Forex shortage deflates PPP energy projects

Absence of foreign currency halts the Public Private Partnership /PPP/ projects on the energy sector. The Ministry of Water and Energy (MOWE) states that it is working with the Ministry of Finance (MOF), and the National Bank of Ethiopia (NBE) to manage the situation.

The board chaired by the finance ministry, consisting of MOWE as members approved 23 PPP pipeline projects up until March 2021, which included eight solar photovoltaic projects, six hydro-power projects, after the ratification of the new private public partnership proclamation in 2018. Currently, all of the projects are on recess. “Forex availability and convertibility is affecting PPP in the energy sector. We are working with the MOF and NBE to alleviate the issue,” Eng. Sultan Woli, State Minister of MOWE stated whilst speaking on a high-level public-private dialogue on the private sector investment in electricity and infrastructure development in Africa. As indicated by the state minister, Ethiopia has abundant renewable energy resources and has the potential to generate over 60,000 megawatts (MW) of electric power from hydroelectric, wind, solar and geothermal sources, “As a result of Ethiopia’s rapid GDP growth over the previous decade, demand for electricity has been steadily increasing. The government recognizes that partnership with the private sector via PPP agreements for power generation is crucial to meeting the country’s energy needs.”

With some of the projects still under construction, the country currently has approximately 5.3GW of installed generation capacity. Approximately 90% of the installed generation capacity is from hydropower, while the remaining 8% and 2% is from wind and thermal sources, respectively. There is a plan to exponentially increase the power generation capacity to 17,000 MW by 2030.

“Even though Ethiopia has huge potential to power generation, accessibility is low which is mainly due to low participation of the private sector in the energy sector. Our policies are also not attractive to the private sector. We are now preparing attractive power reforms which will include restructuring and liberalization of the sector to encourage private investment,” Sultan elaborated. “Some projects have been kicked off while others are in the pipeline. But the shortage in forex deters the project progress and throws of investors. This should not be the case, we should work to streamline this as the private sector is vital to the achievement of the new generation targets,” he further added. Currently Ethiopia has more than 14 hydropower and three wind power plants throughout the country. The government is also working with the private sector to implement the Corbetti and Tulu Moye geothermal projects. Although, the two directly negotiated geothermal contracts were originally signed for over 1,000 MWS with 500 MWS, respectively in 2017. The total investment required to develop these projects is approximately $1.2 billion. The signing of these two projects is said to pave the way for upcoming geothermal projects creating opportunities for U.S. IPP developers.

According to reports, despite Ethiopia’s energy potential, the country is experiencing energy shortages and load shedding as it struggles to serve a population of over 100 million people and meet growing electricity demand. Currently, only 40 % of its population is fed with on-grid electrification and 11 % with off-grid pre-electrification, with the combined achievement of 51 percent of electricity access by 2022. Ethiopia’s electrification needs are still significant. By 2030, Ethiopia desires to attain middle-income country status, with a rural and urban electricity access targeted at 100 percent achievement.

With regards to its income generation through power export, Ethiopia currently sells electricity to Djibouti and Sudan; up to 100 MW for each. There is a plan to increase power exports up to 400 MW to Djibouti due to a growing demand in the country. Similarly, Ethiopia through the EEP, has a PPA to export up to 400 MW of power to Kenya. In May 2022, Ethiopia signed an MOU with South Sudan to export 100 MW of power over the next three years.