Powerful Solution?

Government Hopes Diversified ‘Green’ Energy Will Mitigate Outages

Despite the government’s plans to improve the performance of the manufacturing sector, many factories still face considerable power outages that hinder their operations. Power outages aren’t new in Ethiopia, but the current drought has further hampered the country’s attempts to improve the electricity shortage facing factories that are so crucial to building a manufacturing-based economy. To that end, there are plans to better harness Ethiopia’s potential to produce hydroelectric, solar, and geothermal power, among others. The hope is that the country will produce 17,347MW of power, up from its current capacity of slightly over 2,000MW, in five years. Yet some experts say the government has a long way to go before it can reach its full potential and are sceptical if it can meet the demands of the growing manufacturing sector. EBR’s Ashenafi Endale spoke with manufacturers and government representatives to understand the efforts being made to reduce power outages.

On the afternoon of Tuesday, December 15, 2015, Vasantha Kumar, Plant Manager of Ethiopian Steel, sat in silence at the company’s factory. The plant, which is located in the Akaki Kality District, an industrial area on the outskirts of Addis Ababa, was without power, leaving Kumar to wonder when it would return so the factory could resume production.
“The factory is unable to operate properly due to power cuts,” Kumar told EBR, as he pointed towards machines that were momentarily halted. “Power comes and goes every hour and every time the power [shuts off] raw materials that [are] already in line are damaged.”
Yet the damaging of raw materials is not the only problem Kumar faces vis-à-vis power outages. The plant is only operating at 25Pct of its production capacity, an enduring limitation that has become a reality for Kumar. Additionally, the rising cost of fuel for generators and the opportunity cost of an idle labour force elevate the pressure on his plant. “The factory loses close to ETB19,000 every day due to power shortages,” Kumar explains.
Established 12 years ago, Ethiopian Steel produces 3,000 metric tonnes of metal products per month, including galvanised aluminium and zinc- and colour-coated steel roofing sheets. It has two additional factories, one in Hawassa and another in Gondar, which Kumar says have “already stopped production due to continuous power shortages.”
He says the problem has intensified in recent months. “The problem has been challenging for a long time but it has been getting worse, especially within the last three months. It is even bad compared to other African countries,” says Kumar, who has worked in different African countries for the last 35 years. Ethiopian Steel, which is owned by Indian investors, is a member of the Safal Group, a steel company that operates in 14 African countries. Kumar came to Ethiopia five years ago.
Such challenges aren’t exclusive to Ethiopian Steel. Many companies engaged in the manufacturing sector that rely on a consistent power supply share a similar fate.
In fact, the damage and losses are substantial for factories like Kaliti Metal Products, which started assembling low-bed dry cargo vehicles in September 2015, hoping to reap the benefits of a booming construction sector.
After installing the plant at a cost of ETB25 million, the Factory hoped to assemble 300 vehicles per year. However, only 10 have made it to the market to date because it cannot assemble the parts due to power shortages, despite the fact that all the necessary materials were imported from abroad.
The loss doesn’t stop here for the Factory. “We have decided to delay the commencement of another two assembling lines because of the lack of power,” says Ermias Biruk, Engineering Products Process Executive Officer for the Factory.
Even the state-owned Metal and Engineering Corporation (MetEC) is not immune to the problem. “Some of the factories stopped operation because of power interruptions,” says Tamiru Kassa (Captain), Deputy General Manager of Akaki Basic Metal Industry, which is one of the 13 industries under the Corporation.
The problem of power shortages is not new for companies engaged in manufacturing. In fact, it is generally acknowledged as one of the major factors that hinder the progress of the sector, along with the lack of foreign currency and the scarcity of raw materials.
What baffles many companies, however, is the increasing prevalence and duration of the outages. Some company managers even claim that they have not received power for the last three months, which forces them to depend on alternative energy sources like generators at an additional cost.
Government officials also acknowledge the problem and attribute it to the current drought. In a recent interview with local media, Prime Minister Halemariam Desalegn said the drought has adversely affected hydroelectric power-generating dams, including Tekeze, Melka Wakena and Koka, among others. In fact, Tekeze Dam has an operational capacity to produce 300MW of energy but is currently only producing 10 MW, the Premier said.
Despite the fact that the effects of the drought are expected to linger for years, government officials recently implemented another five-year economic plan in which the manufacturing sector is given great emphasis and ambitious goals for growth.
According to the Plan, the manufacturing sector is expected to grow by 21.9Pct within five years and contribute 8Pct to the gross domestic product (GDP), up from the current 4.8Pct. The government also plans to increase the manufacturing sector’s contribution to the GDP to 18Pct by 2025.
Industry insiders and stakeholders, however, question the viability of the targets given the intensity and expected continuity of power outages. “We cannot continue like this,” says Sintayehu Zeleke, Maintenance, Standard, Product, Planning, Evaluation and Follow-Up expert at Kaliti Metal Products. He explains that the Factory fully depends on generators. However, because of the generators’ technical and fuel-related problems, the Factory was forced to utilise only 36Pct of its installed capacity last fiscal year.
An expert who specialises in industrial economics at Addis Ababa University, shares Sintayehu’s opinion. “Although expecting perfection from the government is not possible, the current state of power problems is intolerable, especially for factories,” argues the expert, who spoke to EBR on the condition of anonymity. “An insufficient power supply is the main factor behind poor product quality and delays in deliverance.”
The ubiquity of power shortages among factories is also casting a shadow on the government’s efforts to attract foreign direct investment to the manufacturing sector.
“We are afraid that the country might lose on the opportunity that many foreign companies are eyeing Ethiopia as a destination [for manufacturing because] of lower production costs,” argues Girma Damte, a senior public relations official at the Ministry of Industry (MoI). “Due to power-related problems, however, they might change their decision.”
Girma says that the power problem in Ethiopia is “unexplainable” because although the country’s power production increases every year, it is always short of the demand. “The MoI [always asks the] responsible government agencies to find a solution but the problem is getting worse.”
Officials tasked with power generation and distribution say there are two core problems. “First, the power supply does not meet the demand, [which is exacerbated] by the current drought,” says Bizuneh Demissie, head of Wire Business at the Ethiopian Electric Service. “There is also a distribution problem because most of the industries are established in a scattered way, which makes it difficult to provide a reliable power supply.”
However, the government recently signed an agreement with China Electric Power Equipment and Technology in order to upgrade, modernise and digitise the power distribution system in eight Ethiopian towns. “Although it is in the initial stage, we expect the problem [should minimise] after the project is finalised,” says Bizuneh.
Scholars stress that electricity is a fundamental enabler of modern economic growth and development – from powering cities and fuelling industrial activity to pumping water for agricultural irrigation. “If the power supply is not adequately scaled up to support economic growth, it will become a fundamental bottleneck to growth,” the industrial economist argues.
Power is a fundamental factor in Ethiopia’s aspiration for rapid and sustained growth. The Green Economy Strategy Document indicates that it is necessary to expand electric power supply at a rate of more than 14Pct per year to support consistent double-digit economic growth.
According to government agencies, there are enough natural resources to meet the country’s energy demands, primarily by exploiting its potential for hydroelectric, geothermal, solar and wind power, all of which would deliver electricity based on the green economy principle. An assessment made by the Ministry of Water, Irrigation and Energy (MoWIE) reveals that if adequately captured, the projected power supply could even exceed the growing domestic demand.
Ethiopia comes second in terms of power generation potential in Africa, with the capacity of generating 45,000MW from hydropower as well as 1,000MW from geothermal and 10,000MW from wind and solar.
Although the government planned to increase its production capacity from 2,000MW to 10,000MW during the first phase of the GTP, it only managed to finalise the Ashegoda and Adama 1 and 2 wind projects, which have a combined generation capacity of 324MW.
What’s more, Ethiopia mostly depends on hydroelectric dams to satisfy its power demand, a system that is adversely affected by drought. Due to the strategy the government is following to build a climate-resilient green economy in order to ascend to middle-income status by 2025, the electric power sector accounts for relatively low emissions. Hydropower accounts for more than 90Pct of the total power generation capacity of the country.
Experts argue that developing the necessary electric power capacity from renewable energy will be challenging, as it requires considerable investment and is easily affected by drought and other environmental factors. “This calls for diversifying the energy mix of the country,” argues the industrial economist.
Despite calls for diversifying the country’s power sources, experts say logistical barriers hamper such efforts. “Lack of finance and skilled manpower are the main problems hindering Ethiopia from exploiting its power potential,” says Tewodros Tadesse (PhD), a natural resource economist at Mekelle University.
Though hydropower electricity is the cheapest, he stresses that international financial institutions are reluctant to back such projects because political issues often slow down energy generation plans, making it difficult to keep pace with fast-growing demand, especially for industries.
Energy sources like wind and geothermal are also expensive to generate. What’s more, the country’s lack of technology and human power means it is usually dependent on foreign expertise, further compounding the difficulties, according to Tewodros.
He says the government can take deliberate steps to mitigate these challenges. “Whatever it takes, government must invest [heavily] in projects other than hydropower in order to survive such drought consequences. Still…investment is needed in modernising the distribution and tight control is also needed in the management. Most [foreign investors] prefer Ethiopia because of the fact that it offers cheap electricity prices, but once they learn the problems with it, they turn around.”
Admitting much of the current energy crisis is the result of the drought, Bizuneh Tolcha, Director of the Public Relations Directorate at the MoWIE, says the government is planning to diversify its sources of power.
By the end of the GTP II, the Ministry plans to increase the total power production to 17,347MW through a compendium of energy sources. In addition to the 6,000MW from the Grand Ethiopian Renaissance Dam, which is expected to be finalised in 2017, the government hopes to produce an additional 1,870MW from the Gibe III Dam, which will soon be completed. Furthermore, they hope to produce 300MW from solar, 1,200MW from wind, 50MW from waste, 400MW from ethanol produced by sugar factories and 1,200MW from geothermal, among others, by 2019/20.
Upon the finalisation of these projects, government officials say the manufacturing sector will be the driver of the country’s economic transformation. “Resolving one of the major problems that contributed to the under performance of the sector during [the first phase of the] GTP means the country can go a long way in the near future by building a strong economy centred on manufacturing activities,” says Girma.
To realise this, however, the industrial economist says a lot of work has yet to be done. “The success of the GTP II lies on the commitment of the government to uplift the energy sector, which [plays] a critical role in supporting the activities of the Ethiopian economy, including the manufacturing sector,” he argues.
Kumar partially agrees, highlighting the primacy of power outages in hindering the growth of the manufacturing sector. “There are a number of reasons why the GTP targets for the manufacturing sector have not been achieved. It is because of frequent power cuts, the shortage of foreign currency and [the lack] of raw materials,” says Kumar. “But the major one was power shortage because even if foreign currency and raw material shortage problems were resolved, factories cannot operate without a reliable power supply.” EBR