In Africa, countries such as Kenya and Ghana are converting take-pay clauses into PPA clauses into take-and-pay clauses. The main reason for this deferral is financial, as it means that buyers, who are usually state-owned enterprises, are not obliged to pay for gas or electricity that is not used or delivered. As part of this deferral, buyers are encouraged to look more carefully at how much gas or electricity they really need. In Kenya, PPPs between the state-owned Kenya Power and Lighting Company and independent electricity producers (IPPS) now include take-and-pay clauses instead of clauses to be paid. In Ghana, at the end of August 2019, the government began providing advice on renegotiating the high costs associated with take-pay clauses between IPPs and the State of the Electricity Company of Ghana. Kenya and South Africa are following Ghana`s leaders in the hope of reducing these costs. “We are pleased to install one of the largest industrial and commercial PV facilities in Ghana. This project will not only increase the use of clean and reliable energy, but will also reduce our diesel consumption and reduce our electricity costs,” said Nadim Ghanem-Pares, Deputy Managing Director of Miniplast. Norway-based Empower New Energy secured one of Africa`s first electricity supply contracts (PPPs) for solar power supply. The impact of take-and-pay in Kenya will be significant for investors in the energy sector.
Investors will now bear the burden of all investment risks. This should have an impact on investment decisions, not just in the energy sector. Investors will question the value of contracts with state-backed companies if sudden and potentially retroactive policy changes can undermine their business models in such a significant way. The program includes several sectoral initiatives and reforms, including the implementation of the Cash Waterfall Mechanism (CWM) in April of this year. This mechanism will allow the Ghanaian electricity company to distribute revenues transparently and manage arrears of payment. The ESRP Steering Committee is currently negotiating new agreements with IPPs and gas suppliers. Like Ghana, Kenya and South Africa have changed their attitudes towards the PPP. However, these clauses are not always commercially viable when considering the buyer`s position, since the buyer must pay for gas or electricity that he does not intend to use without the possibility of storing the additional electricity. They also affect the consumer price of gas or electricity and the corresponding subsidies.
Under the agreement, CEL will transform its existing plant into a toll structure, transfer all cost savings to the Ghana Electricity Company (ECG) and reduce the capital repayment rate by 38.9%. Distribution companies wishing to move to a “take and pay” model without hindering private sector investment should also seek storage solutions to support grid balance, without paying the financial penalty for not evacuating electricity under “take-or pay” to give IPPs confidence that the electricity produced can be monetized. Ghana`s state-based electricity company (ECG) pays about 2.5 billion cedis ($454 million) annually for electricity that is not connected to the grid. In July 2019, the Minister of Finance announced that Ghana would move to a “take and pay” model, and in August 2019, a three-month consultation period was initiated with the 43 IPPs that previously signed “Take or Pay” PPAs with the ECG. The consultation is expected to be completed by the end of November 2019. “We support building a competitive and dynamic energy sector in which private investment can prosper and the interests of the people and businesses of Ghana continue to thrive,” said S.E. Ken Ofori-Atta.