Officials at the Ministry of Water and Energy are preparing to set new tariff rates for off-grid solar power in the coming months as the government attempts to strike a balance between investor returns and affordability.

The announcement comes on the heels of a partnership agreement with the International Solar Alliance (ISA), an intergovernmental organization with more than 120 member countries that is looking to be part of the development of several renewable energy projects in Ethiopia.

This week, State Minister Sultan Wali and ISA Director-General Ashish Khanna formalized a deal covering the development of a 400 megawatt ‘Solar Park Tripartite Project’ and a 700 kilowatt peak (kWp) mini grid project in Central Ethiopia.

Khanna told The Reporter that the signatories have committed to feasibility and viability studies before final budgets are determined.

“In the coming three to six months, we will work with the government and stakeholders to produce clear action plans for the projects,” said the Director-General.

Tariff rates have also yet to be determined.

“A detailed report will be done in three months. Once the result comes up the amount will be made available,” Khanna told The Reporter.

Getu Geremew, CEO of Ethiopian Electric Utility, confirmed that the tariff revision is in progress.

The new partnership between the Ministry and the ISA builds on existing programmes in Ethiopia, which range from rooftop and mini-grid installations to agricultural applications.

Projects built by the global alliance include a 100 kW grid-connected rooftop system at the Ministry premises and an 837 kWp rooftop system under development.

In rural electrification development, the Waro Village mini-grid system equipped with 3,500 kWh battery storage is advancing alongside plans for 29 additional mini-grid sites totaling 100 MW.

ISA also states that two large-scale ground-mounted solar parks in Hamusit and Guhal, as well as a 10 MW floating solar project at Gibe-1 Hydropower Plant, are in pre-feasibility or early design phases.

For the government, these projects form part of a broader push to diversify an energy mix still dominated by hydropower, which accounts for nearly 90 percent of installed capacity but has been increasingly vulnerable to drought.

Ethiopia has the third largest energy access deficit in Sub-Saharan Africa with about half the population still without access to reliable electricity, according to data obtained from the World Bank.

Over the past decade, the government has maintained that it has made encouraging progress on its electrification program and expanded the grid network coverage to nearly 60 percent of towns and villages.

Yet the World Bank publication revealed that the electricity deficit in Ethiopia continues to exacerbate the poverty situation, preventing far too many people from fulfilling their basic socio-economic needs and limiting access to opportunity.

Mini-grid development has been a core strategy since the launch of the Ethiopia Electrification Program in 2018, but private sector engagement still remains constrained by tariff uncertainty, foreign exchange shortages, and regulatory delays, investors argue.

Those constraints have derailed past ventures. In 2022, the Public Private Partnership (PPP) board terminated a USD 300 million deal with Saudi Arabia’s ACWA Power to build two 125 MW solar plants in Afar and Somali regions.

The firm, which had committed to a tariff of less than USD 0.03 per kWh, repeatedly failed to secure financing despite multiple deadline extensions, citing the COVID-19 pandemic, lender refusals, and the war in northern Ethiopia. Other PPP-linked projects in Metemma, Mekelle, and Humera have also yet to be realized on the ground.

However, foreign interest in Ethiopia’s untouched power sector has not dried up.

In January 2023, UAE-based Masdar Clean Energy signed an agreement to build 500 MWp of solar capacity in Ethiopia, including the financing, operation, and maintenance of photovoltaic plants and associated transmission infrastructure.

Commercial operations are targeted for next year, with the power supplied to the national grid under long-term purchase agreements, according to the firm.

Officials see the deal as a potential anchor for scaling up investor confidence, while investors argue that credible tariff reforms and careful management of macroeconomic risks also weigh in the sector’s success.

Khanna asserted that competitive but realistic tariffs will be critical to unlocking the capital in foreign investment in the solar energy industry.

“If foreign exchange availability is limited, you need private sector investment — and there are few sectors riper than solar,” he said. “One issue on the policy and regulatory side is that there should not be taxation for solar products.  In fact, a lot of countries not only have no taxes, they allow incentives to use solar, including credits.”

Experts argue that the government’s challenge will be to reconcile investor expectations with public affordability, particularly in rural and agricultural applications where solar could displace costly diesel generation.

“In the past, tariffs and macroeconomic risks were very high because of foreign exchange. Now that Ethiopia has undertaken reforms to remedy these issues, the timing for doing large-scale solar projects is right. And you are likely to get very competitive tariffs,” said Khanna.

“The thing about it is, people can always bid, but they will give you a very high tariff, which may not be good for the country. You have to find a balanced rate. If you feel Ethiopia has limited foreign exchange resources for the government, you need the private sector to invest.”

Source: The Reporter