Will Ethiopia sort out its energy puzzle?

Ethiopia’s immense energy potential is the envy of many countries in Africa; but reality loses contact with the country’s ambition to become a regional power pool thanks largely to its endless, complicated and slow moving energy policies
Kalkidan Yibeltal
In mid-December 2013 a major reshuffle in policy saw the split in two independent entities – the Ethio¬pian Electric Power (EEP) and the Ethiopian Electric Service (EES) – of the formerly state run electric mo¬nopoly, Ethiopian Electric Power Corporation (EEP Co).

The government in Ethiopia made it clear to the public by then that its decision was aimed at improv¬ing the service, transforming the country into a re¬gional power hub and increasing the number of Ethi¬opians with access to electricity. Nearly a year down the line, however, what Ethiopians woke up to was an apologetic president who asked his people to “allow me to express my apologies for the interruption of electric power, caused in part, by maladministration in the institution.” The mostly ceremonial President, Dr. Mulatu Teshome, said this in his state of the na¬tion address during the opening of the House of Federation and the House of People’s Representatives in early October 2014.
Before it was disbanded EEPCo was responsible for generating, transmitting and distributing of power in Ethiopia. For Ethiopians, however, it was an ac¬ronym synonymous with frequent power disruptions and days’ long blackouts, often attributed by officials more to problems of distribution than scarcity.
Ecstatic by the changes was Dr. Debretsion Ge¬bremicheal, Ethiopia’s Minister of Communications and In¬formation Technology, and Economy and Finance Cluster Coordinator with the rank of Deputy Prime Minister. De¬bretsion talked of the necessity for “an international company with proven experience to modernize the service delivery and undertake the country’s ever expansive activities in the power sector.” He was referring to his government’s decision to give the management of EES to a foreign company.
EEP, under Azeb Asnake, a previous project manager at the Gilgel Gibe III hydroelectric power project, is tasked to undertake and oversee the country’s power projects includ¬ing the construction of mega dams as well as transmission lines. EES, a consortium of three Indian companies under the management of Power Grid Corporation of India (PGCI), is responsible for operations, distributions and sales.

Soaring yet unmet
Ethiopia’s energy demand has registered a 32% increase during the last four years, according to a study, “Ethiopia’s Renewable Energy Power Potential and Development,” by Dereje Derbew of the Ministry of Water and Energy. The supply for this growing demand, however, doesn’t seem to get any compliment from private energy investment, as of yet, and Ethiopians will continue living through the frequent power disruptions. Two weeks ago, EEP announced that it has stopped serving new requests from individuals and small scale enterprises for connections to the grid in four parts of the capital.
A year into its existence, both the ever widening unmet de¬mand and the unsatisfying supply has left EEP virtually as ineffective as its predecessor.

Not a regional power pool, too
Aside from running solo the country’s energy production EEP has yet another challenge to tackle: the country’s own ambitions to become a regional power pool.
Currently, Ethiopia is exporting 100MW and 32MW to Djibouti and Sudan respectively, while construction of trans¬mission lines is under way on the Ethio-Kenya frontier. Ne-gotiations are also on going with the South Sudanese govern¬ment. (Pls see Op-ed on p. 8). So far, these exports are taken off the national grid supplied only by state financed dams.
Over the next 30 years Ethiopia needs “to harness as much as 80,000MW of hydro, geothermal, wind and solar power, not just for Ethiopia, but for our neighboring countries as well,” Prime Minister Hailemariam Desalegn said last year. But his government understands it cannot do this alone. “We will need to partner with the private sector to bring in signifi¬cant private investment going forward.”
So why not?
Hailed as the highest Foreign Direct Investment (FDI) of its kind in Africa, in Oct. 2013 Ethiopia signed a Memoran¬dum of Understanding (MoU) for a US$4 billion geother¬mal project by a US-Icelandic firm, Raykjavic Geothermal (RG). Following the agreement, Ethiopia’s PM Hailemariam promised that his government would use the energy sector as means of attracting more FDI.
But from the onset the MoU between RG and the govern¬ment in Ethiopia was shrouded in vague details. For starters, it was signed at a time when, despite a decade old pleas from various international partners including the EU, Ethiopia failed to sign in to law a national Feed-in-Tariff (FiT). “…we haven’t finalized some legal documents so we will not disclose the details yet,” was what Debretsion told this magazine after the signing ceremony.

The power sector in Ethiopia represents a USD 3-4 billion per year. Of this 65 % is in generation with the rest spread across transmission, universal access and engineering services
Source: EEP

Last month Fortune, a local private weekly, reported about another MoU signed between EEP and Green Technology Africa Inc. (GTA) for the later to invest US$600 million in solar energy. However, the newspaper revealed that officials at EEP said they “were not ready to give any further details about the project and the MoU signed with GTA.”
Talk of ratifying a national FiT proclamation was not final¬ized when the Council of Ministers Regulation No. 308/2014 established the Energy Proclamation 810/2013, which re¬placed the symbolic Ethiopian Electric Agency by the Ethio¬pian Energy Authority. The later was hoped to be more au¬thoritative in its mandate than its predecessor; it can issue permits for Independent Power Producers (IPPs) to generate, transmit, distribute, sell, import or export electricity. But im¬portant practical details are hard to come by. Adding more confusion, the Council of ministers is now preparing to issue yet another draft: Energy Operations Regulation.
“When IPPs venture for power generation from renewable energy sources they need huge amount of expensive finance to be covered by both debt and equity…In addition, skilled manpower in the market and the guarantee component of the various risks is so expensive for IPPs. Accordingly, unless there [are] certain incentive systems for IPPs like FiT, and tax [breaks], they may not be able to easily compete with the incumbent utility’s low tariff structure,” Mollalign Abebe, Legal Service Directorate at the Ethiopian Energy Authority, told Addis Standard in an e-mailed interview.

 
Can Ethiopia learn from South East Asia?
While news of concrete private sector involvement in Ethi¬opia’s energy sector remained few and far between, a small land locked country in South East Asia, Lao People’s Demo¬cratic Republic has been in the spotlight for the number of privately financed dams it allows to be built on the Mekong river basin.
Laos’s ambitions are never short of causing controversy from influential environmentalists. But the Mekong river ba¬sin is hosting over 60 tributary and mainstream dams planned or under construction. Ninety five per cent of the electric¬ity from these dams is scheduled to be exported to neighbor¬ing countries, according to Nathanial Matthews of London’s Kings College. “The scale of the hydropower boom in South-East Asia is perhaps best observed in Lao PDR,” Nathanial wrote in his paper Water Grabbing in the Mekong Basin – An Analysis of the Winners and Losers of Thailand’s Hydropower Development in Lao PDR, published in 2012.
If completed, the controversial US$3.6 billion Xay¬aburi Dam in Laos will be the first mainstream dam on the lower Mekong funded by Thai banks and developed by a Thai construction company, according to Nathanial. Most of the rest of the dams on the Mekong basin are also financed by the private sector.

Laos’s Energy sector at a glance
– USD 4.1 billion- export income since 2001
– USD 25 billion- the amount of FDI it is believed to receive if all the proposed dams are going to be built.
– 11 – the number of dams currently operating with a total capacity of 1914MW, with 7 more projects under construction and 66 in the planning or feasibility stage
Source: Nathanial Matthews

Laos has a per capita income of US$ 1177 and just a few natural resources, but hydropower is becoming an im¬portant source of income. As a result its government has adopted a lucrative strategy to open itself up to inward investment and resource development as part of its plan to be the power pool of South-East Asia.
Various researches show Ethiopia is endowed with abundant renewable energy resources, including a hy¬dropower potential to generate 45,000MW, more than 10,000MW from untapped geothermal resources and sig¬nificant wind and solar opportunities throughout the Rift Valley. Encouraged by that the government in Ethiopia plans to have a total installed capacity of 37,000MW and become a major power exporter to the region by 2037.
Ethiopia’s Growth and Transformation Plan (GTP), which is about to come to an end in 2015, plans to increase the country’s power generation to 10,000MW. The GTP further claims making the nation a regional renewable energy hub in East Africa by 2015. But despite massive rural electrification projects seen in the past decade, and less than a year to the first phase of GTP, Ethiopia has just about 2,200MW installed capacity, and only 52% of its population of more than 90 million has access to the national grid.

Rural electrification
According to the 2014 African Energy Out¬look Report released in October with the theme, “A Focus on Energy Prospects in Sub-Saharan Africa,” in the 37 sub-Saharan countries surveyed the number of people without electricity has in¬creased since 2000 while the regional total rose by around 100 million people. On a more posi¬tive note, about 145 million people gained access to electricity since 2000, led by Nigeria, Ethiopia, South Africa, Ghana, Cameroon and Mozambique.

 More than 200 million people in East Africa are without electricity, around 80% of its population.
Ethiopia, Kenya and Uganda are among the most populous countries in East Africa, and have the largest populations both with and without access to electricity.
  Kenya has established a Rural Electrification Authority in 2006 with the goal of achieving universal access by 2030. As of 2013, 90% of public facilities have access to electricity, but household access remains low

Source: 2014 African Energy Outlook Report

The overall electricity access rate for sub-Saharan Africa has improved from 23% in 2000 to 32% in 2012. North Africa presents an entirely different picture: more than 99% of the total population has access to electricity.
Nearly 80% of those lacking access to electric¬ity are from across sub-Saharan Africa. Although Ethiopia has set up the Rural Electrification Fund, at a mere 5% rural Ethiopia is one of the poorly connected, an indication for a potential involvement by the private sector in producing off-the-grid renewable sources of energy.

Five countries – Nigeria, Ethiopia, DR Congo, Tanzania and Kenya – account for around half of the sub-Saharan population using solid biomass for cooking
Source: African Energy Outlook Report 2014

In a 2012 study titled “Access to Finance for Renewable Energy and Energy Efficient Products in Ethiopia” Yemenz work Girfe of the Development Bank of Ethiopia wrote, “Implementation of the public sector rural electrification program is already in progress and hundreds of rural towns will be the beneficiaries of the program in the coming years.”
Ethiopia also plans to make the private sector play a lead¬ing role in the second rural electrification strategy, focusing on areas that cannot be covered by the state utility. The Ru-ral Electrification Fund (REF) Bureau, under the Ministry of Water and Energy, oversees this program and private and non-government actors are promised to be provided with resources on a loan basis.

 
Facing the challenge
Surely, Ethiopia has taken encouraging steps to attract PPIs to come to the picture. According to Mollalign, the newly formed Ethiopian Energy Authority is working on documents dealing with “resolution of energy related disputes, regulate purchase of electricity from IPPs to be in a competitive procurement modality, issuance of various technical codes, directives, procedures, and guidelines.” Be¬yond ambitions, mere proclamations, directives and prom¬ises, however, Ethiopia needs to face up to its home made challenge. So far the things that matter most – the Energy Policy, Energy Operations Regulation and FiT Proclama¬tion, are all in draft stages.

In Ethiopia:
90% of the population use tradi¬tional biomass for cooking
70% use kerosene for lighting
52% have access to national grid
Source-Dereje Derbew

Ethiopia’s reputation with the long overdue FiT proclamation was not encouraging. If not considered diligently and with a sense of urgency, there is a good chance that all these bills may languish at the hands of the country’s law makers for a lengthy (and unnecessary) period of time. “I believe everybody is waiting for how this will turn out,” a source at a foreign company providing En¬ergy Performance Certificate (EPC) and financing solutions told this magazine. “It will be the regulation that will decide on the attractiveness of the Ethiopian energy market for foreign and local investors,” he said.
He also believes Ethiopia’s greatest opportunity lies in providing productive use of electricity in middle towns and off grid solutions “together with practical assistance for setting up companies that would enable the start up of thousands of small businesses in a very short time frame”. The big grid and large infrastructural projects “which I believe will stay in the hand of EEP and thus be publicly controlled,” present a chance for further development, too, he said.
Tapping in to Ethiopia’s enormous potential and meeting a growing demand takes a great deal than preparing endless and complicated, but slow moving, policy frameworks; and more than an apologetic president.