Mekdes Mezgebu, founder of Mekdes & Associates in Addis Ababa, specialises in energy projects and public-private partnerships (PPPs), and highlighted the tremendous opportunities in Ethiopia's renewable energy sector and the need for legal and policy frameworks to support its growth.
Although Ethiopia has extensive hydro, solar, wind and geothermal resources, Mekdes said that traditionally, only hydroelectric power has mostly been exploited. With these resources estimated to have the capacity to generate tens of thousands of megawatts of power, Ethiopia has the potential not only to achieve universal electrification, but also to become a power hub for the East Africa region.
Mekdes noted that Ethiopia's legal and policy framework for renewable energy investments is favourable and well established, with the country adopting a Climate Resilient Green Economy which was launched in 2002 and recently updated in 2023.
“In the energy sector, the latest development plan (2021-2030) aims to boost the generation capacity of the country from the current 4 500MW to 19 000MW by 2030,” Mekdes explained. “The plan envisages increasing capacity and diversifying the generation mix by attracting private investment in solar, wind and geothermal sectors. As large-scale energy projects are capital intensive, the current policy favours public–private partnerships, for which a policy and legal framework has now been in effect since 2018.”
Despite the policy efforts, there are still considerable challenges for these developments that have impacted the successful implementation of independent power projects. Mekdes highlights bankability as a significant obstacle, stating, "Ethiopia’s policy and legal framework could not accommodate some of the key concerns held by lenders and financial institutions. For that reason, none of the pipeline projects were able to achieve financial close.”
Mekdes noted, however, that there have been some efforts made to reform the legal framework to stimulate investment in Ethiopia. “These include changes to the PPP and investment laws, commercial codes, and accession to the New York Convention on the Enforcement of Foreign Arbitral Awards. And, more recently, there are efforts to address bankability issues such as the issuance of sovereign guarantees to minimise currency and off-taker credit risk, and allowing offshore accounts for special PPP projects,” she said.
Regarding the role of PPPs, Mekdes emphasised their importance in driving investment and meeting infrastructure demands. “Given the budget constraints that we are seeing for public financing of infrastructure projects, there is no other option to meet the demand for infrastructure than to bring in private financing. The policy and legal framework to develop PPPs is now well established and there is a predictable system to follow.”
Mekdes noted that investors will need to have realistic expectations of Ethiopia: “Ethiopia’s experiment with PPPs is not advanced and therefore projects take a long time to progress. For investors looking to invest in Ethiopia, they need to hold a long-term view and be patient with how things operate in the country.”
Although PPPs have so far struggled to take off, Mekdes sees cause for optimism. “I believe we have passed a steep learning curve and it now looks more promising for projects to successfully be procured and implemented given some of the recent policy changes and willingness to offer sovereign guarantees. However, the reforms will need to be matched with a track record of successful projects to minimize the risk perception.
“Ethiopia’s late entry into the IPP and PPP scene presents an opportunity for the country to learn from the experiences of more advanced African markets such as Kenya and South Africa. We now have a clear picture of what it takes to attract investment and learn from others,” she commented.