AN ODESSA OF ENERGY CRISIS

 AN ODESSA OF ENERGY CRISIS

In 1975, the world experienced what has been known as the energy shock when the Arab oil suppliers decided to use oil as a weapon and therefore stop production knowing the effect it will have on the non-oil producing western economies. Prices shot up and there was a general shortage and panic, prompting countries such as Ghana to start learning some lessons. Before 1975 energy was in abundance in Ghana. Electricity was in abundance and people were encouraged to freely use electricity, to the point that they were even advised not to switch lights off. 

The utilities, deliberately as expected at the time, promoted the use of electric boilers, furnaces and kilns in industry so as to promote electricity consumption. Since then things have changed drastically. The population has increased, economic growth rates have increased steadily but the energy supply base has not caught pace with the growth. In the case of wood fuel the supply base has dwindled below sustainable levels as a result of deforestation.

 The total electricity consumption in Ghana increased from 782 GWh in 1970 to about 1,328 GWh in 1980 at an average annual growth rate of 5.50%. The average annual GDP growth rate for this period was 0.2%. As a result of a drought in 1983, electricity consumption decreased from 1,361 GWh in 1981 to 1,007 GWh in 1984 at an average annual rate of minus 6.5%. During this period, the average annual GDP growth rate was minus 2.0%. Thereafter, total electricity consumption increased from 1,251 GWh in 1985 to 5,286 GWh in 2004 at a steady average annual growth rate of 8.86% compared to an average annual GDP growth rate of 4.46%.

It is now widely accepted that this is the fifth power crisis Ghana has had in recent memory. The first in 1984 was caused by an unprecedented drought whose impacts were felt throughout the West African sub-region. The second and third power crisis, which occurred in 1998, 2002, 2006 were also attributed to low rainfall in the Volta basin. The current crisis, following so closely in the heels of the last one, has been subject to much public debate and most critical observers now agree that the old reason of low water levels in the Volta Lake is no longer the main factor. 

The onset of the energy crisis in Ghana, in 2006 and 2012, was most immediately sparked off by declining rainfall in an energy sector dominated by hydro power. Load shedding, combined with emergency investments and a greater reliance on regional energy supplies from our neighbors have together bettered the situation. Load shedding appears to be, for now, behind us.

 Citizens’ frustrations have been high. Even so, we should not focus on who is to blame for the energy crisis. The more important questions are: What else is to be done? How can we ensure, through an appropriate action plan, that energy is harnessed to facilitate growth in Ghana that is shared, accelerated and sustainable?

What is needed is a comprehensive rolling Energy Action Plan that is implemented with rigor and precision. Experience from successful energy reforms in other countries confirms that such a plan of action will involve technical, economic, financial, regional, social and political considerations. The implied complexity is not an excuse for shoddy implementation. It is rather a call to bring the appropriate technical, managerial and political skills to the challenge.

Recently, the President His Excellency John Dramani Mahama held a press briefing with the editor’s forum where he promised his government’s commitment to solving the energy crisis. The President explained that the energy crisis did not start now, but over successive regimes, each of which contributed towards augmenting the supply of megawatts to the existing supply capacity.

President Mahama said when current projects, namely the restoration of gas from Nigeria to feed the Asogli power station, the operationalization of the Bui project and other megawatts augmentation efforts, are completed, 'by April it will stabilize’. Government, he said, is exploring all opportunities to prevent future recurrence of an energy crisis as being experienced now and which visited past governments.

Another factor leading to the power crisis is more technical and affects supply reliability. There is a tight demand and supply situation requiring draw down of the Volta Reservoir below the minimum recommended level of 240 feet; power generation from turbine one is lower than expected due to an outage of one combustion turbine unit; there is inadequate transmission capacity in the western sector resulting in stability problems during maintenance outages. Also aged transmission lines and substation equipment and reduction in scheduled imports are some of the technical issues that have all contributed towards the present predicament we find ourselves in.

One way of curbing the power crisis and even ensuring that it does not occur again is the need for strong political will by government to put in places plans and reforms of the energy sector. Reforms typically involve a combination of higher prices to make possible better access and reliability. The political economy of energy reforms brings into focus the impact on the winners and losers. The winners include those in trade, services, industry, agro-business, mining and households that have been deprived of a reliable source of electricity. The losers tend to be privileged urban based wage and salaried citizens and the middle classes whose access to electricity is less affected by the crisis. Losers are better able to organize protests against price increases. Winners, on the other hand, are too numerous to organize support in favor of assured supplies. 

Interestingly, the Ghana Industrial Association sees itself as on the gainers’ side, and had long called for higher electricity prices to ensure more reliable and plentiful supplies. They also see the new prices as more affordable than the alternative of diesel-run generators. There is also the added risk that other parties will seek to take advantage of the protests from the losers to embarrass the Government but in true essence increment in energy tariffs is important for maintenance and sustainability of the sector.

 

For cash-strapped energy utilities to be able to finance future investments and maintain current plant and equipment, prices must cover long run costs including the life line tariff subsidy. There is no escape from this principle. Pricing below this level simply means future load shedding or worse. Where there are budgetary implications of social or political imperatives (protection of poor people, strategic industries), these must be explicitly paid for from revenues or through cross subsidies. However, limits must always be built in, since what is spent on energy subsidies is not available for roads, schools or health care. . In all countries that have succeeded in allaying energy crises, this principle has been adhered to. Examples include Chile, Argentina, and Uganda most recently. In Ghana, the supply of power to VALCO at preferential rates has both costs and benefits that need to be revised, and the analysis publicly shared and debated.

Going forward, there is also a need to educate the populace about energy consumption and the need to reserve energy and consume it wisely. It is common knowledge that any economy where households are taking a bigger percentage of the energy than the industries is in for trouble, because households don’t produce anything from the electricity they consume. They use energy only for their comfort and convenience. Therefore if the household consumption is greater that the industrial consumption, then there is something fundamentally wrong with the economy. For the sake of comparison, South Africa has 80% industrial energy consumption and 20% household consumption. 

Ghana’s laudable aim to improve on it middle income status by 2015 requires a growth rate of at least 8-10% per annum over the next 8 years. The implications of this for energy demand management, supply planning and implementation, and institutional building are enormous. In addition to the questions addressed here, energy conservation, renewable energy and energy sustainability will need to be taken up by the Commission. The idea of a nuclear energy option has also been raised in Ghana, and is under study. This is a laudable longer term goal. As with other options, the technical, economic, financial, social and political dimensions will need careful analysis before a decision and timeline are arrived at. While we should study this option, we should be putting our more pressing energy sector house in order before we can earnestly and meaningfully focus on a nuclear option. As we contemplate our current energy challenge, will we grab the bull by the horns this time, or look back in anger when the next crisis hits?