Ghana's Natural Assets Turn its Energy Sector into Key Contributor

This week the World Bank announced that it had pledged US$700 million for the Sankofo Gas Project (an offshore gas project), representing the biggest single foreign direct investment in Ghana’s history. The landmark investment, which aims to alleviate the nation’s energy shortages, includes an International Development Association (IDA) Payment guarantee of US$500mn and an International Bank for Reconstruction and Development (IBRD) Enclave loan guarantee of US$200mn. Together, the World Bank expects the guarantees to mobilise US$7.9 billion in new private investment for offshore natural gas.

Back in 2014, DMA hosted the UK-Ghana Trade & Investment Forum, for which we also produced an investment report. Below, is an excerpt from DMA's analysis of Ghana’s energy sector, which highlights Ghana's natural assets and how these are turning the West African nation into a key contributor within the energy sector. You may also read the full article, here 

 

 

 

Introduction
Ghana's government aims to turn Ghana into an energy giant in the sub-region, reducing her current dependence on foreign energy.  Since discovery of the Jubilee oil field in 2007, Ghana's energy sector has expanded considerably 

Household incomes have risen in recent years and electricity consumption within the residential sector is expected to grow, with a shift from biomass to cleaner power such as electricity. In 2013, Ghana's imports of petroleum products (Liquefied Petroleum Gas (LPG), gasoline, diesel and fuel oil) increased by 20% on 2012 levels to 3 million tonnes. Total net oil products supplied to the economy  (production + imports/exports) in 2013 continued an upward trend at 2.9 million tonnes, compared to 2.7 million in 2012. Total oil product exports in 2013 dropped to half of their 2012 level . Products exported were largely marine gas oil sold to foreign vessels and heavy gasoline. 

The installed grid energy capacity for 2013 breaks down as follows:
• Hydropower: 53.8% 
• Thermal Power Plants (Liquid Crude Oil, Natural Gas): 45.9%
• Renewables (solar): 0.1% 

The government's objective is to achieve 5,000 megawatts (MW) sustainable, reliable generation capacity by 2016. Its current capacity is 2,000MW.  
In 2013, total grid electricity generated was 12, 874 gigawatt hours (GWh) an increase of 6% on 2012. Despite this, Projections of unmet demand by the Energy Commission in 2013 were between 1,700 and 2,400GWh. 

Ghana's total electricity requirement for 2014 is estimated at 16. 5GWh. Tight economic conditions and high electricity costs are likely to limit demand to 14.5 to 15.3GWh. Supply available would be a maximum of 13.9GWh. Significant supply shortfalls are therefore likely. As shortfalls continue, there will be a significant demand for diesel for back-up power operations as businesses and affluent residential customers meet part of their power deficit using private gensets.

Securing an adequate supply of gas is another challenge. Most of Ghana's crude oil supplies were expected to continue to be imported mostly from Nigeria in 2014. Ghana's Energy Commission recommends that the government support the development of natural gas processing since natural gas, less expensive than light crude oil, would supplement oil-based generation and so reduce average generation cost. 

Electricity
Current coverage stands at 76%. The government has pledged to enable universal access to electricity by 2016. Ghana needs to expand its installed electricity capacity and distribution system to meet this pledge. Ghana is a net exporter of electricity, exporting almost 0.7 billion kilowatt hours (kWh) and importing more than 0.1 billion kWh in 2012. Ghana needs to expand its installed electricity capacity and distribution system to provide electricity to almost 30% of its population without access to electricity, according to the latest World Bank data. Non-connected communities are mostly small settlements. Many Ghanaians, particularly in rural areas, rely on traditional biomass and waste, particularly firewood, for household cooking and heating. Firewood accounts for slightly more than 40% of Ghana’s total primary energy consumption. The government has pledged to reduce the demand on woodfuels from 72% to 50% by 2020. Annual residential demand for 2014 could reach 5,000GWh if more electricity were made available.  As household incomes rise, loads increase as more electrical appliances are acquired.

In 2013, 534.5MW of new capacity was added to the grid. Power shortages have led the government to procure a 450MW emergency power ship system, expected to commence operations in 2015. This has been a costly solution in the past, so the government is seeking to build long-term power solutions. Upgrades and refurbishment of the substation transmission system are being implemented. Distribution problems from weak network assets occurred in 2013, exacerbated by a rapid demand growth rate and increased numbers of customers. This, alongside a rise in generation costs and high levels of uncollected debt, means the utilities companies are unable to self-finance capital investment projects, relying on development partners to finance them. Through the recently signed US Government Millennium Challenge Corporation Compact II, Ghana's government is working on an acceptable model for the introduction of private sector participation. This will complement its ongoing efforts at improving the distribution sector, reducing system losses to 18% by 2015.

Conclusion
Ghana's energy future is promising, with a diverse portfolio of energy resources. As Gita Welch, acting Resident Representative, UNDP Ghana, says, "In a fast-growing economy like Ghana, there are substantive opportunities for private sector investments in the energy section, in particular in renewable energy and clean technologies."

Excerpt taken from The Ghana Investment Report 2014 published by DMA and available here.