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The Government of Ethiopia is striving to push the nation toward becoming a low middle-income country by 2025 through sustaining inclusive economic growth, expanding electricity access, and improving living conditions for its citizens. In addition, Ethiopia plans to increase generation capacity from the current 4,200 MW to 37,000 MW by 2037 and become a leading exporter within the region.[1] In an effort to meet these goals, Ethiopia established the Growth and Transformation Plan (currently in Phase 2, or GTPII)[2] under which it intends to unlock a wealth of hydro and renewable energy sources to enhance key sectors that are currently challenged due to energy constraints.
Ethiopia’s government has made a commitment to attract private investment to the power sector in order to achieve the objectives set by the GTPII. This includes developing a grid code, creating accurate demand forecasts and cost of service studies, and clarifying regulatory frameworks for off-grid electrification. These changes are designed to lower risk, increase clarity in the power sector, and create an enabling environment for investment that will spur increased generation, transmission, and connections – especially in rural areas. As the regulator for Ethiopia’s energy sector, the newly established Petroleum and Energy Authority (PEA) will play an essential role in this process.
With support from the United States Agency for International Development (USAID) and Power Africa, NARUC’s Ethiopia Energy Regulatory Partnership has assisted the Ethiopian Energy Authority (EEA)[3] by providing technical support to strengthen its regulatory frameworks and achieve goals set by the Government of Ethiopia, USAID, and Power Africa to create a more reliable grid, add new connections, and create an enabling environment for private sector investment in Ethiopia. In addition, NARUC has assisted the regulator on topics relating to mini-grid regulation, financial reporting, designing cost-based rates, and enhancing gender equity in the energy sector. The EEA was also a part of NARUC’s East Africa Regional Energy Regulatory Partnership, which worked to increase electricity trade between Tanzania, Kenya, Uganda, Kenya, Burundi, and Ethiopia through the harmonization and strengthening of regulatory frameworks.
Designing Cost-Based Electricity Rates
In 2021, NARUC produced a Cost of Service Study (COSS) Manual to guide Ethiopian energy sector stakeholders in conducting a future COSS and enabling the development of cost-reflective electricity tariffs. A COSS is used by utilities and regulators as a guide for designing cost-reflective tariffs that ensure the provision of reliable electricity service. As a result, utilities and regulators can better ensure that 1) rates are equitably allocated to each customer rate class, and 2) existing rates are sufficient to recover utility costs and maintain financial viability.
In the case of Ethiopia, the completion of the COSS Manual built on previous technical assistance under the partnership to develop an Ethiopian Uniform System of Accounts (USoA). As the Ethiopian utilities are still working to implement the USoA, the COSS Manual was designed to serve as a helpful reference as they progress in developing fair and reasonable rates. These efforts will improve the financial viability of the utilities, stimulate investment in new electricity infrastructure, and better position Ethiopia to participate in the East Africa Power Pool, thus increasing electricity access to its population. Ultimately, this development will be essential to improving power sector governance and furthering Power Africa’s goals of facilitating power generation, increasing electricity connections, and unlocking energy sector potential.
Advancing Mini-Grid Regulation to Expand Electricity Access
In 2020, NARUC supported the EEA as it worked to develop off-grid regulations and procedures as a means of establishing an enabling environment for private investment in the off-grid sector and increasing connections for rural consumers. Notably, the EEA collaborated with NARUC to finalize Ethiopia’s Mini-Grid Directive. It establishes a transparent regulatory framework that will support the country as it works to achieve its electrification goals of expanding access to sustainable, affordable, and reliable electricity. In cooperation with the EEA, NARUC also produced five technical guides designed to assist the regulator with the implementation of the Mini-Grid Directive and conducting periodic reviews. Through the use of these guides, the regulator will be better able to provide certainty to investors and ensure the sustainability of mini-grid deployment.
Improving Financial Reporting
Drafted by NARUC and approved by the Ethiopian regulator’s Board of Directors in 2019, the USoA and an accompanying Directive on USoA will help to pave the way to a more transparent and better-informed tariff setting process in Ethiopia. The USoA is a regulatory accounting tool to help utilities and regulators determine tariffs and conduct tariff reviews through better understanding of the costs of power. Developed and adopted by regulators, it provides uniformity and consistency when utilities report financial information by clearly separating costs between generation, transmission, and distribution.
Through the passing of the Directive, the EEA effectively established USoA as part of the Regulatory Accounting Rules for Licensed Regulated Energy companies in Ethiopia, which will ensure that its accounting standards are followed in financial statement presentations. When drafting the Directive, NARUC engaged with power sector stakeholders to provide technical assistance on implementing Ethiopia’s USoA and other critical ratemaking tools. As a result, stakeholders were able to come together and learn several approaches for improved tariff making that can be used to strengthen the financial position of both utilities and potential investors.
Enhancing Gender Equity in the Ethiopian Energy Sector
As part of the Women in Energy Regulation internship program and in consultation with the EEA’s Human Resources department, NARUC facilitated the placement of two university graduates to participate in a six-month internship program with the EEA in 2019. The participants completed their internships with the Electric Operation License and License Administration Department and the Electrical Licensing and Tariff Department, respectively. By completing this program, the interns were able to acquire the foundational technical skills, professional experience, and institutional knowledge needed to pursue a career in the sector and become attractive candidates for employment within the EEA, other Ethiopian energy sector agencies, or among regulated entities such as electric utilities. For more information on the internship program, click here.
Promoting Regional Harmonization and Cross-Border Trade
Through regional workshops, NARUC has supported coordination between energy regulators in East African partner countries by convening regulators from Ethiopia, Kenya, Rwanda, Tanzania, Uganda, and the semi-autonomous region of Zanzibar, as well as stakeholders from the African Development Bank (AfDB), the African Union Commission (AUC), and independent energy regulatory experts. By coordinating with the AfDB, NARUC works to address emerging issues in electricity regulation and those identified by the AfDB’s Electricity Regulatory Index (ERI) for Africa.
Through these endeavors, NARUC facilitates the development of country-specific action plans and the integration of practical tools for developing mini-grid policy and gender equity in partner country regulatory frameworks based on international best practices. As a result of NARUC’s partnership exchanges, the knowledge gained by the EEA helped it to implement the Tariff Guidelines and Methodology for the Electricity Sector in Ethiopia (TG&M) which was an initial step toward establishing cost-reflective tariffs, supporting regulatory harmonization across the region, and advancing cross-border trade.
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Photo Credit: © JUAN CARLOS MUNOZ / Adobe Stock
Ethiopia Energy Regulatory Partnership
Project Dates: 2014-2021
Primary Partners:
Petroleum and Energy Authority (PEA)
[1] “Ethiopia Power Africa Fact Sheet.” USAID. https://www.usaid.gov/powerafrica/ethiopia
[2]“Growth and Transformation Plan II (GTP II). Federal Government of Ethiopia. https://ethiopia.un.org/sites/default/files/2019-08/GTPII%20%20English%20Translation%20%20Final%20%20June%2021%202016.pdf
[3] The EEA was the main energy sector regulator until late 2021, when the agency was dissolved and merged into the PEA. As of early 2022, the PEA’s organizational structure is still being decided.