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Eastern Africa – a region with good opportunities for German companies


​In a nutshell:

For some months, Eastern Africa has been sending positive signals again, especially through the person of the new Ethiopian Prime Minister, who, elected in April 2018, has vouched to resolve internal conflicts and deepen Ethiopia‘s relations with the neighbouring countries. Even in the earlier years, Eastern Africa had achieved strong growth, mostly due to large-scale infrastructure projects intended to sustainably strengthen the region‘s economic growth. In terms of renewable energy, the region around Ethiopia is particularly attractive, which is confirmed by the presence of wind, solar and geothermal projects currently implemented by international market players.


The most recent efforts of the new Ethiopian Prime Minister, Dr. Abiy, and his numerous visits to the neighbouring countries since his inauguration in April 2018, add new impetus to the development of Eastern Africa. Large-scale infrastructure projects and regional integration lay a foundation for long-term growth. In this and in the next issues of „E|nEws“, we want to paint a more detailed picture of some countries from the region and present possible areas of activities for German companies from the renewable energy sector. With its high growth rates and a large population, Ethiopia is the perfect springboard for that and is tipped as the main hope for Eastern Africa.


Ethiopia – Overview

With a population of approx. 105 million, Ethiopia is one of the most populous countries in Eastern Africa.1 Although the Ethiopian GDP significantly increased between 2008 (USD 26.8 billion) and 2017 (USD 80.9 billion), Ethiopia remains one of the poorest countries in the world, with a per capita income of approx. USD 2,100 (2017).2, 3 Nonetheless, Ethiopia has emerged as the fastest growing economy in Eastern Africa: Ethiopia’s economy experienced growth averaging 10.3% a year from 2005/06 to 2015/16, compared to a rather moderate regional average of 5.4%.4 The Ethiopian favourable economic growth is primarily driven by large-scale infrastructure projects, e.g. the construction of new roads and a train connection to the Port of Djibouti, which intensify trade in the region.


As for the country‘s culture, Ethiopia is home to diverse religions and over 80 ethnic groups. The social inequality between the ethnic groups led to brutal conflicts in the past. These have been however largely resolved since the election of Prime Minister Dr. Abiy in April 2018. Meanwhile, high hopes are placed on the new Prime Minister, who has already announced numerous reforms. The need for action is enormous: in addition to the task of resolving ethnic conflicts or ending the border conflict with Eritrea, there are also economic challenges to overcome. Dr. Abiy has announced, among other things, that state monopolies will be privatised and market access will be facilitated to international investors. Despite the positive growth rates, further structural reforms and FDIs are still absolutely necessary to secure the country‘s economic success and reduce poverty and famines in the long term.5


The electricity market in Ethiopia and the role of renewable energy sources

At about 89%, most of Ethiopia‘s electricity consumption is covered by hydropower (2017: 3,814 GW). Wind power (2017: 324 MW) and biomass (2017: 142 MW), however, play a much less important role in the energy mix. Solar and geothermal energy currently have only a subordinate role (2017: 21 MW in total).6 




















Illustration 1: Installed capacity in Ethiopia by technology (2017), in MW

Nonetheless, Ethiopia is setting itself ambitious goals in renewable energy in a bid to further stimulate the economy. By this, the country aims to fight poverty and reach a lower-middle-income status by 2025. Ethiopia‘s electrification rate is only 24 %, with only 10 % in rural areas.7 The aim is to not just to establish a nationwide electricity supply system, but also to cover the entire supply from renewable energy sources. The construction of Africa‘s largest gravity dam, the Grand Ethiopian Renaissance Dam (6,450 MW), is aimed at further expanding hydro power. By this, Ethiopia not only wants to cover all of the country‘s demand for electricity from renewable energy sources but also use excess electricity for export. The large hydropower potential also means unparalleled favourable tariffs for the country‘s domestic industry.


Because, due to its geographical location, Ethiopia is often plagued by draughts, which negatively affect the generation of electricity from hydropower, Ethiopia currently bets more and more on alternative generation technologies, in addition to hydropower. The focus is on wind, solar and geothermal energy. This aims to reduce seasonal power fluctuations and increase the stability of power supply. Already three wind farms have been installed in Ethiopia: Adama (34 WTGs), Adama II (102 WTGs) and Ashegoda (84 WTGs) with a total nominal capacity of 324 MW.8


Illustration 2: Wind farm Adama I + II (photo: Matthias Klarl)


The country plans to install further wind farms, such as e.g. the 120-MW Ayisha wind farm. Ethiopia intends to expand the wind power capacity to 1,224 MW by 2020. As for solar energy, which is the most abundant resource, mostly small-scale yet very successful projects have been implemented so far, such as e.g. the quickly progressing electrification of small villages.9 But also in this area first large-scale projects such as the 100-MW solar farm Metehara are being planned. Thanks to its location in the East African Rift, Ethiopia has particularly good conditions for geothermal energy. In late 2017, Ethiopian Electric Power (EEP) thus signed first power purchase agreements for a total capacity of 1,000 MW: for the project in Corbetti and for the Tulu-Moye project, each of which has an estimated capacity of 500 MW.10 


Illustration 3: Eng. Azeb Asnake, CEO of Ethiopian Electric Power, and Luka Buljan, Managing Director of Berkeley Energy, in December 2017 during signing the PPA for the geothermal project Corbetti in Ethiopia. (Source: InfraCo Africa)



Further projects are being currently developed, financed e.g. under the „Geothermal Risk Mitigation Programme“ (GRMF) (http://www.grmf-eastafrica.org/), on whose implementation Rödl & Partner has advised the African Union already for years and thus gained valuable experience of the Eastern African energy market.


Illustration 4: Planned installed capacity by 2020, in MW


Illustration 2 shows planned expansion of the installed capacity in line with the Ethiopian government‘s „Growth and Transformation Plan II“.  Between 2017 and 2020, the following capacity additions for the individual technologies are envisaged in the plan:
  • Hydropower:  + 10,003 MW 
  • Wind power:  + 900 MW
  • Bioenergy:  + 639 MW
  • Geothermal energy:  + 570 MW
  • Solar power: + 286 MW


The Ethiopian government intends to use various funding instruments in order to reach these targets, e.g. investors will be attracted with tenders, tax facilitations or exemptions from import customs duties.11


Further market monitoring and initiation of first local contacts are recommended

Despite the social and administrative challenges in Ethiopia, it is worth continuing to monitor the local developments and making the first contacts with prospective business partners. The construction of motorways and railway networks or of Sub-Saharan Africa‘s first light-rail network opened in Ethiopia‘s Addis Abeba and built and financed by Chinese investors confirm the will of the international community to continue to develop the Eastern African region. The constant opening of the economy to foreign investors, the plans of the government to cover 100% of demand for electricity from renewable sources, and the first PPAs signed with private-sector project developers indicate further growth potential which also German companies should not ignore.


If you are interested in more information about the local market or wish to use our assistance in the search for local business partners, we have a project office and a local cooperation partner directly in Addis Abeba who will be happy to help.


You want to know more about the renewable energy market in East Africa? Check out our articles on Tanzania and Kenya (Energy Act 2019, Net-Metering)





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