Ghana - Energy

Summary

There is very good potential for companies in the Energy Sector in Ghana. Since the first oil crisis shocked the world in the early 1970’s, Ghana’s demand for energy has outpaced supply. This is despite the fact that Ghana is reasonably endowed with a fair distribution of natural resources. Ghana’s renewable energy resources remained untapped except for the hydro power plants of Akonsombo and Kpong. A number of sector policies have been proposed to address the problem but have proven unsuccessful or not yet been implemented. This presents challenging trade and investment opportunities, namely in the area of power generation, transmission, and distribution, natural gas distribution, bio-fuel production and bio fuel equipment production, crude oil drilling, energy saving devises, the production of renewable energy and the manufacture of LPG gas cylinders.

Market Demand

Since 1990, Ghana has launched two long-term development plans aiming at transforming its low-income developing country status into an upper middle-income one by 2020. Although significant progress has been made in sustaining a GDP growth rate of six per cent, this falls short of the eight per cent and above projected to reach a middle-income country by 2020.

The Ghana Strategic National Energy Plan reiterates the sector Ministry’s vision to develop an ‘Energy Economy’ that would ensure sustainable production, supply and distribution of high quality energy services to all sectors of the economy in an environmentally friendly manner. The prevailing development plan in Ghana within the context of the Ghana Poverty Reduction Strategy (GPRS) forecasts an average GDP growth of 7-10% for the period of 2003-2015 and is expected to achieve a per capita income of USD1,000 by 2015 from less than USD400 in 2001.The drivers of the expected economic growth according to the GPRS are Agricultural sector, Manufacturing Industrial Sector and Information Communications Technology. With an expanding economy and a growing population, Ghana faces major challenges in providing the required energy in a reliable and sustainable manner while also taking into account the environmental and economic impacts of energy production and use and the nexus between energy and development.

Petroleum Products

Total petroleum demand increased from about 1.6 million tons in year 2000 to 2 million tons in 2005 and is projected to reach 4.5 million tons by 2020. Losses regularly occur at the Tema Oil Refinery (TOR) where the crude oil import is refined. This is due to the low capacity of the aged premium reformer, low capacity of the aged utility units and losses at the refined product-loading gantry. The low capacity utilization factor also leads to operational inefficiencies in the refinery’s operations. TOR’s limited utilization to blend various crude oils is also denying the refinery the flexibility to take advantage of more available but less expensive heavier crude oils on the international market. The government has considered the privatization of TOR on several occasions, although no real progress has been made to date. Assuming that TOR is operating at maximum capacity, importing currently refined petroleum products will cost as follows:

Electricity

The net final grid electricity (excluding ECG technical losses) consumption of the economy has grown from about 6, 900 Gig watt-hour in 2000 to 9,000 in 2006 (slightly less than previously projected) and is projected to reach 18,000 Gig watt-hour in 2015 and 24,000 Gig watt-hour by 2020. The quantum jump in demand could severely affect the nation’s balance of payments. The existing installed electricity generation capacity of 1, 760 Megawatt would have to be doubled by 2020 if the nation is to be assured of secured uninterrupted electricity supply. Total energy requirement will grow from about 7 million tons of oil equivalent (69 Terawatt hours equivalent) in 2004 to about 22 million tons of oil equivalent (255 Terawatt-hours equivalent) by 2020.

Providing over 65% of the country’s electricity requirements, the water level of the Akonsombo Dam reached its lowest level in 2007. Dam operations continue on a limited capacity (November 2007) and the country is only now recovering from an aggressive schedule of load shedding (2 – 12 hour periods without power every 3 days). Valco, the state owned Aluminium Company completely suspended its activities in May 2007 and a consortium of foreign owned mines recently imported and recently their own 125 MW power plant.

Residential Sector

Energy sources in the urban areas are more diversified than in rural areas, because access to alternative (modern) fuels and appliances are higher in the urban areas than in rural areas. According to an Energy Commission of Ghana publication on the Strategic National Energy Plan, over 90% of rural households depend on fuel wood for cooking with LPG use accounting for only 4-6% of the residential sector. About 48% of the population use kerosene for lighting with 52% relying on electricity for this and other purposes. Urban households account for 88% of electricity usage while rural households account for 12%. Refrigeration is singled out to account for 20% of urban electricity consumption. Although electricity usage is not universally available, all regional capitals are connected to the grid. Electricity share is projected to increase to about 11% in 2015. Residential LPG consumption was 49,000 tons in 2004 with an estimated long term growth of between 8.5-10% per annum. Kerosene consumption in 2004 was approximately 72,000 tons with an estimated annual growth of 7-8%. So far, electrification has been by grid extension. The national electrification scheme (NES) targets 100% penetration by 2020. Among the key energy related issues in the residential sector are: increasing LPG share of residential energy profile, meeting the high cylinder requirement for LPGS, providing off-grid communities with high quality on grid electricity.

Commercial and Service Sector

Also referred to as the tertiary sector, the commercial / service sector’s share of total energy use has been less than 3% since 2000. The commercial/ service sector is expected to grow significantly driven by growth in the ICT sector. The key energy related issues in the commercial service sector are, ensuring LPG supply is stable and accessible throughout the country; reducing demand for wood fuel by restaurants and educational institutions; reducing indoor pollution in the commercial kitchen environment due to prolonged use of wood fuels by promoting alternative cleaner fuels and improved wood stoves; and reducing the electricity demand by the Defence and Educational sub sectors.

Agricultural Sector

The share of energy used by the Agricultural sector was about 380 tons of oil equivalents in 2004 and diesel consumption accounted for the largest share of energy used. For now, bio-diesel use in this sector is nonexistent and only 1% of energy used is electricity.

Transport Sector

The transport sector is the largest consumer of petroleum products. Road transport handles over 95% of national freight and 97% of passenger traffic. The size of the vehicular fleet in Ghana has more than doubled from 1995 to 2006. Rail transport is basically for haulage of Ghana’s natural resource exports, manganese ores, round logs, cocoa etc. to seaports for export. Air transport handles about 15% of the country’s international merchandise trade while the seaports carry the rest. The road sub sector accounts for about 94% of energy usage. The transport sector accounts for about 99.7% of gasoline consumption in the economy, used basically as fuel for road transport. It is projected that the transport sector demand for diesel will continue to grow higher than gasoline through 2020. The ratio of energy consumption to GDP was found to be twice as high as those of some middle-income countries.

Industrial Sector

The industrial sector, especially the manufacturing sub sector is expected to lead in the rapid socio-economic transformation of the economy to a middle-income country. The industrial sector’s share is about 23% of national energy consumption with manufacturing alone accounting for 74% of industrial energy consumption. Within the manufacturing sub sector, sawmill & wood products accounted for the largest energy use. Gold mining activities take the largest share of energy usage in the mining and quarrying sub sectors. The main fuels for industrial purpose are electricity and petroleum products. Among the key energy related issues affecting the industrial sector are ensuring adequate, and reliable electricity supplies to the industrial sector; taking advantage of the natural gas from the West African Gas Pipeline to develop the industrial sector; meeting the additional electricity demand of the country; and energy efficiency conservation interventions.

Among the recommendations outlined in the Strategic National Energy Plan is Energy Efficiency and Conservation. The objective was to reduce the average electricity intensity in the residential and commercial sectors substantially. Electrical devices are to be labelled to inform consumers on the choices of energy consuming appliances. Additionally, all equipment procured by the government is to meet energy efficiency standards. Companies with a technology for energy efficiency may consider doing business in Ghana.

The key challenges facing the energy sector are: rapidly growing demand for energy by all sectors of the economy; risk of over reliance on imports to meet local shortfalls of conventional fuels, which could threaten the country’s supply security making it vulnerable to external pressures; high levels of end user inefficiency culminating in waste of final energy forms; inefficient pricing of energy services resulting in poor financial positions of the energy providers; inadequate incentives to conserve; operational inefficiencies of the utilities leading to high losses and consequent increasing cost of supply distribution. Solar energy that is relatively abundant is barely exploited to supplement the commercial energy requirements of the country; and inadequate investment to match the growing demand due to lack of capital. An interesting development is the use of biogas technology for bio sanitation projects for schools, slaughterhouses, and hospitals.

Market Data

According to an IMF Executive Board report, the Ghanaian economy has performed well in recent years with real GDP growing at its fastest pace since the early 1990s. In 2006, real GDP growth reached 6.2%, driven by agriculture (an exceptionally good cocoa harvest), mining, construction, and services, and in response to the improved business environment. Large remittance inflows fuelled both consumption and private investment in housing. The economy has thus far proved reasonably resilient to the energy shortages that began in September 2006, caused by shortfalls in power supply and surging demand. Inflation declined to 10.5% at end-2006, and dipped below 10% at end-March 2007, however it is unlikely that the rate will remain below 10%. After years of sustained consolidation, the fiscal deficit (including grants) widened to 7.7% of GDP in 2006, more than 2.5%age points higher than in the mid-year supplementary budget. This outcome reflected shortfalls in revenue from import-related taxes and significant overruns in both wages and subsidies and transfers to state-owned enterprises in the energy sector.

The net energy import was about 1.9 million tons of oil equivalent in 2000 increasing to about 2.6 million ton of oil equivalent by 2004. It comprised 80-83% crude oil and about 15-19% petroleum products. The primary energy production and the net import make up the primary energy supply and totalled about 8.1 and 10.2 million ton of oil equivalent in 2000 and 2004 respectively. Final energy supply, i.e., the energy finally reaching the consumer after transportation and transmission was about 6 million ton of oil equivalent in 2000 and about 7.1 million tons in 2004.The residential or household sector of the economy accounts for almost 50% of the country’s energy consumption. Ghana’s renewable resources remain untapped except for the large hydro plants of Akosombo and Kpong. Renewable resources have been identified, as a credible option that can relieve the energy needs of poor countries like Ghana. Solar power in Ghana is now accessed in off grid areas. Although Energy experts have noted that solar water heaters have a high potential in Ghana, it has a low penetration because of the high initial cost of introducing this technology.

The objective of the petroleum sector is to produce adequate and high quality liquid fuels to meet economic and social development needs of Ghana and for export. Refined petroleum products are utilized directly whilst crude oil has to be refined. If the crude oil price is compared with those of refined products the average ratios are as follow:

For the high economic growth scenario, total energy expenditure is expected to rise from about USD2 billion in 2004 to:

USD3.1-3.4 billion, 16-17% of GDP in 2008;
USD4.3-4.6 billion, 13014% of GDP by 2015;
USD5.2-5.6 billion, 8-9% of GDP in 2020.

The West African Gas Pipeline (WAGP), which traverses 620 miles (1,033km) both onshore and offshore from Lagos through Benin and Togo to its planned terminus in Takoradi, Ghana (with an off load Terminal in Tema, Ghana as well), is designed for a capacity expansion with an initial capacity of 170 MMSCFD. With additional compression, the ultimate capacity of the pipeline is 474 MMSCFD. There is no specific volume of natural gas reserved for any of the beneficiary States. However, it is estimated that 90% of gas (426.6 MMScfd) will be utilized mainly in power generation (standard customers) and 10% (47.4 MMScfd) will be utilized by local industry (industrial customers) as a source of heat energy or feed stock. Potential Industrial Customers will include the following sectors: cement production, metallurgy (aluminium, iron/steel, etc), phosphate plant, wood industry, food/beverage industry, automobile industry, space cooling (air conditioners), etc. Gas delivery will be based on first come first served basis for all the beneficiary states. The 550MW Takoradi Thermal Power Plant which could potentially be upgraded to 660MW plant will utilize approximately 100 MMSCFD of natural gas to generate approximately 5 terawatt-hours (Twh) of electricity annually.

Existing industries in Tema and Takoradi have estimated demand of natural gas. Their expected annual demand growth rate of 5% will be in the industrial sectors. Other estimated gas demands are in the Electricity, Mining, and Commercial, including transportation and Residential sectors in the long term.

Best prospects

The government of Ghana is looking at attracting significant private sector participation or investment in the power sector; electricity generation, transmission and energy conservation. companies should however note that the policy guidelines on the operations of IPP are still not well defined. The Licensing Manual for Service Providers in the Electricity sub-sector is available at the Ghana Energy Commission for a fee. Looking at the wide demand gap in Ghana’s energy market today, it is tempting to suggest that Independent Power Production is an attractive opportunity for investors. What cannot be confirmed now is how Ghana will move forward on the numerous IPP proposals currently moving through the various governmental agencies. If the majority materialize, Ghana is likely to produce the power supply needed to meet local demand for the short to medium term. The completion of the West Africa Power Pool, however presents opportunity for IPP investments in the medium to long term. Opportunity abounds for U.S investors in the develop of renewable energy for power generation, such as biomass, wind, and hydro power generation. With increasing emphasis on bio-fuel, manufacturers have a great opportunity to market bio-fuel processing equipment and also to invest in Ghana for the processing of bio-fuel. Sale of electric/solar and wind generators is yet another opportunity for U.S manufacturers. Biomass based energy has hardly been exploited in Ghana and therefore presents an opportunity for companies who want to invest in Ghana. The distribution of natural gas from the West African Gas Pipeline has also come up as a potential area. With the huge estimates for LPG gas consumption in the near future, cylinder manufacturing is yet another potential area for U.S manufacturers to consider. The recent discovery of oil in commercial quantities off shore, presents further opportunity for U.S oil service and supply companies.

Key Suppliers

VRA - The Akosombo and Kpong hydro power plants are government owned and linked. They are managed by a sate owned company called the Volta River Authority. (VRA) The VRA forecasts a firm hydro electricity production of 4,800 Gig watt-hours per annum at 98% reliability for 2008 due to present lake levels. The two had delivered on the average, a total firm electricity of about 6,000 Gig watt hours (million units of electricity) annually in the past. Takoradi Thermal Power Station is another generation facility consisting of two blocks of generation plants; generating 330 Megawatt combined cycle plant and 220 Megawatt open or single cycle plant The 330 Megawatt plant usually referred to as Takoradi 1 (T1) is registered under the name Takoradi Power Company (TAPCO). TAPCO is wholly owned by VRA. The 220 Megawatt plant usually referred to as Takoradi 2 (T2) is registered under the name Takoradi International Company (TICO). TICO is jointly owned by TAPCO (10%) and Abu Dhabi National Energy Company, PJSC. VRA has a 30 Megawatt installed capacity (37.5 MVA) diesel station at Tema. The Tema diesel plant was installed between 1961 and 1963 and had run continuously till 1966. Thereafter, it was used as standby till 1979. The Ghana (Osagyefo Power Barge constructed in the late 1990s is a 125 Megawatt open cycle plant comprising two modern 62.5 Megawatt gas turbines. The gas wells intended to fuel the barge have not as yet been drilled or developed and the barge to date has never been commissioned. However, the recent power crisis has led to a deal between the Ghanaian government and a U.S. company to refurbish and operate the badge within the next 4-6 months. In addition to these, the government recently purchased a total of 136 MW of small high-speed CAT diesel generators, which are currently being operated on diesel fuel as emergency power. The VRA has also procured a 126 MW GE power plant, which is scheduled to be on line in February 2008. A long proposed and recently funded (by the Chinese EXIM Bank) USD622 million Bui Dam Project will add an additional 400 MW generating capacity in 3-5 years. In addition, Shenzheng Energy Group Company of China, is to provide Ghana with 560 MW gas powered electricity by December 2009. The government is also currently reviewing a number of power generation projects; various Independent Power Production (IPP) proposals including a 300 MW IPP thermal power plant in Tema previously let for tender.

The West African Gas Pipeline which is scheduled for completion at the end of 2007 is to be built, owned and be operated by the West African Gas Pipeline Company Ltd (WAPCo) under the authority granted by the governments of Benin, Ghana, Nigeria and Togo. The shareholders of this project are Chevron (20%), Nigerian National Petroleum Corporation (NNPC) (62.35%), Shell (18%), VRA (16.3%) BENGAZ (20%) and SoToGaz, (2%). This project will enable customers in Benin, Ghana and Togo to access Nigeria’s immense resources of natural gas as fuel for power generation and industrial development.

The government of Ghana formally announced the discovery of off shore crude oil in commercial quantities in Ghana in June 2007. A consortium of Kosmos Energy (US) Tullow (Irish) and Anadarko(US) made the discovery and further drilling is expected to begin by end of 2007. Earlier exploration activities indicate that 75% of all wells drilled have encountered hydrocarbons. Ghana does not currently produce oil in significant commercial quantities.

A West African Power Pool (WAPP) has been created to integrate the national power system operations into a unified regional electricity market, with the expectation that such mechanism would, over the medium to long term assure the citizens of ECOWAS member states a stable, reliable and affordable electricity supply. A 2007 case study on this project covers separate simulations for Zone A (Cote d’Ivoire, Ghana, Benin/Togo, Barkina Faso, Nigeria and Niger) and zone B (Mali, Senegal, and Mauritania). WAPP countries will build about 4,500 MW of new generating capacity plus strengthen the transmission networks within the countries and cross-borders.

It is reported that the government of Ghana is in the process of finalizing an agreement for a EUR5 million credit facility from the Spanish Government to boost the use of Solar Energy amongst institutions. The government is currently standardizing the solar systems and the establishment of a Test Centre for adherence to standards.

Bio-fuel has been projected into Ghana’s Energy mix as a substitute to diesel and petrol. A number of companies have already registered with the Energy Commission of Ghana to produce bio-diesel.

The key suppliers of Solar/Wind Energy in Ghana are Deng Ltd., Wilkins Engineering Ltd., Ecozone Ltd., and Wise Energy Ltd. These local registered companies are agents for generator manufacturers. They sell the generators and do the installation as well. Potentially, companies that manufacture generating sets may consider partnership relationships with these local companies.

Prospective Buyers

The VRA is the principal buyer of natural gas produced in commercial quantities. It is also the principal buyer for power that is produced by IPPs. Large and medium scale industries especially in Tema/Accra and Takoradi constitute the bulk of electricity buyers. The Energy Commission has classified 24 companied in Ghana’s bulk consumers of electric power based on their past demand and consumption, which is not less than 3KVA and 6GWh respectively. These companies are largely mining companies, manufacturing companies, and large utility suppliers. Prospective buyers of Bio-fuel are the Oil Marketing Companies (OMCs). Others are the transport Sector (Repeater Stations), individuals and corporate investors. Prospective buyers of Solar and Wind Generators are DENG Ltd, Wilkins Engineering Ltd., Ecozone Ltd. and Wise Energy Ltd., all Ghanaian companies. They have a potential to serve the hospitality sector, telecommunication sector, district assemblies, individuals, and health centres. Natural gas is likely to be in high demand in the generation of electricity, mining, commercial including transportation, and residential, in the long run.

The government of Ghana intends to apply part of the proceeds from a USD750 million, Sovereign Bond secured from the international market to the energy sector. Over the long term, the government estimates that there is a need to invest close to USD2 billion in the aging transmission and distribution infrastructure.

Market Entry

There are no laws requiring the retention of a local agent or distributor for a foreign company exporting to Ghana. However, companies wishing to enter the Ghanaian market are strongly advised to retain a businessperson or persons resident in Ghana to market their products or do the day to day follow ups that are necessary to push a project through the government bureaucracy. An agent or distributor should possess a thorough understanding of the economy. If the exported product requires servicing, qualified personnel and a reasonable inventory of spare parts must be considered. Exporters of energy products should be aware that agents and distributors commonly represent several product lines.