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Building the Market for Rural Electrification in Ethiopia a Mini-Grid Productive Use Assessment

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Building the Market for Rural Electrification in Ethiopia a Mini-Grid Productive Use Assessment Building the Market for Rural Electrification in Ethiopia A mini-grid productive use assessment April 2020 DISCLAIMER This document is an output from the Mobilising Investment project, an initiative of the Climate and Development Knowledge Network (CDKN) and Low Emission Development Strategies Global Partnership (LEDS GP) contracted through SouthSouthNorth (SSN). The Mobilising Investment project is funded by the International Climate Initiative (IKI) of the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU), on the basis of a decision adopted by the German Bundestag. Delivery partners for the project include the National Renewable Energy Laboratory (NREL), Overseas Development Institute (ODI) and PricewaterhouseCoopers (PwC) UK. The views expressed are not necessarily those of, or endorsed by, BMU or any of the entities delivering the Mobilising Investment project, who can accept no responsibility or liability for such views or information, or for any reliance placed on them. This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, the entities managing the delivery of the Mobilising Investment project do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. About this document This document is an output from the Mobilising Investment Project for Nationally Determined Contributions (NDCs) implementation, an initiative of the Climate and Development Knowledge Network (CDKN) that is contracted through and managed by SouthSouthNorth (SSN). The International Climate Initiative (IKI) of the German Federal Ministry funds the Mobilising Investment project for the Environment, Nature Conservation and Nuclear Safety (BMU), on the basis of a decision adopted by the German Bundestag. Delivery partners for the project include the National Renewable Energy Laboratory (NREL), Overseas Development Institute (ODI) and PricewaterhouseCoopers (PwC) UK. Throughout the development of this report, a consultative approach was taken with both government and non-government stakeholders. The report was created in close cooperation with the Ethiopian Ministry of Water, Irrigation and Energy and its constituents, the Ethiopia Electric Authority and Ethiopia Electric Utility. This was to ensure the research aligned with the energy sector national goals, the national economic development agenda, and the needs and expectations of these organisations. To complement this consultative approach and for data collection, the team carried out individual stakeholder interviews. Final results from the research were presented at two multi-stakeholder workshops in Addis Ababa during the second half of 2019 and early 2020. Veritas Consulting Veritas Consulting was the lead consultancy for this project. Veritas is a multi-sector and Ethiopia-focused management consultancy. Its areas of support for clients organise around three platforms. In the private sector client area, Veritas’ work supports private equity firms and multi-national investors in transaction services and market entry analysis. For economic development support, Veritas works with the private sector facing public institutions to develop frameworks, policies and programmes to better engage with FDI and local investors. This is typically in close coordination with development partners. In public policy, Veritas supports public institutions at all levels to develop sectoral strategies that impact broad areas of the economy. Powerhive Powerhive is a technology venture founded in 2011 that partners with utilities and independent power producers to provide access to productive, affordable and reliable mini-grid electricity for millions of rural homes and businesses around the globe. Their proprietary technology platform and business model enables the financing, monetisation, and management of off-grid utility solutions. Powerhive is headquartered in Berkeley, California, and has a significant presence on the ground in East Africa where it owns and manages 23 mini-grid sites. i SouthSouthNorth SouthSouthNorth (www.southsouthnorth.org) is a twenty-year old Cape Town-based non-profit consultancy that supports national and regional responses to climate change through policy and knowledge interventions, partnerships and deep collaboration. We do this by connecting people and information, enhancing capability and mobilising resources to respond innovatively to the challenges and opportunities that climate change presents. Being positioned in the Global South affords a deeper understanding of, and connection to, the climate and development challenges facing the region. We enhance developing countries’ access to climate information by brokering climate knowledge through formalised exchanges among various stakeholders. We assist decision-makers in delivering climate compatible development by informing policy formulation and implementation. We bring good governance to the management of donor funds, technical assistance and project management. ii Table of Contents List of Tables iii List of Figures iii Acronyms iv 1 Executive Summary 1 2 Background 6 The Scope of Work 6 Developmental and Climate Change Context 7 Challenges and Opportunities in the Off-grid Power Sector 7 3 Regulatory Considerations 9 Relevant Institutions 9 Relevant Regulations for Mini-grid Development 10 4 Productive Use Cases 13 Identifying Productive Uses 13 4.1.1 Water Pumping and Related Livestock Needs 13 4.1.2 Water Needs for Poultry 15 4.1.3 Irrigation 16 4.1.4 Cold Storage 17 4.1.5 Mechanisation 17 4.1.6 Drying 18 4.1.7 Processing 18 4.1.8 Transportation 19 Site Selection: Bottom-up vs Top-down 19 4.2.1 Bottom-up 20 4.2.2 Top-down 24 Narrowing in on ACCs 27 4.3.1 A Deep Dive - What is an ACC, and Why Was it Created? 28 4.3.2 Why Have Horticulture Clusters Been Chosen Over Cereals? 29 4.3.3 Investment Cases 30 5 Validations 32 Sampling Methodology 32 Validations Conducted for EEU 32 Four Bottom-up Sites 33 i Ten Top-down Sites: ACCs 33 6 Mini-grid Financial Model 36 Model Structure 36 Model Parameters 37 Business Models 39 Tariff Structures 40 Case Study 41 Sensitivity Analysis 45 7 Summary and what comes next 46 8 ANNEX 1: SITE survey Data 48 9 References 52 ii List of Tables Table 1: Summary of mapping data sources ................................................................. 20 Table 2: The characteristics of ten sites selected for the mini-grid pilot programme ..... 31 Table 3: Detailed outline of the three-step methodology for validating sites .................. 34 Table 4: Survey team roles ........................................................................................... 34 Table 5: Alternative tariff models (in USD) .................................................................... 40 Table 6: Energy demand per customer at Hana site ..................................................... 41 List of Figures Figure 1: The licensing process for privately owned mini-grids ..................................... 10 Figure 2: The main policy constraints for potential mini-grid investors and operators ... 12 Figure 3: Power requirements for the dairy value chain ................................................ 14 Figure 4: Power requirements for the poultry value chain ............................................. 15 Figure 5:FAO Estimates of the relative size of irrigated area by crop in Ethiopia, 2013 17 Figure 6: Top-down and bottom-up approaches to identify mini-grid sites .................... 20 Figure 7: National level mapping – basic socioeconomic data ...................................... 22 Figure 8: National level mapping – gridlines and rooftops ............................................. 23 Figure 9: National level mapping – agriculture overlay and potential sites .................... 23 Figure 10: ACC woreda map ......................................................................................... 25 Figure 11: Map of the MCCs ......................................................................................... 26 Figure 12: Map of IAIPs. ................................................................................................ 27 Figure 13: Increased income potential for irrigated horticulture crops. .......................... 30 Figure 14: Financial model parameters. Model was designed to provide an overall assessment of the financial feasibility of a single project or basket of potential mini-grid projects. ......................................................................................................................... 37 Figure 15: Financial model parameters ......................................................................... 38 Figure 16: Investment business models for the Ethiopian mini-grid programme. .......... 39 Figure 17: Load profiles ................................................................................................. 43 Figure 18: Generation and load profiles ........................................................................ 44 Figure 19: Comparable financial outcomes
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