Ethiopia considering higher electricity tariffs to attract investments

Ethiopia considering higher electricity tariffs to attract investments Addis Ababa, Ethiopia (Source: Flickr, CC, By: neiljs)
Alexander Richter 2 Nov 2015

Ethiopia is looking at introducing higher electricity tariffs to attract international investment into its energy sector, cutting back subsidies on the electricity buying side.

Current electricity tariffs seem to be too low to guarantee continued interest of foreign investors to invest into electricity generation projects in Ethiopia.

Ata  recent conference held last week, Azeb Asnake (Eng.), Chief Executive Officer (CEO) of Ethiopia Electric Agency, confirmed that “new tariff are going to be introduced soon, though the dates are yet to be determined.” There are talks about an increase of possibly up to 50 percent


According to Azeb, the existing electric power generation costs are about $0.09 per kilowatt-hour (kWh). However, the current price of electricity or electric tariff is at $0.06 per kWh. So far the difference of $0.03 per kWh has been subsidized by the Ethiopian government. The government can no longer afford to subsidize electricity consumption, which is the main reason for the planned introduction of a new tariff.

The existing costs are also currently hampering investment into the sector, so a break-even or at least $0.09 per kWh rate is the least expected tariff to be introduced. In addition to that, Azeb said that the existing tariffs have impacted and weakened negotiation powers of the government in light of approaching multinational power companies.

These possible higher tariffs are though highly controversial, last but not least by industrial electricity buyers. The government though admits to considering adjustments and balancing mechanisms, but with no clear definition what this could mean.

Back in 2013, the African Development Bank (AfDB) posted an article with the headline “The high cost of electricity generation in Africa”. The article stated that one of the reasons for obstacles in the power sector are increasing electricity generation capacity in an environment where there are high costs of production. To meet consumption demands, governments in Africa are forced to subsidize electricity supplies.

In the case of Ethiopia, following the government’s recent invitations for multinational companies to take part in the energy generation and transmission activities, a handful of firms are flocking in. In addition to Reykjavik Geothermal, which is currently working to develop $4 billion worth of geothermal power, the likes of General Electric (GE), Black Rhino and some 14 others are joining the government’s activities.

These international investors are demanding the government to take action to support investments into the energy sector.

Shilesh Muralidhara, senior developer at the Black Rhino Group, made it public that the government has to address issues of payments and the risks in the exchange rate change for large projects; and that it should standardize agreements and the like. Gudmundur Thoroddsson, CEO of Reykjavik Geothermal, said that the bureaucratic red tape, financing and incentive packages for the geothermal sector are some of the issues the government needs to fix. Azeb admitted that tax issues, regulations and the like are some of the areas where Ethiopia is fails to curb problems and where it is unable to be on par with competition in the region.”


Source: thereporterethiopia at Geeska Afrika