VRA positions Ghana as West Africa's power hub: with gas generation, the days of lower-cost electricity are expected
As the first barrel of crude oil poured from
the belly of Ghana's Jubilee field last December, attention was drawn to the massive natural gas potential associated with it and the role the state-run generator of electricity, the Volta River
Authority (VRA), was going to play as
the anchor customer for that gas.
The policy of zero gas-flaring in Ghana's oil fields has been hailed by many as the answer to a cheaper source of electricity not just for Ghana but also for the whole sub-region through the West Africa Power Pool, a project which enables countries in the sub-region with excess power to export to those that have shortfalls. "Ghana is very fortunate to be where it is in West Africa. We are geographically in the centre of West Africa. Furthermore, we are on the coast and we are enjoying the benefits of the almost completed West Africa gas pipeline which is a demonstration of the kind of regional collaboration that we can do," Kweku Awotwi, CEO of VRA told GB&F in an exclusive interview.
"Nigerian gas is moving 400 miles to Ghana and we are getting 90% of that gas. Now Ghana has found gas in her own backyard with the prospect of finding even more.”
“Today, even at a fairly high price, gas is half the cost of what VRA pays for crude oil. If VRA's crude bill was US$40 million this month, gas comes in at US$20 million. And if you consider that the crude oil bill alone constitutes 80% of the electricity tariff, then if the gas continues to come then we could generate electricity at a lower cost," Awotwi said. The first segment of the West Africa power pool inter-connection, called the Aboadze-Volta line, has just been activated. It is a 330 kilovolt (KV) line which was energised in the last quarter of 2010 to serve as a supplementary line to the existing 161KV line which is what is available in Ghana.
When the segment from Côte d'Ivoire to Togo is completed, VRA can send a lot of electricity with very little loss across the sub-region. Where previously VRA sent electricity up to the north and ran it on a 161KV line and got a 4% loss, VRA now runs it on a 330KV line and the loss should be less than 2%. This means when the new transmission lines are completed, electricity could be sent all the way to Niger and Mali on a 330KV line with very little loss.
"The new line has already improved reliability of service. Whereas previously the 161KV line could get over-loaded, now with the 330KV we have extra reserve. It's like a road, the broader it is, the more cars can go through," Awotwi explained.
"The next two lines will connect our western neighbours, from Côte d'Ivoire to Sierra Leone, and beyond. It is the early days but I think the hope is that within 10 years, all of West Africa will be inter-connected with transmission lines," he said. However, back home, the VRA is faced with daunting challenges of old infrastructure and insufficient funding for investment from government.
"The fact of the matter is that a good chunk of our current network, as much as 40% in some cases, is 40 years old. There is another good chunk which is 20 years old and here we are with electricity demand growing annually at 10% or more and we have not kept pace. So what we have found is that, the ordinary man on the street bears the brunt of this under-investment and poor service," said Awotwi.
A sectional view of the Akosomba dam
To be fair, the fact that the VRA has been state-run adds a few problems, as abrupt changes to management have often followed changes in government which has not allowed for an effective succession plan and consequently caused the neglect of vital hard infrastructure of the power sector.
In spite of the challenges, Ghana's access to electricity remains one of the highest in Africa. Access to electricity in the urban area is close to 70% and in the rural area it is close to 30%. On average, access to electricity in Ghana is about 60%. This compares with Kenya's average of 30%.
"Believe it or not, on the hard infrastructure basis, Ghana is twice as good as in most other African countries. So when you compare to a lot of African countries you may or may not be surprised that the 600 megawatt (MW) investment in the Akosombo dam that was made in Ghana 50 years ago has set the foundation for a much more developed infrastructure in relation to other African countries," said Awotwi.
Ghana's current installed capacity stands at 2,000MW, with a demand of 1,500MW, and government has plans to increase installed capacity to 5,000MW in the next few years. "Within sub-Saharan Africa, Ghana is second to South Africa in terms of access to electricity. Nigeria's access to electricity is actually lower than Ghana's and their consumption per person per year is also lower than Ghana's. So in terms of consumption of electricity and access to electricity, Ghana is actually a leader in sub-Saharan Africa," Awotwi said. "In Ghana, we complain when we pay 11 pesewas (8 US cents) per unit of electricity. Our northern neighbours pay 25 US cents and in the case of Liberia they pay 45 US cents and they would love to get some of Ghana's power. So if we can get the gas and get the power generated in Ghana and can get transmission lines built across West Africa, that power will not just provide electricity for Ghana but it will provide electricity for the whole sub-region and as far as the transmission line can go," he added.
"That is the fantastic place Ghana finds itself today. Nigeria or Côte d'Ivoire could play a similar role but the fact on the ground is that Ghana is already playing that role." Government recognises that for Ghana to play that effective role as the electricity hub of the sub-region, some reform in the power sector will be necessary in order to attract private investors. In 2005, the VRA Act was amended to allow for the breaking up of VRA and the hiving off of its transmission function. Ghana Grid Company (GRIDCo) was formed to take charge of transmitting power in the country, thus effectively allowing the private sector in addition to VRA to also produce power and send it through the system.
All this time, the Electricity Company of Ghana (ECG) had been in charge of distributing power in the southern part of the country. The Northern Electricity Department (NED) was originally part of the ECG but back in the 1990s it was split off as a separate department under the VRA to distribute power to the northern part of Ghana.
The Volta lake is the world's largest man-made lake
The ECG has always been a separate company, distributing power in the southern part of the country, and the VRA has been generating that power and, up until 2005/2006, transmitting it as well.
But post-2006, Ghana Grid Company has been taking the power VRA generates and transmitting it to the ECG, and the latter then distributes it to households and industrial users.
The reforms in the power sector attracted the first real independent power producer (IPP) about two years ago, in the form of Sunon-Asogli Power Plant. They have built a plant in Tema and hope to sell power directly to the ECG. The hope is that GRIDCo would effectively monitor how that power gets transmitted to the country.
But energy experts say that not until government sets clearer market rules, are private investors likely to be enticed to put their money in Ghana's power sector.
"I would say the rules are being set but they have not yet been finalised. What has happened is that the government has put out two legislative instruments which provide standards for the grid and the rules of operation, both of which were yet to be operationalised. Sometime in the last 12 months the standards for the grid have been operationalised, but they are now working on operationalising the rules of how power gets dispatched in the market," Awotwi explained. "What the government decided back in the mid-1990s was that it was trying to reform the power sector. I think the arguments were fairly straight-forward. Government did not have sufficient funds to make timely investment to keep the sector viable."
"The rules will create a level playing field where investors come in and can know that when they invest, whether their plant will be managed in a certain way and their return will be assured or not. So a lot of what has happened is that we have moved from a monopoly environment where VRA produces the power, transmits the power and in some cases distributes the power, to a stage where IPPs can also produce the power and every cost is determined and priced for customers to pay for," Awotwi said.
GRIDCo's function is to make sure that without the intervention of government, there are enough incentives to bring in investment; to maintain that investment; and to make sure the investor gets a good return. So costs are allocated, products are priced and the rules are put together in as fair a way as possible so that it does not necessarily go to the advantage of VRA, as the biggest generator of electricity. What applies to the VRA, applies to any other competitor in the market, as the rules are set to create a level playing field so that any investor who comes in is governed by them.
"For the project we are doing in the Western Region, VRA is seeking joint venture partners. So there is a tender where we have invited prospective investors who have the finances and the technical ability to be our joint venture partners. That I see as the model going forward where VRA will join private sector firms just like we've done with the TICO project in Takoradi, where we brought private sector money and did what is called a private-public partnership.”
"We are looking for partners who have a pretty significant balance sheet in the billions of dollars and they should have an operating track record showing they have operated in other parts of the world. If they have operated in Africa, that would be a plus but not necessarily a requirement. The two main factors we are looking at are the financial resources and the operating track record," Awotwi said.
"Ghana is in a unique energy moment. It is at a cross roads where the development of oil and gas comes with all kinds of opportunities.
But it is the gas opportunity that will have the bigger impact on the domestic economy because there are opportunities to power the power plants, the gas processing plants, the fertiliser plants. There is huge infrastructure required to develop the gas and that creates all kinds of opportunities. VRA is a beneficiary of some of these opportunities because we have a need to supply power. When you couple that with the development of the West Africa Power Pool, where it is not just Ghana but we are looking at the whole West Africa region, it multiplies the opportunities that are available whether in electricity production or gas. If we can manage that right, it will be a fantastic benefit to all of us."
The Volta hydro-electric project at Akosombo has been the mainstay of power generation for Ghana since the 1960s