Ethiopia’s Quest to Harness Solar Energy:

What’s the Private Sector’s Role?

The solar energy potential in Ethiopia is massive. By some estimates, the country could produce up to 5.6kWh per day, on par with or exceeding the capacity of countries that are known for their solar energy production, like Germany. If properly harvested, this could help the country develop a robust energy infrastructure and even export to neighbouring countries. Despite this promise, however, a number of roadblocks stand in the way of the country realising its full potential – and many say the private sector is key in bridging the divide. EBR’s Tamirat Astatkie delved further into the issue to learn more about harvesting the country’s potential for solar energy.

Cognisant of the ever-increasing demand for energy to promote Ethiopia’s development endeavours, the government is investing in energy infrastructure at an impressive rate. The United States Agency for International Development has even noted that the country is pursuing an “aggressive energy policy framework designed to expand installed electricity capacity” that they consider “ambitious” among developing countries.
This, in tandem with a strong desire to establish a green economy, has resulted in a great deal of renewable energy projects. However, investment in renewable power generation is concentrated largely in hydropower, although the country has tremendous potential in solar energy.
In fact, research reveals that Ethiopia is endowed with abundant solar energy resources. One study in particular, entitled ‘Target Market Analysis: Ethiopia’s Solar Energy Market’ by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), has been conducting a longitudinal analysis of the country’s solar energy potential on behalf of the German Federal Ministry for Economic Cooperation and Development since 1964.
Their study concluded that the national annual average irradiance, which measures the power received from the sun per square metre, is estimated to be 5.2kWh per day, with seasonal variations that range between a minimum of 4.5kWh in July to a maximum of 5.6 kWh in February and March. This is more than the potential in more advanced nations that are known for vast electricity generation from solar power, like Germany, which produces close to 3,000MW from solar energy.
The need for improved energy infrastructure is crucial for the nation’s development goals. According to Deloitte, the global consulting firm, “Ethiopia has one of the lowest levels of modern energy access in Africa,” which hinders its attractiveness for investments and productivity. The firm’s annual investment survey notes “Ethiopia has an abundance of natural resources for energy generation purposes, especially for hydropower. However, as of 2014, only 8[Pct] of the 54 potential GW have been used….”
To that end, it is estimated that Ethiopia generates a total of 5.3MW of solar energy, a meagre figure considering the history of solar power in Ethiopia dates back three decades. The first solar panels, which are designed to absorb the sun’s rays for generating electricity, were installed in rural areas for home and school lighting purposes in the early 1980s. The largest of these was a 10.5kW system installed in 1985, which served 300 rural households. This system was later upgraded to 30kW in 1989.
Almost three decades later, solar energy application in Ethiopia still operates on an off-grid basis, meaning it is not connected to the national grid system. An off-grid solar energy system, which typically generate power for smaller units, like homes and institutions as well as provide energy for water pumping and telecom stations.
In total, renewable energy generated close to 2,500MW in the national grid system by the end of 2015, of which 94Pct comes from hydropower plants.
The overwhelming use of hydropower over solar energy is due in part to logistical barriers. Fitsum Salehu, a researcher and acting Head of the Centre for Energy and Technology at Addis Ababa University’s (AAU) Institute of Technology, argues that there are difficulties in harnessing the full potential of solar power: “The limited access and use of solar photovoltaic (PV) in Ethiopia is due to high capital investment as a result of the technology’s sophistication. The huge capital requirement, in turn, affects affordability.”
Because of this, the Ethiopian solar energy market is still in the early stages of development. Since the commercial market began in the early 1990s, annual solar panel sales growth was under 5Pct, according to the aforementioned study by GIZ. However, photovoltaic suppliers have reported significant sales growth in recent years following the dramatic price decrease of solar PV components in the global market.
In Ethiopia, the PV market is comprised of three major actors: the telecom sector, government and NGOs, and the private sector. The telecom market is by far the largest, accounting for roughly 80Pct of the total installed PV capacity in Ethiopia, according to a document entitled ‘Solar Energy Vision in Ethiopia’. Furthermore, the document states that strong growth is expected in the coming decade due to the demand that will come from the telecom sector as a result of the country’s drive for universal access to mobile connectivity.
The public sector and NGOs constitute another key participant in the PV market. According to information obtained from the Office of Rural Electrification Fund, which was established in 2003 under the Ministry of Water, Irrigation and Electricity, solar PV systems powered around 45,000 homes and 945 institutions such as schools, health stations and farmers training associations during the first phase of the Growth and Transformation Plan (GTP). The public sector and NGOs were responsible for providing these solar PV devices, most of which are located in rural areas.
NGOs like GIZ have been implementing solar electrification programmes. Since 2010, GIZ has been engaged in helping rural off-grid households, health centres, and other small institutions to access cleaner electricity from solar power, according to information obtained via e-mail from GIZ representatives. Through the Energising Development Programme, GIZ has also provided electricity for more than 150 off-grid health and community centres using standalone PV systems. These systems can provide enough energy to light clinics, operate microscopes and run sterilisation/vaccine fridges in rural health centres.
Although there has been no survey conducted in the area, Getnet Tesfaye, Policy Director of the Ethio Resources Group, a renewable energy consulting and service company, estimates that more than half a million people throughout the country use solar PV as an alternative energy source. This is in addition to those that NGOs and the government sponsor. “It is an extremely small figure vis-à-vis the country’s potential and the population size,” he argues.
The local private sector is involved in the PV market by providing supplies for government and NGO projects, demonstrating the relatively small role it plays in the local market. However the current demand from rural schools and health institutions is creating a significant market for solar PV systems, enabling market-based interventions that will allow for wider dissemination, thereby increasing the role of the private sector.
Despite this promise, a number of roadblocks could thwart the sector from reaching its full potential in Ethiopia’s solar market, namely importing, installing and service delivery.
About 15 private companies are engaged in importing and installing PV systems in Ethiopia. Five of these companies account for more than 80Pct of the systems supplied or installed excluding telecom systems, according to a 2012 report entitled ‘Solar Energy Vision in Ethiopia’.
Ketema Temesgen, Assistant Technical Manager of Solar 23 Development, an importer of solar equipment and consultant in solar-related projects, says that most of their products are used for NGO-funded projects in rural areas. “Most are funded by GIZ, United Nations agencies and Save the Children, among others,” he says. “A lack of awareness and the expensive initial capital are deterring factors that limit the private sector’s involvement in the solar market.”
However, Bacha Beyene, Coordinator of the Rural Electrification Fund, says the private sector is necessary for the country to achieve its solar energy goals under the second phase of the GTP. “The government plans to install 3.6 million lanterns, 400,000 solar home systems and 3,600 institutional PV systems by the end of the GTP II period,” he explains. “These require a concerted effort from all stakeholders, especially the private sector.”
Achieving these goals will make Ethiopia the largest regional power market and the largest PV market: “Ethiopia will be an example of success in the near future if it can manage to achieve the targets,” says Bacha.
Some Sub-Saharan African countries are already in the process of expanding their solar power infrastructure. According to the International Renewable Energy Agency, South Africa dominates installed solar PV on the continent because it has been experiencing massive PV installation in recent years. It currently accounts for 65Pct of the total 1,361MW installed solar PV capacity in Africa.
Other Sub-Saharan African countries are also pursuing solar energy generation projects. For instance, Uganda, Kenya and Namibia also account 1Pct of the total installed solar PV capacity of Africa, with production capacity ranging between 20MW and 24MW each.
To out perform these African countries in a short period of time, Getnet suggest that the private sector take a pivotal role in achieving the goals of the GTP II. “The private sector can play a decisive role by disseminating the large majority of PV systems,” he says.
Private firms have been central to the success of countries that have robust solar energy infrastructure. According to a 2015 report entitled ‘State of Renewable Energy in South Africa’, the private sector has been a key component of delivering reliable solar power infrastructure throughout the country: “It has delivered cost effective, clean energy infrastructure to the country and contributed to security of electricity supply that is expected to bring about a virtuous circle of investment and economic growth.”
As a result of these investments, the government says the country “secured a position among the top 10 countries in the world with significant investments in [renewable energy] technologies.”
The robust development of solar energy infrastructure is especially important for Ethiopia, a country committed to expanding access to power in an environmentally friendly manner. The major advantages of solar energy is its ability to reach a scattered population, especially in rural areas since the unit cost of investment is lower for PV compared to petroleum-based and other sources of energy.
As a result, many believe that the accelerated adaptation of renewable power production technologies can bring opportunities for African countries like Ethiopia to leapfrog the fossil fuel-intensive economic growth model.
However, for the market to reach its full potential Getnet argues that a transparent and coherent regulatory framework is crucial. “This requires government commitment and focus in placing appropriate policy and regulatory environment,” he argues. “I do not support the government’s involvement in providing solar PV systems to rural households that could better be served by the private sector.”
Experts and studies also stress that the development of the sector depends on the existence of an environment that allows the private sector to engage as well as provide products and services. Therefore, they argue, the framework for the private sector’s involvement should entail the government promoting a conducive environment for investment and market development.
So far, private sector involvement in Ethiopia is limited to importation and installing PV systems. However, Ethiopian Electric Power (EPP) – which is responsible for generating, transmitting and selling electricity nationwide and to neighbouring countries – recently announced that it would transfer three on-grid solar PV power generation sites to private developers. The sites were identified, each having a capacity to produce 100MW of solar energy.
Mekuria Lemma, Head of the Investment and Strategy Office at the EEP, which is responsible for identifying potential areas of investment, told EBR that the solar PV projects that will be connected to the national grid system will be given entirely to private developers.
The Metahara Solar Power PV Plant is one of the potential sites identified. On February 29, 2016, the government launched an international competitive tender to attract a project developer to finance, design, procure, construct, commission as well as operate and maintain the project. “In response to the tender, 75 companies from around the world showed interest, of which 65 companies submitted documents as per the requirements,” Mekuria told EBR.
In June 2016, a copy of a request for proposals, along with the Implementation Agreement and Grid Connection Agreement, were shared with bidders. According to Mekuria, December 2016 will be the due date for bidders who qualified to submit documents for final screening, which is scheduled to take two months.
“Once a contract agreement is signed with the winning company, the installation of the power plant and related construction works will be completed and ready for operation within a year,” Mekuria anticipates. The project will have the potential to generate 100MW connected to an existing transmission line of 230kV. It will be located approximately 200km east of Addis Ababa and 5km west of the town of Metahara, covering close to 250 hectares, which comprises a single area.
The same kind of international tender was also floated in July 2016 for the other two potential solar PV sites located in Umera and Mekelle, each having the capacity to generate 100MW. “Evaluations of the bidding for the two projects are also simultaneously on-going. More than 30 international companies showed interest worldwide to get involved with the project,” Mekuria confirms. “Each of the three solar PV power generation plants cost more than USD2 billion.”
Fitsum stresses that the capital requirements necessary to develop solar power sites are costly from a purely economic standpoint. “However, from the techno-economic and national economy perspectives the story is the exact opposite, since solar PV is one component of the energy mix of the country. It can play a pivotal role as an alternative energy source, which in turn positively contributes to strengthening the energy security of the nation.” EBR