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Full Cost Recovery Critical - To Address Challenges Facing Thermal Power Generation
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Managing Director of Tullow Ghana, Charles Darku says the ability to recover the cost of supply through market-based full cost recovery pricing in the distribution sector is absolutely necessary to turn the fortunes of the thermal generation sector around.

He stressed that the time has come for the thermal generation sector to take bold initiatives through innovative solutions to solve the needs of the sector. 

He said innovation and new technology hold the key to addressing the issues of sustainable and reliable low cost power supply.

According to him, without transforming the thermal generation business through re-structuring and innovative financing, and also deploying market-based pricing mechanisms to recover cost in full, “we would not have set the sector on the path for long-term prosperity”. 

He noted that the sector is undoubtedly best placed to tackle the issues of market reform, both by way of disaggregating the electricity commodity and resetting its business model as necessary ingredients to its survival and long-term prosperity. 

According to him, the ultimate benefit will be a stronger and thriving electricity supply industry, where the energy mix is right; one in which hydro, thermal, renewable energy all have a place in providing sustainable power to Ghana.

He was speaking at the annual conference of the Society of Volta River Authority (VRA) Engineers, under the theme ‘Transforming Thermal Generation Business through Restructuring and Financing’.

“Resetting business models to eliminate waste; entering into effective joint ventures or private public partnerships that can tap into external funding and bring private business acumen; implementation of innovations that can positively transform power generation, transmission and distribution to make energy delivery more modern and efficient; these, to my mind, are the key areas of focus because they are all within the control of industry players. “Disposal (or not) of assets is ultimately the decision of the resource owner, and while it is incumbent on industry to share their opinion and advise, industry can ensure positive outcomes by focusing on reforming through transformation,” he added.

Darku challenged VRA, Ghana Grid Company (GRIDCo), Electricity Company of Ghana (ECG) and all players in the industry to focus their energies on resetting their business models to keep them lean and to be agile to take the shocks of price excursions and regulatory upsets. 

“How to reduce spending, eliminate waste and be able to respond quickly to sector changes are key. 

“For the VRA, this would include massively reinventing itself to leverage on its strengths and address its weaknesses,” he added. 

While there is a plethora of IPPs as an indication of vibrant private sector participation, innovative financing of projects and capital recovery and cash flow challenges have remained, he noted.
Role of indigenous natural gas

He stated that the availability of an indigenous natural gas industry is already playing a role in reducing the cost of thermal generation --- one of the key pivots to addressing the financial crunch in the industry. 

Jubilee gas eases cash flow constraints

He noted that gas supply from the Jubilee fields has eased the cash flow constraints of the power generation sector as the Jubilee Partners committed to supply 200 billion cubic feet (200 bcf) of gas at no cost to the country. 

Since late 2014, about 60 billion cubic feet (60 bcf) of the free gas has been consumed, and today represents feed stock for about 25% of the generation capacity. 

He explained that at current rates of supply in which year-to-date average supply is about 60 million standard cubic feet of gas per day (mmscf/day), it would take another five years to deplete this supply.

He noted that next year another 150 mcf of indigenous gas would be available from the Sankofa fields, operated by ENI Ghana. 

Low cost reliable gas supply

The Tullow Ghana MD said these developments have broken the back of low cost reliable gas supply into the system and should remove the dislocation in the sector’s economic fortunes and ability to thrive. 

“Promoting the growth of the indigenous gas industry is important as it sends the right signal to oil explorers that there is in place a robust low-cost strategy to dispose of all associated gas in an efficient, environmentally friendly manner to spur investment in oil exploration. 

“The recent ruling by ITLOS in Ghana’s favour removes the uncertainty the maritime boundary dispute brought about and the pause in investment in oil exploration.

“Secondly, the compact and modular size of thermal generation units and the speed of deployment relative to other sources of generation means that they lend themselves much more easily to meeting load growth and multiple generation operators”, he added.

Darku stated that finding innovative and robust processes of increasing indigenous natural gas, and complementing that at the right time with imported Liquefied Natural Gas (LNG), is important for long-term survival of cheap electricity. 

Other elements of innovation in the sector which will garner well for the industry include an unbundling of the “electricity commodity” to the point where mechanisms of normal market operations can get Ghana to the equilibrium point of supply and demand, he said.
Source: The Finder

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