Ghana’s electricity supply mix has improved, but reliability and cost remain a challenge
Ghana has made significant progress over the past 10 years in increasing electricity production and access. This supported higher levels of economic growth. However, beneath these improvements lie inefficiencies, including extraordinarily high distribution losses. Electricity is also quite expensive in Ghana. If left unresolved, these issues could derail Ghana’s development agenda.
As a country transition their economies to those that use less carbon, they need to build balanced energy systems. These must be anchored on high energy security, universal access at affordable prices and low emissions.
Ghana has started reform its energy sector in the mid-1990s to encourage competition and efficiency. Independent power producers were introduced to increase thermal generation capacity using crude oil and natural gas. Ghana was heavily dependent on hydroelectric power from the Akosombo dam. When the precipitation regimes started to change in the mid-1980s, with the accompanying low water levels, energy policy changed.
Reforms too set up performance contracts and other energy efficiency initiatives to decentralize the value chain, which had been monopolistic. It was also a prerequisite by development donors like the World Bank.
Between 2000 and 2019, electricity production capacity increases at a rate of 6.4% per year from 1,358 megawatts (MW) to 4,695 MW. Supply capacity has almost doubled since 2013 power crisis. At the same time, peak system demand grew at an annual rate of 4.6%, from 1,161 MW to 2,804 MW.
The increase in electricity generation has supported Ghana’s economy. The economy grew in real terms by 6.67% per year between 2011-2019. The demand for electricity is valued have increased by 7 to 10% per year since 2010.
We recently conducted research in which we analyzed how the country’s changing energy mix affects energy security, energy equity and environmental sustainability. All three are called the “energy trilemma”.
We found that Ghana showed significant improvement from 2000 to 2019 in energy security and energy equity. He made marginal improvements on environmental sustainability. However, these improvements mask some inefficiencies that must be addressed if the country is to have a more resilient electricity sector.
Rebalancing of energy sources
The World Energy Council Energy trilemma index ranks Ghana among the top 10 countries that have improved in energy security, equity and environmental sustainability. Only two other African countries – Kenya and Ethiopia – are in the top 10.
The switch from hydropower to thermal has helped Ghana increase its energy security. While hydropower accounted for 68% of the electricity produced in 2000, it is now 36%. At the same time, the country has increased its thermal production capacity to 64% of the mix. Ghana also has a better balance of fuel sources for power generation. In 2019 Ghana obtained 63% of the gas from its own offshore fields and 37% via the West African gas pipeline. The reliability of the gas supply is expected to improve again when the Tema LNG project is finished.
Renewable energy compound less than 1% of the electricity mix excluding hydraulic. There are a number of the reasons for that. They include a lack of funding for renewable projects and a general lack of public awareness renewable energy technologies. Ghana also lacks experienced staff to install and manage renewable projects.
Despite improved access to electricity, we found this changes in the energy mix and the resulting electricity tariff structure mask inefficiencies in the distribution system.
The tariff structure imposes a charge on certain categories of consumers. These include commercial and industrial users. This creates unintended consequences of unpaid invoices and electricity theft, which hinders full cost recovery. Ultimately, this negatively impacts other investments that could improve electricity supply.
Energy security is not just a matter of increasing the production and availability of electricity. This is the entire value chain, from production to transmission and distribution. Our analysis shows a lack of investment in the country’s distribution infrastructure.
The result is that a persistent quarter of the electricity produced in Ghana is lost at the retail level. These are caused by the dilapidated infrastructure (technical losses) as well as by electricity theft or business losses. Ghana’s losses are more than double the average for sub-Saharan Africa by 12%.
The condition of the distribution infrastructure has implications for integrating other variable renewable energy sources into the grid, making them even more expensive to connect. For consumers, such losses mean that power outages are likely to continue.
Environmental sustainability is a composite measure of the Energy intensity (the energy used to produce a particular output), low carbon energy production and CO₂ emissions per capita. Thermal production capacity now occupies a larger part of the energy mix, but its fuel sources have improved, switching from heavy fuel oil to gas. However, there has also been less room for low carbon energy production. The renewable energy production target was 10% by 2020 and has now been extended to 2030.
Finally, power in Ghana is expensive, compared to some neighboring countries in West Africa. For example, Ghana’s tariff averages 15.5 cents per kilowatt compared to 10.5 cents per kilowatt in neighboring Côte d’Ivoire. This can reduce the country’s competitiveness, as cheaper electricity attracts both domestic capital and foreign investment.
It is also important to achieve the Sustainable Development Goals (SDGs) 7 and 13 which respectively aim to increase access to modern energy and fight against climate change. Currently, around 70% of the Ghanaian population lack of access for cleaning cooking fuels. This has serious repercussions on health, gender and the environment.
Addressing inefficiencies in the electricity sector in Ghana will reduce the need to price distribution losses, thereby improving affordability. This could promote industrialization and clean cooking with electricity. Balancing the often competing dimensions of the “energy trilemma” remains the central challenge of energy governance and not only reduce carbon intensity as only mandate.
This article was co-authored with Doris Agbevivi, an energy economist working with the Ghana Energy Commission.