Required foreign currency and tax and customs issues hamper the country in meeting the National Electrification Program (NEP) 2.0 target that is to be attained by 2025.
In an event organized by the Ethiopian Solar Energy Development Association and Precise Consult, in partnership with the Ministry of Water and Energy, and Ministry of Irrigation and Lowlands with regards to the status of solar appliance manufacturing in Ethiopia, it has been stated that there is a huge alternative to filling the electrification gap through solar energy. However, as cited in the discussions, there were several hurdles on the sector which hinder the set goals by the government in achieving universal electricity access nationwide in the coming two years’ time. In retrospect, the NEP 2.0 became effective in 2019.
At the meeting, a detailed study carried out by Precise was presented which indicated that Ethiopia still had the third largest access to electricity deficit in sub-Saharan Africa with only 45 percent of the population having been connected.
As it stands, by 2025, the plan is for 65 percent of the population to have electricity through the grid, and the other 35 percent through off-grid technologies – stand-alone solar (SAS) systems and mini-grids.
The 35 percent of the population that is expected to be covered by the off grid system is determined as over nine million households.
Through his study presentation, Abel Endrias, Off-grid Energy Innovation Program Manager at Precise, said that if the NEP 2.0 targets are to be met, annual supplies of solar home systems (SHS) products will have to rise significantly over the next few years by an average of 12 percent.
“There exists a significant gap between projected demand for SAS and the supply. The projected demand is unlikely to be met without a commensurate increase in the amount of forex available to the sector,” he added.
USD 1.4 billion in foreign currency is needed to meet the NEP target with only USD 150 million unlocked up until 2022, “This shows that there is still a long way to go to achieve government’s universal electrification plan.”
Due to lack of possible conducive environment for the sector, the current assemblers are forced to operate below 20 percent of their capacity, according to Precise Consult’s study.
Besides the foreign currency challenge for local manufacturers or assemblers to import their inputs, the implementation of tax incentives targeting the sector as a whole or to specific local assemblers and manufacturers is not consistent due to frequent policy amendments.
Tsehaye Yenus, Electrical and Electronics Desk Head at the Ministry of Industry, said that local industrialists should have better advantage on the market, “To alleviate the problems regarding the electrification issue, we are working with the Ministry of Finance in terms of customs duty and other issues.”
“Regarding electronics and the electrical sector, there is a gap on customs issues that must be solved. Main components on the sector should be free from customs duties to benefit manufacturers and we are working with relevant government offices to come to similar understanding,” he added.
Tsehaye expressed that companies which are interested in investing on the sector is increasing, which in the long haul reduces the foreign currency demand.
“If big companies that start production from scratch are coming, the foreign currency demand may reduce and the industry linkage will improve,”he told Capital.
Regarding the quality issues, there was also a challenge that the study cited, which was that the market share of quality non-certified products was on the rise, while quality assurance procedures were not in favor of quality products.
“For this, the Ethiopian Conformity Assessment Enterprise’s solar laboratory testing is used for market assessment certification. This verification process does not grant local manufactures complete authorization to export their products,” Tsehaye pointed out.
The study underscored that if barriers were to be lifted, the local sector suppliers like assemblers and manufacturers would bring comparative advantage for the economy and users at large.
“Local manufacturers and assemblers are more likely to have a better understanding of the local market and customer needs. Thus creation of specialized technicians and engineers who can provide high-quality after-sales services, including troubleshooting, repairs, and maintenance, and SHS products tailored to the specific needs and conditions of the Ethiopian market are stated as an advantage if the local expertise stand on its strength,” the expert highlighted the path to success.
The study also indicated that increased availability of spare parts, make it easier to replace faulty components and reduce the time needed for repairs. “As a result, improved maintenance and repair services can result in more reliable SHS products, ensuring that rural households have consistent access to electricity, and likewise the growth of the domestic solar industry can create jobs and stimulate economic development in rural areas,” the research analysis read.
According to the study, solar PV systems manufacturing alone could potentially create 50,000 full time skilled jobs.
“The overall cost needed to connect the yearly targets of NEP 2.0 including the net forex need, operational costs and capital investment, can be reduced by USD 151 million within the coming three years if some portions of the targets are replaced by locally value added SHS. This amount is the total cost needed to achieve more than 560,000 connections,” Abel said on his presentation.
In its finding the study indicated that the forex saving achieved through local assembly can go as high as 24 percent per unit, if locally available components such as plastic molds, cables, and packaging materials, are sourced from local manufacturers and locally assembled products can be sold at a price 13 percent less than imported products.
“If the products were manufactured locally, then it has a potential of cost saving up to 38 percent with about 50 percent reduction in product cost for the end user,” the research highlighted.
Currently, there are four SHS assemblers in the market with a total capacity of 80,000 units annually and additional 6 assemblers are finalizing their entry to the market with a total capacity of 413,000 units.
Abramba Technologies is the only SHS manufacturing firm in Ethiopia with the capacity to manufacture up to 100,000 units annually, while it is yet to become operational.
The NEP is an action plan launched in 2017 for achieving universal electricity access nationwide by 2025.
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