BY FRANKLIN AWORI
Energy experts are pinning their hopes on the abundant renewable energy sources in Somalia as a solution to the chronic power shortage and the high power cost that is seriously affecting the business sector.
Somalia has this reputation of having one of the highest costs of power in the world at an average of US$1 per kilowatt. Yet this expensive electricity is unreliable and can barely meet demand. Close to 60 per cent of the country’s population is not supplied. The power sector in the greater Somalia has suffered massive underinvestment in the last 20 years due to conflict, and the region has been left behind in new power generation and distribution technology.
“Somalia needs quality, accessible and affordable energy,” Anders Pedersen, an energy specialist with the World Bank told a recent conference on Energy and Investment. The conference was hosted in Nairobi by Shuraako, a trade and investment facilitating group.
Adnan Haji, a special adviser for DFID, the British development agency, observes that studies have shown that the cost of power is the biggest constraint to growth in Somalia. Some businesses rank power as the biggest drawback to growth, much more than even insecurity.
There is consensus that Somalia needs sustainable investment in power generation. The main challenge has, however, always been the “how” question.
Somalia relies heavily on expensive diesel powered plants to generate electricity. This energy source is not only unclean, but it also exposes the region to the disruptive effect of fluctuating oil prices.
Somalia has abundant renewable energy sources from wind to solar that if generated, can satisfy demand for power in the country. Hydroelectric power can also be generated from the Shabelle River and the Indian Ocean. While experts concur that renewable energy could be good for
Somalia and the world, businesses in the country just want reliable and affordable power.
“We are currently paying 15 times more for power compared to businesses in Ethiopia and 10 times more compared to businesses in Kenya. What we want is affordable power,” noted Khalif Mohamed a business owner.
The supply is also massively inadequate, with power companies in Mogadishu, for instance, supplying about 15 megawatts out of a demand of between 100 and 200 megawatts. One of the big challenges in Somalia is that power generation has been left on the hands of private producers, who moved in to fill the vacuum after the collapse of state run power generation and distribution company.
The private producers have relatively been doing a good job, given the tough environment in which they have been operating over the years. Mohamed Sheik of Beco Power Company, the largest supplier in Mogadishu, observes that the power companies, apart from being business oriented, have played a key role in providing electricity to hospitals, schools and in street lighting for free, given the absence of government involvement in these areas. However, businesses are now craving for better and competitive power supply rates. The demand is spurred by the increased stability and the reemergence of a vibrant commerce in the larger Somalia region.
Aidarus Abubakar, the managing director of Solargen Technologies, sees the challenge facing power sector in Somalia and the region as a product of disorganisation rather than that of investments.
According to him, the monopolistic tendency that is emerging, where companies are merging to take over production and distribution of power could end up distorting the market and locking out potential investors in the sector.
“We need to encourage investors to put money in the different systems of power production and distribution, and this requires some kind of regulation to separate production from distribution. That is the best way of creating a sustainable and competitive power supply system in the region,” he notes.
Two main models of renewable energy can work in Somalia. One is the household units popular in some African countries that rely on small solar systems to power individual households. The second model are huge wind or solar systems that can supply enough to meet demand of a city like Mogadishu.
Andes Hauch of Frontier Investment Management, while appreciating the viability of investing in renewable energy in Somalia based on the abundance of sources, is, however sceptical as to whether the country is ready to provide the necessary legal and financial framework to oversee implementation of such projects.
“We have money to put into energy, up to US$300 million. The problem is whether we have sufficient safeguards for this investment, including protection of the investment in
Somalia,” he notes.
Hauch is particularly concerned by the lack of regulatory framework and investment policies in the country, noting that this could hinder potential foreign investments. “The concern is the risk in investing in Somalia,” he noted.
Most international venture capital and lending institutions will want some kind of government or international lenders investment guarantees, something that is currently lacking in
Somalia. The World Bank, for instance, is still reluctant to fully engage with Somalia due to unresolved issues concerning past debts.
The reluctance by the World Bank and IMF to engage with Somalia could be affecting potential huge private foreign investments into the country, since investors often use the international donor financial institutions as a barometer for the suitability of a market.
Many economic analysts say Somalia needs patience and understanding, given that it is just re-emerging from a protracted conflict.
The situation in this country is delicate, and investments like those in electricity supply can help to create a sense of hope that the dark days are finally coming to an end.