Overcoming obstacles in procurement from independent power producers

Background, challenges and context

Competitive bidding for renewable energy, often referred to as RE-IPP (Renewable Energy Independent Power Producer) agreements, involves setting a target level of investment in renewable energy capacity and allocating contracts to the lowest bidders. It is gaining prominence in developing countries due to its relatively simple institutional design and its potential to attract significant private investment.

The Ethiopian Government has been considering engaging with private suppliers of energy, but, due to the country’s lack of experience in such partnerships, it remains unclear how the procurement process would work. While RE-IPP appears relatively simple, actual design and implementation on the ground can face complex obstacles due to its relations with the broader regulatory system, friction with incumbent actors, and a mismatch of expectations between regulators and private investors. Despite RE-IPP’s huge potential, there are notable knowledge gaps regarding how these obstacles, risks, and pitfalls can be addressed and avoided.

Research overview and objectives

This project aims to understand what policy frameworks need to be established for renewable energy competitive bidding programmes to be effective in Ethiopia. It is designed to draw lessons from Ethiopia’s experience of IPP initiatives and from other countries’ renewable energy auction programmes. It will specifically answer questions around barriers and opportunities for private sector participation:

• What is the history and performance of IPPs in energy and other sectors?

• Are there transferrable lessons from other countries in incorporating private sector participation? How can these be adapted to the Ethiopian context?

• What barriers and constraints are faced during planning, engineering, procurement, construction, and decommissioning of energy projects?

• Are there adequate skills available in Ethiopia to design, build, and operate energy projects? How does the capacity gap get addressed?

• What are the key agendas of the private sector actors involved in IPPs in Ethiopia, and what levels of risk are acceptable for them?

The team will provide a historical review and analysis of IPP activity, focusing particularly on the country’s recent past projects, and will conduct a comprehensive review of Ethiopian government policies, legal frameworks and programme documents on IPPs. This will be complemented by in-depth interviews with energy regulators, utilities, grid companies, and other state and quasi-state actors directly involved in the renewable energy policy processes.

The combination of interviews and document analyses will help to reveal the power dynamics and dominant narratives around regulatory choice and policy process in renewable energy activities. The team will also examine private actors’ risk appetite and perception on renewable energy projects, and their business strategy in the Ethiopian market.

The team will also compare the Chinese and South African RE-IPP experience and explore their implications for Ethiopia. These two countries are highly relevant; both are fast-growing economies that adopted renewable energy auction programmes to kick-start their renewable energy sectors; many of their renewable energy projects are located in remote and underdeveloped areas where the private sector was previously reluctant to invest; and both countries’ auction programmes have also produced mixed results with notable successes and setbacks. Securing a better understanding of these enabling and disabling factors will provide critically important learning for Ethiopian energy regulators and researchers.

The findings will enable the team to bring together existing knowledge, evidence, and data, and to identify key policy challenges and existing capacity gaps among central and local policy stakeholders. The key mismatches between policy goals, policy means, and policy outcomes will be assessed. Key institutional constraints and barriers will be identified, as well as the key ways in which these can be overcome. Participatory methods will be used to facilitate policy learning and change via capacity building training programmes.

The intended impact of this project is to improve the design and implementation of IPP projects to promote the renewable energy sector in Ethiopia. Key deliverables will be concrete recommendations in the form of policy briefs to be presented to EEP, MoWIE, and other energy policy stakeholders, including Ethiopian Electric Utility (EEU).

Local partners

Ministry of Water, Irrigation and Electricity (MoWIE)

Ethiopian Electric Power (EEP)