This research proposal was written at the begining of 2019 with the intention of serving the Capstone Project of Open Africa Power, OAP, 2019 Initiative. We republished it here as we believe that the electricfication program financing still needs more research coverage and with a hope that reseachers will pick the idea and move it further in a way that would add value to the indutry.
There are compelling reasons for Ethiopia to reform its electricity sector sooner than later including for social, economic and environmental imperatives. Accelerating the rate of access to electricity, adding more capacity from diversified electricity supply sources and spearheading the path towards sector liberalization are the recent developments that the country aspires to achieve to enable and sustain its development agenda.
Ethiopia remains one of the primary examples of having the lowest level of electricity access coverage (44% as of March 2019) and per capita energy consumption (<100kwh) in the world although it has made commendable progress in all dimensions over the years with a public sector lead investment reaching its limit midway to the access goals of the country. Consequently, new models of project financing such as PPPs, IPPs and end user financing options that engage the private sector are becoming eminent albeit a low base demanding further clarity and maturity.
To add knowledge to the existing industry perspectives and establish a clearer understanding of the trends in the project financing schemes, this research proposal wishes to make a comprehensive screening of the available financing sources, instruments and business models; assess the viability of financial restructuring of projects to enhance project bankability; and identify the real and perceived financing barriers and risks specific to the country’s context that deter investment in the electricity sector.
The proposal also intends to explore the overall sector reform progress keeping the financing regime a real focus area, analyze the adjusted electricity tariff, estimate the current and projected cost of providing electricity, build scenario based (with a mix of assumptions of the different access pathways and combinations of financing instruments) financial business models to estimate the costs of investments and the gap in the investment financing need to reach the required access goals.
The industry’s perspective is that Ethiopia could do better if the country leverages public and concessional resources to mobilize private financing and address the barriers and the risks by the available instruments instead of paying the underlying costs directly. Part of this proposal will question these industry perspectives through targeted interviews and supplement the outcomes from the alternative business models, investigate the sector’s level of readiness for private sector engagement and assess the overall financing and business model impacts and develops matrices of mechanisms that could help effectively address them. The list of instruments to be covered includes grants, equities, debts, guarantees, insurances, results-based and carbon financing schemes, and the study will be conducted in phases.
The writer is willing to collaborate to further the reseach upon financial support who has a similar interest for the outcome.