Sunday, 1 February 2015

Ethiopian Energy - Review 2015



Ethiopia has long been realized the potential of its renewable energy resources of hydro, solar, wind and geothermal energies in changing the economic fortune of the nation and the people. In light of these clean, abundant and feasible resources, the nation has engaged itself to the development of the energy resources probably more than any of its peers in the region. The available renewable energy resources if developed has been dubbed not only help meet the local energy demand but also be an additional income to the nation from the energy export to the countries in the region.


Hence, the nation has been aggressively working on the full packages of generating, transmitting and distributing power of mixed resources to address the energy deficit in the country and beyond. Irrespective of the ongoing massive efforts, however, it will likely take longer to clear the backlog of the energy investment over the years undone mainly due to conflicts and overlooking the energy demand growth before the people see the nation balancing the energy supply and demand.

To address the prevailing energy poverty, and increase the electricity access per capita of Ethiopians, it needs the full participation of the private sector not just only the efforts of the state.
While the contentious Grand Ethiopian Renaissance DamGibe strings, and the Genale Dawa power plants lead the generation of power in the country, the shining, new built, transmission towers crisscrossed all over the country, and the distribution lines being undertaken, under universal electricity access program, are indicative of the high level of engagement in the power infrastructure.

Commitment:

The Ethiopian government's pledge in the Powering Africa: Ethiopia meeting to spend 20 billion dollars on the power development program in the second generation of the Growth & Transformation Plan (GTP-II), from 2015 to 2020, consistent to the country's annual spending track record of two billion dollars for the past three years is another renewed commitment to the energy industry. 

To achieve both the ambitious goals of meeting the local energy demand and exporting power to the neighboring countries, Ethiopia should genuinely thrive to avoid the brakes on energy developments such as timely reforming the barriers in the national energy policy. Promoting Public Private Partnerships are also at the nation's disposal to shape the energy future. The energy sector policy should be made wide enough to accommodate best business practices and to the regional competitive standards, at least. 

Professionals and the energy stakeholders should be encouraged to be proactive in the participation of 
international and regional energy conferences to inform the opportunities for investment in Ethiopia. 

The
 new energy law enacted recently allows private developers to generate and sell power to the Ethiopian Electric Utility. So far, Reykjavic Geothermal, the Icelandic company, signed a memorandum of understanding with the Ethiopian Government to generate 1000 MW from geothermal reserve near Shashemene town. Reykjavik which plans to invest USD 4 billion on the geothermal project is negotiating to sign the first power purchasing agreement in the history of the country. Others should also be allowed to follow suite to change the energy picture of the nation once and for all. The competitive environment will create many more advantages to the nation's energy industry.

Financing

For decades in to the future, the investment on energy resources in Ethiopia seems promising though the financing for such vast magnitude initiatives remain a challenge. Yet, the global economic condition has its own role to play as to how and where the funding comes from. The overall sluggish progress of the current world economy will increase the uncertainty of the financial resources Ethiopia is looking for. Despite the challenges; however, the current level of interest by international financiers to finance the Ethiopian energy projects is getting better, thanks to the relentless efforts of the government and all the partners for promoting the nation's business opportunities, which should be maintained in the times ahead.

The nation's entrance in to the international capital market this past year has still an important contribution but it is not yet clear what percentage of the fund is to be allocated to the energy infrastructures. 

Funding massive infrastructure projects with local capacity has also been started which is critical particularly to controversial but monumental projects.The 300 MW Tekeze hydroelectric power plant, the tallest dam in Africa by the time460 MW Tana Beles multipurpose hydroelectric power plant and the ongoing 6000 MW Grand Ethiopian Renaissance Dam showcases the extent of the local capacity to build massive projects.

If the 
decline in oil price, about 60 percent since the end of 2014,on the global market which comprises about one fifth of Ethiopia's total import cost sustains, the saving will be another plus to fund the power projects.

The Energy Mix

Although the nation is endowed with abundant rainfall and many big rivers and hence hydro has been the lion’s share of the investment on energy over the years, tapping other resources has also been taking ground since recently. The Adama and Ashegoda wind farms  rolling on the edges of Adama and in close proximity to Mekele towns respectively; the ongoing Alalloba-Tendaho and Aluto Langano geothermal power plants;the Reppi/ Koshe waste to energy conversion power plant in Addis Ababa, and the off grid solutions such as Photo voltaic systems and energy efficient cook stoves being distributed by Ministry of Water, Irrigation and Energy in collaboration with GIZ across the countryside as part of the global energizing development program(EnDev), are good examples of how the government is busy growing the energy mix and inventing the future of the nation's energy sustainability.

Taking the ongoing efforts across the nation for the energy infrastructure in to consideration, CNN  hailed Ethiopia's energy resources as set to be among the most diversified in Africa.

The 300 MW solar power project whose memorandum of understanding was signed between the former Ethiopian Electric Power corporation and Green Technology Africa in 2014, and Aora's Solar Hybrid Technology  under demonstration are all major breakthroughs in the energy sector in the country.


Ethiopia has embarked upon the development of a climate resilient green economy strategy addressing climate change, adaptation and mitigation objectives supported by Global Green Growth Institute. The preparation of the strategy is articulated and highly anticipated to be integrated in to Ethiopia's second five year Growth and Transformation Plan. In this regard, Ethiopia is named among the first African country to tap the first ClimDev-Africa Special Fund (CDSF) securing a USD 1.1 Million deal with newly launched fund, to strengthen its climate information and early warning systems for climate resilient development and adaptation.

Africa in general and Ethiopia in particular should seize the opportunity to benefit from the carbon trading pushing their economies towards the green growth strategies. The upcoming Third InternationalConference on Financing for Development which will take place from 13-16 July 2015 in Addis Ababa, Ethiopia should be an opportunity to let voices heard on the subject.

Energy Regulating Body

To encompass the energy sector in a wider spectrum, the Ethiopian Electricity agency, used to be an autonomous federal organ to control the power sector, is changed to Ethiopian Energy Agency with extended mandate. It is accountable to the ministry of water, irrigation and energy and tasked to regulate the energy sector nationwide.

Power Entities

Since the end of 2013, the former sole utility monopoly, 
Ethiopian Electric Power Corporation, has been split  in to two independent entities, Ethiopian ElectricPower and Ethiopian Electric Utility, in a bid to restructure and make the company more efficient. While the former is tasked to undertake and oversee the country's power projects including the mega hydroelectric dams and transmission lines, the later is made responsible for the operations, distribution and sales of electric power, at least until to the near future. Whether the restructuring achieves its objective is an answer the public has been waiting for, however.

At this point in time, potential investors and/or independent power producers (IPPs) who wish to join the Ethiopian power  industry  through power purchase agreements has to deal with the Ethiopian Electric Utility, EEU, out of the two power entities.

Energy demand:

Pertinent to the government's incentive and what has been happening in the economy elsewhere, the manufacturing sector, particularly the small scale, is expected to expand significantly which in turn will drive high the ever rising energy demand.

Unless the ongoing major power projects are made operational in a short span of time, the current double digit annual economic growth in the nation's economy will pose a real setback to the businesses operating in the country.

The domestic electricity demand in Ethiopia currently is expected to grow by more than 
32 percent per year. For that matter, the current installed generating capacity of approximately 2300 MW is far from meeting the rising demand.

Integration

The ongoing national grid infrastructure project when commissioned is anticipated to boost the connectivity of the load dispatch centers and the overall grid network but the integration of the central grid and 
distributed sources will remain an issue to be resolved in the times ahead. How smart are the smart meters to be assembled locally and introduced to the market determines the pace and the cost of the integration of the two.

USD 10 million contract that was signed between Information Network Security Agency (INSAand Asseco S.A, a proprietor of a polish IT Solution Company through Asseco Utility Management Solution (AUMS) and Enterprise Resource Planning solutions (ERP), is set to improve the comprehensive energy billing and customer data base management systems in the country.

The 
Enterprise network solutions could be extended to help the power entities replace the much paper dependent communication which is a cause for red tape, blackmailing and ultimately delays, with modern approach. For an investor accustomed to fast and modern approaches to communication, the long paper work may be a nightmare to cope with.


Once the interconnection of the power network becomes a reality, grid cyber security will be an issue which will not be overlooked. Even if it is not a concern at this point in time, grid cyber security is likely to be a major threat in the decades to come when everything goes on line. Considering grid cyber security in the power infrastructures design and implementation will help control the potential damages and minimize unnecessary and redundant costs to the nation. Getting to know the technology and enforcing application of standard equipment, at least in the upcoming power projects, will have unparalleled advantage to contain the potential threats to the grid network.

Collaboration

The collaborations of the power companies with the state’s educational institutions, like the case in the Adama wind farm where Addis Ababa University was the project consultant are crucial to the development of the industry. The energy sector should be supported with relevant studies, researches and hence innovations to stand on its feet by its own and maximize the benefit to the 90 million people.

Power entities should set up independent expertise/bodies or consulting partners not only to be able to identify and address the real shortcomings in their operations but also acquire best practices to move the efforts forward faster. The level of expertise required to manage the energy resources as most of the ongoing massive projects are operational is not something to be postponed. Leveraging full features of modern technologies is also another frontier to be dealt with.

Oil and Natural Gas

"A recent study of the mineral resources developed by the World Bank and other development partners suggested that despite having a huge potential to contribute to Ethiopia’s economy, the development of oil, gas and mineral resources are not among the key drivers of the countries growth. Hence, the World Bank Group is supporting the government with technical assistance to help build a competitive and responsible strategy, legislative and institutional framework for oil, natural gas and mining industry".
Subjected to the current decline of the price of oil on the international market, and the businesses which has been operating in Ethiopia are mostly from foreign origin, the prospect of oil and natural gas exploration may likely be slightly slowed for some time. The east African Natural Gas bonanza discovered recently may also be a hint for careful and further research and study to the similar geologic formations across the nation. Moreover, the fracking technology which is changing the oil dynamics in North America is good to put an eye on if it does have anything to do in the long awaited oil discovery in Ethiopia.

Maintenance of the power infrastructure

Many Sources are suggesting that the existing power infrastructures particularly the old ones are poorly maintained. Although the plan to rehabilitate the major power plants, substations and transmission lines are included in the growth and transformation plan which will expire at the end of 2015, most are either at the early stages or less than sufficient to increase the overall efficiency. This maintenance deficit may be an attractive business opportunity for businesses or investors particularly who wish to come with their own initial finances, and provided the government levels the operating ground in advance. The energy loss in Ethiopia is believed to be higher compared to the international average. 

Service Provision


The government sources claimed that the electricity coverage reached to 55 percent though other independent sources suggested a much lesser figure. Even with the larger estimate there is still half way to go to fully electrify the country. Equally important is the quality of service. In spite of increasing production power outage particularly on peak hours is becoming. While the lowest 
electricity tariff rating in the continent is an important incentive to businesses in particular and the economy's production in general, providing sufficient power at all times have been an issue which requires immediate attention.


Tigabu Atalo

Power and Energy Practitioner, and
Experienced Projects Manager


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