AmentiAdugna Gsr220/14

MegersaJirenya Gsr224/14

Introduction
East Africa has huge regional energy resources but the region consists of countries with
relatively small economies and low levels of electricity access. Energy resources in Africa are
concentrated in a few countries. The Federal Democratic Republic of Ethiopia (Ethiopia) and
the Democratic Republic of the Congo (DRC) together account for over 60 percent of Sub-
Saharan Africa’s hydropower potential. The Republic of Kenya (Kenya) has substantial
geothermal resources and wind energy while Tanzania has considerable natural gas
potential. Despite energy abundance at the regional level, East African countries have the
.
lowest rates of household electricity access and per capita electricity consumption in Africa
Figure 1 shows that Kenya has the highest rate of electricity access in East Africa – 25
percent of the country’s population has access to electricity. Three of the seven countries in
the region have access rates below 10 percent. In terms of population, the countries range
from a high of 85 million in Ethiopia to a low of 8.5 million in Burundi.

Figure 1. Electricity Access in Various Countries (Percentage of each country’s population

Government of the Federal Democratic Republic of Ethiopia and the Government of the
Republic of Kenya have reached an understanding to implement a power interconnection
project between the two systems after taking into consideration recent developments in the
countries and the region at large.

In view of that a memorandum of understanding for the implementation of Ethiopia–Kenya

Tropics Consulting Engineers Plc of Ethiopia and Gama Systems Ltd. of Kenya are jointly
undertaking the ESIA/RAP of the Project under the contract agreement signed between the
Consultants and Clients
The main objective of preparing an ESIA is to ensure that potential impacts of the project are
identified at the early stage of a feasibility study and minimizing or avoiding strategies can be
developed. The implementation of the Project should be carried out without creating much
adverse impacts on the environment and the livelihood of the project area population. The
main principle is that people living in the project area should not be impoverished due to the
implementation of the Project. Appropriate mitigation and compensation measures have to be
taken to ensure, that adverse impacts from the construction of the transmission line are
reduced to as low as reasonable acceptable level.

In January 2012, EEPCo and KETRACO signed a 25-year PPA for the Project. The
electricity trade will consist of both firm power sales and non- firm power sales. When the
line is commissioned, the contracting parties will purchase and sell 400 MW of firm power
with associated energy (at 85 percent availability factor) at a cost of US$0.07 per kWh. This
price has been fixed for the entire duration of the PPA. The parties may trade additional non-
firm power above the firm committed capacity at a price to be agreed between the parties
three months before the additional exports start. Ethiopia shall guarantee a minimum capacity
of 300 MW. The PPA sets out clearly other standard aspects such as the delivery point,
metering, scheduling, billing, maintenance allowances (11 days per annum), force majeure,
and agreed dispute resolution mechanisms. Finally, the PPA provides for Low Availability
Liquidated Damages, consisting of US$0.07 per kWh to KPLC in case EEPCo‟s delivered
energy falls below the minimum guaranteed amount of firm supply. The same level of
penalty applies to KPLC if it fails to absorb the minimum firm supply. The PPA has been
signed and approved by all relevant authorities in Ethiopia and the Kenya Energy Regulatory
Commission (ERC) as required by Kenyan law.

Ethiopia’s generation expansion program will provide enough capacity to meet domestic and
export demand even if some plants are not commissioned. Ethiopia is rapidly increasing its
generation capacity. By 2018, nine new hydropower stations are expected to become
operational, with a total capacity of about 9,000 MW. Among these new plants is the Gibe III
hydropower plant, which will come on-line by 2014, providing about 5,242 GWh of energy
to the system. By the time the Ethiopia-Kenya interconnector is operational, in 2018,
Ethiopia's power system will have a supply capacity in excess of the projected total domestic
and export demand. Clearly, even in the absence of Gibe III, Ethiopia will have enough
energy available to accommodate all possible exports through the proposed interconnector
The first phase of the Program, the Eastern Electricity Highway, will connect the strategically
positioned power systems of Ethiopia and Kenya.The transmission line is a system-to-system
interconnection between these two countries and will be a core development laying the
basis for the broader regional transmission backbone. The interconnection initially will help
Kenya to meet its increasing demand. Following the implementation of the subsequent two
phases of the Program, the line will serve a larger number of East African countries that will
interconnect to the EAPP network. Initially power will flow southward from Ethiopia to
Kenya. However, the direction of the flow may change seasonally, depending on the
availability of generation capacity in both countries and relative supply costs. Full
integration of the regions‟ power systems in the future – from the Southern African Power
Pool to Egypt - will allow the optimization of power generation at regional level, with the
utilization of least-cost regional energy resources, and a change in the direction of the
power flow from south to north. In such a scenario, a multitude of lower-cost generation
plants will feed the interconnected system to help meet demand in the region including in
Ethiopia, Sudan and Egypt, the largest power market in the EAPP.
Ethiopia has sufficient energy resources to meet projected domestic and export demand and
has secured considerable financing for related investments. In 2018, when the Ethiopia-
Kenya interconnector is expected to be commissioned, EEPCo is projecting domestic demand
at 4,000 MW and export demand at 600 MW. The Bank‟s analysis of EEPCo‟s generation
expansion plan has confirmed that the company will be able to meet the projected demand
from a mixture of hydro, wind, and geothermal plants that are under various stages of
construction and are expected to enter into service by 2018. These plants will add about 9,000
MW to the system. Of this capacity, more than 800 MW is wind and over 1,000 MW is
geothermal. In addition, feasibility studies have confirmed the viability of 15,000 MW of
additional hydro, wind, and geothermal plants. The Government has raised nearly US$3.5
billion towards financing of the power system development projects for generation,
transmission and distribution from multilateral development partners (IDA, AfDB, etc.),
foreign investment banks (India and China), and from domestic and Diaspora bond issuances.
GoE is seeking an additional US$4 billion for investments in the remainder of the GTP
period (through 2015).

Power imports from Ethiopia will boost Kenya’s capacity to achieve ambitious targets for
household electricity access. Despite major institutional reforms in the power sector,
household access to electricity is still low in Kenya. Flanking the reforms, access to
electricity has been increasing steadily, but the countrywide rateis only about 25 percent
(2009), with the other 75 percent relying on fuel-based lighting, dry cell batteries, and other
electricity substitutes that are costly and often unreliable. The Government has set a target of
40 percent household access by 2020 to accelerate economic development and reduce
imbalances between urban and rural areas. As a result of expanded electricity access and
planned GDP growth at an average annual rate of six percent, electricity demand is expected
to grow much faster than the economy, at an average annual rate of nine percent.

Power system interconnection with Ethiopia will help Kenya diversify its sources of power,
enhancing both security of supply and environmental quality. Kenya’s LCPDP emphasizes
the need to develop a diversified portfolio of generation assets that balances sources of power
and types of technology. As an interim measure, Kenya will turn to a combination of thermal
and geothermal generation options to help meet urgent needs for power until about 2017-
2018. However, at that time, generation from thermal plants will likely shift from the
provision of full-time base load power to part-time duty. The anticipated development of
large-scale geothermal and wind projects together with electricity imports, in addition to
providing less expensive base load power, will contribute to a reduction in the projected
carbon intensity of Kenya’s power grid.

Kenya is among the five African countries considered likely to attain middle-income status in
the next decade provided it can grow six percent annually.Kenya’s economy is more
diversified than most other countries in Sub-Saharan Africa. About 55 percent of Kenya’s
GDP comes from services, transport, finance, tourism, information and communications
technology (ICT) and trade – sectors that critically depend upon reliable power supply. In
2011, GDP growth was 4.4 percent and in 2012, five percent growth is predicted if sound
macroeconomic policies persist. If growth accelerates to six percent per annum, Kenya can
expect to reach middle-income status by 2019. Recent macroeconomic stability gives hope
for the remainder of 2012 with inflation expected to remain below 10 percent, half of what it
was at the end of 2011. Debt levels have returned to below 45 percent of GDP, which would
propel Kenya to the top performers in the European Union by the debt criterion. However,
Kenya‟s current account deficit has reached record levels and risks remaining at 15 percent
of GDP in 2012, susceptible to external shocks, such as sharp rises in oil prices. Nonetheless,
with relatively low levels of debt, a stable exchange rate, and declining inflation Kenya is
now able to run higher fiscal deficits to maintain its public investment program, especially in
infrastructure.