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Opinion

Energising renewable electricity procurement in Ethiopia

Published on 10 February 2021

Image of Seife Ayele

Seife Ayele

Research Fellow

Image of Wei Shen

Wei Shen

Research Fellow

Tadesse Kuma

Ethiopia’s electricity coverage and per capita consumption are among the lowest in sub-Saharan Africa – only 44 per cent of over 110 million Ethiopians have access to electricity. Yet Ethiopia aims to reach 100 per cent energy access by 2030 and meet the UN Sustainable Development Goal: ‘ensure access to affordable, reliable, sustainable and modern energy for all’.  Currently, over 90 per cent of its current 4,413 MW generation capacity comes from hydroelectric power even though it has extensive non-hydroelectic renewable energy sources in the form of solar and wind power. So how will Ethiopia achieve a 480 per cent increase in its generation capacity (to provide 21,238MW) by 2030?

Growth of public-private partnerships

Past energy sector reforms have been driven by the public sector and investment. But over the past three years, recognising the pivotal role of the private sector in realising its goals, the Government has put in place a public-private partnership (PPP) to promote and facilitate procuring renewable energy from independent power producers (RE-IPP).

This has attracted significant private sector interest. The first tender process was launched in October 2018; it was for two projects with a combined capacity of 250 MW  in Afar and Somali regions. Of over 100 private companies who expressed interest, 28 submitted bids. 12 investors pre-qualified to submit a proposal. The bidding process led to the signing of a power purchase agreement with ACWA Power in December 2019. Government and ACWA partners hailed the signing of the PPA as a huge success as it resulted in one of the cheapest tariffs in sub-Saharan Africa – at USD 2.526 cents/kWh over 20 years. This landmark event, however, did not lead to a financial agreement (closure). Indeed, many RE-IPP (and government) projects in the pipeline are severely delayed. Understandably Covid -19 has been a big blow, generating uncertainty and reduced private investment in the sector. The pandemic has also disrupted the implementation of projects and negotiations over new projects, and the economic slowdown has meant less public investment going to the sector. Internal conflicts and security concerns have not helped either. That said, deep rooted problems also prevail, including capacity gaps in preparing and managing tenders; multiple risks such as currency convertibility and debt payment; protracted processes to reach power purchases and implementation agreements. The low level of involvement and the nascent stage of development of the domestic private sector is yet another challenge, contributing to delays in implementation.

Greater government focus on solar and wind power provision through the private sector

As part of its Ten Year Development Plan, the Ethiopian government is revising its targets. While the government remains the lead player in the race to achieve 21,238MW by 2030, a substantial part (nearly one quarter) of the additional supply is expected to come from private suppliers. Non-hydro renewable sources will rise to at least 24 per cent of plan, a large segment of which will be procured privately. Achieving such commitments requires major steps, including reducing the risk to private investors. In this regard, Ethiopian Electric Power transferred the debt it owed the Commercial Bank of Ethiopia to the Ministry of Finance. Likewise, security risks have to be overcome, with proactive engagement of regional governments in maintaining security. Access to land and sites can be a lengthy process due to cumbersome bureaucratic processes, and already some planning based on assumptions about access to and cost of project sites is facing a slow regional government response. Yet, affordable access to sustainable electricity is key to economic growth, jobs, incomes and poverty reduction, high priority needs to be given to planning and implementation of projects.

Capacity building is key

In the Ethiopian context, working with the private sector on renewable energy sector development is a new challenge for energy policy makers and regulators. Most staff do not have sufficient knowledge and expertise. From project identification to finalising power purchase agreements, the significant lack of capacity leads to hesitation among public managers when making decisions or during negotiations with the private partners. This is particularly acute for the PPP management team. However, within the key energy actors like Ministry of Water, Irrigation and Energy and Ethiopian Electric Power, there are few dedicated departments and experts working exclusively on renewable energy projects and development. Significant capacity building is needed in these government agencies to speed up the procurement programme design, and project negotiation and implementation.

While addressing the root causes of delays is critical, affordable access to electricity also requires consideration of relatively smaller and less complicated projects (such as mini grids) with higher energy access benefits, particularly in less populated and rural areas.

 

Seife Ayele and Wei Shen are Research Fellows at the Institute of Development Studies. Tadesse Kuma is a senior researcher at the Ethiopian Policy Study Institute.

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