Ethiopia turns to solar to diversify beyond hydropower

From the newsletter

Ethiopia, Africa's leading hydropower producer, is diversifying its energy mix. Last week, the country signed an agreement with the International Solar Alliance (ISA), a global organisation dedicated to advancing solar, to develop a 400 MW solar park, a 700 kW solar mini-grid, and implement solar-powered water pumps for both irrigation and drinking water.

• The country is also looking to set new tariff rates for off-grid solar power in the coming months, as the government attempts to strike a balance between investor returns and affordability.

• Extending solar beyond the grid to rural areas, where about 72% of the population relies on agriculture, will be game-changing in creating income opportunities for Ethiopia’s unemployed population.

More details

• Ethiopia ranks third in Africa among countries with the largest populations lacking access to electricity, behind only the Democratic Republic of Congo and Nigeria. It is also one of the continent’s fastest-growing economies, with the IMF projecting growth to continue at a rate of between 6.6% and 8% until 2030. Providing reliable power is therefore crucial to sustaining this momentum.

• During the signing of the recent deal, ISA Director General Ashish Khanna emphasised that Ethiopia’s progress is central to Africa’s solar transformation: “If Ethiopia doesn’t move ahead, Africa cannot move ahead.”

• Solar remains the dominant force in Africa’s renewable energy sector. Other renewable technologies struggle to compete due to solar’s consistent price declines and its modularity, which makes it easy to transport and install even in remote areas. In Ethiopia, however, hydropower is still the backbone of the electricity sector, supplying more than 95% of the country’s power.

• While hydropower provides reliable baseload generation, recent climatic conditions and cross-border water disputes are limiting its growth potential. Ethiopia, for example, remains in a tense dispute with Egypt over the use of the Nile River, on which it heavily depends, while Zambia has experienced severe load-shedding due to droughts that have reduced dam water levels.

• Hydropower is also critical for Ethiopia’s neighbours, supplying baseload power and generating millions of dollars in foreign exchange through exports. To protect its economic growth ambitions, Ethiopia has restricted energy-intensive crypto mining from relying on the national grid. At the same time, it is investing in diversification, with over 400 MW of wind projects under development to strengthen the electricity supply.

• Many other African countries are also diversifying their energy mix to enhance security of supply. Those adopting solar and wind are increasingly integrating battery energy storage systems of up to four hours. Concentrated solar power (CSP) is another option being pursued, with South Africa and Morocco leading the way. Just last month, South Africa inaugurated the Redstone CSP Plant, a 100 MW tower-based molten salt system with 12-hour storage capacity.

Our take

• The upcoming tariff reforms for off-grid solar are crucial. If well-designed, they could unlock private capital and accelerate rural electrification. However, balancing investor returns with affordability for low-income households will be a delicate challenge that shapes the pace of adoption.

• As Ethiopia brings more intermittent solar and wind online to supplement hydropower, integrating BESS will become essential for grid stability.

• The focus on solar mini-grids and water pumps will not only improve access but also create new income opportunities, particularly for farmers, through solar-powered irrigation.