THE RISE OF GHANA's ENERGY SECTOR DEBT: A TIMELINE OF CRISIS AND SOLUTIONS

 

Ghana’s energy sector has been plagued by financial instability for decades, after shifting from a hydro-dominant system to a thermal-heavy structure with high operational costs. This transition coupled with inefficient contracts, and electricity tariffs set below cost-recovery levels, has led to an unsustainable debt burden. Ghana's energy sector is financially unsustainable (Energy Commission, 2019). Tariffs are pricing structures which determines how much you pay for your electricity usage.

Origins of the Energy Debt Crisis

Before 1997: A Stable Hydro-Based System

• Ghana relied primarily on hydropower from the Akosombo  and Kpong Dams, which provided cheap and reliable electricity. Read about the history of the Ghanaian energy sector
• Electricity tariffs were low, yet the Volta River Authority (VRA) operated profitably because hydroelectricity had minimal costs.

1997–2011: Growing Demand and the Shift to Thermal Power

• As Ghana’s economy expanded, electricity demand outpaced hydroelectric supply.
• To meet growing demand, the country invested in thermal power plants, which use natural gas and fuel  which cost significantly more than hydro. Read about why Ghana transitioned from hydro to thermal
• Despite rising production costs, electricity tariffs remained artificially low, leading to accumulating financial losses (because the government sought not to burden the populace by increasing the tariffs to balance the operational costs).

2012–Present: The Burden of Costly Power Purchase Agreements (PPAs)

• Ghana signed long-term Power Purchase Agreements (PPAs) with Independent Power Producers (IPPs) to meet demand.
• Many of these agreements were "take-or-pay" contracts, meaning the government had to pay for electricity even if it wasn’t used. Read about the various forms of contractual agreements.
• This resulted in excess electricity generation that Ghana could not afford, deepening financial losses

The Growth of Energy Sector Debt

Ghana’s energy debt crisis worsened due to continuous financial deficits, which accumulated yearly.

Debt Growth Over the Years

Year	Annual Deficit ($ Billion)	Total Debt ($ Billion)
2018	- 2.75 *                            -	2.75
2019	- 1.275                             -	4.02
2020	- 1.613                             -	5.63
2021	- 2.072                             -	7.70
2022	- 2.285                             -	9.99
2023	- 2.571                             -	12.56

Total Energy Sector Debt (2023): $12.56 billion

Where  USD 2.75 Billion* is the initial deficit in 2018.

Source: Energy Commission

In addition to the accumulated debt, Ghana’s energy sector also faces a projected shortfall of $8.27 billion, which means that revenues(tariffs) are still far below what is required to sustain the industry.

Understanding the Energy Sector Shortfall ($8.27 Billion in 2023)

The energy sector shortfall represents the gap between expected revenue and actual financial obligations that is required to counter the debt effectively

What Does the Shortfall Include?

1. Debt Owed to Power Generators (IPPs)

   • As of 2023, the Electricity Company of Ghana (ECG) owed IPPs GHS 36.4 billion (~$3 billion).

2. Debt Owed to ECG by Consumers

   • ECG is also struggling to collect GHS 9.8 billion (~$800 million) from consumers.

3. Revenue Deficit Due to Subsidized Tariffs

   • Ghana has historically set electricity tariffs below the real cost of generation, leading to operational losses.

4. High Production Costs from Thermal Power

   • Thermal power is expensive because fuel and gas must be imported.
   • Thermal plants now generate 62% of Ghana’s total electricity, making the sector highly vulnerable to fuel price fluctuations.

5. Electricity Tariffs: The Cost vs. Revenue Gap

Ghana’s electricity tariffs have been historically lower than the cost of production, leading to continuous losses.

Year	Average Electricity Tariff (GH₵/kWh)	Increase (%)
2022	GH₵ 0.79/kWh	-
2023	GH₵ 1.35/kWh	+71%

Why Have Tariffs Been Too Low?

• Government reluctance to increase prices due to political concerns.
• Fear that higher tariffs would lead to public dissatisfaction and economic hardship.
• Subsidies artificially kept prices low, but the government lacked the funds to cover the difference.

Even with the 71% increase in 2023, electricity tariffs still do not fully cover costs, keeping the sector in financial distress.

Ghana’s Power Generation Mix

Ghana’s energy generation relies mostly on expensive thermal power: 

Energy Source	Contribution (%)	Output (GWh)
Thermal	62%	14,930
Hydropower	38%	9,187
Solar & Renewables	Less than 1%	148

• Hydropower’s share has declined from 92% in 2000 to just 38% today.
• Thermal power (which relies on expensive fuel) dominates at 62%.
• Solar and other renewables remain insignificant, below 1%.

Fixing Ghana’s Energy Sector Debt: Bold Solutions for a Sustainable Future

Addressing Ghana’s energy sector debt requires bold reforms, strategic investments, and financial prudence. While the government has implemented several measures, long-term stability depends on renewable energy expansion and private sector involvement.

Key Government Interventions

1. Renegotiation of IPP Contracts

   • The government has restructured $1.7 billion in Independent Power Producer (IPP) debts.
   • Contracts have been modified to ensure payments only for electricity actually consumed, reducing excess capacity costs.

2. Diversification of Energy Sources

   • Investments in solar projects such as those in Navrongo and Kaleo aim to reduce dependence on expensive thermal power.
   • Hydropower remains a key component, but its contribution has declined to 38% of total generation.

The Best Path Forward: Renewable Energy & Green Transition

While current interventions are important, the most effective long-term solution is a consistent commitment to renewable energy.

• Solar energy remains largely untapped and should be a national priority.
• The Northern Regions of Ghana receive an average solar irradiance of 5.5 kWh/m² per day, making them ideal locations for large-scale solar farms.
• Encouraging third-party private sector investments in wind, solar, and other sustainable energy sources can accelerate Ghana’s green transition.

Conclusion

Solving Ghana’s energy crisis requires more than just debt restructuring demands a forward-thinking strategy that prioritizes sustainable energy investments. By expanding solar energy, engaging private investors, and diversifying power sources, Ghana can achieve financial stability, reduce energy costs, and build a more resilient energy sector.

Fig 1: Solar Installation (is solar however the answer?)