Enabling innovative business models for clean transitional minigrids in Ethiopia

• Energy access is quite low in Ethiopia, with 43% of the population still lacking access to electricity
• The national power grid is unreliable, leading many urban consumers to use back-up generators
• Improving access is a top government priority. As highlighted in the NEP 2.0, it aims to provide off-grid access to electricity to more than 8.3M households in the next five years
• Ethiopia has strong climate commitments, with a Paris Agreement target one of few rated as 'compatible with a 1.5°C pathway'
• However, challenges and risks exist, including the relatively early development stage of the energy sector, market liberalisation constraints, local stakeholders’ capacity, and broader security issues
• Renewable energy minigrids have been shown to provide reliable, affordable power, especially for communities with demonstrated commercial and industrial loads
• In this context, Ethiopia offered an opportunity to demonstrate scalable business models that spur private sector investment

By developing investible business models suitable for private investments into interconnected minigrids, this project helped to lay the foundation for the rapid growth of the pre-electrification segment in Ethiopia.

Key project outputs to achieve this included:

• Identification of market gaps through interviews with over 25 stakeholders in the Ethiopian minigrid and broader energy sector
• Using remote and utility-supplied data from 2,000 potential minigrid sites to identify a shortlist of minigrid pilot project sites to inform business model analysis
• Development of technical recommendations for interconnection to guide minigrid developers in project development, ensuring they are prepared for interconnection with the main grid. Additionally, the project considered ways to address foreign exchange and capital constraints, and developed contract templates to assist minigrid project developers
• Delivery of three minigrid developer training sessions attended by over a dozen local minigrid developers
• An all-day, in-person facilitated discussion in Addis Ababa organised to test insights and recommendations from the project with over 40 key stakeholders

Ethiopia faces a high level of poverty (24%) and persistent gender disparities, with literacy rates for women just below 50%. Additionally, in urban areas, electricity access reached 97%, while in poorer rural areas only 44% of households were electrified. Improving energy access has the potential to benefit marginalised groups through the use of electric appliances for cooking, access to information, electrification of health facilities, plus more.

In this context, the project had a strong focus on improving energy access for marginalised groups. Key GESI actions and outputs included:

• Consultations with a range of key stakeholders on the project’s workplan, soliciting feedback on how women and other marginalised groups could be incorporated as primary counterparts
• Including Ethiopian Women in Energy, a local civil society organisation comprised of women in the energy sector, as a key stakeholder
• Systematically covering GESI considerations discussed in all stakeholder interviews
• Conducting dedicated GESI discussions in the final convening event, alongside surveys on GESI issues and a breakout group focused on GESI issues around site selection
• Mapping GESI efforts under minigrid business models globally and GESI initiatives in-country

The project identified an opportunity for the private minigrid sector to gather data that could help evaluate gender impacts of minigrid developments, such as clean cooking data and the electrification of agricultural value chains. Further opportunities could also be sized from the design of the tendering processes for minigrid projects to actively encourage the participation of female developers.

The recent impact of covid-19 and security challenges in Ethiopia have slowed progress in the private minigrid sector in the country. However, there remains an enormous, untapped market opportunity that could support a green recovery.

Modelling work has highlighted up to 530t CO₂ annual emissions reduction per minigrid, while serving community needs through productive use of renewable energy. The recommendations identified by the project team, like other interventions in the energy sector, require an improved security situation for implementation.

Key recommendations include:

• Continue development of the private minigrid project pipeline
• Pilot recommended business models in 5-10 sites, building private and public sector confidence, laying the groundwork for effective support of the NEP 2.0 goals
• Support broader, continued capacity building for developers
• Pursue solutions to capital constraints, such as blended finance mechanisms