Diversity and security for the Ethiopian Power System

A p relimin ary assessm en t of risks an d op po rtu nities fo r th e p ower sector

To be Published August 2009

Ethio Resource Group (ERG) for Heinrich Boll Foundation (HBF) and Forum for Environment (FfE)

Acronyms
CC DSM EAPP EEPCO ENEC-CESEN EPSEMPU EREDPC ESDA GDP GHG GJ GW (h) GWP HDI ICS IMF IPP IRP kW (h) LC LFG magl masl MJ MW (h) MW MWR NGO NMSA PPA PPP PV SCS SSA T&D TJ UEAP UNEP WB WBISPP Combined Cycle (power plant type) Demand Side Management East African Power Pool Ethiopian Electric Power Corporation Ethiopian National Energy Committee and Centro Studio Energia (Italy) Ethiopian Power System Expansion Master Plan Update Ethiopian Rural Energy Development & Promotion Centre Ethiopian Sugar Development Agency Gross Domestic Product Green House Gases Giga Joule (E9 Joule) Giga Watt (hour) Global Warming Potential Human Development Index Inter-Connected system (national grid) International Monetary Fund Independent Power Producer Integrated Resource Planning Kilo Watt (hour) Levelized Cost Landfill Gas meters above ground level meters above sea level Mega Joule (E6 Joule) Mega Watt (hour) Mega Watt Ministry of Water Resources Non-Government Organization National Meteorological Service Agency Power Purchasing Agreement Purchasing Power Parity Photovoltaic (electricity production with photosensitive devices) Self Contained System (EEPCOs off-grid system) Sub-Saharan Africa Transmission and Distribution Tera Joules (E12 Joule) Universal Electricity Access Program United Nations Environment Programme World Bank Woody Biomass Inventory and Strategic Planning Project

Currency conversion: 1US$ = 12.50 ETB (August 2009)

Table of contents
Summary........................................................................................................................................ i 1. Background ............................................................................................................................... 1 2. Overview of the Ethiopian power sector................................................................................... 3 3. Benefits and risks of a hydro dominated power system development strategy........................ 5 3.1 Benefits of hydropower ......................................................................................................... 5 3.2 Risks of a hydro dominated power system development strategy............................................ 5 3.2.1 Vulnerability of a hydro dominated power system ........................................................... 6 3.2.2 Environmental and social impacts of hydropower............................................................ 8 4. Power system security through diversity................................................................................ 10 4.1 Power generation resources ................................................................................................. 11 4.1.1 Hydro energy................................................................................................................ 11 4.1.2 Geothermal energy ....................................................................................................... 12 4.1.3 Wind energy................................................................................................................. 12 4.1.4 Solar energy ................................................................................................................. 13 4.1.5 Bioenergy..................................................................................................................... 14 4.1.6 Coal ............................................................................................................................. 15 4.1.7 Natural gas ................................................................................................................... 15 4.1.8 Summary of power generation resources ....................................................................... 16 4.2 Decentralized and non-utility power supplies ....................................................................... 17 4.2.1 Regulations for non-utility power supplies .................................................................... 17 4.2.2 Opportunities for non-utility power supplies.................................................................. 18 4.3 A new framework for alternatives assessment ...................................................................... 22 4.3.1 Integrated Resource Planning (IRP) .............................................................................. 22 4.3.2 Re-assessment of alternatives using the IRP framework................................................. 23 5. Conclusion and recommendations .......................................................................................... 39 References ................................................................................................................................... 40 Annex ................................................................................................. Error! Bookmark not defined.

Summary
Ethiopia, despite its recent rapid growth, is still among the least developed countries in the world. Its per-capita income is only US$896 [(in Purchasing Power Parity (IMF, 2009)] and it ranked 169 of 179 in the Human Development Index in 2006 (UNDP, 2008). Ethiopias stock of economic and social infrastructure is growing but is still considerably lower than the sub-Saharan average.1Per-capita consumption of electricity is only 7% of the Sub-Saharan average and less than 20% of the population uses electricity. The Ethiopian government, in realization of the productivity enhancing effect of infrastructure, has pursued an ambitious infrastructure expansion program for the past fifteen years. It is investing heavily in roads, telecom, power as well as social infrastructure in schools, health services and water supply. In the past five years power sector development has taken off with several large power projects going into construction. Electricity is a critical economic infrastructure. If not delivered where and when needed serious damage ensues for the economy. Considerable potential output has been lost due to power cuts in the past few years. Potential losses from power disruption will increase in the future as the economy grows and the relative contributions of the industry and service sectors increase in the economy. Power supply must increase as rapidly as demand to avoid such losses and to ensure sustained growth. This is the rationale upon which the government is accelerating its investment in expanding the power system: system capacity will double within a year and is planned to quadruple before 2015.2 Development of power infrastructure is capital intensive and thus difficult to finance in capital poor countries such as Ethiopia. Development of power infrastructure can also have significant environmental and social impacts and risks. These factors point to the need for sound strategies and planning for the power sector. Shortcoming in good strategies and plans will result in inadequate supply or costly over investment. Both reduce benefits: under investment curbs economic expansion, over investment ties resources that could be invested elsewhere. While good strategies and plans are essential in all countries they are critical in developing countries because of their limited access to power which constrains their growth, scarce capital, and fragile social and environment conditions. The Ethiopian power system is highly hydropower biased where hydropower accounts for 95% of total system generation. The midterm expansion plan to 2015 contains mainly hydropower plants thus increasing the hydropower share to nearly 100%. There are benefits and risks with such high specialization: the benefits are mainly in low economic cost of generation, improving technical and managerial capability to design, develop and manage hydropower projects, potential for export; the risks are related to the vulnerability of the power system to natural hazards and in its social and environmental impacts. These risks and impacts are considerable and must be averted and mitigated. Vulnerability of the power system and its potential environmental and social impacts can be mitigated through diversification of the power generation mix. Diversity is attained when the generation mix has variety in the number of options it can utilize (the number of power plants in the system), disparity among the options (different generation sources and technologies), and balance in the contribution of the options. Ethiopia has a number of options for diversifying the power generation mix. In addition to hydropower, Ethiopia has considerable resources in geothermal, wind, biomass, solar, coal, and natural gas. It also has the option of power exchange with neighbouring countries. Ethiopias power system security depends on creating a balanced generation mix from these resources. This report has made a preliminary assessment of the economic, environmental and social benefits and costs of the options outlined above. The finding is that an integrated least-cost plan in the context of Ethiopia will consist of DSM programs, low-cost indigenous supplies, and power exchange within the East African Power Pool. A balanced mix of these measures will improve the diversity of the power system and reduce its vulnerability to natural and economic uncertainties. The main findings from this preliminary assessment are:
1

During 2006/2007access to improved water sources and sanitation, energy and electricity use, telephone and mobile subscription were considerably lower in Ethiopia compared to the Sub-Saharan average. See World Bank online at http://ddp-ext.worldbank.org/ext/ddpreports/ 2 ICS capacity was 733MW in 2007, it will be 1453MW at the end of 2009, and will increase to 3700MW by 2015.

a. b.

c.

d. e.

f.

DSM measures are generally the lowest cost option and also have positive environmental and social impacts and no political risks; Large hydropower plants are the least-cost option among supply alternatives; hydropower costs 40% less than the next least-cost alternative (geothermal). However, large hydropower can have significant environmental and social impacts; considerably more than the rest of the alternatives; Geothermal, wind and solar energy have low environmental, social and political impacts and risks. Geothermal is also economically attractive; wind can be viable compared to thermal plants on the grid; but solar will be an expensive option for the grid; Power from biomass residues is an economically competitive supply option; it also has positive environmental impacts; Coal and natural gas power plants are economically competitive with the more expensive large hydropower plants; coal mining can have significant environmental impacts, especially if the mining area has special features (such as high biodiversity or it is ecologically sensitive); Power exchange with neighbouring countries can moderate impacts of power production deficits and surpluses provided that neighbouring countries have either surplus capacity or their demands are complementary to Ethiopias.

The integrated plan should have diversity not only in the supply mix but also in suppliers as well. For this reason the integrated plan should encourage Independent Power Producer (IPP) engagement in the power sector on and off the grid. IPPs can consist of state and private companies. In the Ethiopian context, the role for state companies as IPPs can be considerable especially for biomass based generation (sugar estates from bagasse, municipalities from land fill gas). Private IPPs can engage in hydropower, geothermal, biomass, wind and solar based supply for the grid and for off-grid. The environmental and social risks and impacts of hydropower and other power infrastructure development can be considerable. There is need to consider environmental and social risks at the strategy and policy level for the power sector. Power sector development strategy and plans may be aided with the Strategic Environmental Assessment (SEA) process which is a tool for setting of objectives, generating alternatives and scenarios, impact analysis and weighting of different alternatives based on multiple development objectives (ADB and SEI, 2008). Lessons can be learnt from countries with similar experience as Ethiopia such as Vietnam in this regard. Environment and social risks and impacts must first be avoided where possible then mitigated when unavoidable. All possible strategies must be explored before implementation and when the option with the least cost and risk is chosen it must be accompanied with full prevention and mitigation measures. This report is an assessment of risks and opportunities of the Ethiopian power sector in terms of supply diversity and security. The report is organized into five chapters. The first chapter provides the background for the study including demand growth and power system expansion plans of the government. Chapter 2 gives an overview of the Ethiopian power sector including installed capacity, generation and sales. In chapter 3 the benefits and risks of a hydropower biased power system development strategy are discussed. Chapter 4 outlines potential for mitigating risks for the power system through diversity by identifying alternative generation options and demand management opportunities. Chapter 4 also introduces a new and more appropriate framework for assessment of these alternatives. Finally, in chapter 5, conclusions and recommendations are presented.

ii

1. Background
The Ethiopian economy has been growing at 11% per year for the past six years (IMF, 2009). Growth in the industrial and commercial sectors has been even faster. This, together with rapid electrification through the Universal Electricity Access Program (UEAP), has caused rapid growth in electricity demand. Demand is expected to grow as rapidly in the future due to further economic expansion and the drive for universal electrification. Electricity sales have been growing at the fastest pace ever with 13.5% growth in the past five years. This rapid growth in demand started in the year 2000 and has gotten faster in the latter years. It is to be noted that this unprecedented growth was also accompanied by frequent and substantial power cuts. This means unconstrained demand growth would be even faster, probably close to 20 percent per year.

Electricity sales: 1986 2006 [GWh]

GWh 2,500 2,000 1,500 1,000 500 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Domestic 13.5%/year Commercial Industrial Total 8.6%/year

Source: EEPCO Annual Statistics

In order to meet this growing demand power supply has to expand as fast. Prior to 2003 system capacity had been growing slowly with only 110MW added to the system in the preceding 12 years. Since 2003 capacity has been increasing rapidly: 184MW hydro and 90MW thermal plants were already in operation in 2004 and 4 hydropower plants with combined capacity of close to 3000MW are under construction. In the past five years several projects have been studied to feasibility level and there is now a stream of potential candidates for development by EEPCO or Independent Power Producers (IPPs). The Ethiopian power system is overwhelmingly hydro based. Such specialization has certain benefits (skilled technical and management HR, lower technical risks, lower costs) but serious risks (climatic, geographic, and ecological). The system has always been hydro dominated; the potential risks are greater now because of very rapid demand growth and system expansion. In the past, while demand was growing slowly, the system was small and significantly over sized the risks were minimal. In the present context where demand is growing 13% per year, the system is expanding fast and must be sized optimally, the risks are significantly higher. Recent system expansion studies by EEPCO indicate that the power system will continue to be biased towards hydro. The 2006 plan, for example, incorporates only a 100MW coal plant (Yayu in 2010) from a proposed addition of 5300MW until 2015 (i.e. less than 2%). The long-term plan to 2029 has only Yayu coal and Calub gas (600MW) from a total addition of 14000MW. This plan may have been revised and there now appears to be a definite plan to develop a 120MW wind plant in Tigray. However, even with the addition of the wind park the total contribution from non-hydro resources will still be less than 4 percent.

System expansion plan : 2006 2015 [MW]

MW Thermal Geothermal Hydro

16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 -

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

Source: EEPCO Statistics; EEPCO System Expansion Master Plan Update (2006)

Power disruptions have been common in the past three years. Climatic and technical problems are given as reasons for these disruptions: low water levels due to dry spells, long and delayed construction of large hydropower plants. Both of these problems are very much related to the fact that the systems overwhelming reliance on large hydropower plants. Power disruptions have serious economic impacts. One study estimates the lost output due to a one-day power cut to be between 10% to 15% of that days GDP.3 But what may be even more detrimental is the fact that these frequent power cuts portray infrastructure services in Ethiopia to be unreliable discouraging both local and external investment. The case for hydropower is compelling. Resources are abundant; energy can be produced more cheaply than alternatives. However, as recent history shows clearly there are also serious risks. Policy makers need to weigh benefits and costs of alternative power system generation strategies fully (including usually un-quantified but often the most serious uncertainties regarding climate and geography) in order to ensure energy security and environment and economic sustainability.

Objective This report discusses the risks for Ethiopias hydro dominated power system and presents alternatives for diversifying the power generation mix. It also outlines opportunities for power generation from suppliers other than EEPCO and finally introduces a new framework for a more comprehensive assessment of power generation alternatives.

Reported by the World Bank (World Bank, 2006) from a study by the Ethiopian Economic Policy Research Institute (EEPRI, 2003).

2028

2. Overview of the Ethiopian power sector

In Ethiopia electricity is provided by the state power utility EEPCO, and much smaller private, cooperative and municipal power suppliers. In terms of total capacity and energy generated EEPCO far surpasses the combined output from all other suppliers. 4EEPCO runs two systems: the Interconnected System (ICS), which accounts for 98% of capacity and generation, and the Self-Contained System (SCS). The ICS system is expanding rapidly while the relative contribution of the SCS is shrinking: this is due to interconnection of previously SCS served towns to the ICS and because most new connections are mainly on the ICS. Peak demand and sales on the ICS have been growing at 5% per year prior 2000 then picked up to 8% over the 2000 to 2004 period then shot up close to 14% from 2005 onwards. Available capacity is no longer able to accommodate demand and EEPCO has been forced to ration power since 2006. Transmission and distribution losses on the ICS are high (20% during 2001 to 2005). The Ethiopian power sector is small even in African standards. Per-capita power and energy available for Ethiopians is significantly lower than many African countries. National electricity access (meaning the population that is within reach of low-voltage distribution lines) is 22% and actual customer connection is only about 15%; rural customer connection is less than 5%.

ICS Capacity and Peak Demand (MW)

700 600 500 400 300 200 100 0 1960 1970 1980 1990 2000

(Left: bar graph is ICS installed capacity in MW; line graph is ICS peak demand in MW). Peak demand has been growing at 6.6% per year over the past three decades.

ICS and SCS Generation and Sales (GWh)

3,500

(Right: upper line graph is ICS generation in GWh; lower line graph is ICS sales in GWh) Electricity sales grew just 5% per year prior to 2000, the rate increased to 8.6% during 2000 to 2005, and to 13.5% there after. This rapid demand growth is despite significant power cuts over the past 3 years. Transmission and distribution losses have increased substantially since the early 1990s and now stand at 20%.

3,000 2,500 2,000 1,500 1,000 500 0 1960

1970

1980

1990

2000

2010

In the past five years government investment in the power sector has increased substantially. As a result both supply and demand are growing rapidly. While power capacity and generated energy stood at 814MW and 2500GWh in 2007 they are planned to increase to 4,681MW and 20,000GWh by 2015. Four large hydropower plants are under construction, three of them with combined capacity of 1180MW are expected to be completed by 2010. EEPCO plans to export power to neighbouring
4

Less than 2MW installed by non-EEPCO suppliers compared to close to 800MW for EEPCO.

countries (Kenya, Sudan, Djibouti) when the larges plant in its system, the 1870MW Gilgel Gibe 3 hydropower plant, comes online in 2012. EEPCOs ICS mid and long term system expansion plan Year Plant Addition On-Line MID-TERM PLAN Existing August 2008 including DD Diesel + Aluto 2008 Tekeze (not commissioned) Gilgel Gibe II (not commissioned) 2009 Beles 2010 Yayu Coal 2011 GilgelGibe III (Phase 1) 2012 GilgelGibe III (Phase 2) 2014 Halele Werabesa 2015 Chemoga Yeda I, ChemogaYeda II

Unit No. x MW System Dependable Capacity Capacity (MW) 828.7 1,128.7 1,548.7 2,008.7 2,108.7 3,043.7 3,978.7 4,400.7 4,680.7

4 x 75 4 x105 4 x115 2 x50 5 x187 5 x187 2x48, 4x81.5 2 x81, 2 x59

LONG TERM INDICATIVE PLAN (2016-29) 2016 Geba 366 5,046.7 2018 Genale Dawa 504 5,550.7 2019 Baro 645 6,250.7 2020 Calub gas 600 6,850.7 2021 Gilgel Gibe IV 1,400 8,250.7 2023 Caradobi 1,600 9,850.7 2027 Gojeb+Aleltu+Mendaya+Border 153+186+265+2000+1200 13,654.7 2029 New Plants Required Source: EEPCO, Ethiopian Power System Expansion Master Plan Update (EPSEMPU), 2006; Ministry of Mines and Energy, 2009.

Capital requirements for the mid-term system expansion plan to 2015 total US$ 3.4 billion. Investments during 2007 to 2010 are particularly high and constitute 5% to 6% of GDP.

Investment in Power Infrastructure (2005 2015)

700 600
Annual (M US$)

4000 3500 3000 2500

Cumulative (M US$)

500 400

Investment requirement for generation, high voltage transmission and substation equipment for the short-term plan to 2015 is projected at US$3.4 billion. About 70% of the investment is on generation and 30% on transmission and substations.

2000 300 1500 200 100 1000 500

0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Generation Substation Equipment Transmission Lines Cumulative

Source: EEPCO EPSEMPU, 2006.

Beside the ICS and SCS systems run by EEPCO, the government is also promoting off-grid rural electrification through a separate agency (EREDPC). With this program the government provides concessionary loans to companies to develop small decentralized systems for electrification of areas outside the ICS and SCS. The off-grid electrification program is progressing at a much slower pace than the grid based program. The resources available for the program are also less than 1% that of the grid based program.

3. Benefits and risks of a hydro dominated power system development strategy

The Ethiopian power system is almost exclusively hydropower based. The reliance on hydropower is further increasing as committed and planned additions to the system are mostly hydro plants. There are both benefits and risks for the accelerated development of hydropower in Ethiopia. The main benefits of hydropower in the Ethiopian context are its low economic cost and its contribution to irrigation and water control. The risks are related to system vulnerability to climate and geo-hazards as well as potential social and environmental impacts.

3.1 Benefits of hydropower Hydropower is a renewable, flexible and relatively reliable source of power and has a central role in integrated energy systems due to its energy storage and regulation capability. This energy storage and regulation capacity is in fact a prerequisite for effective use of other intermittent renewable energy sources such as wind and solar energy (which must be used where and when available) (IHA, 2004). Dams built for hydropower do also serve to ameliorate the effects seasonal and inter-annual rainfall variability thus contributing to improved water management and food security. Ethiopia has 30 to 45GW of hydropower potential. Hydropower is the largest known domestic source for power generation. The main benefits of hydropower in the Ethiopian context include: a. At the present time in Ethiopia, hydropower is financially considerably cheaper than alternatives. Ethiopia is at an early stage of hydropower development and there are still a number of low-cost hydropower plants for future development. On purely economic ground hydropower is currently the least cost generation option for Ethiopia. Large hydropower projects are usually multi-purpose projects with potential for irrigation and water regulation (flood control, regulated releases during dry periods). Large multi-purpose hydro projects can increase irrigated agriculture; water regulation can mitigate extreme weather conditions such as floods and droughts. As an indigenous resource hydropower enhances security of energy supply. As a poor country with limited hard currency earning, Ethiopia must shield itself from high dependence on imports (and price shocks for imports) for critical services including power. Hydropower can be an export industry that will bring substantial income to the country. For instance, EEPCO expects to generate US$450 million annually from power export from the Gilgel Gibe 3 plant (this, of course, depends on the actual amount exported and the tariff that will be acceptable to the importers). If this plan is realized it will augment export income by 30% and will increase available resources for development. Moreover, since hydropower export will likely displace thermal power in the importing countries (Sudan, Kenya, and Djibouti) rising petroleum prices could mean rising hydropower prices. Therefore, hydropower can shield Ethiopia from petroleum price volatility. Specialization in hydropower enhances capacity to develop similar projects in the future and lowers total costs. If properly planned and executed an accelerated development of hydropower in the country should enhance local capacity to build, manage, and operate hydropower plants thus lowering overall costs and increasing reliability.

b.

c.

d.

e.

3.2 Risks of a hydro dominated power system development strategy The risks of a hydro dominated power system development strategy for Ethiopia may be divided in two: the first is the risk to the power system itself due to its almost exclusive dependence on a single resource; the second is the social and environmental impacts of an accelerated hydropower development. The risk or vulnerability of the power system (and then the economy) will be high due to the following reasons:

a.

Hydropower predominance makes the system vulnerable to shocks and narrows down alternative courses of action in case of such shocks. As the system becomes more hydro biased vulnerability increases proportionally and so would the economic losses. Climatic extremes have become frequent in recent decades thus rendering hydropower plants vulnerable to climatic shocks. There is also risk of structural failure or damage to dams and reservoirs from geo-hazards (earth quakes, slides, erosion) due to extreme climate and geological conditions (floods, earthquakes). The size of hydropower plants being developed is getting bigger: up until recently the largest plant on the system was 180MW but current committed plants are twice as large and one single plant, Gilgel Gibe 3, is ten times as large. Hydropower plants are also being developed in a cascade on the same river or tributaries. This concentration of generation capacity on a limited number of rivers increases risks to droughts and other natural hazards. The extent (number of years) and quality (continuity, consistency) of the hydro-meteorological database at present may be inadequate for some development sites. In several cases hydrometrological data is not available at the sites to be developed and extrapolation is made from nearby met stations. Abundance of one or limited number of resources usually leads to overlooking other potential resources. In Ethiopia there are options for enhancing electricity service through demand side management, supply-side efficiency measures, and alternative generation sources including geothermal, wind and biomass. Concentration of generation capacity in a specific area and in specific plants will also expose the system to technical and non-technical problems. For instance, faults or disruptions in one hydro plant will take out significant capacity from the system thereby severely impacting output (also possibly affecting system reliability).

b.

c.

d.

e.

f.

The environment and social impacts of hydropower development can be considerable. There are significant environmental impacts on soils, waters, biodiversity and health. Hydropower projects also entail the dislocation of local populations and their consequent impoverishment and loss of cultural heritage.

3.2.1 Vulnerability of a hydro dominated power system Vulnerability is the risk of being negatively affected by shocks (UN, 1999). The causes of the shocks can be natural (climate, geo-hazards) or man made (economic). Countries may foresee and plan for some events but other events cannot be anticipated. The risk is proportional to the probability of occurrence of the unfavorable event and the consequence of the event (Harrald, et.al, 2004). Near exclusive dependence on a single type of resource for a critical application, such as power, exposes a country to significant risks. As dependence on the particular resource deepens vulnerability rises because the impact of the consequences rises. Recent power cuts cost the Ethiopian economy 1% in GDP growth. Future power disruptions will cost more due to increased dependence of the economy on power (due shifts to manufacturing and services). Similar level of power outage as now will cost higher than 1% in GDP growth and much higher loss in output. A hydro dominated strategy makes the power system and the economy vulnerable to climatic variations, geo-hazards, economics and politics. Ethiopia is highly prone to climatic variability; variability is increasing while at the same time there is gradual decline in rainfall. Some areas are vulnerable to geo-hazards and this poses problems for the stability of large hydraulic structures such as dams. Trans-boundary rivers can be a source of tension among countries; countries sometimes work against other countries from developing projects on such rivers.

3.2.1.1 Vulnerability to climate A hydropower dominated power system will be highly susceptible to climatic variability.5 As electricity is an important input to the industry and service sectors this makes these sectors highly susceptible to climate much in the same way as agriculture. This may compound the economic impact of droughts in Ethiopia. Global warming is expected to accentuate climate extremes such as droughts, floods, and temperature. These changes will have direct impact on power production from hydropower plants. Output from hydropower plants will be more variable and uncertain than in the past due to changes in rainfall and higher evaporation from reservoirs.
Long time-series data for rainfall in Ethiopia (normalized) Northern half of Ethiopia

Southwest part of Ethiopia

Source: National Meteorological Services Agency, 2001.

3.2.1.2 Vulnerability to degraded local environment A degraded local environment (vegetation and soils) increases the cost of hydraulic structures and reduces their useful life. Vegetation loss and consequent soil erosion means that dams silt up much faster; they provide less than planned output while in operation and their useful life is cut short. Erosion and land slides make it costly to build and maintain civil structures. The flood control benefits of dams are quickly lost when dams silt up.6

5 6

Dams are designed to even out seasonal variability not annual and longer term variability. For example, the Koka dam which regulates the Awash river flow is reported to have lost its flood control capacity due to siltation (WB, Ethiopia: Managing Water Resources to Maximize Sustainable Growth, p. 12). Loss of regulation capacity has caused flood damage downstream (MWR, 2002b).

Ethiopia is highly prone to soil erosion as close to 80% of the land has 15% or higher slope (WB, 2006). This coupled with massive deforestation results in heavy rains washing away soils.7 The storage capacity of dams is lost rapidly in some cases while still under construction (WB, 2006): In the city of Gonder, for example, during construction alone, 2030 percent of the projected volume of the new water systems capacity was lost due to siltation caused by deforestation upstream in the Angereb River. An additional five wells and a pipeline had to be constructed at a cost of approximately Br 5 million to augment the towns water supply during the rainy season. Sediment accumulation in intakes and outlets hamper proper operation of dams and reduce availability of hydropower dams. Sedimentation also causes reservoirs to submerge more area with consequent losses in land use, biodiversity, and social impacts (Bezuayehu. 2006).

3.2.1.3 Vulnerability to geo-hazards Hydropower dams and reservoirs are major physical infrastructure. Their failure seriously impacts life, livelihoods and the economy at large. Areas of Ethiopia in and adjacent to the Rift Valley are reported to be prone to seismic activity. For instance, several earthquakes are recorded for the Gibe area in the past hundred years (EEPCO, 2008. ESIA, Gibe 3). Structures are designed to withstand seismic activity. However, the scale and frequency of thee activities cannot be predicted. Greater dependence on large hydro structures exposes the power system to higher risks. Other geo-hazards associated with large hydropower plants include land slides (reservoir banks), erosion, and seepage that may compromise availability and output.

3.2.1.4 Vulnerability to regional politics Water availability and access are serious issues for all countries. As demand for water increases (for human consumption, agriculture and industry) sharing is becoming complex and tensions are rising in many regions. Ethiopia shares four international rivers (Abay, Wabe-Shebele, Omo and Tekeze) with ten other countries. Downstream countries, in an effort to maximize their benefits, may hinder Ethiopias effort to develop its water resources, including hydropower. Development of international rivers requires consensus from riparian countries. A hydropower dominated power sector development strategy exposes Ethiopia to pressures from these countries.

3.2.2 Environmental and social impacts of hydropower Hydropower projects involve the development of multiple large scale civil works including roads, dams, water conveyance, housing and other structures. Development of these structures creates significant environmental and social impacts while under construction and long after completion. Impacts are not limited to project implementation areas since there are often leakage effects, as for example, displaced people move to other areas where competition for resources can arise. One critical aspect of large development projects such as hydropower is that the costs and benefits do not accrue to the same group of people. The losses are borne by local communities (often much poorer and vulnerable than the beneficiaries) while benefits go to relatively better off citizens. 3.2.2.1 Environmental impacts The environmental impacts of large hydropower plants extend throughout a river basin. Soils, water resources, biodiversity, vegetation, settlements, health, and cultural and natural heritage are affected. Hydropower reservoirs also contribute to climate change through decay of submerged vegetation.
7

Soil losses in the various river basins are reported as follows: 128tons/ha/year in the Abay Basin, 46 to 425tons/hectare/year in the Baro sub-basin, 33tons/ha/year in the Quiha sub-basin in the Tekeze basin (World Bank, 2006).

Soils, agriculture and water resources Dams alter the natural flow of water courses; they also change the quality, quantity, temporal and spatial availability of water. Water quality is affected due to increased erosion due to dams themselves, deforestation for construction of dams and other civil structures, and due to deforestation and cropping of land by relocating farmers. Dams also change the quantity and availability of water thus disrupting long-established farming practices. For example, although dams do protect downstream population from floods they also limit seasonal floods (which local populations may have adopted for local use) and transport of nutrients thus disrupting traditional recession agriculture (Cernea, 2006). Relocation of households previously living in reservoir areas to new areas sometimes exacerbates land degradation as new settlements may be located in relatively less suited to crop or livestock production (such as steeper slopes and marginal areas). This is reported to have been the case for the Finchaa reservoir (Bezuayehu, 2006). Biodiversity Construction of civil structures for large hydropower plants also result in significant losses in forests and woodlands. Tree resources are lost during construction of civil structures, inundation of reservoirs and due to relocation of people and consequent deforestation for agriculture and other uses. Important and singular plant and animal species may also be lost. Settlements and health Large reservoirs often result in the introduction of water borne diseases such as malaria and bilharzias. Relocation may also expose people to stress and trauma (due to disruption of local community social networks and associations).8 Where relocation is not accompanied by social services such as potable water and health care health impacts are exacerbated. 3.2.2.2 Social impacts Large hydropower projects may disrupt local social organizations and can destroy local heritage. Dislocated people may loose their long-established social networks and associations and this may cause them stress and trauma; local cultural heritage (ways of living, languages, customs) and heritage sites including remains of historical, religious and spiritual value for local people may be lost (Cernea, 2006). Dam and other construction sites may destroy important archeological remains. Dislocated populations are exposed to impoverishment risks of landlessness, joblessness, homelessness, marginalization, food insecurity, increased morbidity and mortality, loss of access to common property services and social disarticulation (Cernea, 2004b?). Displaced people (often already poor) are further impoverished after relocation even when compensations are given. These impoverishment risks may also apply to communities that receive dislocated populations.

This disruption of local social organization (loss of social capital) and its consequent impact is termed social disarticulation; it disempowers and impoverishes populations (Cernea, 2004). See Glossary for full definition.

4. Power system security through diversity

The risks of almost complete dependence of the power system on hydropower are significant. However, the benefits of hydropower are also considerable: large indigenous resource availability, low generation costs, export income, and additional benefits (agriculture, fishery). The risks can be minimized and mitigated with diversification of power generation resources and supply and demand side efficiency. Diversity is attained when a system (such as the generation or more appropriately the supply/service mix) has variety in the number of options it can utilize, disparity among the options, and balance in the contribution of the options (Stirling, 2009).

The three dimension of diversity

Source: Stirling A., 2009.

The existing power system has little diversity: the variety of options is limited to hydro and oil (the geothermal plant is non-operational); contributions are not balanced since large hydropower plants contribute more than 98% of total capacity and energy in the system. Variety A variety of options are available to meet local demand for power. These range from indigenous power generation resources to imports and DSM. Indigenous renewable energy resources (geothermal, wind, biomass, solar) Indigenous fossil fuels (coal and natural gas) imported fossil fuels (coal and oil) power trade with neighboring countries supply and demand side management

Of course there is also the option of taking the risks, sustaining losses. Disparity The options available are quite disparate: they consist of renewable and nonrenewable resources, indigenous resources and imports, power import and DSM. The challenge for Ethiopia is creating balance among viable alternatives. This is especially the case now because the system is increasing rapidly and unit plant capacities are growing. The relative availability of resources favors some options over others (high potential for hydropower, wind, power import, and DSM and limited resources in others.

Balance

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The variety of options available for the Ethiopia power system is considerable. However, the degrees to which these options can be utilized, i.e. whether there would be balance among them, depend on their exploitable size and the cost of their development (total cost including economic, social and environmental). The following section presents alternative power generation resources for Ethiopia and their potential contributions.

4.1 Power generation resources Existing power generation on the Ethiopian Interconnected System (ICS) is highly dominated by hydropower resources (98% of total generation on the ICS). Committed and planned additions into the ICS are also almost exclusively hydro: from the planned addition of 14,000MW to the year 2027 less than 5% will be from non-hydro resources. The abundance of the resource and its relatively low cost of energy production make hydropower the first choice for system expansion. However, Ethiopia also has other renewable and non-renewable energy resources that are may be utilized for power generation. The renewable resources include geothermal, wind, solar, and biomass (including biofuels and biogas). Proven reserves of coal and natural gas are also available in economic quantities. The competitiveness of non-hydro resources will improve in the future as the low cost hydropower sites get scarce and higher cost hydro plants must be developed, and the costs and uncertainties regarding the other resources are lowered due to better resource [higher resolution] information, reduced unit investment costs due to wider commercialization, and their social and environmental benefits.

Power generation cost for candidate hydro plants

Baro Stage 1 Geba Stage 2 Genale Alelltu East Aleletu West Gojeb Halele-Werabesa Chemoga Yeda 0 0.02 0.04 0.06 0.08

Average energy cost: US$/kWh (2006) Note: The list excludes committed plants; unit costs are shown with 10% sensitivity Source: EEPCO System Expansion Master Plan 2006.

4.1.1 Hydro energy The hydro energy resource potential of Ethiopia is estimated to be 30 to 45GW (159TWh/year based on WAPCOS). National level resource estimates are not exhaustive or recent and there is considerable uncertainty regarding the potential. However, the fact that committed and planned additions alone add up to 14GW point to the probability that the gross potential would be at least 45GW. Ethiopia is divided into nine river basins. Two river basins, Abay and Omo-Gibe, account for 72 percent of the total hydro energy potential (based on WAPCOS estimates). The Baro-Akobo and Genale-Dawa river basins contribute much of the rest.

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Gross hydro-energy potential by basin, (GWh/year)

Basin Abay Awash Baro-Akobo Bilate-Sagan-Dawa Genale-Dawa Omo-Gibe Rift Valley Lakes Tekeze 35,870 Wabe Shebele 24,770 Total 645,676 Sources: ENEC-CESEN, 1986; WAPCOS, 1990; MWR, 1997-2008. ENEC-CESEN Gross (1986) 280,144 22,354 79,303 48,960 45,501 104,241 WAPCOS Exploitable (1990) 78,800 4,500 18,900 9,300 35,600 800 6,000 5,400 159,300 MWR Basin Studies Exploitable 102,766 12,366

The installed hydropower capacity in Ethiopia is 700MW. Two new plants (Tekeze and Gibe 2) with a total capacity of 720MW are near completion and are expected to come online by end of 2009; two others with combined capacity of 2200MW (Beles and Gibe 3) are under construction and will be completed by 2012. The short term system expansion plan to 2015 is for total capacity of 4,475MW while the long-term indicative plan to 2030 is for total installed capacity of 14,823MW. Hydropower development in Ethiopia started with mini to small power plants but current and planned development is almost exclusively for large plants. Existing and committed hydropower plants use multi-purpose dams (power and irrigation). There are no pumped storage hydropower plants in Ethiopia and there appears to be none planned for the future.

4.1.2 Geothermal energy The geothermal resource of Ethiopia, thermal and electrical included, is estimated to be about 5GW (MME). The geothermal resource suitable for electric power generation is about 700MW. Again, due to the low extent and intensity of exploration the resource estimate is clouded with uncertainty. Geothermal resources are located in the Rift Valley in the northeast, center and southeast. Geothermal energy is used for low temperature heating in some parts of Ethiopia including Addis Ababa. However, only one geothermal electric plant, Aluto-Langano, has been installed to date. The Aluto-Langano plant (7MW installed) was commissioned in 1998 but has functioned only intermittently and at much reduced output ever since.9
Gross estimate, national (MWe) ENEC-CESEN, 1986 Rift Valley Lakes Southern Afar Central Afar Denakil Depression 170 120 260 150 Aluto Langano Tendaho Corbetti Abaya Tulu Moye Dofan Total Identified Sites (MWe) MME, 2008 30 100 75 100 40 50 395

Total

700

4.1.3 Wind energy The technical (gross) wind energy potential for power generation is about 169GW. This assessment is based on good to excellent (i.e. areas with wind density above 400W/m2) wind regime sites with total area of 33,000km2. If areas which are moderately suitable for wind power are also included the gross

Kenya, which has comparable geothermal resource potential as Ethiopia, has 128MW of installed geothermal power and geothermal already constitutes a tenth of the total generation capacity on the Kenyan grid (1300MW total installed power).

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potential rises to about 350GW. Areas with good wind energy include the Rift Valley escarpment extending from the east to center then to south and the Mekele area in Tigray. Wind energy application in Ethiopia has been limited to water pumping in the past. There is now, however, definite plan to exploit wind for power production and EEPCO is developing a 120MW wind park around Mekele city in Tigray.

Wind energy resources (SWERA, 2007)

1-50

50-200

200-300

300-400

400-500

500-600

600-800

> 800

Power Density in W/m2

Wind energy resource of Ethiopia Wind resource class Wind class Wind power density at 50magl W/m2 Excellent 7 > 800 Excellent 6 600 800 Excellent 5 500 600 Good 4 400 500 Total (Good to Excellent) a Gross capacity is calculated assuming 5MW/km2. Source: EREDPC/ERG, 2007.

Wind speed at 50magl m/s > 8.8 8.0 8.8 7.5 8.0 7.0 7.5

Area km2 1,392 3,646 6,454 22,279

Gross capacity a GW 7 18 32 111 169

4.1.4 Solar energy Ethiopia receives 5.5 to 6.5kWh/m2/day of solar insolation. Solar energy availability is fairly constant (less than 10% of average) throughout the year in the lowland areas of the country but varies substantially in the highlands (more than 25% of average). The theoretical potential of solar energy is huge: 500MWt/km2 and 100MWe/km2. The economic potential of solar energy may be determined by identifying applications and areas where solar energy is competitive with existing energy supplies. Such an assessment will show, for example, that low temperature water heating in urban areas and solar electric application in relatively remote offgrid areas to be viable compared to existing alternatives. A conservative first estimate for the economic potential for solar energy will be 100MWt for water heating and 100MWe for solar electricity. Solar energy application in Ethiopia consist of domestic and commercial water heating in major cities and solar electricity for telecom stations, lighting, and water supply in rural areas. Total installed solar energy capacity is estimated to be about 1MWt for water heating and 5MWe for electrical applications.

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Solar energy resources (NASA, 2005)

4.1.5 Bioenergy Bioenergy resources include woody biomass, agricultural residues, biofuels, and municipal waste. In Ethiopia woody biomass and agricultural residue resources are used beyond sustainable yields with detrimental ecological and economic impacts while biofuels and municipal waste are barely in use. Woody biomass The standing stock in forests and wooded areas in Ethiopia is estimated to be 1200M tons (FAO, 2005). The annual yield from forest and wood land is estimated to be 30 to 40M tons per year whereas actual consumption is 50M tons per year. Wood fuels are harvested beyond sustainable yields in many parts of the country. However, there are also areas where resources are underutilized and in some cases where resources have become undesirable (such as where they encroach on farm and grazing land). The Prosopis Juliflora plant is one such undesirable weed that has had significant negative environmental and economic impacts in the Afar and Borena areas. Annual yield for this plant in Afar is estimated to be 0.5 million tons. Agro-industrial residue Small holder and commercial farmers cultivate more than 10 million hectares in Ethiopia. Ethiopia also has a large cattle population. Agricultural and livestock residues are currently used as domestic fuel to supplement or replace wood fuels which have become less accessible. Crop residue from small holder farmers is best returned into the soil to maintain soil quality or used as livestock feed. Livestock residue is also best used for soil conditioning. There is, therefore, little surplus energy that may be available from these sources. On the other hand, there is considerable potential for energy production from large commercial farms and from agro-processing industries. Potential sources include sugar cane bagasse, cotton stalk, coffee hull and parchment, and oil seed shells. At present only sugar cane bagasse is used in significant scale for energy production.

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Residue

Residue Ton steam GWh MW potential @2.2 kg steam @4 kg steam @40% Tons/year /kg biomass /kWh Plant Factor Woody biomass (Prosopis Juliflora) 500,000 1,100,000 275 78 Sugar cane bagasse 2,700,000 5,940,000 1,485 424 Cotton residue 300,000 660,000 165 47 Coffee hull and parchment 100,000 220,000 55 16 Oil seed shells 100,000 220,000 55 16 Total 3,700,000 8,140,000 2,035 581 Note: Steam to biomass and electricity to steam ratios are for bagasse in Mauritius from AFREPREN. Other power generation options such as gasification are also possible. Source: WBISPP, Afar (2000); ESDA (2009), AFREPREN (2001), Own estimates.

Liquid biofuels Ethiopia produces 10,000 tons of ethanol fuel and 15,000 tons of castor oil seed annually (2008). The Ethiopian government is promoting accelerated development of biofuel crops and biofuels and production is expected to increase to 100,000 ton of ethanol fuel and 130,000 tons of oil seeds (40,000 ton of vegetable oil) within the next five years. If plans for ethanol and vegetable oil production are realized there will be substantial surplus of ethanol (after meeting an E10 blend for transport) by 2015 but there wont be any vegetable oil surplus (after meeting the proposed B5 blend). Most of the surplus ethanol will have to be utilized for alternative applications (such as for cooking) or exported. The local cooking market is large enough to utilize the entire surplus. Municipal waste Municipal waste consists of sold and liquid waste from urban areas. Energy production from municipal waste is commercially viable, now widely utilized in both developing and developed countries. Energy production from municipal waste is also a form of waste management and results in local and global social and environmental benefits: reduced health and safety hazards from methane gas releases and reduced Green House Gas (GHG) emission from methane combustion (CO2 has 21 times less Global Warming Potential than methane). There is no available estimate of the energy production potential from municipal waste sites in Ethiopia. The total power production potential from LFG is estimated at 24MW.10

4.1.6 Coal The proven coal reserve of Ethiopia is estimated at 70M tons. Areas with considerable coal deposits include Delbi, Moye, and Yayu (all in the west of Ethiopia). Coal is currently not mined in Ethiopia and until quite recently it was also not used as either thermal fuel or for power generation. In the past year, however, some cement factories have started importing coal for use as kiln fuel (in place of furnace oil, the price of which shot up). A 100MW coal plant is planned for 2011 in EEPCOs 2006 master plan. 4.1.7 Natural gas Ethiopia has 70 Trillion Cubic Feet (TCF) of proven natural gas reserve in the southeast edge of the country. EEPCOs master plan includes the Calub gas field as potential candidate for its long-term indicative plan. The indicative plan is for installation of 600MW gas plant at the source in 2020.

10

The following factors are used to calculate the theoretic potential: LFG production is 340m3 /ton of waste; LFG collection efficiency is 75%; heating value for LFG of 18.5MJ/m3; heat rate for reciprocating engine is 9000kJ/kWh. Waste disposal at the Addis Ababa land fill is about 273,000 ton/year which will generate about 1.3PJ of LFG (120GJ/h) with a potential installed capacity of 16MW. We assume that the other major towns will contribute about half that of Addis Ababa, i.e., 8MW, for a total of 24MW capacity.

15

4.1.8 Summary of power generation resources The economically exploitable power generation resource in Ethiopia is 54GW. Eighty four percent of the resource is from hydropower and 13% is from wind. Only 7% of the economically exploitable resource is either developed or committed to be developed. Summary of power generation resources of Ethiopia, MW
Energy resources Gross Economic Existing + potential potential committed Planned Data source (to 2030)

Hydro Large 184,000 45,000 3,663 14,000 ENEC-CESEN, WAPCOS Small (<10MW) na na <10 na Micro (<500kW) 100 100 <1 na EREDPC/REF Geothermal 700 300 7 30 MME, EEPCO Wind 169,000 7,000 120 120 EREDPC, EEPCO, ERG Solar 100MWe/km2 100 6 na EREDPC, ERG Bioenergy Bagasse 424 424 na na ESDA Biofuels n n 0 0 Land Fill Gas 24 24 0 0 ERG Agri-residue 80 80 0 0 ERG Coal na 100 0 100 MME, EEPCO Natural gas na 600 0 600 MME, EEPCO Note: n = negligible, na = not available; for this assessment economic potential means potential that is competitive with the most expensive alternative now in use (for the grid, this is fuel oil or diesel based generation).

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4.2 Decentralized and non-utility power supplies At the present time in Ethiopia on-grid supplies are a monopoly of EEPCO and all generating, transmission and distribution facilities on the grid are owned by the utility. EEPCO, municipalities, ESCOs, private companies, agricultural producers cooperatives are all involved in off-grid electricity supplies. Even in the off-grid system EEPCO has the dominant position as its SCS system (31.5MW) is several times larger than the combined output from the other suppliers. Non-utility supplies are promoted in many countries for the expressed purpose of improving efficiency and competition in the power sector. In developing countries non-utility supplies are also promoted because states may not have sufficient financial, managerial and technical capacity to develop their resources. Other objectives include diversity, power market development in as yet un-served areas, and support to local enterprise. Non-utility supplies can be on or off-grid. If on grid, Independent Power Producers (IPPs) sell power to the transmission and distribution operator which provides the power to customers. For off-grid applications power producers or suppliers provide service directly to final users as either sale of product or fee for service.11 In both grid and off-grid applications IPPs can consist of private and state companies, Cooperatives, local administrations, and non-government organizations. 4.2.1 Regulations for non-utility power supplies In the late 1990s renewed interest arose (or donor pressure mounted) to open the power market for IPPs and also to separate the operation and regulatory functions in the power sector. Proclamations and regulations were issued to this effect. Regulations for the Ethiopia power sector include the following: Electricity Proclamation No. 86/1997: This proclamation established an electricity regulatory agency (Ethiopian Electricity Agency). The Agency was entrusted to regulate the technical (standards, efficiency, and reliability) and economic (tariffs) operation of the sector. The Agency issues or revokes licenses to generation, transmission and distribution operators. Electricity Operations Council of Ministers Regulations No. 49/1999: This regulation provides guidelines and procedures for electricity sector operators. Technical standards and principles of tariff determination are provided in the regulation. Letter of Power Sector Policy (2003): This policy summarized the sector reforms undertaken to that date and outlined further reforms being contemplated by the government including establishment of a Rural Electrification Fund, decentralization/commercialization of EEPCO, and development of a demand side management program. Rural Electrification Fund Establishment Proclamation No. 317/2003: This proclamation established the Rural Electrification Fund (REF) to promote off-grid rural electrification. The REF was to set up to support non-state actors (private companies, cooperatives and other non-government organizations) technically and financially. The REF channels government, lender and grant finance to off-grid operators. The amended Investment Proclamation (No. 116/1998): The Investment Proclamation governs internal and external investment in Ethiopia. The general investment regulations apply also for the energy sector. However, the power sector is dealt with particularly in the Proclamation where foreign investment is limited for certain power generation facilities: Electricity generation from sources other than hydropower is reserved for the government and local developers. Development of non-hydro plants larger than 25MW is left to the government while those below this are left for the local private sector. The government remains the sole operator of the national grid

11

Sale includes sale of power production equipment outright or by instalment, for example, for PV systems; fee for service means power production equipment is owned by the supplier, users pay periodic fees for the service.

17

Electricity generation from hydropower is open to both local and external developers without limit on capacity.

Following these proclamations and regulations considerable interest was shown by several companies to supply power to EEPCO. Several Memoranda of Understanding (MOU) have been signed between these potential IPPs and the electricity sector regulator, EEA but none have been realized (Mollalign, 2006).

MIDROC (Ethiopia): Gojeb HPP (153 MW) January 2001 ENERCO: Awash IV HPP (40MW) ENERCO: Genale HPP (163MW) ENERCO: Delbi-Moye Coal (75MW) WAMBO (China): Geba I & II HPP (371.5MW) 2005 Kenya & EEPCO (Joint Development and Operation): Genale Dawa HPP (600MW) 2006 Apoji: Halele Warabesa & ChemogaYeda HPP (435MW & 420MW) 2006

EEPCO dominance as the sole power producer and distributor on the grid continues and expands further despite the enactment of legislation. The off-grid market, though theoretically free to developers, is also constrained due to uncertainties regarding EEPCOs grid expansion plans. A few ESCOs and municipalities run micro-grids in small towns (mainly powered by diesel generators); there are also a few thousand PV home systems. But the combined capacity of these non-EEPCO suppliers is a fraction of EEPCOs SCS system.

4.2.2 Opportunities for non-utility power supplies 4.2.2.1 On grid supplies IPP power supply to the grid is promoted through policies, strategies and legislation. In Ethiopia, such policies and legislation are contained in the Electricity Operations Regulation (49/1999), the Letter of Power Sector Policy (2003) and the Investment Proclamation (280/2004). As described earlier, despite interest by some potential IPPs no Power Purchase Agreement (PPA) has been signed. Since the rationale for IPPs is that they fill government resource gap and that they foster efficiency, their non-engagement may be presumed to be due to the ability of government to raise adequate resources. It may also mean that the potential IPPs have not demonstrated sufficient capacity or have not provided attractive PPAs to the regulator (or purchaser, i.e. EEPCO). Large scale projects EEPCO has three large hydropower projects with combined capacity of 1180MW near completion; it has one other very large hydropower project under construction (1870MW at Gilgel Gibe 3). These plants will increase capacity on the grid by five times and are expected to meet all domestic demand and the export potential until 2015. IPP generation for the grid appears to be required only at the end of EEPCOs mid term plan (2015) and in the long term (2030). IPP power can meet longterm domestic demand, i.e. after 2015 and long-term export market in existing (Sudan and Kenya) and new markets (Yemen, East Africa Power Pool). All but one of the proposed IPP projects are large hydropower projects. All the proposed projects are in EEPCOs mid and long term development Master Plan. Again since all projects, except the Calub Gas project, included in the long-term indicative plan are large hydro projects IPP interest will continue to be biased towards large hydropower projects. However, when EEPCO revises its system development plan more non-hydro projects may be included in the plan. Resources that may be included in such revision include wind, geothermal and coal. Financing Large scale hydro or fossil fuel power generation plants are usually referred to as traditional power plants. The term traditional indicates that these technologies are quite mature and both developers and lenders have rich experiences to determine the level of risks associated with them. The

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accumulated experiences in such large scale power production enable lenders to assess risks to the required degree of accuracy raising their level of confidence in giving out loans to developers. Besides, the scale of investment which require large transactions added with the likelihood of selling power at a competitive price ensures generation of cash flow and hence repayment of loans. Project finances for such large scale traditional power generation plants can be obtained from various sources as it attracts lenders to invest. Usual sources of finance for such projects are public sector (government budgets), bilateral and multilateral sources (European Union, GEF, The World Bank, etc), venture capital investments, development banks, and commercial banks. However, when it comes to development of large hydropower plants, financiers seek to ensure that associated environmental impacts are properly dealt with. Medium scale projects (under 25MW) There appears to be some interest to promote medium scale projects for grid supply. The electricity regulator, EEA, is drafting a feed-in tariff proclamation to encourage IPPs for this purpose. The expressed rationale is the need to enhance and diversify generation capacity on the grid. The most important objective of the proclamation is to guarantee access to the grid for IPPs. Unlike large systems, there is a quite diverse set of potential medium scale projects for IPPs. These include small hydropower, geothermal, coal, land fill gas, wind, solar and biomass projects. According to the investment proclamation (No.116/1998) both local and external investors can develop hydropower plants without any limit but only local investors are allowed to develop nonhydro resources below 25MW. Therefore, the opportunities for local IPPs are varied but limited to hydro for external investors. Except for a few of the options (such as land fill gas and biomass co-generation) medium scale projects will not be economically competitive with existing large hydropower projects. However, most of them will be competitive with thermal plants on the grid (diesel and fuel oil plants).
Potential developers Private Local, external Private Local Private Local Municipalities, Local private Private Local Private Local State and private Local, external agro-industries Remark Competitive with thermal plants on the grid Solid waste from the main cities may be developed for power; CDM finance possible Not competitive with the other options Co-generating units in agro-processing industries including sugar, cotton, coffee, biofuels

Small hydropower Geothermal Coal Land fill gas Wind Solar Biomass

Financing Securing project finance for medium and relatively smaller scale power plants, if they are of traditional power plant types i.e., fossil fuel based, is still not very difficult. In fact, the current trend in the power sector is towards reduced scale of power generation. However, despite their numerous benefits, raising capital for renewable energy power projects is difficult and costly as lenders decline to finance such projects due to high level of perceived risks associated with them. There are several factors that make a renewable energy power project a risky business. Renewable energy technologies are relatively new and not yet mature. This means that lenders lack experience in assessing the associated risks. Moreover as technology improvements are quite fast, earlier technologies become obsolete so quickly entailing difficulty in competing with newer technologies. This potentially creates difficulty in projects to generate sufficient cash flow to ensure loan repayments. Difficulty of raising capital for renewable energy projects is further aggravated by their low capacity credits due to intermittent nature of resource availability which results in reduced cash flow due to reduce amount of power generation. This has implication again on ability of loan repayment which lenders are very much concerned and want to ensure before giving out loans. These and several other factors such as difficulty in selling power at competitive price (high market risk) and high capital investment needed (higher transaction costs on the lenders side) make renewable energy projects less attractive to lenders without presence of appropriate government policies to facilitate and support.

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4.2.2.2 Off grid supplies Both grid and off-grid based rural electrification programs are now promoted in Ethiopia. The grid based program run by EEPCO is called the Universal Electricity Access Program (UEAP); this program envisages creating electricity access to 50% of the population by 2012 and universal access by 2015. The other program is for off-grid rural electrification and it is run by the Rural Electrification Fund (REF) which promotes decentralized, mainly renewable energy technologies through the private sector and electricity service cooperatives. The UEAP is progressing rapidly and it appears that all as yet non-electrified towns (of more than 1000 households) will all be connected to the grid with this program. This leaves only small remote towns, and scattered rural villages for off-grid service. These small towns and scattered rural households can be served with either mini-grid systems or individual systems. Total off-grid installed capacity is estimated to be about 50MW. EEPCO is the main off-grid supplier through the SCSs with current installed capacity of 31.5MW. EEPCO, local administrations and cooperatives run mini-grid systems supplied by diesel generators and small hydropower plants. Development agencies and private companies run both mini-grid systems run by diesel generators and micro hydro plants and individual systems supplied by diesel generators and PV.12 Due to the rapidly expanding grid through the UEAP off-grid supply units are becoming smaller. For example, the typical demand for recently electrified ESCOs is only about 50kW. Since the UEAP program is expected to go further off-grid installation sizes will also drop further. The off-grid market is, therefore, for micro grid systems with capacity in the range of 50kW and for individual systems in scattered rural settlements.

Mini grid systems Existing mini-grid systems are powered by diesel or small hydro generators. Other potential sources include bio-energy (oil, ethanol, biodiesel, solid biomass) and wind. Diesel generators: Diesel generators are usually the preferred means of electrification (until the recent oil price rise) due to their low investment requirement, ease of installation and operation, and availability of technical service. However, diesel generators have high running costs which most developers and users find difficult to meet. Several municipalities and ESCOs have abandoned using diesel generators to run their min-grids (some have reverted to fuel based lighting). Micro hydropower: Micro hydropower systems require relatively high investment and their applicability is limited to resource availability and proximity to non-electrified towns. Considering the fact that larger towns are being connected to the grid through the UEAP, potential application of off-grid MHP will be limited to resource rich remote areas such as the southwest and northeast. Potential new sources and technologies: There is considerable potential for bio-energy resources in off-grid electrification. There are already substantial, as yet unused, bio-resources in the country including woody biomass, agro-industrial biomass residue, and non-edible oils (jatropha and castor) and biofuels that can be used for power generation. Biomass gasification using woody biomass (for example, the weed Prosopis Julifora) and agro-industrial residue (such as coffee, cotton or biofuel crops) is one potential application; non-edible oils and biofuels can be used in standard or specialized engines to generate power. There appears to be substantial wind resource in the central, northern and southeastern parts of the country. These areas may be viable for small wind hybrid systems (with diesel, biomass or solar).

12

Individual systems include solar and diesel/gasoline generators serving one or several homes or establishments and also water pumping systems.

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Financing Small off-grid systems are challenging because they require either relatively high investment or high recurrent expenses. Potential customer may also have low capacity and willingness to pay. Careful financing is therefore essential for sustainable operation and reasonable returns. Potential sources of financing for such systems include local entrepreneur or cooperative equity, commercial loan, concessional loan through the REF, development agency support, user in kind contributions, and income from the Clean Development Mechanism (CDM).13
Availability REF concessional loan Commercial loan Private or cooperative equity Development agencies User contributions CDM US$ 5 million (till end of 2009) Potentially unlimited Coop equity limited to members capacity Mainly in kind contributions; limited Potentially significant

Isolated systems Existing distributed systems are powered by diesel/gasoline or PV generators. Isolated systems are distributed through private sector system retailers or development agencies and are owned by the users (either household or community). Private sector system retailers provide petrol gen-sets for commercial applications and solar systems for households; development agencies provide petrol gen-sets and solar systems for social services such as water pumping, schools and health posts. Other potential sources include wind and bio-energy. Financing Finance for private sector distributed systems is mostly through consumer equity. There is usually no developer or consumer financing (either commercial or concessional) to cover part of the investment required. This is believed to be one of the main reasons for the slow dissemination of technologies such as PV systems in rural areas of Ethiopia. Although the REF provides concessional finance to developers for such systems there has been only one such developer. The main reason for the reluctance of private and other developers to use the REF loan seems to be lack of guarantee or confidence of loan recovery from users. If the above mentioned risks (lack of guarantee) can be reduced private developers have the opportunity to access REF concessional loans, commercial loans and use private equity. Consumer finance can also be provided through micro finance institutions (MFIs), REF concessional loan, commercial loan, consumer equity.
Mechanism/conditions Developer finance REF concessional loan 5% developer equity; guarantee Commercial loan High collateral (100% or more) Private equity Consumer finance REF concessional loan Micro finance High interest rate (>15%) Consumer equity Availability US$ 5 million (till end of 2009) High Limited, especially in rural areas US$ 5 million (till end of 2009) New for electrification, High for commercial, low for households

13

Off-grid electrification displaces petroleum based lighting and agro-industrial uses (mills, pumps). When renewable energy resources such as sustainable bio-energy, MHP, wind and solar are used there is considerable potential for Green House Gas reduction and therefore considerable potential for CDM financing.

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4.3 A new framework for alternatives assessment There is considerable variety of options but not all are usually evaluated in traditional power system alternatives evaluation. Some options are not considered at all while others are dropped at the preliminary screen stage without adequate assessment. Traditional power system evaluation is biased towards large centralized generation alternatives thus leave out demand side management and distributed power. It also considers only economic costs and leaves out social and environmental costs. Conventional power system planning generally follows optimization models that seek to either minimize costs or maximize output subject to constraints. In both cases the constraints consist of techno-economic factors. Most of the widely used models employ cost minimization, often called least cost planning, subject to constraints. These models employ broadly similar sequence of procedures: a. b. c. d. e. f. Assess current demand and capacity of existing generation facilities Project energy and power demand for the system Identify and characterize (technical and economic) power generation candidate plants Prepare alternative generation expansion sequences Evaluate and sequence of the candidate plants subject to constraints Plan for additional transmission requirements

The main shortcomings of traditional power planning are also exhibited in power planning work in Ethiopia. For instance, the power system development plan is called power system expansion plan which means DSM is not considered within the plan. The plan also excludes a number of options cursorily (giving only a sentence worth of mention) including wind and solar energy. And only economic costs are considered in the assessment. Recognition of the shortcomings of the traditional framework has motivated the development of new frameworks which consider DSM and decentralized alternatives as well as social and environmental factors in power planning.

4.3.1 Integrated Resource Planning (IRP) One of the most widely applied methodologies in the power sector is the Integrated Resource Planning (IRP) approach. According to UNEP IRP is defined as follows [UNEP, 1997]: IRP is the combined development of electricity supplies and demand side management (DSM) options to provide energy services at minimum cost, including environmental and social costs.14The implementation of IRP generally requires: a. b. c. d. e. f. Collection of reliable data on electricity end-use demand patterns and technical alternatives for improving their energy efficiency or load profiles, Definition and projection of future energy-service demand scenarios, Calculation of the costs and electric-load impacts of the demand side alternatives, Comparison of their costs with the economic costs and environmental impacts of conventional and alternative electricity supply options, Design of an integrated supply and demand-side plan that satisfies the least-cost criteria in terms of economic costs and environmental impacts, and Implementation of the least-cost strategy.

IRP addresses the main shortcomings of traditional power system evaluation. The first is that in contrast to traditional system planning where the stress is on system expansion.15 IRP emphasizes service (a system may not have to be expanded to increase services to consumers; for example, demand side management (DSM) can increase services without capacity addition). Secondly, IRP considers not only large centralized systems but also smaller decentralized technologies. Third, IRP considers all
14

Rather than least-cost supply expansion, modern utility planning is evolving toward IRP. This means integrating a broader range of technological options, including technologies for energy efficiency and load control on the demand side, as well as decentralized and non-utility generating sources, into the mix of potential sources [UNEP, 1997, p. 11]. 15 For example, EEPCOs 2006 Master Plan is called the Ethiopian Power System Expansion Master Plan Update.

22

relevant costs, including social and environmental costs (i.e. external costs), together with economic (internal) costs.

4.3.2 Re-assessment of alternatives using the IRP framework Energy system analysis in the IRP framework may be conveniently regrouped into four main stages: (a) demand analysis and projection at end-use level, (b) identification of DSM and supply alternatives, (c) full costing of DSM and supply side alternatives, (d) design of an integrated least-cost supply and demand side plan. Each of these four stages are discussed in relation to the Ethiopian power system in the following sections. 4.3.2.1 Demand analysis by end-use Traditional electricity demand analysis and projection is based on electricity sales. Such analysis cannot account for potential savings from efficiency or fuel substitution effects. It also fails to account for new applications of electricity, such as transport and agriculture. This can be a significant shortcoming, especially in long-term projections where all these opportunities can be realized. Since EEPCO does not make end use level analysis there appears to be little documented data on electricity demand by end use for any of the customer categories. Therefore, desegregation of demand by end use can only be made qualitatively.16 General: Electricity sales for 2006 was 2400GWh, divided by customer class (equivalent to sector in this analysis) as follows: industry (41%), residential (33%), and commercial (26%). According to EEPCOs Master Plan Update sales will grow to 60,834GWh by 2030 divided among the sectors as 28% industry, 30% residential, and 43% commercial. Residential: Lighting and Injera baking are the main end uses in the residential sector. Lighting is virtually the only application of electricity in low income households but its share declines as incomes grow. Injera baking and important residential end use in mid income households. It is estimated that Injera baking constitutes about 25% of total electricity sales to the residential sector on the ICS. Water heating using electric boilers is common in mid and high income households in main cities in the country. Commercial: The commercial sector is composed of hospitality, trade and other services. EEPCOs commercial category includes also social services such as health, education, water, and government. For this analysis street lighting is also included under commercial. The main end uses in this sector are for lighting, water heating using electric boilers and other appliances. Industry: The main end uses in industry are stationary motive power, thermal energy (boilers, furnaces, kilns) and lighting. The proportion of energy consumed by end use depends on type of industry but in most industries end use demand is mainly for thermal energy; and thermal energy is mostly provided with fuel oil, biomass (in sugar industries) and more recently with coal. Power for industrial motors and for lighting are provided with electricity. Transport: Electricity is not used for transport in Ethiopia. However, there are potential applications in rail transport and petroleum fuel pumping (for example, from the Djibouti Port to the Center)17 both of which would require substantial power and energy. Agriculture: Electricity use in agriculture (excluding processing) is limited to irrigation in a few large commercial farms. Current electricity consumption is minimal since most large commercial farms are far away from the grid. Demand is likely to grow in the future as more areas get access to the grid.

16

A limited sample survey of customers can provide quite useful data. Data on end use demand and physical outputs need to be collected which can then be used to estimate demand intensities. Energy intensity data can be used with expected output levels to project energy demand. 17 In Kenya, for instance, a state run company pumps refined products from the Mombassa port to Nairobi.

23

Considerable DSM options exist in all sectors but new demands may also arise from the transport and agriculture sectors. Lighting efficiency will be an important DSM measure in the residential and commercial sectors since it will account for as much as a quarter of total electricity use in 2030.18 Other DSM measures in the residential and commercial sectors include energy efficiency or fuel switch for baking, and fuel switching for water heating. DSM measures in the industrial sector can include efficient lighting, improved efficiency for motors, and power factor correction.

Sector & end use Residential Lighting Cooking Injera baking Water heating Refrigeration Appliances Commercial Lighting Cooking, baking Water heating Refrigeration Thermal (other) Appliances Industrial HV Motors Thermal Lighting Industrial LV Motors Thermal Lighting Transport Agriculture Street lighting

GWh Current end Demand drivers (2006) use demand 796 High Low High Low Low Low 584 High High Medium Low Low Low 511 High High Low 478 High None Low None Negligible 34 High Industrial GDP Non-agricultural GDP Population, income Population, income

Demand growth

High, high population and income growth Low, cheaper alternatives High, growing incomes Medium, growing incomes Medium, growing incomes High High High High High Low High High None Low High Low Low Electric trains and trams, petroleum pipeline Pumped irrigation High, urbanization and increased access

GDP Agricultural GDP Urbanization

4.3.2.2 Identification of DSM and supply alternatives DSM options DSM is an important, probably even more important, system development intervention as supply enhancement because of two reasons: first in developing countries with markedly low end use efficiencies it is usually possible to realize substantial savings with relatively low investment, second DSM reduces the investment requirement for transmission and distribution whereas for supply enhancement T&D capacity must also increase and therefore investment. Potential DSM gains in Ethiopia are substantial. Although recent end use disaggregated analyses are not available, earlier studies indicate high energy losses in industry, commerce and the residential sectors. The industrial sector studies indicated that substantial efficiency gains were possible with simple demand management measures (such as turning off lights and motors when not in use, efficient lights and motors, power factor correction). The next section outlines major DSM opportunities by sector.

18

The commercial and residential sectors will account for 73% of total consumption in 2030; since lighting will account for at least a third of the electricity consumed in both sectors, lighting demand will be 25% of total sales.

24

Residential sector Lighting Lighting is the main end use for electricity in the residential sector. Lighting will continue to be important in the future due to the present low level of electrification and the fact that lighting will be the main end use in new residential connections (low income and rural customers).
Residential electricity consumption on the ICS was about 800GWh in 2006. Demand is projected to grow to 5,000GWh by 2015 (EEPCO, 2006). Lighting may contribute half of total residential electricity use. Lighting contributes about 20% to peak power demand during the evening hours. The peak contribution from lighting will continue to be significant in the future as well; in the projected peak demand of 2.5GW in 2015, lighting may constitute as much as 500MW.
Normalized (Actual/Minimum)

ICS system daily demand (1990s)

200 160 120 80 40 0 0 2 4 6 8 10 12 14 16 18 20 22

MW

Annual Typical-2.4.84

Energy and power consumption for lighting can be reduced by two-thirds using efficient fluorescent lamps. If half of the residential customers switch to efficient lighting 7% of peak (165MW) can be shaved off. Successful lighting efficiency programs in Thailand and other countries show such savings are feasible.

6.0 5.0 4.0 3.0 2.0 1.0 -

Residential daily demand (normalized)

10

12

14

16

18

20

Electric injera baking With growing urban population and increasing incomes the number of households with electric mitad is increasing rapidly. As the following illustration shows, electricity demand for baking may be responsible for as much as a quarter of total residential electricity consumption and may add up to 75MW to demand. Efficiency and fuel substitution possibilities must be explored for the electric mitad. A 20% efficiency improvement appears to be feasible for the electric mitad.
A recent household survey in Addis Ababa estimated 87% market penetration for the electric mitad (GTZ, 2009). This means about half a million households own and use electric mitads in the city. According to earlier surveys electric mitads are rated 2 to 4kW with mean of 2.5kW; and owners use the mitad twice a week for 2-hour baking sessions. Simply distributing electric mitad owners across the working hours of the day, i.e. from 6AM in the morning to 10PM in the evening 16 working hours per day and 6 working days per week gives 96 working hours or 24 4-hour baking sessions per week. This means the minimum coincidence factor (CF) will be 4 to 5% (if sessions are distributed uniformly). The probability of such an even spread of users is nil. The CF is bound to be at least twice as high or 10%. This means a population of half a million electric mitad users will require at least 75MW of capacity (300,000 users * 2.5kW/user * 10%). Total annual energy consumption for electric Injera baking will be 150GWh (2.5kW * 2h/session * 2sessions/week * 52weeks * 300,000users). In comparison, total residential energy consumption in 2006 was about 800GWh.

22

25

Water heating Mid and high income households in cities use electric boilers for water heating. Boilers are rated between 0.5kW to 1.5kW and are operated once a week (mid income) or daily (high income) for an average of 2 hours per session. Annual electricity consumption per user is estimated to be 52kWh to 1000kWh with a mean of about 100kWh. Contribution to total residential customer sales is small. However, penetration levels are expected to increase rapidly as incomes grow thus increasing demand from this end use. Solar water heating is an already competitive fuel switch option for electric water boilers in Ethiopian cities. There is increased awareness of the availability and viability of solar water heaters and sales seem to have picked up in the last three years.
In the last ten years more than 100,000 new homes and apartments have been built. Most of these houses and apartments and a considerable percent of the stock of already existing houses own electric water heaters. Assuming that 50,000 households own electric water heaters total demand from water heaters will be about 8GWh (50,000 * 0.8kW * 4h/week * 52 weeks). This is equivalent to 1% of total residential sector electricity consumption.

Commercial sector According to EEPCOs Master Plan Update (EEPCO, 2006), the commercial sector will be the most important electricity consumer in 2030 taking 42% of expected total sales. The sector should be a priority for DSM. Main electricity end uses in the sector include lighting and water heating. Lighting demand will be considerably higher than other demands because commercial establishments own and use more lamps for longer hours. The lamp stock in the commercial sector is mixed, with both incandescent and fluorescent lamps in common use. A lighting efficiency program for the commercial sector will be easier to effect because the users have the capacity to pay for the lamps and because gains will be substantial and pay-back periods shorter.

Industrial sector Electric motors account for more than three-quarter of the electricity consumed in industries; other uses include lighting and thermal applications. Improving the efficiency and operation of motors is, therefore, the most important DSM measure in industry.

26

Potential Demand Side Management (DSM) measures by end use

Sector, end use Residential Lighting Cooking/baking Water heating Appliances Commercial Lighting Cooking/baking Water heating Appliances MW (2006) na GWh Existing (2006) technologies 796 Incandescent Efficiency CFL Standard mitad Efficiency Electric boiler Substitution Solar na 584 Incandescent/ fluorescent Efficiency Electric boiler Refrigerators, freezers, coffee boilers na 511 Standard Fluorescent Efficiency Control Motor 20% Equipment Promotion; tax foregone Efficiency standards; tariff incentives Equipment Promotion Utility program Equipment na 478 Standard Fluorescent Efficiency Motor 20% Equipment Promotion; tax foregone Efficiency standards; tariff incentives Equipment Promotion Utility program Equipment Equipment Promotion Promotion Efficiency standards Utility + municipalities program Promotion Efficiency standards Efficiency CFL Bulb 60% 20% 100% 20% Equipment Promotion; tax foregone Utility program; tax incentives Equipment Promotion Technology development and promotion Equipment Promotion; tax foregone Tax incentives for solar water heaters Equipment Promotion Efficiency standards Efficiency Substitution Solar Efficiency Bulb New mitad 60% 20% 100% Equipment Promotion; tax foregone Equipment Promotion Equipment Promotion; tax foregone Equipment Promotion Utility program; tax incentives Technology development and promotion Tax incentives for solar water heaters Efficiency standards Measure New technologies Unit Potential Participant/ saving (%) customer cost Utility/ Promoter cost Intervention type

Industrial HV Power Motors Lighting Thermal Boilers Industrial LV Power Motors Lighting Thermal Boilers Street lighting

na

34

Efficiency

LED lighting

Bulb

20%

27

Supply options Ethiopias indigenous resource potential and import possibilities for power generation are summarized below. The presently known gross indigenous capability is estimated to be about 54GW,19 eighty-four percent of it from hydro.

Hydropower

At an estimated exploitable capability of 45GW, hydropower is the most important indigenous resource in Ethiopia. Only a third of the available potential need to be exploited to meet projected electricity demand in 2030. Most of the available resource is expected to be developed in large hydropower plants. However, there is also considerable potential for small hydro plants that may supply power to the grid and micro hydro plants for off-grid rural electrification. The wind power potential of Ethiopia is estimated to be at least 7GW.20This estimate considers sites with the highest potential only (i.e., sites with wind power density of 800W/m2). Technically, therefore, wind energy could be the second most important resource for power generation in Ethiopia. Wind power can be developed in wind parks and in distributed smaller units. Wind parks may be developed by EEPCO or external IPPs while the smaller systems will be attractive for local IPPs.

Wind

Solar

Solar energy, though abundant throughout Ethiopia, is not competitive with other options for grid supply. It is, however, the most attractive alternative for distributed off-grid application in rural areas. In off-grid rural areas solar power is the only sustainable option to power homes, commercial services, health posts, schools, water pumps, and worship areas. The total geothermal resource of Ethiopia is reported to be 5000MW (MME). The proportion of the resource that will be feasible for power production is considerably lower. Preliminary assessments indicate viability of about 95MW from several power plants in the Rift Valley Lakes area. There are uncertainties regarding the size of the available resource; there are also no feasibility studies. It is to be noted that there are funds available from the World Bank/Global Environmental Facility specifically allocated for assessment and development of geothermal power in the African Rift Valley. Kenya and other countries have benefited from this resource, Ethiopia has not. Due to relatively small plant sizes geothermal plants may be suitable for IPPs.

Geothermal

Biomass

Biomass fuels from agro-industries will be important sources of power for the grid. Some of these industries already use their agricultural residue in cogenerating plants to supply their own thermal and electricity energy needs (for example, the sugar industries). With committed expansion plans for some of the larger industries, and establishment of new industries, potential for surplus power from the industries will be substantial. Large agroindustries are ideal IPPs for the grid: they have adequate technical and financial capacity to invest in supply surplus power, they are already on the grid, and their power output complements that from hydro plants. Sugar industries are the principal candidates for IPP power. They meet much

19

This estimate excludes indigenous resources that are currently over-exploited (woody biomass and crop residue from small holders), no firm resource development plans (biodiesel crops), and deducts amounts to be used for thermal energy and other purposes (coal, natural gas). 20 This is based on Wind Class 7 areas with wind speeds higher than 8.8m/s at 50magl.

28

of their own thermal and power needs from bagasse; surplus bagasse can be used to generate power for export to the grid. Sugar plants also produce ethanol, some of which is now being used for transport and domestic applications. With their plan for expansion of ethanol production surplus ethanol from transport and other applications can be used to generate power for the grid. Other potential sources for power production from biomass include cotton, coffee and biodiesel crop residues. Vegetable oil and biodiesel can also be used to generate power at biodiesel farms for export to the grid. Coal There are no operating coal mines in Ethiopia. Since the cost depends on rate of production (or the exploitable market size) sizable markets must exist in order to make coal competitive (with oil, for example). Several applications have been proposed for coal includnig power, thermal fuel for industries, and fertilizer production. A 100MW coal plant was planned for 2010 in EEPCOs MP Update, but this plan appears to have been abandoned. Coal can also be imported to run combustion plants on the grid. Such plants may be able to use either coal or oil to run the turbines and the utility can exploit the relative price differentials between coal and oil. For example, recently some cement factories in the country switched to importing coal to replace fuel oil used in their kilns) the same may apply to the utility. Natural gas The natural gas resource in Ethiopia is located in the southeast tip of the country in the Somali regional state. The gas wells have been ready for development for some time; however, it is yet to be developed. A 600MW gas plant is included in EEPCOs long-term indicative plan for 2020. Power exchange with neighbouring countries and beyond (for example, through the planned East African Power Pool, EAPP) can create large enough market for whatever can be produced in Ethiopia. It can also shield the Ethiopian power system from supply shortfall. Sudan, with considerable installed capacity in thermal and hydropower plants, is considered the primary source for power imports.

Power exchange

4.3.2.3 Full costing of DSM and supply alternatives Traditional power system assessment compares economic costs of supply alternatives. IRP evaluates supply and DSM options and considers both economic and social costs. IRP is a more comprehensive framework; but its application is more difficult due to more varied alternatives and inclusion of often unquantifiable factors. This section provides indicative costs of DSM and supply options and qualitative evaluation of these options.

Economic costs Levelized energy generation costs21 for DSM and supply options are shown in the following table and figure. Costs shown are only indicative but are still broadly comparable. This simplified assessment shows that most DSM programs to be more cost effective than even the cheapest supply option (large hydropower plants). It also shows that smaller distributed biomass plants, geothermal and coal are competitive with the more expensive hydropower plants proposed for the long-term.
21

The present value of the total cost of building and operating a generating plant over its economic life, converted to equal annual payments.

29

Large hydropower is the least-cost supply source for Ethiopia. Only DSM measures are cheaper. Large hydropower has advantage of scale compared to DSM measures and is also a dispatchable supply option, meaning output can be regulated whenever required.22 Small hydropower is among the more competitive distributed supply options for the grid. Generation costs are comparable to that of biomass generation plants. Micro hydropower generation costs are high; however, they are cheaper than oil (diesel or fuel oil) and PV plants therefore the best option for off-grid electrification where they are available. DSM programs are the cheapest service alternatives. DSM measures in domestic and commercial lighting cost less than a third of the cost of generation using large hydropower plants. DSM savings have additional gains since T&D losses are reduced and investment in T&D (for supply options) is avoided. The domestic and commercial sectors should be prime targets for DSM. Lighting accounts for 50% of total sales in both the domestic and commercial sectors and this share is expected to be sustained due to the rapid connection of new customers for whom lighting will be the main end use. It is feasible to achieve 50% energy saving by each participating household or commercial customer through lamp replacement (fluorescent for incandescent). Other DSM programs can include energy efficiency for injera baking and fuel switch for water heating in both the domestic and commercial sectors (with solar water heaters, for example).

Levelized energy generation cost

Option Energy Life Capital content of cost fuel kJ/kWh years US$/kW Fixed Operating & maintenance US$/kW.yr Variable Levelized Sources Operating & energy cost maintenance US$/MWh US$/kWh 0.011 0.038 0.004 0.047 40 30 30 30 20 25 30 25 20 25 15 20 25 1,400 2,000 2,500 2,590 1,100 5,000 2,000 2,374 2,500 2,374 800 1,378 797 42 60 75 100 45 73 78.8 125 78.8 20 35.6 12 20.0 8.5 2.0 2.0 1.9 2.8 (d) (d) (d) (d)

DSM options Residential lighting Residential injera baking Commercial lighting Commercial water heating Supply options Hydro Large Small Micro Geothermal (Binary) Wind Solar (PV grid) Biomass (wood residue) Bagasse Land Fill Gas Agri-residue Oil Coal (gasification, CCT) Natural gas (CC Combustion)

12,900 11,020 12,000 11,020 9,000 7,570 10,790

0.029 (a) 0.074 (b) 0.092 (d) 0.053 (a), (b) 0.111 (b) 0.430 (b) 0.079 (b) 0.078 (b) 0.064 (c) 0.080 (b) 0.136 (d) 0.054 (a), (b) 0.073 (b)

Sources for technical data and investment and operating costs: (a) EEPCO, (b) IAEA, (c) RETScreen, (d) Own estimate.

22

Savings in energy and capacity can be limited (for example, to 10% of peak demand) whereas capacity additions can be several times bigger than existing capacity.

30

Levelized power generation costs (US$/kWh)

DSM - Commercial water heating DSM - Commercial lighting DSM - Residential baking DSM - Residential lighting Oil Natural gas (CC Combustion) Coal (gasification, CCT) Agri-residue Land Fill Gas Bagasse Solar (PV grid0 Wind Geothermal (Binary) Micro hydropower Small hydropower Large hydropower 0.05 0.10 0.15 0.20 0.25 0.30

US$/kWh Note: Cost of grid connected PV ranges from US$ 0.43 to US$0.45 per kWh; See Annex for assumptions for both DSM and supply side costs.

0.25

Preliminary screening of generation alternatives, EEPCO (US$/kWh)

Coal (Delbi) MSD (LRFO)

) 0.2 h W k / $ ( y g r e n E0.15 m r i F d e z i l i t U 0.1 f o t s o C t i n U0.05

CC (IDO)

CT (IDO)

Geothermal

Aleltu East Stg 1 Aleltu West Halele-Werabesa Chemoga-Yeda Beles

0 20.0% 30.0%
Aleltu East St.1 Geothermal 2x15MW

40.0%
Aleltu West CT (IDO)

50.0%

60.0% Plant Factor

Chemoga-Yeda1&2 CC (IDO) 2x50+1x50

70.0%

80.0%
Halele Werabesa MSD (LRFO)

90.0%
Beles

100.0%

Coal (Delbi) 1x55 MW

Source: EEPCO System Expansion Master Plan Update (2006).

31

Biomass power plants running on crop residues and land fill gas are competitive with the more expensive large hydropower plants. Because biomass power plants are usually developed to utilize surplus residue fuel costs are low or zero (for instance for land fill gas the cost of the gas will be zero). For agro-industries marginal investments can also be low because power units are usually part of the factory cost. Some agro-industries already have co-generating units for their own use and need only upgrade capacity to utilize surplus residue which is otherwise disposed of in non-sustainable ways. For example, sugar factories need only add new generators or replace old ones with bigger units at the end of their life. Other crop residues can be used for co-generation or simply as power generation units to meet producers need as well as export to the grid. Land fill gas in the main cities can also provide power for the grid. Fuel costs will be zero (even negative because destruction methane (a highly potent GHG) will generate revenue from carbon funds. Geothermal power generation cost is US$0.06/kWh to US$0.12/kWh. If exploration costs, which can be significant for geothermal energy, are included generation costs will rise further. Coal power plants have low capital costs and relatively low fuel costs. At the estimated LEC of US$0.054 to US$0.062/kWh coal is a competitive supply option for the Ethiopian grid. A 100MW coal plant was included in EEPCOs 2006 Master Plan Update but was later abandoned (for environment and other reasons). However, if the local coal cannot be developed imports should be considered since generation costs are lower compared to oil plants. Natural gas plants are also significantly cheaper than oil plants but transport (transmission) costs can be significant since the resource is situated in the south-eastern tip of the country. Wind power generation costs are estimated to be around US$0.12/kWh; it is, therefore, not competitive with large hydropower plants proposed for grid supply. Wind power is, however, cheaper than oil based power plants used by EEPCO for emergency supply. Direct comparison of wind power with hydropower and other conventional power plants is not possible because wind is an intermittent and non-dispachable resource (i.e., output cannot be regulated). For comparison with conventional systems on the grid the Capacity Credit (CC) assessment, which considers plant available capacity, is determined. For the Ethiopian grid and for the proposed wind farm project in the Mekele area the Capacity Credit (CC) is estimated to lie between 23% and 47% depending on the CC methodology applied (GTZ, 2006). This means compared to hydropower only 23% to 47% of the wind capacity will be available at peak times. Solar energy can be converted to electricity directly through the photovoltaic (PV) technology or indirectly through thermal collection to heat water which then drives a turbine. According to standard cost estimates from the IAEA the PV option is more costly. But the PV option is the more established technology (higher reliability). At US$0.43/kWh PV is the most expensive power generation alternative for the grid among the options considered; however, it can be the most costeffective option for small scale off-grid systems in remote areas. Environmental, social and political impacts All options, DSM and supply side, have environmental, social and political impacts. All options have both positive and negative impacts the difference among options being in the benefit to cost ratio of impacts. Impacts are generally location specific although sometimes they can also be technology or resource specific. Therefore it is always necessary to evaluate cases individually. The following table summarizes some of the potential impacts of power supply option for the Ethiopian grid.

32

Summary of environmental, social and political impacts of options Impact Environmental Social Local: Land, Air, Water Global: GHG DSM Livelihood Displacement

Political

Local acceptance Government policy External interests Mainly positive environmental, social and political impacts. Benefits depend on amount of energy saved and the source of this saved energy. The impacts of the supply options outlined below will be reduced by DSM measures. However, DSM can also have negative impacts especially with fuel switch strategies if the switch is to a non-sustainable source of energy (for example, from electricity to non-sustainable fuelwood for Injera baking).

Indigenous Large hydro Main impacts are related to reservoirs. Impacts depend on size of reservoirs, local natural resources and socio-economic activity. The main impact indicator is reservoir area; costs and benefits can be estimated per unit area of reservoir (US$/km2). Reservoirs have benefits also such as regulation, new economic opportunities in irrigated agriculture, fishery and navigation. LAND: Submergence of land under reservoirs; vegetation and animal life losses or displacement, biodiversity losses Displaced population possibly overexploiting resources in resettlement areas (leakage) WATER: Availability and accessibility of water downstream GHG: Methane emission from decomposing vegetation under reservoirs Wind LIVELIHOODS: Loss of farm or grazing area; LOCAL: Displacement may create exclusion availability and access to water up and POLICY: The energy policy gives top priority for downstream; loss of residences and special hydropower; improves energy security areas of interest EXTERNAL: Large hydropower projects are DISPLACEMENT: Displacement may create considered non sustainable by some donor/lender social exclusion countries and institutions; trans-boundary issues

Wind generators occupy very little area (have small foot-print) and impacts on local environment and livelihoods are insignificant. Wind generators have near zero GHG emission and can reduce GHG if they replace fossil fuel power plants. Solar energy systems have negligible negative impacts. Local natural resource disturbance is negligible, and they have no negative social impacts. The main concern for biomass based power generation is the sustainability of fuel extraction. However, since the options considered use residue that would have been disposed of non-sustainably (for example, by burning on the field) the impacts are positive. The main local impacts are associated with extraction of the resources, NOT the use of the resources. Impacts of extraction will be relatively small unless the location is highly sensitive or highly valued [because extraction is both surface and sub-surface].

Solar Biomass

Coal and natural gas

33

 LOCAL: There may be some land disturbances, LIVELIHOODS: Depending on location farms POLICY: The energy policy promotes the use of health and safety hazards associated with coal and grazing areas may be lost; but jobs in indigenous coal and gas for power and other uses and gas extraction extraction EXTERNAL: Some countries/institutions see the GHG: emission from coal are very high; DISPLACEMENT: Limited displacement technology as non-sustainable emission from gas is low impact Imports Fossil fuels Power Environmental and social impacts are relatively low. But there are significant risks of energy and economic security with imported fuels. Power exchange with neighbouring countries will have generally positive environmental benefits much like DSM interventions. But there can be energy security (political) risks if imports constitute a significant share of the local demand; there are also economic risks if power exports are not realized as planned.

34

Total costs Economic, environmental, social and political impacts (risks) of options are summarized in the following table. Impacts are generalized and presented by resource (technology) although as explained previously impacts are location specific. Some generalized remarks can be made across options: DSM measures are generally the least cost option and also have positive environmental and social impacts and no political risks; Large hydropower plants are the least-cost option among supply alternatives; it costs 40% less than the next least-cost alternative (geothermal power). However, large hydropower can have significant environmental and social impacts; considerably more than the rest of the alternatives; Geothermal, wind and solar energy have low environmental, social and political impacts and risks. Geothermal is also economically attractive; wind can be viable compared to thermal plants on the grid; but solar will be an expensive option for the grid; Power from biomass residues is an economically competitive supply option; it also has positive environmental impacts; Coal and natural gas power plants are economically competitive with the more expensive large hydropower plants; coal mining can have significant environmental impacts, especially if the mining area has special features (such as high biodiversity or it is ecological sensitive). Coal also emits the highest GHG per unit of electricity generated. Summary of benefits and costs of alternatives [n = negligible]
Option Economic LC Rate US$/kWh 0.011 0.038 0.004 0.047 0.029 0.074 0.053 0.111 0.430 0.078 0.064 0.080 0.136 0.054 0.073 Environmental Local Global Social Political Live- Displace- Local Policy External lihoods ment + + + + n n n n n n n n + + + + n n n n n n n n n + + + + + + + + + + + n + + + + + + + + + + + + + + + + + + + + + + + + + +

DSM options Residential lighting Residential injera baking Commercial lighting Commercial water heat Supply options Hydro Large Small Geothermal Wind Solar (PV grid) Biomass Bagasse Land Fill Gas Agri-residue Oil Coal Natural gas

++ ++ ++ ++ ++ + + -+ + + + +

+ + + + -n n n n + + + n n

+ + + + n n n n n + + + --

The above comparison is only indicative. Some factors are not considered, among them: the assessment does not consider additional economic benefits (additional to power) of the alternatives. For example, hydropower reservoirs can be used for irrigation, navigation, water management; DSM measures reduce household energy budgets therefore effectively increase household incomes. the Levelized cost assessment does not capture all costs. For example, DSM, wind and solar options may not be available when needed and they cannot also be stored, this makes them less available than conventional technologies thus further increase their true cost.

35

4.3.2.4 Design of an integrated least-cost demand and supply side plan An integrated least-cost plan in the context of Ethiopia will consist of DSM programs, low-cost indigenous supplies, and power exchange within the East African Power Pool. A balanced mix of these measures will improve the diversity of the power system and reduce its vulnerability to natural and economic uncertainties. The integrated plan should have diversity not only in the DSM/supply mix but also in suppliers as well. For this reason the integrated plan should encourage IPP engagement in the power sector on and off the grid. IPPs can consist of state and private companies. In the Ethiopian context, the role for state companies as IPPs can be considerable especially for biomass based generation (sugar estates from bagasse, municipalities from land fill gas). Private IPPs can engage in hydropower and biomass based supply for the grid and for off-grid. The alternatives are outlined in the order of priority as follows: a. DSM programs can make significant contribution by deferring generation capacity; they have certain special advantages that should make them top priority including low capital and OM costs, reduction in T&D losses, and considerable savings to customers that will enhance their incomes or competitiveness. DSM is also a local resource and enhances energy security and can be implemented quite rapidly (short-lead times). The most cost-effective DSM programs with potentially sizable impact include efficiency improvement for residential and commercial lighting (CFL for incandescent), fuel switching for water heating (to solar energy), and industrial efficiency. These programs will not only save energy but will also have significant contribution in reducing the evening peak demand. DSM program implementation can be through regulation, information, and incentives. Regulatory requirements will include standards, power tariffs, duties and taxes; information and training in energy management can be effective (for example, in industry); and grants and subsidies can be used directly to affect customer behaviour (for example, giving away CFL lamps to residential customers). The main stakeholders in DSM program promotion are the Ethiopian Electricity Agency (EEA) as the power sector regulator, EEPCO and the customers. The EEA will have the key position in formulating and implementing DSM programs. End use disaggregated demand assessment is required to fully understand and exploit DSM opportunities. Unfortunately, such data is not available at the required detail. Without such data DSM impacts cannot be estimated and if implemented cannot be monitored and evaluated. Demand assessment at end use level should be priority for the utility and the EEA. b. Indigenous resources will have the most significant share in the mix because of low costs, additional economic benefits, and for energy/economic security reasons. As the least-cost supply option, large hydropower will continue to dominate supplies on the grid. However, a diversification strategy should also include geothermal and coal in the supply mix and should also open the grid for biomass based power generation by IPPs. Large hydropower is economically the least-cost supply option therefore will continue to be top priority for government. Unit costs of hydropower generation will rise as lower cost sites are developed while transmission costs will go down due to existing plants. Therefore, total unit cost rises (generation and transmission) may be limited. Small hydropower can contribute significantly to grid supplies. Unit costs of generation are higher than large hydropower plants but significantly lower than oil based power plants on the grid. IPPs can develop such sites; small hydropower plants can also be designed, constructed and managed by Ethiopians thereby developing local capacities. Geothermal power is the second cheapest source of power generation on the grid. Gross resource availability is reported to be considerable but there are no ready feasibility studies to enable development of resources in the short term. Detail assessment of resources should be a priority. Finance for such studies are available from the GEF and other sources. Coal and natural gas power plants are among the cheaper indigenous supply alternatives. Coal power plants can also run on imported coal.

36

 Biomass power plants are ideal as IPP supply sources: they are already on the grid (drawing power from the grid to meet shortfalls from their own generation) and therefore will incur little extra inter-connection cost to the grid; they will employ resources which otherwise would be unused therefore enhance competitiveness of industries; and power plants can be flexible. Biomass combustion power plants have the additional advantage of flexibility. Such plants can use biomass, coal or oil depending on the relative cost of the fuels. This is an important advantage because local biomass availability will be seasonal and supply shortfalls (if and when they happen) can be met with coal or oil imports. c. Power exchange within the EAPP will enhance supply diversity, and reduce required reserve capacity and emergency supplies. System inter-connections are already committed for Sudan and Djibouti, inter-connection with Kenya are under study. Sudan and Kenya are expanding their system through a mix of thermal, hydro and geothermal plants. Sudan appears to be the main power exchange partner because of the size of its system and its demand. EEPCOs Master Plan Update (2006) states three main benefits of power exchange with the Sudanese system: 1. 2. EEPCO selling low cost hydropower to replace costly thermal generation in Sudan; Potential mismatch of seasonal generation from Sudanese hydropower stations and seasonal Sudanese demand may be ameliorated by exchange of Sudanese hydropower to Ethiopia during surplus generation then buying back from Ethiopia during shortfalls (the so called energy banking mechanism); EEPCO buying thermal energy from Sudan during times of drought or during emergences; thermal power import from Sudan will be cheaper than thermal power generation in Ethiopia because Ethiopia is an importer of

3.

Summary of resources, applications and developers, MW Energy resources Gross Economic potential potential
DSM options 5% to 10% of peak demand Grid, EEA/EEPCO and generation

Domestic resources Hydro Large Small (<10MW) Micro (<500kW) Geothermal Wind Solar Biomass Bagasse Biofuels Land Fill Gas Agri-residue Coal Natural gas Imports Power (Sudan, Kenya

184,000 na 100 700 169,000 100MWe/k m2 424 n 24 80 na na

45,000 na 100 300 7,000 100

Grid, EEPCO/IPP Grid, IPP Off-grid, private/cooperatives Grid, EEPCO/IPP Grid, EEPCO/IPP Off-grid, private/cooperatives

424 n 24 80 100 600

Grid, IPP Grid, IPP Grid, IPP Grid, IPP Grid, EEPCO/IPP Grid, EEPCO/IPP Grid, EEPCO Power exchange mainly with Sudan

Alternatives screening summary In summary Ethiopias power system development strategy should encompass a mix of DSM, indigenous resource and power exchange with neighbouring countries. The strategy should also consider IPPs as important partners for meeting demand on and off the grid. Regarding indigenous resource development Ethiopia has considerable resource diversity in addition to hydropower and geothermal, coal, gas, biomass and wind resources can contribute to a sustainable supply mix. The following table summarizes the benefits and costs of the alternatives considered.

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Alternatives screening summary

Resource/technology Strategy (mix) DSM + low-cost indigenous resources + power exchange. Utility/EEA + Utility/IPP + Utility/EAPP Low cost indigenous resources = Large hydro + geothermal + coal + biomass + small hydro + wind DSM Top priority Lowest unit costs; highest environmental and social benefits Priority sectors are residential and commercial customers DSM promoters are EEA and EEPCO Least cost supply option for Ethiopia High investment requirement, but low unit energy cost Significant drought risks and also significant environmental and social impacts Significant additional economic benefits (irrigation, fishery, water control) Viable for development by EEPCO and IPPs

Large hydro

Small and micro hydro

Relatively high unit energy cost compared to large hydro; but competitive with thermal plants on the grid Low environment and social impacts Suitable for development by local lPPs The second cheapest supply alternative Environment and social impacts are negligible Extent of resource and cost of production not adequately known Suitable for development by EEPCO or IPPs

Geothermal

Wind

Relatively high unit energy cost compared to large hydro; but competitive with thermal plants on the grid Low environment and social impacts Suitable for development by EEPCO and IPPs Unit cost of generation 15 times as high as large hydropower; not competitive for grid supply but viable for off-grid applications Significant potential from agro-industries including sugar, cotton, coffee and biofuels Relatively low cost supply for the grid Top priority for IPP supply to the grid The third least cost option after large hydro and geothermal power (included in the short-term expansion plan) Potential local environmental impact of mining NOT power generation Highly GHG intensive per unit of electricity generated Suitable for development by EEPCO and IPPs Competitive for grid supply in the long-term; included in the long-term prospective plan Transmission costs will be significant Suitable for development by EEPCO and IPPs Low cost of supply Reduced investment, standby reserve and emergency requirements Market for surplus power; source during shortfalls Negligible environment and social impacts

Solar Biomass

Coal

Natural gas

Power exchange

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5. Conclusion and recommendations

The overall assessment of the Ethiopian power sector indicates necessary measures that need to be taken in the power sector planning. Along with development of new power plants, measures such as demand side management (DSM), improvement of transmission losses, and assessment and implementation of alternative resource and supply options need to be considered. DSM measures are low cost options and also provide opportunities to involve consumers in raising the investment required. DSM measures are applied to end-use devices at the consumers end. In this regard, with relevant supporting policy measures, consumers themselves can raise the required investment. The power sector planning body however, need to investigate potential demand side technologies that can bring efficiency improvement or energy substitution opportunities (improving performances of electric motor, replacing electric geysers with solar water heaters, efficient lighting and cooking appliances, etc). Electricity transmission and distribution losses in Ethiopia reach 20%. This is very high compared to a typical range of 10% to 13%. These losses need to be limited under 15% in the mid-term electrification plan which aims to meet the growing demand forecasted to reach 10,800 GWh by 2015. The additional power plant otherwise needed to compensate the losses could be over 5% of the required plant capacity in the mid-term plan. Among other mechanisms, distributed power generation through IPPs could also help improve transmission and distribution losses. The section of this report that deals with energy resource potentials of the country indicates that Ethiopia has abundant energy resources of various types including hydro, biomass, geothermal, wind, solar, natural gas and coal. However, due to its least cost per kWh, high availability factor, abundance of resource and the utilitys past experiences, decisions and choices of supply options are influenced towards hydro power as single useful resource for power generation. As a result, power sector development plan in Ethiopia seems to have very little enthusiasm to other resources and supplier options. Total dependence on hydropower is already costing the country. Even though hydropower seems to be the least cost option per unit of power generated, full costs of environmental and social losses are not usually considered in developing countries. Moreover, securing high capital investment needed and longer construction time required for large hydropower plants are factors that usually result in delay in completion and commissioning of plants. The cost of failure to match the supply to the growing demand can be more detrimental than the assumed high cost of electricity that can be generated from other supply options. IPPs should be encouraged to develop resources and contribute to the total power sector development of the country. Appropriate laws need to be formulated so that private investments in the power sector will be encouraged and protected. Access to the grid should be permitted for IPPs through power purchase agreements and encouraging feed-in-tariff law. In this regard, the feed-in-tariff proclamation which EEA is drafting at the moment should be finalized and put in place. On the other hand, knowledge about availability of generation resources is crucially important for power sector planners and decision makers to make informed decision. Availability of resources must be assessed, documented, and shared. Stakeholders need to put their integrated efforts in capacity building and awareness creation, documentation and exchange of information about resource potentials and technologies. National policies are generally supportive of renewable and other alternative power generation options. However, lack of implementation strategies added to unclear regulations discourages development in the sector. Existing policies and strategies need to be revised periodically as realities and priorities are dynamically changing. Strategic Environmental Assessment must be applied for periodic evaluation of our policies and regulations. Legal enforcement is also required to ensure that developers carry out EIA prior to the commencement of power plant developments and implement EIA measures as outlined in approved EIA documents.

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References ADB, SEI, 2008. Strategic Environmental Assessment for Sustainable Hydropower Development in Viet Nam Policy Summary July 2008. AFREPREN, 2001. AFREPREN Occasional Paper, No. 2, Bagasse Based Cogeneration in Mauritius A Model for Eastern and Southern Africa. Besant-Jones, John E., 2006. Reforming Power Markets in Developing Countries: What Have We Learned? The World Bank Group Bezuayehu Tefera Olana. 2006. People and Dams: environmental and socio-economic changesinduced by a reservoir in Finchaa watershed, western Ethiopia. (Doctoral Thesis) Wageningen University. Campagna per la Riforma della Banca Mondiale , CEE Bankwatch Network, 2008. The Gilgel Gibe Affair: An analysis of the Gilgel Gibe hydroelectric projects in Ethiopia Cernea, Michael M., 2004. Social Impacts and Social Risks in Hydropower Programs: Preemptive Planning and Counter-risk Measures, Keynote address: Session on Social Aspects of Hydropower Development United Nations Symposium on Hydropower and Sustainable Development Beijing, China, 27-29 October, 2004 DSa, A., 2005. Integrated resource planning (IRP) and power sector reform in developing countries, Energy Policy 33 (2005) 12711285 EEPCO 2006. Ethiopian Power System Expansion Master Plan Update (EPSEMPU) EEPCO. 2008? Gilgel Gibe III, Environmental and Social Impact Assessment (ESIA) ENEC-CESEN, 1986. Main Report EREDPC, 2006. The Off-Grid Rural Electrification Master Plan, Final Report. EREDPC/ERG, 2007. Background Study on Solar and Wind energy Assessment. Ethiopian Valleys Development Studies Authority, June 1990. Preliminary Water Resources Development Master Plan for Ethiopia, Final Report, Volume VII, Annex J. Greening L. A., Bernow S., 2004. Design of coordinated energy and environmental policies: use of multi-criteria decision-making, Energy Policy 32 (2004) 721735. Getnet Tesfaye and Wegayehu Wendimu, 2006. Solar water heaters: benefits and market potential. GTZ/Lahmeyer, 2006? Wind Park feasibility study for Mesobo-Harena GTZ/Terna Wind Energy Program, 2006. Feasibility Study Wind Park Development in Ethiopia and Capacity Building, Mesobo-Harena Wind Park Site, Part II, Final Draft Report, June 2006 Harvey, Adam and Anwar A. Junejo. 1995. Institutional models for MHP. In: Hydronet, Micro hydropower network, 2/95. Hiremath R.B., et. al, 2009. Decentralised renewable energy: Scope, relevance and applications in the Indian context, Energy for Sustainable Development 13 (2009) 410. Holland, Ray et. al. 2000. Decentralized rural electrification: the critical success factors. ITDG. IAEA, 2003. Case Studies to Assess and Compare Different Energy Sources in Sustainable Energy and Electricity Supply Strategies, Final Report of a Co-ordinated Project 1997-2000. IMF, 2009. World Economic Outlook available online at http://www.imf.org/external/pubs/ft/weo International Hydropower Association (IHA), 2004. Sustainability Guidelines International Rivers, 2008. What Cost Ethiopias Dam Boom? A look inside the Expansion of Ethiopias Energy Sector. Karekezi, S., Sihag, A.R, 2004. Energy Access Working Group, Global Network on Energy for Sustainable Development, Final Synthesis/Compilation Report. Krysanova, Valentina et. al. 2008. Practices and Lessons Learned in Coping with Climatic Hazards at the River-Basin Scale: Floods and Droughts, Ecology and Society 13(2): 32. Kublank, Peter. 1996. Institutional needs and models to support the dissemination of microhydro for rural electrification. In: Hydronet, Micro hydropower network, 2-3/96. Martinet, Eric, et. al, 2000. The GEF Solar PV Portfolio: Emerging Experience and Lessons, Monitoring and Evaluation Working Paper 2, August 2000 Mollalign Abebe, 2006. The Question of Sovereign Guarantee for the Development of Electricity Generation in Ethiopia, Ethiopian Electricity Agency, November 27, 2006. Ministry of Finance and Economic Development (MoFED), 2006. Ethiopia: Building on Progress, A Plan for Accelerated and Sustained Development to End Poverty (PASDEP), (2005/06-2009/10) Ministry of Water Resources, 1998. Abay River Basin Integrated Resource Development Master Plan Study Project (water resources, hydropower), 1998. Ministry of Water Resources, 1997? Omo-Gibe River Basin Integrated Resource Development Master Plan Study Project (water resources, hydropower), 1997. Ministry of Water Resources, 2007. Rift Valley Lakes Basin Integrated Resource Development Master Plan Study Project, Geothermal Energy, 2007.

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National Meteorological Services Agency, 2001. Initial National Communication of Ethiopia to the United Nations Framework Convention on Climate Change (UNFCCC) RETScreen International, 2009. RETScreen Clean Energy Analysis Tool. SEI and ITDG, 2001. Financing Renewable Energy. Shrestha Ram M.,, Marpaung Charles O.P., 2005. Integrated resource planning in the power sector and economy-wide changes in environmental emissions, Energy Policy 34 (2006) 38013811 Stirling, A., 2009. Multi-criteria diversity analysis A novel heuristic framework for appraising energy portfolios, Energy Policy (2009), doi:10.1016/j.enpol.2009.02.023. UNDP, 2008. Human Development Report available online at http://hdrstats.undp.org/2008/countries/country_fact_sheets/cty_fs_ETH.html UNDP, 2006. Distributed generation: options and approaches, UNDP, sustainable energy regulation and policymaking for Africa UNEP, 1997. Tools and Methods for Integrated Resource Planning. Improving Energy Efficiency and Protecting the Environment. Urban F., Benders R.M.J., Moll H.C., 2007. Modelling energy systems for developing countries, Energy Policy 35 (2007) 34733482 WBISPP, 2000. Energy consumption and biomass fuel supply data tables. World Bank, 2005. Water Resources, Growth and Development, A Working Paper for Discussion Prepared by The World Bank for the Panel of Finance Ministers, The U.N. Commission on Sustainable Development

World Bank, 2006. Ethiopia: Managing Water Resources to Maximize Sustainable Growth.

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Glossary
Biomass
Climate change (IPCC usage)d

Organic non-fossil material of biological origin constituting a renewable energy source.

Climate change as referred to in the observational record of climate occurs because of internal changes within the climate system or in the interaction between its components, or because of changes in external forcing either for natural reasons or because of human activities. It is generally not possible clearly to make attribution between these causes. Projections of future climate change reported by IPCC generally consider only the influence on climate of anthropogenic increases in greenhouse gases and other human-related factors.

Dam

DSM (Demand side management) Dependable capacity Dispatchability

End Use End Use Sectors Energy

Energy Efficiency Energy Security

ESCO (Energy Services Company)

Environmental Impact Statement

Firm Energy Firm Power

Geothermal Global Warming

A physical barrier constructed across a river or waterway to control the flow of or raise the level of water. The purpose of construction may be for flood control, irrigation needs, hydroelectric power production, and/or recreation usage. The methods used to manage energy demand including energy efficiency, load management, fuel substitution and load building. The load carrying ability of a station or system under adverse conditions for a specified period of time. This is the ability of a generating unit to increase or decrease generation, or to be brought on line or shut down at the request or a utility's system operator. The specific purpose for which electric is consumed (i.e. heating, cooling, cooking, etc.). The residential, commercial, industrial, and transportation sectors of the economy. The capacity for doing work as measured by the capability of doing work (potential energy), or the conversion of this capability to motion (kinetic energy). Energy has several forms, some of which are easily convertible and can be changed to another form useful for work. Most of the world's convertible energy comes from fossil fuels that are burned to produce heat that is then used as a transfer medium to mechanical or other means in order to accomplish tasks. Electrical energy is usually measured in kilowatt hours, while heat energy is usually measured in British thermal units. Programs that reduce consumption. Policy that considers the risk of dependence on fuel sources located in remote and unstable regions of the world and the benefits of domestic and diverse fuel sources. ESCOs would be created in a deregulated, openly competitive electric marketplace. The Energy Services industry would be made up of power aggregators, power marketers and brokers, whose job is to match buyers and sellers, tailor both physical and financial instruments to suit the needs of particular customers, and to allow even the smallest residential customers to form buying groups or cooperatives that will give them the same bargaining power as large industrial customers. A report that documents the information required to evaluate the environmental impact of a project. It informs decision makers and the public of the reasonable alternatives that would avoid or minimize adverse impacts or enhance the quality of the environment. Power or power producing capacity covered by a commitment to be available at all times during the period. Power or power producing capacity, intended to be available at all times during the period covered by a guaranteed commitment to deliver, even under adverse conditions. An electric generating station in which steam tapped from the earth drives a turbine generator, generating electricity. An increase in the near surface temperature of the Earth. Global

42

warming has occurred in the distant past as the result of natural influences, but the term is today most often used to refer to the warming some scientists predict will occur as a result of increased anthropogenic emissions of greenhouse gases.
GHG (Greenhouse gas) d A gas that absorbs radiation at specific wavelengths within the spectrum of radiation (infrared radiation) emitted by the Earths surface and by clouds. The gas in turn emits infrared radiation from a level where the temperature is colder than the surface. The net effect is a local trapping of part of the absorbed energy and a tendency to warm the planetary surface. Water vapour (H2O), carbon dioxide (CO2), nitrous oxide (N2O), methane (CH4) and ozone (O 3) are the primary greenhouse gases in the Earths atmosphere.

Grid GDP (Gross Domestic Product) Hydropower ICS b (Inter-Connected system) IPP (Independent Power Producer)

Insolation Installed Capacity

Intermittent Electric Generator or Intermittent Resource

Intermittent Resources

IRP (Integrated Resource Planning)

LC (Levelized Cost)

Levelized LFG (Land Fill Gas)

The layout of an electrical distribution system. The total value of goods and services produced by labour and property located in the country concerned. The production of electricity from the kinetic energy of falling water. . This is the term used for EEPCOs grid connected system. The system is largely supplied by large hydropower plants with a combined installed capacity of 775MW (2007). Wholesale electricity producers that are unaffiliated with franchised utilities in the area in which the independent power producers are selling power and that lack significant marketing power. Unlike traditional electric utilities, independent power producers do not possess transmission facilities that are essential to their customers and do not sell power in any retail service territory where they have a franchise. The total amount of solar radiation (direct, diffuse, and reflected) striking a surface exposed to the sky. The total generating units' capacities in a power plant or on a total utility system. The capacity can be based on the nameplate rating or the net dependable capacity. An electric generating plant with output controlled by the natural variability of the energy resource rather than dispatched based on system requirements. Intermittent output usually results from the direct, non stored conversion of naturally occurring energy fluxes such as solar energy, wind energy, or the energy of free flowing rivers (that is, run of river hydroelectricity). Resources whose output depends on some other factory that cannot be controlled by the utility e.g. wind or sun. Thus, the capacity varies by day and by hour. The underlying principles of IRP can be distinguished from the formal process of developing an approved utility resource plan for utility investments in supply and demand side resources. A primary principle is to provide a framework for comparing a variety of supply and demand side and transmission resource costs and attributes outside of the basic provision (or reduction) of electric capacity and energy. These resources may be owned or constructed by any entity and may be acquired through contracts as well as through direct investments. Another principle is the incorporation of risk and uncertainty into the planning analysis. The public participation aspects of IRP allow public and regulatory involvement in the planning rather than the siting stage of project development. The present value of the total cost of building and operating a generating plant over its economic life, converted to equal annual payments. Costs are levelized in real dollars (i.e., adjusted to remove the impact of inflation). A lump sum that has been divided into equal amounts over period of time. Gas that is generated by decomposition of organic material at landfill disposal sites. The average composition of landfill gas is approximately

43

Lifecycle cost MW (Megawatt) MWe (Megawatt Electric) MWh (Megawatt Hour) Municipal Waste

Power Pool

PPA (Power Purchasing Agreement)

Regional Power Exchange

SCS b (Self Contained System)

SEA (Strategic Environmental Assessment) c

50% methane and 50% carbon dioxide and water vapor by volume. The methane percentage, however, can vary from 40 to 60%, depending on several factors including waste composition (e.g. carbohydrate and cellulose content). The methane in landfill gas may be vented, flared, combusted to generate electricity or useful thermal energy on site, or injected into a pipeline for combustion off site. Amount of money necessary to own, operate and maintain a building over its useful life. One million watts. One million watts of electric capacity One thousand kilowatt hours or one million watt hours. As defined in the Energy Security Act (P.L. 96 294; 1980) as any organic matter, including sewage, sewage sludge, and industrial or commercial waste, and mixtures of such matter and inorganic refuse from any publicly or privately operated municipal waste collection or similar disposal system, or from similar waste flows (other than such flows which constitute agricultural wastes or residues, or wood wastes or residues from wood harvesting activities or production of forest products). An association of two or more interconnected electric systems having an agreement to coordinate operations and planning for improved reliability and efficiencies. This refers to a contract entered into by an independent power producer and an electric utility. The power purchase agreement specifies the terms and conditions under which electric power will be generated and purchased. Power purchase agreements require the independent power producer to supply power at a specified price for the life of the agreement. While power purchase agreements vary, their common elements include specification of the size and operating parameters of the generation facility; milestones in service dates, and contract terms; price mechanisms; service and performance obligations; dispatchability options; and conditions of termination or default. An entity established to coordinate short term operations to maintain system stability and achieve least cost dispatch. The dispatch provides back up supplies, short term excess sales, reactive power support, and spinning reserve. The pool may own, manager and/or operate the transmission lines or be an independent entity that manages the transactions between entities. This is the term used for the collection of EEPCOs off-grid generators. The system is composed of small hydropower plants and diesel generators with total combined capacity of only 32MW in 2007 (compared to 775MW for the ICS for the same year). SEA is a structured approach to integrate environmental (and social, with the assessment of impacts on local communities and the wider population an integral part of the SEA process) considerations into strategic decision making such as the formulation of policies, plans and programmes. It is an increasingly popular and important procedure, seen by many as a prerequisite for moving towards sustainable development. SEA departs from a growing recognition for a demand-driven approach to environmental assessment, in which the prediction of impacts have a role but is not the sole purpose. This means that it is not only set up as an environmental safeguard process, but perhaps more importantly a strategic decision-making support tool. It is therefore not just a question of analyzing potential impacts but involves a broader process of policy analysis and decision support including the setting of objectives, generating alternatives and scenarios, impact analysis and weighting of different alternatives based on multiple development objectives. EEPCOs service expansion program to extend access to 50% of the

UEAP b (Universal

44

Electricity Access Program)

population by 2010 and 100% access by 2015.

Sources: All terms are from the online Energy Glossary (http://www.energyglossary.com/EG_P.html) except those marked (a) which are from the National Council for Public Private Partnership, US (http://www.ncppp.org/howpart/ppptypes.shtml), those marked ( b) which are own definitions, (c) from ADB, SEI, 2008, and (d) from the Intergovernmental Panel on Climate Change (IPCC) at http://www.ipcc.ch/publications_and_data/publications_and_data_glossary.htm

The eight most common impoverishment risks (source: Cernea, Michael M., 2004. Social Impacts and Social Risks in Hydropower Programs: Preemptive Planning and Counter-risk Measures).

Landlessness

Joblessness

Homelessness

Marginalization

Increased morbidity and mortality

Food insecurity

Loss of access to common property

Social disarticulation

Expropriation of land removes the main foundation on which many people build productive systems, commercial activities and livelihoods. Often land is lost forever, sometimes it is partially replaced, seldom fully replaced or fully compensated. This is the main form of decapitalization and pauperization of the people who are displaced. Both natural and man-made capital are lost. Loss of wage employment occurs both in rural and urban displacement. People losing jobs may be landless agricultural laborers, service workers, or artisans. The unemployment or underemployment among resettlers may linger long after physical relocation. Creating new jobs for them is difficult and requires substantial investment, new creative approaches, and relying more on sharing project benefits. Loss of housing and shelter may be only temporary for many people, but for some it remains a chronic condition for long periods. Loss of home is perceived also as loss of identity and cultural impoverishment. Loss of dwelling may have consequences on family cohesion and mutual help patterns if neighbouring households of the same kinship group get scattered. Group relocation of related people and neighbours is therefore preferable over dispersed relocation. Marginalization occurs when relocated families lose economic power and slide down towards lesser socio-economic positions: middle income farm-households become small landholders; small shopkeepers and craftspeople lose business and fall below poverty thresholds, and so on. Human capital (skills) may be lost or rendered obsolete. Economic marginalization is often accompanied by social and psychological marginalization, expressed in a drop in social status, in resettlers loss of confidence in themselves and in society, in a feeling of injustice and vulnerability. The exposure of the poorest people to illness is increased by forced relocation, because it tends to be associated with increased stress, psychological traumas, and the outbreak of parasitic and vector-born diseases. Serious decreases in health levels result from unsafe water supply and sewage systems that proliferate epidemic infections, diarrhea, dysentery, etc. Forced uprooting diminishes self-sufficiency, often dismantles local arrangements for food supply, and thus increases the risk that people will fall into chronic food insecurity. This is defined as calorie-protein intake levels below the minimum necessary for normal growth and work. Poor farmers, particularly those without assets, suffer a loss of access to the common property goods belonging to communities that are relocated (e.g., loss of access to forests, water bodies, grazing lands, etc.). This represents a form of income loss and livelihood deterioration that is typically overlooked by planners and therefore uncompensated. The dismantling of community structures and social organization, the dispersion of informal and formal networks, local associations, etc. is a

45

massive loss of social capital. Such disarticulation undermines livelihoods in ways usually not recognized and not measured by planners, and is a cause of disempowerment and impoverishment. The risks discussed above differentially affect various categories of people: rural and urban, tribal and non-tribal groups, children and the elderly. Research findings show that women suffer the impacts of displacement more severely than men.

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Annex
ICS and SCS Installed Capacity (MW), 2007 ICS Plant Name Koka Awash II Awash III Finchaa Melka Wakana Tis Abay I Tis Abay II Gilgel Gibe Aluto Langano Sub Total Alemaya Dire Dawa Adigrat Axum Adwa Mekele Shire Jimma Nekempt Awash 7 Kilo Kaliti Dire Dawa Ghimbi Sub Total ICS Total SCS Total G Total Source: EEPCO Hydro 43.2 32 32 134 153 11.4 73 184 662.6 Diesel 0 2.3 4.5 2.5 3.2 3.0 5.7 0.8 1.0 1.1 35.0 14.0 38.0 1.1 112.2 112.2 25.5 137.7 Geothermal 7.3 7.3 7.3 7.3 7.3 Total 43.2 32 32 134 153 11.4 73 184 7.3 669.9 2.3 4.5 2.5 3.2 3.0 5.7 0.8 1.0 1.1 35.0 14.0 38.0 1.1 774.6 782.1 31.7 813.8 Commissioning year 1960 1966 1971 1973, 2003 1988 1964 2001 2004 1999 1958 1965 1992, 1993,1995 1975, 1992 1998 1984, 1991,1993 1975,1991, 1995 NA 1984 2004 2004 2004 1962, 1984

662.6 662.6 6.1 668.7

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