Dr. Elikplim Kwabla Apetorgbor
As Ghana’s electricity sector continues to evolve, there is a growing consensus among industry experts that the country’s power market must shift towards more competitive structures to maximize efficiency and economic potential.
A critical piece of this puzzle lies in the Volta River Authority's (VRA) thermal assets, which, through strategic privatization, can accelerate the development of Ghana’s capacity market. By doing so, Ghana can better position itself to leverage emerging opportunities within the West Africa regional electricity market (WAPP).
Privatizing VRA’s thermal assets in a competitive manner could unlock new investments, improve operational efficiencies, and set the stage for a robust capacity market capable of meeting both national and regional energy demands.
The current structure of Ghana’s power market
Ghana’s power market is dominated by VRA, which operates both hydro and thermal power plants. While VRA’s Akosombo and Kpong dams remain the backbone of Ghana’s electricity generation, its thermal plants have become increasingly crucial in addressing fluctuations in demand, particularly during dry seasons when hydro generation declines.
As of 2023, thermal power plants contribute about 65% of Ghana’s total installed generation capacity, including combined-cycle plants running on natural gas and light crude oil. However, despite the strategic importance of these thermal assets, inefficiencies and financial constraints in VRA’s operations have limited the sector’s potential. This has resulted in increased debt burdens, operational bottlenecks, and underinvestment, hindering the utility’s ability to take full advantage of opportunities for cross-border electricity trade within the West African region.
The case for competitive privatization
1. Efficiency gains through private sector participation
The private sector, driven by profit incentives, is better equipped to introduce operational efficiencies, technological upgrades, and innovations that could significantly enhance the performance of VRA’s thermal assets. According to industry research, competitive privatization of state-owned thermal plants in other markets, such as Nigeria’s privatization of its power generation companies, has led to improved plant availability and reduced operational costs (IEA, 2019).
Introducing competition into the ownership and operation of thermal assets would not only streamline their performance but also allow for better management of fuel supply, contract negotiation, and plant maintenance, all of which are critical to ensuring reliable energy production. In Ghana’s context, this could lead to higher plant efficiencies, reduced generation costs, and the ability to better meet both domestic and regional demand.
2. Unlocking investment for capacity expansion
The privatization of VRA’s thermal assets would attract much-needed private investment into Ghana’s power sector. According to a report by the African Development Bank (AfDB), Sub-Saharan Africa, including Ghana, requires an estimated $40 billion annually in energy infrastructure investments to meet growing demand (AfDB, 2020). Privatizing thermal assets would reduce the fiscal burden on the government and create an enabling environment for private companies to expand generation capacity, especially as demand increases across West Africa.
In addition, privatization would stimulate the development of Ghana’s capacity market, which rewards power producers for maintaining surplus capacity that can be dispatched during peak demand periods. A well-structured capacity market, supported by private investments, would allow Ghana to ensure energy security domestically while positioning itself as a reliable supplier to the West African Power Pool (WAPP).
3. Optimizing participation in the West Africa regional market
The West African Power Pool (WAPP) is a significant initiative aimed at connecting the national grids of ECOWAS member states, facilitating cross-border electricity trading. The demand for electricity within WAPP is growing as member countries seek to enhance energy security and reduce the cost of power through trade. According to a 2021 study by the International Renewable Energy Agency (IRENA), regional electricity trading could reduce energy costs by up to 25% in West Africa (IRENA, 2021).
For Ghana to fully capitalize on these opportunities, it must be able to supply reliable and competitively priced electricity to the regional market.
Privatizing VRA’s thermal assets would enhance the competitiveness of Ghana’s power generation sector, ensuring the country can meet the stringent efficiency and reliability standards required for cross-border electricity trade within WAPP.
4. Financial relief for VRA and the government
VRA has historically struggled with significant debt, largely due to inefficiencies in its thermal operations and challenges in recovering costs through the current tariff structure. The Energy Sector Recovery Program (ESRP) launched by the Government of Ghana in 2019 highlighted the need for comprehensive reforms to address the sector’s debt overhang, estimated at over $2.7 billion (Ministry of Finance, 2020). Privatizing VRA’s thermal assets would transfer the operational and investment risks to private investors, reducing the fiscal burden on both VRA and the government.
Moreover, with private sector participation, the government can focus its efforts on strengthening the regulatory environment and ensuring grid stability, rather than managing and financing costly thermal operations. This financial relief could allow VRA to focus more on its hydro assets, which remain strategically important for the country’s renewable energy transition.
Recommendations for Successful Privatization
To ensure that the privatization of VRA’s thermal assets delivers the desired outcomes, several key steps must be followed:
1. Transparent and competitive bidding process
A successful privatization process must be conducted through an open and competitive bidding system to attract reputable international and local investors. The government should ensure that the process is transparent, with clear evaluation criteria based on technical expertise, financial capacity, and a commitment to operational efficiency.
2. Strengthening the regulatory framework
Privatization alone is not enough to ensure success. The Energy Commission and the Public Utilities Regulatory Commission (PURC) must establish a robust regulatory framework that fosters fair competition, protects consumers, and ensures that power producers meet the standards required for both local and regional markets. The capacity market rules must also be clearly defined, with long-term contracts available to guarantee returns on investment for private operators.
3. Public-Private Partnerships (PPP) and hybrid models
In some cases, hybrid models such as Public-Private Partnerships (PPP) could be explored. For example, the government could retain minority equity stakes in the assets while transferring operational control to private entities. This could help balance private sector efficiency with national interests, especially in critical infrastructure of power generation.
4. Developing local capacity
Privatization should be accompanied by initiatives to develop local expertise in power plant operations and maintenance. This would ensure long-term sustainability and reduce reliance on foreign technical assistance. A portion of privatization proceeds could be directed towards capacity-building programs and technical training for the local workforce.
Expert Judgement
The competitive privatization of VRA’s thermal assets presents a unique opportunity for Ghana to unlock the full potential of its power sector. By attracting private investment and enhancing operational efficiencies, Ghana can develop a robust capacity market that ensures energy security while positioning the country as a key player in the West African Power Pool. This will not only reduce the fiscal burden on the government but also enable Ghana to meet growing electricity demand domestically and across the region.
To make the most of this opportunity, the government must ensure a transparent, competitive privatization process supported by strong regulatory oversight and public-private collaboration. With the right approach, Ghana can fast-track its capacity market development and establish itself as a regional energy hub, driving economic growth and development across West Africa.
