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Pitch

Raise an additional $20 billion to support clean energy generation and export in Ethiopia


Description

Summary

This seed proposal is based on Ethiopia's Climate-Resilient Green Economy - Green economy strategy and was prepared by a member of the Climate CoLab staff. We invite other CoLab members to link to this proposal or to use it as a starting point for creating new proposals of their own. The Federal Democratic Republic of Ethiopia has not reviewed nor endorsed this proposal.

"In the business-as-usual (BAU) scenario, Ethiopia will use hydropower and renewable sources of energy to create a near-zero GHG emission electric power supply by 2030. While all on-grid power generation capacity is planned to be from renewable sources (i.e., zero emissions), there are still some off-grid power generation facilities that create GHG emissions. Most of the emissions from offgrid electric power generation are taken into account in other sectors with the exception of rural residential fossil-fuel-based generation, which is accounted for in the Electric Power sector and causes the emissions to be slightly above zero. Taken together, the Electric Power sector represents an exception in the usual pattern of emissions development, as the BAU scenario already presents the characteristics of a green growth plan.

On the other hand, the planned scaling up of domestic power production capacity, combined with a successful implementation of energy efficiency measures, offers opportunities for electric power exports. These exports could reduce neighbouring countries’ emissions with clean electric power generated in Ethiopia and represent the single most important abatement lever compared with BAU for the Electric Power sector."

This proposal outlines the importance of raising the financing to support domestic clean power generation projects.


Category of the action

Reducing emissions from electric power sector.


What actions do you propose?

With Ethiopia's industrial growth on the rise, electric power demand in the country is projected to grow almost 20 times by 2030.  "Even if [the country] can capture the entire energy efficiency potential that has been identified, the increase in demand will be reduced to 56 TWh by 2030. This would still represent a more than a tenfold increase over today’s demand."

Ethiopia's available natural resources enables the country the advantage of being a regional leader in renewable energy generation, especially hydropower.

By building significant domestic renewable energy infrastructure, "the surplus power supply could be exported, not only generating income for Ethiopia but also helping neighbouring countries to reduce emissions from conventional power generation. The opportunity to reduce neighbouring countries’ emissions by substituting their electric power generation from fossil fuel with clean electric power generated in Ethiopia represents the single most important abatement lever for the Ethiopian Electric Power sector."

This action could achieve an abatement potential of around 19 Mt CO2e in 2030 – "one of the largest individual abatement levers across all sectors [in Ethiopia]."

There are several challenges in developing such renewable energy infrastructure for export: (1) The Ethiopian Electric Power Corporation (EEPCo) will need to "implement rigorous demand- and supply-side management and particularly a peak-capacity planning system to avoid domestic instability of supply when exporting surplus power."  (2) "Political willingness of neighbouring countries to support Ethiopia’s electric power scale-up or to trade power could remain a question mark. At minimum, an effort is needed to align important regional players behind Ethiopia’s plans and win their support. However, political unpredictability might pose a potential challenge –particularly to long-term power purchase agreements."

Despite these challenges, "there are no overt barriers to exporting surplus power. The scope of Ethiopia’s future power growth plans goes beyond past experience, and the actual demand from neighbouring countries as well as the outcome of negotiations remains to be seen. Nevertheless, EEPCo has proved its institutional ability to accomplish major generation capacity extensions."

The greatest road block will be cost -- the effort will require raising an additional USD 20 billion in financing (equivalent to approximately USD 1 billion per year). This funding will need to be obtained from external sources, such as from the private sector and sovereign wealth funds.

In order to access these funds, the Ethiopian government has drafted a proposal to outline the risks and potential returns of electric power generation investment.


Who will take these actions?

Additional funding will need to be obtained from external sources, such as from the private sector and sovereign wealth funds.  In order to access these funds, the Ethiopian government has drafted a proposal to outline the risks and potential returns of electric power generation investment.


Where will these actions be taken?

The Federal Democratic Republic of Ethiopia


How much will emissions be reduced or sequestered vs. business as usual levels?

"The projected domestic supply-and-demand balance indicates an average export potential of around 25 TWh p.a. between 2011 and 2030, which would result in an annual abatement potential of 17 Mt CO2e on average and nearly 20 Mt CO2e in 2030."

"Each metric tonne of CO2e abatement realised through electric power exports reducing emissions in neighbouring countries will have a net benefit of around 5 USD for Ethiopia. This figure does not include any potential revenues from climate funds that might be paid for the reduction of emissions in importing countries (potentially indirectly through benefit-sharing agreements with importers or rent-capturing by increased export tariffs)."


What are other key benefits?

"With regard to its socio-economic impact, the export of power to neighbouring countries – and, more broadly, the build-up of power generation capacity – would have a significant additional positive impact on our economic development plans. Electric power exports would not only directly increase Ethiopia’s exports and generate additional foreign income, they would also contribute to the economic viability of the plans to build power generation capacity, hence helping to build up (and eventually finance) the power generation potential, increase employment, and contribute to GDP growth. Besides, such exports might also increase public finance directly via increased tax revenue as well as indirectly via revenue increases for publicly owned EEPCo."

In addition, the plan indicates that in the long-run (i.e., up to 2030), export incomes will lead to a net income of around USD 1.8 billion."


What are the proposal’s costs?

"In order to build the power generation and transmission infrastructure necessary to fulfil the supply projections for the electric power sector, a financing need of USD 38 billion in capital expenditures over the coming 20 years has been forecasted.

If the current sources of financing remain constant, however, there will be a financing gap of more than 50% (around USD 20 billion). To close the financing gap, the deep-dive analysis on power sector financing identified and analysed three options:

  • Cost optimization
  • Increasing internal funding capability through tariff adjustments Tapping external funding sources

While cost optimization and an increase in internal funding capability can partly close the financing gap, they will not be sufficient, making it vital to obtain funding from external sources (e.g., from the private sector, sovereign wealth funds), particularly in the early years."

Other potential costs include:

  • possible adverse environmental and social impacts, e.g., population displacement, which need to be evaluated and properly addressed through rigorous assessment of the environmental and social impacts
  • usage of land and natural resources needs to be subject to an integrated land planning effort to determine the best of alternative land uses
  • the implementation of an integrated catchment management system is necessary to prevent adverse effects to the generation potential from hydropower, e.g., by sedimentation of hydropower facilities.


Time line

The report states that funding is needed over the next twenty years to build the power generation and transmission infrastructure necessary to fulfil the supply projections.


Related proposals


References

  • The Federal Democratic Republic of Ethiopia's Climate-Resilient Green Economy - Green economy strategy:  http://www.epa.gov.et/Download/Climate/Ethiopai's%20Vision%20for%20a%20Climate%20Resilient%20Green%20Economy.pdf