Shedding light on the dark corners of the power sector

What South Africa could learn from Ghana about why the energy transition means we need more open power markets.

Imagine buying a refrigerator, but the seller insists you can’t tell your neighbor what price you paid. Dodgy, right? You’d think that something was fishy and you were getting a lousy deal. And you’d likely be correct. A basic, inescapable fact: for markets to function efficiently, prices must be known.

Yet electricity is a business shrouded in secrecy. Utilities in most countries sign contracts that ultimately determine the cost and availability of power – and those contracts are kept secret, even when taxpayers are providing financial guarantees. Thankfully, the world now accepts that oil and mining contracts have to be disclosed in the public interest (and to keep politicians honest) but this weirdly somehow does not yet apply to electricity. While accountability for resource revenues has been a huge development win (thank you, EITI), electricity is arguably even more important to an economy because it directly impacts all citizens. And if we’re going to Electrify Everything, we gotta get this right. 

How secrecy is making South Africa’s power crisis even worse

We learned over the past week that rolling blackouts in South Africa have contributed to a 1.3% contraction of GDP in Q4 while an underwhelming cabinet reshuffle added more confusion by adding yet another minister (now 3) with some role in fixing electricity. Last week I wrote about the attempted murder of the Eskom CEO and his interview revealing the scary depths of the power utility’s problems. My colleague Catrina Godinho has an excellent summary of the South African situation here.

Well, here’s another shady corner of the country’s power crisis reported in the local press two days ago: “Energy regulator fights to keep Karpowership deal details confidential.” Karpowership is a Turkish company that provides floating power plants. Such systems are great for emergency power. They’re much faster than building a new power plant on land and their mobility creates flexibility. But, of course, emergency power is really expensive. You’d only use floating plants to fill short-term gaps and you’d replace them as soon as possible with cheaper options that can’t sail away. Oddly, South Africa signed contracts for 3 such ships for 20 years. Lawsuits have delayed (and maybe blocked) the deals, but the ongoing secrecy around the contracts is a really terrible sign of something to hide. 

Ghana is also in serious trouble from undisclosed power contracts

During the ‘dumsor’ chronic outages of 2011-16, Ghana’s utility, at the urging of the government, signed 43 new power purchase agreements or PPAs, the contracts at the heart of any private power plant. Very few details were ever revealed, even though most contracts are ‘take or pay’ and contain some kind of public guarantee. A new government elected in late 2016 canceled or tried to restructure many contracts, but the outcome was rising prices for consumers and loads of public money lost. Huge sums were paid in legal judgments. Over 2018-19, the country was obligated to spend nearly $1 billion for power it didn’t use. Other unpaid power bills added to mounting national debt, helping to push Ghana into default three months ago. (Zambia’s debt is also partly from unpaid, undisclosed power contracts.) So far, the IMF and other creditors are insisting on sovereign debt transparency, but power contracts with guarantees are really also a form of ‘hidden debt.’ 

One way Ghana could avoid this problem in the future is to commit to disclosing power contracts. A promise to release information should create powerful incentives for both investors and officials to agree to much better deals. At a minimum, the worst deals (like maybe 20 year floating barges or signing excess power plants on exorbitant terms) would become much less likely. The lower risk of renegotiation and greater competition from open markets should also create a virtuous cycle of attracting higher-quality investors and cheaper pricing for consumers. And if we want faster deployment of new clean energy (we do!), then we also need transparent contracting. 

Exciting news from a (usually boring) bureaucratic corner

That’s why there’s some really great news from Ghana. Last week, the country’s electricity regulator posted a beta version of its new Power Purchase Agreement registry. The site lists all PPAs and basic information contained in each of the contracts. 

Source: www.purc.com.gh

This is a huge first step toward contract transparency. 👏👏👏

My colleagues and I have launched a whole campaign, PPA Watch, to promote this idea worldwide. Please check it out and LMK what you think. And if your country is suffering from secret power contracts too, get in touch.

What I’m hoping comes next

1. Ghana’s parliament uses the registry to crank up oversight and maybe even pass legislation enshrining public disclosure for any PPA with a public interest.

2. The Ministry of Energy commits (or directs the regulator) to publish all future electricity contracts (lightly redacted where necessary) within one year of financial close. 

3. The Ministry of Finance insists that any future PPA with a direct or indirect sovereign guarantee be publicly disclosed just like any other loan.

All of these steps should help Ghana’s power market function more efficiently, reduce debt risk, and enable the country to build the power system it needs for a growing economy and to create lots of jobs.

Most of all, I’m hoping that other countries follow suit.

🇬🇭 is Africa’s bellwether (Take note, 🇿🇦)

Ghana has been a consistent pathbreaker: among the first to gain independence from Britain (1957), an early adopter of market reforms (early 1980s), and a regional trailblazer in the shift from military coups to multiparty democracy (1992). I’m optimistic that Ghana could provide a pathway for other countries on the energy transition too by simply disclosing electricity contract details. South Africa, Zambia, and many others would clearly benefit from doing the same.