ICEG Warns: Ghana’s 2026 Power Funds Risk Backfiring Without Essential Reforms

In the face of Ghana’s ongoing power sector challenges, the Institute of Climate and Environmental Governance (ICEG) has issued a stark warning about the 2026 Budget’s power funding proposals. Without addressing deep-rooted structural issues like weak grid infrastructure and inefficient power plants, these funds could provide only temporary relief, potentially leading to long-term setbacks in Ghana’s energy crisis. This article breaks down ICEG’s analysis, offering clear insights into the Ghana power sector reforms needed for sustainable energy security.

Introduction

Ghana’s power sector has long grappled with issues such as frequent outages, high system losses, and mounting debts to independent power producers (IPPs). The 2026 Budget Statement and Economic Policy, presented by Finance Minister Dr. Cassiel Ato Forson, allocates funds aimed at stabilizing power financing through measures like settling arrears and enhancing cash flows. However, ICEG, a leading think tank on climate and environmental governance, cautions that these steps fall short of tackling core inefficiencies.

Kwesi Yamoah Abaidoo, ICEG’s Policy Lead for Climate Finance and Energy Transition, emphasizes that while the initiatives may “keep the lights on,” they overlook fundamental problems including outdated metering, inefficient thermal plants, and unreliable grid systems. This introduction sets the stage for understanding why comprehensive Ghana power sector reforms are critical to prevent the 2026 power funds from backfiring.

Analysis

ICEG’s detailed review of the 2026 Budget reveals multiple shortfalls in the proposed power funding strategies. By examining technical, financial, and operational aspects, the institute underscores the need for reforms beyond mere financial injections. Below, we dissect the key areas of concern.

Short-Term Financial Measures and Their Limitations

The budget proposes paying off arrears, restoring letters of credit, and settling outstanding invoices to improve cash flow in the power sector. While these actions can offer immediate stability, ICEG argues they represent transient fixes. Ghana’s power sector suffers from high system losses—often exceeding 20-25% in distribution—and inefficient generation plants, which erode any short-term gains. Without upgrades to grid infrastructure and metering systems, these funds risk being depleted quickly, perpetuating the cycle of Ghana’s energy crisis.

Concerns Over the GPP-2 1,200 MW Thermal Plant

A flagship proposal is the 1,200 MW state-owned thermal plant under the Ghana Power Plant-2 (GPP-2) project. ICEG questions its necessity, noting that Ghana’s installed capacity already surpasses peak demand in business-as-usual scenarios. Committing to long-lived thermal assets exposes the country to foreign exchange risks from fuel imports and the potential for stranded assets amid global shifts toward cleaner energy. This misalignment with long-term energy planning could undermine the sustainability of Ghana 2026 power funds.

Overly Optimistic Claims on Domestic Gas Cost Reductions

The budget claims that switching to domestic gas could slash generation costs by 75%. ICEG challenges this projection, citing persistent inefficiencies in thermal plants, gas processing fees, transportation costs, and dollar-denominated contracts. Real-world data from Ghana’s power sector shows that such savings are unrealistic without parallel efficiency improvements, highlighting the gap between policy rhetoric and operational reality.

Limitations of the Cash Waterfall Mechanism (CWM)

The Cash Waterfall Mechanism (CWM) is designed to prioritize payments in the power value chain. The 2026 Budget projects an increase in capital declarations from GH¢950 million to GH¢1.7 billion. However, ICEG points out that CWM merely redistributes available cash without boosting operational efficiency or guaranteeing debt recovery from IPPs. For context, CWM allocates revenues first to fuel costs, then operations, and finally debts—a process that has struggled to resolve Ghana’s IPP arrears exceeding billions of cedis.

Private Sector Participation (PSP) in Electricity Company of Ghana (ECG)

PSP for the Electricity Company of Ghana (ECG) aims to inject private expertise into distribution. ICEG warns of limited impact absent clear technical and commercial performance indicators, such as feeder reliability, loss reduction targets (aiming below 20%), and improved collection efficiency. Without measurable key performance indicators (KPIs), PSP risks becoming another underperforming initiative in Ghana’s power sector.

Underinvestment in Renewables and Smart Infrastructure

The budget’s heavy emphasis on thermal assets contrasts with minimal focus on renewables and smart grids. ICEG stresses that diversifying Ghana’s energy mix with solar, wind, and hydro—alongside smart metering— is essential for resilience against climate variability and fossil fuel price volatility. Current renewable penetration in Ghana remains below 5%, far short of regional benchmarks.

Summary

In summary, ICEG’s critique of Ghana’s 2026 power funds centers on their failure to address structural weaknesses in the power sector. Short-term financial aids may stabilize operations temporarily, but risks from new thermal investments, unproven cost savings, flawed mechanisms like CWM and PSP, and renewable neglect could lead to inefficiencies and financial strain. True progress demands integrated reforms for long-term energy security in Ghana.

Key Points

Practical Advice

ICEG provides actionable recommendations to maximize the impact of Ghana 2026 power funds. These reforms focus on performance, risk management, and sustainability.

Implement a Performance-Based Cash Waterfall Mechanism

Tie CWM disbursements to efficiency metrics, ensuring funds incentivize loss reductions and reliability improvements across the value chain.

Adopt Foreign Exchange Hedging Policies

Introduce hedging for gas contracts and IPP payments to mitigate currency risks, stabilizing costs in a volatile forex environment.

Develop a Structured PSP Framework with KPIs

For ECG, define clear targets like 15-20% loss reductions, 95% collection rates, and enhanced feeder uptime to attract effective private partners.

Prioritize Renewables and Smart Infrastructure

Allocate portions of 2026 funds to solar farms, wind projects, and smart meters, aiming for 10-15% renewable integration by 2030.

Abaidoo notes that embedding these into implementation plans will deliver value-for-money and efficiency gains.

Points of Caution

Stakeholders must heed ICEG’s warnings to avoid pitfalls. Key risks include:

• Stranded Assets: Thermal plants may become obsolete with global decarbonization trends.
• Forex Vulnerabilities: Dollar-based contracts amplify Ghana’s cedi depreciation impacts.
• Operational Inefficiencies: Persistent high losses (25%+ in distribution) drain funds.
• Debt Accumulation: Unrecovered IPP debts could balloon beyond GH¢10 billion.
• Climate Risks: Overreliance on thermal ignores drought effects on hydro (40% of mix).

These cautions underscore the urgency of Ghana power sector reforms.

Comparison

Comparing budget proposals against realities reveals stark contrasts.

Thermal Power vs. Renewables

Thermal investments like GPP-2 prioritize baseload but carry high emissions and fuel costs (up to GH¢0.15/kWh). Renewables offer lower levelized costs (GH¢0.05-0.10/kWh for solar) and no fuel risk, yet receive underfunding.

Current Capacity vs. Demand

Ghana’s 5,000+ MW installed capacity exceeds 3,000-4,000 MW peak demand. Adding 1,200 MW thermal strains finances without storage or demand-side management.

CWM Projections vs. Performance

GH¢1.7 billion declarations sound promising, but historical CWM has achieved only 60-70% recovery rates, per Public Utilities Regulatory Commission (PURC) reports.

This comparison highlights why reforms must bridge policy intentions with verifiable outcomes.

Legal Implications

While the 2026 Budget’s power proposals are primarily fiscal, they intersect with Ghana’s legal framework under the Energy Commission Act (1997) and Public Utilities Regulatory Commission Act (1999). IPP contracts, governed by Power Purchase Agreements (PPAs), impose “take-or-pay” clauses obligating payments regardless of offtake, complicating debt recovery. Failure to reform CWM or PSP could trigger disputes under these agreements, potentially leading to international arbitration via bodies like the International Centre for Settlement of Investment Disputes (ICSID). Adhering to recommendations ensures compliance and minimizes litigation risks in Ghana’s power sector.

Conclusion

ICEG’s warnings on Ghana’s 2026 power funds serve as a clarion call for holistic reforms. By moving beyond short-term fixes to performance-driven strategies, hedging, and renewable integration, Ghana can achieve reliable, affordable power. Policymakers, utilities like ECG, and IPPs must collaborate to implement these changes, securing energy stability for economic growth. Ignoring these insights risks perpetuating the energy crisis, but action promises a resilient future.

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