Ghana opens solar market for competitive bidding

From the newsletter

The government of Ghana will soon launch a competitive bidding process for solar power projects. The initiative aims to attract private investors to address the country's worsening power issues with renewables and accelerate the transition to a greener energy mix. More details about the bidding process are expected in the coming weeks.

• This initiative sits alongside a government push for the privatisation of the national utility company, the Electricity Company of Ghana (ECG), aiming to improve efficiency and energy service delivery.

• Examples from other African countries such as South Africa, Zambia, Senegal, and Togo, that have implemented similar procurement methods, suggest positive outcomes in terms of cost reduction and capacity addition.

More details

• In the financing space, the government made efforts by allocating $77 million for investment in the energy sector for the 2025 fiscal year. The country has also benefited from international financial support, receiving a $250 million credit from the International Development Association (IDA) and a $360 million loan from the IMF for energy and sector upgrades in 2024.

• The oil-producing nation is aiming to utilise its oil revenue to invest in renewables, and the president is calling for pumping oil as if there's no tomorrow. Speaking at the Africa CEO Forum in Abidjan, Ivory Coast, last Tuesday, President Mahama said, “Oil is in transition. Everybody who has any assets should be pumping like there’s no tomorrow. I will lay out a red carpet for anybody who wants to drill and pump oil because in the next decade or two, the world will have transitioned to renewables.”

• In the policy space, Ghana has made great strides and is even one of the countries in Africa with the highest electrification rates at 84%. 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 in effect from 2019 until the present year, when it is set to end.

• Though private sector involvement has been minimal in utility-scale projects, the majority has been in the commercial and industrial (C&I) sector, which has grown over time to 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 recent policy change is a welcome move. A few African countries, including Kenya, are moving to auction systems for renewable energy projects. This kind of system allows the government to benefit from the real market price, as renewable technology prices continue to decrease, as opposed to the feed-in tariffs used previously.

• This doesn't mean everything will be smooth. There are challenges, such as the risk of getting substandard projects as developers compromise quality to maximise profits. While competitive bidding has yielded positive results in many African countries, progress has not been uniform, and several countries have encountered delays and challenges in their implementation efforts. 

• For instance, countries like Ethiopia and Botswana have faced delays. Factors such as political instability, corruption, and the absence of adequate treasury guarantees can significantly impede project development and deter investors. And Ghana needs to be aware.

Our take

• There couldn't be a better time for such reforms. With the country's energy demand projected to grow by 4.7%, more generation capacity is needed. However, the national utility provider suffers from debts of over $3 billion and cannot build. The private sector is expected to fill this gap.

• The government estimates an annual financing gap of $1.9 billion within the energy sector. The private sector should see this as an opportunity now that the market is becoming streamlined in their favour. But more is needed, especially in building the necessary grid infrastructure.

• Ghana would stand to benefit immensely from switching to renewables, especially in saving foreign expenditure on fuel imports, which support about 62% of its generation capacity.