ASEC's review of the energy sector in Ghana's 2025 budget
Key Issues in the Energy Sector
The energy sector has been grappling with substantial financing shortfalls, which have escalated over the years.
• The government spent GH¢20.8 billion in 2024 to support the energy sector, diverting funds that could have been used for social services and infrastructure development.
• The financing gap for the 2025 fiscal year is projected at GH¢35 billion, despite previous interventions.
• The total financing shortfall for the 2023-2026 period is estimated at GH¢140 billion, significantly impacting Ghana’s fiscal health and requiring urgent solutions.
2. Independent Power Producers (IPP) Debt
• Ghana’s legacy arrears to IPPs stand at US$1.73 billion as of 2024.
• This unresolved debt poses risks to power supply reliability and financial stability in the sector. Without a clear payment structure, IPPs may reduce electricity generation, leading to increased power outages and affecting economic productivity.
3. Debt in the Electricity Sector
• The Electricity Company of Ghana (ECG) owes GH¢68 billion, creating immense financial pressure on the government and the energy market.
• The rising cost of power generation, inefficiencies in revenue collection, and technical losses continue to weaken the sector’s financial performance.
• Poor metering and billing systems, as well as electricity theft, further contribute to ECG’s liquidity crisis.
Government’s Energy Sector Interventions in 2025
The 2025 Budget outlines several interventions aimed at stabilizing the energy sector and ensuring its sustainability:
1. Revenue Mobilization and Debt Management
• The government plans to renegotiate IPP contracts to reduce fixed capacity and operational costs. This is necessary to ease financial strain and make electricity tariffs more affordable.
• The Energy Sector Levies Act (ESLA) will be reviewed to consolidate key levies, such as the Energy Debt Recovery Levy, Energy Sector Recovery Levy, and Sanitation & Pollution Levy, ensuring funds are efficiently allocated to settle energy debts.
2. Tariff Adjustments and Cost Recovery Measures
• The Public Utilities Regulatory Commission (PURC) will continue its Quarterly Tariff Adjustment to align electricity prices with inflation, exchange rate fluctuations, and energy generation costs.
• A major tariff adjustment is expected in Q4 2025 to cover additional capacity charges, operational costs, and capital expenditures.
3. Fuel Supply and Cost Optimization
• The government intends to increase the natural gas supply from 60 mmsc per day to 100 mmsc per day, reducing reliance on expensive liquid fuels for power generation.
• This move will significantly lower electricity generation costs and minimize Ghana’s dependence on costly fuel imports.
4. Energy Sector Efficiency Improvements
• ECG and NEDCo will implement new metering and revenue collection strategies to reduce losses and improve financial performance. Smart metering systems will help curb electricity theft and enhance revenue mobilization.
• The government will reverse subsidies on the Weighted Average Cost of Gas granted to certain industrial consumers, ensuring a cost-reflective pricing model that prevents financial losses in the sector.
Long-Term Sustainability Plans
The government is also laying the foundation for long-term energy sector reforms, which include:
• Integration of renewable energy sources into the national grid to reduce reliance on fossil fuels.
• Diversification of Ghana’s energy mix by investing in hydropower, solar, and wind energy projects.
• An audit of the energy sector’s financial operations to improve transparency and ensure the efficient use of resources.
Critical Review of the Energy Sector Measures
While the 2025 budget proposes various interventions to address the challenges in the energy sector, there are some concerns and potential shortcomings:
1. Over-reliance on Tariff Adjustments
• While tariff adjustments are necessary, frequent price hikes could burden businesses and households, leading to lower energy demand and public dissatisfaction.
• Alternative revenue sources, such as attracting private sector investments and Public-Private Partnerships (PPPs), should be explored.
2. Lack of Aggressive Debt Reduction Strategies
• The government’s plan to renegotiate IPP contracts is a step in the right direction, but more needs to be done. A structured long-term payment plan for IPPs should be established, ensuring that Ghana honours its commitments while reducing fiscal pressure.
3. Slow Progress in Renewable Energy Adoption
• The budget acknowledges the importance of renewable energy, but it lacks detailed implementation strategies for scaling up solar, wind, and hydropower projects.
• A clear roadmap for increasing Ghana’s renewable energy share in the national grid is essential to achieving energy security.
4. Inefficiencies in ECG and NEDCo Operations
• ECG continues to struggle with debt and revenue collection. Without significant structural reforms, allocating more funds to ECG may not resolve the underlying issues.
• The government should consider partial privatization or restructuring ECG to improve efficiency and financial performance.
Proposed Recommendations to the Minister and Government
To ensure the sustainability of the energy sector, the following recommendations should be considered:
1. Implement a Comprehensive Debt Restructuring Plan
• The government should work with financial institutions to restructure the energy sector’s debts, providing a clear repayment framework that balances affordability with fiscal responsibility.
2. Strengthen Energy Governance and Transparency
• The government must conduct regular independent audits of the energy sector to ensure funds allocated for energy reforms are used effectively.
• Establish an Energy Sector Financial Oversight Committee to monitor how revenues are collected and utilized.
3. Encourage Private Sector Investment
• The government should introduce tax incentives and attractive investment conditions to encourage private sector participation in renewable energy projects and power distribution services.
4. Expand and Accelerate Renewable Energy Projects
• The Ministry of Energy should set a target for renewable energy adoption (e.g., achieving 30% of electricity generation from renewables by 2035).
• Implement large-scale solar power farms and mini-grid solutions in rural areas to reduce dependency on thermal power plants.
5. Strengthen Energy Efficiency Policies
• Introduce policies that encourage energy conservation, such as energy-efficient appliances, smart grid technologies, and industrial efficiency programs.
• Implement energy efficiency audits in industries and public institutions to reduce electricity wastage.
Conclusion
The 2025 budget acknowledges the deep financial crisis in the energy sector and presents bold interventions to improve efficiency, reduce debt, and ensure sustainability. However, critical concerns remain regarding over-reliance on tariff adjustments, slow renewable energy adoption, and inefficiencies in ECG operations. By implementing debt restructuring, governance reforms, and private sector engagement, the government can create a more stable and resilient energy sector. A sustainable energy sector is vital for Ghana’s industrialization, job creation, and long-term economic growth. The success of these initiatives will determine whether Ghana can navigate its current energy crisis and secure a reliable energy future.