Resolving Ghana’s electricity crisis – a rethink of the policy choices
As Ghana looks for ways to solve the power shortage problem that is damaging the national economy and disrupting the daily lives of its citizens, it is important to step back and ask whether the underlying causes of the problem have been clearly identified.
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Without undergoing that important analytical exercise, there can be no guarantee that any solutions found will be long-lasting. Surely, no one wants a temporary fix that might cause the country to endure a similar or worse crisis a year or two from now.
For more than two decades, Ghana has made various attempts to reform its electricity sector to improve power supply in the country. The results have been mixed, with the quality of electricity supply in Ghana actually getting progressively worse over that period.
For that reason, it is worth asking why despite spending enormous amounts of money, time and other resources to fix the problem, no improvements have been made.
I grew up in Ghana, but have worked in various capacities in the US electricity industry for almost two decades. During the past 10 years, I have held different functional roles in the competitive electricity sector, working closely with regulators, grid operators, regulated electric utility companies and other market participants.
Those professional experiences, combined with my academic training, have given me a comprehensive understanding of how the industry works. Having also followed developments in Ghana’s electricity sector for much of that time, I have a good understanding of the main causal factors of the crisis. I am currently writing a book to discuss some of the policy mistakes and other socio-cultural problems that, in my view, have created the dysfunction in Ghana’s electricity sector.
Demand for electricity in Ghana is expected to grow in the coming years so naturally, additional generation capacity will be needed. However, with nearly 3,000 megawatts of installed generation capacity, Ghana has enough capacity to comfortably meet current demand. Lack of fuel is the main issue.
A major problem with Ghana’s electricity sector is that it is too fragmented; the coordination required to ensure effective operation of a national electricity grid is absent. The entire country should not be plunged into darkness simply because the rains haven’t fallen, or there are no pipelines to deliver natural gas. Ghana should have a more diversified fuel mix so that the lights can be kept on at all times.
Building, operating and maintaining a national electricity grid is a highly capital-intensive enterprise that should ideally be entrusted to a large, vertically-integrated entity with significant economy of scale benefits.
That is why the US adopted this approach and relied on it for almost a century before the industry was deregulated. It is a good model for Ghana to follow. The Electricity Supply Board of Ireland, which conducted a review of Ghana’s electricity sector in the mid-1980s, reportedly recommended a merger of VRA and ECG to create a vertically integrated entity, but the idea was shelved.
Instead, Ghana chose to unbundle the generation sector and open it up to competition. The goal was to attract private investors who would compete with VRA to build up the country’s generation capacity. That model, in my view, is simply inappropriate for a small, developing country like Ghana. It is highly complex, hence difficult to manage and regulate.
Ghana does not have the necessary regulatory capacity, and other elements required for a competitive electricity market to work, such as well-functioning financial and energy markets, are not available. Therefore, it does not make sense for Ghana to adopt such a complex model when a simpler one exists.
There are seemingly too many people in Ghana who view electricity as something that government must provide, without much consideration for where the required funding comes from. Ghana is a country with a narrow tax base and, unfortunately, a weak system of tax collection. Even in a perfect world without the corruption and waste that have always been part of the Ghanaian landscape, the government would still realistically not have enough money left to build and operate a national electricity grid, after taking care of core responsibilities like education, healthcare, public safety and national defense.
The money therefore has to be borrowed from somewhere and paid back later. Since much of the electricity consumed in Ghana is simply not paid for, that formula does not work; the result is the current crisis.
There is too much talk of the government owing enormous amounts of money to ECG. Why is the government in the business of making electricity bill payments? Shouldn’t it be the responsibility of individuals and entities to pay directly for the electricity they consume? And, why should ECG allow bills to go uncollected for years without taking any action? The blame is widely shared, so it is time for the finger pointing to stop. A collective focus on finding ways to resolve the crisis is what the country needs.
The pressure being applied on the government by the MCC to fix the mess at ECG, before the funding earmarked for Ghana under the Power Africa initiative is released, is justified. The government is reportedly considering entering into a concession agreement with a private entity that would invest in and manage ECG for a period of time.
Ghana has tried a management contract approach in the past and it has not worked. The concession approach, in my view, is unlikely to work either because the problems are much deeper than that; simply putting a different entity in charge of the distribution network is not enough.
Ghana should, in my view, consider a vertically integrated investor-owned model. Privatization is a hated word in Ghana because most people think of it as selling off state assets to foreigners who would profit at the public’s expense. That is not necessarily true. The government, ordinary Ghanaian citizens and external investors could all hold stakes in whatever electric utility company is formed.
The benefit of that approach is that it would inject a sense of ownership and impose market discipline, ingredients that are so badly required to bring about operational efficiencies in the sector. Some level of privatization is already happening anyway; policymakers have invited private investors into the generation sector, and are also looking to place ECG under private management.
It shouldn’t really matter whether it is the government or a private entity that borrows the money to provide electricity. Either way, discipline must be exercised to ensure that the grid is properly maintained, and that loans are repaid on time. Unfortunately, successive Ghanaian governments, present one included, and the industry regulators they appoint, have done a poor job of educating the public about what role the average citizen has to play in the process of making reliable electricity available and at reasonable cost for all.
Regulators must explain to the general public, concepts such as cost-reflective pricing of electricity, proper accounting for system losses to ensure that every electron that leaves a power generation station is tracked and ultimately paid for, among others. All citizens must learn that it is only when an electricity grid is built on the basis of those sound principles that the lights can be kept on at all times.
The current crisis is the result of leadership failure, policy mistakes and gross mismanagement that occurred over several decades. Ghanaians should therefore not expect that the problems will be fully solved in a year or two. Power barges will provide temporary relief, but it will take many years of sustained investment and disciplined management to make the dream of reliable electricity supply a reality in Ghana.
The author currently works as manager of operations and marketing at UGI Energy Services, LLC, a diversified energy services firm in Pennsylvania, USA.
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.
