Ethiopia is undertaking a large expansion of its power sector. From 733MW in 2008, the country has 4GW of power installed today and targets 17GW by 2020. Ethiopian Electric Power (EEP), the state-owned power producer, installed a 1.9GW dam in 2015 and expects to commission the 6GW Grand Renaissance Dam in 2017. While power capacity is increasing rapidly, much of the development is still driven by the government and EEP; private sector participation is very limited. Ethiopia is now trying to create the right environment for independent power producers and scale up its non-hydro capacity.

Ethiopia has rich hydropower resources, and this technology accounts for more than 90% of generation. Out of the planned expansion to 17GW by 2020, some 10GW will be from hydro. All of the hydropower plants, and all of the projects under development, are owned by EEP. Where some hydro-reliant countries, such as Zambia, have struggled with drought, Ethiopia has usually avoided that problem, in recent times having had only one year of severe drought leading to power shortages, in 2008/9.

The government seeks to use other renewables to cover the remaining 3GW of the expansion. It is starting from a low base with no solar, only 321MW of wind and 7MW of geothermal, which is currently not operational. Efforts to involve the private sector have had limited success. The previous method – taking unsolicited bids and negotiating – has not yet yielded any successful projects despite creating memoranda of understanding with developers of 40–50 projects. The most promising, the 500MW Corbetti Geothermal plant has been under negotiation for at least five years. Most others have not progressed even that far.

To resolve this problem, the government has cancelled all projects except three geothermal ones and recently took a strong move towards competitive tenders. It is running a round for 100MW of solar. As of April 2017, it was evaluating the final five bids and expects to announce results in 2H 2017. As an incentive for bidders, the government performed site surveys, made arrangements with the regional government and performed the environmental impact assessment itself. It is also partnering with the IFC’s Scaling Solar program. Details are to be confirmed, but it hopes to deploy a further 500MW through that mechanism.

There remain a couple of financing difficulties for private power developers. There are no sovereign guarantees on off-take payments and access to foreign currency is very constrained – both of these will make it very difficult to raise private investment, even if projects win through in the tenders. The foreign currency issue is a broader economic problem. The exchange rate of the Ethiopian burr is fixed to the dollar. Foreign reserves are low and access to these go to priority sectors, and currently solar is not one of those. Private developers are hoping that the government will address these concerns through a new public-private partnership bill currently under discussion – if it does not, it will be hard for new projects to raise investment.

The power market is still government-controlled and mostly not unbundled. In 2013, the government-owned Ethiopian Electric Power Corporation (EEPCo) was split into two pieces: Ethiopian Electric Power, which controls generation, transmission and distribution, and the Ethiopian Electric Utility, which controls supply.

Off-grid efforts are still at relatively early stage. The government is slowly starting to make plans, including targets for solar lanterns and solar home systems. But the regulatory picture is not clear – the regulator, the Ethiopian Energy Authority, is still working on regulation for off-grid power and mini-grids. There is a clear priority in the country towards grid extension, which is even reflected in government metrics. The targets prioritize greater ‘grid coverage’ (ie, running transmission lines near villages) over actual household connections.

Climate change is a high priority for the government. It set out climate targets in its Climate Resilient Green Economy plan, which covers most sectors. It will be delivered by the Ministry of Environment and Climate Change, whose representatives sit in other government departments and ensure projects and regulations meet climate goals.