Ethiopian Rural Energy Development and Promotion Centre 

Memorandum - 31 August, 2001 Addis Ababa, Ethiopia

To: - Solar Energy Foundation, Sweden 
- Solartech, Sweden

From: - The Ethiopian Rural Energy Development and Promotion Centre (EREDPC), Addis Ababa


Our Centre with support from the Inter-Governmental Agency for Development (IGAD) has recently completed a preliminary study of PV market assessment for rural Ethiopia. Findings of this study are published in the July-August 2001 issue of Renewable Energy World. 

According to this study the commercially viable PV solar home system market in Ethiopia is 25MWp but current sales of PV SHS are less than a thousand units a year or less than 10kWp. The demand for PV technologies, that is including water pumping, communication, refrigeration and other end-uses, may be more than twice the demand for lighting.

 
There is clearly a vast information gap among disseminators (both government and private) and users regarding the demand for PV equipment for rural development as well as for rural social services. Although the mentioned study has made an indicative assessment of demand, a much more detailed assessment is required to forward a development strategy for PV and solar-thermal technologies for the Ethiopian government and future investors. 

The Ethiopian Rural Energy Development and Promotion Centre (EREDPC) has a plan to draft such a strategy but is hampered by limited resources, both financial and human, to carry out the task. We hope that with foreign development assistance like the Swedish Solar Energy Foundation (SEF) we can carry out part of this task - as briefly indicated below. 

1. Market assessment, Demonstration and Promotion of solar technologies 

Market assessment—The IGAD study is based on a few sample areas. The EREDPC with assistance from the SEF can do a more detailed assessment—if not at national level, then in at least two regions of the country. The assessment would include demand/market for PV lighting, PV pumping, solar-thermal etc. 
Demonstration of PV and solar-thermal technologies—Establishment of PV lighting and communication, PV pumping and solar water heating model sites in no less than two villages of the selected region. Promotional activities—Publication of posters, brochures and media advertisement for PV and solar-thermal equipment 
Market assessment for solar water heaters, evaluation of the technical performance of locally produced heaters (urban areas)
There are about five solar water heater manufacturers in Addis Ababa. Our Centre wants to evaluate and upgrade their technical performance to enable them to reach a wider market. With support from the SEF the Centre will
· Conduct a survey of all the manufacturers—compile information on their production capacity, sales, customers, constraints, acceptability etc. 
· Buy water heaters from the manufacturers, test them at the Centre’s test site - thereafter, makes recommendations. 
· Come-forth with the necessary basic data and recommendations for future establishment and marketing of solar water heaters. 

2. Solar energy workshop/seminar—to discuss findings of assessments made above

The Centre in co-operation with SEF and Solartech will arrange workshop where the primary study - assessment of solar energy dissemination and application in Ethiopia will be discussed. The findings of the study (after thoroughly discussed on the workshop) will be the groundwork / action plan for future activities. 
A crude estimate of financial requirement for market assessment, demonstration and promotion is SEK 100 000. About SEK 60 000 is needed for the primary study, and thereafter, about SEK 40 000 for promotion and demonstration activities based on the results of the findings discussed on the workshop. 

3. Capacity building (technology-transfer)

With an expanding market for PV and solar water heaters equipment there would arise a need for qualified technicians and to ensure standards and protect end-users. With support from foreign development agencies and SEF the Centre envisions support to be both financial and human. 
Firstly, we would like one or two experienced solar technologists could visit our Centre and initiate the market assessment with counter-parts from our Centre: These people may train our staff on practicalities on PV systems, help in performance testing of both PV and solar heater equipment. In so doing, they may train about five of our Ethiopian staff as trainers to train many more in the country. 
Secondly, training of some Ethiopian staff for a period of at least three months in Sweden. 

The trained personnel, in turn, can strength the capacity building process (expertise) for the wide dissemination of solar energy technologies in Ethiopia. Discussion on the issue was held on the 11th August, 2000. There is a Memorandum reflecting the discussion held between Rural Energy Development and Promotion Centre (Ethiopia) and Solartech (Sweden). A budget for capacity building is not included herewith, however, it is a subject for further discussion.

Commitments
Despite its financial limitations the Ethiopian Rural Energy Development and Promotion Centre (EREDPC) has promised to allocate its available resource in the following manner: 

(a) With regard to the primary study - it will assign knowledgeable staff (in solar energy) to carry out the initial study i.e. Assessment of solar energy dissemination and application in Ethiopia. The detail outline of the study will be in agreement with all partners namely, ESF, Solartech and EREDPC. The staff assigned by EREDPC will conduct the study, compile and present to the workshop. The findings discussed on the workshop will again be distilled to action plan with the help of the staff and Solartech.

(b) When it comes to the question of demonstration of solar energy technologies in Ethiopia the Centre will contribute in locally made small Demo-houses (prefab / easily mountable) plus it contributes staff members to participate in the campaign. 

(c) With regard to Promotion, the Centre has explicitly confined itself that the dissemination of information is mainly geared (focused) to the benefit of the Ethiopian people in general and the rural population in particular. Based on this line, it may come to help in different aspects when the question arises. Finally the Centre also agreed to give necessary assistance with regard to transport (vehicle) within Ethiopia. 

SOLARTECH: Solar Project in Addis

The project proposal forwarded is going to be put into practice in three phases. Phase I is a pre-study period. Phase II is installation, office equipping and personnel recruiting. In phase III production starts. The primary production period is one year from the day it starts thereafter the whole activity is subjected to evaluation from beginning to end. Based on the results of the first year’s evaluation - a short and long-term production activities of the solar plant is going to be designed / planned. 

Phase I: Pre-study

The primary tasks of the pre-study are: 
(a) to make a brief review of the national solar energy policy 
(b) to identify and assess the existing solar energy applications in the country 
(c) to identify and assess the potential solar energy applications in the country 
(d) to collect a thorough documentation on solar energy applications at the present time and in the future. 
The study mainly focuses to answer the following questions: 
On the existing applications: The application of solar energy (PV +Thermal) in Ethiopia: General introduction. The present status (use or application) of solar energy in Ethiopia 
(a) How many solar plants (PV and Thermal) are in use in the country? Where are they situated (rural/urban)? Used for what purpose? Who are the consumers? 
(b) What are (were) the benefits drawn from the existing applications? On the potential (future) applications: Are there demands for solar energy applications in the future? 
If there are: 
(a) For what purpose? For whom i.e. private sector or government, NGO:s , other development agencies? (b) Are there potential consumers ready to pay the price – or are there any other means of financing? (c) Draw a catalogue of benefits from potential application of solar energy. Documentation of the existing solar plants in use and documentation of the primary study processes are essential. The documentation should be in pictures as well as audio-visuals. 

Phase II: Installation, office equipping and personnel recruiting.
The primary activities of phase II are: 
(a) Importing of raw material and means of production (Note!! The permission to import the means of production and raw materials tax free, is already approved by the Ethiopian Government). Installation of the plant on a piece of land leased from a private person or leased from the government. Recruiting of personnel (see the project proposal). 
(b) Equipping the office. In phase II apart from documentation, we have to be ready to start a systematic dissemination of information campaign based on the main findings from the pre-study. Selective information ought to be directed to government agencies, NGO:s, development agencies, potential consumers from the private sectors ex., hotels, restaurants, clinics etc. (This will be determined by the outcome of the pre-study)


Phase III: Kick-off for Production. 
In phase III production starts as indicated on the project proposal. At this stage the production target is set for a one year. After the first year there will be a thorough evaluation taking into account the successes and the setbacks of the production. The result of the evaluation will be the fundament for future planning (revised plan). The activities in Phase III is followed by positive announces /advertisements in different media. 

Tentative time frame:
Phase I: Nov., Dec., 2001 and continues through Jan., Feb., March2002
Phase I ends with a workshop where the findings from the pre-study are presented. Place: Addis Ababa, Ethiopia. Date: Mars/April 2002
Phase II: The actual physical implementation of the plant is assumed to take place in June/July 2002.
Phase III: Operation of the plant starts in Sept. 2002 and goes on through Sept. 2003 Thereafter the whole process is subjected to a thorough evaluation. 

Appeal
In order to begin the project on time - it is essential that the SEF give the primary financial support now. Once the motion starts we have to keep the momentum. The activities have already started - we need your support. At the initial stage i.e., to start the outlined study and conclude with a workshop in Addis, a minimum of 60 000 SKR. is needed. 

The money will be used for:
1. Documentation of Phase I. Formulating, guiding and report writing of the study.
2. Workshop expenses. Producing the final documentation. Organizing NB!! 

Apart from 60 000 SKR. asked for from SEF the Ethiopian Govt. (as counter-part) has promised to assist with at least two knowledgeable staff to take part in the study plus the arrangement of transportation (cars) during the field studies. 

Solartech is fully aware of the fact that the financial support from SEF is exposed to auditing and therefore we are liable to bring legitimate receipt. We are also well aware that without correctly settling our previous account we are not entitled to ask for any further assistance. We therefore, hope for you positive response soon. 
Solartech

Project proposal of

Solar Water Heating Equipment [Solar thermal system] Manufacturing Workshop


Owner - Solartech 

Place - Addis Ababa

Date - June 2001

Type - New project




1. EXECUTIVE SUMMARY

This is a project proposal to establish Solar Water Heating Equipment (solar thermal system) project in Addis Ababa. The project will have a capacity to produce 43 pieces of 28m2 solar water heating and 2400 pieces of 2m2 solar water heating equipment at full capacity in one year.

The project investment cost is estimated at Birr 3,074,000, out of which Birr 2,718,235 will be utilized for fixed investment cost, the rest Birr 355,765 will be used for initial working capital requirement. The project source of finance is based on own equity and support from outside (e.g. Solar Energy Foundation / SEF/ Sweden and/or any other help organizations). 

The financial analysis indicates that the project will have 4.6 years pay-back period and 20.5% simple rate of return. When the project starts operation it will open job opportunity for about 17 people. 


2. PROJECT OWNER AND LOCATION

The project owner will be Solartech and the project will be located in Addis Ababa where there is abundant market, better infrastructure and trained manpower available.


3. PROJECT DESCRIPTION

The project will produce solar water heating equipment (solar thermal system). This equipment will be installed on residential buildings, hospitals, clinics, small industries and hotels. The equipment absorbs heat from the sun to warm water. The hot water will be used for showers, for washing clothes and utensils, for industrial processes (e.g. in the leather industry). 




4. OBJECTIVE OF THE PROJECT

The objective of the project is summarized as 

· To manufacture solar water heating equipment in order to save electrical consumption,
· To introduce solar energy to the country and to encourage other investors to participate in other forms of the solar energy manufacturing system,
· To create job opportunity,
· To create revenue to the project owner,
· To create revenue for the government in the form of tax.


5. MARKET ASSESSMENT

In order to test and analyze the market condition in the short run and to begin with, the project will sell its product in Addis Ababa. According to the Ethiopian Statistical Abstract published in 1992, by 1990/91 and 1991/92 building permits for new construction in Addis Ababa were 2710 and 3866 respectively. Out of which in the year 1990/91 2113 were villas, 17 were multi-story buildings and 62 were commercial buildings. In the year 1991/92, out of the total building permits 2929 were villas, 16 were multi-story buildings and 50 were commercial buildings. 

This indicates that the construction of new buildings in every year is increasing rapidly. At the same time there has been many buildings constructed before the year 1990/91. This also shows that there is untouched market for the project. 

As described in the production program, the project will produce a 28m2 water heating equipment that can be used in hospitals. In Addis Ababa there are 14 state owned hospitals and a large number of private hospitals and clinics. These hospitals and clinics use electricity for heating water and thus the consumption of electricity is very high.

At the same time many hotels are found in Addis and out of the city. Most of the hotels out of Addis use cold water for showering purposes. In the long run the project is planning to supply solar water heating equipment to these semi-rural hotels.

The increasing number of new building construction, the demand of hotels, hospital and clinics for cheaper system to heat water, the rise of electrical cost, etc. makes the project attractive and provide an abundant market in the near future. 

6. COST OF PROJECT

The cost of the project is classified as fixed investment cost and initial working capital. In the fixed investment cost the following items are described:
· Machinery and equipment,
· Office equipment,
· Vehicles,
· Pre-production cost.
[N.B. In the short run, the project does not require land at this stage, but will rent space at Birr 10,000 per month or Birr 120,000 per year. In the long run the project will request 2000m2 plot of land from the Addis Ababa Administration.]

6.1 Machinery and equipment type and their cost in Birr

No. Description Unit Quantity Unit cost Total cost
1 Absorber strips, 143 mm in coils(70-90m2) No. 1 217,460 217,460
2 Plate-shears 2m 1,2mm manual " 1 33,200 33,200
3 Colging press 2m 380V " 1 207,500 207,500
4 Eccentric shaft press 16 ton 380V " 1 37,350 37,350
5 Compressor for air " 1 29,050 29,050
6 Upright drilling machine for drilling and pulling " 1 13,280 13,280
7 Tool to edging press and eccenter press principle " 4 58,100 232,400
8 Manufacturing table with wheels " 1 3,735 3,735
9 Pulling head T-drill ø10 " 2 1,303 2,606
10 Tumbling pliers " 2 498 996
11 Pipe bender ø10,ø15,ø22 cu " 4 3,154 12,616
12 Pipe cutter Super Ego 750 " 1 581 581
13 Equipment for inflation of steel strips on coils " 2 16,600 33,200
14 Petroleum gas equipment for hard soldering of steel strips " 6 2,490 14,940
15 Hand drilling machine " 4 2,490 9,960
16 Air tool for popnut with splint suction machine " 1 5,810 5,810
17 Air tool for dummy nut rivet " 1 13,944 13,944
18 Shop tools (hammer, cocodile spanner, measure tape) " 2 8,300 16,600
19 Pressure test, flux control " 1 12,450 12,450
20 Drill pattern and fixture for manufacture " 1 20,750 20,750
21 Simple lay out proposition, factory " 1 8,300 8,300
Sub total 926,728
Inland transport, insurance, etc 111,207
Grand total 1,037,935
6.2 Office equipment

For office use equipment worth Birr 137,900 is required, out of which Birr 111,000 is foreign source.

6.3 Vehicle 
Cost in Birr

No. Description Unit Quantity Unit cost Total cost
1 Truck 2000 kg diesel engine No. 3 425,000 1,275,000
2 Service/transport vehicle for management " 1 107,900 107,900
3 Delivery/distribution vehicle (pickup) " 1 124,500 124,500
Total 1,507,400

6.4 Pre-production cost

For pre-production purpose, Birr 35,000 is allocated.

Summary of fixed investment cost in Birr 

No. Description Source in Total cost
Foreign Local 
1 Machinery and equipment 926,728 111,207 1,037,935
2 Office equipment 111,000 26,900 137,900
3 Vehicle 1,507,400 1,507,400
4 Pre-production cost 35,000 35,000
Total 2,545,128 173,107 2,718,235


7. PRODUCTION PROGRAM

The production program of the envisaged project is based on a 10 year production period. The project will start at 60% capacity in the first year and raise its capacity to 80% in the second year and then reach to 100% in the third year and thereafter. 

Assumptions

· There are 8 working hours in a day
· There are 300 working days in a year
· The project can produce 1 piece of 28m2 solar water heater in one week and 8 pieces of 2m2 solar water heater in a day at 100% production capacity.
Total production capacity in one year - pieces

No. Description Capacity
60% 80% 100%
1 28m2 solar water heater 26 34 43
4 2m2 solar water heater 1440 1920 2400
Total 1466 1954 2443


8. RAW MATERIAL AND UTILITIES REQUIREMENT

The project raw material will be acquired from foreign source. The raw materials listed in the table are used to produce the solar water heating product. As described in the production program, the project will produce 28m2 and 2m2 solar water heaters. To produce 1 piece of 28m2 solar water heater the following materials are required.

No. Type of raw material unit Quantity Unit price Total cost
1 Folded metal sheet 2360 meter 23.9 55.6 1,328.84
2 Rolled metal sheet m2 29.6 34.9 1,033.04
3 Bottom insulation m2 28.7 19.1 548.17
4 Side insulation 50 & 30 m2 5.7 29.9 170.43
5 Al-foil kg 4.6 41.5 190.90
6 Collector pipe Ø22 unit 2.0 95.5 191.00
7 Collector pipe Ø22 unit 1.0 157.7 157.70
8 Absorber m2 29.8 171.8 5,119.64
9 Adjacent angle meter 23.9 7.5 179.25
10 Lifting eyebolt spar unit 2.0 141.1 282.20
11 Iron window bar unit 11.0 98.8 1,086.80
12 Al-window bar unit 22.0 31.5 693.00
13 Al-cover strip unit 11.0 15.8 173.80
14 Al-glass panel bead unit 20.0 14.1 282.00
15 Screw panel bead unit 200.0 1.1 220.00
16 Rubber molding meter 74.0 5.0 370.00
17 Pendulum kg 1.0 311.2 311.20
18 Solder paste kg 0.2 726.0 145.20
19 Screw bottom panel unit 249.0 1.1 273.90
20 Sliding block unit 12.0 12.5 150.00
21 Package LGB meter 20.0 8.3 166.00
22 Sealing compound tube 9.0 26.6 239.40
23 Screw, pipes, panels, etc - - - 459.00
Sub total 13,771.47
Inland transport, insurance, etc 1,652.60
Grand total 15,424.07

Assumption of raw material requirement

· To produce 28m2 (one unit) solar water heater it costs Birr 15,424 of raw material,
· To produce 1m2 of solar water heater it costs Birr 551 of raw material,
· Then to produce 28m2 of solar water heater it costs Birr 15,424 of raw material, and to produce 2m2 of water heater costs Birr 1,102,
· As indicated in the production program, the project will produce 6000 solar water heaters of 28m2 and 2m2 with total raw material requirement of Birr 3,308,032 at 100% production capacity.

Utilities requirement

The project main utilities are electricity and water.

Assumptions 

· There are 12 working months (nearly 300 working days) in a year,
· The project needs 2,125 kWh of electricity (Birr 850) in a month or 25,500 kWh of electricity a year at a cost of Birr 10,200,
· The project needs 500m3 of water (Birr 250) a month or 6000 m3 of water in a year (Birr 3,000).

Total utility cost in a year

No. Type Quantity Cost - Birr
1 Electricity 25,500 kWh 10,200
2 Water 6000m3 3,000
Total 13,200


9. MAN POWER REQUIREMENT

The project needs the following manpower to run the plant:
Man power requirement and salary in Birr

No. Personnel Number of manpower Monthly salary Total monthly salary Total annual salary
1 Manager 1 2, 500 2,500 30,000
2 Administrator 1 1,500 1,500 18,000
3 Secretary 2 450 900 10,800
4 Electrician 2 500 1,000 12,000
5 Welder 2 450 900 10,800
6 Ass. welder 1 300 300 3,600
7 Metal technologist 1 500 500 6,000
8 Driver 3 450 1,350 16,200
9 Guard 2 200 400 4,800
10 Cleaner 2 200 200 2,400
Total 17 9,550 114,600


10. FINANCIAL ANALYSIS

In this topic the following financial indicators are discussed in order to determine whether the project is feasible or not.

· Total production cost, · Initial working capital
· Total investment cost, · Source of finance
· Price determination, · Revenue of the project
· Income and loss statement, · Simple rate of return
· Pay-back period.

Total production cost in ‘000 Birr

No. Description Years
1 2 3-10
1 Raw material 1985 2646 3308
2 Utilities 8 10 13
3 Man power 115 115 115
4 Spare parts 51 51 51
5 Overhead costs 24 24 24
6 Transport cost 36 48 60
7 Depreciation 222 222 222
8 Insurance 51 51 51
9 Rent (house) 120 120 120
10 Interest 189 151 113
Total 2801 3438 4077
Initial working capital 

The project initial working capital is calculated in the following manner:

No. Description Month requirement Source in Total
Foreign Local 
1 Raw material 2 months 314,167 - 314,167
2 Utilities 1 month - 1,100 1,100
3 Salary 1 month - 9,550 9,550
4 Spare parts 6 months 25,948 - 25,948
5 Overhead costs 1 month - 2,000 2,000
6 Transport cost 1 month - 3,000 3,000
Total 340,115 15,650 355,765


Total investment cost in Birr

No. Description Source in Total
Foreign Local 
1 Fixed investment 2,545,128 173,107 2,718,235
2 Initial working capital 340,115 15,650 355,765
Total 2,885,243 188,757 3,074,000

Source of finance
The project source of finance is based on own equity and bank loan.

Source Birr Percent
Own equity 1,274,000 41.4%
Bank loan 1,800,000 58.6%
Total 3,074,000 100%

Loan repayment schedule in Birr

No. Year Principalpayment Interestpayment Outstandingbalance
1 0 - - 1,800,000
2 1 360,000 189,000 1,440,000
3 2 360,000 151,200 1,080,000
4 3 360,000 113,400 720,000
5 4 360,000 75,600 360,000
6 5 360,000 37,800 -




Price determination
In order to be profitable and to supply the solar water heating equipment for the customer, the project will sell 1 m2 size solar water heater at Birr 900. 

Revenue of the project in '000 Birr

Year and production capacity
No. Product type Year 1 Year 2 Year 3
60% 80% 100%
1 28m2 solar water heater 655 857 1084
2 2m2 solar water heater 2592 3456 4320
Total 3247 4313 5404

Income and loss statement in '000 Birr 

No. Description Year 1 Year 2 Year 3-10
1 Sales 3,247 4,313 5,404
2 Less sales tax 390 518 648
3 Gross revenue 2857 3795 4756
4 Less production cost 2801 3438 4077
5 Gross profit 56 357 679
6 Less business tax 20 125 238
7 Net profit 36 232 441

Pay-back period

The pay-back period is 4.6 years at 100% production capacity.


Simple rate of return

The simple rate of return is 20.5% at 100% production capacity.