Energy Ministry insists on $170m savings from Karpowership relocation

Energy Ministry insists on $170m savings from Karpowership relocation

The Energy Ministry is fighting off claims that the $170 million savings made from relocating the Karpowership was fabricated.

President Akufo-Addo, recently turned on the valves of the Karpowership for the use of natural gas from the country’s gas fields by the 450-megawatt plant which was brought in to augment power generation for the nation by Former President Mahama. This follows the relocation of the Karpower barge from Tema to its original location in Sekondi Naval Base, in the Western Region.

According to the Ministry of Energy, the switch of the Karpowership to natural gas would save electricity users an amount of US$170.5 million per year, and a projected amount of US$1.2 billion over the remaining term of the contract, by way of reduced electricity charges to consumers.

However, former Chief Executive Officer of the Ghana National Petroleum Corporation (GNPC) said the savings President Akufo-Addo claims to have been made for the change of fuel from HFO to natural gas from Ghana’s Eni operated Sankofa Gye Nyame (SGN) oilfield, are fabricated.

“The savings numbers are fabricated, US$170m saving’s a year for Karpower who’s HFO is almost as cheap as the Eni Ghana Gas.”

But in a latest statement, the Energy Ministry disagrees with Alex Mould.

The statement signed by Head of Communications at the Energy Ministry says the state would have saved more if “GNPC under Alex Mould had not negotiated a very high OCTP gas price that is considered the highest globally for similar projects and which now stands at $10.9/mmbtu”.

The Ministry further explained that the move was in alignment with the promotion of the use of gas as the primary fuel for power generation and ensure the maximum utilisation of indigenous gas (OCTP gas) in the Western Region. This it said, will reduce to the barest minimum or eliminate the financial consequences under the take-or-pay obligation.

Read full statement below:

Savings to be made through the relocation of the Karpowership from Tema to Sekondi

1.Introduction

The Ministry of Energy has picked from myjoyonline.com, comments made by Mr. Alex Mould that “Akufo-Addo’s savings from the relocation of the Karpowership from Tema to Sekondi in the amount of USD170 million per annum was fabricated.

Whilst we disagree with the statement from Mr. Alex Mould, we wish to seize the opportunity to give a little bit of a background to the relocation project and the benefits to be derived from it.

2.?Background

In alignment with the promotion of the use of gas as the primary fuel for power generation and also to ensure the maximum utilization of indigenous gas (OCTP gas) in the Western Region, to reduce to the barest minimum or to eliminate the financial consequences under the take-or-pay obligation, the ministry initiated the relocation of the 450MW Karpowership from its location in Tema to the Sekondi Naval Base.

The Karpowership Relocation Project (KRP) besides the physical movement of the powership, consisted of three (3) main activities namely;

i) Construction of 10km 330kV Power Evacuation Transmission Line from the Aboadze thermal Enclave to the relocation site – The line has been completed, energized and currently in service by GRIDCo.

ii) Construction of 10km 20 inch Gas Interconnection Pipeline from the Ghana Gas Regulation and Metering Station (TRMS) at Aboadze to the relocation site. The gas infrastructure also includes an Onshore Terminal Station (OTS) which preconditions (regulate and heat) the gas to the Karpowership.

iii) Construction of Marine Works (Marine receiving facilities) within the breakwater of the Sekondi Naval Base. The works are completed and currently accommodating the 450MW powership at the Sekondi Naval Base.

Other activity undertaken was the conversion of the Karpowership engines from the use of Heavy Fuel Oil (HFO) to the use of Natural Gas. The Powership has successfully converted over 90% of the engines and currently receiving gas from Ghana Gas.

3.?Benefits of the Relocation

It is to be noted that, the Karpowership was not relocated for the sake of it. Several benefits to be derived from that exercise, informed the decision for the relocation. These included:

i) Energy Mix

Advancing the government policy regarding the energy mix, which places emphasis on natural gas as the preferred fuel for thermal power generation to reduce cost of power generation and the environmental impacts.

ii) Environmental Impact

Converting the Karpowership from HFO to natural gas supports the promotion of low carbon fuels and would help to mitigate the negative environmental externalities and emissions from power generation. This is consistent with Ghana’s commitment to the SDG goal seven.

Savings

iii) Effect on take-or-pay

The Sankofa gas price in 2019 is USD10.4/mmbtu and Government pays on the average USD 40-50 million monthly for gas from OCTP. Utilization of the gas is averagely about 80mmscf and about 90mmsfc is paid for but not used. The relocated Karpowership would take approximately 50% of the volume of the Take-or-Pay Sankofa gas for power generation over the remaining period of the Power Purchase Agreement (PPA). This would provide GNPC with a firm source of revenue for the OCTP gas commitments. This saves Ghana a monthly take-or-pay cost of USD40million and a projected annual saving of USD480million.

iv) Impact on cost of energy

• The Generation cost of the Karpowership is 17.33 USCts/kWh and 12.19 USCts/kWh on HFO and Natural gas respectively. Switching from HFO to gas alone yields a 25% saving in the cost of generation.

• Specifically, the switch of the Karpowership to Natural Gas (NG) would save electricity users an amount of USD170.5million per annum and a projected amount of USD1.2billion over the remaining term of the contract by way of reduced electricity charges to consumers.

The total annual savings for both gas and electricity is estimated at about USD650.5 million and a projected USD5.2billion over the remaining period of the PPA.

Now specifically to the comment made by Mr. Alex Mould, we wish to note as follows:

The savings of USD170.5million per annum was estimated after a critical analysis of the monetary saving with the use of natural gas by the Powership at prevailing operating conditions, which include the following:

Fuel Recovery Charge

The Karpowership had a Fuel Recovery Charge of 0.09371166 USD/kWh when it was operational on HFO. This amount decreased to 0.05175904 USD/kWh with the conversion to natural gas.

Non fuel Variable Operation and maintenance (NFVOM)

The charge for NFVOM also decreased from 0.010483 USD/kWh to 0.0083 USD/kWh with the conversion. The NFVOM includes the operation and maintenance cost which is expected to decrease after the conversion from HFO to gas.

Annual Energy Charge

Based on an expected annual energy of 3,863,160,000 kWh from the Powership to the national grid, the total annual energy cost on HFO was USD 402,520,642.73 as compared to the total annual energy cost of USD 232,017,681 on natural gas. This annual energy charge is a factor of the fuel recovery and the Non fuel Variable Operation and maintenance charge. The difference between the annual cost of energy on HFO and natural gas resulted in the annual saving of USD170.5million referred to above.

We wish to note further that the savings to the state would have been more if GNPC under Alex Mould had not negotiated a very high OCTP gas price that is considered the highest globally for similar projects and which now stands at $10.9/mmbtu. Ghanaians demand answers from him. How could patriotic Ghanaian negotiate such a price?

Signed,

Nana Damoah

Head of Communication.

 

 

Source: myjoyonline.com

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