Ghana invests $77m in the energy sector

From the newsletter

A $77 million investment in Ghana's energy sector has been approved by Parliament for the 2025 fiscal year. This comes after the country faced load shedding challenges in 2024. The allocation will support initiatives to improve electricity distribution and advance renewable energy through the "Government Goes Solar" project.

• Commercial and industrial customers have borne the brunt of recent electricity supply cuts. Although they represent just 14% of the total customer base for the electricity utility, their heavy consumption accounts for over 59% of the total electricity used, making them the primary source of revenue for the utility.

• The government is pushing for the privatisation of its national utility company, the Electricity Company of Ghana (ECG), aiming to improve efficiency and energy service delivery. However, these efforts have been met with opposition.

More detail

• Ghana is one of the oil-producing countries in Africa, but it has yet to utilise its oil revenue to support energy transition, unlike what other major oil-producing countries like Egypt and Saudi Arabia have done. Although the government is planning to invest the oil revenue into renewable energy initiatives, including residential solar installations and solar-powered streetlights.

• The country has ambitions to achieve a 10% renewable energy share by 2030. It has articulated plans to establish a renewable energy investment and green transition fund for this course.  This fund is intended to attract both local and international investments to support the development of renewable energy projects throughout the country, both large and small-scale. Captured in the image is the  5 MW floating solar PV system on the Bui reservoir. It is the first of its kind in the West African sub-region.

• Ghana's energy sector has benefited from financial support and technical assistance from various international organisations and through bilateral agreements in the past 1-2 years. In June 2024, the World Bank approved a $250 million credit from the International Development Association (IDA) and an additional $10 million grant from the Energy Sector Management Assistance Programme to support Ghana's 4-year Energy Sector Recovery Programme for Results (PforR).

• In December 2024, the International Monetary Fund (IMF) approved a $360 million credit facility for Ghana, bringing the total disbursements under the country's $3 billion Extended Credit Facility (ECF) to $1.9 billion. These funds are intended to strengthen the governance of state-owned enterprises, improve domestic revenue generation, rationalise non-priority expenditures, and address challenges in the cocoa and energy sectors.

• The energy policy space for Ghana is much more developed. It provides incentives, including a tax reduction for renewable energy manufacturing and assembling firms and an exemption from 5% of import duties and 15% of value-added tax (VAT) on their materials, components, equipment, and machinery. This has been applied from 2019 until now and is set to come to an end this year.

• The private sector hasn't been very active in utility-scale renewable energy projects, but has been more active in the commercial and industrial sector, which has installed over 60 MW of solar capacity. The government also introduced an emission levy on carbon-intensive industries starting in January 2024, which is expected to drive renewable energy investment in the C&I sector.

• The country's energy demand is projected to grow by 4.7%, and the total fuel expenditure for 2025 is estimated at $1.3 billion to be used for the procurement of natural gas and oil for the energy plants. This is a huge burden on the national power utility company, considering it has debts of over $3 billion and faces challenges in collecting enough revenue to pay for the gas supply.

Our take

• The government estimates an annual financing gap of $1.9 billion within the energy sector. The current allocation of $77 million is just a drop in the ocean. The private sector should seize the opportunity and invest.

• The country needs to establish a competitive procurement process for renewable energy projects, which can help to drive down costs and accelerate their implementation. Strengthening the existing net metering policy would further incentivise the adoption of distributed solar energy by allowing consumers to feed excess power back into the grid.

• Ghana would stand to benefit immensely from switching to renewables, especially in saving foreign expenditure on fuel imports.