Tariffs regime disincentive to investments in mini-grids - Report

Some flexibility is needed in Ghana’s Uniform National Tariffs (UNT) policy to enable the private sector to offer support to the mini-grid sector, a viability analysis of mini-grid based electrification in Ghana has revealed.

The analysis conducted using different configurations of solar PV, wind, storage batteries and diesel generator sets, showed that levelised cost of electricity was very high in all the configurations, making it unviable for private sector business models, based on the UNT policy.

As a result, the private sector will not be able to participate without support from the government.  

It said while public sector led and private sector operated mini-grid business models had advantages and their disadvantages, they could complement each other in delivering sustainable solutions to the mini-grid sector.

Read: Govt to tap into expertise of private sector  ...

A mini grid can refer to a set of electricity generators and possibly energy storage systems interconnected to a distribution network that supplies electricity to a localised group of customers.

They involve small-scale electricity generation (10 kW to 10MW) which serves a limited number of consumers via a distribution grid that can operate in isolation from national electricity transmission networks.


Issues identified

Ghana has improved access to electricity for residential, commercial and industrial activities over the last couple of decades.

However, about five million of the population, mostly living in rural communities do not have access to the electricity grid.

More than 50 per cent of these people reside in island and lakeside communities, where extending the grid will require an expensive budget to construct.

Government is, therefore, targeting the electrification of these communities using mini-grids, where communities will have independent power generation and distribution infrastructure, independent of the grid.

Apart from the island and lakeside communities there are also some remote rural communities that may also require mini-grid electrification.

“Considering the number of communities and population under consideration, efforts by government could be complemented by the private sector, in order to speed up the process towards attaining universal electrification,” it stated.


Impact of mini-grids

Energy experts say that mini-grids can offer many social, economic and environmental benefits to rural communities and the country at large.

They improve the quality of life and the standard of living through the availability of electricity for households, industry and services.

Economically, mini-grids investments will enable the potential of rural communities to be harnessed. The productive use of electricity can be realised in many sectors which are critical to the growth of rural areas, including agriculture, agro-processing and trading.


Policy recommendations

The study recommends a focus on private sector participation which will require lowering of operating risks faced by investors to help ensure a sufficient return, and this will happen if tariffs are disproportionately reviewed and made favourable to the private sector, especially in places where the government timetable will leave them waiting for many years.

“The cost comparison with the existing tariff structure in Ghana shows that there is the need for a significant subsidy on the tariff paid by mini-grid customers if the UNT remains unchanged.

“Capital cost subsidy is one of the options that government could use to assist the private sector under the current UNT policy,” it said.


Background

Although statistics by the Energy Commission (2020) shows that Ghana is an example of good practice in the region with regards to grid extension, managing to extend electricity access to about 85 per cent, many rural communities still lack access to electricity.

Close to 30 per cent of rural households do not have access to grid electricity, with most relying on torchlights and other flashlights for lighting.  

Many of the unelectrified rural communities are either island and lakeside communities on the Volta Lake, remote off-grid communities, where grid extension is difficult and expensive.

The study modelled techno-economic viability of different hybrid mini-grid systems for different electricity demand levels for Dodi Adjaade, an island community in the Kwahu Afram Plains North District.