Alternative Energy & Power 2022

Last Updated June 19, 2022

Ghana

Law and Practice

Authors



Ferociter was established to provide legal advisory services with the right blend of law, policy and commercial sense. Ferociter’s practice focuses on six broad areas, including its dynamic Energy and Natural Resources Practice. The Energy team is made up of seven team members led by Sarpong Odame. Ferociter operates from its head office located at Labone, Accra, Ghana. Within the renewable energy sector, the firm and its partners have significant experience in advising clients on regulatory requirements as well as advising and negotiating on behalf of clients on complex power purchase agreements. The team recently advised Ghandour Cosmetics Limited on its solar asset purchase arrangement with Daystar Power Group. Members of the firm’s group have also advised on renewable energy projects including advising Engie, Tysilio and Solar Africa on the regulatory regime for operating within the renewable energy sector in Ghana. The team also has significant experience in corporate law, M&A and project finance work, which are relevant for advising on transactions within the renewable energy sector.

Principal Laws

The principal laws that govern the power industry in Ghana are:   

  • Energy Commission Act 1997 (Act 541) (“EC Act”);
  • Renewable Energy Act 2011 (Act 832) (“RE Act”); and
  • Public Utilities Regulatory Commission Act 1997 (Act 538) (“PURC Act”).

The EC Act established the Energy Commission (EC), which is the principal government agency responsible for the regulation, management, development and utilisation of energy resources and the licensing of entities operating in the energy sector.

The RE Act established the framework for, among others, the development management, utilisation and supply of renewable energy for power generation. It also cloaked the EC with the authority to regulate the renewable energy sector and the market participants within the renewable energy supply chain.

The PURC Act established the Public Utility Regulatory Commission (PURC). The PURC is primarily responsible for monitoring and regulating rates charged by utility services in Ghana. It is also mandated to promote fair competition among public utilities and to protect the interest of consumers and providers of utility services.  Further, the RE Act cloaked the PURC with the authority to approve rates chargeable for the purchase of electricity from renewable energy sources by public utilities, charges for grid connection and rates chargeable for wheeling of electricity from renewable energy sources.

Structure and Ownership of the Power Industry

The power industry in Ghana is relatively liberal, although the government still maintains a significant market share across the energy supply chain. The power industry can be unbundled into three main parts, namely: generation, transmission and distribution.

Prior to 2005, the generation subsector was solely controlled by the Volta River Authority (VRA), a statutory corporation established under the Volta River Development Act, 1961 (Act 46). The generation subsector has now been liberalised with both public and private participants.

The transmission subsector is, however, under the exclusive control of the Ghana Grid Company Limited (GRIDCo). GRIDCo an independent state-owned entity that controls the National Interconnected Transmission System (NITS). 

The distribution subsector has also seen some liberalisation of three distribution utilities in Ghana, two of which are state-owned and one private sector-owned.

Electricity Generation Entities

State-owned

The principal stated owned electricity generating company is VRA. VRA was established in 1961 and until 2005 was the sole entity operating the generation, transmission and distribution of electricity in the country.

VRA owns and operates the two main hydro plants in the country, the Akosombo and Kpong Dam, with a total installed electricity generating capacity of 2,532 MW. 

VRA also owns a number of thermal plants including 330 MW Takoradi Thermal (T1) Power Station, a 340 MW Takoradi International Company Thermal (T2) Power Plant, which is a joint venture (JV) between VRA and TAQA from Abu Dhabi; and a 110 MW Tema Thermal 1 Power Plant (TT1PP) now designated Station 2, an 80 MW Tema Thermal 2 Power Plant (TT2PP) designated as Station 3, a 220 MW Kpone Thermal Power Station (KTPS).

The Bui Power Authority (BPA) is another state-owned electricity generating entity that manages the Bui Generating Station (BGS), with 405 MW of hydro-generated power, which was commissioned in 2013.

BPA has taken steps to generate power using renewable energy sources including its 250 MW solar project, 50 MW of which has been completed and connected to the NITS; 1 MW Floating Solar PV installed on its reservoir to preserve the lake and segment BPA’s power generation; and a 30 kW rooftop solar PV that powers all the lighting load at BPA’s Accra office.

Privately owned

There are also a number of independent private power producers (IPPs) in Ghana, namely Takoradi International Company Limited, Sunon Asogli Power, Cenpower Generation Company Limited, Karpowership Ghana Company Limited and CENIT Energy Limited. Most of these produce electricity from either solar or thermal plants.

The principal IPP is Cenpower Generation Company Limited, the first licensed IPP in the country. It developed the Kpone Independent Power Plant (KIPP).

KIPP is the largest IPP in the country and it makes up for about 10% of the total installed capacity and about 15% of thermal generation capacity in Ghana. KIPP is a 340 MW, gas and oil-fired, combined cycle power plant and the most fuel-efficient thermal power station in the country.

Takoradi International Company (TICO) is a joint venture between TAQA and VRA with a 330 MW T2 combined-cycle power plant, which generates approximately 15% of the country’s total capacity.

Electricity Transmission Entities

GRIDCo, established in 2006 exclusively operates the National Interconnected Transmission System (NITS). Prior to the establishment of GRIDCo, VRA was the responsible entity for the transmission of power within the country. GRIDCo’s mandate is to transmit electricity from generators to bulk customers and distributors, operate the wholesale electricity market and provide telecommunication services.

Electricity Distribution Entities

State-owned

The stated owned distribution utilities in Ghana are Electricity Company of Ghana (ECG) and Northern Electricity Distribution Company (NEDCo).

ECG is wholly state-owned and the largest distribution company in the country. It is responsible for the distribution and supply of electricity in six administrative regions in southern Ghana: Ashanti, Central, Eastern, Greater Accra, Volta, Oti and Western Region.

NEDCo is charged with the distribution of electricity to the Brong Ahafo, Northern, Upper East and Upper West regions of Ghana.

Privately owned

Enclave Power Company Ltd (EPCL) is the only privately owned electricity distribution company in the country and distributes electricity to the Tema Free Zones Enclave in the Greater Accra Region. EPCL has about 50 industrial customers.

Foreign Investment Restrictions in the Power Industry

There are no restrictions on foreign participation within the power industry. Foreign investors will, however, be required to contribute the minimum capital contributions required for foreigners to carry on business in Ghana.

The Ghana Investment Promotion Centre Act 2013 (Act 865) (“GIPC Act”) establishes the Ghana Investment Promotion Centre (“GIPC”), which is mandated to, among others, register, monitor and keep records of all enterprises in Ghana.

Under the GIPC Act, a foreign person is required to invest a minimum of USD200,000 in cash or capital goods relevant to the investment in the case of a joint ownership of the enterprise with a Ghanaian holding at least 10% equity participation.

Under the Energy Commission (Local Content and Local Participation) (Electricity Supply Industry) Regulations, 2017 (LI 2354) (the “Local Content Regulations”), every enterprise within the electricity supply industry must have a minimum level of local content and local participation. Thus, enterprises within the electricity supply chain cannot be wholly foreign-owned. The local equity participation levels start from 15% and is expected to increase to 51% in ten years of the enterprise’s operations. For some sub-sectors, such as the electricity distribution subsector, the law requires a minimum local equity participation of 30%, which is expected to increase to 51% in ten years.

Protections that apply to foreign investment

The GIPC Act was enacted to promote foreign investments within the country. Thus, all foreign investors must register with the GIPC before commencing any business operations in Ghana.

A company registered with the GIPC enjoys the following protections:

  • Foreign investors are protected against any form of discrimination and enjoy the same rights, duties, and obligations applicable to Ghanaian citizens.
  • Foreign investors' entity is protected against any form of expropriation by government. Where expropriation of entity is required for the national interest or public purpose, the entity is guaranteed fair compensation and access to the High Court for the determination of an adequate compensation.
  • Foreign investor is guaranteed unconditional transferability of freely convertible currency of dividends, or net profits, foreign loan repayments, fees and charges in respect of technology transfer agreements, remittance of proceeds (net of all taxes) in the event of a sale or liquidation.
  • In the event of a dispute between the foreign investor and the government, the dispute can be settled in any of the following ways: first any national or international settlement dispute mechanism agreed by the disputing parties will apply; or second, the dispute could be resolved through arbitration in accordance with the UN Commission of International Trade Law; or finally the dispute can be resolved in in accordance with the UN Commission of International Trade Law.

First, under the EC Act and the RE Act, a person is restricted from conducting any commercial activity within the power sector without a licence from the EC. According to the law, the licence granted by the EC is non-transferable without the prior written approval of the EC. To that extent, any transaction (asset purchase, share transfer, business amalgamation or merger), which has the effect of transferring the licence to a different owner or entity will be subject to the approval of the EC.

Second, the law does not specify the process for obtaining the approval and the timeframe. The market experience has, however, been for the EC to require the acquirer to meet and maintain all the qualifications the previous owner satisfied before it was granted a licence. Usually, it would take the EC a minimum of three months to approve any such transactions. 

The government, through the Ministry of Energy (MoE), is responsible for the supervision and administration of the energy sector in general. The MoE formulates policies within the energy sector. It also monitors and coordinates the activities of the various energy sector agencies and market participants such as the EC, PURC, VRA, GRIDCo and ECG.

The MoE carries out its activities by coordinating with the technical agencies such as the EC and the PURC, who are mandated to advise the Minister on national policies for the efficient, economical and safe supply of electricity having due regard to the national economy. The MoE is required to prepare national plans that would ensure that all reasonable demands for energy are met.

The EC and the PURC are the sector agencies that oversee and administer the electricity supply and the development of transmission facilities in Ghana.

The EC is responsible for technical regulation of the power sector and the licensing of the operators within the industry.

PURC is responsible for approving rates of electricity sold by distribution utilities to the public and the monitoring of the quality of the electricity delivered to consumers.

The Renewable Energy (Amendment) Act, 2020 (Act 1045) was enacted to amend the RE Act to enable consumers of electricity benefit from reduced cost of electricity generation from renewable energy sources through competitive procurement instead of the feed-in tariff scheme. Additionally, the amendment established a net-metering scheme to encourage the self-generation of electricity using renewable energy sources on a power cost reduction or climate change mitigation basis and not for income generation.

Bui Power Authority (Amendment) Act 2020 (Act 1046) grants the BPA the mandate to execute renewable energy projects on behalf of the state, undertake its owner renewable energy activities and undertake clean energy alternatives in the country.

The government of Ghana was considering merging the PURC and the EC into one entity. According to the government, the merger would enhance efficiency in regulating the energy sector. This would be a material change in that it would essentially place the licensing and price regulations of the energy sector in the hands of a single entity.

Since the implementation of the RE Act, 124 provisional wholesale electricity supply licences for utility scale grid-connected renewable energy projects have been granted. However, only three have been developed.

The EC has therefore suspended the issuance of wholesale electricity supply licences and permits for utility scale grid connected solar PV and wind power plants.

Structure of the Wholesale Electricity Market

Wholesale Electricity Market (WEM) was established for wholesale electricity trading and the associated provision of ancillary electricity services.

The Electricity Market Oversight Panel (EMOP) established by the EC in accordance with the Electricity Regulation 2008 (LI 1937) supervises the operation and administration of the WEM.

Wholesale electricity is governed by the electricity market rules. GRIDCo determines the price of electricity in the wholesale market considering factors such as capacity and energy, bilateral contracts it has administered, ancillary services and EMOP administrative expenses.

Wholesale Electricity Pricing

Under the law, transmission charges in the wholesale electricity must be uniform throughout the country. The spot market price for electricity must be based on the system marginal cost of supply and merit-order dispatch. The price of electricity is regulated by the PURC. Thus, even though GRIDCo determines the price of electricity in the wholesale market, these prices are subject to PURC approval.

The importation and exportation of electricity to and from other jurisdictions is permitted in Ghana. Ghana has signed the ECOWAS Energy Protocol, which calls for, among others, its members to establish non-discriminatory conditions for energy imports and exports.

Ghana exports power to its neighbouring countries including Togo, Benin and Burkina Faso. When necessary, Ghana sometimes imports power from Ivory Coast. Ghana’s transmission system interconnects with Togo and Benin via a double circuit 161 kV transmission line connecting the Akosombo Dame to both countries and with Ivory Coast via a single circuit transmission line between Prestea and Abobo substation in the Western Region of Ghana.

The importation and exportation of electricity is done through these interconnections.

Also, Ghana is a member of West African Power Pool (WAPP). The aim of WAPP is to integrate the national power systems into a unified regional electricity market to promote the electricity trading among ECOWAS member states.

The electricity supply mix in Ghana is mainly composed of hydroelectric and thermal sources amounting to over 99% of the electricity generated in the country. Renewable energy (excluding hydro) comprises less than 1% of the electricity supply.

Subject to the principal laws already discussed in 1.4 Principal Laws Governing the Sale of Power Industry Assets, there are no concentration limits regarding the percentage of electricity supply that is controlled in the market by any entity.

Electricity supply in Ghana is undertaken by the electricity distribution entities. As mentioned earlier, there are three distribution companies in Ghana. These companies distribute and sell electricity to a designated area within the country. Thus, they have monopoly within the areas in which they supply electricity.

The EC and PURC oversee the activities of these companies to ensure that the supply of electricity is not undertaken in a discriminatory manner.

Under the PURC Act, the PURC must promote fair competition among public utilities. The PURC Act does not, however, provide specific regulation and processes for checking anti-competition. Moreover, the PURC has not developed any regulations to control anti-competition within the power sector. The EC is also required to ensure that uniform rules of practice exist for the transmission, distribution and sale of electricity.

The law does not provide any enforcement or sanctioning regime for anti-competition within the power sector.

Climate Change Laws

The RE Act was enacted to regulate the development, management, utilisation and adequate supply of renewable energy.

The Renewable Energy Master Plan (REMP) has been implemented with the aim of diversifying the energy mix and reducing the country’s dependence on biomass as the main fuel for thermal plants. REMP considers the use of wind, solar and hydro in the energy sector. A successful implementation of REMP would lead to carbon savings of 11 million tonnes of CO₂ by 2030.

Ghana updated its nationally determined contribution (NDC) in line with the Paris Agreement. Under Ghana’s NDC, the government aims to attain an absolute greenhouse gas emission reduction of 64 MtCO₂e by 2030.

The NDC does not indicate the steps that would be taken to achieve this carbon emission reduction. However, it indicates the goals to be attained in the various sectors. Under the power sector, Ghana aims to:

  • Promote energy efficiency in homes, industry and commerce.
  • Promote energy-efficient refrigeration and air conditioning.
  • Reduce carbon electricity generation.
  • Expand the adoption of market-based cleaner cooking solutions.

There are no policies or programmes targeted at providing compensation to entities that own coal-fired generation facilities. The scope of the REMP expands beyond Ghana’s initiatives captured in the NDC to support projects in biomass utility scale and other distributed and standalone renewable energy.

The government has put in place programmes and measures to develop the use of renewable energy sources in Ghana. The government seeks to make renewable energy 10% of its energy supply by 2030 and to provide universal access to electricity to the remaining communities that still do not have access.

The RE Amendment Act was put in place to enable consumers of electricity benefit from reduced cost of electricity generation from renewable energy sources through competitive procurement instead of the feed-in tariff scheme. The competitive procurement enables the government to set limits for the capacity and the budget. Further, the high competition leads to cost efficiency as opposed to feed-in tariffs, which can be costly.

The establishment of the Renewable Energy Fund by the government provides financial resources for the promotion, development, management and utilisation of renewable energy sources.

The government has also put in place tax exemptions for market operators within the renewable energy sector. For example, all solar panels imported into Ghana are exempt from VAT and industrial or energy plant, machinery or equipment are exempt from import duty.

The REMP also proposes additional incentives such as exemptions from import duty on plants and plant parts for generating electricity from renewable energy sources, which, when implemented, will be additional incentives for market operators.

The above incentives are specified under the law. Thus, a market participant does not require any specific contract with the government to enjoy the incentives.

The EC Act and the RE Act are the principal laws governing the licensing for the construction and operation of generation facilities within the conventional power and renewable energy markets respectively. The laws provide the basic framework for the application of licences for the construction and operation of generation facilities. In addition to this, the EC issues licence and permit application manuals for service providers in the electricity supply industry, which contain an in-depth procedure on the application process. The most recent manual was issued in August 2019.

An applicant intending to construct and operate an electricity generation facility must obtain a wholesale supply – electricity generation licence (“Wholesale Licence”). The process for obtaining the Wholesale Licence is outlined in the Licence and Permit Application Manual prepared by the EC.

The EC is responsible for granting the wholesale supply-electricity generation licence. The process is subject to a detailed assessment and can be divided into five main stages. The EC will only consider the application when the appropriate fee is paid. Fees paid on submission of an application only cover the specific stage in the licensing process.

Stage 1 – Acquisition of project certificate licence

The entity must first register the project with the EC and obtain a project renewable registration licence, which is valid for two years. This licence allows the prospective entity to participate in any competitive tender in the electricity supply industry, engage with potential off-takers for the purchase or sale of power, financiers, sponsors and grid operators.

Stage 2 – Acquisition of siting permit

A siting permit from the EC is required to ensure that the site selected for electricity generation undergoes due diligence for environmental, power evacuation and safety concerns. Before this permit is granted, the applicant may be required to make a presentation before the EC’s siting committee.

Stage 3 – Acquisition of provisional wholesale supply licence

The applicant then submits an application letter to the executive secretary of the EC, completes the appropriate forms and submits the forms with two copies of the following documents.

  • Land Conveyance Agreement.
  • Environmental Protection Agency (EPA) Permit.
  • Detailed Implementation Schedule.
  • Plant and Machinery Specifications.
  • Building Permit.
  • Signed Power Sale and Purchase Agreement.
  • Signed Engineering, Procurement and Construction Contract (EPC).
  • Local Content & Local Participation Compliance.
  • Health, Safety & Environmental Plan.
  • Safety and Technical Procedures.
  • Third Party Insurance.
  • Grid Impact Study Report.
  • Proof of Payment of 10% of Initial Licence Fee.

The EC may request for further information where necessary. An application will be deemed to have been successfully submitted if all relevant supporting documents are submitted and the required fees are paid. The EC will acknowledge receipt of the application within ten days of submission and indicate whether the application fully satisfies the requirements.

A provisional licence is issued subject to the applicant achieving its financial close for the construction. The provisional licence is valid for a period of 18 months.

Stage 4 – Acquisition of wholesale supply licence (authorisation to construct)

The applicant must apply to the EC for a full licence on achieving a financial close. The EC will cancel the licence without an option to renew if the applicant fails to reach financial close before the expiry of the 18-month period.

The EC will decide on the status of an application within 60 days after acknowledging receipt of the last relevant submission. The EC would usually grant the licence if it is satisfied that the proposed generating plant meets an established power demand, has been procured through a competitive bidding process and meets the EC’s requirements to supply electricity safely and efficiently.

Stage 5 – Operations approval

After the construction is fully complete and the facility has been commissioned, the entity must submit a commissioning report to the EC for the approval of operations. It is this approval that enables the entity to commence commercial operations.

As part of the process for obtaining the Wholesale Licence, the applicant must also obtain an environmental permit from the EPA. The process can be summarised in six steps.

Stage 1 – Registration of the undertaking

The applicant will be required to complete an Environmental Assessment Registration (EAR) Form. The EAR Form is purchased from the EPA Regional District Office or the Head Office. The EAR Form must be submitted with the site plan signed by a licensed surveyor.

Stage 2 – screening, scoping

The applicant will then be required to prepare an Environmental Impact Assessment (EIA) study to understand fully the environmental impacts of the proposal and how they would be mitigated. The process will include a scoping exercise, which involves widespread consultations with interested and/or affected parties to identify key issues of focus and to develop the terms of reference (TOR) for the EIA study. This must be followed by a scoping report with a draft terms of reference for the EIA study. Ten copies of the scoping report must be submitted to the EPA for review and acceptance.

Stage 3 – Environmental Impact Assessment

Once a scoping report with the TOR is accepted by the EPA, the applicant must then commission a detailed EIA study. The applicant must then submit 12 copies of a draft EIA Report (known as the Environmental Impact Statement) to the EPA for review.

Stage 4 – Submission and review of Environmental Impact Statement (EIS)

As part of the review, copies of the EIS are placed at vantage points including the EPA library, relevant District Assembly and EPA Regional Office and the Ministry of Energy for a particular undertaking and a public notice issued in the national and local newspapers about the EIS publication and its availability for public comments within 21 days. The EPA is mandated to conduct the review of the EIS and make its decision known to the proponent within 50 working days.

Stage 5 – Public hearing

In certain cases, the EPA may be required to hold public hearings on the proposed project where:

  • a notice to the public results in serious public reaction to the commencement of the proposed undertaking;
  • the undertaking will involve the dislocation, relocation, or resettlement of communities; and
  • the EPA considers that, the undertaking could have extensive and far-reaching effects on the environment.

If the public hearing is held, the prescribed time for EPA actions and decision-making on the application may extend.

Stage 6 – Environmental Permitting Decision (EPD)

Upon submission of a draft EIS, the EPA would conduct a review of the report within 25 working days. The outcome of the review could be one of the following:

  • Environmental permit to be issued upon finalisation of the report and submission of eight hard copies and an electronic copy.
  • Revision and resubmission of the draft EIA.
  • Environmental Permit declined (objection to the project).

The EC imposes terms and conditions on licences granted for the construction and operation of generation facilities. The conditions may include limitations and constraints that are determined and imposed by the EC or statutory requirements stipulated by the EC Act.

Amendment or relaxation of term/condition of approval

An entity may apply to the EC for a variation of a condition of a licence. The application shall be made in writing setting out the decisions to which it relates, the grounds for the application and evidence the EC should take into consideration. This application must be lodged with the EC 14 days after receipt of decision of the grant of the licence.

The EC will stay the execution of the condition while the EC is reviewing the application and will make a decision within 30 days of receipt of the application.

If an entity is still dissatisfied by the EC’s review it has the right to appeal to the Ministry of Energy and then subsequently to the courts. The appeal must made within 14 days after the written notice of the decisions of the review.

How Rights to Surface of Land are Obtained

A proponent for the construction and operation of a generation facility must obtain a siting permit, which is evidence that the site selected for the construction has undergone due diligence for environmental, power evacuation and safety concerns.

In order to obtain this permit, the proponent must submit to the EC a conveyance agreement or a search report from the Lands Commission confirming ownership and availability of the land for the project.

The proponent will be required to make a presentation to the Siting Committee of the EC.

1. Project Summary and facility overview

The proponent would have to provide a summary of the project, which would include the description of the site including descriptions of the major alternatives considered, the principal environmental and socioeconomic consideration of the preferred and alternative sites.

2. Review of need for proposed project

The proponent shall explain the need for the proposed facility, and the factors it relied on in coming to this conclusion. A statement of the expansion plans of the facility would also be required as well as the proposed schedule covering all applicable major activities and milestones of the project.

3. Site and route alternative analyses

The proponent should have done a site study evaluating all practicable sites, routes and route segments for the proposed facility.

4. Technical Data

The proponent must submit information on the location, major features and the topographic, geologic, and hydrologic suitability of site/route alternatives.

5. Environmental Data

The proponent must disclose all environmental effects of the proposed facility on the site and its surrounding environs.

Compensation

If the construction leads to an interest in land being extinguished, the affected persons are entitled to compensation. Compensation must be fair, adequate and prompt. The quantum of compensation would depend on the use, type and location of the area expropriated.

An entity operating a generating facility must implement measures for the undertaking of decommission of the facility. The implementation must conform to the both the EC’s and the EPA Guidelines.

As part of the process for obtaining the environmental permit the EIA must address the possible direct and indirect impact of the undertaking on the environment at the pre-construction, construction, operation, decommissioning and post-decommissioning phases.

This decommissioning plan must be submitted to the EC for prior approval. A licensee must prepare and submit a decommissioning plan usually within 12 months of receipt of a licence, if one was not submitted during the application process.

The decommissioning plan must be reviewed at least once every five years during commercial operations and the entity must submit a report of the review to the EC within three months after the review. Any proposed amendment to a decommissioning plan should also be submitted to the EC.

The EC must be notified at least 60 days prior to the commencement of a decommissioning. The entity must adhere to the decommissioning plan that was approved by the EC.

A licensee must stop decommissioning when asked to do so by the EC and can only commence with the written consent of the EC. The licensee is responsible for the full cost of decommissioning.

Where a licensee refuses/fails to decommission a plant in accordance with the approved decommissioning plan or contrary to the orders of the EC, the EC shall undertake the decommissioning itself but at the cost of the licensee.

The EC Act and EC Manual together govern the licensing for the construction and operation of transmission facilities; and provide an in-depth procedure on the application process.

Also, the Electricity Transmission (Technical operational and standard of performance) Rules, 2001 LI 1934 establishes the requirements, procedures, practices and standards that govern the development, operation, maintenance and use of the high voltage national interconnected transmission system.

Finally, the National Electricity Grid Code sets out requirements, procedures, practices and standards that govern the operation, maintenance and use of the high voltage transmission system.

An applicant intending to construct and operate an electricity transmission facility must obtain an electricity transmission licence.

Under the law only one electricity transmission licence shall be granted at a particular time in the country. Currently, the licence has been granted to GRIDCo.

An applicant for a transmission facility licence shall submit an application letter with the following documents:

  • Completed application form.
  • Business registration documents.
  • Ownership and corporate structure, including information on previous licences held or applied for by a director/promoter of the company.
  • Information on cross-ownership and ringfencing in other electricity-related businesses.
  • Company’s business model.
  • Details of local content and local participation.
  • Payment of application fee.
  • Description of transmission network.
  • Fire certificate.
  • CVs of key personnel involved in the operational aspect of the business.

The conditions for a transmission licence includes:

  • Conditions for the safe, reliable economic dispatch and operation of the national interconnected systems for the transmission of electricity.
  • Transmission of electricity without discrimination to a wholesale supplier of electricity.
  • Tariffs to be charged for the transmission services are subject to the approval of the PURC.

Amendment or relaxation of term/condition of approval is the same as 4.3 Terms and Conditions Imposed in Approvals to Construct and Operate Generation Facilities.

This is the same, as detailed in 4.4 Proponent's Eminent Domain, Condemnation or Expropriation Rights.

Under the law, only one entity shall be licensed to undertake transmission services. Thus, GRIDCo is the only entity responsible for electricity transmission services in Ghana.

There is therefore no territorial wrangling among transmission entities since GRIDCo has the monopoly rights in the entire country.

The Electricity Transmission (Technical operational and standard of performance) Rules, 2001 LI 1934, as mentioned in 5.1.1 Principal Laws Governing the Construction and Operation of Transmission Facilities, governs the provision of transmission services. It lays out the obligations of each participant in the transmission process and indicates the contents of the Gid Code.

National Electricity Grid Code sets out requirements, procedures, practices and standards that govern the operation, maintenance and use of the high voltage transmission system.

The PURC is responsible is responsible for approving rates by transmission facilities.

PURC determines transmission charges and the EC establish the terms of a transmission service. In setting the transmission charges, PURC will provide a guideline taking into consideration the interests of the consumer, interest of the investor, and the cost of production.

The ultimate transmission charge is therefore approved by the PURC.

Transmission service is provided on an open-access and non-discriminatory basis.

GRIDCo provides its services to all parties that request transmission. Electricity generators wishing to be connected to the transmission system must enter into a connection agreement with GRIDCo.

The EC Act governs the licensing process for the construction and operation of electricity distribution facilities.

The Electricity Supply and Distribution (Technical and Operational) Rules, 2005 (LI 1816) sets out the rules or practice for supply and distribution of electricity. It covers issues such as the reliability of the electricity supply, the system voltage, meter, payments, etc.

The Electricity Supply and Distribution (Standards of Performance) Regulations, 2008 (LI1935) provides the performance benchmarks for electricity supply and distribution in conformity with the provisions of LI1816.

An electricity distribution licence is required to construct and operate an electricity distribution facility.

The EC is the entity in charge of granting licences for the construction and operation of distribution facilities. The process is subject to a detailed review and assessment and can be divided into four main stages. The Commission will only assess an application when the appropriate fee is paid. Fees paid on submission of an application shall cover the specific stage in the licensing process.

Stage 1- Acquisition of project registration certificate

The entity must first register the project with the Energy Commission and obtain a project renewable registration licence, which is valid for two years. This licence allows the prospective entity to participate in any competitive tender in the electricity supply industry, engage with potential off-takers for the purchase or sale of power, financiers, sponsor and grid operator.

Stage 2 – Acquisition of siting permit

A siting permit from the Commission is required to ensure that the site selected for the generating of electricity undergoes due diligence for environmental, power evacuation and safety concerns. Before this permit is granted, the applicant may be required to make a presentation before the Commission’s siting committee.

Stage 3 – Acquisition of Construction Permit (Authorisation to construct)

An application letter is submitted with the documents below. The applicant may be required to give a PowerPoint presentation of their overall project.

  • Land Conveyance Agreement.
  • Environmental Protection Agency (EPA) permit.
  • Detailed implementation schedule.
  • Plant and machinery specifications.
  • Building permit.
  • Signed EPC contract.
  • Local content and local participation plan.
  • Health, safety & environmental plan.
  • Safety and technical procedures.
  • Supply agreements.
  • Proof of licence fee payment.

Stage 4 – Operational Approval

At this stage, the applicant submits an application letter and the following documents.

  • Satisfactory Commissioning Test Report.
  • Fire Certificate.
  • Operational Experience & Expertise or Operational and Maintenance Agreement.

This is the same as detailed in 5.1.3 Terms and Conditions Imposed in Approvals to Construct and Operate Transmission Facilities.

This is the same as 4.4 Proponent's Eminent Domain, Condemnation or Expropriation Rights.

To some extent it can be said that distribution entities in Ghana have the monopoly rights to provide distribution service within a specified geographical territory. This is because the main distribution companies, that is, ECG and NEDCo, already distribute electricity to specified territories.

ECG’s distribution is focused on the southern part of Ghana while NEDCo’s distribution is to the northern part of Ghana.

This method of distribution was not created as a sort of right for these distribution companies but rather, it is as a result of the proximity of the institutions to the areas they distribute electricity to. The distribution companies must sell electricity in the areas of zones in which they are licensed to operate without discrimination.

The Electricity Supply and Distribution (Technical and Operational) Rules, 2005 (LI 1816) sets out the rules or practice for supply and distribution of electricity. It covers issues such as the reliability of the electricity supply, the system voltage, meter, payments etc.

The Electricity Supply and Distribution (Standards of Performance) Regulations, 2008 (LI1935) provides the performance benchmarks for electricity supply and distribution in conformity with the provisions of LI1816.

The rate-setting guidelines for electricity distribution and supply published by the PURC sets out the principles, methodology and processes for the approval of electricity distribution and supply tariffs by the PURC.

How Electricity Distribution System Charges

The PURC is in charge of setting charges and other economic terms in relation to the distribution system. The PURC has published a four-volume rate-setting guideline for electricity distribution companies. The following are the objectives that must be achieved when setting rates:

  • Protecting consumer interest. This entails ensuring that customers get value for their money in terms of price, quality and reliability of service. It also ensures fair apportionment of the total supply to the various classes of consumers.
  • Investor/utility interest. The rate should enable the utility company recover its operational and capital expenditure while earning a reasonable return as well.
  • Reasonable cost of production. The cost of production is examined to exclude unreasonable or inefficient costs.
  • Uniformity of prices and population distribution. Tariff structure must incorporate uniform rates for all customers regardless of geographic location.
  • Economic development of the country. Allowance will be made for “special rates” for priority consumers whose activities may enhance economic development.

The EC is the responsible institution for establishing the terms of service of electricity-generating institutions.

Ferociter

1 Labone Link
Labone
Accra
Ghana

+233 501 322 149

sarpong@ferociterlaw.com www.ferociterlaw.com
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Trends and Developments


Authors



Senet Corporate Solicitors is a corporate law firm in Ghana offering proactive, practical and competent legal advisory services to individuals and corporate clients. Senet’s area of expertise includes energy, banking and project finance, general corporate and commercial transactions, mergers and acquisitions, investments and joint ventures, mining, oil & gas, construction, regulatory and compliance matters, employment, real estate and dispute resolution. Senet is a go-to law firm in Ghana for transactional legal work. Although a relatively young firm, Senet is punching above its weight and competing favourably with other law firms. International law firms have also found value in partnering with Senet to deliver legal services. The Senet team is made up of dedicated, competent and smart individuals who are committed to the philosophy, values and clients of the firm. The team has the capacity to handle both complex transactional work involving difficult legal concepts and regular legal tasks.

Introduction

Due in part to recent rising costs in electricity tariffs and lack of uninterrupted supply of power from the primary electricity distribution company in Ghana (the Electricity Company of Ghana), some residential customers and industrial firms in Ghana have begun to explore the possibility of using alternative forms of energy for domestic and industrial use.

Most of these consumers of electricity have especially resorted to the use of solar energy. Unfortunately, most solar equipment companies, unless licensed by the Energy Commission of Ghana to sell power, are only able to structure their business model as a sale of solar equipment upon obtaining importation and installation licences from the Energy Commission to do so. This implies that companies offering solar energy as alternative source of power are prohibited from structuring their transactions as a sale of power and therefore cannot peg the purchase price of their equipment to the amount of energy consumed by the customer.

Apart from this restriction, the Energy Commission has also recently engineered the passage of local content regulations in the electricity supply industry, which has significant implications for suppliers of alternative or renewable energy in Ghana.

The purpose of this paper is to discuss the above developments and their implications.

The Energy Commission and the Renewable Energy Sector

Under the Renewable Energy Act, 2011 (Act 832), any person engaged in a commercial activity in the renewable energy sector must do so under a licence and any person operating without the stated licence commits an offence punishable on summary conviction to a fine not exceeding 2,000 penalty units (one penalty unit amounts to GHC12) or to a term of imprisonment not exceeding five years, or to both and where the offence is by a body corporate, the body corporate is liable on summary conviction to a fine not exceeding 5,000 penalty units. “Commercial activity” here is defined as the production, transportation, storage, distribution, sale and marketing, importation, exportation, re-exportation and installation and maintenance.

A licence may only be granted to a citizen, a corporate body duly registered under the Companies Act 2019 (Act 992) or under any other law in Ghana or a partnership registered under the Incorporated Private Partnerships Act 1962 (Act 152) upon application to the Energy Commission. The Energy Commission is required to make a decision regarding any application within a maximum period of 16 days. Applications will be granted as a matter of course unless there is compelling reason not to do so. Such reasons must be founded on technical data, national security concerns, public safety or any other reasonable justification. The licence is non-transferrable, renewable and subject to conditions specified in it.

There are several licences that can be issued by the Energy Commission within the renewable energy space.

  • A licence may be granted for the production and supply of renewable energy product. This licence allows a licensee to either manufacture and assemble a renewable energy product, install, generate and supply electrical energy or produce biofuel or wood fuel in accordance with the directives of the Commission.
  • Where a bulk storage licence is obtained, the licensee is allowed to install a facility for the storage of the renewable energy product. The suitability of the facility is to be determined by the Commission.
  • Where a marketing licence is obtained, the approval of the Commission is to be obtained for the export of each consignment.
  • An importation licence allows the holder of the licence to import for sale of renewable energy products.
  • In the instance of an installation and maintenance licence, the licensee is only allowed to engage in a commercial activity that correlates to the specific renewable energy technology, that is, solar, wind, mini hydro, biogas digester, charcoal kiln or biofuel processing plant.
  • For a bulk transportation licence, the licensee shall only use a vehicle registered with the Commission in the transport of biofuel and wood fuel products.

Energy Commission’s Regulatory Approach on Models for Sale of Renewable Energy Equipment

The last few years have witnessed heightened interest in Ghana for use by residential and commercial customers in the electricity regulated market for renewable energy equipment such as solar panel infrastructure. The interest has been the result of increase in electricity tariffs and the unreliable supply of power. Although the Renewable Energy Act encourages the use of renewable energy in Ghana, the influx of renewable energy equipment has the potential of undermining the continuous viability of the main state-owned distribution utility company, the Electricity Company of Ghana. The concern of regulators of the sector therefore has been to ensure that the sale and purchase of renewable equipment is not used as a pretence to sell power (which has been the preserve of licensed distribution companies like the ECG). The approach therefore of the Energy Commission is to ensure that a contractual structure for the sale of renewable equipment does not involve payment for the equipment on the basis of the power usage by the customer. In other words, any instalment purchase price payments (in the form of leasing, rental, hire purchase or conditional sale) should not be calculated based on kilowatt/hr. Any such arrangement would be considered as a sale of power (a power purchase agreement) by the Energy Commission, which can only be allowed when a power generation licence is applied for and obtained from the Energy Commission.

Unfortunately, there has been an indefinite suspension by the Energy Commission on the issuance of the Power Generation Licence. This has led most companies engaged in the sale of renewable equipment to only obtain an Importation Licence and an Installation and Maintenance Licence. The ban on the issuance of power generation licence has made it impossible for non-holders of the licence to calculate their purchase price of any renewable equipment based on kilowatt/hr as it stands the risk of being interpreted as a power purchase agreement (which will be in violation of the law).

The inability of renewable energy equipment-supply companies to structure their sale transactions with electricity consumption as a basis for the purchase price has become quite a challenge for these companies to meet the demand for such equipment in the market. The incentive for customers to go in for this alternative source of power tend to be minimised when the customer is unable to appreciate the cost saving value as compared to their continuous use of the conventional source of power from the Electricity Company of Ghana. Equipment supply companies would therefore have to come up with innovative models to sell their products to the Ghanaian electricity market. 

The Energy Commission (Local Content and Local Participation) Electricity Supply Industry Regulations, 2017 (LI 2354)

Another development in the alternative energy space in Ghana is the introduction of the above-referenced local content regulations, which came into force upon its publication in March 2018.

One purpose of the Regulations is to ensure that persons engaged in activities in the Electricity Supply Industry (“ESI”) make maximum use of indigenous financial capital, expertise, goods and services to enhance Ghana’s economy. The Regulations obliges a regulatory authority, service-providers or any other entity engaged in an activity in the ESI to ensure local participation and local content forms part of those activities. Another aim of the Regulations is to develop and promote local content and local participation in the ESI by providing an enabling environment to ensure the maximum use of financial capital, expertise, goods and services locally to create employment for Ghanaians, promote businesses in the electricity supply industry and retain the benefits in Ghana; and achieve a minimum of 60% local content and 51% local participation. Pursuant to section 77 of the Regulations, a Local Content and Local Participation Committee (the “Committee”) has been established by the Energy Commission. This Committee in 2019 issued guidelines for the effective implementation of the Regulations.

In the renewable energy sector, the Regulation sets an initial local equity participation of at least 15%, increasing to 51% in ten years. It must also be noted that violation of the Local Content Regulations attracts penalties. It provides, among others, that “a citizen who fronts or connives with a foreign citizen or company to deceive the Commission as representing an indigenous Ghanaian company to achieve the local content and local participation requirement under these Regulations commits an offence and is liable on summary conviction to a fine of not less than 500 penalty units and not more than 1,000 penalty units or to a term of imprisonment of not less than six months and not more than 12 months or to both”.

Under the Regulations, a Service Provider is a person licensed to provide a service under the Energy Commission Act, the Renewable Energy Act; an operator, contractor, subcontractor or any other person performing paid services for a person operating under a licence; or a person who is registered under the Regulations to manufacture electrical equipment, electrical appliances or renewable energy equipment under the Regulations.

The Regulations state that before carrying out any activity in the ESI, a Service Provider must submit to the Committee for approval a plan demonstrating compliance with the local content requirements stated in the Regulations. The local content and local participation plan must consist of the following:

(a) An Employment and Training Sub-Plan.

(b) A Research and Development Sub-Plan.

(c) A Technology Transfer Sub-Plan.

(d) A Legal Service Sub-Plan.

(e) A Financial Services Sub-Plan.

(f) An Allied Services Sub-Plan.

(g) An Ancillary Services Sub-Plan.

(h) A Fuel, Lubricant and Water Supply Services Sub-Plan.

Generally, the Sub-Plans are a summary of a Service Provider’s practical steps to achieving local content and local participation within each of the headings listed above.

According to the Second Schedule of the Regulations, a Service Provider engaged in the development and utilisation of renewable energy resources must adhere to the Second Schedule of the Regulations. Please refer to the relevant schedule by using the following link to the Regulations: Local Content and Local Participation Regulations, 2017 (L.I. 2354)

Also, in compliance with Part B of the Seventh Schedule of the Regulations, a person who engages in an activity in the renewable energy sector and requires equipment as set out below shall purchase the desired equipment from an entity that manufactures it in Ghana. A person who defaults is liable to forfeiture of the equipment imported in addition to the full import duty and levies on the equipment. Please refer to the relevant schedule by using the link above.

According to the Regulations, a Service Provider must be certified 60 days after complete submission of all the required plans stated under paragraph (a) to (h) above once the Committee is satisfied that the local content and participation plan complies with the provisions of the Regulations. It shall then issue a Certificate of Authorisation to the Service Provider.

It is interesting to note that the Regulations do not only apply to existing and future Service Providers within the ESI but to financiers of such service providers, their advisers (including legal, technical and financial), insurance services procured by the service providers, engineering procurement and construction (“EPC”) contractors, Operation and Maintenance (“O&M”) providers and suppliers of fuel to these service providers.

As provided in paragraph 2 under the caption “Local Content and Local Participation in the Renewable Energy Sector” above, a Service Provider must ensure that at least 70% of the EPC contract value must go to a Ghanaian company. Also, Service Providers must ensure that at least 51% of their source of funding are from an indigenous Ghanaian finance institution, which may then partner with a foreign service provider. A service provider is also required to maintain a bank account with an indigenous Ghanaian bank and to transact business of at least 10% of its total financial transactions through the bank account. An indigenous Ghanaian bank means a bank that has majority Ghanaian shareholding.

Concluding Remarks

From the above summary, in as much as the objectives of the Regulations are laudable and ultimately for the benefit of Ghanaians, it would appear the manner in which the Regulations seek to achieve the objectives of promoting local content has the potential of adversely impacting foreign investment and interest in the ESI in Ghana. There has been recent backlash from existing Service Providers against the Regulations as its practicability has been extensively questioned. Their concern is that many parts of the Regulations cannot work under current circumstances and if implemented in its current form, the Regulations will effectively end the independent power project and renewable energy market in Ghana. It has been strongly argued that the Regulations in its current form would make many aspects of renewable energy projects unworkable and need to be urgently reviewed. After stakeholder consultations, the Energy Commission is said to be taking steps to review the Regulations but there is no indication when this revision will be done to address the concerns of the industry.

The Energy Commission may also have to review its policy regarding the new models being introduced by renewable energy equipment suppliers to enhance the use of renewable energy such as solar in the country. It is quite a paradox that although the Energy Commission appreciates the need to encourage the use of alternative sources of energy in Ghana, it appears also to be somehow protective of the status quo.

Senet Corporate Solicitors

No 23 Mama Adjele Rd
East Airport
Accra
Ghana

+233 30 396 2196

info@senetsolicitors.com www.senetsolicitors.com
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Law and Practice

Authors



Ferociter was established to provide legal advisory services with the right blend of law, policy and commercial sense. Ferociter’s practice focuses on six broad areas, including its dynamic Energy and Natural Resources Practice. The Energy team is made up of seven team members led by Sarpong Odame. Ferociter operates from its head office located at Labone, Accra, Ghana. Within the renewable energy sector, the firm and its partners have significant experience in advising clients on regulatory requirements as well as advising and negotiating on behalf of clients on complex power purchase agreements. The team recently advised Ghandour Cosmetics Limited on its solar asset purchase arrangement with Daystar Power Group. Members of the firm’s group have also advised on renewable energy projects including advising Engie, Tysilio and Solar Africa on the regulatory regime for operating within the renewable energy sector in Ghana. The team also has significant experience in corporate law, M&A and project finance work, which are relevant for advising on transactions within the renewable energy sector.

Trends and Development

Authors



Senet Corporate Solicitors is a corporate law firm in Ghana offering proactive, practical and competent legal advisory services to individuals and corporate clients. Senet’s area of expertise includes energy, banking and project finance, general corporate and commercial transactions, mergers and acquisitions, investments and joint ventures, mining, oil & gas, construction, regulatory and compliance matters, employment, real estate and dispute resolution. Senet is a go-to law firm in Ghana for transactional legal work. Although a relatively young firm, Senet is punching above its weight and competing favourably with other law firms. International law firms have also found value in partnering with Senet to deliver legal services. The Senet team is made up of dedicated, competent and smart individuals who are committed to the philosophy, values and clients of the firm. The team has the capacity to handle both complex transactional work involving difficult legal concepts and regular legal tasks.

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