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September 25, 2023

Off-Grid Electrification in Ethiopia

Ethiopia is Africa’s second largest country with a population of 123 million, of which 77% reside in rural areas. The country has experienced a remarkable growth rate of nearly 13.7% per year in the past 15 years according to the World Bank, reaching a GDP of 126 billion dollars in 2022. Electricity consumption per capita is also rising, by an average of 8.5% over the past 20 years, reaching 90 kWh per person in 2020.

Despite Ethiopia’s economic and electricity consumption growth, the country’s electricity consumption per Individual (kWh) lags behind neighbouring countries and the Sub-Saharan Africa average, sometimes by an order of magnitude. In 2020, Ethiopia’s per capita electricity consumption was only half of the Sub-Saharan Africa average of 180 kWh per person. It is much lower than Egypt and Morocco, and about half of Kenya’s consumption. Compared to the Democratic Republic of Congo, Ethiopia’s consumption is approximately 25 kWh per person lower. The Democratic Republic of Congo is third in the world for off-grid population, following Nigeria and Ethiopia. By these measures, and considering its high economic growth rate, Ethiopia has significant upside potential in its energy sector.

The Ethiopian Government is responding, and introduced the national electrification plan (NEP) in 2017 to provide universal access to electricity by 2025. The plan aims to connect 9.2 million households, or approximately 35% of the population, with off-grid technologies such as Solar Home Systems and Solar Mini-Grids, while the rest (65%) of the population is expected to be connected through electric grid. In addition, the government plans to use off-grid solar technology for productive use, which could generate an extra 4 billion USD across six sectors, according to a Rocky Mountains Institute report. Off-grid power allows for a faster rate of electrification in the parts of the country where distribution infrastructure is lacking.

However, the electrification plan has been facing some bottlenecks, particularly in the off-grid targets. These challenges include poor foreign exchange position in the economy, lack of financing for working capital. Off-grid solar companies face difficulties in importing solar products due to delays in accessing foreign currency. Commercial banks are hesitant to loan based on company inventory collateral, and the lack of infrastructure (financial, telecommunications and road) in rural areas impacts the speed and efficiency of product delivery. Nevertheless, steps are being taken to mitigate these effects, and the Ethiopian Government is continuously reviewing the parameters of the infrastructure rollout.

The National Electrification Plan (NEP) aims to provide universal access to electricity by 2025, which would have numerous positive social ramifications. Off-grid technologies like Solar Home Systems and Solar Mini-Grids are planned to generate an additional 4 billion USD of GDP across six sectors. Achieving off-grid electrification targets could also create jobs estimated at between 160,000 and 360,000 people. Increased access to electricity would improve living standards, enabling higher standards of education, and access to healthcare services, while the large share of solar technology minimizes carbon impact.

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