Vertically Integrated with Private Participation
The Energy Commission and the Public Utilities Regulatory Commission (PURC) both established by acts of parliament, regulate Ghana’s electricity sector. Government established the Energy Commission by Act 541, 1997 for licensing and technical regulation and the Public Utilities Regulatory Commission under Act 538, 1997 for economic regulation. Having been established by law, the PURC and the Energy Commission possess legal credibility, and this has a positive impact on investor and consumer confidence. Ghana has no electricity sector law and is the only country in the sample that has two regulators for the electricity sector.
Clarity of Roles and Objectives
The regulatory and policy advisory functions of the Energy Commission and PURC and the obligations of regulated utilities are clearly set out in the various primary legislations, other regulations and licence conditions. This eliminates overlaps in roles and ambiguities in the obligations of entities. However, having two different regulators for the same electricity sector presents a potential for conflicting roles in their regulatory operations.
The regulators maintain a substantial “arms-length” relationship with government. Although the boards of both PURC and the Energy Commission have institutional representation as specified by the laws, the requirement for the board members to be appointed by the President for renewable terms of three to five years limits the full “arms-length” relationship with government, required for the regulators to operate. While PURC, by the primary legislation, operates independent of the sector ministry, the Energy Commission reports to the ministry and this provides a route for the intrusion of the executive arm of government into regulatory issues.
Both PURC and the Energy Commission maintain a low level of stakeholder independence. The Ghana Constitution, the Commission on Human Rights and Administrative Justice Act, 1993 (Act 456) and the Public Services Commission Act, 1994 (Act 482) all prohibit the CEO and commissioners of the regulatory institutions from having any personal interest in the regulated electricity utility during their terms in office. However, they do not prohibit them from accepting appointments in the regulated utility before or immediately after their terms in office. This could encourage interest hedging and professional nomadism between the regulatory institutions and utilities.
The decision making independence of the regulators is rated substantial. This is because although there are strict requirements for the PURC to consult the public and other stakeholders on decisions, through public hearings, ad-hoc meetings and submission of written memoranda, tariff and conflict resolution decisions of the PURC is final and binding. Licensing and conflict resolution decisions of the Energy Commission are also final. Both regulators are not required to seek approval from the executive before making regulatory decisions, however the executive can overturn regulatory decisions of the Energy Commission. This is upfront to the decision making independence required of independent regulators and has an attendant potential negative impact on investor and consumer confidence.
Both regulators charge fees and levies at levels approved by the Ghanaian Parliament, to fund their operations. Budgets, expenditures and salaries of both institutions are allocated and approved by their various boards and are based on the public utility salary scale but are lower than the public utility salaries. Because of this, the regulators are rated substantial on financial independence in terms of sources and adequacy of funds to finance their operations, attract, maintain and retain qualified staff. However, the relative low salary levels of the regulators compared to the utilities have the potential of hampering the ability of the institutions to attract and retain qualified and motivated professionals.
The regulators received a substantial level rating for regulatory development in accountability. The Energy Commission reports to Parliament through the sector minister, while PURC reports to the Ghanaian Presidency and Parliament directly. Each institution is required to answer requests from or attend hearings organized by parliamentary committees. They have legal obligations to produce annual reports on their activities, which are presented to Parliament, although through different routes. Regulated utilities may contest the regulatory decisions of the regulators but only through the existing judicial system, which could be lengthy and cumbersome.
The level of transparency in the regulatory processes is rated low. Through regulator websites, the public has immediate access to key regulatory documents like license application procedures, regulations and tariff methodology. While not mandated by legislation to do so, the regulators voluntarily publish major regulatory decisions. These publications usually exclude the reasons behind those regulatory decisions. It is important that the disclosure of the rationale behind regulatory decisions be made mandatory.
Predictability receives a low rating. PURC has documented electricity rate setting guidelines that set out the procedures and timetable for tariff reviews and which the regulator may change, in consultation with regulated firms and stakeholders or upon a request from the utilities. Key regulatory documents like contracts and authorizations may be modified by mutual agreement between parties to the regulatory instrument but licenses may be modified by regulatory decision but not before the affected person is consulted. Requirements, procedures and schedules for obtaining licences are published and applicants are informed of the progress of their applications until regulatory decisions are taken.
The level of stakeholder participation in decision making is rated medium. In decision making processes, consultations are conducted through public hearings, ad-hoc meetings, and consultative meetings with Parliament. The regulators take into account stakeholders’ inputs and responses during the consultation process to influence regulatory decisions and provide feedback on comments received from stakeholders. The drawback is that the rationale behind regulatory decisions are not made public because the laws do not require of the regulators to do so.
Open Access to Information
Access to information is rated high. Both regulators have websites that contain all the necessary information that a regulator must provide to the public and stakeholders. Both have information technology officers in charge of regularly updated websites.
Economic Regulation-Tariff Setting
There is a low level of regulatory development in economic regulation. PURC has developed a well-documented tariff setting methodology that includes a schedule for major tariff reviews, automatic tariff adjustments and end-user tariffs are set according to a written formula that prescribes how end-user tariff levels should be set. However, the regulator does not always adhere to the formula and schedule. Utilities are compensated for the costs of stranded assets. The end-user tariff setting regulations avoid passing through inefficient costs to customers and there are no requirements in the tariff methodology or in other regulations that the utility seek approval from the regulator prior to making major investments. The lack of this requirement is a major drawback as consumers could be saddled with unexplained tariff increases and the utility and regulator could be locked in disputes. There are no regulatory mechanisms to compensate generators for the provision of ancillary services.
PURC has carried out a recent study on the cost-of-service, and the current tariff level is deemed cost reflective by the regulator. Lifeline blocks and cross-subsidies are tariff mechanisms adopted to make tariffs affordable to support low-income consumers, the poor and the vulnerable.
Technical Regulation-Quality of Service
There is a high level of quality-of-service regulations in Ghana. Parameters used for monitoring the performance of the utilities are enshrined in three regulatory documents: the National Transmission Grid Code, the Distribution Code and the Electricity Supply and Standards of Performance Regulations. Fines are imposed on utilities that fail to meet quality of service standards. The areas of customer service with respect to connections and service delivery are covered in the quality-of-service regulations. They include all time-bound performance indicators, like the time it takes for a utility to respond to a customer request for a new connection. The Energy Commission and PURC compile performance indicators on operational service delivery and compliance with legal obligations by the regulated utilities. PURC in addition collects information on financial performance, including the cost of operating the regulated utilities. The regulators can compel the regulated entities to provide information, however, performance assessment reports on the regulated utility companies are not published. The regulators monitor the progress by the utilities on addressing the findings from the performance analysis through site inspections of the utilities and reports. In-house experts of the Energy Commission and PURC have together developed more than 24 regulatory instruments to govern the operations in the sector.
There is high level of development in the licensing framework for the electricity sector, which covers both grid and off-grid systems. For both system types, the framework covers procedures and guidelines for application, license application forms and a schedule of license fees. There are, however, no separate simplified or light-handed license procedures for off-grid small sized systems.
Both regulatory institutions have adequate, qualified and experienced staff to deal with all areas of their regulatory functions. This includes technical performance analysis, grid connection and access technical requirements and quality of service performance and tariff setting and analysis, financial analysis, economic analysis, engineering analysis, econometric modelling, financial modelling and tariff modelling.
Renewable Energy Development
The renewable energy development framework is substantially developed. The Renewable Energy Act 2011, Act 832, as amended by the Renewable Energy (Amendment) Act 2020 (Act 1045) provides the legal framework for renewable energy development in Ghana. Ghana has carried out a renewable energy assessment to inform the commercial development of the renewable energy resource. Both the Energy Commission and PURC are in charge of renewable energy regulation. The Ministry of Energy and the Energy Commission are responsible for the formulation, development and implementation of a renewable energy strategy. The Act 2020 removed Feed-in-Tariffs for renewable energy projects in favour of competitive bidding for tariffs. A renewable energy sub-code for the grid has been developed and deployed. Electricity generated from renewable energy sources based on least cost is given priority for dispatch.
Mini-Grid and Off-Grid Systems
There is a substantial level of regulatory development for mini grids. The country has developed an integrated plan that sets out least-cost electrification pathways, including grid, mini-grid, and off-grid systems and clearly demarcates areas for each system. The Scaling up Renewable Energy Program (SREP) is a national program to support the development of mini-grid systems. Mini-grid development is a public sector-led program where the same public utility owns the asset, operates and maintains it. The Net Metering Code allows the sale of mini-grid energy into the grid at a sustainable tariff. Tax exemptions and capital subsidies are financial incentives to promote the development of mini grids. The tariff regime allowed under the regulations for mini-grid operators is based on the national average end-user tariff. Technical/quality standards for mini-grids and connection codes specifying technical standards for connecting mini-grids to the national grid exist. However, there are no mini-grid-specific licensing regulations where smaller systems are exempted from licensing. Ghana’s National Rooftop Solar Programme, its Sustainable Use of Natural Resources and Energy Finance Programme (SUNREF) and SREP support the development of stand-alone systems. This includes individual home systems. Incentives available for such systems include duty exemptions and capital subsidies. Quality standards for stand-alone and individual home systems have been developed, and individual home system installers are licensed or certified.
Energy Efficiency Development
There is a substantial level of regulatory development for energy efficiency. Specific energy efficiency targets have been set at the national level for the power sector, where network losses are high and there is an action plan to reduce the network losses and is being implemented by PURC. The Energy Commission is in charge of energy efficiency regulation and the promotion of energy efficiency. The Electricity Demand Management Fund (EDMF), established in 1996, provides funds for the development and implementation of energy efficiency projects. Minimum energy performance standards (MEPS) and labels have been adopted for a wide range of domestic electrical appliances. Importers must submit accredited third-party laboratory test reports for verification and approval before appliances are imported. The penalty for non-compliance includes confiscation and destruction of appliances, at the cost of the importer, unless they are shipped out of the country within 28 days. The National Building Code incorporates a thermal building code. The Ghana Standards Authority, the Land and Spatial Planning Authority, and local government authorities are responsible for implementation of the building code. Occupancy certificates are denied for commercial buildings where there is non-compliance with building codes. and the building cannot be occupied.
Financial Performance and Competitiveness
The financial performance and competitiveness of the utility is low. The regulator has carried out a cost-of-service study on the utility’s operations within the last five years and is implementing the findings. The regulator approves power purchase agreements if the distribution utility purchases power through such an agreement. Price adjustment clauses in the power purchase agreement are recognized for tariff adjustments. A loss reduction target of 22.6% has been agreed between the utility and the PURC. The regulator has formulated a transparent procedure and a schedule for reviewing end-user tariff levels. However, the schedule is not always followed. There is legislation that provides regulatory mechanisms for dealing with electricity theft. A collection rate of more than 90% is factored in the tariffs but at the prevailing loss levels and collection rates, the utility is not covering its total costs through the tariffs. Furthermore there is no predictable mechanism used by the regulator to disallow costs considered unreasonable – costs incurred by the utility as a result of non-transparent procurement practices.
Quality of Service Delivery
The level of quality-of-service delivery by the utility is medium. It is a regulatory requirement for the utility to undertake periodic technical audits or a valuation of its facilities to establish their true state. There are regulatory ceilings on SAIFI and SAIDI and the utility must calculate and report to the regulator. The utility discusses SAIDI and SAIFI reports with both regulators against legislated levels. Although the indices are not factored into the tariffs, fines are imposed on the utilities if the ceilings are exceeded.
Facilitating Electricity Access
The level of facilitating electricity access is rated as substantial. Ghana’s National Electrification Scheme was adopted in 1988 and launched in 1989 with the goal of achieving universal access by 2020. The original mode of access expansion was grid extension, but has since been modified to include distributed generation/mini-grid and stand-alone systems. The Ministry of Energy implements the Access to Electricity policy. It is guided by a regulatory and licensing framework developed by the Energy Commission for the integration of renewable energy into the national grid, and for the deployment of mini grids. Government, the utility and individuals provide funds for access expansion. The utility company does not refund investments made by government for access expansion but sixty percent of individuals’ or corporate contributions to grid expansion are refundable by law. The same end-user tariffs are applied throughout the country irrespective of the system used to supply electricity.
It is recommended that the Public Utilities Regulatory Commission and the Energy Commission be merged into a single regulator under one legislation. This will align the regulatory framework in Ghana with international best practice and facilitate effective coordination and blending of technical and economic regulation to achieve desired sector objectives.
The regulatory law should be amended, or secondary legislations enacted to:
- Make provisions for a cooling off period after the terms of office of the CEO and commissioners before they can be employed in regulated entities.
- Remove provisions in the Energy Commission Act that allows the executive to overturn regulatory decisions of the regulator.
- Prohibit the regulator CEO from holding other offices in the government during their tenure in office;
- Prohibit the appointment of persons who were previously staff of a regulated company as commissioners
- Make the average level of salaries of regulatory staff at least equal to those of utilities.
The regulatory law should be amended, or secondary legislations enacted to make provisions for the creation of specialized and independent bodies outside the regulator and the usual court system for aggrieved regulated entities to contest regulatory decisions
Regulators’ decisions and reasons behind such decisions should be accessible to the public
- As part of the tariff guidelines, PURC should develop a transparent and predictable regulatory mechanism known ex-ante to stakeholders, that can be used to disallow costs considered unreasonable that are incurred by the utility.
- The utility should seek regulatory approval before major investments are made in the utility’s network.
- Network connection policy should be developed as part of the tariff methodology or as a separate document to address related issues of commercial access to the grid.
- Develop a model regulatory accounting framework for the use of utilities in tariff applications
Develop a separate, simplified and light-handed license procedure for off-grid and small sized systems. This will facilitate their deployment.
- Review of the mini-grid policy to allow the private sector to participate in mini-grid electrification with mechanisms for integration when the national grid envelopes a mini-grid.
Develop and implement a framework for competitive tender for electricity supply with price ceilings and triggered by demand trends and analysis.
PURC and the Energy Commission should collaborate with the utility to conduct consumer satisfaction surveys on a regular basis. This could be done at least every two years to track the level of quality-of-service delivery by the utility and to identify areas for improvement along a pre-agreed roll-out plan.