Ghana’s power paradox: thermal energy surges, but debt to IPPs hits $2.5 bn

A JoyNews Research Analysis:

Ghana's energy landscape is changing dramatically. Thermal power is replacing hydro as the main electricity source. This shift comes with a high cost, both financially and structurally. Independent Power Producers (IPPs) are owed over $2.5 billion by the government.

From Water to Fire: A Two-Decade Transition

The Energy Commission’s report shows a significant trend from 2000 to 2024. In 2000, thermal sources had only 580 MW of capacity, while hydro had 1,072 MW. By 2024, thermal capacity surged to 4,032 MW, far exceeding hydro's 1,584 MW.

This change affects how Ghana powers homes and businesses. Hydro was once vital for energy independence but has plateaued. Meanwhile, thermal power has increased significantly due to IPP investments and efforts to stabilize supply during shortages in the early 2010s.

The IPP Dilemma: Heavy Reliance, Heavier Debt

Thermal power's rise is linked to IPPs stepping in during the mid-2010s crisis. They built plants that now support Ghana’s thermal generation. However, this reliance has created financial issues.

President John Mahama stated that the state owes IPPs and fuel suppliers about $2.5 billion. This debt highlights an unsustainable energy financing model for Ghana. Most contracts are take-or-pay agreements; thus, the government pays for unused power.

Thermal power dominates generation but incurs high costs in foreign exchange and debt. Ghana burns more gas and imports more fuel while accumulating arrears.

Dependable but Costly: What the Numbers Say

In 2024, Ghana’s total installed capacity reached 5,749 MW; thermal contributed 70%. For dependable capacity—actual reliable output—thermal leads with 3,695 MW out of a total of 5,211 MW.

Hydro's contribution has stagnated at just 1,411 MW this year—a slight increase from 1,040 MW in 2000. Despite attempts to integrate renewable energy sources like solar and waste-to-energy technologies, they contribute only a small fraction: about 133 MW installed and just 106 MW dependable capacity.

Fuel Imports and Forex Pressure

Thermal generation relies on importing natural gas and other fuels. This dependence exposes Ghana to global market fluctuations. The government struggles with foreign exchange pressures when paying suppliers amid cedi depreciation.

Gas agreements with Nigeria and investments in LNG terminals aim to ease these issues but face delays in payments and infrastructure challenges. The forex pressure remains significant as Ghana pays IPPs in dollars while collecting tariffs in cedis—a clearly unsustainable model!