We don't foresee tariff reduction – ACEP

The African Centre for Energy Policy (ACEP) has rejected any possible reduction in tariffs due to the reduction in cost of producing power by Independent Power Producers (IPP) in Ghana.

According to ACEP, merely reducing the cost of power with the IPP’s from 17 cents per kilowatts hour to 10 cents per kilowatts hour is not good enough to warrant a reduction.

The Vice President Dr. Mahamudu Bawumia on Monday disclosed to the media that, the government had renegotiated all power purchase agreements which has resulted in IPP’s charging 10 cents per kilowatts hour set by the government.

According to him, the government’s review of some power purchase agreements entered into by the previous government has bolstered the energy sector.

He said at a town hall meeting organized by Accra based Joy 99.7 FM, the NPP had saved the nation some $300 million through the cancellation of about 20 agreements and review of four others.

This, he said, has "helped to reduce government expenditure," and was part of the decisions towards bringing relieve to consumers of electricity.

But the African Centre for Energy Policy’s Executive Director Benjamin Boakye says the reduction in tariffs because of the reduction in price and cancelation of some power purchase agreements is not possible.

“What we really need to do is to ensure that, we have a market driven arrangement for certain prices. If you peg the cost of the power purchase agreement at 10 cents per kilowatts an hour and the market doesn’t dictate that, you are not going to attract investments. If you put it at 10 cents as minimum and you can allow for negotiations, investors will look at the 10 cents and quote their rates, so it is not as simple as having a lower or what you assume to be a lower tariff will attract investments.”

But Mr. Boakye also indicated that, “it is about how you structure the system which will bring about competition for power plants. And ensure that the distribution channels for the sector is robust enough to attract investments without the attendant risk of not paying for the power.”

Abrogating Power agreements

ACEP barely a week after the NPP won the 2016 general elections, made their first demand of the government urging them to review all existing Power Purchase Agreement, with companies holding Power Purchase contracts especially with the Electricity Company of Ghana.

According ACEP then, it was imperative for government to pull out of some of the agreements since most of the companies have not yet secured funds for the projects even though they have expressed interest.

A statement issued by ACEP said, “all emergency power contracts that have failed to deliver on time will have to be canceled or renegotiated into a regular IPP to save on cost. The high tariffs associated with the emergency plants are not appropriate for long-term economic planning and protection of industries.”