With an electricity access deficit of close to 60 million people, Ethiopia seems determined in its effort of electrifying the whole nation by 2025. The National Electrification Program is in its third year implementation deploying all available access pathways.
The government plans to reach 65% and 35% of the population through on grid and off grid access pathways respectively leveraging a combination of both public and private sector business models. Despite the good intention of engaging the private sector, it has been systematically impossible for the private sector to invest in the energy sector. Following the enactment of the public private partnership proclamation in 2018, there has been a good deal of interest from the private sector to invest in the utility scale solar and geothermal energy areas. In addition to limited finance, private sector investment has been effectively constrained due to the regulatory environment in the off-grid sector, however.
Although private sector players are active in East Africa region powering communities, facilities and households, Ethiopians were allowed to wait for far too long. After many years of spending public money in the energy sector, the government realized that electrifying Ethiopia only through public money is far from achievable. Yet, the whole intention of allowing the private sector to invest in the small-scale off-grid energy access is still dragging its foot.
The proposed directive that is intended to govern mini-grids in Ethiopia wishes to issue three types of licenses with further three categories of mini-grid sizes. 3X3
- Generation License: a license that permits companies to develop power plants and sell the generated electricity with a tariff set by the Authority or power purchase agreements pre-determined by the Authority.
- Distribution and Sales Licenses: a license that enable the licensee to purchase electricity in bulk and distribute it within a designated area.
- Consolidated License: a permit that allows generation, distribution and sale license to consolidated licensees under a single licensing process, which will enable a developer to engage in all three areas of operation.
The directive further classifies licenses into three mini-grid license categories with a maximum limit of 10MW.
- Class I developers: meant for developers operating an installed capacity per site of 50kW or below and dictate that developers negotiate tariffs and other charges and sign a contractual agreement with the community. <=50kW
- Class II developers: meant for developers operating an installed capacity of more than 50kW but less than or equal to 200kW a site. 50kW<X<200kW
- Class III developers: meant for developers operating projects with an installed capacity above 200kW but less than or equal to 10MW. 200kW<X< =10MW
While licenses ensure the mini-grid developers the right to exist and lay out the rights and obligations of the license holder to carry out different electricity activities, the classification provides the means to tailor regulation and economic incentives whenever deemed necessary. Two of the key issues I observe in the process is one the problem of paralysis through analysis and two the lack of comprehensive framework to engage communities in the context of private sector led growth. Instead of putting the laws in to action, learn from practice and improve along the way, Ethiopia waited far too long only until new business models surface and the analysis continues without a tangible result on the ground.
Ethiopian electric utility, EEU, spends ETB 18,087,241.50 for diesel to provide electricity services for villages in Somali regional state alone, consuming 740,950 Litter diesel and 8340 KG lubricating oil. In financial terms, this is a huge spending.
The utility has been subsiding such diesel power stations from the meager tariff it collects anywhere else further undermining its financial capability to invest for adequacy, quality and operational effectiveness. The country could have leveraged the public finance to catalyze additional private sector investment in the off grid sector in a more sustainable and environmental friendly renewable alternatives.
In fact, the Somali region is one of the few areas where new business models such as PAYGO are easily being adopted even in the absense of clear commercial terms.
Blended finance has been a topic of discussion to address the electricity access challenge across sub-Saharan Africa. Yet, Ethiopia's market dynamics reverts to the customary public sector led growth despite the good intention of engaging the private sector in the reform process. Raising private sector finance for off-grid energy sector investment is almost non-existence in Ethiopia while it is common in East Africa region. We are talking about electrifying over 60 million people in less than 5 years. With the current pace and trend, I have a lot more reason to doubt.
Serious commitment is needed from the government to incentivize the private sector to reach more households in a shorter timetable rather than covering the cost of projects directly from scarce public money. The case in point is the twelve mini-grid projects Ethiopian electric utility is working on and the other few more projects coming with the same old approach. The irony is that the utility is focusing more on mini-grid projects that make more of commercial sense for the private sector investment and leave the remote locations in to the unchartered future territory. The cooking sector is in a much worse situation.