Energy Demand and Energy Efficiency and Conservation Practices of Manufacturing Industries in Ethiopia

Studies document that micro and small enterprises are growing rapidly in Ethiopia. The industrial sector consumes a large proportion of electricity in the country. The growing number of micro and small enterprises is also creating pressure on electricity consumption. This may lead to power outages caused by overburdened generation, transmission, and distribution infrastructure. Routine outages also lead to increased costs associated with outage adaptations. Improved energy efficiency has spillover benefits by reducing power outages and this in turn allows more customers to access power and may also improve customer satisfaction and payment rates. In this regard, the purpose of this study is to investigate firms’ use of energy efficiency and conservation measures and analyse the impact of these measures on their electricity consumption. We use data from a survey of 1000 micro and small enterprises in Addis Ababa, Ethiopia. Using a translog cost function model and a system of regression equations, we find that electricity and other factors of production such as labor found to be substitutes instead of being complementary. Where wages are low, firms may substitute manual labor for some of electricity-based operations. Further, the econometric results show that firms that use energy efficient method consume less electricity than those use conservation methods. The results have policy implication in terms of promoting energy efficiency and conservation methods.