Energy Sector Licensing Requirements and Regulatory Fees

The Council of Ministers Regulation No. 558-2024 outlining the fees payable to the Petroleum and Energy Authority (“PEA”) for its licensing and regulatory services (“Fee Regulation”) recently came into effect.  The new Fee Regulation introduces various categories of licensing along with the applicable fee rates. It also expands the licensing fees previously set out in Energy Regulation No. 447/2019 (“Energy Regulation”). In this edition of our insights, we provide a summary of the energy sector's licensing requirements and the regulatory fees provided under the new regulation.  

Licensing

Under the Energy Proclamation, no individual or entity may generate, transmit, distribute, sell, import, or export electricity for commercial purposes without obtaining a license from the PEA. Licenses are also required for buisnesses involved in energy auditing, energy efficiency, conservation, contracting, and consultancy services. Additionally, PEA grants certificates of professional competency to individuals and companies engaged in electrical work. Anyone conducting these activities without a proper license risks facing penalties, including rigorous imprisonment of up to ten years, fines of up to 50,000 Birr, or both.

In issuing licenses and certificates, the PEA typically charges fees set by regulation. In addition to licensing fees, the PEA imposes regulatory service fees on the electricity sector, primarily charged to end customers. Under the Energy Regulation, these fees were set at 0.117 per MW/year. However, the new Fee Regulation has changed the computation and increased the regulatory service fee to 0.5% of each kilowatt of electricity sold.  License holders are now required to collect and pay these regulatory fees to the PEA every month.

Electricity Generation, Transmission and Distribution/Sale Licensing  

The PEA Directive on the Issuance of Licenses for Electricity Supply in the National Grid No. 007/2020, outlines the detailed requirements that developers must fulfil to obtain a license to generate, transmit, distribute and sell electricity. Applicants for a license must submit commercial and tax registration certificates, ownership and corporate structure, financial capability and financial model, feasibility studies and business plans, generation plant technology, environmental impact assessment and authorization etc.. 

In terms of licensing fees, previously, license fees were regulated under the Energy Regulation. With the introduction of the new Fee Regulation, the following fee adjustments were made: 

Energy Service Company (ESCO) Licensing

An Energy Service Company (ESCO) is a business that offers energy efficiency services in customer facilities or premises and bases its payment, fully or partially, on achieving energy efficiency improvements. These services are typically offered to industries, buildings, and premises. ESCOs perform tasks such as investigation, consulting, design, construction, installation, rehabilitation, maintenance, management, and monitoring of machinery, facilities, or buildings, all aimed at reducing energy consumption while maintaining or enhancing energy service levels. The PEA Directive No. 006/2019 provides the documentation requirements for ESCOs to qualify for licensing by the PEA. Among others, ESCOs must hire an energy auditor recognized by the PEA to carry out energy auditing activities. Moreover, ESCOs must demonstrate sufficient capabilities to undertake energy efficiency services and must be equipped with the listed equipment provided in the directive. 

Previously, the Energy Regulation determined the applicable fees for ESCO licensing. While the Fee Regulation does not expressly repeal the rates provided in the Energy Regulation, it provides new fee ratee as described in the table below.   

Competence Certification 

Under the Energy Regulation, no individual or business may engage in electrical work without first obtaining a competence certification from the PEA. Electrical work includes services such as electrical design, installation, maintenance, testing, inspection, contracting, consulting, and electromechanical activities. The PEA Electric and Electric-Related Business Sectors Competency Certificate Amendment Directive No.1/2018 outlines the detailed requirements for obtaining electromechanical competence certification.

Professionals and companies involved in these activities must ensure their staff are certified by the PEA. The certification process includes written examinations to determine the certification grade. Applicants are required to pay fees for registration, theoretical and practical examinations, certification, and renewal. The new Fee Regulation introduces updated rates for the training and certification services provided by the PEA and offers an expanded list of services related to competence certification, with corresponding fees listed in Tables 3-5. 

In summary, the Fee Regulation introduces updated fees for the services provided by the PEA, including new categories and increased rates for various licensing and certification services. The regulation consolidates the fees related to electricity generation, transmission and distribution licenses, competence certifications, energy service companies (ESCOs), energy auditors, and other energy sector activities. However, the regulation does not repeal fees provided in the existing Energy Regulation, leaving certain overlapping fee structures in place, which may have been an oversight in the drafting process.