Ghana’s 10 percent by 2020 renewable energy target: why it is a bad idea

BY: Patrick Asare

For a small minority of Ghanaians, the country’s current electricity crisis is simply an inconvenience. Because such people can comfortably afford to buy the generators and the required fuel to produce electricity, their daily lives are not overly disrupted. For the vast majority of Ghanaians, however, the picture is entirely different. It is the plight of this suffering majority that Ghana’s leaders must keep in mind, as they design policies to resolve the crisis.

Currently, Ghana has large numbers of young, unemployed people, a problem that is growing worse as thousands of new graduates join their ranks every year.

The country’s economy must grow to create jobs for these people, but that cannot happen in the current environment, where businesses cannot get the electricity they need to operate. What is worse, this has also led to some of the previously employed being laid off. Clearly, this situation is unsustainable.

It used to be that such young people would migrate to developed countries to look for employment and educational opportunities. Unfortunately, that avenue is also closing everywhere. Most developed countries are currently building fences along their borders to keep migrants out.

The sickening television pictures of Africa’s young people drowning in the Mediterranean Sea, or being treated like animals when they reach the borders of their destination countries, should prompt everyone to sit up and think hard about what needs to be done to provide opportunities at home for these suffering people.

Ghana is a poor country, so it must find the most affordable way to generate electricity to power its economy. The reality is that relative to traditional fuels, generating electricity from renewable energy sources is still quite expensive. Without generous government tax breaks, feed-in tariffs and other incentives, the vast majority of renewable energy projects, globally, would not be financially viable.

These subsidies are clearly unaffordable for countries like Ghana, which cannot balance their budgets, and have to constantly rely on external entities for assistance.

In my view, the idea of feed-in tariffs in Ghana is highly contradictory. In a published PURC document, one of the feed-in tariffs for electricity generated from solar plants is set at the equivalent of just over $0.20 per kilowatt-hour. That is about twice the average retail price of electricity in the US.

It is common knowledge that the electricity generated by VRA has consistently been underpriced, supposedly to make it affordable for the poor in Ghana. That is one of the primary reasons why the entire electricity sector in Ghana is in such poor financial shape. So, the government is forcing VRA to sell its electricity to ECG below cost, while at the same time asking ECG to buy electricity at such exorbitant prices from solar plant owners.

Theoretically, it is the same poor people, whose electricity prices are being subsidized through the VRA underpricing, who would pay for the high-priced, solar-generated power. These, clearly, are contradictory policy goals.

According to a recent government paper, Ghana has set itself a goal to generate 10 percent of its electricity from “modern” renewable sources by 2020. From statistics (for 2013) provided in the paper, hydroelectric power plants constituted 57.4 percent of the total installed generating capacity of 2,754 megawatts. Hydropower is one of the cleanest forms of electricity. Therefore, Ghana has, for a long time, outperformed when it comes to renewable energy production.

It is certainly good to incorporate solar, wind and other renewables into the energy mix in Ghana, but it should not be done in a way that distracts from the core mission of building a reliable grid.

It is understandable that developed countries that have relied primarily on fossil fuels for electricity generation for decades, and have therefore been the major contributors to atmospheric greenhouse emissions, would set these renewable energy targets.

Also, it should be noted that these are generally countries that have already built reliable electricity grids. In the US, for example, some states have set targets under what are called Renewable Portfolio Standards (RPS). Those standards require electric utilities to purchase defined percentages of their electricity, which they sell to consumers, from renewable energy sources.

The requirements for the more expensive renewable energy sources like solar and wind are generally small. In Pennsylvania, the solar requirement is currently set at 0.25 percent, and will rise to only 0.44 percent in 2020. The total renewable energy requirement is currently 13.7 percent, rising to 15.7 percent in 2020. If it were easy and pain-free, cost-wise, to generate electricity from solar and wind energy, the percentages would definitely be set much higher than they are currently in most places.

Interestingly, not all US states have adopted these targets. According to the US Energy Information Administration (EIA), as of January 2012, 30 states had mandatory targets, while seven had set voluntary goals. The remaining 13 states had neither. In the states where these targets are set, political leaders continuously monitor them to ensure that the associated costs do not severely damage their economies.

In a recent article in The Economist, the governor of the state of Kansas is reported to have signed a law rescinding the state’s RPS mandates and replacing them with voluntary goals, apparently because of the increased costs the mandates imposed on the state’s electricity consumers. This is testament to the fact that even the richest countries currently find renewable energy unaffordable at times.

Reality often dictates that countries must do what they have to do. With all of the talk about climate change and the need to reduce carbon emissions, countries like China, India and others continue to build coal power plants because they must find cheap means to produce electricity to power their industries, so that they can create jobs for their people. According to a recent article, about 1,200 coal plants are currently being planned for construction in 59 countries, with about 75 percent of that total slated to be built in China and India.

Globally, there is recognition that for the foreseeable future, traditional fuels will continue to play a leading role in electricity generation. China, reportedly, currently generates almost two-thirds of its electricity from coal. In the US, despite the aggressive efforts to move away from fossil fuels, industry experts estimate that coal will still generate about 30 percent of the country’s electricity by 2030. Even then, a significant number of the retired coal plants will be replaced by natural gas-fired plants.

Ghana’s leaders must take notice of what is happening elsewhere, and be pragmatic in their approach towards electricity sector development. Cleaning up the environment is clearly a necessity that requires global effort. However, a small and poor country like Ghana, which, as previously stated, has been an outperformer in renewable energy production, should, for now, not take this burden upon itself by setting additional targets at unaffordable expense.

For now, the priority should be for Ghana to concentrate on getting its existing grid to function properly. According to data in the aforementioned government paper, peak electricity demand in Ghana in 2013 was 1,943 megawatts, meaning that Ghana had an enviable installed reserve margin (IRM) of 46.5 percent. IRM in much of the developed world is typically around 15 percent.

Having a 46.5 percent IRM is actually very bad. It means that Ghana has spent precious resources to build plant capacity that is sitting idle. Given that an estimated 30 percent or more of the country’s population does not have access to electricity, peak demand would certainly be higher if those people were connected to the grid, which would then lower the IRM. The reasons why all that capacity is idle are very well known. Fixing that problem should be the priority for the government.

It does not make sense for Ghana to be adding expensive capacity from solar and other renewable energy plants, when excess capacity already exists.

Certainly, providing universal access to electricity is a laudable goal. However, the government should not be forced into doing things that, for now, it clearly cannot afford. Trying to satisfy everybody would only perpetuate the situation that exists now, where there is often no electricity for anybody, and businesses have to close and lay people off.

Since the devil finds work for idle hands and minds, making sure that people have jobs is one of the highest priorities of any government. Many of us grew up in rural areas where there was no electricity, but we survived. It is far better, in my view, for the government to focus on improving the reliability of the grid so that businesses, in particular, can get the electricity they need to operate. Once people have jobs and pay taxes, the country would be in a much stronger position; electricity supply could then be expanded to more people.

Those of us who have been fortunate to find safe havens abroad, and those who are relatively comfortable in Ghana, should constantly remind ourselves that for some of our fellow citizens, the electricity crisis is at times a life and death matter. Ensuring the future well-being of the planet is a necessity, but for some of the jobless and desperate people, there may not be a tomorrow to worry about. We must put ourselves in their shoes, and do what we have to do to make life a little better for them today.

The author is the manager of retail power marketing at UGI Energy Services, LLC, a diversified energy services firm in Pennsylvania, USA. He was previously a financial analyst at UGI. Prior to UGI, he worked as a senior electrical engineer at Caterpillar, Inc. in the US. He holds a master’s degree in electrical engineering from Purdue University in Indiana, USA, and an MBA from Dartmouth College in New Hampshire, USA. 
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