Sustainable energy relies on sustainable business models
Ensuring universal access to affordable, reliable and clean energy is at the heart of Sustainable Development Goal 7. Consultant Fabian Ebbers shares his recent experiences in promoting renewables in post-conflict Somaliland, and highlights the opportunities for donors and employees in this emerging sector.
The cost of electricity in Somaliland is the highest anywhere in the world, peaking at a dollar per kilowatt-hour. (In the US, by comparison, the average price is nearer 12 cents.) For poor families and small businesses, where the average household salary is less than $2 a day1, the impact can prove crippling. Indeed, energy consumption per capita in Somaliland is among the lowest in Sub-Saharan Africa, which is a significant obstacle to economic growth. When the UN’s SDG7 talks about energy security as way of improving equity and opportunity in modern society, it surely has the people of Somaliland in mind.
In this post-conflict context, the energy mix is dominated by diesel-based mini grids that require limited infrastructure investment. The running overheads are higher than renewables, but the returns are immediate and more attractive. By comparison, operators are looking at 10-12 years return on investment for a solar or wind plant.
We have recently concluded the first phase of a UK aid-funded programme called Energy Security and Resource Efficiency in Somaliland (ESRES), which had the aim of improving access to affordable, reliable electricity. Our brief was to unlock the potential of renewable energy resources. By taking away the initial investment for six private sector companies, we incentivised them to build hybrid mini-grids that would fast-track the benefits of renewable (primarily solar) energy.
To sign up, however, they had to commit to lowering their prices. It really worked. In the areas that were targeted, we achieved reductions of up to 42%, a significant saving for households. Overall, Somaliland’s generating capacity has increased by 1.9 mega watts as a direct result, reducing the reliance on diesel-powered generation and cutting carbon emissions.
Finding a middle ground
Two of our implementing partners have since increased their investment into renewable energy. One is adding capacity to an existing project site, while the other is completely new and offers twice the amount of renewable energy capacity of all our systems combined. In truth, part of our success was down to learning the lessons from past failures.
Local energy sector operators in Somaliland have their own turf, whether across towns or neighbourhoods in larger cities. However, they tend to lack the capacity to install larger renewables projects that would appreciably lower electricity prices. In the past, development programmes that have tried to bypass the local operators have found their path blocked. Conversely, those programmes that put installation entirely in the hands of local operators soon discovered the limitation of local capacity.
Our approach was to work with the local operators and secure their buy-in. And then to link them up with international Engineering, Procurement and Construction (EPC) contractors, who could install the kit and train up the local people on the ground. To achieve sustainable energy sources, you need to make the business models sustainable first.
Targeting social change
Following the success of Phase 1, we are starting the implementation of ESRES Phase 2, which will further increase investment in Somaliland, with the same goal of unlocking the potential of in renewable energy to spark social change.
Above all, ESRES is a social project, with the aim of reducing levels of poverty caused by high living costs. For example, we met with a baker who previously paid $400 a month on electricity. He would regularly switch off the air conditioning and security lights to reduce overheads, and work at night-time, when rates were cheaper. Now, he pays $200 a month. The bakery is looking to take on more staff, buy more equipment, and increase production of higher-margin cookies and sweets during daylight hours.
Likewise, we met a couple who were struggling to pay the school fees for their seven children due to the high electricity costs. Their outlay is now halved, and they are saving $10-15 a month, which they will spend on a private after-school programme, where the children can improve their English, Arabic, and maths.
Access to energy often sits below health, education or water on the development radar, but this programme shows that energy can power development. ESRES demonstrates the real potential for donors and reveals a growing market, especially within post-conflict contexts. Alongside the technical challenges, programmes must focus on policy and regulatory reform, and target the social benefits of universal energy access. Get this right, and the aims of SDG7 are definitely in reach.