An independent governance needful for West African Power Pool (WAPP) success

The West African Power Pool (WAPP) was established in 1999 by the Economic Community of West African States (ECOWAS) to promote energy cooperation and integration among member states. Its primary goal is to enhance energy security and reliability through cross-border electricity trade and efficient utilization of the region's vast energy resources. By linking national grids, WAPP aims to create a regional electricity market that can reduce the cost of electricity, diversify energy sources, and ensure a stable supply across West Africa.

However, despite the noble vision, WAPP’s structure has been criticized as being highly political, favoring state-owned enterprises (SOEs) over private-sector players. This imbalance in governance, which grants SOEs permanent board member status while private participants rotate on and off the board, stifles competition, discourages private sector investment, and undermines the broader goals of regional energy integration. This study explores the flaws in WAPP’s current structure, makes comparisons with successful international cases, and provides recommendations to the next government of Ghana to take a proactive stance on WAPP’s governance. As Ghana grapples with energy sector challenges, WAPP remains a crucial platform for reform and regional collaboration.

The Political Nature of WAPP’s Structure:

The governance structure of WAPP is one of its most glaring weaknesses. SOEs, which are often inefficient and politically influenced, hold permanent positions on the WAPP board. This arrangement allows these entities to maintain a dominant role in decision-making and regional energy policy, often prioritizing national interests over regional goals. On the other hand, private sector players, who could bring innovation, efficiency, and much-needed capital, are given rotating board memberships. This system not only marginalizes the private sector but also reduces the overall dynamism and accountability of WAPP’s governance.

The concentration of power in the hands of SOEs creates a system where politics and bureaucracy dominate. SOEs in West Africa are known for their inefficiencies, such as poor financial management, lack of transparency, and susceptibility to political interference. By maintaining permanent board positions, these entities can resist reforms that could bring about greater efficiency or competition. This setup stifles the development of a competitive energy market, discourages private sector participation, and limits the potential for WAPP to deliver on its promises.

Private Sector Marginalization and Its Impact:

Private sector involvement is essential for the growth and sustainability of any regional power pool. Private players bring technical expertise, innovation, and access to financing, all of which are necessary for expanding the region’s energy infrastructure and transitioning to a more efficient and sustainable electricity market. However, WAPP’s governance structure relegates private participants to a secondary role, limiting their ability to influence decision-making.

The rotating membership model for private entities creates instability and uncertainty. Private sector players are unable to engage in long-term strategic planning because their involvement in the board is temporary. This reduces their incentive to invest in regional projects, undermining efforts to attract foreign direct investment (FDI) and private capital, which is desperately needed for expanding West Africa’s energy infrastructure.

WAPP must recognize that private sector participation is crucial for its survival and growth. Without a level playing field, the organization will continue to struggle to attract the investment necessary to build the infrastructure needed to create a functional regional electricity market.

International Examples of Successful Power Pool Governance:

European Network of Transmission System Operators for Electricity (ENTSO-E)

ENTSO-E is a successful example of a regional power pool that has been able to balance public and private sector interests while maintaining independent governance. ENTSO-E brings together transmission system operators (TSOs) from across Europe, providing a platform for coordinating electricity transmission and ensuring the integration of national grids into a single market.

The key to ENTSO-E’s success is its independent management and balanced governance structure. Unlike WAPP, ENTSO-E ensures that no single group of stakeholders dominates the decision-making process. The board of ENTSO-E includes representatives from both state-owned and private entities, as well as independent experts. This ensures that decisions are made in the best interest of the regional market, not individual national or corporate interests.

ENTSO-E’s independent System Operator (ISO) plays a crucial role in ensuring the fair allocation of transmission capacity, transparent operation of the grid, and competitive access to electricity markets. By reporting to a well-balanced board, the ISO ensures that the interests of all market participants—public and private—are fairly represented.

The PJM Interconnection in the United States:

The PJM Interconnection is another successful model of a regional power pool that operates independently from political interference. PJM manages the transmission of wholesale electricity in multiple U.S. states and has created one of the most competitive and efficient electricity markets in the world.

One of the key features of PJM is its independent management structure. The PJM System Operator manages grid operations and market transactions independently of both state-owned utilities and private generators. This ensures that no single group can unduly influence market outcomes or grid operations. PJM’s board includes representatives from various stakeholders, including government agencies, private companies, and independent experts. This balanced governance model ensures that market decisions reflect the best interests of all participants and promote competition.

The success of PJM highlights the importance of independence and balanced governance in regional power pools. By creating a system that allows both public and private sector participants to compete on an equal footing, PJM has attracted significant investment in its electricity infrastructure and created a market that benefits consumers and investors alike.

Reforming WAPP’s Governance Structure:

For WAPP to fulfill its potential as a platform for regional energy integration and cooperation, it must undergo significant reforms. The next government of Ghana should champion these reforms, as WAPP represents a unique opportunity to address many of the country’s energy sector challenges. Specifically, the following changes are necessary:

Establish an Independent System Operator (ISO):

One of the most urgent reforms needed in WAPP is the establishment of an Independent System Operator. This ISO should be free from the influence of SOEs and private companies and should report to a balanced and representative board. The ISO would be responsible for managing the regional grid, ensuring fair access for all market participants, and promoting transparency in the allocation of transmission capacity and grid operations.

An independent ISO would reduce political interference in the operation of the grid, allowing for more market-based decision-making. This would also increase confidence among private sector players, who would have greater certainty that they will not be disadvantaged by the influence of state-owned utilities.

Create a Balanced and Representative Board:

WAPP’s governance structure should be reformed to ensure that both public and private sector participants have equal representation on the board. This would help to promote fair competition and reduce the influence of SOEs, which currently dominate decision-making. A balanced board would ensure that the interests of all stakeholders—SOEs, private companies, and independent entities—are fairly represented.

Promote Private Sector Participation:

Reforms to WAPP’s governance should focus on increasing private sector participation in the regional electricity market. This could include measures to encourage private investment in regional energy infrastructure, such as offering tax incentives or reducing regulatory barriers to entry. By creating a more attractive environment for private investors, WAPP can secure the capital needed to expand the region’s electricity grid and increase the reliability of electricity supply.

The Strategic Importance of WAPP for Ghana:

For Ghana, WAPP represents the best platform for addressing its energy sector challenges. The country has faced persistent issues with power generation, transmission, and distribution, leading to frequent blackouts and high electricity costs. WAPP offers an opportunity for Ghana to integrate its capacity market with those of neighboring countries, allowing it to benefit from the cross-border electricity trade and more importantly, a platform to offload the unutilized capacities which culminate in huge idle capacity charges on ECG. The revenue from the cross-border trade comes to set off ECG’s contracted obligations.

However, for WAPP to be an effective platform for solving Ghana’s energy woes, the organization must be reformed. The next government of Ghana should take a proactive role in pushing for these reforms, recognizing that WAPP holds the key to unlocking the potential of the country’s energy sector. By championing the establishment of an independent ISO and a balanced board, Ghana can ensure that WAPP becomes a more attractive and effective platform for regional energy cooperation.

Expert Judgement:

The current structure of the West African Power Pool, which favors state-owned enterprises and marginalizes private sector participation, is a major obstacle to the development of a competitive and efficient regional electricity market. WAPP must undergo significant reforms, including the establishment of an independent System Operator and the creation of a balanced board that includes equal representation for both public and private sector participants.

International examples such as ENTSO-E and PJM demonstrate that independent management and balanced governance are essential for the success of a regional power pool. By implementing these reforms, WAPP can become an attractive platform for investment, enhance energy security, and deliver reliable and affordable electricity to the people of West Africa. For Ghana, WAPP is a strategic asset that can help address the country’s energy sector financial challenges, but only if the next government takes a proactive role in pushing for reform.