Wednesday, February 28, 2024
NewsOff-grid electrification scheme launches with USD340 mln projects

Off-grid electrification scheme launches with USD340 mln projects

The Ethiopian Electric Utility (EEU) has initiated a World Bank-backed project that would see the electrification of up to 200 rural towns using off-grid power generation.

Two international bidders have secured contracts worth over USD 339 million for the construction of 30 off-grid solar sites in five regional states.

The Utility has signed four separate contracts with China-based JV of Nornico International and SAC (Godiang Nanging) Automation and ZTT.

The 30 off-grid sites included in the contracts are spread across the Oromia (13), SNNPR (8), Somali (6), Gambella (2), and Sidama (1) regional states.

“Contractors are mobilizing to the sites,” said EEU Project Portfolio Management Director Lemlem Mesganaw.

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The Director disclosed the EEU is also close to signing contracts for 50 additional sites.

The 30 off-grid sites are set to be built in rural towns, from which electricity would be distributed to closeby deep rural areas. The sites are classified into three groups based on the power they generate.

The contractors are obliged to construct solar grid systems and operate them for a period of six months following completion, simultaneously training EEU employees to take over once the contract runs out.

The photovoltaic systems to be installed are expected to produce a total of 12,450 kwp of energy, connected to a direct current micro-grid system that will enable the efficient distribution of electricity to deep rural areas.

The milestone EEU project is financed by a USD 500 million loan through the World Bank’s Access to Distributed Electricity and Lighting in Ethiopia (ADELE) initiative. The majority of the funding is allocated to the off-grid project, while USD 100 million is earmarked for infrastructure maintenance projects in 10 cities.

The EEU, the Ministry of Water and Energy, and the Development Bank of Ethiopia (DBE) spearhead the project. The EEU is responsible for the installation and operation of the off-grid systems, while the Ministry and DBE take on roles in capacity building for the country’s fledgling solar energy industry.

Addis Alem heads the team in charge of the project at MoWE. Addis explains the Ministry and DBE are responsible for fostering access to finance for local companies engaged in solar energy, with hopes of enabling them to distribute solar home systems to over 750,000 households, particularly in remote areas.

“We have floated a contract notification to hire an international consulting firm, to consult on a viable financial incentive system that can be applicable for local solar companies and users as well as what the supply purpose incentive should look like,” said Addis.

The Ministry and DBE are conducting a study on the applicability of both result-based financing and finance incentives to local companies, aiming to create an operational manual to implement the ADELE project.

Access to finance is one of the main challenges investors in the Ethiopian solar energy market face.

Foreign currency shortages, high collateral requirements from banks, and policy and regulatory issues are among the drawbacks holding local energy companies back from realizing their potential.

“We need foreign currency to import items, working capital to widen our distribution networks, and operating capital to expand the supply chain and build necessary market infrastructure,” said Thomas Koepke, general manager of Fosera Solar Systems Manufacturing Plc.

Koepke emphasized the need for better financial incentives, pointing to duty privileges granted to importers while manufacturers are obliged to pay taxes on imported raw materials. He wants to see officials implement tax exemptions for the solar energy industry.

An owner of a company engaged in solar heater manufacturing claims the government has close to no interest in hiring local firms as suppliers for its large projects.

Government officials, on the other hand, argue for the need for further development.

“The local solar energy companies do not have the capacity to provide us with what we need at the scale we require,” said Lemlem from EEU. 

Addis foresees that demands from local investors will be met when the DBE launches the finance portion of the ADELE project.

In 2019, the federal government estimated a spending of USD 1.7 billion to set up 9.2 million off-grid connections by 2025.

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Video from Enat Bank Youtube Channel.

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