Cedi appreciation: Strategic windfall for energy sector recovery and ECG’s solvency

The Ghana cedi (GHS) has historically depreciated, affecting ECG's solvency. The Public Utilities Regulatory Commission (PURC) sets exchange rates below market rates. Most Power Purchase Agreements (PPAs), fuel contracts, and service agreements are priced in USD. Each cedi lost increases ECG's domestic currency burden.

This mismatch between GHS revenue and USD obligations creates financial issues. It leads to delayed payments to Independent Power Producers (IPPs) and power system unreliability. State bailouts have become a recurring necessity.

In 2025, a significant macroeconomic reversal is happening. The GHS has appreciated over 10% against the USD this year. This change reverses nearly four years of depreciation. Factors include IMF disbursements, investor confidence, and tighter monetary policy.

The appreciation benefits ECG and the energy sector financially. It offers a chance to ease ECG’s solvency crisis and improve liquidity.

To understand the impact of the cedi’s appreciation, consider ECG's financial obligations. The utility pays monthly invoices to IPPs and fuel suppliers for electricity generated. Many invoices—especially capacity charges and fuel costs—are in USD.

For example, if ECG receives a monthly invoice of USD 50 million at an exchange rate of 12, it needs GHS 600 million to pay it. If the rate improves to 10.80, that invoice now costs only GHS 540 million. This results in savings of GHS 60 million per month.

Over a fiscal year, these savings total GHS 720 million. This money could reduce payment arrears to IPPs or fund urgent upgrades.

ECG’s unaudited financials show over 35% of its expenses are forex-linked. A 10-12% appreciation significantly impacts its expenditure profile. Proper management could shift ECG from near-insolvency to short-term viability.

Additionally, appreciation lowers fuel import costs handled by intermediaries like VRA and Ghana Gas. Reduced local currency funding eases pressure on cash flow obligations for ECG.

Strategic Implications

The GHS appreciation improves ECG’s working capital position directly. Less GHS is needed for USD invoices allows timely payments to suppliers. This restores payment discipline across the value chain and avoids penalties.

Timely payments also rebuild trust with IPPs and suppliers, ensuring supply continuity without load-shedding risks.

With the GHS appreciating, government transfers supporting dollar-based payments can be reduced significantly. This relief creates space in the national budget for social investments instead of operating subsidies.

ECG has legacy debts in USD that can be repaid using current forex gains strategically now available through improved exchange rates.

Establishing an Energy Sector Forex Stabilization Fund is crucial due to currency movement cycles. Savings should be set aside under strict governance rules for future downturns.

Policy Recommendations

Regulators like PURC and the Ministry of Energy must reassess tariff frameworks urgently now that forex savings exist transparently within utility costs without burdening consumers excessively.

This moment provides an ideal opportunity for renegotiating new PPAs in cedis as well.

Conclusion

The recent appreciation of the Ghanaian cedi marks a strategic turning point for Ghana’s energy sector in early 2025.

ECG can stabilize finances while reducing arrears based on PPA terms if managed wisely now.
However, this opportunity requires foresight and urgency.
Without strategic planning or regulatory coordination, gains may turn into temporary relief rather than lasting improvements.
ECG must institutionalize these gains into structural changes for resilience against future shocks.
As former U.S Treasury Secretary Larry Summers said: “Crises create opportunity.” Ghana’s energy sector stands at such a crossroad today.