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 ADDIS ABAB 00002318 001.2 OF 005 -------------- Summary -------------- ¶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. -------------- Ethiopia's Energy Sector: Background -------------- ¶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, ADDIS ABAB 00002318 002.2 OF 005 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. -------------- Hydropower Update -------------- ¶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. -------------- RENEWABLES -------------- ¶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. ADDIS ABAB 00002318 003.2 OF 005 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. -------------- ETHIOPIA IS SERIOUS ABOUT INVESTMENT -------------- ¶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. -------------- U.S. INVESTMENT ON THE RISE? -------------- ¶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 ADDIS ABAB 00002318 004.2 OF 005 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. -------------- COMMENT -------------- ¶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 ADDIS ABAB 00002318 005.2 OF 005 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 6