A promising energy future for Ethiopia
The electricity sector’s challenges & opportunities is one of the prime subjects that have been pre occupying the thoughts of many governments across our region and even beyond. Smooth development of the electricity industry is indeed our challenge but with promising opportunities too.
The impact of the continuing upsurges of price of oil is posing an economic challenge to non oil producing countries like ours. This situation is worse for some countries that use fuel for much of their electric power generation needs. Fuel oil related political and environmental challenges are yet another even bigger dimension of the energy issue.
It is with this background that the direction concerning; governance of the energy sector, security of supply, financial and institutional viability of energy institutions, energy pricing, share of renewable energy, energy efficiency and conservation are stipulated in our national energy policy (currently is under revision to argument the advent of new sector challenges and new opportunities as well).
The policy objective includes development of renewable energy and commercial pricing of energy resources, fully reflecting the economic value of the resource. The power sector policy focuses on: liberalization of electricity generation in the national grid, and liberalization of power generation, and distribution in off-grid area; and commercialization and decentralization of the public utility. In the national grid the liberalization is focused to make way for foreign direct investment in power generation under a single buyer model.
The policy also aimed at: increasing access to electricity in the rural area, partly in a government sponsored program (to support integrated rural development), encouraging electricity export; improving reliability and quality of service and introducing technical and commercial service standards, transparency and predictability of the regulatory framework.
The financing structure of the sector for years has been dominated by public investment and a blend of concessional and some commercial loans as well. While these measures were introduced in anticipation of Foreign Direct Investment in the sector under a single buyer model, however over the years much has not been achieved until very recently. The policy preference to commercially develop renewable energy technologies which bear typical characteristics that may not easily lend itself to a type of commercial financing has played its own part on top of other issues related to overall macro economics.
Using public finance the country has gone a great length to develop thousands MW of capacity of renewable energy and transmission and distribution assets pushing the access from its lowest to about 50 percent. Installed capacity in the national grid alone surged to now 4300 MW. Thousands more capacity is expected to come on line over the coming years as committed projects are in progress and about 98 percent of which is renewable energy based power generation. This is indeed commendable yet not quite enough viz-a- viz the in-coming demand growth rate. Over the years we have witnessed high increase in annual demand for power; in excess of 600 MW per year (or an average of 25% demand growth). So much demand progression obviously demands corresponding capacity additions in almost all the value chains of the sector and this will not be possible without the participation of the private sector.
The entry process to engage the private sector in power generation, until recently largely depends on unsolicited procurement which time and again involved prolonged negotiation, uncertainty and lack of confidence of the financial market to support or be part of such large scale infrastructure investment programs.
However in order to change the solicitation process of private finance in the power sector the government has taken measure such as establishing a Public Private Partnership (PPP) Unit and in a PPP law has defined the procurement process and matrices of institutional responsibilities more clarifying the process. And further instruments are under development. Recently about 1000 MW geothermal power generation development is being pursued by two private companies who have already signed PPAs and started mobilizing assets and resources for field works. Project implementation agreements of these projects await parliamentary approval. 100 MW on grid solar PV is awarded to a private developer through competitive procurement process. Other solar wind and hydro power projects to be similarly procured are prioritized by the PPP Board. Of these 500 MW on grid Solar PV project preparation is at an advanced stage for bidding.
Some policy objectives such as commercialization of electricity tariff have not been consistently implemented over the years. However since recently measures have been taken in revising the electricity price to correct the wide gap. Accordingly a phased upward revision is implemented and the process and conditions for interim adjustment is defined and approved.
A new Energy law and Energy regulation is recently passed by the house of parliament and the council of minister respectively redefining the framework and subsidiary instruments are being developed to augment the additional mandate in areas related to energy efficiency regulation, arbitration, rate revision, mandatory service quality standards and associated infractions, uniform system of account, light handed licensing framework and design standards for off grid operators. We believe these changes, would provide leverage to introduce shift in private sector engagement and operational performance of utilities.
At utility level reform is being introduced especially in distribution utilities through virtual horizontal unbundling along with the regional states political boundaries and autonomous in many ways. Modernization of utility operation and electivity sales is also being pursued by deploying Enterprise resource management systems and smart technologies in sales business.
All these are aimed at improving efficiencies of the utilities to enable them to secure sufficient finance to over the challenges of in meeting their respective new financial needs in addition to addressing accumulated unpaid loan commitments.
Therefore much is yet to be desired from the licensed utilities to aggressively address efficiency issues and from the customers to commit to bill settlements under the revised tariff and to try to understand how the new tariff system works, how the rates are phased and the adjustment process and prepare itself to maximize value for money by increasing productivity of electricity in their respective premises. Though in Ethiopian context though electricity is a relatively cheap compared with other energy sources and other countries energy prices in our region however it is not as such so cheap to our economy as measured by the extent of constant price maintained over the last twelve years. The effect of this has been so huge that tariff gap cannot be corrected in one single shot therefore the tariff adjustment has to be phased over four years time four yearly adjustment plus interim adjustment related to inflation power purchase agreement that is if commercially developed power plants started to supply power per a power purchase agreement then the price of this shall be passed to consumers based on their respective share.
It must be known and appreciated by all consumers that the full volume of the adjustment is spread over four years time to give time to all users to prepare themselves to adjust and above all develop energy conservation and efficiency measures to mitigate the effect over the coming years. EEA has already got its energy regulation approved by the government and now working on various instruments among which promotion energy efficiency programs are included. Accordingly EEA has drafted and so far also developing few energy efficiency and conservation measures t impact the energy consumption patterns in: residential, industrial and commercial sectors of our economy. In this area measured interventions and incentives will be promoted to secure measured gains both in capacity and energy which will be beneficial to the utilities and consumers alike. These however are only precursors to what is to come along with the future power supply structure of our economy. The options to develop the power sector based on public sector finance shall not be the course of action to be followed in the future as outlined by government. We need more of commercial finance by the private sector to develop the power sector especially power generation and off grid supply to the rural communities. Commercial financing is very well known for its relatively shorter financing period and relatively high interest rate these two together will make the projects relatively expensive and therefore the resulting g energy price. Especially when it comes to renewable energy sources such as hydro power and geothermal power which the country has in abundance, cost of finance will obviously be higher than if it were for the conventional power plants.
This is some thigh we will have to face but be prudent in the way we use this expensive energy source. Still as a country the energy future will be promising as it is today and the competitive advantage we have maintained in the region regarding this strategic energy shall be enhanced by the continuing power sector reform as initiated by the government which will likely to impact the companies organizational and ownership structure, the role and magnitude of commercial finance, the art and science of the regulation and the role of state governments in the latter. The fact that we are here today in this still consumer friendly energy environment against all odds: the fact that we have been living with serious issues such as; very weak linkage of the sector with the local industries, relatively high energy loss, and low end use energy productivity compared with other economies outside of our region, high cost of project financing, inadequate investment from within or outside the economy, wide supply and demand gap, low service quality limited role of local and international private sector etc. This is not acceptable while we have mature and tested policies strategies and tools at our disposal.
Therefore it is enlightened and well informed intervention that is likely to make the difference, to achieve the end goals of the government initiated power sector reform program which is on the making may not be easy but this is not going to be mission impossible either. Ethiopian Energy Authority (EEA) takes the pleasure when it announces the launching of its newly reconstructed website to its stakeholders and the general public. The reconstruction of EEA new Web site is designed primarily to serve the purpose of information sharing c the wider public and specifically to our stake holders so that they can be easily updated and be part of the process of change that is coming in the power sector and the regulatory environments as well. This will be an opportunity to u all to be heard in processing maturing and implementing the change. Accordingly we regularly put in this web site our draft documents for consultation with te public we will also announce schedules we arrange meetings to discuss specific draft documents. We will also gather opinions using this web site. We encourage you all to visit EEA web site
Getahun Moges Kifle
Director General EEA