… to boost regional export
By Kizito Cudjoe
Ghana should consider licencing its independent power producers (IPPs) under the Ghana Free Zones Act to strengthen the country’s position in the West African electricity export market, a leading power systems economist has suggested.
Dr. Elikplim Kwabla Apetorgbor, a power systems economist, maintains that licencing IPPs under the Act will help the country reduce the financial burden of unused generation capacity and turn excess capacity into an economic asset.
With Ghana’s installed generation capacity reaching 5,300 megawatts (MW) compared to a peak domestic demand of 3,600MW, the country faces a surplus that incurs significant costs; largely due to take-or-pay contracts with IPPs. These contracts require the state-owned Electricity Company of Ghana (ECG) to pay for unused capacity, contributing to an estimated US$2billion sector debt.
“These conditions highlight the need for innovative solutions that can integrate Ghana into regional electricity markets, where its excess capacity can meet demand in neighbouring countries; thus providing economic benefits and relieving ECG of the financial burdens associated with surplus capacity,” he stated.
Given this, he argued that by licencing IPPs under the Free Zones Act, the country could leverage its capacity to meet regional electricity demands and reduce ECG’s financial liabilities while creating an opportunity for profitable exports.
The Free Zones Act, he therefore said, provides an innovative pathway for repositioning Ghana’s electricity sector toward an export-oriented model.
Enacted in 1995, the Ghana Free Zones Act was initially designed to enhance Ghana’s trade and manufacturing sectors through tax incentives, duty exemptions and regulatory efficiencies.
Dr. Apetorgbor asserted that extending this framework to IPPs would grant these producers significant cost savings, enabling them to sell power at competitive rates within the West African Power Pool (WAPP) – a regional electricity grid.
He detailed several provisions of the Free Zones Act that could be adapted to IPPs, including tax reliefs. The Act offers a corporate tax holiday of up to ten years followed by a capped tax rate of 15 percent, significantly reducing operating costs.
Also, he noted that import duty exemptions – provided by the Act on essential components and capital goods – would further support IPPs in maintaining competitive pricing structures.
On ‘Export Quotas and Market Access’, he explained that Free Zone enterprises are required to export at least 70 percent of their production. Licencing IPPs under this model, he said, would incentivise electricity exports, facilitating Ghana’s entry into neighbouring high-demand markets such as Burkina Faso, Togo and Mali.
Furthermore, he also recognised the ‘Simplified Regulatory Processes’. The Free Zones Act provides a streamlined framework that can enable IPPs to navigate regulatory processes efficiently, enhancing their ability to respond to regional market demands, he explained.
On the back of these considerations, Dr. Apetorgbor recommended the following measures to effectively licence IPPs under the Free Zones Act.
- Development of a Capacity Market Framework tailored to IPPs export goals. This means establishing pricing mechanisms that allow IPPs to export electricity competitively within WAPP. Infrastructure investments would also be essential, enabling transmission upgrades to facilitate exports.
“Amend the Free Zones Act for IPP Inclusion. Explicitly recognise IPPs as eligible entities within the Act, granting them access to tax and regulatory benefits.”
- Formalise Bilateral Agreements. The Ministry of Energy should work toward establishing power purchase agreements with neighbouring countries, deepening demand for Ghanaian electricity within WAPP and securing stable revenue streams for ECG.
“Adopting these strategies among others, he noted, could also attract significant foreign direct investment (FDI) into the country’s electricity sector, as the Free Zones Act provides an investor-friendly environment through tax exemptions on dividends and profits.”
He is optimistic that with Ghana positioned as a competitive electricity-exporter, foreign investment will drive infrastructure improvement – increasing both production capacity and operational efficiency.
