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Ethiopia: social impact of renewable energy

As Ethiopia looks to continue to develop from a frontier market to an emerging market a key driver will be electrification.  As of 2023, around 60% of Ethiopia had access to electricity.  By 2030, the country hopes electric access will be 100% with 65% being connected to the grid and 35% being off-grid access.  Reaching this goal will require the country to add 25 GW of generating capacity by 2030¹.  Almost all this added capacity will come from renewables since almost all oil, natural gas and coal requires importation.  With the increase in electrification, what is the actual impact for the people of Ethiopia?

  • Farmers can use solar panels to run pumps for rural irrigation in places transmission lines would not make economic sense.  This allows farmers to have one to two more growing seasons, substantially increasing revenue. ³

  • Mill owners in rural areas that currently run diesel generators to mill wheat can switch to electricity; allowing both free up of capital (60% of earnings goes towards fuel) and time, as they would not need to travel to purchase diesel. ² 

  • The impact of access to electricity when it comes to education is substantial.  With access to electricity a student has many more hours for learning and a safe alternative to kerosene lamps. ⁴

All the above examples were on the micro level, but a macro benefit exists as well.  Ethiopia imports around $7 billion worth of oil-based fuels (oil and gasoline) ⁵. The importation of oil-based fuels creates stress on the Ethiopian economy, which is only $150 billion (almost 5% of GDP goes towards fuel imports).  These imports account for around half of the country’s trade deficit; a deficit putting stress on the currency and foreign exchange reserves.  This leaves Ethiopia open to external stresses, potentially creating a situation in which the currency is devalued and thus, hurting all Ethiopians.  Put simply, dollars that could have gone to investments in education, healthcare or roads are instead used to import fuel (disproportionally used by the wealthy).  To combat this, the country recently announced a plan to ban the importation of international combustion engine vehicles to incentivize the usage of EV’s using domestically produced clean energy.  The ban will also help government budgets as well; government gasoline and diesel fuel subsidies cost the government almost $2 billion during the 2021-2022 fiscal year (almost 20% of the total government budget) ⁷.  Instead of taking money away from education, healthcare and infrastructure, the gasoline and diesel fuel subsidies could instead be used to help support the development of Ethiopia. 

The combination of domestic renewable energy and vehicles that can run on that electricity could help free up much needed capital for Ethiopia to invest in growth.  The energy transition is not just about climate change but an economic and social impact opportunity for countries to become energy independent and provide people with access to electricity and opportunity.      

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