16 March 2015

Ghana renewable energy sector reform update

This article was written by Lom Nuku Ahlijah, Legal Counsel, Ghana Grid Company Limited.

On the African continent, Ghana is one of the leading proponents of renewable energy technology as a means of addressing its energy challenges. This led to the passing of the Renewable Energy Act, 2011(Act 832) (the "RE Act").

Since the passing of the RE Act, investor interest in the Ghanaian renewable energy sector has been on the rise. This rise can be attributed in large part to the three-tier incentive package provided under the RE Act, referred to as the Feed-In-Tariff Scheme. The scheme is made up of the renewable energy purchase obligation, the feed-in-tariff rate, and a connection to transmission and distribution systems.

These incentives, as well as the stable political and economic environment, have ensured continued interest in the renewable energy sector in Ghana.

The Opportunity

Against this background, the number of companies that have applied for provisional licenses for renewable energy projects since the passage of the RE Act in 2011 has been impressive. As at January 5, 2015, there were forty-seven (47) companies issued with provisional licenses by the Energy Commission for renewable energy projects,[1] with proposals to develop hydro, tidal wave, solar, biomass, waste-to-energy and wind resources, as compared with thirty-three (33) companies for conventional power projects.

The proposed generation capacities range from as little as 2MW to  1000MW, with the greater number of proposed projects seeking to undertake less than  100MW. These proposals, if developed, will add significant capacity to Ghana’s power requirements and possibly exceed the national target of achieving a 10% renewable energy power capacity by 2020.

The challenge

As a result of concerns with utility-scale intermittent renewable energy sources (such as solar PV) adversely affecting the integrity of the National Interconnected Transmission System (NITS) of Ghana, the Energy Commission suspended the issuance of new licenses for solar PV projects until such time that a study had been carried out to ensure that the technical issues relating to intermittency of utility scale solar PV plants were addressed.

Regulatory Intervention

On 9 October 2014, after conclusion of its study, the Energy Commission issued a public notice on lifting the suspension on the issuance of licenses for utility scale grid-connected solar PV plants, but subject to some key conditions as follows:

  • Solar PV plants shall not exceed total national capacity as approved by the Energy Commission in order to safeguard the integrity of the NITS.
  • At any given solar PV generation site, a maximum of 20MWp per plant (without fitted storage facilities) shall be allowed connection to the NITS. Where NITS connected solar capacity exceeds 20MWp at a given site, the plant shall be fitted with a storage system equivalent to the excess capacity.
  • For solar PV plants connected to a distribution system, a maximum of 10MWp (without storage) shall be allowed per plant at any given generation site. Where the capacity exceeds 10MWp storage facilities shall be provided for the excess.

It is worth noting, however, that these conditions do not apply to non-intermittent renewable energy technologies.

The notice also stipulates that where arable land or land with economically valuable trees (such as cocoa, palm etc) are to be used for solar PV plants, the design of any such plant shall be such that food crops/economically valuable trees may be cultivated alongside. Evidence of such design will be required by the Energy Commission before granting construction permits to projects.

Also, the Energy Commission is currently engaging stakeholders in the preparation of a Renewable Energy Grid Code to govern the renewable energy sector.

Impact of the notice on the renewable energy sector

The guidelines should lead potential project developers to consider the following:

  • Siting of plant locations – The new directives will imply a segregated plant arrangement rather than large-scale solar PV plants at one location. This may increase the complexity of deal structuring especially in consideration of the diverse land tenure regimes that exist in different parts of the country.
  • Financing of Projects – In terms of project financing, it will impact the type of financing that investors may obtain in view of the smaller and more manageable projects instead of large-scale project financing.
  • Diversification of generation risk – The resultant impact of the new directives is to spread power production capacity over a wider area as a way of increasing efficiency of solar PV plants and addressing the challenge of intermittency.
  • Environmental Considerations – The directives also requires a land use strategy that incorporates economically valuable trees or effective use of arable land into the project design such that solar PV projects are not constructed at the expense of environmental considerations to vegetation and crop development. This will impact site selection and related issues.

It is hoped that these further developments will lead to greater investment in the sector in Ghana over the coming years.

[1] Energycom Provisional Wholesale Supply and Generation Licence Holders

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