Electricity in Ethiopia: A Case Study

A decade ago, in April 2012, UN Secretary-General Ban Ki-Moon said: “Energy is the golden thread that connects economic growth, increased social equity, and an environment that allows the world to thrive”.


The debate and discussion around energy have revolved around the sources of energy in the recent past. “Green” and “clean” energy is the new norm, as developed nations strive towards net zero carbon emissions by the middle of the twenty-first century. Sadly, the issue of energy access and availability in developing countries is often forgotten in the process. According to the World Energy Council (WEC), the energy systems must achieve at least three primary goals: environmental sustainability, energy security, energy accessibility or affordability, i.e., energy must be made available to everyone worldwide at a price that most or all people can afford.


At the current rate, 660 million people will be without electricity in 2030, with the vast majority (555 million) living in Sub-Saharan Africa (SSA). Thirteen SSA countries have less than 25% access, compared to only one in developing Asia. In 2020, 48.4% of the Sub-Saharan African population has access to electricity.


The International Energy Association (IEA) defines access to electricity at the household level as the minimum level of electricity consumption per household per year ranging from 250 kWh in rural areas to 500 kWh in urban settings. The electricity supplied must be both affordable and dependable, and the initial level of electricity consumption should rise over time as economic development and income levels increase. Energy is supposed to provide economic progress, and providing affordable and clean energy to everyone is one of the United Nation’s Sustainable Development Goals (SDG 7).


The Federal Democratic Republic of Ethiopia, one of the SSAs located around the Horn of Africa, provides very interesting insights into energy access in developing countries. In 2010, electricity production accounted for only 1% of Ethiopia's primary energy. Electricity production increased from around 5 TWh to approximately 22 TWh between 2010 and 2016. This was due to a large-scale effort to construct wind farms and hydropower plants to generate electricity. Ethiopia relies extensively on hydroelectric power as a source of energy, accounting for about 90% of its total output. Power transmission lines and batteries are used to carry electricity. Ethiopia's entire demand for electrical power is increasing by 30% every year – emphasising the need to raise the supply of electricity across the whole country. As of 2022, only 45% of the national population has access to electricity. Ethiopia's 2019 HDI value of 0.485 is lower than the SSA average of 0.547 and lower than the low human development group average of 0.513. It is ranked 173rd on the HDI One of the causes of the low HDI value is a lack of safe and clean energy access and transportation, particularly electricity.


There have been various barriers that have restricted investment in energy in the past. Extremely high mandatory national quality standards make it difficult for innovative businesses to obtain government certification. Due to seasonality, cyclical cash flows are a significant barrier for businesses. The post-harvest period from January to April is the busiest time for businesses, as farmers have the money to spend on energy access products. The rest of the year sees a drop in business as residents in rural areas adjust their spending habits to significantly lower monthly incomes. Low incomes result in low affordability, reducing the capital inflows for energy distributors, thus disincentivizing new entrepreneurs and enterprises. Furthermore, developmental banks have blanket 100% collateral requirements while also evaluating assets at a lower rate. Such an approach limits the ability of the few enterprises that have the assets to back their loans to a few rounds of debt financing for larger growth phases of their business. Accessing debt for working capital is nearly impossible for almost everyone. This, along with high transactional costs, difficult customer acquisition, low immediate profitability with a hefty operating cost and lack of early-stage investment vehicles, makes the energy sector a gamble to invest in. There is ambiguity regarding the power output benchmarks used to classify solar appliances and solar housing systems (SHS) on a policy level. This classification is used to allocate funds and grants, and ambiguity can impact the capital received by businesses. There is also uncertainty about extending existing grids and how the government will improve electricity transportation. Thus, there is a need for developing energy access mechanisms.


The country's power station infrastructure is constantly expanding. A significant number of power plants are in the planning and construction phases. Ethiopia is focusing highly on renewable energies, primarily hydropower and wind power to boost its installed electricity production capacity. Ethiopian Electric Power (EEP), the country's state-owned power provider, issued a Request for Pre-Qualification in October 2017 to deploy 250 MW of PV capacity. It plans to develop two 125 MW PV plants under the tender as part of the World Bank's Scaling Solar programme. Battery storage technology is evolving into a significant player in smaller-scale off-grid solutions. Technologies such as fuel cells are becoming widespread as a source of power for telecoms towers in areas with uncertain grid reliability. Policies built around such innovation, bearing in mind the economic strength of the citizens, can help enhance the nation's growth.


Enterprises prioritise finding ways to improve and stabilise cash flows significantly, particularly considering the seasonal fluctuations in sales volumes. Finding better ways to help businesses weather seasonal ups and downs—whether through improved credit facilities, easier access to loans, or product diversification—is critical to assisting enterprises in meeting Ethiopia's ambitious energy access goals. Domestic leadership, policy reforms, and capacity building are, thus, required to lay the groundwork for more effective public investment and encourage private investment. Mobilising the necessary investment and expanding domestic capacity to deal with these changes will necessitate massive political efforts from both domestic and international actors. In-country planning and collaboration will also be required to redirect available public and private resources toward new technologies and markets.


There is a race between available capacity for power generation, electrification, and electricity availability. Grid extension in Africa is limited due to the continent's colossal size and significant distances between grids and rural communities in need of electricity. The conventional idea that millions of people would have to wait for grid extensions is being flipped on its head by new technical options for the millions of people who do not currently have access to power. Mobile payment infrastructure, customer-driven cheap payment systems, and new entrant business models contribute to a new bottom-up energy access paradigm that can supplement traditional top-down national grid extension plans. The adoption of such innovations under a nationalised policy could help improve access to electricity in Ethiopia.


Mini-grid and off-grid systems are the most realistic options for electrical access in significant rural populations. The IEA forecasts that an estimated 315 million people in rural regions will have access to electricity by 2040, most of them women. An OECD case study suggests that adopting such measures in SSA could lessen the gap between generation and availability. These models are independent of the national grid, small scale and can easily generate enough electricity to sustain a locality, village or rural establishment.

Source: (Corfee, 2018)

A Pico PV system is appropriate for simple light sources and small ICTs like cell phones and radios. With a power output of 1 to 10W, it has the capacity to replace unhealthy and inefficient sources like kerosene lamps and candles. Off-grid systems are those that are connected to a larger centralised grid. They include standalone systems and min grids. Individual electrification systems for personal users that are not linked to any grid outside of the individual user premises are said to be standalone. Meanwhile, miniguides are small-scale communal systems that connect many users who are not connected to a larger main power grid. A combination of small-scale measures can lead to lesser reliance on a centralised energy source and lower the burden on the national grid.

Among these, the mini-grids grids are an economic choice in underdeveloped and developing nations due to their low operating costs. According to a study of research by the International Renewable Energy Agency (IRENA), small-scale hydropower, for example, is now the most critical generation source for mini-grids. Ethiopia's current hydroelectric infrastructure can thus serve as a significant impetus for establishing mini-grids in rural areas. Mini-hydro systems like this are popular in places like Nepal, where hydro availability provides a realistic answer for isolated rural areas. This approach is more common in Asia than in Africa, although it has potential in Ethiopia's hilly and mountainous terrain and the rest of Sub-Saharan Africa. Furthermore, such technologies reduce the high transportation cost of electricity, reduce the usage of large transmission lines and save costs.

Aside from direct economic and social benefits, access to clean energy will increase resilience in states and communities, reducing the likelihood of large-scale migration across the African continent. The annual investment required in SubSub-Saharan Saharan Africa to achieve universal access is estimated to be USD 27 billion between 2018 and 2030 - at least double current levels of financing – emphasising the need for significant increases from both domestic and international sources. Concessional financing from multilateral development banks (MDBs) for off-grid systems can help establish a burgeoning African energy market over the next few decades.



Bibliography

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