Economic Research (ISSER) at the University of Ghana estimated in a 2014 study that Ghana, on the average, lost production worth about US $2.1 million per day (or, US $55.8 million per month) through the power crisis alone (ISSER, 2015). This means that the country lost about US $680 million (2 percent of GDP) in 2014 due to the power crisis. The challenges with power are largely due to supply challenges that occur from obsolete and inefficient energy consuming equipment leading to high levels of losses in the distribution system, as well as slow payment by consumers and under-recovery of costs – culprits which include government ministries and agencies.

To add insult to injury, in a recent synthesis of Ghana’s energy situation, Ghana was found to be paying independent producers almost US$450 million per annum for energy that it does not need or use. Considering the country’s rising debt, this wastage and legacy debt is a drain on the nation’s coffers, especially as Ghana is about to have another election – always the debt-builder, and these ‘unsustainable’ liabilities related to our emergency energy solution are likely to reach US$12.5 billion – 20% of GDP – by 2023 if not controlled, according to Finance Minister Ken Ofori-Atta.

So, what led to this overcapacity? With a year left to election, then President John Mahama in February 2015 promised to ‘fix this energy challenge.’ Surprisingly, or unsurprisingly depending on where you stand, by the close of the year, he ‘delivered’ and rather promptly. Ghana had instituted an energy sector levy and debt recovery levy, commissioned the Kpone Thermal Power Plant, and implemented an emergency solution - The "Power of Friendship for Ghana" project: a floating power plant – literally floating batteries – of six turbines generating 210MW, or 11 percent of the country’s total energy supply in the form the Turkish Karadeniz Powership Aysegul Sultan power barge. Within 10 days of docking, it immediately started delivering power, just in time to provide some respite for the December holidays.

Many criticized the government for resorting to such an expensive short-term solution, but the government remained adamant claiming that it would have taken much longer to build and get functioning a plant. By mid-2017, it became obvious that the previous government had made huge mistakes with its energy plan- or so it seemed. They had invested heavily in generation plants possibly assuming that the economy would grow rapidly, and that electricity demand would increase with it. Yet, they had, somehow, not anticipated to plug the distribution and transmission losses in the system.

What remained was a mounting bill and hugely dissatisfied customers. There are lessons to be learnt from this. Ghana represents the great hope that politics can serve the people, when it wants. It also demonstrates that in the post-resolution chapter, there is a considerable deal of banal work to do to give rise to a political situation that meets the expectations of the people who overthrew the previous administration. Fixing the political economy from one of looting, protecting privilege and short-termism to one of efficiency and prosperity will rest at the core of ECG’s transformation. Solving the energy crisis in Ghana, as it turns out, requires managing the politics as much, if not more, than the economics.

Despite – or conceivably because of all this – the New Patriotic Party (NPP) garnered a 53.85% win with a margin of over a million votes - the first time a sitting president of Ghana had failed to win a second term. Since coming to power in 2017, the current regime has had a formidable task ahead them and an expectant and now not-so forgiving population looks on hawkishly. Finance minister Ken Ofori-Atta said in December that this overcapacity “arose out of an uncoordinated approach, plunging the energy sector into a financial crisis”.

The struggle to restructure the expensive agreements with the numerous independent power producers is still ongoing and adds to the risk of Ghana breaching its budget-deficit ceiling. Recently, the NPP government terminated – against counsel of some experts –the concession awarded to the Ghana Power Distribution Services (PDS), a consortium led by Philippine electricity company Meralco over issues of invalid authorisations, gross deception and unprofessional conduct supposedly on the part of PDS. This move led the Millennium Challenge Corp (MCC) to cancel the remaining tranche of $190 million in grants under the "Power Africa" initiative Ghana was meant to receive.

The MCC, a U.S. government foreign assistance agency, agreed in 2014 to provide $498 million in funding to Ghana's power sector to help provide reliable, and affordable, power to nearly 10 million Ghanaians, as well as to stimulate further private investment. Unfortunately, the losers in this flawed process are once more the Ghanaian populace. If we are to learn anything from this, it is that just providing the infrastructure does not automatically solve everything; the difference in success is being able to use the infrastructure well. East Asia or more closely, Morocco, is a great example of that. Take the Inconel-plated 250-metre tower of the 150MW Noor I facility for example.

It was not just about having a flashy – literally – project but one that came about because of the management of complex financing, profitability and functionality. To finance such infrastructural projects (the Noor, high-speed trains and Port expansions), the government devised a financial model that included public-private partnerships, increasing borrowing, thus raising the fiscal deficit to over three percent of GDP, but also pursued an increase in the tax collection rate by threefold in two decades. As they spent, so too did their revenue-generating ability expand. It is no surprise that within a decade, national electrification rates are upwards of 98% and in Rabat for instance, 77 per cent of surveyed residents reported an improvement in electricity supply and 89 per cent felt that it is sufficient in recent years.

Unlike Ghana, Morocco has shown major improvement in electrification. Much of this improvement came about through ceding portions of its infrastructure to private sector players through a well-thought out and intentioned process of contracting which included “clear fixed objectives, adequate control mechanisms, sufficient indicators and detailed contracts”. The failed attempt to involve private actors in Ghana offers a learning point for other countries who may wish to embrace this model. Without addressing the core issue of transparency in bidding, providing adequate and secure supply infrastructure, and a cost-reflective payment structure across the supply chains, as Morocco has been able to achieve, privatization is unlikely to be a success. The lesson, as subtle as it may seem, is that with big infrastructure assets, vision and leadership are just as importance as delivery.

You need the human and institutional software (thoroughness, skills and systems), a focus on reducing costs, and squeezing or maximizing benefits as much out of it as possible. South Africa, one of the region’s top performers, is also having its fair share of issues with electricity provision. Eskom, like the ECG, was established primarily to serve the mining sector. It was the most successful state-owned enterprise in South Africa until the latest crisis. Now, it threatens to drag the South African economy down with its piling debts and ‘load shedding’ as the lights are turned off due to a lack of capacity. Since 2007, Eskom has struggled to meet demand leading to frequent spells of severe power cuts.

Eskom’s main problem exists with stabilising its base-load – maintaining a large-scale stable and predictable flow of electricity – according to a seasoned energy expert. This challenge along with corruption, has led to mounting debts – and is estimated to have caused more than R600-billion in de-industrialisation since 2007. Eskom needs to address this either by reducing its hyper-inflated wage bill or through a reduction in its capital expenditure – a difficult option given the need to maintain its ageing fleet and finish the hopefully supplementary Khusile and Medupi power stations.

Today, the South African economy is at risk of coming to a standstill. Eskom’s lack of generation capacity offers no resolve to move the economy past its downward growth trajectory, to the dismay of business, citizens and onlookers. There are some similarities in the Eskom – ECG debacle. They have both grown beyond the purposes for which they were creating, demonstrating, to some extent, the lack of vision that has plagues many African countries in getting the basics right for development. Also, leading to election, ECG with its floating batteries and Eskom with its hyper-expensive diesel generation managed to keep the lights on to convince voters of some sort of resolution.

The difference here is that Ghana’s severe power cuts and constant blackouts saw the departure of the then government; South Africa on the hand, was more forgiving, perhaps due to Ramaphosa’s popularity and perceived “cleaner” government from his predecessor. Government has agreed to a separation of generation and distribution from transmission, similar to the Ghanaian system, but has been slow to implement this. Ghana’s current predicament, however, teaches that maintaining a stable energy system is much more than that. Eskom’s expensive electricity generation inefficiencies will not entirely be solved with a breaking up of Eskom, and that’s a lesson South Africa can take from Ghana.

With Ghana growing rapidly and the quest for industrialization at the forefront of economic discussion, perhaps the South African experience is one to keep tabs on. With a less financially complex economy – meaning less financially viable rescue vehicles available, and its mounting debt due to a staggering wage bill, Ghana should learn a thing or two about what it needs to do, and not do to avoid being another South African down the line.

What both countries do teach however is that it is time to take renewable solutions like wind and solar more seriously because reliance on traditional sources is evidently quite problematic. It is no wonder Morocco is leading with its gigantic-flashy solar systems. Despite these challenges, Ghana is well-positioned to achieve universal electrification, possibly by 2030 - the country already fell short of the 2020 mark.

Yet this can only be achieved if all parties really want this outcome. Part of the answer to the energy conundrum lies in expanding the electricity generation mix by exploring other hydro power and renewable energy sources, decentralizing renewable energy options to allow for mini-grids and off-grid solutions, restructuring the tariff structure to ensure utilities can recover their cost of generation, and encouraging, vehemently, energy efficiency programs. The other part of the solution involves deciding to move away from ‘business as usual’ and politicking with the issue of energy. Resolving Ghana’s energy crisis is a factor of solving the political economy. Until this is resolved, universal electrification for Ghanaians will still be an aspiration, even in 2030. Addressing the "take or pay" contracts must be a priority.

Investors may be more reasonable than we think and going back to the table to renegotiate a much more beneficial deal is ok to do and will not scare them away. Exercising the mandate to put the interests of the people first is a valid cause, especially where previously not fully explored. We need to re-evaluate existing power generation contracts to ensure that our debts are controlled, and more sustainable options prevail. Consider a decentralised model of power generation that is closer to the people who need it the most, especially in rural areas where coverage is low. Renewable solutions, mini-grids and locally generated off-grid viable options should be thoroughly scrutinized and funded not only to provide electricity but to create – and keep – jobs in those areas.

The state-owned utility company, ECG, is not entirely autonomous since the government appoints the board members and some top management officials. This structure may not inherently be wrong but could be problematic in a country where financial and patronage interests are rife. Take the non-payment for example, at the end of 2015, the Government of Ghana reportedly owed ECG an estimated US$ 250 million in subsidies and non-payment of bills. With government appointments, accountability is distorted, and it makes it problematic for companies like ECG to fully hold government agencies and institutions accountable for the electricity they have consumed. Again, out of the box thinking is necessary.

This innovative thinking can be applied to the need to expand renewable energy sources. The energy commission of Ghana reported that wind energy could be another potential power source possessing 200 - 300 MW usable wind power and abundant solar energy of daily irradiation levels ranging between 4 kWh/m2 to 6 kWh/m2 .

It is no secret that challenges exist with financing, technical know-how and sustainable operability of these renewable energy options but considering Ghana’s drive for investment and partnerships, such viable projects with huge returns would be one way to go about making international, and domestic, financial friends.

The electricity sector in Ghana has been plagued with severe power supply challenges, characterised by persistent load shedding over the last decade. Our own recent experience has shown that there is no magic ‘silver-bullet’ to resolve our challenges. What is necessary is a common vision for long-term development.

Ghanaian leaders – as should be for all other African countries – need to forego the ‘tyranny of the emergency’ and instead develop a shared vision of how, and what it will take for, Ghana to progress. Energy is critical to unlocking economic potential and as such deserves to be prioritized among the other priorities.

Marie-Noelle Nwokolo is a researcher at the Johannesburg-based think tank, The Brenthurst Foundation.