Productive Uses of Energy in Ethiopia: Agricultural Value Chain and Electrification Feasibility Study

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Productive Uses of Energy in Ethiopia: Agricultural Value Chain and Electrification Feasibility Study Productive Uses of Energy in Ethiopia Agricultural Value Chain and Electrification Feasibility Study Executive Summary / May 2021 Executive Summary The major institutions in the Ethiopian energy space and the agencies that support them recognize that productive use of electricity is key to achieving national targets of universal electrification.i Yet, there is less alignment on which activities to electrify and what support is needed to enable adoption of productive uses throughout rural communities in Ethiopia. This alignment is critical to efficiently support projects and initiatives that successfully push productive uses forward. This study builds a shared understanding of and a common language to assess opportunities for productive use. Specifically, it identifies opportunities to electrify agricultural productive uses today, how they can be developed through feasible business models, and the strategies and initiatives stakeholders can use to overcome barriers to deployment. But the approach used is just as important as the questions asked. Productive use initiatives must start with understanding ground realities and responding to in high volumes and that are already commonly end-user needs. Our analytical approach recognizes mechanically processed before sale into robust local ground realities to ensure that recommendations markets. This opportunity requires little to no market connect to end-user needs. To do so, the study development support to be implemented today and at explores prevalent activities, community practices, widespread scale. and economic returns that indicate demand and local capacities in and potential benefits for rural This study considered five value chains across communities. We also consult directly with end-users Amhara, Oromia, and Southern Nations, Nationalities, through field surveys as well as through planned field and Peoples Region (SNNPR), including more visits and community workshops in the next stage of than 250 field interviews with community heads, the project. farmers, processors, and traders in more than 51 rural communities. Based on this data collection, we Grain-Flour Milling evaluated value chain activities with electrification potential for each crop across four dimensions: There is an immediate opportunity to electrify existing local capacity for the activity, presence diesel-fuel milling for various crops in rural Ethiopian of a market for the product, availability of electric communities. Grain flour milling, particularly for equipment and ease of retrofitting electric maize and wheat, uses inputs that are produced components, and scalability of the activity. i The National Electrification Program 2.0 (2019), developed by the Ministry of Water, Irrigation, and Energy (MOWIE) explores the agriculture- energy nexus and establishes high-level strategies to explore and develop productive uses. MOWIE and the Ethiopia Electric Utility Company (EEU) will electrify productive uses of energy to accelerate energy access in the US$500 million Access to Distributed Electricity and Lighting (ADELE) Project. Productive Uses of Energy in Ethiopia www.rmi.org / 2 Considering these factors, prospective productive use activities can be divided into three tiers based on their readiness for electrification and implementation (see Exhibit ES 1): Exhibit ES 1 Summary of Tier Classifications for Value Chain Activities across Five Crops Analyzed in the Study Priority Value Chain Activities for Electrification with Minigrids Focus Crops Mechanical Threshing Mechanical Flour and Mechanical and Cleaning Hulling Meal Milling Drying Other Maize Wheat Teff Injera making Barley Brewing Malting Dairy Butter making Milk Chilling Tier 1 Tier 2 Tier 3 Immediate Medium-Term Long-Term Productive Uses of Energy in Ethiopia www.rmi.org / 3 The study finds that electrifying grain milling almost The fee-for-service business model builds upon halves energy costs and doubles profit margins. widely prevalent practices and brings together actors Electrifying grain milling can also improve minigrid commonly found in the Ethiopian agriculture space. economics, boosting revenues and reducing cost of Importantly, it relieves the energy service provider service by 8%–13% depending on the time of use or from assuming an additional burden at this nascent seasonality of loads. This can be achieved through a stage of the minigrid market. The fee-for-service fee-for-service business model, which is outlined in model is led by a facilitator who enables processors detail within the study. to invest in equipment by educating processors and linking them with finance providers who make an A fee-for-service business model connects equipment loan (or lease) to the processor. While the processors with knowledge and support to seize this processor is ultimately responsible for the credit and economic opportunity. operational risk, the facilitator builds awareness about the investment opportunity and provides business development training to support loan applications and equipment selection. Exhibit ES 2 Preliminary Design of National Productive Use Program Alignment Create and Strengthen Sector Alignment and Coordination for Productive Use National alignment Matchmaking Electrification Insights on viable Prototyping Pilot roll-out (ID sites) business models Pilots and demonstration projects FFS, Utility-Led, Cooperative Business Model Rural Demonstration Projects Electrification Awareness Projects Support Financing building Productive Use Financing Solutions Project Equipment specifications Equipment Tool Policies ID candidates for facilitator Scaling Capacity Building Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Productive Uses of Energy in Ethiopia www.rmi.org / 4 Exhibit ES 3 Mapping of Prerequisites and Barriers to Scale Productive Uses Objective Rural communities throughout Ethiopia use electricity to increase incomes through increased agricultural productivity, processing, and new value chains. Prerequisites Processors Efficient, Cross-sector Available financial Communities are aware of compatible alignment to solutions meet have access to investment equipment with prioritize and community needs affordable and opportunity timely maintenance collaborate on (affordability, reliable electricity and equipped to services is available productive use duration) develop enterprises and affordable efforts Local financiers Suppliers lack lack expertise and infrastructure and Lack of Lack of evidence experience to serve financing to expand Lack of reliable coordination showing economic the market and their client base and affordable among agriculture, viability of have insufficient and serve the electricity access energy, and productive uses capital to expand rural small-scale financial sectors their loan electric equipment portfolios market well Barriers Productive Uses of Energy in Ethiopia www.rmi.org / 5 Scaling Productive Uses and foregone revenues will demotivate would-be through a National Productive processors from purchasing equipment. Use Program Prerequisite 5: Cross-sector alignment helps stakeholders prioritize and collaborate on productive We propose a preliminary design of the National use efforts. As noted previously, there is a lack of Productive Use Program to achieve the following awareness and alignment on which opportunities for prerequisites for electrifying productive uses at scale: productive use to prioritize and a lack of coordination among stakeholders in the agriculture, energy, and Prerequisite 1: Communities have access to financial sectors to mobilize investment. affordable and reliable electricity. Affordable and reliable electricity access is the foundation for We propose a preliminary National Productive Use electrified productive uses. Nearly all experts we Program that ensures these prerequisites are met consulted and over 80% of agro-processors we by aligning cross-sectoral actors, generating an surveyed noted the lack of reliable electricity to evidence base, and developing supportive policies. operate equipment as the most or second-most The program is made up of the following projects and important barrier rural entrepreneurs face. scaling mechanisms: Prerequisite 2: Processors are aware of investment • Align and connect cross-sectoral actors. The opportunities and equipped to develop enterprises. Create and Strengthen Sector Alignment and Without robust examples showing the technical Coordination for Productive Use project will open and financial viability of electric equipment in rural dialogue across the energy, agriculture, and communities, processors will be unwilling to invest finance sectors to identify opportunities to develop in electric equipment. Beyond the desire to purchase productive uses. electric equipment, processors also need to be aware of the opportunities available to finance equipment • Prove and demonstrate the viability of equipment and have the skills to select equipment and develop a and business models. A series of pilots and business plan. demonstration projects will build the evidence base to show the technical and financial viability Prerequisite 3: Available financial solutions meet of equipment and business models. The Electric community needs. About 60% of survey respondents Mill Prototyping Pilot will fine-tune and field- identified lack of access to credit among the top test equipment in minigrid communities and two barriers preventing them from upgrading their establish the specifications to ensure equipment business and only 2 of the 63 grain millers we compatibility
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