Take-And-Pay Agreements May Jeopardise Power Sector -Part 2
Alex Mould Writes…
Just a few days ago, I criticized the Finance Minister Ken
Ofori Atta’s (KOA) ill-advised submission to parliament on renegotiating all
take-or-pay power agreements to take-and-pay agreements.
However, just when I thought the dust had settled on the
issue due to the ongoing PDS/ECG saga, I read an article somewhere titled;
“Lessons to be learnt from Ghana’s excess electricity shambles”. An interesting
report but one that has unfortunately no independent analysis to corroborate
the non-facts.
Furthermore, the disappointing part of this report is its
display of extremely shallow investigative research made by the reporter on the
Finance Minister’s unfounded conclusions about the power sector in his 2019
mid-year review.
The first of these
conclusions the author makes is that Ghana’s economy is experiencing a huge
financial strain based on legacy debt in the energy sector.
The author sadly believes this energy debt and costs were
caused as result of “fast-tracked” government private power plants negotiated
as “Take-Or-Pay” (TOP) contracts.
As a result Government of Ghana (GoG) is carrying the
financial burden of paying for idle capacity.
He goes on therefore to agree with KOA’s commitment to
renegotiate ALL these IPP contracts to Take-And-Pay (TAP) as this will remove
that financial burden and save Ghana the $500 million being spent annually on this
excess capacity.
Firstly, the author erroneously refers to Ghana’s installed
plant capacity irrespective of whether that capacity is dependable and/or
available, at the required 90% of its installed capacity. This leads to falsely
referencing 5GW of installed capacity as dependable and available capacity in
Ghana.
Compound this with the article’s lack of analysis of the
power landscape pre-Dumsor, and the reader is left with an inflated and
distorted view of available, and dependable power generated in Ghana today.
Dumsor, (recorded by some think tanks as driving $3bn in
losses in terms of GDP growth), was caused as a result of over 40% gap in power
generation required to meet demand despite at that time Ghana had installed
capacity (3.1GW)in excess of 50% of the demand (2.0GW) in 2013.
At the peak of Dumsor (2013), 8 IPP’s with an installed
capacity of 1.5GW collectively produced at about 50% of their installed
capacity, resulting in only 750MW been available from thermal plants.
In addition, our Hydro plants with installed capacity of
1.6GW, were collectively producing 30% installed capacity, resulting in
approximately 500MW. We were therefore
producing approximately 1.25MW versus required 2.0MW (62.5%), hence Dumsor.
The article unfortunately includes the full installed
capacity of these debilitating plants (in existence pre-Dumsor) into
approximations of available and dependable capacity in Ghana today, in an
effort to inflate and skew known realities.
To understand what was done to avert Dumsor, and meet
Ghana’s power demand projections by 2025 - projected to be in excess of 4000MW
with the required industry standard 18% Reserve capacity - it is important to
provide a proper breakdown of the power landscape, something the article failed
to achieve.
It is only through this breakdown that readers can easily
appreciate the inflated and misleading power generation figures.
It is noteworthy that 2025 is referenced, as this is
pragmatic technical foresight in planning for any country (which the author
quickly glossed over), calling such planning “rushed”. It was important at the peak of Dumsor in 2013
to not only meet Ghana’s power demands at the time of Dumsor, but also refer to
the country’s power demand projections (Including the Reserve Capacity) in the
near future (3.4GW in 2020, and 4GW in 2023) by the sector regulator and other
power experts.
Now back to today’s landscape, and some basic Math. Power
demand and supply is done on a giga watt hours (GWHr) basis but the capacity to
produce these GWHr is from Plant capacity which is in giga Watts (GW); for
simplicity, and since we are talking capacity, I shall refer to GW and not
GWHr;
Ghana’s 2019 peak consumption is projected to be about
2,800MW (2.8GW), give and take, and hydro will supply about 30% of power with
the rest coming mainly from thermal; solar is still less than 0.2%.
There are 15 independent power producers (IPP) thermal
plants available on record, of which approximately 8 plants, are dependable and
available at least 90% of the time and can generate at least the required 80%
of their installed capacity annually as per most IPP agreements; these plants can
and successfully provide 1.5GW “available” power.
Excess installed capacity does not solve the problem- what
is important is that plants are fit for purpose, dependable, available to
produce power continuously, and reliable in a sustainable manner to meet
demand.
This is because installed capacity only tells you what plant
capacity but not necessarily what can be relied upon to meet the demand.
These remaining 7 plants provide the balance of 300-400MW;
these are the older plants - mainly the old VRA plants, and dismantled used
plants brought to Ghana in the early 2000s.
These debilitating plants are inefficient, lack maintenance,
and are performing way below capacity 20-40% on an annual basis; most of these
plants are past their sell-by date either due to age or lack of proper
scheduled maintenance and are actually producing on a take and pay basis.
If any of these Plants’ PPAs still have TOP agreements then
I assume that these IPPs are in violation of their PPAs and these PPAs must be
turned into TAP agreements immediately.
Remember, a take-or-pay is a two-way street; the IPP also
MUST provide a minimum amount electricity and there are normally penalties if
the IPP misses this simple key performing indicator (KPI) of delivering the
minimum amount of electricity as agreed in their PPA.
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