Power sector opens up for more investors

The government has embarked on a number of significant initiatives to build a reliable power sector to sustain the country’s growing economy.

The power sector has been unbundled to create an environment conducive for private sector investment.

In this direction, the private sector is being encouraged to diversify into thermal power production and enter into power purchase agreements directly with bulk power end users such as mining companies, says Frost & Sullivan energy industry analyst Jeannot Boussougouth.

The deregulation of the energy market would result in cost-reflective tariffs and higher returns on investment for private investors, said the energy analyst.

The booming mining and smelting industry in Ghana is driving the demand for more power. By 2014, the country will require an additional electricity generation capacity of 2,000MW to meet growing power requirements.

Over four independent power producers (IPPs) are already at different stages of power plant construction in the country.

Approximately 1,600MW of additional generation capacity is 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 they discourage major investment from IPPs.

Moreover, the government’s existing hydropower plants are now old and characterised by frequent breakdowns and low availability, resulting in severe power shortages.

The country’s current low tariffs and the delay 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.

The IPPs investing in the Ghanaian power sector should 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 needs to urgently create enabling legislation for the smooth operation of this deregulated energy market.

The IPPs operating in Ghana need to find a secure source of cheaper fuel to cushion them against 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.

Source: Daily Graphic