Why Somalia cannot afford to burden its economy with sky-high power bills

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As order returns to Somalia and activity picks up after civil war, high power costs remain a challenge to businesses and homes as the country continues to rely on expensive thermal electricity.

Somalia lacks alternative cheaper energy sources, forcing the economy to shoulder costly bills for electricity from diesel generators.

The country’s power bills are among the most expensive in the world, pushing up costs for businesses and condemning thousands of homes to darkness.

Consumers in Somalia pay US$ 1 per unit of electricity (kilowatt hour), five times more than what their neighbours in Kenya pay.

Mogadishu’s high rates have dampened the prospect of attracting foreign direct investments given that electricity is a key economic indicator that guides investors’ choice of location.

“Electricity is extremely expensive and inefficiently supplied, the absence of normal grids causing huge losses (technical, non-technical or economic) between generation and final use,” the African Development Bank (AfDB) says in a report on Somalia.

Electric power is supplied under the most primitive conditions with wires going directly from generating machines to the home of the customer

Somalia’s power woes began with a crippling civil war following the ouster of President Siad Barre in 1991. This saw energy infrastructure destroyed.

In the 1980’s, before the skirmishes, Somalia boasted of a relatively robust energy infrastructure, which ensured lower tariffs.

Somalia’s installed power capacity stood at 180 megawatts 26 years ago before the internal war blew it down to a paltry 85 megawatts currently.

The country’s energy landscape is now dotted with mini-and micro-grids operated by small private firms, a situation that has denied consumers cheaper rates that come with the economies of scale from large plants.

The firms generate electricity from diesel and supply it to homes directly using low voltage wires in the absence of substations and transformers. This archaic power supply is exposed to heavy system losses, pushing up costs that are often passed on to consumers.

“Electric power is supplied under the most primitive conditions with wires going directly from generating machines to the home of the customer,” the report says. “It is not possible to improve efficiency in such a system.”

Until recently, power charges were based on the number of electronic appliances consumers had in their homes. The report says that although new customers have electricity meters, they are of low quality and prone to early breakdowns.

Most consumers cannot afford electricity, opting for kerosene to light their homes and charcoal to cook.On average, Somali homes spend about 30 per cent of their incomes on energy needs, highlighting the central role of the utility in people’s welfare.

Poor households in neighbouring Kenya, whose daily budgets are below US$ 2, spend about 10 per cent of their monthly income on energy.

About 250,000 customers have electricity in Somalia out of a population of 12.3 million people. At US$ 1 per unit, electricity is only affordable to a tiny share of wealthy homes.

The charge is, however, halved to US$ 0.50 per unit in hospitals, mosques, schools and street lights.

Businesses in regional centres are also charged lower in the range of between US$ 0.65 and US$ 0.80 per unit for a three-phase power supply.

The Somali government now plans to cut by half the average power tariff to US$ 0.50 per unit across the country to make it accessible to homes and sharpen the competitive edge of investors.

To achieve this, Mogadishu has partnered with the AfDB, to develop a 10-year energy plan that stretches to 2025 to revamp the sector at a total cost of US$ 803 million.

This will involve construction of new power plants to grow the country’s installed capacity threefold to 285 megawatts by diversifying its energy mix to include solar and wind farms.

The country has abundant sunlight and steady wind speeds throughout the year, offering the shortest route towards attaining energy security.

It plans to generate 50 megawatts (MW) of power from solar and wind farms or a fifth of the planned additional 200 megawatts over the next 10 years.

“If and when donors agree to subsidise capital costs, say, by 75 per cent for hybrid systems, with diesel for base load and renewable energy for the rest, electricity tariffs could drop to below US$ 0.50 per kWh,” the report says.

Somalia’s lack of a diversified energy mix has over the years been its economic bane with thermal electricity prices being dependant on the volatile fuel prices.

Analysts say Somalia stands to reap huge dividends if it taps solar and wind energy on a wide scale. Northern Somalia also has deposits of coal while the country’s coastline stretching over 3,000km could produce wave and tide-based power.

The AfDB cites a lack of a robust power grid as yet another obstacle to achieving competitive power rates. “Several cities have small, generally dilapidated grids and not always in use,” the report says.

“Only ‘real’ grids would enable the competitive operations of several independent generators and allow for measures to reduce losses and improve efficiency,” it adds.

A lack of diversified energy mix is Somalia’s bane. Neighbouring Kenya relies on a mix of geothermal, hydro-electric and thermal energy sources. This has helped the country to achieve lower power bills.

Somalia, Ethiopia and Kenya entered into a pact in November 2014 to jointly construct a hydroelectric power plant in the common border town of Mandera on Dawa River.