Ethiopia Energy Situation

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1.1 Energy situation

Ethiopia is one of the least developed countries with a population of about 72 million, growing at a rate of 3% per annum. Biomass fuels constitute more than 90% of Ethiopia's final energy consumption (99% of households, 70% of industries and 94% of service enterprises use biomass as energy source). Households account for 88% of total energy consumption, industry 4%, transport 3% and services and others 5%. Petroleum covers 5% of total energy supply. The country is completely reliant on imports to meet its petroleum requirements. The installed electricity generating capacity in Ethiopia is about 2.100 MW (xx% hydro, x% diesel and x% thermal) and production covers only 1% of national energy demand. Only 11% of the population have access to electric power. The overloading of the network frequently disrupts the power supply of large commercial and industrial customers. There is a need for substantial investments in the power system. Ethiopia is well endowed with renewable energy resources (solar, wind, hydro and geothermal). To date, however, there is a complete lack of economic viability of renewable energy applications. The policy framework for household energy is set by the Ethiopian Energy Policy, the Environmental Policy of Ethiopia and the Conservation Strategy of Ethiopia, which address energy conservation and energy efficiency in order to reduce the consumption of fuelwood.

Biomass is the single most resource meeting the energy needs of the Ethiopian households. It is used mainly for cooking applications on traditional three-stone open fires. The staple food in Ethiopia’s Highlands is Injera. About 50% of the country’s primary energy consumption is used for Injera preparation mostly on traditional open fire stoves, wasting more than 90% of the fuel in an unsafe and unhealthy manner. Household users are exposed to high levels of smoke emissions in poorly ventilated kitchens and other health risks emanating from fire burns and poor kitchen hygiene. Due to their continuous use forest resources have declined to a surface coverage of 0,2% for natural forests and 6% for woodlands.

One of the SUN Program components is Energy, which is actually working in two Regions, Oromiya and Amhara. Before, from February 2004 to June 2006 a similar component was run in Tigray with the support of the SHELL Foundation. The current activities in Amhara and Oromiya are funded by a Co-financement by DGIS with a total value of 2,5 Mio Euros from October 2005 to December 2008. The energy component of the GTZ SUN Energy is jointly implemented by GTZ and the Ethiopian Federal Ministry of Agriculture and Rural Development under a bilateral cooperation agreement.

The approach of SUN Energy is mainly focused on urban and periurban environment, because availability of material sand and cement, given purchasing power and lower transportation costs.

Up to now a certain penetration of rural areas was achieved with the support of home agents, development agents or other stakeholders. Continuing this approach, the impact of the fuel saving stoves in rural areas will be limited. But 85 to 90% of the population of Ethiopia is living in rural areas. The felt free of cost availability of biomass as fuel in rural areas is hampering also one of the best sales arguments for stoves. If fuel wood is bought on the market, the stove is paying back itself within 3 to 4 months.

Access to biomass fuels is increasingly difficult. In rural areas, women and children spend 5 to 6 hours a day collecting fuel wood fuel wood. This time could otherwise be used for education or income-generating activities. In urban areas where biofuels are purchased, the money spent on fuels - about 20% of household expenditure - could otherwise be used for education, health etc. In addition, current patterns of biofuel consumption lead to high levels of indoor air polution and hence to a high prevalence of respiratory diseases. Moreover, the growing demand for fuelwood resulting from the importance of biomass for energy supply and high population growth has serious impacts on natural resources. Even now the estimated demand for fuelwood is five to six times the sustainable supply. Most Ethiopian forests are already highly degraded and the country's forest cover has been diminished by 200,000 ha annually.

1.2. Policy framework, laws and regulations

The government’s declared aim is a huge expansion of the infrastructure in the energy sector. A crucial reference framework for the government’s aims and for developments on the electricity market is provided by the Five-Year Development Plan (PASDEP), EEPCo’s five-year plan, and the power sector development programmes for 2005-2010. The main target for the period 2005 to 2010 is to increase the electricity access rate from 16% to 50% by the augmentation of energy generation from MW 791 to MW 2,218 and the expansion of the grid. The improvement of efficiency of the existing energy resources is another target. The energy loss is to be reduced from 20% (2005) to the international average, 13%, during the same period of time. In the last years, the government tried to pave the way for more private investors to generate electricity and feed it into the grid. Proclamation 37/1997 opens domestic investors the possibility to invest in plant capacities of up to 25MW. Only foreign organisations are permitted to invest in power stations with a capacity of over 25 MW. Council of Ministers Regulations No. 7/1996 and No. 36/1998 introduced additional tax relief and improved import regulations as incentives for private investment. Nonetheless, the electricity sector is still controlled by the state. Following are some the major highlights from the policies and strategies of the country.

Energy development

• a. Fuel wood plantation: encouragement of the private sector and different communities to be involved in plantation schemes,
• b. Conversion of biomass in different forms of energy purposes: enhancing conversion efficiency in charcoal making, encourage and promote the modern use of agricultural residues and dung (Biogas etc.),
•  c. Hydro power development: utilization of the vast hydropower potentials (of which only about 2 % is currently utilized),
•  d. Other Energy sources: the policy states that whenever the economic potential is realized geothermal, coal, solar, wind and other sources of energy shall be used to generate electricity or other energy services,
• e. Oil exploration and development of the natural gas potential.

Energy conservation and efficiency

• a. Improving the energy efficiency in the transport sector, the agriculture sector, the industry and at household level is to be enhanced,
• b. Regarding the household sector, enhancing the supply of fuel wood, encouraging fuel wood substitution and taking other measures to narrow the gap between energy demand and supply, such as the promotion of fuel efficient stoves.

Encouragement of private sector to be involved in energy sector

The Energy policy also dedicates a special section for the encouragement of the private sector to be involved in the development of the Energy resources of the country specially by being involved in the construction of energy structures, a field that has been and still is seen to be mainly the responsibility of the government.

Environmental Policy of Ethiopia
The policies are:

• a. To adopt an inter-sectoral process of planning and development which integrates energy development with energy conservation, environmental protection and sustainable utilization of renewable resources,
• b. To promote the development of renewable energy sources and reduce the use of fossil energy resources both for ensuring sustainability and for protecting the environment, as well as for their continuation into the future.
  

Forest, Woodland and Tree Resources
The policies are:

a. To ensure that forestry development strategies integrate the development, management and conservation of forest resources with those of land and water resources, energy resources, ecosystems and genetic resources, as well as with crop and livestock production,

b. To find substitutes for construction and fuel wood whenever capabilities and other conditions allow, in order to reduce pressure on forests.

Conservation Strategy of Ethiopia

a. Boost technical and social research on the design of improved cooking stoves,

b. Promote local manufacture and distribution of improved charcoal and biomass stoves,and

c. Locate, develop, adopt or adapt energy sources and technologies to replace biomass fuels.

Development of Alternative Energy Resources and their utilization are to: Acquire, develop, test and disseminate appropriate and improved energy use technologies (e.g. improved stoves, charcoal kilns, solar powered cookers and heaters). Capacity Building and Institutional Strengthening are to:

a. Strengthen research, planning and project implementation capability of the federal and regional energy agencies,

b. Establish a centre for testing alternative and efficient energy sources, technologies and appliances,

c. Promote and assist the private sector to assemble and manufacture energy development facilities and end-use appliances.

1.3. Institutional set up in the energy sector, activities of other donors

At the Federal Government level, there exists a number of institutions involved in the energy sector in the Country. The Ministry of Mines and Energy (MoME) is responsible for the overall development of the energy sector in the country. For matters relating to rural electrification the Ministry of Rural Development also has a role to play. The Ministry of Water Resources is responsible for the protection and utilisation of the nation’s water resources.

The MoME has six main agencies and departments that deal with energy issues:

1. Ethiopian Rural Energy Development and Promotion Centre (EREDPC) – with the mandate to carry out national energy resources studies, data collection and analysis, rural energy policy formulation, technology research and development and to promote appropriate renewable energy technologies in rural areas; the Centre also serves as the Executive arm of the Rural Electrification Fund (REF).

2. To assess and implement projects under the REF the EREDPC has established a core team as the Rural Electrification Executive Secretariat REES. The REES being responsible for project appraisal shall also provide advisory services, capacity building, and training to Regional Energy Bureaus and cooperatives.

3. Rural Electrification Fund (REF) - to enable the private and cooperative engagement in rural electrification activities through loan based finance and technical support. The REF received US$ 15 million in funding from the World Bank and GEF under the Energy Access Program. This allowed the granting of loans and the promotion of energy projects in rural areas in collaboration with private actors and local authorities. In formal terms it is administered by the Rural Electrification Board (REB) and the Rural Electrification Executive Secretariat (REES). The REB determines the criteria for project promotion and coordinates cooperation with other programmes. The Board also decides on whether to proceed with the submitted project proposals. The REB’s members are employees of the Ministry of Water Resources, the Ministry of Mines and Energy, the EEA and the EREDPC and representatives of the private sector. The resources available to the REF are used to subsidise 85 % of the cost of rural electrification projects. Renewable energy sources are entitled to a higher subsidy of 95 %. Most of the projects that receive assistance, however, are based on electricity generation with diesel generators.

4. Energy and Regulation Department – to formulate energy policies, energy regulations, and monitoring of implementations of these;

5. Petroleum Operation Department – for petroleum exploration and development, licensing, and project coordination;

6. Ethiopian Electricity Agency (EEA) – to regulate the electricity generation, transmission, distribution and sale of electricity. The EEA is responsible for setting the tariffs and regulating and supervising access by private operators to the electricity grid, which includes the approval of power purchase agreements (PPAs). EEA controls quality, standards of electricity, licensing of electricity operators and contractors including tariff settings. It is also responsible for organising programmes in the field of rural electrification and establishing the framework conditions for private investors. On account of structural shortcomings and a lack of personnel, however, the EEA is not yet in a position to perform these tasks to the full.

MoME is working closely with two public enterprises: the Ethiopia Electric Power Corporation (EEPCO) for the electricity sub-sector, and the Ethiopian Petroleum Enterprise (EPE) for the petroleum sub-sector. EEPCo is mandated to generate, transmit, distribute, and sell electricity. The corporation disseminates electricity through two different power supply systems: the Interconnected System (ICS) and the Self-Contained System (SCS). The ICS, which is largely generated by hydropower plants, is the major source of electric power generation. The SCS is mainly based on diesel generators and to a minor portion on small and medium hydropower plants. EEPCo’s financial situation is considered to be weak. In 2006, electricity tariffs were increased by 22 percent across the board, except for the life-line tariff (consumption up to 50kWh/month) which remained unchanged. The weighted average tariff is estimated at 0.06US$/kWh. The overall billing collection rate at present is estimated at around 98 percent. Electricity revenue increased to US$150 million. Operating profit after depreciation was US$35.2 million. Operating profit per kWh sales to end-use customers was at 0.014US$/kWh. According to the World Bank,11 EEPCo has a strong technical and stable management team, and is operating profitably with an internal cash generation of about US$50 million per year. Its operating costs are low since generation is predominantly hydro, which also reduces exposure to oil price volatility. At a regional level, energy activities are mainly supported by regional energy bureaus, which are part of regional governments, and by regional energy institutions, such as the Oromia Mines & Energy Agency and the Regional Rural Electrification Executive Secretariat Offices with support and advice from the EREDPC. There are only few private companies active in the energy sector. The number of manufacturers, assemblers and dealers of renewable energy technologies in Ethiopia is in all technology area lower than 10.