Power policy

Hydro makes up 90% of Ethiopia’s 4.3 gigawatts fleet, making the country’s power matrix among the cleanest and largest in Sub-Saharan Africa. The country has far greater ambitions though, with a goal of 25GW of power capacity by 2030, of which 22GW would be hydro and 2GW wind. Despite having over 8GW of large hydro in the development pipeline, Ethiopia has a large gap to achieve its target. The rollout of several policies in the near term should make clean energy investment more attractive. A public-private partnerships law will allow independent power producers to negotiate power purchase agreements directly with the state-owned utility, Ethiopia Electric Power. The country also expanded its Scaling Solar tender, initially for 250MW, to 750MW, indicating a desire to diversify the clean energy mix.

Most clean energy investment in Ethiopia has gone to hydro, though wind and geothermal have also received some funds in recent years. This investment has been inconsistent year-on-year, usually correlating with the development of a large project. A lack of foreign currency reserves, due to high expenditure on big infrastructure projects, means domestic commercial and development banks play a much smaller role in the growth of the country’s clean energy industry. International development banks are picking up the slack. Traditional players like the World Bank, the Danish Energy Agency and the Japan International Cooperation Agency (JICA) all have boots on the ground and are actively involved in Ethiopia’s clean energy market.

Power prices and costs

Cheap hydro gives Ethiopia among the lowest power prices in Sub-Saharan Africa. Lack of exposure to fuel prices also has ensured minimal variation in prices. However, a rapid devaluation of the Ethiopian birr caused the Ethiopia Electric Utility (EEU), which manages the distribution grid, to increase retail prices by 50% to $0.03/kWh in 2018. Prices were kept flat during 2019, but EEU is expected to double retail prices again by 2022 to $0.06/kWh amid ongoing currency struggles. Even then, Ethiopia will still be among the countries with the cheapest power on the continent. Upon commissioning of the 6GW Grand Ethiopian Renaissance Dam, the country plans to export cheap power to neighboring countries.

Power market

Ethiopia Electric Power (EEP) currently owns all generation and transmission in the country and Ethiopia Electric Utility (EEU) is responsible for distribution. The roll-out of a public-private partnerships law will allow independent power producers to negotiate PPAs directly with EEP. Along with plans to tender out renewables generation, such as the Scaling Solar Initiative, these policies will go a long way in diversifying Ethiopia’s power mix. Nearly 90% of generation capacity in Ethiopia is hydro, and the country has suffered from load shedding due to drought. A diversified power mix will be essential in ensuring reliability for the country’s growing commercial and industrial sector: 13 industrial parks are under development in Ethiopia and are expected to grow power demand by 1.5-2GW.

Doing business and barriers

Most private sector opportunity in Ethiopia’s clean energy space exists within the on-grid sector. The Ministry of Water, Irrigation and Energy has plans for 100% energy access by 2025. Ethiopia has ambitions to be a middle-income economy in 2025, and power demand is growing fast across the country (estimated at 30% annually), meaning mini grids and off grid products will still factor into meeting this demand. The country has a separate goal of distributing 3.6 million solar lanterns and 400,000 solar home systems by 2025.

Financing in general is a big challenge in Ethiopia. The rapid devaluation of the Ethiopian birr has led to currency risk, and there is a general lack of domestic and foreign commercial banking presence in Ethiopia. Most financing to date has come from traditional players in the development finance sector, like the World Bank. The currency risk also leads to uncertainty around the credibility of Ethiopia Electric Power as an offtaker. While off-grid solar products in Ethiopia are expected to be exempt from value-added taxes, like the rest of East Africa, enforcement of this policy is spotty, and many importers have been singed with additional charges. This enforcement will need to be improved to grow the country’s off-grid market.

EV market

Ministry of transport promotes the use of EVs to minimize pollution

EV policy

The government has yet to implement any substantive policy support in this sector and the EV market remains at an early stage.

Buildings market

A database on baseline energy consumption and end use in government buildings is needed to support the development of energy conservation programs for these buildings and to monitor and evaluate the benefits of these programs. The funding shall be made available from the EC fund. If the savings are substantial -- in the range of 30-40% --the same methodology can be adopted for other public buildings also.

Buildings policy

The government has yet to implement any substantive policy support in this sector and the low-carbon heat market remains at an early stage.