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PROJECT: Mobilising Investment for NDC implementation in Ethiopia

Mobilising Investment for NDC Implementation (MI) was launched by CDKN, SouthSouthNorth and LEDS-GP in 2017. The project works with seven partner countries around the world, namely Bangladesh, Ethiopia, Kenya, Peru, Dominican Republic, Philippines and Vietnam, to accelerate public and private investment in priority NDC sectors and markets.

Context

Ethiopia has a well-developed policy environment with key development strategies articulated in the Growth and Transformation Plan II (GTP II), the Climate Resilient Green Economy (CRGE) published in 2011 and the National Electrification Program 2.0 (NEP 2.0).

At the start of the Mobilising Investment project, SouthSouthNorth (SSN) undertook a scoping study to identify sectors requiring support. Based on input from the Ethiopian Government (GoE) and alignment with the government’s policy objectives, SSN determined that rural electrification through mini-grids was a sub-sector with the potential for significant developmental and climate change impact. This activity is aligned with the NEP 2.0, which was launched in November 2017, and is the country’s overarching strategy to achieve universal access to electricity by 2025. The NEP 2.0 contains ambitious electrification targets, yet about 35% of the population living in rural areas will remain without electrification. The GoE has recognised that it needs private sector investment to meet this electrification gap through solar home systems and mini-grids.

Project activities

Baseline study

Following the scoping study, after a competitive procurement process, the team selected a local Ethiopian consultancy to undertake a baseline study. The study covered in-depth market analysis on the current regulatory and financial barriers to the growth of the mini-grid sector. It also outlined stakeholders, projects and other opportunities and provided a set of policy recommendations for the sub-sector. The outputs from this analysis phase of the project included two reports produced by the local Addis office of IPE Global: Ethiopian Regulatory Environment and Capacity Constraints in Off-Grid Energy Sector & Financing Gap and Business Models in Off-Grid Energy Sector in Ethiopia.

Research into mini-grids for productive use

For the next phase of the work, again following a competitive procurement process, SSN contracted a consortium including local Ethiopian consultancy Veritas Consulting, partnered with established East African Mini Grid Developer, Powerhive. The outputs for this phase of work include the following:

  • Research into common and bankable productive uses including research into current costs of energy services in target communities and their implications for willingness to pay.
  • The development of a comprehensive financial model to outline bankable areas of using mini-grid systems for productive uses.
  • Recommendations for potential regulatory changes.
  • Recommended capital market interventions that would overcome the challenge of access to capital for mini-grid developers.

This phase of work has delivered interesting findings that have been presented to a number of senior government stakeholders. Three categories of productive use were identified:

  1. Agricultural Commercialization Clusters
  2. Milk Collection Centres
  3. Agro-industrial Parks

Agricultural Commercialization Clusters

About 87 million (79%) of Ethiopia’s approximately 110 million population resides in rural areas and predominantly relies on agriculture. Since 2010, the Agriculture Transformation Agency (ATA) has been working to transform the sector. A key part of the strategy is Agricultural Commercialization Clusters (ACCs) – collections of farmers and farms growing the same crops – which allow them to take advantage of economies of scale. ACCs are currently the main focus of the project to develop demonstration mini-grid sites. A typical cluster consists of several hundred farmers, several hundred hectares of arable land, small businesses, shops, a clinic and a few schools. Horticulture crops (mangos, avocados, bananas, tomatoes and onions) generate much higher revenue for farmers than grains but require irrigation. The initial focus of the ACCs as off-takers for mini-grids centre on irrigation, storage and agri-processing as the chief productive use-case with secondary use for small businesses, clinics, schools and households. The agriculture user cases will pay cost-reflective tariffs, which will help to subsidise other customers. ATA has confirmed the presence of substantial quantities of shallow groundwater at less than 30 meters in large parts of the country, and this is a viable source to tap into for horticulture, livestock and communities. Groundwater abstraction will need to be monitored to ensure it is done sustainably.

Milk collection centres

Ethiopia has the fifth-highest livestock population in the world and a relatively favourable climate for diary but with the lowest rate of milk production per head of cattle in sub-Saharan Africa and consequently, Ethiopia is a net importer of dairy products. Milk production is concentrated in rural communities which are still purely dependent on rainwater, and this has a direct effect on the quantity and production of milk as well as on feed and fodder. Many of the milk collection centres are without electricity, which means that cold storage of milk is impossible. As a result, investment in this sector will improve productivity, generate improved livelihoods for rural farmers and build resilience against climate change.

Mini-grid site validation and investment cases

In this current phase of work, SSN has responded to the Ministry of Water, Irrigation and Energy (MoWIE)’s request to validate 50 mini-grid sites identified by a geographic information system (GIS). Through local partner, Veritas Consulting, two teams have been assembled to travel to each location and collect a comprehensive data set which will allow MoWIE to plan the infrastructure requirements for each site. Once validated, MoWIE will likely publish these sites for private sector Engineering, Procurement, Construction (EPC) tender as part of their ongoing off-grid programme. Notably, EPC tenders do not include private sector investment. The private sector responds to open bids to undertake the EPC of the infrastructure without taking any equity or investment risks.

In terms of the productive-use workstream, SSN is developing investment cases and pre-feasibility studies on a shortlist of ten horticulture ACCs provided by the ATA. These sites will be presented to investment forums and funding calls with the aim to secure de-risked finance to establish demonstration mini-grid sites. These mini-grid sites will be closely monitored and data collected to support the investment hypothesis and manage safeguards such as water abstraction.

Photo: Mulugeta Ayene/WLE

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