ETHIOPIA SEEKS ENERGY SECTOR INVESTMENT

UNCLAS SECTION 01 OF 05 ADDIS ABABA 002318

SIPDIS

DEPARTMENT FOR AF/E-JWIEGERT,OES/PCI-VDELAWIE,MGERDIN,OES/ST C-
TBURNS,OES/SAT-FECHAVARRIA,EEB/IFD/OMA-JWINKL ER AND EEB/CBA-
DWINSTEAD

DEPARTMENT PASS TO U.S. PATENT AND TRADEMARK OFFICE - AMY COTTON
USTR FOR PATRICK COLEMAN, CECILIA KLEIN, AND BARBARA GRYNIEWWICZ


DEPT OF COMMERCE WASHDC FOR ITA MARIA RIVERO

DEPT OF TREASURY WASHDC FOR REBECCA KLEIN

DEPT OF ENERGY FOR TSPERL

E.O. 12958: NA
TAGS: KSCA SENV ENRG ETRD PGOV ECON ET

SUBJECT: ETHIOPIA SEEKS ENERGY SECTOR INVESTMENT

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Summary
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1. (U) Charge d'Affairs (CDA) Meece met with Ethiopia's Minister
of Mines and Energy, Mr. Alemayehu Tegenu, for a courtesy call
on September 23, 2009. Accompanied by DCM Mushingi and the
Regional Environment Officer, CDA requested a briefing on the
GoE's energy sector development priorities. Alemayehu explained
that geothermal and wind are the two major energy sources that
Ethiopia plans to develop as an alternative to existing
hydropower resources and petroleum imports. Per CDA's
suggestion, the Minister agreed to draft a GoE policy statement
identifying geothermal power generation as a developmental
priority. Alemayehu also noted he will attend the upcoming
Corporate Council on Africa's U.S.-Africa Business Summit in
Washington in order to promote investment opportunities in
Ethiopia, highlighting key initiatives the government has taken
to attract foreign investment in Ethiopia's energy market.

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Ethiopia's Energy Sector: Background
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2. (U) Ethiopia is experiencing dire energy shortages
currently estimated at 200MW. During the height of the crisis,
the GoE announced that electricity would be cut 14 hours daily
for 12 days each month, possibly costing the country more than
1% of its GDP. Although Ethiopia operates on 783 MW of grid-
based electricity, domestic peak demand has reportedly risen 24%
beyond the national utility's supply. To meet expanding needs,
the GoE has traditionally relied on hydropower development.
Currently, hydropower supplies more than 80% of the country's
total installed capacity, with costly petroleum imports covering
17%. Ethiopia's massive hydropower potential, perhaps as high
as 45,000 MW, has been the driving force behind the country's
national energy strategies. Were all of Ethiopia's hydro
development plans to come online according to schedule and
operate at full capacity, the country would generate enough
electricity to meet its own growing demand as well as to supply
excess for exports, securing much needed foreign currency in the
process. The GoE estimates 300 million Euros in annual income
would be generated from GIBE III power exports alone.


3. (U) Frequent droughts, dam siltation from severely degraded
watersheds, malfunctioning dam equipment, and slow construction
on new dam sites, however, as well as environmental and social
impact concerns associated with the Gibe III dam construction,
are all factors serving to seriously undermine the country's
hydro-based power supply. Although reports indicate that the
Ethiopia Electric Power Company (EEPCo) plans to install two
diesel generators of 60 MW each, expensive oil imports do not
represent a long-term viable alternative, particularly given
Ethiopia's meager foreign currency reserves. As a consequence,

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and facing growing popular frustration with the continued
blackouts and power rationing, the GoE appears to be recognizing
the need to diversify their national energy portfolio to include
wind, geothermal, solar, and biofuel alternatives.

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Hydropower Update
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4. (U) During CDA's meeting with Ethiopia's Minister of Mines
and Energy (MoME),Alemayehu Tegenu, Alemayehu asserted that
ongoing dam construction throughout Ethiopia has been meeting
his expectations and that he looks forward to U.S. participation
at the mid-October Tekeze dam inauguration. Although Alemayehu
noted that rain shortages will preclude Tekeze from operating at
full capacity for the foreseeable future, he refrained from
addressing the myriad of hydropower's shortfalls; from
insufficient rains, to dam siltation from severely degraded
watersheds and malfunctioning dam equipment, nor did he mention
the significant environmental and social controversies
associated with the Tekeze and Gibe III dams. Alemayehu's
prevailing message on hydropower was that, having only tapped
into 2-3% of a 45,000MW hydropower potential, hydropower is -
and will remain - Ethiopia's first priority.

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RENEWABLES
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5. (U) Per CDA's request, Alemayehu provided a rank-ordered
list of the GoE alternative energy priorities. Following
hydropower, the Minister listed wind, geothermal, solar,
biofuel, gas-power generation, and coal in order of priority.
With an estimated 10,000 MW potential, Alemayehu claimed that
Ethiopia is actively and aggressively seeking foreign investment
in the wind sector. Alemayehu referred to a site in Tigray
currently under construction, two recently signed investments
with Chinese companies, and numerous other identified sites
still open to investors. Regarding geothermal, the Minister
cited a figure of 5,000 MW of untapped potential. Ethiopia
currently is generating 7 MW of grid-connected electricity at
Ethiopia's Aluto Langano geothermal plant (thanks to the efforts
of an American company that completed the plant's refurbishment
this summer),with plans for a Japanese-based 30 MW expansion to
commence shortly. Like the wind sector, additional sites have
been identified for geothermal development. Addressing solar
potential, Alemayehu noted that there are numerous private
companies and NGOs providing off-grid solar energy options to
rural communities. In terms of biofuel, he highlighted that
Ethiopia is already using an ethanol biofuel blend on the
domestic market. On gas-power generation, the Minister noted
untapped potential in the Ogden region, with project proposals
under development. Alemayehu concluded his list of energy
alternatives by mentioning Ethiopia's coal reserves.

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Recognizing that this is not a renewable energy source, he
claimed that Ethiopia is rich in coal deposits, which he said
Ethiopia has the right to develop given its current carbon
neutral status.

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ETHIOPIA IS SERIOUS ABOUT INVESTMENT
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6. (U) Minister Alemayehu confirmed that he will attend the
Corporate Council on Africa's U.S.-Africa Business Summit in
Washington beginning September 28. With a tight schedule of
only three days on the ground, his top priority will be to
promote Ethiopia's energy opportunities to American investors.
In particular, he hopes that the U.S. will expand its
engineering and consultancy presence. More importantly,
according to Alemayehu, he also seeks direct U.S. involvement in
the Ethiopia's power generation sector. Explaining that with a
second draft version of a feed-in tariff bill slotted for
approval once Ethiopia's Parliament reconvenes in October,
ensuing power purchase agreements will enable the creation of
self-contained foreign-run systems. CDA noted General
Electric's interest in the final feed-in tariff legislation,
saying that an acceptable framework could pave the way for GE
investment in Ethiopia's emerging biofuel sector. CDA also
noted emerging interest in possible USG engagement in Ethiopia's
geothermal sector, saying that USTDA and others seek
reassurances from the GoE that it views geothermal development
as a priority. To this end, the Minister agreed to draft a
policy statement identifying geothermal power generation as a
developmental priority. Alemayehu also cited concrete, tangible
examples to highlight Ethiopia's serious commitment toward the
geothermal sector. He noted that the GoE and UNIDO co-hosted the
High Level Decision Makers conference in Addis in February 2009
to highlight key initiatives governments must take to attract
geothermal foreign investment. Moreover, Japan has signed an
MoU with the GoE to begin expanding Ethiopia's only geothermal
plant. Additional sites in the Tendaho region and elsewhere
have been identified for development after substantial research,
and Germany's geological society has agreed to refurbish and
maintain Ethiopia's two drilling rigs.

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U.S. INVESTMENT ON THE RISE?
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7. (U) USAID Washington is funding Merga Tassew, Ethiopia's
geothermal expert at the Electric Power Company (EEPCo),to
attend the Annual Geothermal Resources Council (GRC) meeting in
Reno, Nevada, October 3-9, 2009. Merga will present a paper at
the conference and will also speak at a joint Department of
Energy-Department of State international luncheon organized on
the margins of the conference. These speaking engagements will
provide Merga with opportunities to develop new partnerships

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with U.S. companies and further promote U.S. investment in
Ethiopia's geothermal sector.


8. (U) The American company, Geothermal Development Associates
(GDA),recently completed the refurbishment of the Aluto Langano
geothermal plant in Ethiopia. The rehabilitation project took
over two years, and is now nearly fully operational at
approximately 7 MW. Although Ethiopia expended $17 million of
its own money to build the Aluto Langano plant, it was never
fully operational and fell into disrepair within three years
after completion due to limited local expertise. Now that the
geothermal plant is running again, there is no reason to believe
that the plant will not again decline unless they receive
adequate training. REO is working with relevant USG agencies to
identify funding for a desperately needed training workshop.


9. (U) The African Rift Geothermal (ARGeo) fund is on the verge
of implementation after over five years under development. It
is an $18 million region-wide, multi-country facility designed
to add low-cost power generation within six countries of the
Rift Valley (Djibouti, Eritrea, Ethiopia, Kenya, Tanzania and
Uganda). Support is provided by the Global Environment Facility
(GEF),the World Bank, and UNEP. GEF is currently reaching out
to potential donors for additional co-financing. While the U.S.
continues to support the ARGeo fund and its efforts to promote
geothermal development throughout the region, we currently do
not supply specific project co-financing dollars to ARGeo.
Instead, we have provided in-kind support throughout the
development of ARGeo, such as USG funding for the initial
conference from which ARGeo was crafted. Currently, the basis of
the U.S. funding to ARGeo comes from the USG annual contribution
to GEF - about 20%. According to the U.S. Department of Energy,
however, it is the hope of the USG that additional supporting
activities will materialize as the ARGeo process unfolds.
GEF plans to arrange a pledging session as soon as the first
ARGeo project begins, but has made it clear to REO that the door
for contributions at this time is wide open.

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COMMENT
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10. (U) Since the construction of the Aluto Langano geothermal
plant in Ethiopia, the GoE has continuously stated a desire to
further develop its geothermal resources, requesting support and
assistance in this regard. Yet because their actions have been
inconsistent and have not always supported the rhetoric, the
nascent industry has subsequently faltered. The environment,
however, appears to be changing in a positive direction. Given
the hydropower sector's failure to perform as anticipated,
resulting in a sustained energy crisis, the GoE is waking up to
the reality that it must diversify its energy portfolio or
continue to face severe power shortages and frequent blackouts.
Indications on the ground point to a willingness to tap into

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renewable energy options such as wind, geothermal, solar, and
biofuels. Transforming the business climate into one conducive
to attracting foreign investment in the Ethiopia's evolving
renewable energy sector, however, is clearly a work in progress;
but one that offers opportunities for innovative and possibly
lucrative U.S. investment.

#MEECE
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