Ethiopia: Electric Power Signs Groundbreaking Agreement to Buy Geothermal Energy

The agreement with Corbetti is the first of its kind letting a private company in the sector

Ethiopian Electric Power (EEP) is buying up to 500MW of electric power generated from the Corbetti geothermal source near Hawassa from Corbetti Geothermal Plc.

The power purchase agreement was signed by Azeb Asnake, CEO of EEP and Edward Njorge, one of the investors from Berkeley Energy, in the Corbetti geothermal project along with Reykjavik Geothermal & Iceland Drilling. Berkeley Energy and Reykjavik Geothermal are Power Africa partners; the former is also manager of the Africa Renewable Energy Fund (AREF), currently amounting 200 million dollars, given by the African Development Bank (AfDB).

Power Africa is an initiative of US President Barack Obama, "which seeks to increase electricity access in sub-Saharan Africa by 30,000MW and 60 million connections", according to a press release from the US Embassy in Addis Abeba.

Geothermal projects in the initiative include Corbetti, Tulu Moye and Abaya. EEP and Reykjavik Geothermal are also negotiating to sign a Heads of terms agreement, a preliminary agreement setting the grounds for a contract, to develop an additional 500MW in the Tulu Moye and Abaya areas.

The total investment on these three projects, when completed in eight to 10 years, could reach four billion dollars, according to the press release, "making these projects collectively by far Africa's largest independent geothermal power production investment to date. The Corbetti agreement by itself is expected to double the previous largest independent power producer agreement of any kind made in Africa."

In the Heads of terms agreement for Corbetti signed between Ethiopia and Reykjavik Geothermal in 2013, the Ethiopian government agreed to pay 630.7 million dollars a year. The price per kilowatt hour was then said to be 0.079 dollars for the first phase and 0.065 for the second phase. It was after that agreement that the company began exploration on an area of 6,500sqkm. The area has steam with temperatures up to 350 degrees Celsius making it feasible for geothermal power generation.

The agreement signed then was reached after negotiations for 18 months and the current one came after two years since the first Heads of terms agreement was signed.

"The Ethiopian Great Rift Valley has lots of potential for the geothermal electric power generation and the current one is to be planted in the Rift Valley," said Azeb.

According to the Geological Survey of Ethiopia, the country's geothermal energy is found scattered along the "Main Ethiopian Rift and in the Afar Depression that covers an area of 150,000sq Km."

Ethiopia's geothermal power potential is estimated to be over 7,000MW. Currently, power generated from all power sources stands at 2,300MW. Despite massive failure of the GTP I, which had aspired to attain 10,000MW by the end of the last fiscal year, the government has gone on to target 17,347MW by 2020, when the GTP II ends. The country also sees a long term generation hope of 37,000MW by the year 2037, according to Azeb.

"We're working to unlock Ethiopia's potential for geothermal energy with the nation's first private sector energy agreement," stated President Obama during a joint press briefing with Prime Minister Hailemariam Desalegn. "This will help the government meet its ambitious goal of significantly increasing access to electricity across Ethiopia and help open the market to developing Ethiopia's other vast renewable energy sources."

Ethiopia gets much of its electricity supply from hydropower, so the major push towards getting the agreement was to diversify the power source as Azeb said.

"There has not been a year like this one when the water level in our dams has significantly fallen," she said. "Diversifying power source in addition to the increment of the energy generation is very important for reliability."

In a country where the total generation and distribution of electricity is monopolised by the government, the agreement with Corbetti is the first of its kind letting a private company in the sector.

According to Meheret Debebe, Energy Policy, Strategy & international Affairs advisor for the Ministry of Water, Irrigation & Energy, the investments in geothermal, hydropower and wind energy generation, are open for any of the private sector investors.

"The major issue is being competitive to engage," he told Fortune.

Meheret believes that finding such kind of investment is even an opportunity for the country.

The 1,000MW of geothermal electricity generation is said to be capable of providing power to two million households.

According to the Geological Survey of Ethiopia, the country could possibly generate more than 5,000MW of electric power from geothermal resources alone.