Financial and Economic Analysis of Small Hydropower in Ethiopia

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Addis Ababa University


Ethiopia has a vast amount of hydropower potential despite the fact that its people are not yet benefited as required, especially those in the remote scattered rural villages. The people in these areas have a great tendency of using traditional energy production methods, which result in deforestation, environmental degradation, health problems, and so many other unpleasant life styles. Small hydropower plants can solve the above mentioned problems. But their installation has not come into reality as required. Even though they are installed at some places, they stop functioning before their service period. There may be many reasons behind the above problems. One of the problems which results in slow growth of small hydropower construction has been discussed in this study, which is the unclear financial and economic analysis that results in financial and economic infeasibility. Before the installation of any Engineering structure, it is crucial to analyze the financial and economic analysis of the installed project. Financial analysis is usually undertaken in order to evaluate the cost and benefit brought about by the project to a person or business, while the economic analysis is undertaken in order to assess the overall impact of the project on the economic welfare of the residents of a specific region. This paper discusses the financial and economic status of small hydro powers in Ethiopia. Four small hydro power projects which are found in different regions of Ethiopia have been analyzed in order to assess their financial feasibility and economic efficiency. The analyses have been carried out first at existing conditions which showed infeasibility. Then different possible ways and new approaches have been searched and discussed in order to check whether they bring financial and economic feasibility. By the different alternative approaches the projects have got appreciable results in financial viability and economic efficiency. Therefore, the approaches can be applied to both the case study sites and other small hydro power sites.



Ethiopia has a vast amount of hydropower