The economic feasibility of solar use for electricity generation ' the case of Ghana
Can solar energy production be attractive or profitable for business in Ghana?
Ch 1 Introduction
Ghana is a country that depends on hydro and thermal for electricity supply. These two sources account for 100 percent of the electricity supply. According to the Ghana Energy Outlook (2012), 66-68% of the grid electricity requirement came from hydropower during the year 2011. The rest of the 32-34% came from thermal sources. Again, the Ghana Energy Outlook (2013), reported that the 2012 generation included 8,071 GWh (67%) of hydropower and 3,639 GWh (33%) of thermal power. IEA (2013) places Ghana's dependence on hydroelectricity at 85 percent. The total energy generation of 11,710GWh does not meet the total energy demand of the country. There was therefore power outages and power rationing during 2012. The Electricity Company of Ghana was compelled to undertake a load shedding exercise for a number of months (Musah, 2012). Ghana has been experiencing regular power outages and power rationing every year since then owing to the insufficiency of the supply from hydro, partially because of low water levels at the major hydropower generation dam to power all the turbines. The power outages and rationing leads to loss of productive hours for industries, hours of work in ministries and offices, hours of study in schools and hours of family time in homes.
In order to supplement the inadequate supply of electricity from hydro, there is the regular dependence on thermal, hence the 32 - 34 percent supply (in 2011 and 2012).
Ghana however has the potential to generate energy using solar because of the number of days of sunshine in Ghana in a year. Solar energy, like other renewable energy sources, is seen to be a key source for the future for the entire world. The progress and use of solar energy technologies are increasingly becoming vital for sustainable economic development. The three major cities in Ghana have the following sunshine hours and average sunny hours per day; an average of 2,377 hours of sunlight per year (of a possible 4,383) with an average of 6and half hours of sunlight per day in Accra, an average of 1,900 hours of sunshine per year with an average of about 5 hours of sunshine per day in Kumasi and 2,723 hours of sunshine yearly with an average of over 7 hours per day in Tamale (www.Climatemps.com, 2013).
The challenge with the exploration of solar as an alternative is the initial cost (Kelley, Gilbertson, Anwar, Eppinger & Dubowsky 2010). A full assessment of a source of energy supply to be added to the energy mix in Ghana should not be based only on initial cost. It requires a detailed analysis to unearth the financial viability of the energy source; looking at the cost of energy or the life cycle costs, rather than just the initial costs. Cost of Energy is driven by the initial cost, the annual energy production and the useful life of the plant. Life cycle cost also refers to all costs over the lifetime of the system less the salvage value of the plant. There will be use of off-grid data because, as at 2005, more than half of the population remained without access to grid-based electricity in Ghana (Aryeetey, 2005).
The aim of the research is to compare the full cost of solar as a source of energy to the full cost of thermal energy with the view to determine the more financially viable source of energy to complement hydro power in Ghana.
1.1 Research question
' Does commercial energy production of solar energy in Ghana make financial sense?
' How well does solar energy compare with thermal energy financially in meeting / augmenting the energy needs of Ghana?
' Is the necessary support available to encourage solar as a source of energy?
1.2 Hypothesis to be tested
H0: That solar energy is a more financially viable and more profitable source of energy than thermal over the life of a solar plant.
H1: That solar is not a more financially viable and more profitable source of energy than thermal over the life of a solar plant.
The methodology for the dissertation will be Cost of Energy (COE). Alternative methods include Life Cycle Cost (LCC).
1.3.1 The cost of energy (COE)
The cost of energy which is primarily driven by the installed cost and the annual energy production is used to ascertain the total cost of the energy produced from an energy source. This measure of financial viability when it is compared to the price of energy from other sources (in my case, thermal) or to the price for which that energy can be sold, it gives an indication of viability. Cost of Energy is given as;
COE = IC*FCR+AOM/AKWH (1)
COE = cost of energy
IC = initial cost of installation
FCR = fixed charge rate per year
AOM = annual operating and maintenance cost and
AkWh = annual kilowatt hour
Another formula applicable for the finding of Cost of Energy is
COE = IC/AEP (2)
COE = cost of energy
IC = initial cost of installation and
AEP = annual energy production.
AEP = EF*AkWh
EF = the System Efficiency Factor and
AkWh = Annual kilowatt hour
AEP = EF*Wp*PSH*365
AEP = annual energy production
Wp = array rating (or the peak KiloWatts) and
PSH = average daily solar insolation (sun hours)
1.4 2 The Life Cycle Cost is the 'present value' life cycle cost of the initial investment cost, together with long-term costs directly related to repair, operation, maintenance and fuel costs to run the system. Present value is understood as the computation of all expenses that will be incurred in the future but applied in the present terms. LCC is used to compare alternative power technology choices and to determine the cost-effectiveness of a power system. Life cycle cost is given as;
LCC = C+Mpw+Epw+Rpw-Spw
LCC = life cycle cost
C = initial cost of installation-the present value of the capital that will be used to pay for the equipment, system design, engineering, and installation.
Mpw = sum of all yearly O&M (operation and maintenance) costs'the present value of expenses due to operation and maintenance programs. The cost of O&M includes the salary of the operator, site access, guarantees, and maintenance.
Epw= energy cost, sum of all yearly fuel costs'an expense that is the cost of fuel consumed by the conventional pumping equipment (e.g., diesel or gasoline fuel). This should also count the cost of transporting fuel to remote sites.
Rpw= sum of all yearly replacement costs'the present value of the cost of replacement parts anticipated over the life of the system.
Spw= salvage value'net worth at end of final year, typically 10'20% for mechanical equipment
1.4 Research significance / Relevance
The research will be relevant to three identified categories of stakeholders namely entrepreneurs, the government and off-grid communities in remote parts of Ghana.
' The findings of this research seek to provide entrepreneurs with the necessary information to determine whether to venture into solar energy for the primary purpose of making profit or not.
' The Government of Ghana is plagued with the perennial challenge of rationing electricity and the findings of this research will seek to assist in the decision to embark on a national exercise to promote solar energy to curb or eliminate the power crises. Government policy may be structured to encourage solar as a business venture for entrepreneurs.
' The off-grid communities may be able to obtain energy supply via electricity since the entrepreneurs will be motivated to invest in their communities.
1.5 Likely contribution to academic work
' The findings of this work will seek to trigger off further study into the benefits of solar over thermal with emphasis on another factor (apart from the financial).
' The findings seeks to provide the platform for putting solar and other sources of non-renewable and renewable energy side by side to determine their unique benefits over each other.
1.6 Structure of the dissertation
The dissertation will have five chapters. Chapter one will be the introduction. Chapter two which is the literature review will contain a review of Ghana's electricity sector, the renewable energy potential in Ghana, thermal energy, the policies in place regarding renewable energy and the economics of solar energy use. Chapter three will be the methodology whereas chapter four will have the results and discussion. Chapter five will be the recommendations and the conclusion.
The next chapter reviews the available data on Ghana's electricity sector, renewable energy; specifically solar and thermal energy.
Ch 2 Literature Review
Electricity is a key factor for development and productivity and in a situation where there is limited supply or unavailable supply, there will be a curtailment of development and productivity. The literature review delves into the available literature on the role of electricity in development, the renewable energy sector and its emergence, solar energy and thermal energy.
2.1 The role of Electricity in socio-economic development
Electricity plays an important role in the daily life of people in the areas of health, income, education and the environment. According to Kanagawa & Nakata (2007), energy is a significant factor for development in terms of decrease in poverty. It also creates time and opportunity for women for income generating activities, and consequently, increased income, which leads to increased opportunity cost for work, creating further demand for the modern energy. Energy is the basic building block of economic development. Ghosh, (2002) posited that electricity is the most flexible form of energy that constitutes one of the vital infra-structural inputs in socio-economic development and Wolde-Rufael (2006) argued that even though the accessibility of electricity by itself is not a remedy for the economic and social difficulties facing the Africa continent, the supply of electricity is nonetheless an indispensable requirement for Africa's economic and social development. Owing to the importance of electricity to socio-economic development, access to it is very important and almost basic to users. This is true to both those who have been using it and those yet to benefit from it. Constant assess to electricity and the benefits that it brings cannot be overemphasised.
Electricity has gone through evolutions over the years in Ghana.
2.2 Electricity sector in Ghana- an overview
The electricity sector in Ghana has gone through periods of transition from colonial days to present. The history of Ghana's electricity can be looked at with the Akosombo dam as the distinguishing or demarcating mark and then with the energy reforms as the other distinguishing mark.
Before the construction of the Akosombo hydroelectric plant, power generation and electricity supply in Ghana was carried out with a number of isolated diesel generators dispersed across the country and standalone electricity supply systems. These were owned by industrial establishments such as mines and factories, municipalities and other institution (e.g. hospitals, schools, etc.). The first public electricity supply in the country was established in Sekondi in the Central Region of Ghana in 1914. The Gold Coast Railway Administration operated the system, which was used mainly to support the operations of the railway system and the ancillary facilities that went with its operations.
The Volta River Authority (VRA) was established in 1961 with the enactment of the Volta River Development Act, 1961 (Act 46) and charged with the duties of generating and supplying electricity through a transmission system from the river Volta. Construction of the Akosombo dam formally commenced in 1962 and the first phase of the Volta River development project with the installation of four generating units with total capacity of 588 MW each was completed in 1965 and formally commissioned on 22 January 1966.
Before power sector reform, Ghana's market was highly regulated, with generation and transmission vertically integrated in VRA and distribution handled by ECG, a fully state-owned enterprise, and NED, a subsidiary of VRA. ECG delivered power to customers in the southern half of the country while NED delivered power to customers in the northern half. This was the structure from pre-independence days till the 1980s.
Reforms were embarked upon in the 1980s. Kapika & Eberhard (2012) said that the need to reform had been brought about by a debilitating electricity crisis that started in the early 1980s, and spanned over two decades. It was caused principally by the effect of poor rainfall on a power sector that relied solely on hydropower ' primarily a function of a power-system planning failure. It was seen as a problem of a poorly performing distribution sector, a general lack of investment and poor maintenance of aging equipment were additional factors motivating the reform.
As part of the power sector reforms, Ghana commenced the process of unbundling the key functions namely generation, transmission, and distribution into separate markets, with instant competition created in generation and subsequently in distribution. VRA focused on generation, ECG and NED concentrated on the distribution in the south and north respectively and regarding transmission, a new public utility, GRIDCo was set up. Regulatory bodies, PURC and EC were formed to jointly administer the electricity sector. The PURC determines the rates and tariffs, monitors the performance, promotes impartial competition and ensures that there is a balance of the interests of utility providers and consumers conveniently. The EC institutes the utilities' performance standards and issues various licences.
This arrangement opened doors to independent power producers (IPPs) and the structure of the energy sector changed, as depicted in figure 2. Currently, independent power producers have been licensed to build, own and operate power plants. The IPP projects are at various stages of development (Min of Energy, 2014).
Figure 2 The structure of the power sector in Ghana
Source: Kapika & Eberhard (2012)
According to Nyarko, Akaho & Ennison, (2010) Ghana's electricity demand has been projected to be growing at a high rate of about 7 percent per annum over the last ten years. This could be attributed to the comparatively high population growth, economic aspiration of the country and the introduction of electricity to rural areas by adding more communities to the national grid. Electricity supply, on the contrary, has not been capable of meeting the demand due to high dependency on rain-fed hydropower plants, which started operating in 1965 and in 2010, account for about 68 percent of the total installed capacity. The EIA (2013) posited that Ghana has 85 percent dependency on hydroelectricity. There is therefore the need, for energy security and other reasons, to introduce alternative sources of energy into the energy mix. The hydro source is rain-fed and the next source used is thermal. Thermal power plants in Ghana depend on fuel for electricity generation and fuel supply to Ghana is erratic, expensive and subject to the supplying country's willingness to supply.
2.2.1 Electricity Generation / Supply
Electricity supply in Ghana is from two sources; hydro and thermal. The hydro is from the Akosombo and the Kpong dams. These two dams together currently generate 1,960 MW of electricity.
The building of the Akosombo dam formally began in 1962 as the first phase of the Volta River development project with the installation of four generating units with total capacity of 588 MW each was completed in 1965 and formally commissioned on 22 January 1966. In 1972, two additional generating units were added, bringing the total installed capacity to 912 MW.
There was a planning study prepared to determine how electricity demands can be met into the future. The study, titled 'The Ghana power study: Engineering and economic evaluation of alternative means of meeting VRA electricity demands to 1985', recommended among other choices the construction of the Kpong hydroelectric project. The Kpong project was embarked upon and was commissioned in 1982. This brought an additional 160 MW of installed capacity to the existing hydroelectric capacity.
Over a period of time, the capacity was adequate for the needs of Ghana and for export to neighbouring countries. There was however incidents that triggered off the need for further study geared towards the generation of more electricity. In 1983, following a drought that hit West Africa, VRA as part of its generation and transmission planning procedure undertook a wide-ranging expansion study, the 'Ghana Generation Planning Study' (GGPS). This engineering planning study, which was completed in 1985, confirmed the need for a thermal plant to provide a reliable complement to the hydro generating resources at the Kpong and Akosombo power plants. The thermal component of electricity supply to Ghana began in the late 1980s.
Electricity supply is divided into bulk electricity (transmission level) and final electricity (distribution level).
The electricity supply sources of Ghana as at 2010 are listed in Table 2.1
Table 2.1: Electricity supply of Ghana ' 2010
Source: PURC in Kapika & Eberhard (2012)
Since 2010, the supply has fallen to below the 2000 threshold. According to Min of Energy, (2014), Ghana has an installed capacity of 1960MW made up of hydro and thermal facilities. Electricity demand which is currently 1400MW is growing at about 10% per annum. It is estimated that Ghana requires capacity additions of about 200MW to catch up with increasing demand in the medium to long term. The existing power plants are unable to attain full generation capacity as a result of limitations in fuel supply owing to rising fuel prices and uncertainty in rainfall and water inflows into the hydroelectric power facilities.
Fig 2.1: Ghana's plant capacity balance
2.2.2 Electricity Demand
Demand for electricity in Ghana has been robust over the past decade due to economic growth, urbanization, and rural electrification. This trend is expected to continue into the next decade.
Over the last decade, Ghana experienced compound annual growth in peak power demand of about 1.4% annually, from a base of 1,258 MW in 2000 to 1,423 MW in 2009, and growth in cumulative energy demand of 3.3% annually from 7,539 GWh in 2000 to 10,116 GWh in 2009. It has not been a slow steady growth over the 10 years which can be attributable to mundane factors like population growth. Rather, there have been a number of cycles of ebb and flow in demand and energy consumption, and a rich combination of high growth in some sectors and high curtailment in other sectors.
GRIDCo anticipates that the next decade will trigger cumulative growth of 101% and 93% in peak and energy demand, respectively, driven in large part by the same key factors that drove growth in the last decade: population growth, economic development, and urbanization. This translates to annualized growth rates of 8.6% and 7.6% for peak and energy demand, respectively. At the projected rate, peak demand will double between 2009 and 2018, growing from 1,423 MW to 2,856 MW. Energy demand will almost double, growing from 10,116 GWh in 2009 to 19,469 GWh by 2018. This growth implies that there is the need for commensurate growth in the area of supply to match up with the demand. However, the current state of perennial power rationing and load shedding indicates that the trend may continue into the future. There is therefore the urgent need for an alternative to the
2.2.3 Gaps between electricity demand and supply in Ghana
Nyarko, Akaho & Ennison, (2010) stated that Ghana's peak electricity demand is projected to exceed the generating capacity of 3,000 MW in 2015 with corresponding energy demand estimated at 26,600 GWh and 4,400 MW in 2020 and with 33,000 GWh energy demand. Development of the Bui dam to form cascade with the Akosombo and Kpong dams will increase capacity to 1,600 MW.
The Ghana Power Reliability Report 2010 also indicated that Ghana's electricity sector has a customer base of more than 2 million residential and commercial customers and 1,150 industrial customers13. In 2009 these customers contributed to a peak power demand of 1,423 MW and a cumulative energy demand of 10,116 GWh. Peak demand is the maximum amount of electricity that customers consume instantaneously, while energy demand is the amount of electricity they use over time.
Demand for electricity is not constant, but rather varies both throughout the day and throughout the year. Intra-day demand variations are driven by the underlying consumption patterns of residential, commercial, and industrial customers. Residential customers are characterized by small, highly variable demands, commercial customers are characterized by mid-sized, moderately variable demands, and industrial customers are characterized by large, consistent demands. For almost all systems, the assorted mix of customers and demand profiles results in one or more significant system peaks during each 24-hour period.
In Ghana, there is a single peak over the four-hour period starting from 6pm to about 10pm. Demand variations throughout the year are driven mostly by weather and the availability of sunlight, which affect demand for three of electricity's key services ' lighting, heating, and cooling. Ghana's equatorial location and tropical climate result in very minimal seasonal variance in daylight and in temperature. Hence there is minimal seasonality in electricity demand. Ghana's less pronounced peak demand is an advantage, and it allows for more efficient use of generation resources. Installed generation capacity must be sufficient to meet peak demand requirements plus an operating reserve margin.
Fig. 2.2: Energy balance 2007 to 2025
According to Ministry of Energy (2014), Ghana has an installed capacity of 1960MW made up of hydro and thermal sources. Electricity demand which is currently 1400MW is growing at about 10% per annum. It is estimated that Ghana requires capacity additions of about 200MW to catch up with increasing demand in the medium to long term. The existing power plants are unable to attain full generation capacity as a result of limitations in fuel supply owing to rising fuel prices and uncertainty in rainfall patters and water inflows into the hydroelectric power facilities.
There is therefore the urgent need to fall on other sources in order to meet the energy needs of the country.
2.3 Renewable energy potential in Ghana
Ghana is well endowed with Renewable Energy Resources particularly biomass, solar, wind energy resources, and to a partial degree, mini-hydro. The development and use of renewable and energy resources have the potential to ensure Ghana's energy security and also alleviate the adverse climate change impact of energy production and use as well as solve sanitation problems.
Biomass is Ghana's leading energy source in terms of endowment and consumption. Biomass resources cover about 20.8 million hectares of the land mass of Ghana and biomass is the source of supply of about 60% of total energy used in the country (Ministry of Energy, 2014). The large land mass of Ghana has the potential for the growing of crops and plants that is converted into a wide range of solid and liquid biofuels.
Solar radiation levels are estimated at about 4-6 kWh/m2. Average wind speed along the eastern coastal areas is estimated at 5m/s at a height of 12 metres. Wind speeds of 9 m/s have been recorded on the mountains along south eastern corner of the country. The wind speed regime along the coastline suggests that wind can be harnessed for power generation as well as for mechanical applications.
2.3.1 Wind, Nuclear & Solar ' why renewables have become the trend globally
According to (Huang & Wu, 2007) and (Dincer, 2011), renewable energy is a viable and clean source of energy derived from natural sources. Renewable energy technology is one of the solutions, which produces energy by converting natural phenomena (or natural resources) into useful energy forms (Chen, Duic, Manuel Alves, & da Gra??a Carvalho, 2007). Bugaje (2006) said that the major alternative energy resources abundant throughout the African continent are solar energy (thermal and photovoltaic), wind energy, wood and biomass, and biogas production.
There has however been a number of problems with its implementation and use.
Martinot, Chaurey, Lew, Moreira & Wamukonya (2002) explained that many early programs in renewable energy were not successful, often because the factors for sustainability and repetition were missing. Other reasons given included the fact that the program agency coped with pressure to meet installation targets by circumventing technical standards and guidelines; individual beneficiaries were not accountable for loan repayments in cooperative-based loan arrangements, which led to low repayment rates and lack of funds for the replication of the program; the need for dual fuel supplies'both diesel and biogas'was inconvenient and required changes in behavior; and inadequate training and poor maintenance practices resulted in engine failures (Martinot, Chaurey, Lew, Moreira & Wamukonya, 2002) (Bernardo & Kilayko, 1990).
2.3.2 Electricity generation via Solar Energy
??en (2008) posited that solar energy is clean, undepletable, and harmless to living organisms on the earth. The most widely-used form of solar energy is the photovoltaic solar panels and the concentrated photovoltaic solar panels.
Razykov, Ferekides, Morel, Stefanakos, Ullal & Upadhyaya (2011) said the PV electricity is one of the best options for sustainable future energy needs of the world. There is therefore a lot of research and global attention given to it. At present, the PV market is growing rapidly at an annual rate of 35'40%, with PV production around 10.66 GW in 2009.
One significant aspect of solar energy is the cost of the solar panel.
The PV module cost depends on the total manufacturing cost of the module per square area and the conversion efficiency.
There is growth and advancement in PV panels. This became possible owing to technology cost reduction and market development, reflecting the growing awareness of the versatility, dependability, and economy of PV electric supply systems. Of particular interest is the strong differential growth rate in rural applications, which now accounts for nearly half of the total PV market. The second largest market is industrial applications. (Razykov, Ferekides, Morel, Stefanakos, Ullal & Upadhyaya 2011).
220.127.116.11 Solar Photovoltaics
Among various solar energy technologies of sustainable energy sources, photovoltaic (PV) appears quite attractive for electricity generation because it is noiseless, no carbon dioxide emission during operation, scale flexibility and rather simple operation and maintenance (Ho, Frunt, & Myrzik, 2009; Dincer, 2011). The photovoltaic (PV) power system has received considerable attention for the clean energy resource to solve the environmental problem in the worldwide scale (Yamaguchi, Kawakami, Kitano, Nakagawa, Tokoro, Nakano, ... & Ohyama, 2003; Dincer, 2011).
According to Razykov, Ferekides, Morel, Stefanakos, Ullal & Upadhyaya (2011), the PV effect was discovered in 1839 by Becquerel while studying the effect of light on electrolytic cells. It took a considerably long time to attain sufficiently high efficiency. Solar cells developed rapidly in the 1950s owing to space programs and its used on satellites. The energy crisis of the 1970s greatly roused research and development (R&D) for PV. The rapid growth of the PV market began in the 1980s due to the application of multi-megawatt PV plants for power generation. The present PV market grows at very high rates (30'40%), likened to the growth in the telecommunication and computer sectors.
Mori, N. (2000) said that the price of PV modules is gradually falling because of a combination of technological development and reductions in manufacturing cost due to bulk production. Governments and industry must increase R&D efforts to further lessen costs and ensure PV readiness for prompt deployment, while also supporting longer-term technology improvements.
Solar energy, including solar photovoltaics (PVs), has a vast sustainable energy potential in comparison to global energy demand. The IEA envisaged solar power accounting for 11% of global electricity production by 2050 and solar electricity contributes about 20% of the world's energy supply by 2050 and over 60% by 2100. It is clear that electrical generation with PV cells will play an important role in future of the energy. More widespread application of PV technology will be the driving force in the global PV market.
18.104.22.168 Solar Thermal
Solar thermal electricity may be defined as the outcome of a process by which directly collected solar energy is converted to electricity through the use of some sort of heat-to-electricity conversion device. Usually this is a heat engine, but there are other choices such as a thermoelectric pile converter or a fan converter as in solar chimneys (Mills, 2004).
Foster, Ghassemi & Cota (2009) explained that solar thermal energy has been used for hundreds of years by ancient people harnessing solar energy for heating and for drying. More recently, an extensive selection of thermal processing of solar energy has been developed for power generation; water heating, mechanical crop drying, and water purification, among others. There are several types of solar thermal collectors. Solar collectors are distinguished as low-, medium-, or high-temperature heat exchangers. There are basically three types of thermal solar collectors: flat plate, evacuated tube, and concentrating. Although there are great geometric differences, their purposes remain the same: to convert the solar radiation into heat to satisfy users' energy needs. The heat produced by solar collectors can supply energy demand directly or be stored. In order to match demand for energy and production of energy, the thermal performance of the collector must be evaluated. The instantaneous useful energy collected (Qu) is the result of an energy balance on the solar collector.
??en (2008) explained that a flat-plate solar collector consists of a waterproof, metal or fiberglass insulated box containing a dark-colored absorber plate, the energy receiver, with translucent glazings. The glazing covers decrease the convection and radiation heat losses to the environment. The collector gathers energy when the solar radiation travels through the cover; both beam and diffuse solar radiation are used during the production of heat.
Evacuated-tube solar collectors have better performance than flat plate for high-temperature operation in the range of 77'170??C. They are appropriate for commercial and industrial heating applications and also for cooling applications as well regenerating refrigeration cycles. They can also be an effective alternative to flat-plate collectors for domestic space heating, especially in cloudy regions (??en, 2008)
There are two ways of categorizing solar thermal collectors; according to the concentration ratio (C). In the most general terms, solar collectors are classified as flat-plate collectors with a concentration ratio C=1 and as concentrating collectors with C>1. The existing types of concentrating collectors are parabolic-compound, parabolic-trough, parabolic-dish, Fresnel, and central tower concentrators, among others. Two definitions of concentration ratio for these systems are used (??en 2008).
According to Mills, (2004), solar thermal power has probably the highest potential of any single renewable energy area, but has been delayed in market development since the 1980s because of market resistance to large plant sizes and poor political and financial support from incentive programmes. Currently however, there is speedy development occurring both in the basic technology and the market strategy, and prospects for rapid growth appear now to be very bright for newer approaches.
2.3.3 Electricity generation via Thermal Energy
Thermal energy is an alternative source of electricity production to hydro, solar, nuclear and biomass. Its use requires the set-up costs and a regular supply of coal or fuel.
In Ghana, the thermal plants primarily use fuel. The constant need for fuel to generate electricity takes a toll on the supply of crude oil for use as necessary input in other sectors of the Ghanaian economy.
2.4 Policy and legal instruments for electricity production to bridge the energy gap
General agreements exist that an effective energy efficiency policy needs a combination of measures including regulatory instruments, financial incentives, information provision; and that the mix of measures needs to be adapted to the situations of each specific countries (Speed, 2009; Dincer, 2011).
Kiplagat, Wang & Li (2011) said that in Kenya, the Ministry of Energy is responsible for the development and implementation of energy policy to regulate the energy sector players and to ensure security and efficient utilization and conservation of energy. The Ministry of Energy has developed various policies and regulations focused on promoting government priorities particularly to create an enabling environment for private sector led growth as well as increasing access and coverage of energy supply and promotion of renewable energy. The first national energy policy came into effect in 2004 and contains specific measures to be undertaken by the government aimed at promoting the use of renewable energy. This policy was developed in response to service delivery survey of August 2002 which indicated a number of policy gaps in the Energy sector including lack of clarity on renewable energy, petroleum, geo-exploration and rural electrification.
The situation was similar to the state in a number of African countries where large populations lack the ability to pay.
However, as low-income consumers do not have what it takes to reason in terms of levelized cost of energy; upfront costs are likely to remain the major bottleneck to achieve universal clean energy access. Governments can take four decisive actions to minimize upfront costs: (i) reduce balance of system(BOS) costs; (ii) eliminate taxes and tariffs on clean energy devices; (iii) reduce subsidies on fossil fuels and subsidize part of the up front and operation costs; and (iv) promote entrepreneurship and income- generating activities by the new end-users of the energy services. On average, component costs amount to about 50 percent of the cost of the final clean energy device, with the balance of system (BOS) accounting for the remaining 50 percent. Opportunities for near- term reductions of more than 50 percent in BOS by scaling up and implementing best practices have been reported in some markets (Glemarec, 2012). Initiatives to lower taxes and tariffs on solar goods can also be part of the solution set. A straightforward policy option is to lower or entirely abolish taxes and duties on a clearly-defined subset of clean energy products. These tax breaks on energy systems could be coupled with favourable tax policies on equipment targeted to specific commercial use of energy.
2.5 Economies of electricity production from renewable sources
Foster, Ghassemi & Cota (2009) explain that the choice of a solar energy system over conventional technologies like hydro and thermal depend on the economic, energy security, and environmental benefits expected. Solar energy systems are known to have a relatively high initial cost; however, they do not require fuel and usually require little maintenance. Due to these characteristics, the long-term life cycle costs of a solar energy system needs to be understood to determine whether such a system is economically viable and more beneficial. Solar is solar energy is cost effective for many urban and rural applications.
According to Tudisca, Di Trapani, Sgroi, Testa, & Squatrito, (2013), from a strictly economic view point, the purchase of a PV System means an expenditure of capital resources at a given time with the expectation of benefits in the form of solar electricity yield to be paid/saved to/by the user over the useful life of the system. Any economic assessment on such an investment requires the calculation of the involved cash flows as consistent as possible.
(Menegaki, 2008).Renewable energy creates multiple public benefits such as environmental improvement (reduction of power plant greenhouse emissions, thermal and noise pollution), increased fuel diversity, reduction of energy price volatility effects on the economy, national economic security (fossil energy is vulnerable to political instabilities, trade disputes, embargoes and other disruptions ), increase of economic productivity and GDP through more efficient production processes. Furthermore, renewable energy offers development benefits (prevention of money flow abroad, electrification of rural and remote villages in developing countries and new jobs).
The cost of renewable energy technologies will drop once the benefits of renewable energy, including its sustainable nature and the minimal pollution it creates, are recognized by a larger percentage of the population (Menegaki, 2008).
2.5.1 Barriers to deployment and development of solar
Historically, traditional business entities have always couched their concerns in terms of economics. They often claim that a clean environment is uneconomical or that renewable energy is too expensive.
Again there are a number of structures that support the deployment of renewables.
(Menegaki, 2008) solar power systems may generate no air pollution, but the environmental issues here relate to how they are manufactured, installed and disposed of.
According to Masson, Latour, Rekinger, Theologitis, & Papoutsi (2013), the development of PV was estimated according to two sets of drivers: the attractiveness of PV for the country and the attractiveness of the country for investors. While the country attractiveness for investors can change rapidly, the accuracy of the figure below remains quite important.
Concerning Ghana, The major challenge in biomass energy supply is to improve the efficiency of its utilisation and sustain its production and use. A key challenge in the development of mini hydro, solar and wind energy is the higher cost of energy produced from these sources owing to the current state of the technologies.
The focus of the biomass strategy is the (i) regeneration of forest cover through afforestation; and (ii) improvement in the production and efficient use of woodfuels. In the long term, the focus is on fuel substitution to alternative sources of energy. As regards solar and wind, the focus is to assist Ghanaian engineers and scientists to research and develop measures to reduce the cost of renewable energy technologies and provide fiscal, financial and pricing incentives on Renewable Energy Technologies to improve their competitiveness.
2.5.2 Policies in place regarding solar energy in Ghana
In the Bill of Ghana's renewable energy, the government committed to improving the cost-effectiveness of solar and wind technologies by addressing the technological difficulties, institutional barriers, as well as market constraints that hamper the deployment of solar and wind technologies.
Also, in the Ghana Shared Growth and Development Agenda (2010 ' 2013) is stated the fact that there is an abundance of untapped potential of natural renewal elements such as waves, rivers and waterfalls, wind and sun for power generation in Ghana. Other renewable energy resources include: biomass, wood fuels, gasohol and biofuels, which are alternative fuel sources. The key policy objective is to increase the proportion of renewable energy, particularly solar, wind, mini-hydro and waste-to-energy in the national energy supply mix; and contribute through the use of alternative sources of energy to mitigate climate change. Strategies to promote the use of renewable energy under the power sub-sector include: switch from the use of biomass to alternative sources of energy and facilitate access to grid for waste-to-energy power plants. By virtue of its geographical location, Ghana is well endowed with solar resources which could be exploited for electricity generation and low heat requirements in homes and industries. Solar energy utilisation has, however, been limited owing to its comparatively higher initial investment cost. The cost of producing energy from renewable sources is very high, owing to the current state of technology. To achieve the power sub-sector's policy objectives, the strategies for the wind and solar energy component include: continue to develop capacity in the use of wind and solar energy; complete feasibility studies on wind and solar energy technologies; improve the cost effectiveness of solar and wind technologies; support indigenous research and development to reduce the cost of solar and wind energy technologies; and support the use of decentralised off-grid alternative technologies (such as solar PV and wind), and support collaboration between Ghanaian engineers and their foreign counterparts to develop viable and affordable solar and wind energy technologies.
The Ministry of Energy in Ghana has embarked on an initiative to promote and increase the utilization of renewable energy in the national energy mix. It is our policy goal to ensure a 10% increase in renewable energy sources by 2020.
Policies in place include a feed-in-Tariff Scheme under which electricity generated from renewable energy sources will be offered a premium price that will guarantee return on investment.
Also, Renewable Energy Purchase Obligations under which power distribution utilities and bulk electricity consumers will be obliged by law to purchase a percentage of their energy requirement from electricity generated from renewable energy sources.
There is a licensing regime for Commercial Renewable Energy Service Providers among others to regulate and ensure transparency of operations in the renewable energy industry.
There is the establishment of the Renewable Energy Fund to provide incentives for the promotion, development and utilization of renewable energy resources. It is expected that monies from the Fund shall be applied primarily to the provision of financial incentives, capital and production-based subsidies, and equity participation for renewable energy investments.
The establishment of a renewable Energy Authority to oversee the implementation of renewable energy activities, execute renewable energy projects and manage the renewable energy assets on behalf of the state.
The Ministry of Energy in Ghana in collaboration with the Ministry of Education will soon roll out a programme for the provision of solar systems for basic schools in off-grid communities to support the Government's ICT for all basic schools Initiative.
Ch 3 Methodology
According to Foster, Ghassemi, & Cota (2009), the following factors should be considered when purchasing a renewable energy system:
1. Load (power) and energy, calculated by month or day for small systems;
2. Cost of energy from competing energy sources to meet need;
3. Initial installed cost:
a. purchase price;
b. shipping costs;
c. installation costs (foundation, utility inter-tie, labor, etc.); and
d. cost of land (if needed);
4. Production of energy:
a. type and size of system:
i. system warranty; and
ii. company (reputation, past history, years in business, future prospects);
b. solar resource:
i. variations within a year and from year to year;
c. reliability, availability;
5. Selling price of energy produced and/or unit worth of energy and anticipated energy cost
changes (escalation) of competing sources;
6. Operation and maintenance costs:
a. general operation, ease of service;
b. emergency services and repairs;
c. insurance; and
d. infrastructure (are service personnel available locally);
7. Time value of money (interest rate, fixed or variable);
8. Inflation (estimated for future years and how conventional energy source costs will
9. Legal fees (negotiation of contracts, titles, easements, permits);
10. Depreciation if system is a business expense; and
11. Any national or state incentives in place.
A number of these variables may not be used in the financial analysis to be carried out to get the per kWh cost of energy using solar energy and using thermal energy. Each of the variables will be analysed to determine their importance and inclusion for the financial viability computation.
Methodology - Solar
In order to determine the per kilowatt hour cost of electricity generated through the use of solar, I obtained the detailed cost breakdown of a newly 'commissioned 2MW solar plant in Navrongo, in the northern part of Ghana. I accessed this data from the website of the Volta River Authority (VRA). This is because the solar PV project was carried by the VRA to augment their supply of electricity. From the website, I obtained the Component Project Activity Design Document Form, < http://www.vraghana.com/vralibrary/docs/doc_2.pdf>. The document which had the variables necessary for the computation of Cost of Energy through the use of formula,
Cost of Energy = Installation cost / Annual Energy Production.
The plant installation cost is given as 8,082,025 dollars, the efficiency factor given as 78 and the daily kWh given as 5.53. With AEP given as EF*AkWh, I computed the annual kilowatt hour as 5.53 multiplied by 365 days. The result was US$2,018. I again multiplied the AkWh by the efficiency Factor already given as 78 on the VRA website. The annual energy production was computed and the result was 157,404 kWh.
The cost of energy can therefore be given as the installation cost of $8,082,025 divided by the annual energy production of 157,404. The cost of energy for 1kWh of solar generated electricity is $51.35.
To factor in the time value of money,
There are a number of assumptions that may impact the computation.
A well designed PV system will operate unattended and requires minimal maintenance, which can result in significant labor and travel savings. PV modules on the market today are guaranteed for as long as 25 years and quality crystalline PV modules should last over 50 years.
3.1 Other Methods
Other possible methods of calculating the economic value or financial efficiency of an energy system include the Life Cycle cost, the use of the RETScreen tool and Payback method among others.
In order to gain a true perspective as to the economic value of solar energy systems, it is necessary to compare solar technologies to conventional energy technologies on a life cycle cost (LCC) basis. This method permits the calculation of total system cost during a determined period of time, considering not only initial investment but also costs incurred during the useful life of a system. The LCC is the 'present value' life cycle cost of the initial investment cost, as well as long-term costs directly related to repair, operation, maintenance, transportation to the site, and fuel used to run the system. Present value is understood as the calculation of expenses that will be realized in the future but applied in the present. An LCC analysis gives the total cost of the system, including all expenses incurred over the life of the system. There are two reasons to do an LCC analysis: (1) to compare different power technology options, and (2) to determine the most cost-effective system designs.
The LCC was not chosen for use owing to the fact that social, environmental, and reliability factors are not included here but could be added if they are deemed important. These factors are difficult to quantify in conventional economic terms, but they should be considered when important to the user (Foster, Ghassemi, & Cota, 2009). These are non-financial hence will require estimation and assumptions.
Another likely tool is the RETScreen which is a tools consists of a standardized and integrated renewable energy project analysis software that can be used to evaluate the energy production, life cycle costs, and greenhouse gas emission reductions for following renewable energy technologies: wind, small hydro, PV, passive solar heating, solar air heating, solar water heating, biomass heating, and ground-source heat pumps.
3.1.1 Data & sources
3.1.2 Cost of Energy
The cost of electricity varies depending on the generation technology being used. The majority of renewable and low-carbon technologies are more costly to produce energy. The costs charged to consumers will reflect a weighted average of the portfolio mix of a particular electricity supplier. A mix of technologies is commonly used be a supplier to provide security of physical supply and as a hedge against price volatility. Some renewables are especially effective as a price hedge as the 'fuel input' is freely provided by nature. However, in general terms, renewable generation assets demand a large capital investment to construct and therefore have little opportunity to have lower costs of production once built.
Solar PVs have similar characteristics and without a careful observation of all necessary variables and a good analysis, the conclusion will put solar at a disadvantage compared to other sources of electricity generation, in this case, thermal.
The cost of energy (COE) is primarily driven by the installed cost and the annual energy production. Another definition of COE
3.2 Key assumptions and
Future fuel & CO2 prices
Present and future financing costs
Cost of storage and decommissioning
Ch 4 Results & Discussion
Ch 5 Conclusion & Recommendation
Mwangi, Kimani & Muniafu (2013) A FiT can be a very effective tool to promote the development of renewable electricity in a targeted, cost-effective and controlled manner. They are well suited to younger liberalized electricity markets in that they can provide investor certainty in such fledgling markets'by setting prices at a level, which is purposely designed to attract and stimulate new investment in renewables. In 2008, the Ministry of Energy (MOE) introduced a FiT for RE sources. At present, it enables power producers to generate and sell Renewable Energy Sources generated Electricity (RES-E), to a distributor at a predetermined fixed tariff for a given period of time, in this case, 20 years)
Smaller scale and locally installed generation systems using solar panels, batteries and the like can be more affordable and beneficial (Aryeetey, 2005).
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