Reviewing power deals will save $2.5bn annually - ACEP

Reviewing existing and pending Power Purchase Agreements (PPAs) could save Ghana from shouldering a liability of $2.5billion annually through capacity charges on excess capacity alone, power think tank Africa Centre for Energy Policy (ACEP) has said.

The group has, therefore, welcomed moves by the Akufo-Addo government to review, and, if need be, cancel some of the 43 already signed PPAs and the 23 others in the pipeline as of December 26.

During his maiden State of the Nation Address, President Nana Akufo-Addo said “government is conducting a review of all the power agreements entered into by the previous government in order to prioritise, renegotiate, defer or cancel outright, if necessary, in the national interest.”

In a statement issued by ACEP on the president’s comments about the energy sector during his address to parliament on Tuesday, 21 February, the energy think tank said the intended review of the PPAs will save Ghana a lot of money.

“It is true that power is expensive in Ghana. It is virtually impossible for Ghanaian businesses operating at the average tariff rate of 42 cents per kilowatt hour (kWh) to be competitive compared to the West African average rate of 15 cents/kwh.

“ACEP is pleased that the government has already initiated a review of existing power agreements. This is particularly a bold decision that cannot wait any longer.

“We recognise that the combined effects of the energy sector debt and excess capacity resulting from the numerous power agreements signed could be hazardous in the near future. The World Bank estimates that Ghana could be faced with some $2.5 billion liability annually from capacity charges on excess capacity alone, if all the power generation contracts come into force,” the statement signed by Deputy Executive Secretary Benjamin Boakye said.

It added: “The probable cost of excess capacity charges could have been below the World Bank’s current estimate had the government heeded ACEP’s warning in 2015 when we estimated such cost at $360 million.”

“It is, therefore, important to wean Ghana off this looming catastrophe. In view of this, we recommend that government should be transparent about the review process by involving all relevant stakeholders to engage on the reform and examine the options,” ACEP said.