Ethiopia secured 200 million dollars in investment guarantees for the power sector involving the participation of private companies in the renewable energy generation industry.

The World Bank, through its International Development Association (IDA), has approved the guarantee under its Renewable Energy Guarantees Program, which is the first guarantee deployed in Ethiopia. The programme will see the development of 10 to 12 solar and wind energy independent power producers (IPP) with a total installed capacity of about 1,000MW.

Ethiopian Electric Power and the Ministry of Finance are designated as implementers of the financing. The IDA guarantees will come in two forms: payment guarantees and loan guarantees.

Loan guarantees would be offered to commercial banks, which will finance the IPPs and mitigate risks related to off-take agreements or government actions.

The payment guarantees will enable EEP to provide adequate security expected to be requested by IPP project sponsors through the issuance of letters of credit.

To be covered by the guarantee, investors must qualify under tenders issued by the Ministry of Finance, Ethiopian Electric Power and Ethiopia's Public-Private Partnerships Directorate.

So far, one project has already been launched under the World Bank Social Initiative Program covered by the guarantee. A consortium led by Enel Green Power is investing 120 million dollars in the construction of Metehara Solar, which is expected to be operational by 2021. The plant will have the potential to produce 280 GWh a year.

“The World Bank wants to support the government’s effort in accelerating the development of modern renewable technologies by bringing in private sector capital and knowledge," wrote Gelila Woodeneh, senior communication officer at the World Bank, in an email to Fortune.

The programme follows recent legislation that allowed the private sector to invest in power generation.

The Public-Private Partnership Proclamation was enacted last February and aims to promote privately financed projects and reduce public debt. The government hopes it will open many areas of infrastructure development to the private sector.

"The programme will create a platform for much-needed private sector participation in the crucial energy sector by lowering the risks of investing in Ethiopia,” said Carolyn Turk, World Bank Country Director for Ethiopia, Sudan and South Sudan.

The World Bank believes the guarantees can improve foreign investors’ confidence and has the potential to leverage finances on the order of 750 million dollars in private financing (equity and commercial debt) and a total of 1.5 billion dollars in investment.

Two weeks ago, the African Development Bank gave close to one million dollars in grants to upgrade the procurement framework for independent power producers in Ethiopia.

Reykjavik Geothermal, an Icelandic company backed by major investors, is preparing to start a four-billion-dollar geothermal project in Corbetti and Tulu Moye south of the capital. Exploration drilling is planned to begin in September for two 500MW plants.

The World Bank program is aimed at supporting the country's efforts to diversify its power sources. Ethiopia is dependent on hydropower, which makes it vulnerable to frequent droughts caused by climate change. This has increased the urgency to expand into modern renewable energy sources. Currently, Ethiopia at full capacity produces 4,300MW, 90pc of which is from hydropower.

In Ethiopia, nationwide access to electricity stands at 56pc, while demand for electricity has been increasing by an average of 15pc a year since 2010.