Ethiopia secures $140m to modernise grid

From the newsletter

Ethiopia has secured a $140 million funding pledge from the EU and France’s AFD to modernise its electricity grid and expand digital connectivity. This comes after the country officially commissioned Africa’s largest hydro plant and seeks to tap into its power to connect more people, as it still struggles in access despite being a leader in hydropower.

• The country has long been a closed market, but recent policy changes, including legislation to open up the banking sector to foreign players, are expected to attract investment to help finance its climate goals.

• As Africa’s second most populous nation, with less than half of its people having access to electricity, Ethiopia is likely to soak up substantial capital.

More details

• The financing package combines EU grants, AFD loans, and technical assistance and will target to support the Renewable Integrated Sustainable Energy and Digitalisation (RISED) initiative. The programme aims to overhaul Ethiopia’s ageing electricity infrastructure by rehabilitating and automating power substations, reducing transmission losses, and integrating renewable energy sources. A key feature will be the partial rehabilitation of the 90 MW Ashegoda Wind Farm alongside support for new independent power producers.

• Beyond infrastructure, the project will train and coach more than 1,500 staff of the national utility EEP. By 2030, RISED is projected to improve electricity access for four million people, achieve 16 GWh of annual energy savings, and reduce the frequency and duration of power outages by half. It also targets to bring new mobile broadband services to 12 million people, helping to close the digital divide in underserved regions.

• Ethiopia has recently been in the spotlight with a wave of large-scale infrastructure projects that rival some of the largest in the continent. Among them is a planned $10 billion airport capable of handling up to 110 million passengers annually. Alongside this, the government recently commissioned the Grand Ethiopian Renaissance Dam (GERD), and Prime Minister Abiy Ahmed announced additional investments worth $30 billion at the inauguration.

• In the energy sector, the country is developing several major projects. These include the Koysha Hydroelectric Dam with a capacity of 2,170 MW. Other projects under development include at least 420 MW in wind, 500 MW in geothermal, and 400 MW in solar. These mega infrastructure projects are expected to serve not only local demand but also regional export markets. The completed GERD plant, for example, is projected to generate $1 billion in annual revenues and has already secured export deals with Kenya, Sudan, and Djibouti, while it recently entered into a new agreement with Tanzania.

• Hydropower, which provides reliable and affordable baseload power, has been central to securing these export opportunities. It has also attracted several manufacturers to set up operations in Ethiopia to benefit from stable and affordable electricity, which ranks among the cheapest in the world at just $0.019/kWh for commercial customers—about five times cheaper than in South Africa.

• Yet grid infrastructure remains the country’s most pressing bottleneck. Despite having enough generation capacity to serve its population, Ethiopia struggles to connect everyone due to limited transmission and distribution networks and ageing power lines that result in high technical losses. This challenge is not unique to Ethiopia; many African countries face similar issues. Nigeria, for instance, faces some of the worst grid constraints, where existing networks are unable to evacuate the full generation capacity. Increasingly, a larger share of energy investments across the continent is being directed toward modernising and expanding grid infrastructure to close this critical gap.

Our take

• Ethiopia has abundant renewable energy resources that could position it as a regional leader in power exports. However, without matching investments in transmission infrastructure, this ambition risks being delayed or even becoming unachievable.

• While hydropower makes up the bulk of Ethiopia’s generation, climate variability leaves the country vulnerable to droughts. Ongoing disagreements with neighbouring countries over the filling of the Grand Renaissance Dam also add uncertainty to its generation capacity. Diversifying the energy mix with more solar and wind projects will be critical to reducing these risks.

• At the same time, stronger policies and regulatory reforms are needed to open the market to private investment, especially from local companies. Ensuring that profits are reinvested domestically rather than repatriated abroad will be key to creating jobs and expanding opportunities for Ethiopia’s fast-growing population.