Having a reliable power supply is crucial for any household or business that wants to operate effectively. However, in most developing countries, a sufficient supply of electricity remains unattainable for various complex barriers. Studies have been conducted trying to unravel power pricing, generation, transmission, storage, and usage across selected sub-Saharan countries and the findings are astonishing. One of the main causes of unreliable power production in most developing countries is electricity underpricing due to lower wages, unfortunately Ethiopia is still one of the poorest countries in Africa.
Countries are striving for a long-term and sustainable solution to streamline power generation and usage through efficient investment in production and distribution. This is still a while away in most developing nations.
The Ethiopian Case
There has been significant investment in the energy sector in Ethiopia, thus providing electricity to their citizens at a more affordable rate. In this sub-Saharan nation, the energy price per kWh as per World Bank, is estimated at $0.036 USD. According to research, this is relatively cheap compared to the amount most countries and states in Europe, South America, and the US spend on electricity per kWh. The research was provided by this energy comparison service from Australia, displayed in the image below, is the estimated cost per use of a 10.5kwh electric shower. Ethiopia’s electricity prices are still better in terms of the estimated cost per shower, coming out at just 0.05USD1. Based on the list, Slovenia, Spain, and Germany have the most expensive energy costs.
With this in mind, one is left to wonder why this East African Nation has managed to keep the energy costs low. We shall also look at how it compares to the rest of the world.
METHODOLOGY: We estimated the above energy costs by multiplying each appliance’s kilowatts per hour (kWh) by the average cost per kWh in each country as of 2019, (sourced from World Bank). This provides an estimate of the cost of using these appliances for an hour. Then, we use this figure to calculate the cost for single use of each appliance = 0.036X10.5=0.378 USD/kWh 0.378/60 X 8 (average length of a shower in minutes) = USD 0.05 per shower
Ethiopian Energy Sector Overview
To become a middle-income country by 2025, the Ethiopian government has set ambitious energy goals. These include aggressive power generation and connections across the country. Moreover, the Ethiopian government acknowledges how imperative it is to welcome private investors in their energy sector for them to achieve the set targets by 2025. That way, electricity power would be reliable and affordable for all Ethiopian residents and firms. With an affordable and reliable power supply, production and economic activities would shoot up significantly. Currently, only 44% of Ethiopia has access to electricity, meaning there is a large potential market for investors to capitalize on. However, there are still many other issues, such as geographic landscapes and low wages, that increase the risk for private enterprises to invest heavily in the country’s energy sector.
In September 2020, the price of electricity in Ethiopia inclusive of all other components of electricity such as production cost, taxes, and distribution was 0.008 USD/kWh (for households) and 0.020 USD/kWh (for business). This is quite impressive compared to the world’s average electricity price of 0.137 USD/kWh (for households) and 0.123 USD/kWh (for business).
Current Energy Strategy in Ethiopia
Ethiopian electricity tariffs are by far one the lowest across sub-Saharan Africa. This is done to try and stimulate the economy with foriegn money while providing a valuable service and increase the access to energy. The high subsidies the government has imposed attempt to artificially keep the prices of electricity low for the consumer in an attempt to expand production of energy infrastructure for the growing demand. This may prove detrimental in the long run as the money earned from foreign companies will leave the country and may not be reinvested in improving the energy services for Ethiopia.
Ethiopia Energy Regulatory Authorities
The Ministry of Water, Irrigation, and Energy (MoWIE) has the mandate for energy policy creation and execution in Ethiopia. It oversees all energy generation, and transmission, as well as distribution plans and executions. Nonetheless, EEA is the key energy regulator in Ethiopia under MoWIE. The EEA’s main objectives include the following:
Promoting competitiveness in the energy power generation, transmission, and distribution sectors of the economy
Facilitates reliable, fair, safe, and economical electric power supply
Ensure efficiency in energy conservation
Among many others
Increased Transparency with Electricity Bills
In simpler terms, customers get to have a clear understanding of their bills while ensuring there is equity as consumers pay only for the electricity they have consumed. Transparency often creates competition
Power Africa Engagement in Ethiopia
Ethiopia is also among the countries benefiting from the Power Africa Program under USAID. The Power Africa program is supporting Ethiopia with the generation, transmission, and distribution utility by developing a stable procurement plan to balance the base-load hydro and thermal power generation with the intermittent solar and wind electricity energy sources.
Additionally, through Power Africa support, the Ethiopian government is targeting to install over one million new connections annually through a well-established and managed electrification supply chain. Also, Ethiopians have seen significant development in distribution design as well as better power line construction standards of medium voltage distributions. The Ethiopian energy sector is also benefiting from the off-grid electrification solutions that target the private sector investment growth.
Electricity Production Potential in Ethiopia
Ethiopia mainly focuses on a mix of cheap and clean renewable sources of energy such as hydropower and wind. Research shows that Ethiopia has the economically feasible potential of 45 GW of hydropower, 1350 GW of wind power, 5.2 GW of photovoltaics, and 7 GW of geothermal energy. The Ethiopian government plans to capitalize on all these energy sources to the fullest to become a self-sustainable and leading electricity exporter of large-scale, clean, and cheap energies across the world. However, compared to other top clean energy producers, and by going from 1% in 2010 to 4% in 2016, it still has a long way to go.
Often, hydropower electricity is cheaper compared to other electricity generation sources. Also, considering the energy return on energy invested, hydropower is by far the most favorable source of energy. Since Ethiopia is one of the most drought-prone countries, the government relies hugely on hydropower dams for irrigation projects as compared to other less drought-prone countries in Africa.
The Ethiopian government has been focusing on wind power even more than hydropower because of the significantly reduced cost of wind power electricity production. In fact, the cost of producing wind power electricity is still expected to fall down even more due to improvements in wind power technologies and the availability of suitable sites for installing wind power plants.
The Ethiopian government is also aiming at diversifying its sources of electricity, and solar energy plants are part of this initiative. Ethiopia has suitable conditions for solar plant installations. For instance, in the Tigray region, the eastern and western rims offer perfect solar radiations for photovoltaics. Solar power offers the cleanest renewable sources of energy compared to other sources..
Power generation, transmission, and distribution require long-term planning and implementation. However, electricity prices in Ethiopia are still highly subsidized and below the global average price. Because of that, the cost of producing electricity is higher than the revenue generated. It is clear that Ethiopia would like more of its citizens on the energy grid, and are willing to invest in renewable energy to catch up with other developing countries.