ABSTRACT
The Ghanaian electric power system, like most Sub-Saharan African countries, is bedevilled with the problem of inadequate generation of electric power amidst growing demand for electricity. Governments over the years have tried to tackle the issue of inadequate generation capacity and supply of electricity in Ghana to meet the increasing demand for electric power. Yet electricity supply in Ghana remains erratic and inconsistent. The purpose of this study was to develop a long-term (20-years) electricity generation expansion plan for Ghana’s electricity sub-sector that takes into account important attributes specially related to Ghana, such as budget constraint. The study employs multi-period stochastic mixed-integer linear programming (MILP) to model and solve the problem of determining the technology type, timing and number of units of generators to add to the existing capacity under uncertain demand taking into account budget constraint. Secondary data was used to estimate all the model parameters. Periodic electricity demand scenarios were obtained by assuming that the uncertain demand follows a triangular distribution with a minimum increase of 1%, the most likely increase of 7% and a maximum increase of 15% over the immediate past year’s electricity demand. The proposed multi-period stochastic MILP model was run for two cases: without budget constraint which depicts the case where there are sufficient funds to undertake an expansion plan and the budget constraint case, where the expansion plan is faced with lack of funds. The imposition of budget constraint is a departure from the typical generation capacity expansion models found in the literature and helps explain generation expansion pattern in Ghana. The expected values of the objective function and the generation expansion plans considering no budget constraint and budget constraints were optimized in order to draw analogy. It is observed that the presence of budget constraint sometimes forces the decision maker to take decisions that might be sub-optimal compared to when sufficient funds are available.
CHAPTER ONE INTRODUCTION
Background of the Study
Electricity has become a basic necessity of life. Its form and modes of use are expanding every day because it is the easiest and least expensive transportable form of energy (Sharma, 2009). It is particularly crucial for emerging economies whose national developmental agenda oblige steady availability of electric power. Interestingly, an estimated 1.2 billion people; roughly, one sixth of the world’s population lack access to electricity supply, of which almost 80% of them are in developing countries especially in Sub-Saharan Africa and South Asia (World Bank, IFC, & MIGA, 2013).
Demand for electric power in Sub-Saharan Africa has increased dramatically in recent times due to modernisation. Key sectors of the economy such as manufacturing, health, construction, entertainment, education and communication significantly depend on the generation and supply of electric power for their activities. However, Sub-Saharan Africa, like most developing regions, is in the midst of electric power crisis due to inadequate generation capacity and unreliable supply. The total installed generation capacity of Sub-Saharan Africa is lower compared to any other region in the world (International Energy Agency (IEA), 2014). The total installed generation capacity of all the countries in Sub-Saharan Africa was around 90 gigawatt (GW) in 2012, less than the installed capacity of Spain (Deloitte Conseil, 2015; IEA, 2014). Excluding South Africa, the installed generation capacity of the remaining Sub- Saharan Africa countries reduces to a mere half of the total (IEA, 2014). Sub-Saharan Africa’s installed generation capacity has remained largely stagnant, with growth rates of about half of
those found in other developing regions (Eberhard, Rosnes, Shkaratan, & Vennemo, 2011). Consequently, there is a wide gap in electricity generation capacity between Sub-Saharan Africa and the other developing regions. In general, generation capacity should be at the same growth rate as the economy in order to keep pace with electricity demand increase ( Eberhard, Foster, Briceño-Garmendia, Ouedraogo, Camos, & Shkaratan, 2008). However, this is not the case in Sub-Saharan Africa.
The insufficient electricity generation capacity ultimately leads to low rates of electricity access. About a quarter of the population of Sub-Saharan Africa has access to electricity, as opposed to a double of that in South Asia (World Bank, IFC & MIGA, 2013). With the current trends, very few Sub-Saharan African countries will reach universal access to electricity by the projected year of 2050. Due to the region’s insufficient electricity generation capacity and electricity access, it is obvious that per capita consumption of electricity is lower, averaging just 400 kilowatt hour (KWh) annually, with the average falling to less than 200 KWh without South Africa (IEA, 2014). By comparison, the annual average per capita consumption in the other developing regions is 1,500 KWh (IEA, 2014).
Inadequate generation capacity and lack of access to electricity in the region is a main cause of low levels of productivity which is a serious drag on long-term competitiveness (Eberhard et al., 2008). For instance, manufacturing firms in Sub-Saharan Africa experience electric power outages on an average of 56 days per year, which is only one day in ten years in United States of America (World Bank, 2013). As a result, the industrial sector in Sub-Saharan Africa experiences an increase in their production costs due to a switch to back-up generators. Insufficient electricity reduces economic activities such as opening of new factories, businesses and institutions that have the potential to increase employment, improve living standards of citizenry and help in achieving the Millennium Development Goals (MDGs).
The electric power problems in Sub-Saharan Africa countries can be seen in the growing recourse to kneejerk actions such as the advent of emergency electric power barges (Eberhard et al., 2011). To increase generation capacity in order to deal with electricity supply outages, countries enter into temporary leases for generation capacity. These temporary contracts are usually costly (Eberhard et al., 2011). For instance, emergency electric power barges that started operating in Ghana in 2015, have their costs approaching 3 percent of gross domestic product (GDP). Clearly, the prevalence of emergency electric power barges represents lack of a comprehensive long-term planning framework tailored to the region’s environment (Eberhard et al., 2011).
The electric power problems in Sub-Saharan Africa are deeply rooted in the region and the required investment to overcome the challenge of generation capacity is daunting. In Ghana, for example, an estimated $4.7 billion of investments is required to catch up and/or upgrade Ghana’s current electric power system (Millennium Challenge Corporation (MCC), 2012). The annual investment for additional generation capacity alone is estimated to be between $200 and
$280 million to cater for increasing electricity demand and keep pace with anticipated economic growth (MCC, 2012). Besides the huge financial investment required, a major concern, perhaps even more important for Sub-Saharan Africa electric power systems is developing a planning framework tailored to the region’s environment to guide capacity expansion. Planning for electric power system expansion is essentially a projection of how the system should grow, usually in the long-term while taking into account uncertainties (Al- shaalan, 2011). In the electric power system, planning must be done in the face of many uncertainties which make the planning process indispensable to provide the necessary information to enable decision to be made today about many years to come (Al-shaalan, 2011). Examples of these uncertainties are: future electricity demand, price and availability of fossil fuels (coal, diesel, natural gas etc.), weather variation and economic growth which characterize
most developing countries, as well as technical, economic and environmental constraints (Jin, 2012; Sharma, 2009; Shiinat & Birge, 2003).
In Ghana, electricity has become one of the most important inputs for economic development (Adom, 2011). According to the Ghana Shared Growth and Development Agenda (GSGDA), the electricity sub-sector will seek to ensure a secured and reliable supply of high quality electric power to all sectors of the economy as Ghana positions itself as a regional exporter of electricity and a net exporter of oil (NDPC, 2010). Ghana discovered oil and gas in commercial quantities in 2007, which implies the Ghanaian economy is at the verge of attracting local and foreign companies into the oil industry whose operations rely heavily on electricity. However, Ghana, like many Sub-Saharan African countries, is bedevilled with lack of sufficient electric power, which has culminated in the loss of a significant amount of productivity in the country (ISSER, 2014). The loss in productivity is an accumulation of time lost in production because of lack of additional generation capacity to bridge the supply and demand gap. Governments over the years have tried to tackle the issue of inadequate generation capacity and supply of electricity in Ghana to meet the increasing demand for electric power. Yet electricity supply in Ghana remains erratic and inconsistent. The problem with Ghana’s electric power system like most Sub-Saharan Africa is lack of a comprehensive long-term planning framework tailored to the Ghanaian environment to guide capacity expansion.
It is in light of this precarious situation that this current study attempts to develop a long-term planning framework for generation capacity expansion in the case of Ghana. Planning for capacity expansion is a key area of research in Operations Research/Management Science. In this thesis the generation expansion planning (GEP) problem is solved using stochastic optimization technique which is one of the techniques for handling uncertainties inherent in electric power system planning (Shiina, 2011). It is envisaged that this approach will guide
decision making in the area of generation capacity expansion in order to bridge the electricity deficit in Ghana and by extension in Sub-Saharan Africa.
Statement of the Problem
Electric power is a key infrastructural element for economic development. It is a commodity that underpins a wide range of goods and services that improve the quality of life and increase productivity. In fact, without sufficient electric power supply, homes, businesses and the society at large cannot function to full capacity. Adequate generation of electric power and electricity access is therefore, a necessary condition for achieving a sustained economic growth.
Despite the huge benefits that come with the use of electric power, the Ghanaian electric power system like most Sub-Saharan Africa is plagued with inadequate generation of electric power amidst growing demand for electricity (Adom, Bekoe, & Akoena, 2012). In Ghana, power usually goes off indiscriminately and in most of the times without prior notification to consumers making it difficult for the various consumer categories (residential, commercial and industrial) to reorganise their activities accordingly. Many factors are responsible for such unreliable supply of electric power. These include the high demand for electricity which exceed supply, weather variation that affects hydroelectric power generation – a major source of electric power generation in Ghana, inadequate reserve margin among others (Tractebel Engineering, 2011). These, coupled with a lack of a comprehensive long-term plan tailored to the Ghanaian environment to guide new generation capacity expansion, have contributed to erratic power supply in Ghana.
Ghana’s current national long-term generation capacity expansion plan (Tractebel Engineering, 2011) is based on the premise of the availability of sufficient funds for financing the needed
generation capacity to meet future demand. This study seeks to argue that planning from this point of view particularly in the Ghanaian context is a recipe for disaster. For it is almost certain sufficient funds will never be available. When this is the case, this long-term plan become irrelevant and never implemented. This further leads to kneejerk decisions that are too costly to a developing country. Assuming sufficient funds availability also contribute to the lack of reliable information on anticipated level of unserved energy. It is therefore important that capacity expansion plans, in a developing country such as Ghana, are looked at from the point of view of budget constraint to better enable the country to plan accordingly. Budget constraint could be envisioned as equivalent to the case of setting aside a percentage of the national GDP solely for the financing of additional capacities for electricity generation.
This study attempts to develop a long-term plan for generation expansion in Ghana based on stochastic optimization to determine the technology type, timing and number of units of generators to build taking into account the constraint on availability of funds and uncertainty in electricity demand.
Objectives of the Study
The main aim of this study is to develop a long-term (20-years from 2016 to 2035) electricity generation expansion plan for Ghana’s electricity generation system. Specific objectives to be achieved are:
- To employ stochastic optimization technique in determining the optimal technology type, timing and number of units of power generators to add to the existing generation system of Ghana taking into account budget constraint.
- To quantify the level of unserved electricity demand under budget constraint in order to help decision makers appreciate the consequences of capacity expansion decisions and the attendant effect on the economy.
- To establish the optimal level of savings to meet projected electricity demand within the planning horizon.
Research Questions
This thesis seeks to answer the following research questions:
- What technology type, timing and number of units of power generators are to be added to the existing generation system of Ghana taking into account budget constraint?
- What are the anticipated levels of unserved electricity demand and the attendant consequences to Ghana’s economy due to lack of funds for financing new generation capacity?
- What levels of periodic savings are needed in order to significantly reduce the levels of unserved electricity demand over the planning period?
Significance of the Study
The current study (Tractebel Engineering, 2011) on long-term capacity expansion plan for Ghana has assumed the availability of sufficient capital investment funds. However, for a developing country like Ghana, it is always the case that sufficient funds will never be available and thereby leaving this long-term plan inapplicable. In the face of the inapplicability of this
plan, actions are taken that border on quick fix solution that may be sub-optimal and costly to the country. This study therefore seeks to develop a comprehensive long-term capacity expansion model for GEP that takes into account constraint on the availability of funds for financing the needed capacity. The study asks the question of what is best to do in the face of financial constraint. Approaching the GEP problem from this angle will help to better plan for the anticipated level of unserved electricity demand as a result of the inability to provide enough new generation capacities due to financial constraint. It is not difficult to see that financial constraint can lead to actions (optimal of course under such situation) that may be deemed sub-optimal when judged from the point of view of sufficient funds availability.
It is also significant that though GEP with multi-period stochastic MILP model is not new ( Rebennack, 2014; Shiinat & Birge, 2003), the current study is the first of its kind to apply the technique to develop a long-term generation expansion plan for Ghana. Even more noteworthy is the fact that no evidence has been discovered by this study of anyone ever using multi-period stochastic MILP model for GEP that considered periodic budget constraint in the context of a developing country. Hopefully, the findings of this research should become a cardinal reference document in this direction for future researchers and policy makers, academic or otherwise. Also, the approach for the current work could become a template for solving the GEP problem in Ghana and beyond.
In a nutshell, this study intends to help electric power generation entities (public and private) to determine the technology type, timing and number of units of new generators to build in order to meet future electricity demand in a least cost manner, taking into account the financial constraint faced by Ghana.
