To construct and operate distribution networks, an operator requires an electricity distribution licence issued by the Relevant Regulatory Authority. The Volta River Authority is exempted from the requirement for a licence to produce and supply wholesale electricity from the hydropower installations in the Volta River basin.
An electricity distribution licence is site-specific.
In Ghana, a distribution licence includes a sale licence. This is because the electricity distributors also sell electricity to consumers. A distribution and sale licence authorises the licensee to operate a distribution network and to distribute, sell or retail electricity.
There are four stages for the acquisition of an electricity distribution licence.
Stage one involves the acquisition of a project registration certificate. To obtain a project registration certificate, the applicant must submit a signed letter to the Executive Secretary of the Energy Commission. The applicant will also be required to submit relevant documents, including its business registration documents.
Stage two involves the acquisition of a siting permit. An applicant must submit the required documents to the Energy Commission, including a description of the distribution network and a site analysis report.
Stage three involves the acquisition of a construction permit. An applicant must submit the required documents to the Energy Commission, including an Environmental Protection Agency permit, and a health, safety and environmental plan.
The final stage involves obtaining authorisation to operate. To obtain this authorisation, the applicant will be required to submit relevant documents, including operational experience and expertise or an operation and maintenance agreement.
A distribution licence is granted on the conditions determined by the Energy Commission and includes a condition that the rates or charges for services are subject to the approval of the Public Utilities Regulatory Commission (PURC).
Access to the distribution grid
Who is eligible to obtain access to the distribution network, and what requirements must be met to obtain access?
All power consumers, especially the bulk customers or special load customers, have access to the distribution grid. The distribution utility must ensure that all requirements are met before granting access.
A participant seeking to engage in embedded electricity generation or distributed generation services must negotiate and conclude a distribution network access agreement with the relevant licensed distribution entity. This must be done while seeking a licence from the Energy Commission.
The conditions for connection agreements must comply with the National Electricity Grid Code. The Energy Commission facilitates these negotiations as and when required.
Licensed distribution service providers must connect embedded electricity installations to their distribution network.
Government distribution network policy
Are there any governmental measures to encourage or otherwise require the expansion of the distribution network?
Under Ghana’s National Energy Policy, the policy direction of the government in respect of the distribution infrastructure is to seek adequate investment to improve the electricity distribution network and thereby reduce high system losses and improve the poor quality of electricity supply.
Accordingly, the policy requires the government to:
- assist distribution utilities in regaining their financial health;
- encourage the distribution utilities to seek commercial loan financing to modernise their infrastructure;
- encourage the injection of investment capital from private sources and from the domestic market in the medium to long term; and
- support management in the restructuring of the distribution utilities’ operations towards achieving improved operational performance.
There are many government incentives focused on encouraging the expansion of the distribution network.
For instance, the Renewable Energy Act 2011 (Act 832), as amended, establishes the Renewable Energy Fund. The money from the Fund is applied primarily for the provision of financial incentives, feed-in-tariffs, capital subsidies, production-based subsidies and equity participation for, among others, grid-interactive renewable electricity and mini grid and off-grid renewable power systems for remote areas and islands.
The government, on its part, is committed to improving and expanding the distribution network to achieve its universal accessibility objective. In that light, the government is minded to grant guarantees, comfort letters and tax benefits, subject to parliamentary approval, to foreign investors in the power sector over time.
Foreign investors also benefit from the incentives under the Ghana Investment Promotion Centre Act 2013 (Act 865), including guarantees from expropriation, repatriation of dividends, capital and debt costs in free convertible currency through a licensed bank.
Rates and terms for distribution services
Who determines the rates or terms for the provision of distribution services, and what legal standard does that entity apply?
Rates and other economic terms and conditions for distribution services are determined by the PURC. The technical terms for the provision of distribution services are set by the Energy Commission.
The Energy Commission, in consultation with the PURC, prescribes standards of performance for the supply, distribution and sale of electricity to consumers by licensed public utilities.
The standards of performance are contained in the Electricity Supply and Distribution (Standards of Performance) Rules, 2008 (LI 1935), which deal with matters relating to voltage stability, the maximum number of scheduled and unscheduled outages, the number and duration of load shedding periods, and metering.
An electricity supplier must ensure that the voltage at the point of supply to a customer’s premises or electrical installation is within the prescribed voltage levels. The prescribed voltage levels are within plus or minus 10 per cent of 230 volts, 400 volts, 11 kilovolts, 33 kilovolts or 34.5 kilovolts.
Regulation of electricity utilities – sales of power
Approval to sell power
What authorisations are required for the sale of power to customers, and which authorities grant such approvals?
In Ghana, an electricity sale licence is required for the sale of power to customers. Distribution companies hold both an electricity distribution licence and an electricity sale licence. This is because the electricity distributors also sell electricity to consumers.
A distribution and sale licence authorises the licensee to operate a distribution network and to distribute, sell or retail electricity.
There are two stages involved in acquiring an electricity sale licence. These are the acquisition of a provisional licence and the acquisition of an operational licence (authorisation to operate).
The sale of power to consumers in Ghana is done by three distribution companies, namely:
- the Electricity Company of Ghana;
- the Northern Electricity Development Company; and
- the Enclave Power Company Limited.
The authorities that grant approvals are the Energy Commission and the Public Utilities Regulatory Commission (PURC).
There are two types of markets, namely, the regulated market and the deregulated market.
The regulated market includes the distributors and sellers that are directly supervised by the PURC. Their tariffs are set by the PURC.
The deregulated market is made up of bulk consumers (ie, consumers of electricity with a maximum demand of at least 500KVA consistently for a consecutive period of three months or a minimum annual energy consumption of 1 million kilowatt-hours) who must obtain a permit as bulk customers from the Energy Commission before they can negotiate with suppliers or generators of electricity.
Power sales tariffs
Is there any tariff or other regulation regarding power sales?
In Ghana, the distribution and sale of power are done by the same entities. The PURC determines distribution or sale service charges in accordance with the PURC Rate Setting Guidelines for Electricity Distribution and Supply 2017, the Rate Setting Guidelines for Quarterly Adjustment of Natural Gas, Electricity and Water Tariffs 2022, and the Automatic Adjustment (Indexation) Formula. Because distribution and sale are done by the same entities, the tariff for end users for the distribution of power is embedded in the tariff for the sale of power. Power sales tariffs for end-users, the End-User Tariffs, include a charge for services rendered by the distribution utility, as approved by the PURC.
Wholesale suppliers are entities that generate power and feed into the grid. They also sell power to bulk customers or the electricity distribution utilities. The tariffs to be charged by wholesale suppliers are also subject to approval by the PURC.
The PURC publishes approved tariffs in the Gazette every year on a quarterly basis.
Rates for wholesale of power
Who determines the rates for sales of wholesale power, and what standard does that entity apply?
The rates or charges for wholesale supply of electricity are determined by the PURC.
As a regulatory requirement, utility companies are required to submit rates to the PURC for approval. The PURC approves rates after careful examination of the tariff review proposal made by the utility company.
The PURC Rate Setting Guidelines for Electricity Distribution and Supply 2017, and the Rate Setting Guidelines for Quarterly Adjustment of Natural Gas, Electricity and Water Tariffs 2022 guide the PURC in approving tariffs for the supply of electricity. The Guidelines are informed by the following objectives.
- Consumer interest: this involves maintaining an optimum balance between affordability and availability of service, fair apportionment of the total cost of supply to various classes of consumers, and ensuring long term availability of the service, among others.
- Investor/utility interest: this requires allowance for an appropriate rate of investments to ensure the ability of the utility company and its investors to recover operational and capital expenditure and earn a reasonable return.
- Reasonable cost of production: this involves examination of the cost of production against agreed key performance indices and efficiency benchmarks to exclude unreasonable or inefficient costs.
- Financial viability: this involves allowance for prudent costs as pass-through costs with provision for reasonable return on investment. This includes power purchase costs and the provision of adequate revenue for the sustainability of the business.
- Uniformity of prices and population distribution: this involves allowance for a tariff structure that incorporates uniform rates for all customers within a particular category of consumers, regardless of geographical location, and incorporates different rates for different consumer categories in accordance with the cost of service.
- Economic development of the country: this involves allowance for special rates for priority consumers whose activities may enhance economic development.
Public service obligations
To what extent are electricity utilities that sell power subject to public service obligations?
There are standards of performance that are required to be observed by the utilities. Except where a licence or authorisation given to a public utility is revoked, suspended, cancelled or expires, a public utility cannot refuse to provide its service to any person within its catchment area without the prior written permission of the PURC.
Licensed public utilities are required to maintain their equipment and property used in the provision of the service in a condition that enables them to effectively provide their services. They must make the reasonable effort necessary to provide to the public a service that is safe, adequate, efficient, reasonable and non-discriminatory.
Public utilities must submit monthly bills to their consumers. Strict rules govern the termination of services by public utilities.
Licensed public utilities are required to make the repairs, changes, extensions and improvements in or to the service that are necessary or proper for the efficient delivery of the service to the consumer. They are subject to penalties, including payment of compensation to consumers who suffer any damage or loss on account of their failure to discharge their service obligations.
Kimathi & Partners Corporate Attorneys – Kimathi Kuenyehia Sr, Curtis K N Hope-Wudu and Sefakor Kuenyehia
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