Power Sector Market Report - Ethiopia

Sector Overview
With an average GDP growth rate of 7.5% in 2012/13, Ethiopia's economy is expected to continue
growing at rates between 6.9% and 7.3% in the period 2013- 2017[1], led primarily by the strong
performance of the agricultural sector. The Government's vision is set out in the Growth and
Transformation Plan (GTP), which seeks to transform Ethiopia into middle-income country by 2025.

The Ethiopian government, realizing the productivity enhancing effect of infrastructure, has pursued
an ambitious infrastructure expansion program which will continue over the next two decades. It is
investing heavily in roads, telecommunications, and power generation and transmission, as well as in
schools, health services and water supply. In the past decade, the power sector development has
taken off with several large power projects being commissioned or under construction.

To cope with the demand for electricity caused by the countrys economic growth, the Governments
future outlook for the power market sector has been divided into short, medium and long term plans
of 5, 10 and 25 year periods respectively. According to Ethiopian Electric Power Corporation (EEPCO),
the opportunities in the power sector represent about US $3 to 4 billion per year. Of this, 65% is in
generation, with the rest spread across transmission, universal access and engineering services. The
long-term goal is to maximize the countrys energy power potential, which is currently believed to be
45,000 MW hydropower, 10,000 MW geothermal, and 1.03 Million MW wind power, in addition to
potential bio-fuel and alternative energy development.

With regards to solar power development, potential lies in rural energy electrification. Of Ethiopia's 95
million citizens, about 80% live in rural areas, and only 2 million mainly urban dwellers have access to
electricity distributed by EEPCOs grid. Assuming 5 people per household, there is a market for solar
powered devices such as torches, task lights, lanterns for the roughly 17 million households who are
off-grid.

The Ethiopian power system is reliant on hydropower, which accounts for 98% of generation. Ethiopia
is estimated to have the capacity to produce 45,000 MW[2] of hydropower. However, given the
vulnerability of focusing only of hydropower development, the Government is diversifying and
developing geothermal and wind power as well. The selection of generation technology has been
based on a leastcost analysis of supply options, which results in a ranking of small and larger hydro
power projects as the least costly, as well as being environmentally sound, in combination with an
optimum generation mix of some coal, gas, and wind power in a least-cost development programme.

Power project construction is primarily funded by the Government of Ethiopia, the African
Development Bank, the World Bank, the European Investment Bank, private loans and bilateral
government loans. The main external actors in power projects are from Italy, China, India, France,
Germany and Norway. However China is the major player, heavily investing in manufacturing, energy
and transport. The Canadian presence focuses primarily on providing engineering services.

Independent Power Producers (IPP)

Transmission and supply of electrical energy though the integrated National Grid system is reserved
exclusively for the government or joint ventures with government. However, the government of
Ethiopia has also shown some interest in promoting medium scale projects for grid supply. The
electricity regulator Ethiopian Energy Agency (EEA) is drafting a feed-in tariff proclamation to
encourage IPPs for this purpose. The rationale is the need to enhance and diversify generation
capacity on the grid. Following the implementation of energy proclamations and regulations, there
has also been considerable interest shown by several companies to supply EEPCO.

Several Memoranda of Understanding (MoU) have been signed between potential IPPs and the EEA.
These include Reykjavik Energy Invest Co (REI); an Icelandic company, which holds development and
exploration licenses for the Tendaho geothermal resource area; believed to be capable of producing
100 MW of electricity; MIDROC Ethiopia: Gojeb HPP (153 MW) and Apoji: Halele Warabesa and
Chemoga Yeda HPP (435 MW and 420 MW). However no power purchasing agreement has been
signed to date.

Small Hydro Power Subsector

Small scale hydropower is estimated to be 7% of the total hydropower potential (3000 MW). However
in terms of technical feasibility, the potential could be reduced by more than half to about 1500 MW
due to inaccessibility, and proximity to grid and service centers. The total potential of micro and pico
hydropower schemes of sizes > 500KW is estimated to be 100 MW.[3] To date, one small and two
mini hydro power (MHP) schemes are functional under EEPCOs Self Contained System (SCS), namely:
Sor (5Mw), Yadot (350kW) and Dembi (800kW), with a cumulative installed capacity of 6.15 MW.

Micro-Hydro power potential sites[4] in Ethiopia are shown below:

As per the map above, potential for small scale hydro power lies in western and south western
Ethiopia, where annual rainfall ranges from 300mm to over 900mm. Rural Electrification Fund[5] (REF)
has received and approved five MHP schemes in off-grid location to be developed. These are:

MHP schemes in Off-Grid Locations to be

Developed

MHP Site Expected Turbine Output (kW)

Aleltu 300
 Bello 192

Bote 160

Dilla 480

Sonkole 260

The micro and pico HP (<500kW) off-grid and on-grid connections market is estimated at over USD $
200 million, while mini and small HP (500kW<) market opportunity is estimated over two billion
USD[6].The challenges in this subsector include: the absence locally of modern MHP technologies;
limited local technical skills capable of addressing MHP projects;[7] increasing demand for water,
coupled with periodic risk of low rainfall, mean that the return on investment could be hampered.

EEPCO continues to dominate the sector, as the sole producer that enjoys a monopoly access to the
expanding grid. The off-grid market, though free to developers, is constrained due to uncertainties
regarding EEPCO's grid expansion plans. A few municipalities run micro-grids in small towns (mainly
powered by diesel generators), but the combined capacity of the non - EEPCO suppliers is a fraction
of EEPCO's SCS system.

In 2012, EEPCO issued a request for proposal for the management of its utilities service to an
external provider, in order to allow EEPCO to focus on the expansion and realization of infrastructure
projects. The bid winner is yet to be confirmed.

Geothermal Power
The geothermal potential of Ethiopia has been estimated at about 4000 MW. This potential has not
yet been exploited. However, the following projects are planned to be commissioned as early as
2018:

Planned Geothermal Power Projects

Project Capacity Energy Status Estimated Commissioning

(MW) (GW) Year

Tendaho 100 700.8 Pre-Feasibility 2018

Study

Corbetti 75 525.6 Pre-Feasibility 2018

Study

Abaya 100 700.8 Pre-Feasibility 2018

Study

Tulu 40 280.32 Pre-Feasibility 2018

Moya Study

Dofan 60 420.32 Pre-Feasibility 2018

Study
 Total 375 2628

Potential here lies for Canadian companies to undertake feasibility studies, supply of electro-
mechanical equipment [8], and engineering services for supervision contracts.

Outcome of Power System

The installed electricity generating capacity in Ethiopia is 2185 MW produced from interconnected
and self-contained systems. As of 2012, the electrical distribution network consists of >11,000 Km of
HV transmission lines, 140,000 Km MV and LV distribution lines, and 138 power stations. The number
of electrified towns in 2011 stood at 5,886. In addition EEPCO has regional interconnects with
Djibouti and Sudan with 230 KV lines for export, and is building one to Kenya.

Implications, Opportunities and Challenges

The major constraints of the power sector in Ethiopia are inadequacy of supply, poor quality of
supply, poor customer service, lack of trained labor and lack of finance. Ethiopia currently ranks
127th out of 185 countries in the World Banks Ease of Doing Business 2013 report. However, there is
a clear political will in Ethiopia to ensure the fulfillment of the development goals in the GTP. The
power sector is identified as key to achieving these goals.

The government, including state-owned enterprises, is the primary customer for power goods and
services. Government procurement is usually conducted through tenders. Tender announcements are
made public to all interested potential bidders, regardless of nationality of supplier or origin of the
products/services. Both Ethiopian and foreign suppliers, especially those from Italy, Germany, France,
Norway, and China, who have local representatives, participate aggressively. To conduct business
effectively and participate in local tenders, it is advisable for Canadian firms to appoint experienced
and reputable local agents and distributors to represent their products in Ethiopia. For small, micro
and pico hydropower projects, in particular, partnerships could require some investments in building
technical and managerial capacities of local partners. Foreign companies with prospects of
participating in such bids should keep close eye on information from the government media, the
United Nations Development Program and tenders issued by the development banks.

Opportunities for Canadian companies primarily lie in consultancy services for feasibility studies,
construction of hydropower dams, supply of electro-mechanical equipment [9], and engineering
services for supervision contracts. Companies which offer financing packages to implement projects
tend to be given preference in the award of tenders. Italian, Chinese and Indian companies have
been awarded contracts in part because they facilitated financing arrangements. Annex 1 summaries
planned and current status of power projects in Ethiopia for completion by 2018.[10]

Given rainfall in Ethiopia varies considerably from year to year, there are ongoing debates on the
overdependence on hydropower and the knock-on impact this would have on the overall development
of the economy should energy supply be unstable.

Environmental concerns have also been raised about hydropower projects. Environmental rights
groups have stated Gilgel Gibe III project could cause water levels in Lake Turkana to drop
drastically. This could lead to severe drought and could also alter the chemical composition of the
lake[11], affecting the livelihood of pastoralist who lives down stream. There are, therefore, potential
reputational risks that should be factored into decision making by potential investors. The above
concerns have hampered access to financing from international financial institutions, slowing down
the dam building programs.

Key Contacts
Ethiopia
Ministry of Water and Energy
P.O.Box 5744
Addis Ababa, Ethiopia
Tel.: 251-11-661-1111
Fax: 251-11-6661-0885
E-mail: info@mowr.gov.et
Website: www.mowr.gov.et

Ethiopian Energy Agency

P.O.Box 2554
Addis Ababa, Ethiopia
Tel.: 251-11-7733/7754/7752/7735
Fax: 251-11-550-7734
E-mail: electric.agency@ethionet.et
Website: www.mowr.gov.et/EEA/Index.php?Itemid=4

Ethiopian Electric Power Corporation

P.O.Box 1233
Addis Ababa, Ethiopia
Tel.: 251-11-156-0042
Fax: 251-11-155-0822
E-mail: eelpa@ethionet.et
Website: www.eepco.gov.et

Canadian Government Contacts

Embassy of Canada
Nefas Silk Lafto K.K., Kebele 04, House#122
Addis Ababa, Ethiopia
Contact: Baharnesh Mesfin Teshome, Trade Commissioner
Tel.: (251-11) 371-3350
Fax: (251-11) 371-3040
E-mail: baharneshmesfin.teshome@international.gc.ca
Website: www.international.gc.ca/world/embassies/ethiopia

Foreign Affairs, Trade and Development Canada

125 Sussex Dr.
Ottawa, ON K1A 0G2
Website: www.tradecommissioner.gc.ca

Middle East and Africa Commercial Relations Division (GMC)

Contact: Andrew Macleod, Trade Commissioner,
Eastern Africa, Central Africa and Nigeria
Tel.: 613-944-8393
E-mail: Andrew.Macleod@international.gc.ca
Website: www.international.gc.ca

Export Development Canada (EDC)

Contact: Rizwan Haider, Regional Manager,
Sub-Saharan Africa
Tel.: (613) 598-3234
Fax: (613) 598-2503
E-mail: rhaider@edc.ca
Website: www.edc.ca

Office of Liaison with International Financial Institutions (OLIFI) Washington

Canadian Embassy in Washington
Contact: Amber Germain
Tel.: (202) 448-6416
Fax: (202) 682-7789
E-mail: Amber.Germain@international.gc.ca
Website : www.IFIWashington.gc.ca

Office of Liaison with African Development Bank Embassy in Tunisia

Contact: Ezzedine Cherni, Liaison Officer
Tel.: (216-71) 104-054
Fax: (216-71) 104-193
E-mail: ezzedin.cherni@international.gc.ca
Website: www.tradecommissioner.gc.ca

Annex 1: Planned Power Projects

Table 1 - Planned Hydropower Projects to be Commissioned as Early as 2020

Project Capacity Energy Status Contractor Financing Cost Commissioning

(MW) (GW) Year

TEKEZE 450 1730 Under According to the

II Feasibility feasibility results
Study of these
projects -
BEKO 1600 1800 Under should be
AMBO Feasibility commission ed
Study by year 2020

MENDEYA 2000 2100 Under

Feasibility
Study

GIBE IV 1470 7800 Under Sino Hydro Chinese USD

Feasibility Corporation $1.9
Study Billion
GIBE V 660 1937 Under
Feasibility
Study

WABI 87 460 Preliminary

SHEBELLE Study

BIRBIR 467 2726 Preliminary

Study

LOWER 613 3208 Preliminary

DEDESSA Study

DABUS 427 2036 Preliminary

Study

BESHILO 700 2628 Preliminary

Study

TAMS 1000 5892 Preliminary

Study

GENALE 100 655 Preliminary

DAWA V Study

Total 9572 49,772

Table 2 - Planned Transmission Line

Projects - Under Construction

Voltage Level (KV) Length (circuit km)

400 370

230 1623

132 876

Total 2869

Table 3 - Planned Transmission Line

Projects - New

Voltage Level (KV) Length (circuit km)

5010 KV 434

400 KV 575

230 KV 1864
 132 KV 386

Total 3259

Table 4 - Planned Transmission Line

Projects - Totals

Length (circuit km)

Under Construction 2869

New 3259

Total 6128

Other activities planned for the next five years with a goal of strengthening the grid include the
rehabilitation for 30 major sub stations to increase their power handling capacities and the
installation of various reactors and capacitors throughout the grid.

Annex 2: Key Participants

Ministry of Water and Energy: a federal organization established to manage Ethiopias water and
energy resources. This involves developing, planning and managing water and energy resources: -
polices, strategies and programs: drafting and implementing water and energy sector laws and
regulations: - conducting study and research activities: - providing technical support to regional
water and energy bureaus and signing international agreements.

Ethiopian Electric Power Corporation (EEPCO): a public enterprise, its purpose is to produce,
transmit, distribute and sell electrical energy (in accordance with economic and social development
policies and priorities of the government) and to carry on any other related activities that would
enable it achieve its purpose.

Electricity Proclamation No. 86/1997: established Ethiopian Electricity Agency (renamed Ethiopian
Energy Agency).

Ethiopian Energy Agency: is authorized to regulate and determine the quality and standards of
generation, transmission, distribution and sales of electricity and is empowered to issue, suspend,
and revoke business licenses within its scope.

Electricity Operations Council of Ministers Regulation No. 49/1999: provides guidelines and procedures
for electricity sector operators. Technical standards and principles of tariff determination are
provided in the regulation.

Letter of Power Sector Policy (2003): This policy summarized the sector reforms undertaken to that
date and outlined further reforms being contemplated by the government including the establishment
of a Rural Electrification Fund, decentralization/commercialization of EEPCO, and development of a
demand side management program.

Rural Electrification Fund Establishment Proclamation No 317/2003: established the Rural

Electrification Fund (REF). REF is administered by Alternative Energy Technology Dissemination
Director (AETD), under the Ministry of Water and Energy. A Rural Electrification Board (REB) directs
the activities of the Directorate. The Government has formulated a national rural electrification
strategy where both the public electricity service company (EEPCO) and the private and
nongovernment sector will be involved in extending services to the rural population. Rural Energy
Development and Promotion Center: mission is to promote efficient, environmentally sound energy
technologies in a sustainable manner, and the facilitation of energy development in rural areas
through the provision of information, technical assistance loan financing to private sector, community
organization, non-governmental and governmental organizations, in order to contribute to
accelerated economic and social development.

Rural Energy Development and Promotion Center: mission is to promote efficient,

environmentally sound energy technologies in a sustainable manner, and the facilitation of energy
development in rural areas through the provision of information, technical assistance loan financing to
private sector, community organization, non-governmental and governmental organizations, in order
to contribute to accelerated economic and social development.

Amended Investment Proclamation No 116/1998 and 280/2004: governs internal and external
investment in Ethiopia. The general regulations apply also for the energy sector. However, the power
sector is dealt with particularly in the proclamation where foreign investment is limited for certain
power generation facilities according to the investment proclamation (No:116/1998) both local and
external investors can develop hydropower plants without any limit but only local investors are
allowed to develop non-hydropower resources below 25MW.

However, at present, this has been amended to include external investors as well. External investors
will no longer be limited to the hydropower domain.

[1] Economist Intelligence Unit, Country Report: Ethiopia, 1st Quarter 2013, page 7 - www.eiu.com

[2] The Grand Ethiopian Renaissance Dam with a planned capacity of 5,250 MW is part of this
programme. The estimated cost of this project is approximately $4.7 billion. The plan also includes
the installation of 1473 km of transmission lines, 15 new substations, 670 MV Ar new shunt
capacitors and 152 MV Ar shunt reactors. In addition 20 existing substations will be upgraded.

[3] Ethiopian Electric Agency, 2003: Hydro Baseline Survey

[4] Ethiopian Electric Agency, 2003: Hydro Baseline Survey

[5] REF is expected to allocate about USD 20 Million for rural electrification using various
technologies including MHPs.

[6] Market Opportunity lies in supply of equipment and components, small reservoirs, channels,
generator house, turbines, generators, control systems, low/medium/high voltage transmission
lines.

[7] Limited in terms of quantity and level of sophistication; MHP skills and services are available in
surveying, feasibility, civil works, electromechanical and mini-grid installation.

[8] Includes generators, turbines, transformers, transmission cables, circuit breakers, switches,
plugs, sockets, boards, lamps, copper wire, conductors and insulators.

[9] Includes generators, turbines, transformers, transmission cables, circuit breakers, switches,
plugs, sockets, boards, lamps, copper wire, conductors and insulators.

[10] Under current financial constraints, completion of these power projects may not be realised by
2018.

[11] All Africa.com: Ethiopia: Gibe III Could Activism Stall a Viable Project? -
http://allafrica.com/stories/201304220043.html