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Launching a Commercial Market to Replace Diesel Water Pumps with Solar in Ethiopia

March 22, 2021 | DIgital – Private roundtable

12:00 – 1:00 PM EDT

Description

On March 22, Concordia and Winrock International hosted a private roundtable, Launching a Commercial Market to Replace Diesel Water Pumps with Solar in Ethiopia, with the goal of identifying pathways to transition Ethiopia’s 10,000 diesel water pumps with solar pumps, in line with the nation’s sustainability goals and to enhance affordable, reliable access to clean water across the country. The following presents key takeaways from the discussion. Contact Concordia for more information about this initiative, or visit Winrock International to learn more about their work with the Tufts University Climate Policy Lab.

Quotes

“Private companies could scale [the replacement of diesel powered pumps] significantly faster if we can demonstrate this revenue model and deal with some of the policy issues that need to be solved.” –  Jennifer Holthaus

“In Ethiopia, around 28 million people have no access to drinking water in rural areas.” – Easwaran Narassimhan

“[This is] such a great high-profile moment to show a path forward. Ethiopia is a critical player because it is a leader on climate with such a big commitment, but it’s also the host of the African Union […] a key partner to other developing countries.” – Michael Northrop

“We have been struggling to find business models that are sustainable, both in terms of impact and financial return, and that is why we were interested in participating in this conversation.” – Bendjin Kpeglo 

“There is a lot of potential to have more discussions regarding water pumps in Ethiopia […] Probably all of these [models] are scalable in other countries in Africa.” – Bendjin Kpeglo 

“Our proposed pilot would bring the local government, the community, and the private solar pump company together for a three-way agreement.” – Bikash Pandey

Key Takeaways

Ethiopia has established ambitious sustainability goals aiming toward a development trajectory that is carbon neutral and climate-resilient. In 2011, the country introduced the Climate Resilient Green Economy Strategy (CRGE) and included its renewable energy and water supply targets into the nation’s Growth and Transformation Plan (GTP). Towards these targets, the government set the goal of reducing dysfunctional water systems in rural areas from 11.2% to 7%, developing 20,000 new water supply systems using solar, and replacing 10,000 existing diesel water pumps with solar by 2030. The current model for pump replacement requires grant funds to pay for 100% of the costs, despite the fact that community water tariffs are high enough to pay for solar water pumps with a relatively short payback time. Winrock International and Tufts University’s Climate Policy Lab have co-designed a viable commercial business model for replacing diesel-powered water pumps with solar pumps in large numbers in Ethiopia. The execution of this proposal requires a pilot phase grant in the short term and policy reform to enable a more private sector-inclusive operating environment in the long term. This roundtable brought relevant ecosystem players together to explore actionable steps toward the goal of creating a market for solar irrigation water pumps in Ethiopia.

Winrock International found that people in rural areas of Ethiopia are paying roughly between USD 0.80 to USD 1 per cubic meter of water, due to the high cost of diesel fuel required for powering the water pumps. As diesel pumps begin to break down frequently after about 10 years, this tariff is no longer sufficient to cover maintenance. As the majority of these water systems are paid for by grants, the community is then reliant on additional grant funding to repair or rebuild. However, as explained by Bikash Pandey (Director of Clean Energy, Winrock International), an existing solar water pump operating in Leman village demonstrates that maintaining the price of water after converting to solar creates sufficient surplus that pays back the cost of the solar pump in three to five years. After the solar pump is paid off, the long-term cost of water decreases, since solar panels are guaranteed for 25 years and solar-powered pumps require significantly less maintenance than diesel-powered pumps. These systems could then be handed over to the communities so they can get inexpensive water for the life of the solar pump system and the solar companies could redirect their return on investment into the further scalingup of solar pumps nationally. This proposal is, as stated by Easwaran Narassimhan (Research Fellow, Tufts University Climate Policy Lab), a viable business model that leads to a more environmentally- and commercially-sustainable path to development. 

Private solar pump companies that might wish to pursue this business model in Ethiopia face two main challenges: i) the national prohibition against third-party water sales; and ii) the difficulty of getting foreign currency to redeem earnings, as mentioned by Samir Ibrahim (CEO, SunCulture).  The government of Ethiopia is open to trying different solutions to permit private water sales if a model can be demonstrated that ensures fair water tariffs for communities. Ethiopia’s 2018 Public-Private Partnership (PPP) Proclamation, which creates a pathway for large-scale infrastructure projects to be considered by the Ministry of Finance and compete for biddings, currently excludes small-scale projects and investors. Extending the PPP Proclamation to cover small-scale projects would be one way to permit the private sale of water to facilitate the scaling up of solar pumps at the community level. The World Bank and the African Development Bank are already working to solve the foreign exchange issue related to renewable energy investments, but timelines for resolution are unclear. The Smallholder Solar Pump Alliance, facilitated by TechnoServe and Partnering for Green Growth and the Global Goals 2030 (P4G) and to which SunCulture is a founding member, serves as a starting point to coalition building for solar pump providers and could be helpful in addressing the foreign exchange issue.

One opportunity currently underway to support the transition to solar water pumps stems from the World Bank’s One WASH-CWA project, which includes the injection of USD 300M into 6,000 towns and communities through a loan to the government of Ethiopia for water supply systems. Despite both the government and the World Bank’s commitment to renewable energy, the off-grid projects in the pipeline that require pumps are currently all proposing to use diesel pumps, providing further evidence of the gap between innovation and access brought on by dated procurement processes. 

Winrock International and Tufts University Climate Policy Lab look to address these concerns and further accelerate a transition to solar-powered water pumps through a pilot project to demonstrate a commercial model for replacing diesel pumps with solar pumps in  five communities. In 2018, Tufts University and the Ministry of Environment, Forest, and Climate Change of Ethiopia signed a Memorandum of Understanding (MOU) that aims to review, evaluate, and recommend policy change and that provides an additional channel to convince the government of the pertinence of engaging with the private sector longer term and pursuing this model in the moment. Because the community’s committee (the WASHCOM) operates the water system in rural Ethiopia, Winrock’s business model contemplates that, ideally, an agreement regarding risk capital and payment would be made directly between the community and the private company to implement the project. Winrock and Tufts’ role would be the following: to recruit solar pump companies to participate in this pilot; to facilitate a three-way agreement between the pump company, the WASHCOM, and the local government (Woreda) in five communities; to secure an exemption from the Ministry of Water, Irrigation, and Energy for the private sale of water to the five communities; and, to identify impact investors to scale up the model. 

With water, sanitation, and hygiene (WASH) matters at an all-time high due to the COVID-19 pandemic, and the UN Climate Change Conference (COP 26) scheduled for November and serving as a major catalyst for climate policy and investment, the time has never been more right for Ethiopia to demonstrate continued climate leadership and pursue at all haste the transition to clean, affordable solar-powered water pumps. 

Specific and timely recommendations in pursuit of that vision by participants included:

  • Expanding the 2018 Public-Private Partnership (PPP) Proclamation to include small-scale water supply and energy access projects. 
  • Including an agreement between the solar pump company, the WASHCOM, and the local government in every pilot project to be developed, to ensure community engagement in design and development and contribute to other social and economic objectives.
  • Structuring multilateral projects (like One WASH-CWA) in a way that advances both climate (solar water pumping) and financial sustainability (blended finance models) goals.
FOR MORE INFORMATION on HOW TO ATTEND OR Host a private roundtable with concordia, PLEASE EMAIL MEMBERSHIP@CONCORDIA.NET.