Construction of Africa's hydro giant is now complete

From the newsletter

Ethiopia has announced the completion of the 5 GW Grand Ethiopian Renaissance Dam (GERD), Africa's largest hydro plant. While the project has long fuelled tensions with Egypt and Sudan over water rights, its readiness now enables Ethiopia to significantly expand its role as a regional power exporter, having recently inked a new deal with Tanzania.

• The mega-dam has been primarily funded by Ethiopian taxes since its inception in 2011, costing more than $4 billion. This is a show of confidence that Africa can rely on its internal resources for mega-projects.

• Ethiopia now generates the cheapest electricity in Africa, which has attracted multiple manufacturing companies and positioned it as a regional hub. It hosts two solar manufacturing plants, with more in the pipeline, as manufacturers scramble for cheap power.

More details

• The project has been a significant point of contention with downstream nations, Egypt and Sudan, who fear it will threaten their vital water supply from the Nile River. Egypt, heavily reliant on the Nile for nearly all its fresh water, is concerned that a reduction in water flow could lead to substantial losses of irrigated land. Sudan also shares these concerns.

• Despite past tensions, Ethiopian Prime Minister Abiy Ahmed has sought to reassure his neighbours. He stated the dam is "not a threat, but a shared opportunity," and extended an invitation to both Egypt and Sudan for the official inauguration in September, promoting a message of "shared progress, shared energy, and shared water."

• Ethiopia is looking to tap into its abundant renewable energy potential. It boasts an estimated 45,000 MW of hydropower, 1,350 GW of wind, over 10,000 MW of geothermal, and at least 6 solar hours per day. Although it has heavily relied on hydropower for more than 90% of its current generation capacity, Ethiopia is now diversifying into other sectors. It is building a 500 MW solar project under the Scaling Solar initiative and a 350 MW wind farm on the Somali border, with plans to triple its installed capacity by 2030.

• Hydropower's mature technology and ability to provide firm power for decades, longer than wind and solar, make it the cheapest source of electricity over time. This has positioned Ethiopia to generate some of the cheapest electricity in Africa at just $0.019/kWh, ranking third after Libya and Angola. This affordability has attracted manufacturers to the country and also facilitated electricity exports to neighbours.

• Ethiopia currently exports electricity to Djibouti, Sudan, and Kenya, with plans for South Sudan. It is also running trials for a 100 MW export to Tanzania. By 2030, exports are expected to almost triple, reaching 7,184 GWh. The country projects electricity export earnings to more than double, reaching $260 million in the 2024/25 financial year.

• Many other African countries with surplus electricity are also targeting these export markets for dollar revenue to uplift their debt-burdened national utilities. The DR Congo is pursuing one of the longest high-voltage power lines, spanning 1,150 km, to import electricity from Angola. Zambia is building an interconnector to Tanzania, and Egypt is targeting exports to Saudi Arabia.

Our take

• Ethiopia's reliance on hydropower is both an opportunity and a challenge. While it provides baseload power, it faces the risk of climate change impacts like droughts. Zambia has been significantly affected by this, and Ethiopia should learn from this experience.

• The clear solution lies in diversifying its energy sources. While current efforts towards this diversification are commendable and moving in the right direction, greater investment is crucial. This is particularly true for exploring and developing other reliable resources that are not dependent on weather patterns, such as geothermal energy.

• Ethiopia's ongoing integration of its power grid with neighbouring countries represents the future of power infrastructure. This interconnectedness not only opens up valuable electricity export markets for Ethiopia but also provides the capacity for imports, which can effectively address any future domestic supply deficits.