Skip to main content
Home

Main navigation

  • Centers & Programs
    • Centers
      • Center for Energy Studies
      • Center for Health and Biosciences
      • Center for the Middle East
      • Center for Public Finance
      • Center for the U.S. and Mexico
      • McNair Center
      Center for Energy Studies
      Providing new insights on the role of economics, policy and regulation in the performance and evolution of energy markets.
      More Details
      The globe at night, lights in populated areas illuminated
      Center for Health and Biosciences
      Advancing data-based policies that promote health and well-being in the U.S. and around the world.
      More Details
      Female healthcare worker lifts finger to press digital buttons featuring topical iconography
      Edward P. Djerejian Center for the Middle East
      Developing pragmatic policy approaches to the region’s enduring political, economic and societal concerns.
      More Details
      Topographic map of Middle East
      Center for Public Finance
      Delivering research and analysis on the effects of major U.S. fiscal policies.
      More Details
      Stack of coins with mathematical figure overlays
      Center for the U.S. and Mexico
      Strengthening the binational relationship by addressing major concerns on both sides of the border.
      More Details
      Textured flags of America and Mexico
      McNair Center for Entrepreneurship and Economic Growth
      Providing actionable policy analysis and recommendations that aim to expand the economy through private enterprise.
      More Details
      Professionals gather around a large table with laptops, printed documents and coffee cups for a business meeting
    • Programs
      • China Studies
      • Drug Policy
      • International Economics
      • Presidential Elections
      • Religion & Public Policy
      • Science & Technology Policy
      • Space Policy
      China Studies
      Analyzing the influence of the transnational circulation of people, technologies, commodities and ideas in China.
      Read More
      Person walks alongside large banner with Chinese characters
      Drug Policy
      Pursuing research and open debate to develop pragmatic drug policies based on common sense and driven by human rights interests.
      Read More
      Marijuana
      International Economics
      Studying timely issues in global economic policy as well as developmental policy in foreign countries.
      Read More
      International paper currencies stacked together, showing range of colors and styles
      Presidential Elections
      Offering nonpartisan analysis of elections to better understand the changing dynamics of presidential campaigns.
      Read More
      An assortment of campaign buttons from a variety of US elections and political pursuits are displayed in a collage
      Religion and Public Policy
      Exploring how religion and cultural factors interact with public policy issues.
      Read More
      A worn path stretches between rows of olive trees
      Science and Technology Policy
      Addressing a broad range of policy issues that affect scientists and their research.
      Read More
      A scientist picks up test tubes from a rack.
      Space Policy
      Focusing on U.S. space policy and the future of space travel.
      Read More
      The International Space Station (ISS) orbits the Earth at sunrise
  • Events
    US MEXICO Flags
    Center for the U.S. and Mexico
    Wed, May. 31, 2023 | 5 pm - 6:45 pm
    The US-Mexico Relationship: A Conversation with the Honorable Earl Anthony Wayne, Former US Ambassador to Mexico See Details
    Small child reaches into drawer with firearm
    Center for Health and Biosciences
    Fri, Jun. 02, 2023 | 8 am - 4 pm
    Preventing Firearm Injury in the Greater Houston Area Through Purpose and Policy See Details
    Teen Depression
    Center for Health and Biosciences | Child Health Policy
    Tue, Jun. 06, 2023 | 4 pm - 5 pm
    Baker Briefing: America’s Youth in Crisis — How Policy Interventions Can Help See Details
  • Experts
    • Biomedical Research
    • Child Health
    • China
    • Conflict Resolution in the Middle East
    • Domestic Health Policy
    • Drug Policy
    • Energy
    • Entrepreneurship and Economic Growth
    • Global Health
    • Health and Biosciences
    • Human Rights and Refugees
    • International Economics
    • Islam and Politics
    • Latin American Energy
    • Middle East
    • Political Economy of the Arab Gulf
    • Presidential Elections
    • Public Finance
    • Religion and Public Policy
    • Science and Technology
    • Space Policy
    • Texas Politics
    • U.S. and Iran
    • U.S. and Mexico
    • See All Experts
    • Experts in the News
  • Support
    • Join the Baker Roundtable
      Join the Baker Roundtable
      Learn more about the Baker Institute’s membership forum, which supports the mission of the institute and offers members exclusive access to experts and events.
      Read More
      RT
    • Major Gifts
      Major Gifts
      Major gifts provide the funds necessary for the Baker Institute to explore new areas of study and research, and expand current programs.
      Read More
      Wallace S. Wilson meeting with former British Prime Minister Tony Blair
    • Endowments
      Endowments
      Endowment gifts provide the Baker Institute with permanent resources that support research programs, fellows and scholars.
      Read More
      Pictured from left are William Martin, Katharine Neill Harris, Ambassador Edward Djerejian, Alfred C. Glassell, III, and Pam Lindberg
    • Planned Giving
      Planned Giving

      Plan a gift that will ensure lasting, meaningful support for policy programs important to you.

       

      Read More
      meeting
    • Corporate Support
      Corporate Support
      Corporations can become involved with the institute in a number of ways and see the benefit from the research conducted by our fellows and scholars.
      Read More
      Wide shot of the Doré Commons during a Shell Distinguished Lecture Series event featuring Wim Thomas
  • About
    • People
      People
      Learn more about the Baker Institute's leadership and get contact information for the administrative staff.
      Read More
      Secretary James A. Baker, III, stands with a portion of the Berlin Wall, outside of Baker Hall
    • Student Opportunities
      Student Opportunities
      Through the internships on campus and beyond, Rice students can explore careers in public policy, or simply become better informed about important issues of the day.
      Read More
      Amb. Edward P. Djerejian speaks with students outside Baker Hall
    • Annual Report
    • Podcast: Baker Briefing
      Podcast: Baker Briefing
      Baker Briefing is a weekly podcast that tackles the most critical foreign and domestic policy issues of the day in conversations with experts at the Baker Institute.
      Read More
      Logo for the Baker Briefing Podcast (Square)
    • Contact
      Contact Us
      Complete a form for event, media or other inquiries, and get directions and parking information for the Baker Institute.
      Read More
      The front of Baker Hall, from across the plaza, with fountain in foreground
  • Contact
  • Research
    • Economics & Finance
      Economics & Finance
      Read More
    • Energy
      Latest Energy Research
      Summary on Latest Energy Research
      Read More
    • Foreign Policy
      Foreign Policy
      Read More
    • Domestic Policy
      Domestic Policy
      Read More
    • Health & Science
      Health & Science
      Read More
    • All Publications
  • Facebook
  • Youtube
  • Twitter
  • Linkedin
  • Economics & Finance
  • Energy
  • Foreign Policy
  • Domestic Policy
  • Health & Science
  • All Publications
Center for Energy Studies | Commentary

How Power Contract Transparency Can Help Fight Poverty and Climate Change

June 1, 2022 | Rushaiya Ibrahim-Tanko, Todd Moss
External Forbes Clean Energy

Table of Contents

Author(s)

Todd Moss
Nonresident Fellow

Share this Publication

  • Facebook
  • Twitter
  • Email
  • Linkedin
  • Print This Publication

The world must solve two global crises – energy poverty and climate change – at the same time. Energy poverty impacts 3 billion people worldwide, which hurts living standards and livelihoods. And to meet global climate goals, the International Energy Agency estimates that the world needs to build more than 1,000 GW of new clean power every year through 2050. Solving both of these crises depends on massively accelerating clean energy investment. But we can’t possibly succeed if every power plant contract is custom-negotiated behind closed doors, kept secret, and prices are shielded from the public. 

The World Needs More Energy

Markets scale quickly when they are open, transparent and harness competition. In most mature energy markets, data on pricing and procurement are widely available. This allows competition to drive down prices, investors to understand the market and consumers to know what contracts are being signed on their behalf. 

Yet the status quo across emerging markets is the opposite. In many countries (ironically, especially those with the greatest energy needs) the norm is unsolicited procurement of new power generation and electricity contracts that are never disclosed. Specifically, the standard contract for financing electricity infrastructure – the power purchase agreement (PPA) – is often negotiated, signed and implemented without any public knowledge.  

Secret electricity contracts are costly. First, they often lead to poor pricing. The lack of clear price disclosure reduces the pressures for least-cost procurement and creates moral hazard for negotiators.While the costs of solar and wind are rapidly declining, many countries such as Kenya are not seeing electricity tariff declines as they bring on more renewable power; rather underlying prices have been rising.

Undisclosed contracts often also lead to overcapacity, which can undermine the financial viability of the entire system. Many power projects are financed based on long-term take-or-pay contracts, which means that the offtaker (or government guarantor) must pay for generation capacity even if no electricity is used. Between 2011-16, opaque electricity procurement in Ghana resulted in parallel negotiations by government agencies leading to 43 different PPAs and excess generation capacity, for which the government was contractually obligated to pay. As a result, the government paid over $600 million in 2019 for power it could not use. Bangladesh also paid over $1.1 billion in excess capacity charges in 2019 for idle plants.

Third, the public guarantees required to finance power projects in most frontier markets create substantial risk of ‘hidden debt.’ PPAs often contain huge contingent liabilities buried inside the contracts that only come to light upon default. Without far greater transparency, the extent of such risks are unknown despite posing real financial risks. Zambia’s recent review of its debt stock found $1.2 billion in unpaid arrears from PPAs. Similarly, Ghana’s energy sector debt reached $2.8 billion in 2018, with 30% payable to the private sector. The government’s own estimates suggested this burden could potentially balloon to over $12.5 billion without corrective action. 

Fourth, opaque contracting allows actors with privileged access undue advantage in getting contracts signed while raising risks to investors of future contract disputes or renegotiation. These governance risks are worsened because secrecy encourages subsequent corruption claims. Mexico recently announced plans to renegotiate PPAs amidst Presidential claims of paying ‘too much for those contracts.’ Kenya, Ghana, Nigeria, and other countries are all currently seeking to renegotiate previously-agreed power contracts. While PPA disclosure wouldn’t remove contract risk, it would substantially reduce it.

Finally, the lack of contract transparency slows deployment of new clean energy projects. Attracting the necessary volume of private capital for renewable energy projects depends on markets that can accelerate procurement, drive prices down, and provide clarity. With clear information about how electricity is produced and purchased, officials can make sound long-term decisions required to accelerate clean energy – and investors can react to market signals. Without that information, problem projects deter investors and clog the pipeline. 

Transparency Can Help

Contract disclosure has proven hugely beneficial in the extractives sector and in public procurement. Power contracts are just another form of procurement, so why not expect the same level of transparency and accountability in the electricity sector?

Publication of electricity contracts would enable civil society and the media to monitor whether the government and companies are negotiating good deals for the public and then adhering to the agreements. Ultimately, better incentives for all parties to act in good faith would lead to cheaper prices for consumers, which would bring all of the economic and social benefits of affordable electricity. And for the climate, transparency is especially needed now to make smart choices about energy deployment across emerging economies.

A Call to Action

Affordable, abundant electricity matters to everyone. Creating a global norm for PPA transparency is a zero-cost step to help provide energy for everyone and deliver on the low carbon future we all need. 

  • Governments can support these goals by disclosing basic information on PPAs for all power projects and, where necessary, enshrining transparency in law and policy. 
  • Journalists, civil society and ordinary citizens should demand access to information about power contracts and press for greater transparency in order to hold public officials accountable.
  • Investors and project developers should be open to contract disclosure as a way of leveling the playing field. They could even encourage partner governments or utilities to publish power contracts (redacted where absolutely necessary) within one year of reaching financial close. 
  • Development partners should signal their support for transparency by supporting the establishment of a new global norm of contract disclosure, as happened with the Extractive Industries Transparency Initiative.
  • Climate and clean energy advocates should make the case that reaching ambitious low carbon goals in emerging economies will require competitive markets that can scale quickly. Demanding open contract information is a good start.

The Promised Land

The world needs a future of abundant, affordable, and reliable clean energy for everyone. We cannot possibly rally to make that happen without open competitive electricity markets. Making the core contract at the heart of power projects publicly available is a zero cost way to help reach that future.  

 

Rushaiya Ibrahim-Tanko and Todd Moss recently launched PPA Watch. 

This article originally appeared in the Forbes blog on June 1, 2022.    

  • Print This Publication
  • Share
    • Facebook
    • Twitter
    • Email
    • Linkedin

Related Research

Global connections span the continents; focus on the Americas
Center for Energy Studies | Latin American Energy | Podcast

Baker Briefing: Latin American Energy and Politics

Read More
China Map
Center for Energy Studies | Commentary

How Long Will it Take for China’s Nuclear Power to Replace Coal?

Read More
Mining at night
Argentina Program | Commentary

Governing Parties Prevail In 4 Argentine Mining & Petro Province Election

Read More
  • Facebook
  • Youtube
  • Twitter
  • Linkedin
  • Donate Now
  • Media Inquiries
  • Membership
  • About the Institute
  • Rice.edu
Contact Us

6100 Main Street
Baker Hall MS-40, Suite 120
Houston, TX 77005

Email: bipp@rice.edu
Phone: 713-348-4683
Fax: 713-348-5993

Baker Institute Newsletter

The email newsletter of Rice University's Baker Institute for Public Policy provides a snapshot of institute news, research and upcoming events.

Sign Up

  • © Rice University's Baker Institute for Public Policy
  • Web Accessibility
  • Privacy Policy