Ghana Energy Future

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GHANA’S ENERGY CHALLENGE: WHAT IS TO BE DONE? Gobind Nankani A satellite picture of Africa at night, compared to other continents is distressing. Bright lights are few and far between. Africa’s energy crisis comes on top of an already weak energy sector on the continent. We are facing a serious wake up call for Africa in general and Ghana in particular. What is needed is a comprehensive rolling Energy Action Plan that is implemented with rigor and precision. Experience from successful energy reforms in other countries confirms that such a plan of action will involve technical, economic, financial, regional, social and political considerations. The implied complexity is not an excuse for slippages and shoddy implementation. It is rather a call to bring the appropriate technical, managerial and political skills to the challenge. The onset of the energy crisis in Ghana, in 2006, was most immediately sparked off by declining rainfall in an energy sector dominated by hydro power. Load shedding, combined with emergency investments and a greater reliance on regional energy supplies from our neighbors have together ameliorated the situation. Load shedding appears to be, for now, behind us. Citizens’ frustrations have been high. Even so, we should not focus on who is to blame for the energy crisis. The more important questions are: What else is to be done? How can we ensure, through an appropriate Action Plan, that energy is harnessed to facilitate growth in Ghana that is shared, accelerated and sustainable? In what follows, we draw upon the experience of developing countries around the world to address three related topics: (1) managing the social and political consequences of energy reforms; (2) balancing adequate energy supplies with fiscal prudence; and (3) ensuring a well-organized and cost-effective implementation of an Action Plan to concrete results.

(1) What are the social and political effects of energy reforms and how can they be attenuated? The key lesson here is that all successful reforms have paid strong attention to three dimensions: First poor households need to be offered a basic supply of electricity at lifeline rates, that is at affordable prices. Lifeline rates have been in place for over a decade, even though the benefits of these lower rates are not all accruing to the poorest. Recent analysis shows that about 50% of the implied subsidy accrues to the non-poor. The reform therefore must ensure that lifeline rates are directed to the poor. It also has to be financially sustainable over time, through cross-subsidies financed by charging higher rates for high-end residential users. Management of lifeline rates, with simple targets that are monitored and regularly published, must be an essential part of the Action Plan. The next dimension is access to electricity. In Ghana, access rates, at 54% in 2005, are respectable in the context of SSA countries. However, this rate breaks down to an urban rate of 82% and a rural rate of 21%. Other countries such as Sri Lanka, Vietnam and Bangladesh have rapidly expanded rural access, making significant use of non-grid

solutions. On a recent visit to a village in one of the poorest provinces in China, I was struck by how cleverly and systematically the rural Chinese used renewable resources: biomass for heating, solar for cooking, rain water harvesting, etc. Our own renewable resources are an asset to harness. The Action Plan must include a program to broaden access to rural areas, and to rely on renewable energy sources such as solar ( still expensive, but the price is rapidly falling as technology improves), wind (increasingly efficient), biomass ( where climate permits), etc Finally the third dimension is political. Reforms typically involve a combination of higher prices to make possible better access and reliability. The political economy of energy reforms brings into focus the impact on the winners and losers. The winners include those in trade, services,...
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