As Ethiopia looks to improve access to energy, ease dependence on hydropower, and meet international obligations to reduce greenhouse gas emissions over the coming few years, the government is turning its attention towards the development of solar and wind power projects.
While there has been tangible progress on the wind front, such as the inauguration of a 100-megawatt capacity wind farm in Assela, Oromia, three months ago, solar power generation remains limited. Reports indicate solar accounted for less than 0.5 percent of Ethiopia’s total power output last year.
This is despite Ethiopia’s immense potential and suitability for solar power production, given its exceptionally high annual solar radiation levels.
Last week, the Ministry of Water and Energy signed a partnership agreement with the International Solar Alliance (ISA), an intergovernmental organization with more than 120 member countries, for the development of a 400 megawatt ‘Solar Park Tripartite Project’ and a 700 kilowatt peak (kWp) mini grid project in Central Ethiopia. Officials hope the deal will serve as a stepping stone towards dependable and sustainable solar power infrastructure in Ethiopia.
ISA Director-General Ashish Khanna was in Addis Ababa to ink the agreement with the Ministry.
Khanna,draws wealth of green energy knowledge from his more than twenty-six years of experience leading energy development in over fifteen countries across South Asia, the Middle East and North Africa, and Sub-Saharan Africa.
Before joining ISA, Khanna served as head of the World Bank’s West and Central Africa Program, where he spearheaded Mission 300—an initiative to extend energy access to 300 million people in Africa by 2030.
He has also led policy reforms in India that opened the solar sector to private investment and managed programs that mobilized USD 20 billion in Egypt’s energy sector.
Khanna holds dual master’s degrees in Management and Public Administration, and is a Littauer Fellow in Global Leadership from Harvard Kennedy School.
In this interview with The Reporter’s Nardos Yoseph, Khanna discusses Ethiopia’s solar potential, financing models, and the role of private investment in the country’s stride towards energy sources expansion.
He argues that Ethiopia must design local business models, cut taxes on solar products, and coordinate across ministries. While donor procurement rules and forex shortages remain challenges, Khanna stresses that solar is a “no-brainer” for Ethiopia. EXCERPTS:
The Reporter: Many still ask how countries like Ethiopia can realistically scale up solar access, particularly in developing contexts where markets are fragile. In your recent engagements here, you spoke about scaling solar adoption in developing countries through innovative finance. How does this model apply to Ethiopia’s current macroeconomic constraints?
Ashish Khanna: When a country has already gone through the painful process of macroeconomic reforms, as Ethiopia has, it creates a window of opportunity. At that point, the question becomes: how do you attract private sector investment? That’s where real growth happens, and that’s where foreign capital comes in.
Solar is a particularly attractive sector because, globally, large-scale expansion has almost always been driven by private companies. I believe the timing for Ethiopia is very favorable. Private investment in solar can strengthen Ethiopia’s macroeconomy, but equally important, it can generate rural jobs and transform communities.
Today, solar technology is much more mature and cheaper than it was a decade ago. Applications like solar pumping for irrigation or power for dairy and coffee processing are no longer experimental—they are proven. For Ethiopia, this means solar can directly enhance rural productivity and income.
You mention rural communities. Access remains very low outside of major urban centers. How do you see financing models for mini-grids and off-grid solutions working in Ethiopia, especially without overburdening consumers with high tariffs?
The good news here is that the technology for mini-grids has advanced rapidly, and the costs have fallen dramatically. Look at Nigeria: it is now working to electrify more than 30 million people using a mix of mini-grids and solar home systems.
The technology works, but affordability for the poorest households sometimes requires government support. What’s important for Ethiopia is to design business models that make sense locally. One clear opportunity is in agriculture.
Take irrigation, for example. A diesel pump costs about four times more to operate than a solar pump. Why should Ethiopian coffee farmers, who are internationally recognized and have access to foreign markets, rely on diesel? With solar, they can lower costs, increase income, and even brand their product as “green coffee.” That kind of shift adds both economic and reputational value.
Of course, for the poorest and most marginalized communities, some targeted government support will still be necessary. But overall, solar now offers Ethiopia a cost-effective path to expand access without locking households into expensive fuels.
Ethiopia’s electricity access is still under 60 percent nationwide, and in rural areas it is even lower. From your global perspective, what financial and policy tools could Ethiopia adopt to accelerate development?
Policy is the foundation. First, there should be no taxation on solar products. In fact, in many countries, not only are solar products tax-free, but there are incentives—like tax credit lines specifically designed for those using clean technologies, including electric vehicles.
Second, regulatory and licensing requirements should be streamlined. If the process is too complicated, private companies are discouraged from entering. International experience shows that simple, transparent regulation creates confidence and brings costs down.
On the financing side, Ethiopia needs to be bold. When a country announces a large solar target, it signals seriousness. That attracts big private players who bring in capital, technology, and supply chains. In Ethiopia, this could even lead to local assembly of solar pumps and panels, lowering costs further.
But one thing is critical: coordination. Ministries of agriculture, finance, energy, and water must work together. Without that, projects get stuck in silos.
A challenge we often hear about is donor-funded projects requiring procurement from donor-country suppliers, which limits local participation. How do you view this, and what can Ethiopia do?
This is a delicate issue. The reality is that donor projects often focus on cost. If local manufacturers are significantly more expensive—say 50 percent more—the question arises: is it worth paying that much more just to insist on domestic suppliers?
I would not recommend abandoning domestic capacity, but the priority should be making local manufacturing competitive. What would it take for Ethiopian companies to match international costs? That is the question policymakers must answer. Until then, international suppliers will more likely dominate. But with the right incentives and a long-term plan, Ethiopia can gradually strengthen its own solar industry. However all these must be preceded with analytical research work. Currently haven’t analyzed and well researched this part of the sector.
All stakeholders engaging in Ethiopia within the solar and renewable energy sector must admit that the domestic manufacturers issue is something that we’ll have to work more on.
When it comes to international companies dominating the sector’s businesses acquisition and the local ones being undermined, the main issue often is about cost. And the question about cost is the right one.
What will it take for a domestic company in the private sector to have the same cost as an international entity? I feel countries sometimes are trying to go only for domestic manufacturers. But, what if they’re 50 percent more expensive? Is that a good use of resources while it can acquire it for half the price? Probably not.
I would say the main aspect to be seen in this context is, what will it take for Ethiopia to bring down its domestic cost of manufacturing certain products? That is a question that has to be analyzed. We haven’t analyzed it yet.
Reports indicate that Ethiopia’s solar potential is vast, but private sector participation in large-scale projects has remained very limited. Why is that?
My own sense is that investors were waiting for Ethiopia’s macroeconomic reforms. Foreign exchange shortages, unpredictable tariffs, and high macroeconomic risks made large investments unattractive. Now, with reforms under way, the environment is improving.
Currently, the timing for doing large-scale solar projects in Ethiopia is just right and it is very likely to get very competitive tariffs. You see, the thing about it is, companies can always bid, but they will give the country a very high tariff, which may not be good for it.
The result of the reform specifically in this context is that Ethiopia can now begin to attract competitive bids for solar power.
In the past, companies might have bid, but only at very low tariffs that were not sustainable for their investment. With reforms, the tariffs should be negotiated in a way that does not negatively impact the country and is affordable for the end customer as well as in a way that lets the investors keep thier profit margin sustainable, making solar attractive both for investors and for the country.
Businesses and investors are still struggling with foreign currency shortages. Reports also point out that several projects stall for lack of forex. How can solar investment proceed without worsening the crisis?
I’m not a macroeconomist, so I am not well equipped to respond to the variability of the currency here. But what I can tell you is that the foreign exchange requirement of solar can be managed if you have the right tariffs.
The answer for the question of how solar investment can proceed without worsening the foreign currency availability issues of Ethiopia is that it all depends on tariff design. For instance, if Ethiopia develops utility-scale solar, the question is whether the tariff is denominated in foreign or local currency. Depending on how you decide those answers, you can easily decide how much a foreign exchange is really possible. That decision directly affects forex exposure.
I go back to my earlier explanations. If you feel Ethiopia has limited foreign exchange resources for the government, you need the private sector to invest. There are very few sectors that are more ripe in the world today than solar to attract private sector investment.
Let me stress, solar is one of the few sectors today that can genuinely attract private investment. Ethiopia’s government has limited foreign currency resources, but private investors are ready to bring in capital—if the enabling environment is right. In that sense, solar is a ‘no-brainer.’
Ethiopia also aspires to industrialization. How do you see solar integration supporting that goal?
Just last week, we signed an agreement with the government to launch Ethiopia’s first competitive tender for a 400-megawatt ultra-mega solar project. This is a milestone—it will be the country’s first attempt at large-scale competitive bidding for solar.
The process will take one to two years. The plan and site will be prepared. We’ll conduct feasibility and viability studies, and address transmission requirements. But this is the foundation for industrial-scale solar. Once Ethiopia demonstrates that it can run such tenders successfully, it opens the door for much larger integration of renewables into the economy.
Let us touch on carbon markets. Some argue they could provide an additional revenue stream for solar projects, but there are concerns about volatility. What is your view?
I would confess that if you do a large-scale solar program and agriculture pump program, it may be feasible to tap into some of the carbon credits. The question is, are the carbon markets ready to provide you with carbon funding? The bigger issue lies with whether or not carbon markets are ready. Because they are still in an extremely nascent development stage. If they mature, Ethiopia could benefit significantly. For now, they are an option worth preparing for, but not one to rely on exclusively.
