Professional Documents
Culture Documents
ABBREVIATION
GDP Gross Domestic Product
MDGs Millennium Development Goal
RE Renewable Energy
EU European Union
GHG Green House Gas
MOE Ministry oI energy.
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RESEARCH OUTLINE:
1.0 INTRODUCTION . . . . . . . . P4
1.1 What was the trend oI Renewable Energy Development in General? P6
1.2 How does Power Generation mix in Ghana look like? . . P7
1.3 What is the Framework oI Renewable Policy in Ghana? . . P8
1.4 What are the Policy Drivers behind Renewable in Ghana? . . P11
2.0 What is the Significance of Renewable in the Power Mix? . . P12
2.1 Security oI Supply . . . . . . . p12
2.2 Environment . . . . . . . . P12
2.3 Local Employments and Social Cost . . . . . . P13
3.0 What are the Challenges of Guaranteeing a market Share? . . P14
3.1 Internal Failures . . . . . . . p14
3.2 External Failures . . . . . . . p15
4.0 How can the Regulatory framework provide Such a Guarantee? . P16
4.1 Regulatory Price Mechanism . . . . . . P16
4.2 Regulatory Quantity Mechanism . . . . . p17
5.0 CONCLUSION . . . . . . . . P18
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1.0 INTRODUCTION
The power sector is the major index that drives business, manuIacturing and transportation oI
goods and services to serve a competitive nation`s economy and the world at large. The
Economic importance oI Energy (Power) to nation building has thereIore become major
issues Ior both developing and developed countries.
In Ghana, the provision oI reliable and aIIordable power has become essential in the
sustainable economic growth oI the country. In the mid-1990s, Ghana initiated a development
agenda aimed at transIorming the economy Irom a low-income level to a middle-income
status by the year 2020.
1
Under this plan, a Iorecasted average real Gross Domestic Product (GDP) growth oI 7-10
percent and a per capita income increase Irom about US $400 to US $1,000 Ior the period
2001 to 2015 have been targeted. The expected economic transIormation is to drive the
country away Irom the current subsistent agriculture base to industrialization based economy
in an attempt to achieve the Millennium Development Goals (MDGs).
2
To achieve these goals, adequate and reliable supply oI power with high level oI plant
availability was indentiIied as a necessary index to trigger the expected projections to reality.
As a primary objective, Fellows at the Institute oI Statistical Social and Economic Research
(ISSER) have called Ior the deregulation oI Ghana's energy sector to allow the private sector
to engage in electricity production and distribution as well as pricing.
As a result, the government oI Ghana initiated a Liberalisation policy oI the power sector in
the mid 1980s by Iirst corporatizing the state monopoly Electricity Company. The policy is
Gboney. M. (2008) Policy and Regulatory Framework Ior Renewable Energy and Energy EIIiciency
Development in Ghana.
2
Ibid
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also geared towards Renewable energy sources. The Renewable Energy sub-sector covers
biomass, mini hydro, solar and wind resources. The goal oI the renewable energy sub-sector
is to increase the proportion oI renewable energy in the total national energy mix and ensure
its eIIicient production and use.
3
Subsequently, the Government oI Ghana has proposed a Renewable Energy (RE) Policy and
Strategy to achieve the expected target. The goal oI the policy is to increase the proportion oI
renewable energy to 10 by 2020 and also ensure its eIIicient production and uses.
Though the Policy document provide some direction with the strategy providing the time line
and the targets, the policy as a whole contain little detail inIormation about the challenges oI
achieving such a high target. The policy also provide little Iramework oI guaranteeing such a
market share oI 10. Ghana currently has less than 1 oI renewable in the power mix.
According to Energy Foundation oI Ghana, 'the installed solar electricity generation capacity
is just above 1.0 MW.
The rationale Ior this research paper is to establish the challenges such a policy outlook will
encounter and also to suggest possible regulatory Iramework and alternatives to achieve the
target. The paper will draw some experiences Irom the United Kingdom and Scotland in
general.
The structure oI the paper is as Iollows. Section One deals with the introduction and the
survey on Iramework oI power market de-regulation and consider the policy driver behind
Renewable in the power mix. It will also examine the Power generation mix in Ghana.
Section Two examines the signiIicance oI Renewable in the power mix by considering some
Iactors such as security oI supply and the cost oI externalities by Iossil Iuel. Section Three
3
Ghana Energy Policy 2010 page 6
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will answer the question as to how a regulatory Iramework will provide such a guarantee oI
10 market share oI renewable in Ghana. Section Four will examine the challenges oI
providing such a guarantee and Section Five will deal with the conclusion.
1.1 What was the trend of Renewable Energy?
The occurrence oI oil crises oI 1970s has triggered the concern Ior developed countries to
look Ior alternative energy sources in the electricity generation mix. The need Ior security oI
supply was the commencement oI governments led support Ior renewable. The concentration
during this period was on Nuclear power. The Chernobyl disaster in 1986 saw the beginning
oI problems oI Nuclear power. Some oI these issues include the disposal mechanism oI the
waste and the contamination eIIect, which still remain unresolved to date.
4
The emergence oI privatization and liberalization as a result oI the De-politicalisation oI the
energy policy which commence in UK and US has led to diIIiculties in granting a sustainable
market share Ior renewable due to the high cost environment in which they Iound themselves.
This high cost environment was basically due to the pricing regime Ior other alternatives,
which do not consider the cost oI externalities in the pricing mechanism. As a result the use
oI renewable becomes too expensive in the market. The problem then was how to make
generators and consumers to go in Ior renewable.
5
The main reason Ior the Depoliticalisation policy was to lower prices Ior consumers, reduce
subsidies and also to remove liabilities Irom Government balance sheet. Wood G. (2010). As
4
Wood G. An Introduction to renewable Energy Policy. The past, present and the Iuture oI U.K
Renewable. Lecture slides 2010
5
Ibid
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a result oI the depoliticalisation policy, there was a Iundamental shiIt Irom regulated or direct
government control to a competitive open market approach that led to the creation oI new and
less markets Ior renewable and lost oI government inIluence.
The emergence oI repoliticalisation in 1990s was triggered by concern Ior Climate change,
Security oI Supply, Industry growth and the Peak oil theory, which still remain as challenges
to date. One oI the most important issues during the repoliticalisation was how to adjust to
the green house gas eIIects whiles at the same time keeping up the security oI supply. As a
result oI the repoliticalisation concept, vertically re-integrated companies were Iorced by
regulators to support renewable energy in Ireely liberalized energy markets.
6
1.2 How does Renewable Power Generation in Ghana look like?
This part examines the power generation in Ghana with regard to the contribution oI RE to
the electricity generation mix in Ghana. There is generally lack oI accurate data on the RE
generation in Ghana. However the analysis below provide some statistics on the generation
and installation capacity in the sector.
Ghana is well endowed with Renewable Energy Resources in the areas oI biomass, solar,
wind energy resources, and mini-hydro. Hydro generation above 10MW are not considered as
RE in Ghana. RE sources can to a large extent guarantee a security oI supply in Ghana iI
proper regulatory Irameworks are put in place.
Biomass resources cover about 20.8 million hectares oI the landmass oI Ghana and biomass
is the source oI supply oI about 60 oI total energy used in the country. The vast arable and
6
Ibid
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degraded landmass oI Ghana has the potential Ior the cultivation oI crops and plants that can
be converted into a wide range oI solid and liquid bio Iuels.
7
Solar radiation levels are
estimated at about 4-6 kWh/m2. Average wind speed along the eastern coastal areas is
estimated at 5m/s at a height oI 12 metres. Wind speeds oI 9 m/s have been recorded on the
mountains along south-eastern corner oI the country. The wind speed regime along the
coastline suggests that, wind can be harnessed Ior power generation as well as Ior mechanical
applications.
8
Despite the above Iactors, the proportion oI RE in the electricity generation mix oI Ghana
remain very insigniIicant. The contribution oI RE currently is less than 1. Five Iirms in Oil
plantation and Lumber mills are currently using biomass as Iuel source whiles biogas Ior
electricity has been piloted in rural communities Irom which the results were very positive
9
As a preparatory measure to increase the proportion oI renewable in the generation mix, the
Iollowing activities were undertaken between 2008 and 2011. Formulation oI RE Regulation,
Institution oI Bio Iuels programme, Development oI Standards Ior the Solar system,
IdentiIication oI potential sites Ior wind Iarms and Inspection, licensing and monitoring oI
RE service providers and Iinally intensiIication oI oII grid rural electriIication
10
. The draIting
oI the renewable energy bill in 2011.
7
Energy sector strategy and development plan oI Ghana. 2010 page 31
8
Ibid page 32
AkuIIo, F. (2003), 'Indigenous Energy Resource Catalogue for Ghana, Kwame Nkrumah
University oI Science and Technology, Kumis-Ghana.
10
Ibid
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Power markets do not buy renewable because it is too expensive. ThereIore Ior renewable to
work, there must be some policy Iramework such as subsidies to Iorce them to work outside
the market thereby encouraging the high cost environment.
13
And Ior it to sell outside the
market, some consumers must also demand Ior it. It is very diIIicult to diIIerentiate between
the sources oI power generation once it enters the grid, but the Ieel good attitude oI some
consumers can Iorce them to demand Ior renewable.
The policy Iramework to incentivize high cost renewable environment to work is not a
necessary guarantee to deliver all the deliverables or the drivers behind the renewable. For
example, Ior renewable to deliver green house gas (GHG) eIIect, the policy must go beyond
incentives. UnIortunately, any attempt to do this will lead to the occurrences oI internal and
external Iailures.
In Ghana, the policy Iramework on renewable is aim at removing the entry barriers that have
hampered the exploitation oI the renewable energy resources by encouraging investment in
the high cost environment. The Government in 1997 established, the Energy Commission
(EC) and the Public Utilities and Regulatory Commission (PURC) to integrate the RE
exploitation into the energy sector. Under Act 541, the EC was mandated to design a
regulatory Iramework Ior the sector
14
and Act 538 mandates the PRUC to be responsible Ior
issuing out generation licenses to new generators.
15
It was also responsible Ior development
oI appropriate Ieed in tariIIs to encourage the penetration oI RE. Energy Foundation a public
private institution was also established in 1997 to Iocus on the promotion oI energy
eIIiciency.
13
$upra note 11 page 23
14
Energy Commission Act oI Ghana. Act 541.
15
Public Utilities and Regulatory Commission oI Ghana. Act 538.
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The establishments oI these institutions have directly contributed to the Iormer centralized
regulator; Ministry oI Energy (MOE) losing some oI its regulatory and operational powers.
The two main policies, captured in the document include the generation policy and the supply
policy.
The supply policy is aimed at increasing access to RE and enhance competition whiles the
generation policy is aimed at creating and expanding the market share oI RE. It is also to
guarantee a sustainable market share Ior RE through targeted production subsides and also by
elimination subsides granted to traditional generators.
16
The policy Iramework as a whole is
targeted at penetration rate oI 10 by 2020. It is also emphasizes on encouraging private
sector participation in the industry.
1.4 What are the Policy Drivers behind Renewable in Ghana?
Ghana is currently a category two country, where the demand exceeds supply. The
accessibility oI electricity in Ghana stands at about 50.
17
This means Ghana is a capacity
short country and thereIore needs more power generation and reliability to achieve some
level oI security oI supply. The two main drivers oI RE in Ghana can be examine in the
context oI Government depoliticalisation and re-politicalisation oI energy policy. The
depoliticalisation was as a result oI the World Bank conditionality on an IDA credit Iacility
granted to GOG/VRA to construct 330MW thermal power plant in 1997. The ultimate
objective oI the reIorms was to create a Iramework to enable a competitive market to emerge
and unbundled industry structure. This objective, lead to the creation oI the Embedded
Generation Iacility (EGF), which subsequently resulted in the consideration oI renewable in,
the power generation mix oI Ghana.
16
$upra note 14.
17
Gboney W. (2008). Policy and Regulatory Iramework Ior Renewable Energy and energy eIIiciency
development in Ghana.
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avoided emissions Irom conventional energy sources due to the replacement by RE sources.
These damages are usually in the Iorm oI air pollutants, such as Sulhpur dioxide (SO2) and
Nitrogen Oxide (NOX), and Irom anthropogenic climate change resulting Irom Carbon
dioxide (CO2) and other emissions. These beneIits oI using RE sources in the power mix can
be estimated by means oI an external cost analysis. The beneIits oI RE today and the
potential beneIits in the Iuture can be quantiIied.
20
2.3 Local Employments and Social Cost
Apart Iorm its contribution to the employment oI the local citizen; the social cost associated
with the production and consumption oI RE sources is Iar less than the traditional power
sources.
21
A report on European Commission`s EXTENER project on external cost suggest
that iI the external cost, in the Iorm oI damages to the environment and health, were taken
into account, the cost oI electricity Irom gas will increase more than 30.
RE sources are limited due to the Iact that, the cost oI production are not internalised in the
price paid to the producers. The dominance oI Iuel risk as a result oI price volatility in the
traditional power sources are eliminated in the RE sources. The eIIect oI GDP loss due to
oil-GDP eIIect is also reduced by the creation oI market share Ior RE in the power
generation mix. Awerbuch (2003 & 2004).
20
European Wind Energy Association; Support Schemes Ior Renewable Energy A Comparative
Analysis Ior Payment Mechanism in the E.U. (ALTERNER Project, No 4.1030/z/02-054/2002).
21
$upra note 18 page 10
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5.0 CONCLUSION
It is oIten argued that systems where the government Iixes the quantity oI renewable
electricity demand (e.g. renewable quotas with green certiIicate trading) is more 'market
oriented than systems where governments Iix the price.
Similarly, a system where the government Iixes quantity and leaves it to the market to
determine the price is unlikely to be more 'market oriented than a system where the
government Iixes the price and leaves it to the market to determine the quantity. However,
the economics oI the two methods are diIIerent and, in practice, the capacity oI renewable
installed under the mechanism may be signiIicantly diIIerent.
It is also possible that policies based on Iixed tariIIs and premiums can be Iormulated to
work eIIectively. However, introducing them is not a guarantee oI success. Countries with
regulatory policies to support RE sources have at some point, used Ieed-in tariIIs. However,
not all Ieed-in mechanisms have contributed to an increase in renewable electricity
production. It is the design oI the system in combination with other measures that determines
its success.
In an eIIort to increase the market share oI RE in Ghana, it should be noted that the existing
grid design standards and regulatory Iramework in the country are tailored on the old system
oI generation, transmission, distribution, supply and metering. However, in practice, the new
Iramework oI increasing the RE sources can be achieve without Iollowing such a traditional
concept.
It is also interesting to note that, apart Irom internalization oI external cost, there are other
reasons Ior increasing the market share oI RE. These reasons including the security oI
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supply, diversity oI supply and local employment issues all needed to be taken into
consideration in draIting oI RE policies or law.
Achieving a 10 market penetration oI RE resources in Ghana by 2020 is a very diIIicult
task. Though the mechanism to allow RE resources to work in the high cost environment
could be made available, that alone in itselI cannot deliver the expected volume. The
possibilities oI occurrence oI internal and external barriers in the provision oI RE in Ghana is
likely to reduce the level oI market share anticipated under the RE policy.
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REFERENCES
ACTS and LEGISLATIONS
Republic oI Ghana, Energy Commission Act oI Ghana. Act 541.
Republic oI Ghana, Public Utilities and Regulatory Commission oI Ghana. Act 538.
Republic oI Ghana, Ministry oI Energy. National Energy Policy 2010
Republic oI Ghana, Energy sector strategy and development plan oI Ghana 2010.
BOOKS
Cameron P. Competition in Energy Markets (OxIord University Press 2
nd
Ed. 2007)
Wood, G., (2010). Renewable Energy Policy in Scotland: An Analysis oI the impact and
External Failures on Renewable Energy Deployment Targets to 2020.
ARTICLES
AkuIIo, F. (2003), 'Indigenous Energy Resource Catalogue for Ghana, Kwame Nkrumah
University oI Science and Technology, Kumis-Ghana.
European Wind Energy Association; Support Schemes Ior Renewable Energy A Comparative
Analysis Ior Payment Mechanism in the E.U. (ALTERNER Project, No 4.1030/z/02-
054/2002).
Gboney. M. (2008) Policy and Regulatory Framework Ior Renewable Energy and Energy
EIIiciency Development in Ghana.
INTERNET SOURCES
Awerbuch, S., Determining the real cost. Why renewable power is more cost competitive
than previously believed, Renewable Energy World March-April 2003. Available Irom:
http://www.jxj.com/magsandj/rew/200302/realcost.html (date visited 4
th
Jan 2011)
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OTHERS
Dow .S. Energy policy and Energy Strategy. Lecture notes 2010.
Dow. S. Electricity Privatization, Liberalization and Contracting. Lecture notes 2010.
Energy Foundation (2002), 'ini-Hydro Power in Ghana. Prospects and Challenges`
Wood G. An Introduction to renewable Energy Policy. The past, present and the Iuture oI
U.K Renewable. Lecture slides 2010