Government efforts to improve the economics of Ethiopia’s electricity supply industry encompass the full sweep of the supply chain, including improving collections, utility unbundling, debt restructuring, private investment in generation, least-cost electrification, capacity building and tariff increases.
At the core of the reforms are efforts to improve the financial strength of the utilities and increase sector liquidity. Ethiopian Electric Power Corporation was split in 2013 into Ethiopian Electric Power (EEP), responsible for generation and transmission, and Ethiopian Electric Utility (EEU), responsible for distribution. Years of heavy capital investment – on-grid installed capacity increased from around 2,000MW in 2010 to nearly 4,300MW in 2018, according to African Energy Live Data – extremely low tariffs of $0.02/kWh and reliance on short-term loans have left both utilities with huge debts. According to the World Bank Group (WBG), the pair have combined liabilities of around $10bn (AE 393/8), and work is under way to restructure their debts.
Ministry of Water, Irrigation and Energy senior energy adviser Hizkyas Dufera told African Energy several possible instruments were being assessed and that his ministry, the utilities, the Ministry of Finance, Commercial Bank of Ethiopia and National Bank of Ethiopia were all involved in restructuring talks.
Three options are being considered. One is a debt-to-equity conversion with the Ministry of Finance taking an equity stake which might be bought back by the utilities at a later date. Refinancing short-term debt at longer tenors is also being looked at. Debt that is not covered by these measures and cannot be serviced might be put into a special purpose vehicle and managed separately. “The debt is not anything the country cannot handle,” Dufera said.
A tariff schedule increasing over four years to around $0.07/kWh has already been approved by the regulator, the Ethiopian Energy Authority. The first increase took effect in December 2018.
Measures aiming to improve sector economics are intended to make it easier to procure power from independent power producers (IPPs), which are expected to account for all new generation capacity. Further unbundling has also been outlined, with the transmission function separated from EEP. This will make the introduction of a clear wheeling charge simpler and helps pave the way for an independent market operator.
“What we really want is to have a very strong and independent regulator and unbundled transmission and generation so that both IPPs and publicly owned companies have a fair system to work within,” Dufera said. “We want a level playing field for IPPs.”
Strengthening collection rates at EEU is another focus area. Prepayment meters will play a part and the government intends to introduce a digital payment platform to allow bills to be paid through bank transfers. Mobile money payments may be introduced at a later stage.
Large-scale procurement of solar power is already under way. A request for proposals (RfP) for two 125MW projects at Gad and Dicheto was issued to 12 prequalified bidders in April as part of the WBG’s Scaling Solar programme in the country. Meanwhile, 750MW of capacity is being procured through the second round of the programme, where the deadline for expressions of interest is 9 July, and the RfP is expected shortly afterwards.
Second round projects include Humera (100MW), Hurso (125MW), Mekele (100MW), Metema (125MW), Welenchiti (150MW) and Weranso (150MW).
The Danish government and WBG have been backing a wind resource assessment carried out by EEP. This will help develop a first set of wind IPPs to be procured through a Scaling Wind programme of up to 500MW, modelled on Scaling Solar. Nine potential sites are being assessed at Ayisha I, Ayisha II, Debre Birhan, Dideya, Gode, Hadigala, Iteya, and Tulu-Guled.
The WBG’s International Development Association has included 300MW from wind IPPs in the third and fourth phases of its Renewable Energy Guarantee Programme between 2021 and 2024 (AE 394/10). According to Dufera, a Scaling Hydro programme is also being considered.
A proclamation designed to facilitate public-private partnerships (PPPs) was issued early in 2018 and underpins the procurement programmes. “We have put in place a dedicated institutional, legal and policy framework for PPPs in Ethiopia,” state minister for finance Teshome Tafesse Beyene told the Africa Energy Forum in Lisbon on 11-14 June. “We have already designed a legal framework and we have guidelines which set out the whole process for developing a PPP and tendering.” More legislation is expected to cover the further unbundling of the utilities.
The country is hoping to exploit its potential to generate large quantities of cheap power using hydropower, solar, wind and geothermal resources to become an exporter to the region. The government estimates that it could earn revenues of as much as $500m/yr by 2020 exporting power to the region at $0.07/kWh. This would see 100MW each exported to Djibouti and Sudan and 400MW to Kenya in 2020.
By 2025 this could increase to 4,612MW with the commissioning of the first units of the 6GW Grand Ethiopian Renaissance Dam (Gerd) and new regional interconnections. In addition to the 2020 exports, this is expected to include 3,000MW exported to Sudan or Egypt, an additional 600MW exported to Kenya and 412MW exported to Tanzania (AE 375/1). However, the major Kenya-Ethiopia interconnector project is currently delayed, with issues on the Kenyan side of the project (AE 393/7). Dufera said commissioning of the line was expected in April 2020.
Despite major issues with electromechanical works, the first unit of Gerd is scheduled to be commissioned in 2022, Dufera said. Issues around filling the dam have still to be resolved with Sudan and Egypt, but Davison is hopeful that the project’s diminished priority, particularly in national rhetoric, may help facilitate a solution.
“If the project is the absolute number one political priority and is presented such that any delays are an existential risk for the nation, then that makes it harder for the Ethiopian government to accommodate Egyptian concerns on the filling period. If the government is acknowledging that the project is way behind schedule and it’s a lot more complicated than was previously presented, which is some approximation of the situation now, then hopefully there’s a bit more wiggle room to come up with a filling schedule that works for everyone,” Davison said.
With export plans implying that the dam may be fully or nearly fully commissioned by 2025, it remains to be seen whether this will be the case.
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