draft la ghana country study,en-1

Lighting Africa Policy Support Project

Ghana Country Study Report First Version for PAG Meeting

Jonas Capôco (Leader) XXXXXXXXXX (Assistant) XXXXXXXXXX (Assistant)

Lighting Africa Policy Support Project: Ghana Country Study Report

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Table of Contents

ACRONYMS....................................................................................................................................... 4

0.0 PREAMBLE............................................................................................................................. 5

0.1 Purpose .........................................................................................................................................5

0.2 Study Justification .........................................................................................................................5

0.3 Methodology.................................................................................................................................5

0.4 Expected outcome from the Study ...............................................................................................5

1.0 INTRODUCTION ..................................................................................................................... 6

1.1 Economic Indicators......................................................................................................................6

1.2 Overview .......................................................................................................................................6

1.3 Investment Climate.......................................................................................................................7

1.3.1 Macroeconomic Situation............................................................................................................7

1.3.2 Business Environment..................................................................................................................8

1.3.3 Privatisation .................................................................................................................................8

1.3.4 Power Sector................................................................................................................................8

2.0 STATUS OF ELECTRIFICATION IN GHANA ................................................................................. 9

2.1 National Grid.................................................................................................................................9

2.2 Specific Rural Electrification efforts, grid and /or decentralised................................................10

2.3 Monitoring of rural electrification and energy access progress .................................................11

2.4 Prospect for rapid development.................................................................................................12

3.0 STATUS OF LOW-COST LIGHTING ...........................................................................................13

3.1 Description of any (formal) projects ...........................................................................................13

3.2 Description of informal activities................................................................................................13

3.3 Description of any organizations that might be interested........................................................14


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3.4 Summary results of LA study (if available)..................................................................................14

3.5 Estimation of potential beneficiaries + potential benefits .........................................................15

3.6 Description of efforts to disseminate other consumer items in rural areas ..............................15

3.7 Issues (quality, costs, availability of products, etc.)....................................................................15

4.0 PREVAILING POLICY ENVIRONMENT TO PROMOTE LOW-COST LIGHTING SOLUTIONS – OR

ABSENCE THEREOF...........................................................................................................................17

4.1 Fiscal measures ...........................................................................................................................17

4.2 Subsidies (describe if any, also for competing solutions) ...........................................................17

4.3 Legal (laws that govern electrification, private business development, etc.) ............................18

4.4 Organizational support available ................................................................................................19

4.5 Awareness raising mechanisms ..................................................................................................20

4.6 Financing mechanisms................................................................................................................20

4.7 Private sector effectiveness........................................................................................................21

5.0 SHORT DESCRIPTION OF MAIN BARRIERS....................................................................................22

5.1 Sociological........................................................................................................................................22

5.2 Technological ....................................................................................................................................22

5.3 Economic...........................................................................................................................................22

5.4 Environmental...................................................................................................................................22

5.4 Political..............................................................................................................................................22

6.0 SUMMARY OUTCOME OF ONE-ON-ONE MEETINGS .....................................................................23

7.0 WAY FORWARD..........................................................................................................................27

LIGHTING AFRICA INITIATIVE............................................................................................................28

REFERENCES ....................................................................................................................................30

ANNEXURE A: INSTITUTIONAL PROFILE.............................................................................................31

ANNEXURE B: LIST OF STAKEHOLDERS CONSULTED............................................................................ 1

ANNEX C: MEMBERS OF AGSI ............................................................................................................ 2


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ACRONYMS

CEB Communaté Électrique du Bénin CIE Compagnie Ivoirienne d’Électricité CHRISMASCS Christian Mothers Association Credit Scheme eCARE eCommerce and Renewable Energy EC Energy Commission ECG Electricity Company of Ghana EDAP Ghana Energy Development and Access Project EF Energy Foundation EPA Environmental Protection Agency GEF Global Environment Facility GH¢ Ghana Cedi GNPC Ghana National Petroleum Corporation

GOG Government of Ghana GPRS Ghana Poverty Reduction Strategy GTZ German Technical Cooperation GWCL Ghana Water Company Limited LCO Light Crude Oil NBSSI National Board for Small Scale Industries NED Northern Electrification Department

NHIL National Health Insurance Levy OMCs Oil marketing companies PAP Public Awareness Programme

PURC Public Utilities Regulatory Commission RESPRO Renewable Energy Services Project RBCs Rural Business Centres SHEP Self Help Electrification Programme SNEP Strategic National Energy Plan TOR Tema Oil Refinery VRA Volta River Authority


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0.0 PREAMBLE

0.1 Purpose

The main objective of the case study is to assess policy and regulatory barriers to modern lighting delivery in Ghana and recommend improvements. The case study will identify policy and regulatory barriers in Ghana’s lighting Sub-Sector of the Energy Sector. Recommendations, aiming at improving the affordability and access to modern lighting products and services by the low-income group in the country, will be made. Ghana is among the eight (8) countries where the study is being undertaken.

0.2 Study Justification

The Government of Ghana through policy enactments is aiming at integrating the application of renewable energy as a major component in the provision of increased energy in the country. Ghana, like other developing countries has the advantage in applying solar technology to tap into the energy from the sun to generate electricity for basic applications. The mass of its poor population living in the country side and are confronted with issues of poverty are likely to gain from the provision of solar energy for lighting, radio use, mobile phone charging, income generation enhancement and the provision of water.

The study recall that pioneer projects on the continent introduced community-based PV water pumping systems for schools and institutions as well as for communication. Such projects are important because Africa has the lowest rural access to electricity connection of any continent with the exception of South Africa, and the highest cost delivery of electricity to its rural people. The view has been expressed that since Africa is the least developed, least contributor to global warming, the least energy intensity user, the continent must be allowed to use any forms of energy to accelerate her socio-economic development. However, such views possess serious challenges for energy management. The most obvious choice of energy for the teeming poorer segment of the population must be the least cost option and here, the choice of using Solar PVs and lanterns for electricity need to be examined again by policy makers.

0.3 Methodology

The methodology of this study involved the review of Ghana`s lighting Sub-Sector of the energy sector to establish opportunities and barriers faced as well as barriers related lessons learned. A typical method employed is the review of relevant research and documentation from similar interventions as well as interviews with stakeholders and members of LANAC during a mission to Ghana in mid January 2010. The aim was to look at the overall renewable energy situation albeit low-cost lighting products in the national energy supply chain. Several initiatives were examined and we looked at Lighting Africa projects that were already implemented under the programme and those that are pending, document country-specific policy and regulatory barriers encountered notwithstanding success story out of Ghana.

0.4 Expected outcome from the Study

� Country-specific policy and regulatory barriers are identified

� Results of different policy actions applied in Ghana are presented

� Specific solutions to the problems identified are proposed


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1.0 INTRODUCTION

1.1 Economic Indicators

Table1. Economic indicators for Ghana Figure 1: Country Map - Ghana

Source: Consultant Research Source: Lighting Africa

1.2 Overview

There are several factors favouring the use of off-grid lighting for service provision in rural areas in Ghana. In spite of Ghana’s impressive electrification rate of 64% of its population with access to grid based electricity, rural electricity penetration is limited to 15% - 17%. Ghana has an established renewable energy sector and the market for off-grid lighting products is fairly well developed, with many products on the market. The latter are different types of lighting products within several different product classes; Torch, Floodlight, Task Light, Lantern, and Spot light. Economic growth is sound, although inflation remains high. A quarter of Ghana’s 3.8 million homes are estimated to be electrified. Electricity satisfies about 10% of total energy demand and is mainly produced from hydro sources. The average unelectrified household in Ghana uses firewood and charcoal to meet the demand for process heat, and kerosene and dry cells for lighting. Black and white TVs, radios and tape players are quite popular in rural areas, powered by lead-acid batteries or dry cells. LPG Distribution in rural areas is rare, but several bottling facilities exist in urban centres across the country. Efforts are also being made to develop low-cost gas appliances for dissemination in rural areas. Predominant environmental issues linked to energy resources are deforestation (22,000 hectares or 2.1% per annum), desertification and land degradation (soil erosion). Application of modern RE technologies in Ghana is rather small, even though drought over the last few

Population (2009) 23.1 million

Population Growth 1.88

GDP 2009 (US$ million) $ 14.8 billion

GDP Growth 2009 (%) 4.5%

Inflation Rate 2009 18.5%

GNP/capita 2009 (US$) 390

GDP/capita 1998 PPP (US$) 1 1800

Current account balance (2006) 219 million (est)

Human Development Index 1995 (%) 0.473

Local Currency and Exchange (Jan 2010) 1.00 US$ = GHC 1.44

Stock Exchange Yes

Number of Households rural/urban 2.3 / 1.5 million

People per Household rural/urban 5 / 4.5

Access to electricity (% of population) 64%


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years (2007) has caused a significant power shortage and reinforced the need for additional power sources. As a result, the Ministry of Energy has created a Renewable Energy Development Programme and a Self Help Electrification Programme (SHEP) to help rural communities hook up to the grid. The

SHEP has ended and followed by Ghana Energy Development and Access Project (GEDAP) which aims at providing financial subsidy to off-grid rural communities that would not have access to grid electrification in the next 5 – 10 years. The latter is a five (5) programme financed by the World Bank.

The Global Environment Facility (GEF),World Bank and the Spanish Government conduct programmes in the country that promote modern off-grid lighting. Lighting Africa Project has been involved in Ghana for the provision of reliable non-fossil fuel lighting products to unserved areas and making Lighting Products and services accessible for the poor through its on-going ‘‘Affordable Lightings for All (ALFA) Project’’. The ALFA project objective which is on-going is to develop and test commercially sustainable (non-

exclusive) distribution and marketing chains for electric lighting products/services for deprived people in un-served areas.

As recent, the Government of Ghana (GOG) intends to integrate renewable energy (RE) in its national energy mix and engaged the Ministry of Energy on behalf of GOG to finalise a renewable energy policy and regulatory framework that is to draft a renewable energy law to facilitate a wider adoption of renewable energy technologies and methods for energy production and modern off-grid lighting in Ghana to reduce the dependence on kerosene for lighting. Overall, Ghana Strategic National Energy Plan (SNEP) (2006) envisages a significant role for renewable sources and targets to meet at least 10% of its demand from RE sources by the year 2020. This would translate into a generation capacity of 380 MW from renewable sources and modern lighting products alike. Not least, Association of Ghana Solar Industries (AGSI) a recognized industry association in the off-grid lighting business, established in the objectives of the association to have a common representation and voice to government and donors on policy issues and needs affecting the industry, continue to dialogue with policymakers and donors to see the need to support the development of renewable energy in a sustainable way to help achieve the needed energy security in the form of low-cost off-grid lighting products / solar PV systems for the development of the country.

1.3 Investment Climate

1.3.1 Macroeconomic Situation

The economy of Ghana, West Africa, has a diverse and rich resource base, and as such, has one of the highest GDP per capita in Africa. Ghana remains somewhat dependent on international financial and technical assistance as well as the activities of the extensive Ghanaian diaspora. Gold, timber, cocoa, diamond, bauxite, and manganese exports are major sources of foreign exchange. An oilfield which is reported to contain up to 3 billion barrels (480×106 m3) of light oil was discovered in 2007. Oil exploration is ongoing and, the amount of oil continues to increase .

The domestic economy continues to revolve around subsistence agriculture, which accounts for 50% of GDP and employs 85% of the work force, mainly small landholders. On the negative side, regional peacekeeping commitments have led to continued inflationary deficit financing. Furthermore, Ghana's per capita income has barely doubled over the past 45 years. Even so, Ghana remains one of the more economically sound countries in all of Africa.


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The country has, since July 2007, embarked on a currency re-denomination exercise, from Cedi (¢) to the new currency, the Ghana Cedi (GH¢). Value Added Tax is a consumption tax administered in Ghana. The tax regime which started in 1998 had a single rate but since September 2007 entered into a multiple rate regime. In 1998, the rate of tax was 10% and amended in 2000 to 12.5%.

1.3.2 Business Environment

Economic reforms have created a new business environment / liberal trade environment for the private sector. They include removal of price controls, the lowering of the corporate tax, sales tax and excise tax, removal of controls on interest rates, bank charges and credit allocation. The private sector can now source equity and loans through venture capital companies, equity through the Ghana Stock Exchange and equipment from leasing companies. Current trade liberalisation includes tariffs reduction to a maximum of 25% and the abolition of the import licensing system. Empretec Ghana Foundation and the National Board for Small Scale Industries (NBSSI) have been active over the last couple of decades facilitating the development of private enterprises in Ghana. The private sector’s contribution to the development of the lighting industry in Ghana is growing with the growth and expansion of the economy. Coupled with the government policy of extending electrification through the National Electrification Scheme, the private sector has been the main importer of the lighting products into the country.

1.3.3 Privatisation

The Government has accelerated its program of divestiture of state owned enterprises and rehabilitation of roads, ports and the telecommunication systems, and highlighted the promotion of private sector participation in the power industry in its “Ghana Vision 2020”. “Through public-private partnerships and joint ventures into commercial viable Ghanaian power utilities the state-owned entities transform themselves and assume a leadership role in the development of the proposed West Africa Power Pool.

1.3.4 Power Sector

In the power sector the Government has introduced Independent Power Production (IPP) schemes, and reforms, such as increasing low electricity tariffs towards international levels. Since the mid-1980s the Government of Ghana has been financing projects using small levies on petroleum products. The US$ 250,000 raised annually is paid into an Energy Fund and used to promote renewable energy and energy

efficient projects to ensure that off-grid areas have access to improved lighting systems. Institutional reforms of existing power utilities, including the establishment of Independent Power Production (IPP) schemes, aim to shift the power sector away from its monopolistic and centralised structure. So far only one private company entered the power sector in Ghana. The CMS of Michigan bought a 50% share in the Aboadze thermal power plant. The sector remains largely state-owned.


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2.0 STATUS OF ELECTRIFICATION IN GHANA

2.1 National Grid

Ghana’s first major generation project was the Akosombo hydroelectric dam, commissioned in 1965 with an initial output of 588 MW. Prior to this, several small diesel plants were in operation, providing services to local communities, mines, industries, hospitals and educational institutions around the country. These smaller and more expensive plants were phased out as cheap electricity gradually became available through the national grid. Power output from Akosombo was increased to 912 MW in 1972; followed in 1982 by the addition of 160 MW from a second hydroelectric plant located at Kpong, downstream from Akosombo. In 1998, poor rainfall in the catchment area of the Akosombo dam led to sharply reduced output from the plant, and two foreign companies, Cummins Ltd and Aggrekko Ltd were contracted to run two 30 MW diesel power plants to feed power directly into the national grid. These plants were classified as “Emergency Power Producers” and were eventually shut down in 2000 when the electricity supplied by Volta River Authority (VRA) increased to normal levels. However, a 30 MW diesel plant, commissioned in 1992, is run by VRA in Tema.

Further expansion took place in 1999 with the completion of a 330 MW-combined Cycle Thermal Plant at Aboadze in south-western Ghana. Output at the Aboadze plant was increased in 2000 with the addition of a 220 MW simple cycle thermal generator using waste heat from the original turbines. The expanded plant is jointly owned by the Volta River Authority and CMS Energy of Michigan, USA. In 2000, the Government purchased a 125 MW power barge to generate electricity from natural gas from the Tano fields but this is yet to be commissioned. Ghana’s electricity grid is interconnected with those of the neighbouring countries of Benin, Burkina Faso, Côte d’Ivoire and Togo. Before 1995, Ghana had a surplus of electric power, allowing VRA to export electricity to Compagnie Ivoirienne d’Électricité (CIE) of Côte d’Ivoire and Communaté Électrique du Bénin (CEB) of Togo and Benin. However, as demand grew within Ghana, the country began to face an electricity deficit. VRA now augments electric power supply by buying from Côte d’Ivoire, which has expanded its generation capacity. VRA imports up to 250 MW of power from Côte d’Ivoire, and transmits power onwards to Togo and Benin. Power purchases from CIE have been mixed, with VRA having to import more power during times of crises, for example, during the 1998 drought, which led to a drastic fall in hydro-capacity from Akosombo. There is also some standby generation capacity available. Notably, mining company Anglogold-Ashanti has a 21 MW diesel plant at Obuasi, and the Tema Oil Refinery operates a 6.5 MW diesel plant at Tema. The Volta Reservoir received substantially above-average inflows during 1999, enabling output from Akosombo and Kpong to be raised from 3,830 GWh in 1998 to 5,169 GWh in 1999. By 2003, the water level in the lake fell again to as low as 237 feet in July and about 247 feet in November. The minimum operating level of the dam is 248 feet. Electricity Company of Ghana (ECG) is responsible for distribution of electricity to consumers in southern Ghana, namely in the Ashanti, Central, Greater Accra, Eastern and Volta Regions. The Northern Electrification Department (NED) is responsible for power distribution in northern Ghana, serving the Brong-Ahafo, Northern, Upper East and Upper West Regions.

In spite of the achievements that Ghana has made in its electrification distribution of electricity to

consumers and the fact that Ghana with a per capita electricity consumption of 301kWh (2007) has one of the lowest consumption levels among developing countries, only 55% of its population has access to


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grid based electricity, while rural electricity penetration is limited to 15% -17%. Traditionally, the focus of the electricity sector has been on commercial grid electricity and import of fossil fuels. All rural and urban households in Ghana benefit from the lifeline tariff. The electricity tariff in Ghana was 12 Usc (2003). Ghana had concessionary tariffs. In Ghana these tariffs are intended to benefit the low-consumption customers.

This study argues that large portions of the country are still without electricity. Consequently, other

forms of modern lighting need to be diffused to address the problems in the rural areas.

2.2 Specific Rural Electrification efforts, grid and /or decentralised

Ghana has had many interventions to improve access to modern energy services by the rural folk in order to support socio economic development. The objective of these interventions has been to create wealth (cottage industries etc.) employment and alleviate poverty. The key vehicle for improving access to modern energy in the rural areas is the Government's rural electrification program.

Access to electricity is one of the essential services needed to meet the basic needs of rural households. Rural electrification involves bringing electricity to rural and remote areas. Ghana have a majority population in rural areas (56%), which have limited access to grid supply (15 - 17%). Electrification of remote areas in Ghana through the national grid is economically unfeasible as well as ecologically harmful, because of the following factors:

a) The low density of potential consumers. b) The low income levels of rural societies. c) The high cost of imported equipment and transmission of electricity. d) Using fossil fuel is politically, economically, and socially unfavourable.

Renewable energy resources in Ghana, which include solar, biomass, wind, and hydro, can be tapped in rural areas to meet the local energy demand. This has already been initiated, in particular, with Solar PV based rural electrification projects and modern lighting products in isolated remote communities. Two national projects: Off-Grid Solar PV Electrification project; and UNDP/GEF/Renewable Energy Services Project (RESPRO), have made a positive impact on the rural communities. Over 3,500 solar systems were installed in remote rural communities throughout the country for various applications including home lighting, TV and radio operation, vaccine refrigeration and lighting in rural health centres, solar streetlights for public places and street illumination, battery charging, and water pumping. German Technical Cooperation (GTZ)`s Programme for Sustainable Economic Development (PSED) Ghana office is supporting District Assemblies, micro and small enterprises in selected urban and peri-urban centres in the establishment of light industrial zones with emphasis on Energy for Productive Uses. This is mainly based on the extension of the national electricity grid. Grid electricity is available in all district capitals peripheries. GTZ initiative started based on the demand of enterprises mainly in the area of car repair, metal and woodworks for grid electricity. Royal Danish Embassy (DANIDA) in Accra was one of the donors who earlier supported and funded renewable energy projects in Ghana. Their last project in providing support to the Energy Commission (EC) and funding battery charging services did not go well and they left the renewable energy sector.


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The policy and legislative initiatives taken in Ghana to promote renewable energy based off-grid/ mini electrification are classified as follows:

� Ghana Poverty Reduction Strategy (GPRS), 2002: Objective – Stimulation of production activities among poor in rural areas through supply of power to them with renewable energy systems (PV, wind power, biomass).

� National Electrification Programme: Objective - To extend electricity supply to all communities with population above 500 inhabitants by 2020. For remote off-grid institutions and island communities, the strategy is to support the initial investment cost for solar PV products.

� Strategic National Energy Plan 2006 – 2020: Objective: Increase access to modern energy services for poverty reduction in off-grid areas. Target: 30% penetration of rural electrification via renewable energy technologies by 2020.

Special financial mechanisms have been instituted to facilitate rural electrification and renewable energy /low-cost lighting investments. This includes the Ghana Energy Development and Access Project (GEDAP) housed at the Ministry of Energy and World Bank sponsored that has been instituted to provide partial guarantees (50%) for private sector borrowing from the local financial markets to develop RE projects and modern lighting products. Participating Financial Institutions (PFIs) include ARB APEX Bank Ltd and microfinance institutions (MFIs) include; E + Co and Rural Energy Foundation. So far, many rural communities have benefited from the available electric power, even though power supply to the rural areas has been unreliable with frequent power outages and low voltage situations. It is in this light that modern off-grid /low-cost lighting can be a transition strategy to improve access to modern energy services. However, the policy and legislative initiatives discussed above emphasise RE technologies which are Solar

PV base rural electrification projects and nothing about low-cost lighting solutions. Future updates or

revision of these policies and legislative initiatives should encompass low-cost lighting solutions in

National Electrification Programme.

2.3 Monitoring of rural electrification and energy access progress

Ghana has an installed capacity of 2,237 MW of which 53% is hydro and 47% is thermal. VRA operates the Akosombo and Kpong electricity generating stations as a cascade of hydro plants. The Takoradi thermal power station can be run as a combined power plant (330 MW) or as a single cycle plant (220 MW) using Light Crude Oil (LCO). Ghana has achieved electrification rate of 54% by 2005. The achievements are mainly in the urban areas where access is about 80% leaving the greater part of the country’s population in the rural areas without access to the national grid. It is estimated that a quarter of Ghana’s 3.8 million homes are electrified and as high as 50% of Ghanaians in the rural areas depend on kerosene for lighting. Ghana’s Government embarked upon the Economic Recovery Programme (ERP) in the 1980s. These reforms included the establishment of a National Electrification Scheme (NES) in 1989 with the aim of


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providing nationwide access to electricity by 2020. Under this scheme all communities with populations above 500 were to have access to electricity. Over the years, funding for NES has been mainly through grants, concessionary credit, government sources, and the national electrification fund levy. An extension to the NES for rural electrification is the Self Help Electrification Project (SHEP) followed by Ghana Energy Development and Access Project (GEDAP). SHEP allowed for the electrification of communities not directly covered under NES but which are within 20 km of an existing or planned 11 kV or 33 kV transmission line. The community is required to provide a certain minimum contribution to the project, usually in the form of wooden poles at a cost of approximate GHC 200 per pole for the distribution wires. Government would then provide additional assistance to complete the project.

2.4 Prospect for rapid development

Ghana’s generation capacity expansion plans include scaling up the contribution from renewable energy to 10% in the generation mix by 2020. It is expected that the demand for electricity will increase in future and will reach 4,000 MW by 2019. The RE based generation capacity is targeted to reach 380 MW and Ghana has a potential of 300 - 400 MW for wind, at least 95 MW from biomass, and solar intensity of 4 - 6.5 kWh/m/day. The Strategic National Energy Plan (SNEP) target to achieve 10% RE capacity (380 MW) by 2020 will require substantial investment. Recent assessment estimates that addition of 380 MW of RE generation capacities in the country would require an investment of US$ 446 million over the period 2010 to 2020. The aggregate power purchase costs from renewable energy sources during this period would be approximately USD 1 billion which is quite substantial and brings to fore the key question of how this can be supported. RE sector in Ghana is still in the nascent stage. Some of the major issues inhibiting the attraction of international investment in RE sector in Ghana are a lack of RE technology/ equipment suppliers in the country and lack of an attractive policy and regulatory regime for Renewable Energy. Besides, the limited ability of local investors to infuse equity and raise debt for capital intensive RE projects is another key issue constraining the acceleration of investments in RE projects in Ghana. However, the Government is committed to electrifying all communities with a population size of over 500 by 2020. RE technologies such as PV are included, mostly through SHEP and now GEDAP project. Plans also exist for the Volta River Authority to build a 300 MW thermal power plant, while Ghana National Petroleum Company is installing a 150 MW natural gas power plant. To ensure effective and rapid development of the energy sector, the government is in the process of introducing or finalizing policy documents and laws. The first of them is the National Energy Policy which has been sent to the parliament in November 2008 for approval. The policy succinctly outlines the government’s vision and development objectives for the energy sector. Other important laws under preparation are the Renewable Energy Law and Ghana Renewable Energy Policy and Regulatory Framework.


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3.0 STATUS OF LOW-COST LIGHTING

3.1 Description of any (formal) projects Solar 4 Ghana Ltd is in charge of handling and developing the project ‘‘One Child One Solar-Light’’ in Ghana on behalf of SOLUX e.V. with market penetration of 7,200 volumes in 2009 and a projection of 12,000 low-cost lighting products in 2010. Their solar lamp can be purchased by paying in cash, using a micro-finance scheme, making a personal saving or joining a saving group (Subu) which is promoted by Solar 4 Ghana as their marketing strategy/tool. Toyola Group is running a successful solar energy project and micro financing scheme (Toyola Box) for their low-cost lighting products. They have been in energy efficiency cook-stoves business and diversified into low-cost lighting industry 2 years ago because of a niche market using mobile concept as their marketing strategy with a market penetration of 30,000 units in 2008 alone. Toyola Group anticipates selling 100,000 units per year the moment they turn 7 years in modern lighting business.

Lighting Africa Project has been involved in Ghana for the provision of reliable non-fossil fuel lighting products to unserved areas making Lighting Products and services accessible for the poor through its on-going ‘‘Affordable Lightings for All (ALFA) Project’’. The ALFA project is developing supply chain for both

products and after sales services as well as monitoring of the supply chain. The project has rolled-out (facilitated) approximate 15 kiosks/SMEs around the country and the latter sold 3,000 solar lanterns so far.

There are as many as 33 formal (registered) distribution companies in Ghana who are engaged in the distribution of low-cost lighting products although the majority of them are small companies. The main off-grid lighting products covered by these companies are mainly solar lanterns, CFL and LED task lights and there is a high demand for CFL lanterns, LED torch lights, and CLF task lights for the country. Major low-cost lighting projects in the country are run by major players for the supply/import of solar equipment and off-grid lighting products among others: Power World; Wilkins Engineering; Darwig Energies; Deng Company Limited; Solar Light Company Ltd and Seli Technologies with presence in all regional capitals as well as district capitals.

3.2 Description of informal activities

The informal market traders in Ghana operate from Mokola market in Accra and other markets around the country and they can also be found at traffic lights selling their goods either to small retailers or directly to consumers. They are mobile and move from one town to another. Such importers are very smart and import goods depending on the market conditions. The cited example is;, during the energy crisis, a number of such individuals imported electric generators and moved from office to office, town to town to sell their products. Due to their small overheads, the prices of their goods are competitive.

They are also cross-borders importers and exporters of goods i.e. they “export” goods of great demand to a neighbouring country and import other goods to their country. Their informal activities help in creating markets in the other countries where a particular product is not well distributed or even not known. Due to their entrepreneurial skills, they can create demand for new products and


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maintain a large clientele base which can be exploited for the modern lighting products. The issue of quality products is a concern when dealing with informal activities because they import products without regard to quality. However, the main lighting products importers and suppliers are of the opinion that some of their products made their way into neighbouring countries through informal activities.

3.3 Description of any organizations that might be interested

The following government institutions hold the key to the successful integration of modern lighting products into the energy resources of the country and they might be interested, i.e. Ministry of Energy; Energy Commission; Energy Foundation of Ghana; Oil Marketing Companies and their Retail Outlets. Empretec Ghana Foundation and the National Board for Small Scale Industries (NBSSI) have been active over the last couple of decades facilitating the development of private enterprises in Ghana and they might be interested to stimulate a new industry of low-cost lighting. Aid Missions such as UNDP/GEF, GTZ, and DANIDA are potential organizations that might be interested to partake into off-grid lighting initiatives because of their previous intervention in related RE projects roll-out in the country. There are 5 cell-phone service providers in the country and they are good candidates for the roll-out programme because cell-phones users in the remote areas can now charge their handsets with a special adapter using solar energy.

3.4 Summary results of LA study (if available)

A research by IFC under the Lighting Africa Project in Ghana identified a number of modern off-grid lighting products with rechargeable solar batteries in the market of the country. These include rechargeable torch lights, task lights, flood lights and lanterns. The same study also emphasized the dissatisfaction of the people with the use of traditional lighting products due to poor illumination and threat to their health among others. The study estimated that only 15% of households outside Accra have access to electricity with a greater part of the rural areas of Ghana not connected to the national grid and this provides a big potential market to exploit with modern lighting products. Due to investment challenges in this sector, the study conclusion is to critically find a way to supply relatively cheap but high quality products to the market to meet the interest expressed in the products by the consumers in the rural areas.

Another research was undertaken with the goal of finding out the distribution channels of the off-grid products in Ghana and the study identified 33 existing and potential off-grid distributors in the country although the majority of them are small companies. Out of the 5 responded companies interviewed, they had a combined annual unit sold of 7000 with a combined estimated turnover of U$ 230,000. Key constraints in the distribution channels for the smaller companies versus big companies is that the latter have access to financing through banks and other financial institutions while the smaller companies do not have access to financing to allow their businesses to grow. Products are mainly imported from China, UAE, Taiwan, Hong Kong, Spain and UK.


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3.5 Estimation of potential beneficiaries + potential benefits

Demand for off-grid lighting products is expected to come from both rural and urban market segments. The latter is another potential market due to the rampant power outages in the urban areas and that these market segment will easily switch over to modern off-grid lighting as a back-up to their energy supply. Market estimates based on the populations for rural households for solar lanterns, LED Lanterns and LED torchlight’s is about 4 million and with a market penetration of say 10% per annum, this translate into 400,000 potential beneficiaries. Evening trader’s sector potential size is estimated at 600,000 and with market penetration of 20% this translate in 120,000 units as another potential beneficiaries for low-cost lighting products. With the necessary support and structures in place it is expected that the market in Ghana can grow within two years to about 1 million units per year.

Potential benefits: An investment in a solar lamp today will save rural folk money and protect their health instead of burning kerosene. Sufficient lighting in the evening is an important condition for unhindered learning for children, working and communication. A solar lamp will provide enough lighting for all.

3.6 Description of efforts to disseminate other consumer items in

rural areas

eCommerce and Renewable Energy (eCARE) Project is a United Nations Foundation sponsored project that aim to bridge the digital divide and the programme is deploying 69 Rural Business Centres (RBCs), providing enterprise development services to rural entrepreneurs and establishes RBCs offering voice telephony, internet connectivity and a variety of other ICT products and services involving the use of cleaner and/or renewable energy technologies to peri-urban and rural users. CMA is a Christian non-governmental organization providing civic education and supporting income generating activities of women through its Christian Mothers Association Credit Scheme (CHRISMASCS). CMA operates in 19 Dioceses in Ghana and has undertaken development projects in the areas of poverty reduction, entrepreneurship, micro-finance and raising leaders to partake in Ghana's decentralization process. S4G Ltd and CMA have agreed to cooperate in providing school children and their families as well as other clients in rural areas in Ghana with mobile solar lanterns. The objective of this Agreement is for CMA to organize clients for the solar lanterns in accordance with the spirit and procedures of the CMA micro finance program in order to run a sustainable solar lantern project.

3.7 Issues (quality, costs, availability of products, etc.)

The challenges in the use of low-cost lighting like solar lanterns, CFL , LED task lights as well as CFL lanterns, LED torch lights, and CLF for rural electrification include the high cost of energy delivery vis-à-vis the ability to pay in remotely located low income households in rural areas in Ghana. Subsidising low-cost lighting delivery does not guarantee energy access to the poor. The subsidy or support provided by the World Bank (U$ 6 million) as partial guarantees (50%) for private sector borrowing must be targeted in order to ensure that they reach those who need it most. A large number of technology driven


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schemes currently adopt a strategy of trying to increase sales through subsidy/guarantees. This is particularly the case with low-cost lighting products. It is argued that increased sales will reduce the cost of these products and, more importantly, enable the overhead costs of providing technical support and supplying retail credit to be spread over a larger number of unit sales and in Ghana, little is being seen that prices for low-cost lighting products are reducing when transactions are done through ARB APEX Bank Ltd, E + Co or Rural Energy Foundation who are the implementing financial institutions for the GEDAP. The prime rate presently in Ghana is 18.00% and the end-users for the low-cost lighting products are charged 29% interest. These should be soft loans intended for low-cost products which should be charged below prime or worse, prime + 1% as seen in other developing countries in Africa. However, commercial banks interest rate in Ghana is anything between 29% - 49% which is very high. The arguments for using money that is supplied at less than full commercial rates of interest are overwhelming if large numbers of people are to be given access to improved energy services. This “soft money” will be required to enable people with insufficient purchasing power to gain access to modern lighting, and to other more convenient forms of energy. The evident danger of such an approach is that “soft” money intended for low-cost solutions is often used to subsidize the costs of these supply options for those who could readily afford to pay the true cost if they genuinely regarded this as a priority area of expenditure. Lastly, the use of the World Bank guarantees linked to a particular supplier can “pollute the well” for other entrants to the low-cost lighting market segment.


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4.0 PREVAILING POLICY ENVIRONMENT TO PROMOTE LOW-

COST LIGHTING SOLUTIONS – OR ABSENCE THEREOF

4.1 Fiscal measures

Applicable taxes on imported off-grid products in Ghana are twofold, namely value added tax (VAT) of

12.5% and the National Health Insurance Levy (NHIL) of 2.5%. On-grid lighting is subject to 10% import duty and other fees include ECOWAS levy (0.5%) and export development levy (0.5%).

CFL Off-grid Lighting, CFL off-grid Lighting with Solar panel and LED Off-grid Lighting are all subject to 10% import duty and 12.5% VAT plus other fees (ECOWAS/EDIF). It is only the Solar panels that are exempt from import duty. The exemption of duties and taxes on certain types of lighting and photovoltaic system components favours the importer of finished products and works against the local manufacturing or assembly of components. An importer of finished goods will be able to sell on the market at lower cost than the manufacturer who imports components for local assembly because the latter must bear the full burden of duties and taxes. Enforcement of tax laws and exemption on low-cost lighting solutions will result in first cost reduction of these products.

4.2 Subsidies (describe if any, also for competing solutions)

All rural and urban households who are gird-connected, benefit from the lifeline tariff. These tariffs are intended to benefit the low-consumption customers. Under the current tariff structure, residential customers are cross subsidised by industrial customers. Low-cost lighting solution with solar panel are not subsidised except in the event were PV systems- solar panels are exempt of import duty. However, direct and indirect subsidies can be an important environmental policy instrument for Ghana. This measure will either reduce the cost of the investment or increases low-cost lighting solutions investors net revenue after taxes from the sales of the output. Subsidies hereby contemplated are;

� Exemption from payment of VAT on low-cost lighting solutions; � Exemption from import duties for low-cost lighting solutions; � Accelerated tax deductions for investments in low-cost lighting solutions; and � Tax breaks on returns from investments in environmentally sound initiatives.

Incentives to encourage diffusion on new technologies such as for low-cost lighting solutions will promote emissions reductions. The significant advantage when considering subsidies is that they have politically positive distributional consequences. A point in case is the subsidizing of compact fluorescent lights (CFLs) in the whole country by the government whereby 6 million CFLs were diffused. The costs of subsidies for this project were often spread broadly through an economy whereas the benefits were more concentrated. This means that subsidies are easier to implement politically than many other forms of regulatory instruments in the country. Also, incentives have attractive properties in terms of environmental effectiveness, distributional implications and institutional feasibility.


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The following subsidies, each driven by a specific motivation, can be considered as a financial incentive to promote low-cost lighting solutions in the country and to make a mechanism of subsidies and financial incentive a success.

� ‘’Sustainable development’’ subsidies to low-cost solutions. These subsidies allow off-grid lighting with an economic cost of production higher than conventional power production to gain market share. Because conventional power production uses finite resources and contributes to global warming it is not considered to be sustainable.

� ‘’Learning curve’’ subsidies to low-cost solutions with a strong potential for technological progress. They create the mass market demand which motivates manufacturers of low-cost lighting to invest considerable amounts in R&D bringing down each year the cost of production. Subsidies, which increase consumer demand for new modern lighting, thus, expand the market directly in the short term and, by accelerating the rate of cost reductions in the subsidized modern lighting market also in the long term.

� ‘‘Market jump-start” subsidies to low-cost solutions with a mass market potential, which creates the minimum demand needed to motivate entrepreneurs to invest in an effective marketing and after-sales-service infrastructure for the low-cost lighting products;

� Subsidies to low-cost lighting solutions to compensate for weaknesses in the financial markets, which prevents low-cost lighting suppliers from getting access to debt finance on competitive terms with conventional power plants;

� Subsidies given to RETs to compensate for price distortions in the energy market, which prevent economically viable RETs from competing on equal footing with conventional power supply.

� “Picking the winner” subsidies to R&D&D in potentially promising low-cost solutions that are at the pilot stage of development.

4.3 Legal (laws that govern electrification, private business

development, etc.)

To support a growing agro-industrial and services sector, as well as the needs of households, the policy thrust for the sector is set within the context of ensuring a reliable supply of high quality energy services. The broad policy interventions outlined to achieve this overall goal include: ensure increased access to modern forms of energy to the poor and vulnerable; modernise and expand power infrastructure; improve the regulatory environment in the power sector, ensure full cost recovery for power supply and delivery while protecting the poor; and ensure productive and efficient use of energy and minimise the environmental impacts of energy supply and consumption through increased energy efficient technologies. Other policy objectives include:

� To promote and encourage private sector participation in the energy sector, and � To diversify the national energy mix by implementing programmes to support renewable energy

sources in Ghana (i.e. hydro, wind, solar PV etc.).

Energy Commission Act 541 of 1997 mandates the Commission to license and regulate the technical operations of service providers in the electricity supply industry. The regulatory functions are carried out through elaborations and enforcement of licensing conditions, technical rules of practice and standards

of performance. The Public Utilities Regulatory Commission (PURC) is mandated to regulate and oversee the provision of utility services – mainly water and electricity generation and transmission.


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Most of the PURC’s activities are concentrated on the major utility companies such Electricity Company of Ghana (ECG), Ghana Water Company Limited (GWCL), Volta River Authority (VRA) and private power generating companies. The PURS’s regulatory activities are in the areas of: Rate Setting, Regulations, Monitoring of Public Utilities and Public Awareness Programme (PAP).

Ghana is in the process of finalizing the energy policy for the country. The vision of the draft energy policy is to develop an ‘energy economy’ that will ensure secure reliable supply of high quality energy services for all (both urban and rural) Ghanaian homes, businesses, industries and the transport sector, while making significant contribution to the export earnings of the country. Ghana had developed the Strategic National Energy Plan (SNEP) (2006 – 2020) which contained some policy recommendations to facilitate the development of the energy sector. The SNEP has the goal of supporting the development of a strong energy sector that would provide sufficient, viable and efficient energy services for Ghana’s economic development. Access to off-grid lighting system featured as one of the specific policy objectives of the SNEP. The government intends to address this objective among others through the development of decentralized power sources to reduce the dependence on kerosene for lighting. The emphasis here is on solar generating system to provide community-based lighting and not individual lighting gadgets for households. The trade policy is based on two-prong strategies: an export-led industrialization and domestic market-led industrialization strategies, based on import competition. The trade policy and the liberalization of the economy have facilitated the influx of imported consumer products in the local market. It has been

more beneficial to trade the imported products than products manufactured locally and there are no barriers to trade and this provides opportunities for developing markets for modern off-grid lighting products.

4.4 Organizational support available

The key to any successful energy sector is to have a strong institutional and policy framework. This means that there is both a strong policy-led government commitment to its energy sector plus the institutional framework to make it success. The energy sector in Ghana is managed at different levels by the following organizations; Ministry of Energy, Energy Commission, Public Utilities Regulatory Commission (PURC), Environmental Protection Agency (EPA), Volta River Authority (VRA), National Petroleum Tender Board, Electricity Company of Ghana (ECG), Northern Electrification Department (NED), Tema Oil Refinery (TOR), Energy Foundation (EF) Ghana, Ghana National Petroleum Corporation

(GNPC), Bulk Oil Storage and Transportation Company (BOST), Oil marketing companies (OMCs) and

retail outlets and Solar Laboratory Kwame Nkrumah University of Science and Technology (KNUST). The various institutions are responsible for policy, regulatory, operational, research and development (R&D) and related support required. The institutions have recognized the importance of off-grid power system to augment nation power supply. They also hold the key to the successful integration of modern lighting products into the energy resources of the country. Institutional profile of these organizations is attached as Annex A.


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4.5 Awareness raising mechanisms

One of the PURS’s regulatory activities outlined earlier is in the areas of Public Awareness Programme (PAP) and PURC can play a big role of awareness raising mechanisms for off-grid lighting products. The market for low-cost lighting products is mainly in the rural areas. Each supplier / distributor of these products uses its unique way/marketing tools to maximise sales. Many of the suppliers have brochures printed and distributed country-wide to raise awareness of low-cost lighting solution. Real entrepreneurs in their own way, they target community centres, schools and even the churches to carry out promotional activities. They distribute (leave behind) minimal demo /samples and return the next day to obtain results and there are quite aggressive marketing going on among various distributors for them to remain competitive in a turbulent market environment. Innovatively, some of the suppliers prefer carrying out their awareness campaign during the night with customised vehicles (mobile concept) and the trick is; ‘‘we do not need to do the talking, the solar light has to talk the moment it is switched-on and that has to be during the night’’, being the secret of night-marketing or mobile concept.

4.6 Financing mechanisms

The cost of borrowing plays a major role in the viability of low-cost solutions. Financing assistance in terms of low-interest, long-term loans and loan guarantees can play an important role in overcoming this obstacle. Lowering the cost of capital can bring down the average cost of low-cost lighting products and reduce the risk of investment. The Energy Commission Act, 1997 (ACT 541) of Ghana has made provision for the Energy Fund. One of the areas of fund utilisation is to be the promotion of renewable energy sources in Ghana and this should be extended to low-cost lighting solutions.

E + Co Ghana office provide funding through debt or equity for clean energy businesses /off-grid products and provided funding to 15 entrepreneurs in Ghana at average 29% interest rate. Minimum loan is U$ 50,000 and maximum U$ 2 million and 6 months moratorium. Rural Energy Foundation builds sustainable market chain and provides funding /micro-finance of GHc 5,000 minimum and GHc 10,000 as maximum. They also provide short term credit (90 days) to end-users / solar lanterns as part of their business portfolio.

ARB Apex Bank Ltd through Rural Banks across the country is the major implementing financing agent of the U$ 6 million World Bank/GEDAP Project and their financing plan to renewable energy and low-cost lighting products (3 year tenure) at 29% interest rate is illustrated in the diagram below.

Loan

Less 50% grant Less 10% consumer component down payment (C)

Full amount (cost of installation, maintenance and battery replacement / low-cost product)

(A)

Remaining amount after grant deduction (B)

From PRCB

___________

From line of credit


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4.7 Private sector effectiveness

The private sector operating in the low-cost lighting business have extended the industry not only technically, but also with its wide range of products size and its possibilities for off-grid and decentralized energy solutions. The private sector has also enabled the insertion of new players in the field. In comparison to conventional energy, low-cost lighting has also widened the range of financial tasks to be solved. As such, financial needs for low-cost solutions exist at three levels as demonstrated in the diagram below to allow create enabling environment for market deepening of low-cost lightings.

1

2

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3

In the final analysis, the market deepening of low-cost lighting solutions will lift market demand to a size that is sufficiently large to permit commercial delivery structures to be developed. The strategic objective is to get the development of this natural commercial market jump started to a level that makes investments by the private sector in a nation-wide low-cost lighting marketing and service infrastructure commercially viable. On the other side of the range are low-cost lighting solutions which cost U$ 20 – U$ 300, but this is already exceeding by far the usual accumulated savings of the customers, making it necessary to find an adequate financing schemes. The objective of market deepening is to expand sales to reach the poorer household. The 3 level approach as per above exhibit could play an important role to improve the financial viability of low-cost lighting solutions by an approach to increase funding availability, aiming at leverage of private finance with a risk sharing approach and the facilitation of the bundling of low-cost lighting products to help absorb their high proportional level of transaction costs.

Households and community groups need soft loans for low-cost solutions

Entrepreneurs need long-term patient capital that allows them time to develop products and services based on low-cost solutions

Investors need reduced or shared credit risks until confidence in low-cost solution in Ghana grows and track records of success emerge


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5.0 SHORT DESCRIPTION OF MAIN BARRIERS

5.1 Sociological

Continued view by policymakers, donor community and multilateral organizations of low-cost lighting products as a welfare good and continued view of low-cost lighting as a small energy source is a social barrier inhibiting market deepening of low-cost solutions.

5.2 Technological

Lack of appreciation of associated benefits to low-cost lighting solutions and the absence of local technology base for low-cost lighting solutions excludes low-cost products in energy planning and from main stream industry. The low-cost lighting is than disadvantaged by energy pricing hence market-ingress of sub-standard technologies in the informal market.

5.3 Economic

Poor fiscal and macro-economic policy result in poor volumes of lighting products trade and divert investors to other areas. Failure for the business community to benefit from existing policy as well as the failure to secure investment support due to lack of collateral, there is to be ‘‘continued demand’’ for grant funding (subsidies) in low-cost lighting industry.

5.4 Environmental

The main push for renewable energy sources in the OECD countries is due to environmental concerns and the business aspect in power generation. The situation is however different in Africa, where the thrust for renewable energy sources is developmental based. Beyond developmental, low-cost lighting solutions in Africa is creating a market for emission reductions, in effect enabling individuals, community and companies low-cost solutions to reduce greenhouse gas emissions (GHG) thereby contributing to global environmental benefits. GHG reduction through off-grid lighting solutions must be the focus of much analysis and innovation. However, many renewable energy sources projects in developing countries tend to be small scale in nature and sometimes fail to attract conventional CDM participation. Accordingly, low-cost solutions activity could consider Programmatic CDM (pCDM) as a way of capturing the potential offered by the new approach and in this way, generate ‘‘development dividends’’ / monetary revenue stream emanating from Certified Emission Reduction (CER).

5.4 Political

Inaction by government on the one hand and business/AGSI inability to connect / fast track with relevant government bodies on the other hand because of bottlenecks, inhibit market deepening for the low-cost lighting solutions.


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6.0 SUMMARY OUTCOME OF ONE-ON-ONE MEETINGS

One-on-one consultation was undertaken with Association of Ghana Solar Industries (AGSI)`s President and the Secretary, Financial Institutions (micro-finance), Private Sector (low-cost lighting products), Energy Services Consulting Company (ESCO), The World Bank Ghana Office, Ghana Standards Boards (GSB) and Ministry of Energy. These consultations took place in Accra between the dates: 18th to the 27th January 2010.

ASSOCIATION OF GHANA SOLAR INDUSTRIES (AGSI)

The members (25) of the AGSI are the industry players, which are about four of the major companies in the country, and quite a number of associate members consisting of the installers, NGOs, researchers and consultants. They have wide experience in the business of promotion of off-grid lighting products in the country and have been involved in major government installations in Ghana. The association is founded in 2006 and recognized by Government in 2007. AGSI Secretary reiterated the need for the accreditation of its members as this will solve some of the barriers the industry have to content with over the past years namely, taxes, duties and tariffs on imported off-grid lighting products. The association runs an advocacy program and vocal on lobbying advocacy to parliament to revise the tax regime which is not in favour of the low-cost lighting industry including renewable energy (photovoltaic). AGSI feel household electricity use be subsidised at all time though industry sector be subsidised in terms of energy efficiency compliance. Ghana utilities are unable to break-even and this constitutes a barrier to a competitive households’ subsidy which is so much needed. Other barriers cited are high interest rate between 25 – 40% charged by APEX Community Bank as well as poverty among the community who in return will not be able to afford low-cost lighting products.

PRIVATE SECTOR (SUPPLIERS/DISTRIBUTORS/IMPORTERS/CONSULTANTS)

‘‘When the going get tuff, you must keep going’’ and their main barrier is access to finance and high interest rates to keep them going and expand their businesses. Difficult to determine their margin on their imported products sourced all over the world, the private sector tend to pass the blame on production line/plant abroad that they cannot lower prices unless the production line lower their output costs. This is a barrier to the ‘‘first cost reduction’’ strategy although private sector are playing open cards rather close to their chests.

Low-cost lighting products are now associated with FMCG (fast moving consumer goods) by some suppliers in the supply of electronic / engineering products. These are companies who opted not to enter the distribution channels of low-cost lighting solutions and concentrate on turn key projects involving PV solar projects (major government installations). It is their view that low-cost lighting is a bulk business and in bulk (mass) business, it is best to make room for the new players (SMEs) to enter the main stream economy also. New entrances to this market evolved and SMEs got to a bandwagon. Enterprises participating in low-cost lighting solutions distribution channels are keen to establish agencies or distribution centres in neighbouring countries (ECOWAS) and in this way, grow the industry to the limit and market deepening but unfortunately, they lack financial means.


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Economy of scale could solve high price issue currently experienced in Ghana market but the private sector does not have the financial muscle/capacity to venture into quantity /bulk import. Many of private sectors (formal) have assembly facilities because products have to be assembled locally to take advantage and the profit associated with value added. On the other hand, this is where import duty applies to low-cost lighting products imported as unfinished product. Private sector is engaged in micro-finance (short-term credit) but not all of the private sector who go to an extent of supplying credit to rural community. It is the private sector view that by providing micro-finance is the only answer because financial institutions will not grant loan to rural customers the moment their credit record could not be verified or unable to provide collateral. How do they do it? ‘‘Give a solar lantern to a household and no deposit is required, provide the household with a special tin with little hole in it, ask the household not to buy kerosene anymore as from today because you will from now on be using my solar lantern for the following 3 months, instead, each time you were to spend money on kerosene, drop that same amount of money in the tin and will collect the tin after 3 months. Upon calling after 3 months, the total money put in a tin equal the price of solar lantern and the deal is done, chapter closed’’. It is the private sector view that; until such time the tax regime is revisited by the policy makers, the prices of goods will keep increasing because of high inflation rate in the country and high finance charges. However, private sector also believe that their presence is indispensable in the sense that amid the rural electrification programme to electrify the rest of the country by 2020, in the interim, low-cost lighting products solution is the transition that is now in place before the lapse of the remaining 10 years for reason that the folks out there in the remote rural need to access modern energy and private sector are taking advantage of the loophole and they are in business as never before. With a boom in mobile telephony, suppliers have now added a solar energy charger with a special adapter which fit cell phones as part of their business portfolio. In the final analysis, flexibility for the suppliers to meet obligations in a cost effective manner, through mechanisms such as banking and borrowing to finance off-grid lighting remain a barrier. Exceptions are there when the off-grid industry financing is backed up by securitization of funds / returns through a Government Scheme or Grant from Multi Lateral or Bi Lateral agency.

FINANCIAL INSTITUTIONS

The 3 financial institutions cited in the report provide capacity building in the area of innovative financing mechanisms as cash flow based financing through a ‘‘Special Purpose Vehicle’’ provided by the World Bank / GEDAP Project. Out of the 3 of these institutions, 2 institutions are member of LANAC. Flexibility for the suppliers to meet obligations in a cost effective manner, through mechanisms such as banking and borrowing to finance upfront cost for off-grid lighting necessitated the infusion of U$ 6 million grant by the World Bank. Since the scheme is backed-up by the World Bank, the grant component is only an ‘‘add on’’ to the regular schemes of the 3 financial institutions and valid only till the ‘‘Grant Component’’ is available to these institutions. The scheme is more a ‘‘portfolio enhancement’’ and ‘‘marketing strategy’’ of the 3 financial institutions. On paper they look attractive but when these financial intermediaries are approached for details, the requirements for approval are same as for any other bank-financing product, so to say they require collateral and rural poor are still


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being excluded to access the facility because they do not have collateral or credible credit record. The scheme has come up as a result of Ministry of Energy, which is a ‘‘Regulation Driven Mechanism’’. Fostering off-rid lighting schemes in the low-cost financing solutions would also need a ‘‘Market Mechanism’’ which can be driven through the ‘‘Market Pull’’, created by the commercial interest of the stakeholders involved, i.e. bankers and SMEs / suppliers. In other word, the program must run concurrently with sensible financing scheme; a combination of government-led model and markets-based models. Whereas, the market based systems are competition driven and have an inherent incentive for business to follow, hence market based initiatives have higher probability of success. The harmonisation of support schemes could simplify the regulatory environment, allow low-cost lighting sectors` growth and boost economies of scale for the private sector, and provide a clearer framework for the efficient exploitation of low-cost solutions across Ghana. In the final analysis, off grid/mini grid RE based electrification programmes supported solely by donors without local contribution face the risk of being abandoned once project funds are exhausted. Local involvement is also important for ensuring the systems are operated and maintained, and the investments’ service delivery is sustained.

MULTILATERAL / AID AGENCIES

Some of the aid agencies who earlier supported and funded renewable energy projects in Ghana did not go well and so they left the energy sector while other multilateral agencies like GEF/UNDP/RESPRO programme has ended. Other agencies are supporting District Assemblies, micro and small enterprises in selected urban and peri-urban centres in the establishment of light industrial zones with emphasis on energy for productive uses. This is mainly based on the extension of the national electricity grid. There is a continued view by aid agencies that low-cost lighting is a small energy source in a country were access to electricity is high (now being estimated at 65%). The focus is on grid-electricity and much of their resources are geared towards programs for rural electricity. However, high inflation rate in Ghana (estimated at 18% -19% ) is a concern to aid agencies and subsidised electricity tend to prevent would be customers to switch to low-cost lighting solution and the fact that compact fluorescent lamps (CFLs) are well adopted in the country after a distribution of 6 million CFLs by the government.

PUBLIC SECTOR (GHANA STANDARDS BOARDS (GSB), MINISTRY OF ENERGY) Ghana Standards Board (GSB) is a watch-dog that all low-cost lighting products imported into the country are of the good quality and conform to international standards – ISO or other ISO recognized national standards bodies. GSB has testing laboratories across the country and carries out quality evaluation of low-cost lighting solutions from time to time and subject when they are informed by the importer. GSB is concern of sub-standards products that are finding their way into the country and on alert to curb the dumping of such low-quality low-cost lighting products.

Under the Ministry of Energy, the thrust is to increase energy access through grid extension to attain 100% country coverage. The Electricity Master Plan is retrospective 1990 and cut-off/target year 2020. Since the strategy faced areas which are very remote to grid-electrify, PV Solar was brought in as transitional phase or to an extent permanent, and one example of this transition phase is the RESPRO


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project implemented under ‘fee-for-service’’. The RESPRO project did not go well just because there were no ownership element under fee-for-service and consequently, the project could not sustain itself. During RESPRO era, kerosene was also subsidised but very much abused by the business community because this particular subsidy was not reaching the intended poor in the remote area (prices of kerosene was still high to the rural poor). In context, when petroleum prices were liberalized in Ghana in 2001 prices of gasoline, diesel and kerosene doubled. Increases in petroleum prices are passed on to consumers for goods and services through higher transport costs. The increase in the price of kerosene affects poor households in particular because 60% of the poor use it as their lighting fuel. It had the greatest impact on rural households where up to 82% use kerosene as the main fuel to provide light. Hence kerosene is no longer subsidised. The RESPRO is now replaced by GEDAP Project housed at the Ministry of Energy and also in off-grid lighting provision and incorporating ownership criteria, in other word, the beneficiary will own the system and responsible for operation & maintenance. The GEDAP spearheaded by the World Bank is a 5 year project and extend subsidy through APEX Bank-Rural Bank for off-grid lighting projects. Upon exist of the GEDAP programme in 2015; the programme will be transformed into a Government Agency, a parastatal for the continuation of off-grid lighting projects / activities. To achieve its goals in off-grid lighting involvement, the Ministry of Energy work in tandem with Energy Commission. The Ministry of Energy cited LED lamps retailing for GHc 3.00 and in this way, facilitating access to modern lighting in rural area. In spite of the achievements that Ghana has made in its electrification programmes, it is the ministry view that large portions of the country are still without electricity and accordingly, the Ministry of Energy is amenable to the efforts that other forms of lighting need to be diffused to address the problems in rural Ghana.


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7.0 WAY FORWARD

Ghana is a leading Lighting Africa Project` country in sub-Saharan Africa and presents an important element in the overall development and investment platform for the changing paradigms low-cost lighting solutions. The low-cost lighting will continue to play an important role in the years to come. As the sector faces considerable financing needs which cannot all be mobilised from public sources, overcoming investment and funding constraints is a major challenge for Ghanaians policymakers, and the way in which these constraints are overcome will to a large extend determine the country’s ability to equip unconnected households with affordable modern lighting in the medium to long term, i.e. up to 2020.

In the event that financial needs are to act as a “brake” on low-cost lighting related projects development, this will retard economic growth and increases poverty and inequality. Therefore, development of a robust, broad based private sector and international diplomacy such as bilateral and multi-lateral international agreements on investment in low-cost lighting solutions is the only means by which projected targets will be achieved. Existence of financial market frictions can be the critical mechanism for generating persistent income inequality or poverty traps. There is also a significant and robust relationship between financial depth and economic growth. Financial depth is not only associated with higher growth rates but also has an additional pro-poor effect, disproportionately boosting the income of the poor. In consideration of the foregoing assumptions, the way forward consists of intervention along four inter-linked pillars:

1. Support access to commercial finance by making equity and long-term debt finance available for the low-cost lighting projects.

2. Create a market expanding regulatory framework, which reduces risks, keeps down the costs of low-cost lighting solutions.

3. Create a favourable tax regime for importing equipments used in providing solar energy products and other components.

4. Offer financial subsidy-instruments to ‘‘bridge’’ the gap between economic and financial viability, thereby making otherwise financially unviable low-cost lighting projects ‘‘bankable’’.

However, there are a number of risks that the measures set out in this report, e.g. ‘‘it is expected that the market in Ghana for low-cost solutions can grow within two years to about 1 million units per year’’ or that off-grid solutions may not deliver its required share. These include the risk that:

� Policies and / or frameworks will not prove sufficient to overcome the barriers; � The response from the investment community and individuals will not be sufficient to meet the

off-grid solutions targets; � The costs will turn out to be greater, and � The risks that other constraints, supply side barriers, or unidentified impacts will emerge.

Given the above scenarios, there are risks of changes that will require amendments to the final strategy. The Ministry of Energy and Energy Commission should seek to mitigate these risks by undertaking a full consultation and maintaining ongoing dialogue with AGSI in order to identify any further constraints or issues in low-cost solutions. This will also require high level government engagement and high level international integration and co-operation in the form of international diplomacy such as bilateral and multi-lateral international agreements.


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LIGHTING AFRICA INITIATIVE

KEY POLICY RECOMMENDATIONS: THE GHANAIAN PERSPECTIVE

Policy statement 1: Soft money will be required to enable people with insufficient purchasing power to

gain access to modern lighting, and to other more convenient forms of energy. Soft money intended for

low-cost solutions is often used to subsidize the costs of these supply options for those who could readily

afford to pay the true cost if they genuinely regarded this as a priority area of expenditure.

Strategies to achieve that:

� Focus on increasing access by lowering the initial costs (technical advice, capital investment)

rather than lowering the operating costs; � Provide strong cost minimization incentives such as retaining the commercial orientation to

reduce costs; � Remain technologically neutral; � Cover all aspects of the project including end-use investments, particularly to encourage pro-

poor end-uses. � The policy and regulatory mechanism for low-cost lighting products must address these issues to

ensure effective utilisation of modern lighting products and the benefits of the same to consumers in rural areas.

Policy statement 2: To avoid further handicap of competitiveness in comparison to conventional energy,

low-cost lighting solutions need cash-flow adequate terms.


� Create financing mechanisms that cater for the long to extra-long maturities.

� Maintain interest rates that are in the lower range of the market due to limited return of investment.

Policy statement 3: Develop indicators that measure success of low-cost lighting solutions


� Multilateral and bilateral agencies must undertake a ‘holistic’ approach (involving various stakeholders) to design programs and strategies for transforming financing market of low-cost lighting solutions.

� Be focused on tangible deliveries to SMEs rather than creating an all round awareness on off-grid lighting.

� The Government can help the low-cost lighting financing of the projects in SME`s by declaring them as ‘Priority Lending Areas’.

� Develop a ‘‘Standardized Project Appraisal Criteria’’ that can be followed by all commercial banks in a transparent manner across off-grid lighting sectors.


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� Design the guaranteeing mechanism for ensuring collateral security free loans to SMEs and unconnected rural households with an objective to facilitate the flow of collateral free credit to the modern lighting sector and encourage lenders to shifts from collateral based or security oriented lending to project based lending.


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REFERENCES

Lighting Africa: Value Chain and Distribution Channels Analysis and Country Profiles –

Ghana, 2009 Lighting Africa: Qualitative Off-Grid Lighting Market Assessment – Ghana, 2008

Lighting Africa: Quantitative Market Assessment Results – Ghana, 2008

Lighting Africa: Lighting Devices Test Results – Ghana, June 2009

Energy Commission Statistics, Ghana, 2000 – 2008

Evaluation of Renewable Energy Service Centres in Ghana. Energy Commission, 2005

Report on the Socio-Economic Impact Assessment of the RESPRO and SPANISH Solar PV Projects in Ghana. Energy Commission, February 2007

Energy Efficiency Standards and Labelling. Ghana Standards Board

Poverty Reduction Strategy Paper. Ghana 2006

Renewable Energy Policy and Regulatory Framework, Final Draft Report (Volume I), Ministry of Energy, Republic of Ghana. September 2009

The Association of Ghana Solar Industries (AGSI) News Letter, First Edition, May 2007

Guide to Electric Power in Ghana, First Edition. Resource Center for Energy Economics and Regulation, July 2005


31

ANNEXURE A: INSTITUTIONAL PROFILE

Table 2: Government Energy Organisations

Organisation Activity

Ministry of Mines and Energy

(MOME)

As part of the executive arm of Government, the Ministry is the ultimate body responsible for development of energy policy for Ghana. The ministry is responsible for developing and implementing energy sector policy in Ghana, and also supervises the operations of the agencies associated with the sector including, renewable energy

unit - GEDAP Programme

Energy Commission (EC) An independent agency responsible for licensing, regulating and monitoring private and public entities operating in the energy sector. The commission also collects and analyses energy data and contributes to the development of energy policy for Ghana. EC was established in 1997 in accordance with the recommendations of the Power Sector Reforms Commission (PSRC)

The Public Utilities Regulatory

Commission (PURC)

An independent agency set up as recommended by the Power Sector Reforms Commission (PSRC) to oversee the performance of the public utilities. PURC is mandated to protect the interest of consumers and to examine and approve the rates chargeable by the utilities

Environmental Protection

Agency (EPA)

Responsible for establishing, monitoring and enforcing environmental policies for the country. EPA has oversight responsibility in any activity that is likely to have an environmental impact. EPA monitors the activities involved in the production and use of energy

Volta River Authority (VRA)

This wholly state-owned entity is responsible for generation and transmission of electricity in Ghana. VRA was established in 1961 under the Volta River Development Act (Act 46) to generate electric power by means of the water in the river Volta, and to supply electricity through a transmission system

National Petroleum Tender

Board

Supervision of international competitive bidding and award of contracts for the procurement of crude oil and petroleum products for Tema Oil Refinery.

The Electricity Company of

Ghana (ECG)

100 per cent state-owned entity responsible for distribution of electricity to consumers in southern Ghana, namely in the Ashanti, Central, Greater Accra, Eastern and Volta Regions. Established in 1967, ECG, the nation’s main electricity distributor, is responsible for providing line connection to domestic and certain categories of industrial consumers. ECG is responsible for billing and maintaining a reliable supply of electricity to its customers.

The Northern Electrification

Department (NED)

Established in 1997 as a subsidiary of VRA, it is responsible for power distribution in northern Ghana, serving the Brong-Ahafo, Northern, Upper East and Upper West Regions.

Tema Oil Refinery (TOR) Responsible for the importation of crude oil and petroleum products. Also undertakes the refining of all the crude oil imported into the country and bulk sale of petroleum products to OMCs and bulk consumers.


32

TOR was incorporated in 1960 under the companies’ code of Ghana

The Energy Foundation (EF)

Ghana

Established in November 1997 by the Private Enterprise Foundation in collaboration with the Government of Ghana, the Energy Foundation is a non-profit institution with the goal of promoting sustainable development and efficient consumption of energy as a key strategy to manage Ghana’s growing energy needs in a sustainable manner. The Foundation offers energy efficiency and renewable energy advice and support to residential, industrial and commercial energy consumers in Ghana.

Ghana National Petroleum

Corporation (GNPC)

Established by law in 1983 to promote the exploration and development of petroleum resources in Ghana, GNPC is currently responsible for oil and gas exploration and production

Bulk Oil Storage and

Transportation Company

(BOST)

Bulk Oil Storage and Transportation is a Government-owned, limited liability company that undertakes planning for storing and managing strategic stocks of petroleum products. BOST runs several storage depots in the port cities of Tema and Takoradi, and in seven other locations around the country. In addition, BOST is responsible for primary distribution of the products. Funding for maintaining the reserves comes from a special levy on petroleum products

Oil marketing companies

(OMCs) and retail outlets

The oil marketing companies are responsible for distribution and marketing of petroleum products, mainly through small retail outlets countrywide

Solar Laboratory Kwame

Nkrumah University of Science

and Technology (KNUST),

Research & Development

Agricultural Engineering

Department of KNUST(biogas

development),


Physics Department of the

University of Ghana, CSIR,

FORIG


ANNEXURE B: LIST OF STAKEHOLDERS CONSULTED

Date Organisation / Institution Contact Capacity

18/01/10 The World Bank – Ghana Office Mr. Sunil Mathrani Senior Energy Specialist

19/01/10 Association of Ghana Solar Industries (AGSI) / LANAC

Mr. Samuel Adu Asare Secretary of AGSI (outgoing) & Country Manager of Global Sustainable Energy Solutions Ghana Ltd.

20/01/10 Ghana Standards Boards (GSB) / LANAC Mr. Jacob Baiden Technical Officer

21/01/10 KITE / LANAC Mr.Ishmael Edjekumhene / Mr. Frank Atta-Owosu

Director / Snr. Projects Manager

Solar 4 Ghana Ltd. (Mr.) Nana Asante Frempong Company Director 22/01/10

F. Malawi Engineering Co. Ltd. Mr. Ahmad F. Karime Deputy Managing Director

23/01/10 Rural Energy Foundation / LANAC Mr. Frank Aggrey Solar Business Advisor / Micro Finance

25/01/10 E + Co / LANAC Mr. Vincent Yankey / Mr. Marindame Kombate

Investment Officer / Investment Analyst

Deng Limited / Proposed PAG Mr. Frede Bosteen Chairman of Deng Ltd and outgoing President of AGSI

ARB APEX Bank LTD /LANAC Mr. Frank Yeboah Dadzie Project Manager – Solar PV HS

26/01/10

IFC Mr. Leo J. Blyth Consultant Lighting Africa

Toyola Group ( EE Cook stoves, Solar Energy Products, Energy Financing (micro-finance) )

Mr. Suraj Wahab CEO 27/01/10

Ministry of Energy / LANAC Mr. Wisdom Ahiataku-Togobo / Mr. Joseph Tawia Quayson

Renewable Energy Expert / Planning Engineer and also in attendance:

1) Leo J. Blyth – IFC Consultant 2) Albert Kwaw Eliason – Country

Officer Lighting Africa Program in Ghana


ANNEX C: MEMBERS OF AGSI

MEMBERS OF THE ASSOCIATION OF GHANA SOLAR INDUSTRIES AS AT November 2009.

Name Email Address Website Membership Category/Paid

1. Deng Limited [email protected] www.dengltd.com Industrial

2. Wilkins Engineering Ltd. [email protected] www.wilkins-org.com Industrial

3. Wise Energy Ltd. [email protected] www.wise-energy.org Industrial

4. EandCo [email protected] www.eandco.net Associate

5. Global Sustainable Energy Solutions [email protected] www.gses.com.au Industrial

6. GW Solar And Security Installation Ltd [email protected] www.gw-industries.com Associate

7. Jak Solar [email protected] Associate

8. MAMS Electrical Engineering Ltd [email protected] Associate

9. Rural Energy Foundation [email protected] Associate

10. ASKN Electricals [email protected] Associate

11. New Energy [email protected] Associate

12. String Electric Works [email protected] Associate

13. Dr. Jonas A.S Redwood Sawyerr (Associate Professor) Fourah Bay College University Sierra Leone [email protected] Associate


14. Power World [email protected] Industrial

15. Rural Energy & Environmental Systems [email protected] Associate

16. Toyola Energy [email protected] Industrial

17. Vyne Horizon [email protected] Associate

18. DSTC Industry

19. North lite [email protected] Associate

20. Geothermal Management Services [email protected] Associate

21. Fred Akuffo [email protected] Honorary Member

22. DAAS GIFT Quality [email protected] Associate

23. Real Integrated Ghana Ltd Associate

draft la ghana country study,en-1

Documents