Frost: Demand for Power Offers Lucrative Investment Opportunities in Ethiopia
December 5, 2008 // Published as a news service by IHS
Rising demand for power in Ethiopia has led to substantial and lucrative investment opportunities for both international and local power companies, according to Frost & Sullivan.
Ethiopian energy policy, which includes the Rural Electrification and Universal Electricity Access Programme, has resulted in sizeable investments from both government and donor communities.
Over $780 million has been invested in the upgrading, maintenance and expansion of existing equipment, as well as on new installations.
Analysts said such efforts are set to improve the capacity and efficiency of the power sector in meeting current and future demand.
"The Ethiopian electricity industry has embarked on a growth trajectory," said Frost & Sullivan industry analyst Moses Duma.
"Power sector reforms have attracted significant investments from the World Bank, the European Investment Bank, the African Development Bank and the government of Ethiopia."
While the Ethiopian industry has been opened up to private participation, analysts said private companies are obligated to sell electricity to the state utility through power purchase agreements. Meanwhile, the utility is boosting its generation capacity through the construction of several hydro power plants.
Lack of adequate financial resources, however, is hampering the growth of the Ethiopian electricity industry. The dearth of finances hinders the maintenance and servicing of archaic equipment currently in use. Analysts said this lack of funds is a serious concern in a capital-intensive industry and threatens to stymie future expansion plans.
"With 98% of its generation capacity being in hydro power, Ethiopia may face challenging times during droughts," said Duma. "The majority of power plants in Ethiopia depend on water from the Nile and its tributaries. Financial constraints may also affect the ability of the utility to source diesel for generators when water levels are low."
To meet this challenge, analysts said efforts should be undertaken to develop more thermal power plants in order to create a more balanced power generation mix.
Source: Frost & Sullivan.