Somalia must now restore affordable power supply

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By: Mohamed Dubo
Executive Director Data Grid Somalia

After 24 years of civil war, there is renewed hope that Somalia in moving towards economic recovery. The evidence is all there; from numerous re-construction projects to recent private sector investments. They provide a strong sense that the country is turning a corner for the best.

To sustain the enthusiasm shown by the Somali and foreign investors, however, there is need to look afresh at the power supply system in the country. This area that has not received sufficient attention, despite the obvious shortcomings.

There is an important relationship between electricity consumption and economic development.

Many studies have revealed that the Gross Domestic Product (GDP) as an economic indicator has a correlation with electricity consumption of a country. To spur growth, reliable and affordable electricity is critical.

In Somalia, however, there is a huge gap in this sector’s investment. Mogadishu alone has electricity demand of over 150mw against a current consolidated generation of approximately 30mv from costly fuel generators.

The need is dire. A lot of investment is required in grid infrastructure development to adequately support the reconstruction and economic recovery agenda.

“The availability of
reliable and affordable
electricity is a long-term
investment, hence it needs
to be approached with a
long-term vision in mind.
This will require a well planned
strategy”
Mohamed Dubo

The country currently has no national grid and the government has left investment in the sector to private players.

Whereas it is important to liberalise the sector to private investment, allowing private players to operate power generation and distribution without proper regulation jeopardises the long-term stability of this critical component of the economy.

In many countries across the world, electricity generation, transmission and distribution grids are seen by the government and other stake holders as ‘strategic assets’, with the government being a key stake holder to safeguard its social and economic mandate to the citizenry.

To effectively address the energy shortfall, the government can no longer afford to remain as an observer. It has to become a key player in collaboration with other stake holders.

The government needs to make the development of this sector a top priority. The availability of reliable and affordable electricity is a long-term investment, hence it needs to be approached with a long-term vision in mind. This will require the development of a well-planned strategy in generation and grid development.

There are a number of structural issues that require urgent attention in order to get the development of the sector right.

One of the issues is development of a conducive regulatory climate. Of utmost importance at this stage is to set up a standard rule for the market players.

Without killing the private sector participation, the policy and regulatory framework should be such that the different players synergise towards operating in an integrated way as ‘one electricity partner’.

To achieve significant progress, several initiatives and policies are needed to provide the right conditions for the growth of this sector. This necessitates the establishment of a state electricity regulatory body to undertake the licensing and monitoring responsibilities.

Top in the priorities of the regulatory agency should be first to draw up policies and regulations to provide control over the industry at a macro level. Investors would be attracted by long-term stability of their capital-intensive assets. They need to have some level of certainty of their return on investment.

Secondly, the government agency should undertake macro-planning of the grid infrastructure. Grid development depends on technical and economic factors that should all be considered in a comprehensive manner. To invest, it is important to understand the local conditions and the strategic direction the country is taking.

Thirdly, the agency should conduct a study on the dynamics of electricity supply and demand, as well as the possible unbundling of the generation, transmission and distribution functions of the grid.

This would provide a basis of planning and development of the infrastructure in a phased and systematic manner, where investments can be focused on most pressing areas. Success in realising the goals would take resources, skill, time and patience.

Fourthly, the agency should pay particular attention to the price of electricity and make the commodity affordable to consumers without pushing the investors out of business.

The country now has a big opportunity to have one of the best grids using the latest energy efficient technologies out there, since it is almost a green field where everything needs to be planned afresh.

There is a need for a well-planned approach to grid development to meet the current and future electricity demands. Some of the key considerations that need to be put in place while planning are:

1. Access to reliable and affordable electricity supply to a greater cross-section of the community. Currently, the cost of electricity of approximately US$ 0.8 a unit is uncompetitive. To make matters worse, power supply is unreliable. These are major constraints to economic development. The development plan should aim at providing reliability and affordability to the masses to spur growth.

2. The Power generation sources: Presently, the capital city, Mogadishu, is served by several players who use many small diesel generators to produce electricity. There are several other sources like thermal, hydro, gas, coal, nuclear, solar and wind that can be considered for future development.

In reality the economies of scale brought about by larger generation assets will help to bring costs down. Since the main focus now is cost-reduction among others, a comprehensive analysis is essential to evaluate the availability of the sources, reliability of the supplies, energy efficiency levels, cost of installation per unit MW, operating costs, environmental risks etc.

The traditional power utility business model is of companies making profits from a mix of generation sources to mitigate against a myriad of shortcomings of individual sources.

3. Developing an efficient grid system: To minimise on technical losses, the generation capacity should optimise energy efficient technologies, high voltage connections to key locations to minimise transmission losses. Also, transformation location should be suitable such that it is very close to the load centres.

4. Demographic changes: With Somalia at the reconstruction stage, a lot of demographic changes are expected, and this will influence the electricity consumption trends. To achieve system stability, these changes should be factored in at the planning stage. Supply forecast should be made using reliable tools and investment plans done with this in consideration.

5. Capacity development: Whereas design of the system and equipment can be sourced from foreign countries, it is critical to develop local technical capacity for operations and maintenance of the grid. Technical institutions are necessary to train the technical personnel.

From the foregoing discussion, the key impediments determining the successful development of the power system in Somalia are; regulatory effectiveness, comprehensive planning, pooling both public and private investment, technology transfer and skills development.
Role of sustainable energy sector in economic development in Somalia

As of 2010 the Somali GDP stood at US$5,896, with a growth of 2.6 per cent. Industry contributed 7.2 per cent, services 33.5 per cent and agriculture 59.3 per cent.

Considerable growth is expected to be witnessed in the Somali economy as citizens in the diaspora continue to invest back home. This renewed investment demands deployment of reliable energy.

A cost effective energy sector would enable more competitive sectors of the economy to thrive due to reduced cost of doing business. This would have profound socio-economic benefits to the Somali society.

Real GDP is expected to continue to improve, largely because of expansion in telecommunications, transport, construction and services sector. This momentum in growth must be backed by reliable and cost effective electricity. There is also need to ensure that the low income segments of the population access power at a reasonable price.

High cost of energy compromises the affordability of basic energy needs and competitiveness of industry.

Many countries in sub-Saharan Africa are faced with high electricity costs US$0.20-0.90 per kilowatt hour against a global average of US$0.10. Such high electricity costs become a barrier to further electrification.

In addition, high costs of petroleum products due to supply chain bottlenecks contribute to significant extra cost on the electricity generated.

This further dents any efforts to reduce the cost per kilowatt hour in cases where diesel engines are used to generate electricity.

Cheaper sources of electricity ought to be pursued from a strategic point of view to reduce the cost of the electric power generated, and thereby deliver substantial cost reduction.