The most immediate impact of Ghana’s COP26 commitments may be felt in the energy industry. Meeting Ghana’s Nationally Determined Contribution (NDC) of reducing gas emissions by at least 15% by 2030 would require a greater shift to renewable energy sources, which may drive a change in Ghana’s energy mix. At the same time, Ghana is an oil and gas exporting nation and remains a firm believer in the need for a just energy transition, that does not prevent Ghana from capitalising on its own natural resources or from obtaining the funding necessary for hydrocarbon developments. Resolving this tension will need to be at the core of the Government’s energy transition policy as we look ahead to COP27 in Cairo.
Ghana’s Energy Mix
For the first time in any COP decision, the Glasgow Climate Pact expressly called upon countries to accelerate the development, deployment and dissemination of technologies, and the adoption of policies, to transition towards low-emission energy sources16.
In some respects, Ghana is already ahead of the pack. 33.6% of the country’s electricity supply already comes from renewables, with the bulk (32.9% of the total) being provided by hydropower.
However, there is still more to come. The Ghana Government’s Renewable Energy Masterplan 2019 commits to increasing the proportion of non-hydro renewable energy in the national energy generation mix to 1363.63MW and to accumulating carbon savings of about 11 million tonnes of CO2 by 203018, in line with Ghana’s commitment in its NDC to scale-up renewable energy penetration by 10% by 2030.
To achieve these targets, the Renewable Energy Masterplan 2019 estimates required investment of USD 460 million in renewables on an annual basis from 2019 to 2030, of which 80% is expected to come from the private sector.
But achieving this private investment is challenging in Ghana’s current energy landscape.
In particular, because in response to existing oversupply, the Energy Commission imposed a temporary suspension on the issuance of wholesale electricity supply licenses for utility scale grid connected solar PV and wind power plants in 2018. The Energy Commission cited the fact that it had (at the time) issued 124 provisional wholesale electricity supply licences for utility scale grid-connected renewable energy projects since the coming into force of the Renewable Energy Act, 2011 (Act 832), out of which only three have been developed. This suspension remains in place and there is no clear timeline for when it may be lifted.
In addition, the Renewable Energy Act, 2011 (Act 832) was recently amended by the Renewable Energy (Amendment) Act, 2020 (Act 1045) to remove the lucrative feed-in-tariff regime and replace this with a competitive procurement scheme that is intended to deliver a market rate for electricity generated from renewable sources.
In the near term, the Ghana Government is focussing its efforts on mini-grids and off-grid solutions and the new solar generation facilities operated by the Bui Power Authority and the Volta River Authority, the state owned producers. These projects are intended to help the Government achieve its goal of 100% electricity coverage by 2025, in accordance with the seventh SDG.
The World Bank’s Energy Progress Report 2022 - Tracking SDG 7 published at the start of this month22 reported that as of 2020, 86% of the Ghanaian population had access to electricity, which is significantly above the African average, following the National Electrification Scheme. The IEA’s Africa Energy Outlook 2022 recognises that in rural areas, where Ghana’s electricity supply still has furthest to go, solar-based mini‐grids and stand‐alone systems are the most viable solutions.
For further information on Ghana’s energy industry and its law and regulation, please see our guide to Energy Laws and Regulations, Ghana 2022, published by Global Legal Insights, available here .
Mixed Fortunes for the Oil & Gas Industry
The ongoing crisis in the Ukraine and the consequent international sanctions on Russia have exacerbated already tight supplies resulting from the significant decline in global investment in new hydrocarbon developments in recent years, leading to the highest oil prices seen in nearly a decade.
For oil and gas producers, this represents a significant recovery from the historically low prices experienced at the peak of the COVID-19 pandemic. This had led to an increased appetite for investment and activity for some – particularly pure hydrocarbon focussed players.
In Ghana for example, Tullow has continued the multi-year drilling programme that it commenced in April 2021 and pledged “a great deal of activity at our flagship Jubilee field with investment in new infrastructure and new wells to grow production in the near term.”
In addition, both Tullow and Petro SA exercised their pre-emption rights in respect of Occidental Petroleum’s sale of its Ghanaian assets to Kosmos Energy to increase their holding in the Jubilee and TEN fields.
The high oil price environment has not led to movement on the final investment decision on Aker Energy’s Pecan field development in the South Deepwater Tano (SDWT) block, originally scheduled for 2020, which faces challenges from sanctions issues affecting Lukoil, one of the joint venture partners
in the block. The Government of Ghana has granted an extension to Aker for the submission of its plan of development, citing supplier commitments triggered by the war in Ukraine.
The Ghana Government is itself pushing for the further development of its oil and gas resources, and has been a vocal proponent of the need for a “just transition” and that African jurisdictions should not be asked to de-carbonise before they have even carbonised. Last year, the Ghanaian Government announced its intention for the Ghana National Petroleum Corporation to acquire a 37% stake in the Deepwater Tano Cape Three Points (DWTCTP) block and 70% of the South Deepwater Tano (SDWT) block from Aker Energy and AGM Petroleum Limited, respectively. In the memorandum presented to Parliament in respect of the transaction, the desire to avoid stranded or underdeveloped assets in response to the global energy transition was a key motivation behind the transaction.
This message was repeated by the Deputy Minister of Energy, Andrew Mercer, at last months’ Africa Energies Summit in London, who noted that “there existed a real risk of stranded assets owing to Ghana’s vast unexploited oil and gas reserves, but that notwithstanding, Ghana still regarded its crude as a resource vital for national development and the very medium it can use to fund its way to a net-zero status”.
However, this development activity requires significant funding, which is challenging in the current low carbon world.
At COP26, nearly 40 countries and financial institutions committed to phasing out coal use and to stop investing and financing fossil fuel development and projects overseas,26 including several organisations that have previously been active in the energy sector in Ghana.
The International Energy Agency has called for no funding for new hydrocarbon developments beyond projects already committed as of 2021, and governments across the world have scaled back their commitment to fossil fuel funding.
As a result, Ghanaian hydrocarbon projects will need to look to alternative funding sources.
In Ghana, this may include funds available from the Ghana Infrastructure Investment Fund, established by the Ghana Infrastructure Investment Fund Act, 2014 (Act 877), whose investment mandate includes oil and gas exploration, development, distribution and storage, including downstream gas development.
In addition, we expect African multilateral financing to be particularly important.
In its African Economic Outlook 2022, published just before its annual general meeting held last month in Accra with the subtitle: “Supporting Climate Resilience and a Just Energy Transition in Africa”, the African Development Bank observed that Africa has some of the lowest per capita climate finance inflows in the world and outlined the steps it will be taking to provide funding support for the energy sector, including through the strategic use of IMF special drawing rights.
The Ghanaian president, Nana Akufo-Addo gave the opening remarks at the annual general meeting and called for the AfDB to “become the dominant financing institution for African transformation in the medium term”, including through recapitalizing key African financial institutions, such as the regional development banks, Afreximbank, Africa Guarantee Fund, Africa-Reinsurance Company and Africa50.
The IEA’s Africa Energy Outlook 2022 also called upon multilateral development banks to make increasing financial flows to Africa an absolute priority, including to support the development of its gas resources.
In a recent successful example of African multilateral funding of Ghanaian oil and gas development, Aker Energy recently secured an additional USD 100 million of investment from the Africa Finance Corporation for the development of the Pecan field (taking the total raised from the Africa Finance Corporation to USD 200 million).
Ghana’s access to such African multilateral funding should be helped by its move to join the African Petroleum Producers Organisation (APPO), which the Ghanaian parliament approved on 7 June 2022 and which will permit access to funding available through the Africa Energy Investment Corporation and the African Energy Transition Bank.
Looking ahead to Cairo
In the run-up to COP27 in Egypt in November – the first UN Climate Change Conference to be held in Africa – it is clear that the need for a just energy transition for Africa will be high on the agenda.
Last month, the Mo Ibrahim Foundation held its annual forum and published a paper, The Road to COP27: Making Africa’s Case in the Climate Debate, forcefully advocating Africa’s interests in advance of COP27.29 This paper reiterated that Africa is the continent least responsible for historic carbon emissions, but is suffering the most from the adverse effects of climate change. Between 1960 and 2020, Africa only accounted for 3.3% of global emission, but in Africa temperatures are increasing faster than the global average, and are projected to continue doing so during the rest of the century.
As the Foundation noted, if there is to be any hope of addressing the climate crisis on the continent, development-proofing Africa's climate efforts is essential. To that end, the Foundation called for Africa to be permitted to tap in to its existing resources, including gas, the least polluting fossil fuel. Africa’s renewable energy resources are not sufficient to bridge Africa’s energy gap alone.30 The global community cannot adopt a “one-size-fits-all” approach to funding fossil fuel developments in Africa and “there can be no climate justice without energy justice”.
For Ghana in particular, a just energy transition would allow the country to make the most of its oil and gas resources, which may help fund the adoption of renewable energy sources required to meet its NDC targets.
Concentrating on gas focussed projects may be one way to achieve that and, importantly, ensure that the required development funding is available, given the role of gas as a transition fuel. Increased domestic gas production would also help ensure that Ghana does not become overly dependent on gas imports in the years ahead, as the Tema LNG Terminal begins operations and international LNG supplies are constrained as a result of the ongoing crisis in the Ukraine.
The IEA’s Africa Energy Outlook 2022 points to a growing shift towards African production to meet domestic demand, with Africa’s domestic demand for oil and gas to account for around two thirds of the continent’s production by 2030.
Before COP27, Ghana’s Minister of Energy, Dr. Matthew Opoku Prempeh, is scheduled to lead a delegation of representatives from Ghana at African Energy Week in Cape Town in October. Announcing his attendance, the African Energy Chamber noted that attracting international investment to enhance gas production, monetization and utilization as a key energy transition resource would be a key focus for Dr. Prempeh.
Tullow, for example, has recently declared that commercialisation of gas from its Jubilee field and non-associated gas from its TEN fields has the potential to be a significant value driver for Tullow and Ghana and that Tullow and its JV partners are currently in commercial negotiations with the Ghana
Government on a new gas sales agreement to take effect following the end of completion of the free provision of foundation gas expected at the end of the year.
Ghana’s engagement at COP27 is also likely to be influenced by the work of its National Energy Transition Committee. This committee was inaugurated in December 2021 and is tasked with developing a cohesive national energy transition policy. The National Energy Transition Committee has begun stakeholder engagement
We will be following the work of this committee closely, together with any regulatory developments arising from the national energy transition policy once produced, and expect to provide a further update before we head to Cairo at the end of the year.