Ghana Power Sector Ghana Power Sector Review of Refor Review of Reform Programme Programme Ray Tomkins (ECA) ECONOMIC C ECONOMIC CONSULTING NSULTING ASSOC SSOCIATES LIMI ES LIMITED TED 41 Lonsdale Road London NW6 6RA UK tel +44 (0)20 7604 4545 / fax +44 (0)20 7604 4547 www.eca-uk.com Workshop on 7 February 2003, Accra Workshop on 7 February 2003, Acc 1 (C) 2003. Economic Consulting Associates Ltd
Aims and Aims and � ECA’s consulting assignment: ECA’s consulting assignment: Scope Scope � Assist the Government of Ghana Assist the Government of Ghana (GoG) to take stock of the power (GoG) to take stock of the power sector reform measures to date sector reform measures to date � Advise on further development of Advise on further development of institutional reforms institutional reforms � Scope: Scope: � analysis of power sector restricted to analysis of power sector restricted to review of previous documents and 1 review of previous documents and 1 week visit week visit � We were not required to carry out any We were not required to carry out any new analysis of performance new analysis of performance 2 (C) 2003. Economic Consulting Associates Ltd
Drivers Drivers � Increase access to electricity Increase access to electricity for for � Improve efficiency to keep prices Improve efficiency to keep prices as low as possible as low as possible Change Change � Increase management Increase management effectiveness and effectiveness and accountability accountability � Promote private sector investment: Promote private sector investment: � to help meet financing requirement for the to help meet financing requirement for the growth, including electrification growth, including electrification � attract private investors while minimising t attract private investors while minimising the future requirement for GoG guarantees future requirement for GoG guarantees � This needs a more mo This needs a more modern structure for dern structure for the industry, a market, and a strong the industry, a market, and a strong regulatory framework regulatory framework 3 (C) 2003. Economic Consulting Associates Ltd
1997 reform proposal 1997 refo rm proposal Indic dicative tive tim time Statu Status of of reform reform Create 5 distribution concessions (Distco), Not done privatise programme programme Large consumers. Rationalise and establish EC considering new basis for bilateral contracts with IPPs definition of eligible consumers VRA - unbundling into 4 main activities VRA has started some work on separating accounts Not done ECG set up a holding company for 5 DistCos Not done Establish separated activities as business units Not done Put in place performance contracts for ECG and VRA Establish regulators and regulatory 2 regulators established with framework 2 acts, limited development of regulatory framework Not done Issue regulations and technical rules for the grid and creation of wholesale market 4 (C) 2003. Economic Consulting Associates Ltd
Creating a Wholesale Market Creating a Wholesale Market Regulated Market Regulated Market Non-Regulated Market Non-Regulated Market Imp Imp ort orts/ Expo Expo IPPs IPPs G G Hydr Hydro G rts rt VRA VRA Central Central TSO TSO Market Mar Balancing Bala ncing Mar Market Functions Functi ons Elig Eligib ible le Eligib Elig ible le DistCos Dis Disco Dis Dis Disco Consumer Co ers Franchise Fra ise Consumer Co ers Co Consumer ers 5 (C) 2003. Economic Consulting Associates Ltd
Current Current � VRA is the main producer and VRA is the main producer and buyer of electricity, as well as buyer of electricity, as well as Situation Situation operator of the transmission operator of the transmission system system � VRA is a dominant market player, VRA is a dominant market player, this is a potential barrier to this is a potential barrier to competition and market competition and market development development 6 (C) 2003. Economic Consulting Associates Ltd
What is a What is a � An electricity market is defined by: An electricity market is defined by: Market? Market? � Who are the sellers Who are the sellers � Who are the buyers Who are the buyers � How they trade How they trade 7 (C) 2003. Economic Consulting Associates Ltd
Options Options � Sellers in Ghana will be VRA (hydro Sellers in Ghana will be VRA (hydro plant, and thermal plant), importers, plant, and thermal plant), importers, for Sellers for Sellers new hydro and private thermal IPPs new hydro and private thermal IPPs � Short term competition is not Short term competition is not possible with current generation possib e with current generation configuration configuration � too few power plants to operate a pool oo few power plants to operate a pool � Ghana is too risky for ‘merchant Ghana is too risky for ‘merchant power plants power plants � Competition might be possible in 10 Competition might be possible in 10 years years 8 (C) 2003. Economic Consulting Associates Ltd
� Must be creditworthy ... Must be creditworthy ... Options Options � ... to be able to guarantee ... to be able to guarantee for Buyers for Buyers financing for IPP (15 year financing for IPP (15 year bankable projects) bankable projects) � The Tico project developed by The Tico project developed by CMS is reported to have a high CMS is reported to have a high ROE due to perceived risk ROE due to perceived risk � Three potential buyers for privately Three potential buyers for privately financed power : financed power : � VRA VRA � Large customers Large customers � Distribution companies Distribution companies 9 (C) 2003. Economic Consulting Associates Ltd
1. 1. � If VRA procured future thermal If VRA procured future thermal power plants… power plants… VRA as VRA as � VRA’s current role as single VRA’s current role as single Offtaker Offtaker buyer/seller would continue buyer/seller would continue indefinitely indefinitely � VRA is the most creditable buyer, VRA is the most creditable buyer, but investors likely to continue to but investors likely to continue to seek government guarantees seek government guarantees � This is the single buyer This is the single buyer market model market model � Need to kick-start the market Need to kick-start the market 10 (C) 2003. Economic Consulting Associates Ltd
� Private participants should have Private participants should have 2. 2. open access to open access to the transmission the transmission Large Large network at fair and cost-reflective network at fair and cost-reflective Consumers Consumers prices prices as as � VRA as transmission owner must VRA as transmission owner must Offtakers Offtakers be regulated: be regulated: � Transmission charges must be cost- Transmission charges must be cost- reflective reflective � No discrimination between users No discrimination between users � PURC should ensure transmission charges PURC should ensure transmission charges do not ov do not over-recover costs er-recover costs � one opti one option is full unbundli on is full unbundling of VRA ng of VRA � anot another option is t her option is the acc e accounting separat ounting separation on of VRA with third party access (TPA) of VRA with third party access (TPA) 11 (C) 2003. Economic Consulting Associates Ltd
Market Model: Bilateral Contracts with Market Model: Bilateral Contracts with Balancing Market Balancing Market Regulated Market Regulated Market Non-Regulated Market Non-Regulated Market Impo Imports /Exp /Export orts IPPs IPPs G G Hydr Hydro G VRA VRA Central Central TSO TSO Market Mar Balancing Bala ncing Functions Functi ons Market Mar Elig Eligib ible le Elig Eligib ible le Consumer Co ers Dis DistCos Dis Disco Dis Disco Co Consumer ers Franchise Fra ise Consumer Co ers 12 (C) 2003. Economic Consulting Associates Ltd
� Full unbundling of VRA would Full unbundling of VRA would Is Is ensure ‘level playing field’ for IPPs ensure ‘level playing field’ for IPPs Unbundling Unbundling � Why not unbundle VRA Why not unbundle VRA of VRA of VRA immediately? immediately? Necessary? Necessary? � cost cost of restructuri of restructuring woul g would be hi d be high gh � still not certa still not certain tha n that IPPs would come IPPs would come � First step should be: First step should be: � Accounting separation and functional Accounting separation and functional separation of system operator separation of system operator � Creation of market rules and grid code Creation of market rules and grid code � Strong regulation Strong regulation � If this fails, move rapidly to If this fails, move rapidly to complete unbundling complete unbundl ng 13 (C) 2003. Economic Consulting Associates Ltd
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