The Institute for Energy Security, IES, wants government to provide at least half of the $1.4 billion dollars owed Independent Power Producers to curtail a possible shutdown of their plants.
Executive Director of the Institute, Nana Amoasi the 7th, says there would be dire consequences for power supply in the country if the IPPs carry out their threat of shutdown considering that they contribute significantly to the national grid.
Prior to the reading of the 2020 Mid-year budget last Thursday, the Chamber of Independent Power Producers and Bulk Consumers, had appealed to government to capture the payment of the about USD$1.4 billion debt owed them in the budget.
But the Finance Minister was silent on the debt. As a result, the Chamber says it is meeting for the next line of action, but noted that the IPPs cannot guarantee full supply of power.
According to the Chamber, as at 30th June, 2020, the cumulative indebtedness to the IPPs was about USD$1.4billion, and it continues to accumulate.
Out of the 1.4 billion, 1.5 percent represents the unsettled legacy debt which dates back to 2016.
About 78 percent also represents the cumulative invoices from the PDS era till date, and the remaining 20.5 represents the default claims with respect to their Power Purchase Agreements.
The Chamber, which is made up of the Sunon-Asogli Power (Ghana) Limited, BXC Solar Ghana, Cenit Energy Limited, Cenpower Generation Company Limited and Karpowership Ghana Company Limited, has repeatedly complained that the continuous accumulation of debt is forcing them to contract costly loans to sustain their generations.
Earlier this year, they warned that power consumers could be faced with severe power outages over the unpaid debt. They have also asked government to review taxes and levies imposed on electricity; to bring some relief to consumers as it has made the industry noncompetitive, over-burdening industry and households.
Government says it captured the debt in the main 2020 budget in November last year, and that plans are in place to pay the arrears after addressing a number of issues including the renegotiation of excess capacity charges and revenue shortfalls by the end of the year.
Executive Director of the Institute of Energy Security, Nana Amoasi the 7th, told Citi Business News government must do the needful, even it means meeting the IPPs halfway.
“The IPPs are entitled to their money when they produce just like any other entity that contributes to our power sector, but they are owed in excess of 1.3 billion dollars. They have threatened on several occasions that they could shut down their system because they are unable to operate. If they go by their word, it means that, we will have a huge problem as a country.”
“In fact, they contribute hugely to the economy, close to 2000 megawatts of the power that we consume, and so if the system should go down, our peak demand which is close to 3000 megawatts will suffer. Are we saying that the power produced from the government utilities is enough to keep us? Aside from the peak demand or rate of about 3000, we need to have about 18 percent margin reserved to cushion any eventualities that may arise. When the IPP system goes down, we will suffer as a country, so, we pray that government will find some money to cushion them.”
In the long-term however, the Institute of Energy Security says the only way to deal with the recurring energy sector debt, is to make renewable energy, which comes at cheaper cost a critical component of Ghana’s power mix.
“With the way we have structured our energy sector, I am unable to state clearly that we will overcome this debt. In fact, it will live with us for a very long time because if you look at the cost of power generation, transmission and distribution, they far outweigh what we pay as consumers. We pay more because we source for power from sources that are quite expensive in nature.”
“If we are looking at just hydro for example, VRA will give us less than three cents per kilowatt hour, Bui will give us somewhere around eight cents per kilowatt hour. What about the IPPs? On average terms, you would have to pay them about fifteen cents per kilowatt hour. This is quite expensive. So, it is the way we have procured our power sources. That has been the main challenge. That is why it is very necessary to dilute this with the introduction of other sources like renewables. If you do competitive bidding and auctioning, you will get less than 10 cents per kilowatt hour, so that we can dilute the situation. It is good to cushion the consumer, but government will pay the cost, and it’s the consumer that generates money for the government too”.