Renewable Energy Prospects On The Up

The commissioning of a 120MW wind power plant in Ethiopia is extremely positive news for the country and its renewable energy prospects. We believe Ethiopia stands in good stead as it strives to become a key power and renewables market in Sub-Saharan Africa (SSA) and the successful completion of projects such as the Ashegoda wind facility lends credibility to Ethiopia's capacity expansion and regional power export ambitions. That said, financing is likely to remain a key issue, but with multiple participants involved, risks with regards to project financing can be limited.

It was announced in late October that the 120MW Ashegoda wind power plant in Ethiopia, the continent's largest operational wind farm, was completed and brought online, at a total cost of US$290mn. Although the project has been subject to delays (construction began in 2009 and it was initially scheduled to be completed in 2011), we believe the news is hugely positive for Ethiopia's power and renewables sectors; helping the country diversify away from an over-reliance on hydropower and lending credibility to Ethiopia's ambitious power export aspirations.

At present, Ethiopia relies on hydropower for roughly 97% of its electricity generation, a situation that sometimes proves problematic given the climatic variations within the country. However, steps have been taken to both expand and diversify the country's electricity sector- incorporating non-hydropower renewables into the mix. In fact, the Ethiopian Ministry of Water and Energy announced at the end of August that, as part of a World Bank-funded programme launched in December 2012, over 13,200 solar systems had already been installed in rural communities that were not connected to the grid (see 'Solar Lighting Up Rural Areas', September 3). In relation to the wind segment, the Ashegoda plant is not the first wind power project in Ethiopia, as the 52MW Adama 1 plant was reportedly brought online in 2011, and other wind projects are in the pipeline; underpinning our relatively positive forecasts for the wind sector.

Hydro Heavy
Ethiopia Total Net Generation, By Type (TWh), 2013f

The commissioning of a 120MW wind power plant in Ethiopia is extremely positive news for the country and its renewable energy prospects. We believe Ethiopia stands in good stead as it strives to become a key power and renewables market in Sub-Saharan Africa (SSA) and the successful completion of projects such as the Ashegoda wind facility lends credibility to Ethiopia's capacity expansion and regional power export ambitions. That said, financing is likely to remain a key issue, but with multiple participants involved, risks with regards to project financing can be limited.

It was announced in late October that the 120MW Ashegoda wind power plant in Ethiopia, the continent's largest operational wind farm, was completed and brought online, at a total cost of US$290mn. Although the project has been subject to delays (construction began in 2009 and it was initially scheduled to be completed in 2011), we believe the news is hugely positive for Ethiopia's power and renewables sectors; helping the country diversify away from an over-reliance on hydropower and lending credibility to Ethiopia's ambitious power export aspirations.

Hydro Heavy
Ethiopia Total Net Generation, By Type (TWh), 2013f

At present, Ethiopia relies on hydropower for roughly 97% of its electricity generation, a situation that sometimes proves problematic given the climatic variations within the country. However, steps have been taken to both expand and diversify the country's electricity sector- incorporating non-hydropower renewables into the mix. In fact, the Ethiopian Ministry of Water and Energy announced at the end of August that, as part of a World Bank-funded programme launched in December 2012, over 13,200 solar systems had already been installed in rural communities that were not connected to the grid (see 'Solar Lighting Up Rural Areas', September 3). In relation to the wind segment, the Ashegoda plant is not the first wind power project in Ethiopia, as the 52MW Adama 1 plant was reportedly brought online in 2011, and other wind projects are in the pipeline; underpinning our relatively positive forecasts for the wind sector.

Wind Expansion Underway
Ethiopia Wind Capacity and Generation, 2012-2022

In addition to this, Ethiopia has vast potential to harness its, as of yet, underdeveloped geothermal resources and there has been significant progress in recent months in this regard. In September, it was announced that the Icelandic International Development Agency (ICEIDA) had signed a partnership agreement with the Ethiopian government to develop geothermal capacity (see 'Iceland Steps In, As Tectonic Activity Heats Up', September 19). Following that announcement, the Ethiopian government signed a US$4bn preliminary agreement with Iceland-based company Reykjavik Geothermal, to develop a 1,000MW geothermal facility within the country.

We believe the string of positive announcements in the Ethiopian renewables industry helps to validate Ethiopia's ambitious capacity expansion plans, with the state-owned Ethiopian Electric Power Corporation (EEPCo)'s 25-year power plan envisaging generating capacity will reach 37,000MW by 2037, serving both demand from the domestic population and neighbouring countries via power export links (see 'Hydro Power Drives Export Ambitions', May 1). Despite many countries in the SSA region adopting grand investment plans for their domestic power sectors, Ethiopia's commitment to following through with these ambitions - via the signing of contracts and successful commissioning of plants - positions it favourably as a key power and renewables market in SSA.

That said, we maintain our view that financing presents one of the greatest risks to project realisation. The upfront capital costs of renewable energy development remain inhibitive and without support from a number of parties (thus spreading risks across a bigger variety of participants), project feasibility is questionable. Therefore, we believe that the involvement of French BNP Paribas, French Development Agency (AFD) and the Ethiopian government in providing funding for the Ashegoda plant no doubt helped to minimise project financing risks.

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This article is tagged to:
Sector: Power, Renewables
Geography: Ethiopia
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