Market framework

Definition of ‘renewable energy’

Is there any legal definition of what constitutes ‘renewable energy’ or ‘clean power’ (or their equivalents) in your jurisdiction?

No.

Framework

What is the legal and regulatory framework applicable to developing, financing, operating and selling power and ‘environmental attributes’ from renewable energy projects?

The EEA is responsible for issuing generation licences, and would, in the case of an IPP, authorise the project company to generate electricity from a particular generation facility. Given that EEP is responsible for generating (or procuring the generation of) electricity in Ethiopia and that EEU has a monopoly over the distribution of electricity to end users, any IPP seeking to develop a project in Ethiopia would need to enter into a Power Purchase Agreement with EEP. The foregoing applies to renewable and non-renewable projects alike. There is no legal or regulatory framework for selling environmental attributes from renewable energy projects, but the high cost of electricity in Sub-Saharan Africa in general and Ethiopia in particular means that renewable projects have a much easier time achieving grid parity than they would in other markets with lower electricity prices.

The following is a list of the principal legislation governing the development of energy in Ethiopia:

  • Energy Proclamation No. 813/2013 (revised but not published);
  • Ethiopian Energy Authority Establishment Council of Ministers Regulation No. 308/2014 (this Regulation is currently under review and will likely be amended);
  • Electricity Operations Council of Ministers Regulations No. 49/1999 (under revision);
  • Geothermal Resources Development Proclamation 981/2016;
  • Investment Proclamation No. 769/2012 as amended;
  • Investment Incentives and Investment Areas Reserved for Domestic Investors Council of Ministers Regulations No. 270/2012 as amended;
  • the Constitution of the Federal Democratic and Republic of Ethiopia;
  • the 1960 Federal Democratic Republic of Ethiopia Civil Code;
  • Environmental Protection Authority Establishment Proclamation No. 9/1995m as amended;
  • Environmental Impact Assessment Proclamation No. 299/2002; and
  • National Bank Directives.

Foreign banks can lend to an Ethiopian incorporated company only if they obtain an authorisation from the National Bank of Ethiopia, where the Ethiopian company cannot find adequate funding from Ethiopian banks. The authorisation by the company in Ethiopia to borrow money from abroad is granted by the National Bank of Ethiopia and is granted on a case-by-case basis.

Government incentives

Does the government offer incentives to promote the development of renewable energy projects? In addition, has the government established policies that also promote renewable energy?

Foreign investors investing in an approved investment project may benefit from tax incentives depending on the type of investment they intend to make and the area in which the project will be located. An exemption from income taxation for a limited number of years is available to companies that are engaged in the generation of electricity in certain areas. Companies that invest in generation may also benefit from customs duty exemptions for capital goods and equipment. No incentives other than the foregoing are currently in place that would provide for additional incentives for investments in renewable energy projects.

Are renewable energy policies and incentives generally established at the national level, or are they established by states or other political subdivisions?

Ethiopia is a federation made up of nine ethnically based regions or states. The Constitution vests the right of ownership over rural and urban land, as well as of all natural resources, exclusively in the state and the nations, nationalities, and peoples of Ethiopia. The government of Ethiopia has wide-ranging powers deriving from the Ethiopian Constitution in relation to formulating and implementing major policy and institutional reforms aimed at creating an efficient and environmentally sustainable energy sector and at supporting investments in the electricity sector. Regions may enact laws in line with federal legislation and polices to implement the same, but in practice policy in the electricity sector is generally established at the national level.

Legislative proposals

Describe any notable pending or anticipated legislative proposals regarding renewable energy in your jurisdiction.

Earlier this year, the government adopted Proclamation No. 1076/2018. Proclamation 1076/2018 establishes a framework for the development and financing of public private partnerships in Ethiopia.

In relation to the energy sector, two pieces of legislation are expected to pass in the near future. They are the Draft Council of Ministers Regulation to provide for Energy Operations, and a regulation to implement the Geothermal Resources Development Proclamation.

The geothermal proclamation, which was promulgated in early 2017, aims to stimulate investment in geothermal resources. The development of geothermal resources is currently governed by generally applicable mining legislation, and its use to date has been limited as a result. The new proclamation will, if enacted, set forth the overall framework governing geothermal resources. The draft regulation will implement the proclamation at a more practical level by providing guidance on issues such as how licences should be applied for and issued to IPPs, and the requirements that projects must satisfy in order to qualify for a licence.

Disputes framework

Describe the legal framework applicable to disputes between renewable power market participants, related to pricing or otherwise.

Ethiopia is not a contracting party to either the New York Convention or the Washington Convention. Nonetheless, foreign arbitral awards are, as a general matter, enforceable under the Civil Procedure Code.