Over the past several decades, Ghana has emerged as a potentially highly attractive destination for foreign investment, boasting an abundance of raw materials and proven political stability.

However, a chronic shortage of reliable power – coupled with the associated negative business and economic effects – continues to remain a significant obstacle to Ghana’s socio-economic development.

On the other hand, this precise issue offers investment opportunities for independent power producers (IPPs), particularly those involved in the renewables sector.

Where Things Stand at Present

At present, Ghana’s energy sector remains heavily dependent on biomass and oil, which account for about 90 percent of the country’s primary energy supply. Biomass, including wood fuel and charcoal, is primarily used to meet household energy requirements, while oil is largely used by the transport and power generation sub-sectors.

In addition, hydropower is another important resource for electricity generation. Ghana’s installed generation capacity is currently about 2,930MW, including 1,380 MW of hydro generation, (of which only about 700 MW is actually available) and 1,550 MW of thermal generation capacity. In reality, actual availability rarely exceeds 2,100 MW, resulting in approximately 400 MW of unmet demand daily.

This environment, in which demand outweighs supply, results in erratic electricity distribution and frequent power cuts. Notably, access to electricity is only around 72 percent with over 87 percent for urban areas and just under 50 percent for rural areas.

Ghana’s electricity demand is growing at about 10 percent every year, and it is estimated that the generation capacity will need to increase to about 4,200 MW by 2026 to meet this trend, highlighting the potential opportunities for increased investment in the country’s overwhelmed energy sector.

The Resources

Renewables

Ghana is well endowed with renewable energy resources – including biomass, solar, wind, wave and hydro – and the government has made clear that renewable resources will play an important part in developing the country’s wider energy sector. While renewable sources only account for less than 1 percent of the country’s total generation at present, the government is targeting a minimum of 10 percent of Ghana’s generation capacity to come from renewable sources by 2020.

The government has made it clear that there are several areas in which investors could consider investing, including production, transportation, storage, distribution, sale and marketing. Furthermore, business opportunities, also exist in importation, exportation and re-exportation as well as installation and maintenance.

Hydropower

Accra has estimated that there are about 17 medium and 22 mini/small hydropower sites in Ghana, which have exploitable capacities ranging from 15 kW to 100 MW, and a total exploitable capacity of approximately 800 MW. Notably, while little actual data is available as to the actual viability of these sites, several initiatives launched by the government and other international partners have begun to assess these issues.

Solar

Solar resource is abundant, with Ghana’s solar irradiation level ranging from approximately 4.4 to 6.0 kWh/m2/day, with sunshine duration of between 1,800 and 3,000 hours per annum. The highest irradiation levels occur in the northern half of the country.

However, at present, while the Government is piloting a number of initiatives on the deployment of solar energy systems, little has been done to exploit this resource, and the solar market remains relatively untapped. Furthermore, with approximately 20 percent of Ghana’s population believed to be off-grid, the market for rural solar power – for electricity, lighting, water heating and drying – in particular, is huge.

Wind

Ghana has moderate wind energy potential emanating from the country’s annual average wind speed above 50m at 8m/s. The optimal wind resources are located along narrow stretches of Ghana’s eastern coastline, in the hills around the Volta Lake and along the border with Togo. As with hydropower, further research and development are needed in this area.

Biomass and Waste-to-Energy

While biomass – predominantly in the form of wood fuel – already dominates Ghana’s energy supply, the country’s reliance on the product is not sustainable. Indeed, more than 70 percent of households in Ghana continue to rely on firewood and charcoal as their main source of cooking fuel, but the government is aiming to reduce this number to 50 percent by 2020 through the use of alternative options.

However, Ghana does have an abundance of alternative biomass resources - including productive crop-lands, organic municipal waste, agricultural waste, wood waste - which can be converted into a wide range of solid and liquid bio fuels.

Furthermore, in 2010, Ghana introduced a bioenergy policy that aims to substitute the country’s petroleum oil with 10 percent biofuels by 2020 and 20 percent by 2030, respectively, as well as promoting private sector participation in the biofuel industry.

Wave and Tidal

Finally, tidal energy – a form of hydropower that converts the energy of tides into useful forms of power – is produced using tidal energy converters.

Notably, while tides are a more predictable source of energy than wind and solar power, tidal energy has traditionally suffered from relatively high start up and running costs, as well as a limited availability of sites that have sufficiently high tidal ranges or flow velocities.

However, at present one wave energy plant – consisting of six wave energy converters – is being installed in Ghana’s Ada Estuary, where the tidal waves are very high. The project is being carried out by Ghanaian TC’s Energy Limited in association with Swedish Seabased Wave Energy.

Incentives for Foreign Participation



In 2016 Climatescope, which is an index that assesses 55 countries for their clean-energy investment potential, ranked Ghana the eighth most attractive country in Africa for overseas investors.

Notably, on Climatescope’s ‘Enabling Framework Parameter’, Ghana rose fifteen places between 2015 and 2016, with its score benefiting from improvements in policy and regulation, including the introduction of energy targets, as well as a growing national electrification rate.

Since the 1990’s Ghana’s power sector has undergone significant restructuring and reforms, guided by a variety of policies, strategies and plans, resulting in the current unbundled structure of Ghana’s power sector. These reforms enhanced transparency in the regulation of the sector, and further opened up the industry to private sector participation through Independent Power Producers (IPPs).

Notably, Ghana’s commitment towards renewable energy is largely being driven by the Renewable Energy Act, introduced in 2011, which aims to develop and expand the country’s renewable energy sub-sector. One of the key provisions of this Act includes a Feed in Tariff (FIT) scheme, guaranteeing the sale of electricity generated from renewable energy sources.

Notably, the Public Utilities Regulatory Commission (PURC) – an independent regulatory body established to approve tariff rates for electricity customers – sets these FITs to remain in force for a 10-year period, after which they are subject to review every two years.

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While the government claims that investment interest for utility scale renewable energy grid integration is high due to the very attractive FIT scheme, the guaranteed period of 10 years is likely to be of concern for some project developers due to the high risk of uncertainty after this initial period has expired.

The Renewable Energy Act’s Purchase Obligation (RPO) provision may further attract investors to the sector, as power distribution utilities and bulk electricity consumers are now obliged to purchase a certain percentage of their energy required from electricity generated from renewable energy sources.

Again, there are concerns. At present, the PURC has yet to confirm the percentage required for each of these consumers.

However, the government’s commitment to developing the country’s renewable energy sector has been endorsed by the Climate Investment Funds (CIF) under the CIF’s dedicated fund for Scaling Up Renewable Energy in Low Income Countries Programme (SREP). Notably, SREP funding has been instrumental in de-risking renewable energy investments in several other countries, as well as lowering the cost of capital for renewable energy projects, and it is reportedly likely to increase investor confidence in the sector.

Yet Concerns & Obstacles Remain

Although Ghana’s government has made a concerted effort to create an attractive environment for businesses operating in the renewable energy sector, the sector is still relatively underdeveloped, and continues to suffer from weak and unclear policies and regulations.

The country also suffers from a lack of technical expertise and knowledge within the local workforce, including those involved in the maintenance and servicing of ongoing projects. Notably this issue has been exacerbated by a lack of quality training facilities in the country.

Furthermore, the tax incentives which apply to the renewable energy sector in Ghana are rather unclear. While the government has introduced complete import duty and value added tax (VAT) exemption for solar PV and wind energy generation systems and equipment, these do not apply to other sub-sectors. Notably, due to the high start-up costs of many renewable projects, a relatively unstable currency, limited access to capital and high interest rates, further incentives may be necessary to attract investors to the sector.

Some of these issues, however, are beginning to be addressed: but they are far from enough.

For example, in 2015, the UNDP and Ghana’s Energy Commission embarked on a four-year project ‘China-Ghana South-South Cooperation on Renewable Energy Technology Transfer (RETT)’, which aims to help with the transfer of knowledge, skills and technologies from China, with a strong focus on private sector development and inclusion.

Future Potential in Wider Context



The development of Ghana’s renewable energy sector has received enormous support from various international stakeholders, including the World Bank Group, the African Development Bank (AfDB), USAID, CIDA, International Renewable Energy Agency (IRENA), United Nations Environments Programme (UNEP) and Global Environment Facility (GEF).

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While overall, an enabling policy environment provides increasing opportunities for investments in Ghana’s renewable energy sector, the government may need to introduce further incentives to attract investors.

As with many countries in the region, investing in Ghana is limited by other constraints. Corruption, high inflation rates, ageing infrastructure and an obstructive bureaucracy, continue to challenge the development of Ghana’s renewable energy sector.

However, the development of Ghana’s power sector is a strategic government objective, and could potentially represent billions of dollars of investments in coming years. While harnessing Ghana’s extensive renewable energy potential could prove potentially lucrative for investors, it could also help solve Ghana’s ongoing power crisis and boost the country’s wider economic development.

The bottom line is, the market for renewable energy in Ghana is growing – with plenty of room for new players with the capacity to navigate the country’s existing structural and institutional problems.

By Shadow Governance Intel

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