In response, the government has opened up the industry to the private sector to support investments in new generation facilities.
New analysis from Frost & Sullivan (energy.frost.com), Strategic Analysis of the Ghanaian Electricity Industry, inds that the industry earned revenues of $287.00 million in 2007 and estimates this to reach $419.00 million in 2014.
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"The booming mining and smelting industry in Ghana is driving the demand for more power," notes Frost & Sullivan Industry Analyst Jeannot Boussougouth. "By 2014, the country will require an additional electricity generation capacity of 2000MW to meet growing power requirements."
The government of Ghana has embarked on a number of significant initiatives to build a reliable power sector to sustain the country’s growing economy. The power sector has been unbundled to create an environment conducive for private sector investment.
"The private sector is being encouraged to diversify into thermal power and enter into power purchase agreements directly with bulk power end users such as mining companies," Boussougouth says. "This deregulation of the energy market will result in cost-reflective tariffs and higher returns on investment for private investors."
Over four independent power producers (IPPs) are already at different stages of power plant construction in Ghana. Approximately 1600MW of additional generation capacity is already under construction and is expected online in the short-to-medium term future.
However, the prevailing low tariffs are an important restraint to the growth of the power sector since it discourages major investment from IPPs. Moreover, the government’s existing hydropower plants are now old and characterised by frequent breakdowns and low availability, resulting in severe power shortages.
"Ghana’s current low tariffs and the delays in establishing a sustainable tariff regime are discouraging many potential power sector investors," cautions Boussougouth. "The current tariff regime is heavily influenced by hydropower and is not attractive to IPPs that are generating power from expensive imported oil."
IPPs investing in the Ghanaian power sector should focus on operating in the deregulated market, where project developers are allowed to enter into power purchase agreements directly with bulk power end-users with mutually agreeable tariff structures. However, the Ghanaian government needs to urgently create enabling legislation for the smooth operation of this deregulated energy market.
"IPPs operating in Ghana need to find a secure source of cheaper fuel to cushion themselves from the prevailing low tariff," advises Boussougouth. "The focus should be on developing hydropower projects, which have very low production costs as compared to expensive imported oil."
Strategic Analysis of the Ghanaian Electricity Industry is part of the Energy & Power Growth Partnership Service programme, which also includes research in the following markets: Strategic Analysis of the Ugandan Electricity Industry, Strategic Analysis of the Cameroonian Electricity Industry, Strategic Analysis of the DRC Electricity Industry, Investment Opportunities for IPPs in West Africa and, Investment Opportunities for IPPs in East Africa. All research services included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.
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Strategic Analysis of the Ghanaian Electricity Industry / M36F