Ghana

Climate Finance and Ghana’s Energy Policy
From Derisking to a Green Developmental State

Isaac Abotebuno Akolgo, PhD

Summary

Ghana, like many other African countries, is currently facing the consequences of a global climate crisis. Rising temperatures are producing unprecedented heat levels not only in the north but also in the historically cooler southern region and middle belt of Ghana. Rising sea levels are eroding coastal land in the Volta Region and unpredictable rain patterns have inhibited farming, particularly in the Northern, Upper East and Upper West Regions. Commendably, governments over the years have demonstrated commitment to the national, continental and global calls for action to halt and possibly reverse the climate catastrophe. As party to the United Nations Framework Convention on Climate Change (UNFCCC), Ghana’s 2021 national energy policy reaffirmed its commitment to help limit global warming to 1.5°C by 2050.

In light of these commitments for climate action, the Ghanaian government and multilateral development institutions have maintained that the overriding challenge to fighting climate change is financing. As the Ghanaian state cannot afford to finance all its energy needs, it has often been argued that government needs to create a conducive investment environment that can crowd-in private capital flows, mainly from foreign sources, to support the rollout of its energy policies.

This report demonstrates that such an arrangement reflects what has been conceptualised in critical macrofinance as a derisking agenda. This derisking logic, rather than supporting transformative climate action, is intended to turn public infrastructure and services into profitable ventures for institutional investors. Practically, this derisking logic to climate action has been pursued under the guise of Public Private Partnerships (PPPs). Specifically for the energy sector in Ghana, PPPs in the energy sector are often referred to as Power Purchase Agreements (PPAs). The report reviews Ghana’s energy policy documents and actions, and shows that there is a pervasive pattern of adopting derisked PPAs for energy infrastructure projects. Overall, Ghana has more than ten derisked PPAs that collectively generate over 2000MW of electric power annually.

This report draws its data on PPAs primarily from the Reviving Developmentalism for Climate and Social Justice (REDCAJU) project. As opposed to the dominant neoliberal policy paradigm, the REDCAJU project aims to promote research and advocacy that support progressive macrofinancial perspectives for a 21st Century Green Developmental States in Africa. The REDCAJU project will particularly map and compare derisking strategies in countries such as Ghana, Senegal, Nigeria, and South Africa. The case of Ghana analyses derisking in the energy sector PPAs. Between 2007 and 2016, the Government of Ghana, through the Electricity Company of Ghana (ECG), entered into several PPAs with Independent Power Producers (IPPs) to enhance national electricity supply.. All of those PPAs were take-or-pay contracts ranging between 20 to 25 years in duration, with derisked financial investments from China, the USA, Europe and South Africa.

A prime example of derisking in the context of Ghana’s energy policy is the Sankofa Gas Project. In this project, a World Bank-mediated investment and payment structure obliges a Ghanaian state-owned enterprise, Ghana National Petroleum Corporation (GNPC) to effectively absorb all the risks associated with the extraction of Non-Associated Gas off Ghana’s western coast, while investors such Italy’s Eni and the Netherlands’ Vitol enjoy guaranteed returns. Besides Sankofa, there is a broad and well established practice of derisked PPAs that allows an increasing number of institutional investors from across the world to profit from Ghana’s struggle for energy sufficiency.

Another example of this phenomenon is the Amandi Power (Twin City) project which is primarily owned by US-based Denham Capital and designed to supply 200MW of thermal power to ECG over a contract period of 25 years. Denham Capital, the majority owner, is a private equity fund which has supported USAID’s Power Africa initiative. It holds its equity through its subsidiary Endeavor Energy Partners. Another stakeholder, Anergi (formerly Aldwych) has received investments from the Netherlands’ FMO and the Shell Foundation, while South Africa-based Old Mutual maintains equity through African Infrastructure Investment Managers (AIIM). USAID helped broker the project, whose total project cost was USD 556M, according to AIIM, with USD 418M in debt funding and USD 138M in equity financing. Amandi’s other debt providers include two development finance institutions, British International Investments (BII) and the United States International Development Finance Corporation (DFC). The take-or-pay contract including in this supply deal imposes additional costs on ECG for unused power and related risks. In November 2024 for instance, Amandi joined several other IPPs in threatening to shut down operations at its plant due to unpaid debts receivable (3news, 2024).

Similarly, other PPAs such as the Karpower Project and AKSA Energy have multiple institutional investors who profit from their derisked investments while shifting cost burdens to Ghanaian power consumers. These cases of PPAs demonstrate how a derisking approach in the Ghanaian energy sector is largely supporting the interests of institutional investors motivated by profit as opposed to the aim of supporting a just and equitable transition to sustainable energy sources. This report contends, for policy action, that a green developmental state is essential to producing a climate secure and prosperous Ghana.