SOMALIA

Investment Value
Proposition
Energy Sector

December, 2020
SOMALIA • Somalia's Political Economy
Energy Sector Value Proposition
• 5 Reasons to Invest in Somalia​
Outline
• Somalia’s Political Economy
• National Capabilities​
• Energy Sector Spotlight​
• Energy Sector in Figures​
• Key Market Trends and Opportunities​
• Government Provisions and Support​
• Investment Success Stories ​
• Contact Information​
5 Reasons to Invest in Somalia’s Affordability of renewable energy technologies: These
Energy Sector have improved significantly over the past 10 years in
terms of efficiency, operability and cost of maintenance.
These improvements have spurred the emergence of
renewable energy solution providers throughout the
Strong demand for affordable electricity: The need
country.
for cheaper and reliable electricity throughout
Somalia is high and growing, as evidenced by the Committed and progressive government-private sector
expansion of independent power providers and the collaboration. The Federal Government of Somalia (FGS) is
establishment of microgrids in a growing number of committed to creating a favorable environment for the
cities. As a largely agricultural economy, demand is private sector growth by creating the required regulatory
high in the dairy and fisheries sectors. environment, with sound business climate reforms; there is
also a growing number of commercial banks and branches
operating throughout the country, each looking to provide
Highest renewable potential from ALL African nations: debt and other financial instruments to potentially
An average of 3,000 hours of sunlight per year, and one profitable business opportunities.
of the hightest rates of irradiation in Africa (200
kW/M2). Wind speeds are near 20 miles per hour on Priority sector: FGS’s 9th National Development Plan (2020-
average, which makes Somalia Africa´s highest 2024) lists energy as a national priority; stating its
potential for wind energy, particularly along the importance as a key enabler for sustainable economic
coastline. Estimated generation potential in only four growth, the flourishment of other industries, and
KM2 could produce as much as the entire diesel and productivity gains in the agricultural and manufacturing
hybrid generation. sectors.
Somalia’s Political The economy is growing consistency The Somalia High Frequency Survey
(from 2.8% in 2018 to 2.9%), due to a 2019 (HFS) indicates that 70% of the
Economy recovery in agriculture and strong population are youth.
domestic consumer demand. Inflation
GDP is forecasted to grow at 3.2% in
decreased (from 5.1% in 2018 to 4.4%
2020 and 3.5% in 2021.
Macro Economic & in 2019) leading to a decrease in food
Security improvements, the
prices. An improvement in the current
Security Context account deficit (from 9% in 2018 to
normalization of relations with
international financial institutions and
8.3% in 2019) has been reported due to
prospects for debt relief under the
an increase in exports and a decrease in
Heavily Indebted Poor Countries
imports.
Initiative, together with development
Foreign Direct Investment has partners, Somalia is using targeted
increased steadily in the past couple of interventions to help meet its debt
years due to diaspora remittances and relief obligations.
foreign investments in the
Current revenue collection does not
telecommunications, financial and
provide fiscal space to spend on
construction sectors.
investments in both productive
and enabling sectors of the economy.
Somalia’s Political Economy

Improved Security

Significant efforts have been made by the

Federal Government of Somalia, in
cooperation with international partners, to
strengthen security in Somalia.
Both the frequency and impact of security
incidents are on the decline, increasing
public security. More businesses and
manufacturing facilities are now operating
beyond Mogadishu for the first time. Major
cities and towns remain in the
government’s control.

Source: Roadmap to private sector investment in energy and ICT sectors, PRC Consulting, 2020
National Capabilities
Physical Assets
Location: Somalia is situated on the most eastern tip of the
African continent known as the “Horn of Africa”. It has been
the Gateway to Africa for business and trade for millennia.
This makes Somalia a dynamic meeting place where East
meets West.
Size and population: Landmass of 637,000 Sq km and the
longest coastline of Africa (over 3,300 kilometers) with
approximately 15 million population. An additional 2 million
diaspora live across the globe. They are a homogeneous
society that shares a common ethnicity, religion, and
language.
Borders: Somalia is bordered by the Gulf of Aden to the
North, the Indian Ocean to the East, Kenya to the South,
Ethiopia to the West, and Djibouti to the Northwest. Somali
communities are also found in Djibouti, Ethiopia and Kenya.
 National Capabilities
Physical Assets

Somalia has the longest coastline in Africa

and has a growing ports infrastructure.
As the country re-establishes stability,
these ports will provide massive
opportunities to boost the country’s
growth, including in the energy sector.

Photo: New port of Kismayo

Source: Doing Business, 2020

National Capabilities
Improved Business Processes

Highest ease of hiring and redundancy ratings

among low-income countries (100)

Source: World Bank Group Doing Business Database

National Capabilities
Improved Business Processes

Somalia has better trading across borders indicators than competing countries

Source: World Bank Group Doing Business Database

National Capabilities
Improved Business Processes

Somalia has better enforcement of contracts than the regional average in Sub-Saharan Africa

Source: World Bank Group Doing Business Database

Sector Spotlight: Energy​ Untapped domestic market: 60.4% of electricity
access for urban areas and 14.6% for rural
The supply and demand gap of the energy sector in
Somalia is huge and requires foreign investment to reduce
the gap and create accessible and affordable energy to
fuel Somalia’s economic growth.
Need for modernization: 80-90% of electricity
produced by diesel generators and distribution
equipment is inefficient
Recent growth in the sector,
with increasing penetration rates​

Interest and investment is growing in hybrid

Growing total capacity systems that draw on solar and wind energy
resources

Significant unmet demand:

Unleashed potential for new players and
electricity demand is growing due to
diversification - new regional integration agenda
the expansion of cities/regions, ramp up of
industries and commercial establishments, and (interconnection with neighboring countries such
enhanced consumption by residential customers as Djibouti, Ethiopia and Kenya)

Sources: Ministry of Energy and Water Resources (MoEWR); The World Bank
 Generation capacity
Sector Spotlight: Energy Installed Capacity: 200 MW​
Diesel: 165 MW​
Solar/Wind: 35 MW​
Power Africa 2030 target for Somalia: 500 MW​
Average
Access Cost
Somalia has produced and is implementing a Power Master Plan
US$ which outlines strategies to increase energy production, increase the
60.4%
supply of renewable energy, and for government to establish
Urban 0.79kW
population Somalia
regulatory authorities and a legislative framework to improve market
efficiency. It is estimated that the country can provide itself
completely with self-produced energy​ in the long run.

US$ Throughout the years of instability, the energy sector has been
14.6% 0.2/kW unable to meet the latent demand and provide stable and affordable
Rural Kenya access for most of the population, contributing to inadequate social
population indicators, and hindering economic growth.

US$ Along with pure consumptions, imports and exports play an

0.1/kW important role. Other energy sources, such as natural gas or crude oil,
USA are also used.

Sources: Ministry of Energy and Water Resources (MoEWR); The World Bank World
Development Indicators Database (WDI), USAID Power Africa Initiative, Africa
Energy Portal.
 • Most of the electricity currently provided and used in Somalia is produced
and delivered by independent vertically integrated Electricity Services
Providers (ESPs), who own and control their generation and
Sector Overview
Main Players
distribution networks.
• Most ESPs are unique to urban centres, yet some have operations established
in several urban centres, notably BECO, ENEE, DAYAH, SOMPOWER and
TELESOM.
• In Mogadishu, the leading company is BECO, in control of 85% of the market
with installed capacity of about 43 MW, of which 10.5 MW are solar. Their
tariffs range from US$0.25 to US$0.55, depending on consumption. The first
1000 kWh is US$0.55, then until 5000 kWh the tariff is US$0.30 and anything
beyond that is US$0.25 per kWh. BECO is currently investing in solar
generation and transmission lines within the city (11kV) and in a 25
MW Jabad Gelle station​.

• NECSOM, the main generator in Garoowe, Puntland, is running • In Hargeisa, Somaliland, major players are SOMPOWER, merger of 39
about 14 MW of installed capacity, including a 1MW solar station local utility firms and one of the largest utility companies in Somaliland;
They have recently installed three wind turbines (Italian-made). The and ALEL (total capacity of 3.85 MW and +30K customers). Other
current tariff is US$0.79 per kWh with certain discounts to bulk relevant players are ALOOG and HECO; Kaafi Horn Renewables and
users. GOLIS also stand out in the solar segment.

Source: FGS, POWER MASTER PLAN 2018, IFC

Sector statistics
Estimated (basic) energy access: Average 16% Energy Sector in Figures
Households without power 1.8 million
Private sector share of the current energy Over 90%
market
Electricity tariffs charged by city grid US$0.30 – 1.00/kWh
operators
City grid technical and non-technical 30 – 50%
electricity losses
2017 estimated electricity production 350,000 MWh
2017 electricity production per capita 2.6kWh/month
Ratio of current unmet demand: city grid 15:1
production
Required increase in electricity production to 260% per annum
reach 2030 target
2037 projected demand 1000 MW
Annual average wind speed along the coast 7-11 m/s
Typical annual solar irradiation levels 2,000 – 2,400 kWh/m2

Source: The World Bank; Energy Power Master Plan, The Ministry of Planning, Investment and Economic
Development (MoPIED), Somalia Power Master Plan, October 2018, Ministry of Energy and Water
Resources (MoEWR)
Energy Sector
in Figures Top 15% 200MW
for GNI expenditures on
of generation
power globally ​
capacity provided by
20 players

35MW 2,000
are provided by
solar and wind, kWh/m2​
with planned potential excess that
increases in the near solar power could
future​ generate​

Source: The World Bank’s Regulatory Indicators for Sustainable Energy Report
(2016); Ministry of Energy and Water Resources (MoEWR)
Energy Sector in Figures Lowest consumption of the region,
New diversification trend due to high prices

Per capita electricity consumption in Somalia and comparator

Share of electricity production by source in Somalia​ countries - Average annual measured in kWh per year

Source: BP statistical review of World Energy & Ember (2020)​

Energy Sector in Figures
New diversification trend on
the energy production mix
Electricity production by source in Somalia

Source: BP statistical review of World Energy & Ember (2020)​

Note: ‘Other renewables´ include biomass and waste, geothermal and wave. tidal​
Key Market Trends
and Opportunities Value accumulation chain for the energy sector in Somalia

Renewable Energy

Beneficiaries
IP Owner/
Property End
Technology Generator Distributor
owner user
distributor

The Somali government has an

ambitious climate-change agenda,
including strong incentives for Society, Investors, Shareholders, Insurance companies
foreign investment.
The value accumulation • Rural revitalization
chain depicted provides a snapshot • Job creation
of the benefits​ provided by clean
• Shared economic development
energy technologies when used to
generate electricity from a • Avoided environmental costs and transport
centralized​ location (e.g. utility-scale
wind farm or solar application).
Key Market Trends and
Opportunities

Renewable Energy​

Somalia needs 200MW+ of renewable energy installed

and 10+ modern city grids in place within the
next decade.
This unlocks multiple opportunities for:
• Specialist developers
• Electrical utilities
• Major technology companies

Source: African Development Bank

Key Market Trends and Somalia has the highest resource potential of any
Opportunities African nation for onshore wind power

Wind power

The country could generate between 30,000 to

45,000 MW. wind and battery hybrid technology are
already cost competitive with diesel generation,
particularly at the city grid scale and with the wind
resources of Somalia.
Strong business propositions for the needed 10-15
city grids in the renewable power plants. The stand-
alone greenfield nature of such projects makes them
ideal candidates for FDI.

Source: Africa Development Bank

 Key Market Trends and
Opportunities
Solar power

Solar power could potentially be one of the main

drivers of development for the energy sector in
Somalia. The country also has one of the greatest
solar potentials in Africa:
• Overall 3,000 hours of sunlight per year
• One of the highest rates of sun irradiation: 2000
kWh/M2
“2019 was one of the best years
on record for the world’s solar Source: World Bank Group, PRC. Roadmap for Energy and ICT Sectors, 2020
Photo: BECO Somalia
power industry.”

EU Market Outlook 2020

 Location of Shabelle and Juba rivers

Key Market Trends and

Opportunities

Hydro power

Investment opportunities for small hydro

power (around 100 to 120 MW) has
potential along the Shabelle and Jubba
rivers.

Source: AfDB Somalia Energy Sector Needs Assessment 2016

Key Market Trends and
Opportunities
Public-Private Partnerships (PPPs)

With no large-scale production, the Federal Government

of Somalia (FGS) is looking to establish, through PPPs,
large capacity electricity generation, particularly at the
larger population centers:
• Mogadishu
• Hargeisa
• Kismayo
• Baidoa
• Beletweyn Source: FGS
• Dhusamareeb
• Garowe
Key Market Trends and
Opportunities
Existing Electricity Services
Providers (ESPs)
The Somali energy market has entered an
important phase in which the consolidation of
EPSs is creating large enough conglomerates
(utilities). Many of them are seeking finance to
expand their upgrade, their generation and
distribution infrastructure.
With nearly 65% of their turnover paying for the
diesel and distribution losses (between 25-50%),
modern generation and distribution infrastructure
present an opportunity for significant efficiencies.
Furthermore, electricity prices are considerably high,
which leaves significant business opportunities for
companies that offer energy efficient solutions.

Source: FGS
Photo: New BECO Photovoltaic plant in Mogadishu
Key Market Trends and ESPs are keen on competitive financing solutions
Opportunities to increase generation capacity moving away from diesel
to renewable energy.
Electricity Service Providers They are also seeking to upgrade their transmission
(ESP) networks to meet the demand with reduced technical
transmission losses.
The estimated required capacity to meet existing unmet
demand and future demand growth is
about 500MW over the next 5 years.

Source: IFC
Key Market Trends and
Opportunities
Establishment of New Generation Small Scale Renewable Energy
Systems Infrastructure and Equipment

Opportunities to establish diesel/hybrid Entrepreneurs in the agriculture, agroprocessing, and

manufacturing sectors are constantly looking for
infrastructure and microgrids. A survey of IPPs
opportunities to adopt renewable energies to reduce long-
conducted recently revealed that the annual
term operational costs, due to the high prices of
revenue for these players is in the range of US$0.5 technologies.
– 5 million.
Some firms have already evolved to supply the renewable
energy product in the agricultural and fisheries sectors.

Source: The World Bank

 Key Market Trends and
Opportunities
Provision of Technical Services and
Capacity Building
Major constraints that impede further growth of the energy
sector include the limited technical capacity to upgrade
energy infrastructure, support interconnection and the
integration of hybrid systems, introducing metering and
motor controllers.

Opportunities exist in training and supplying a cadre of

electrical engineers to support the existing stakeholders.
(e.g. Energy training institute to upscale energy labor).

There is a clear need for technical assistance to ESPs to help

them understand and adopt industry best practices, along
with the need to help ESPs organize structures for long term
sustainability.
 Key Market Trends
• Cable manufacturing investment
and Opportunities • Biomass/household energy: Since urban consumers, especially the
poorest, will continue to depend on biomass energy for years to come,
there is an investment opportunity to address both the supply and
Other Sectoral demand
Investment Opportunities • Independent power production
• On and off-grid electrical component sales: power poles, lines,
insulators, transformers, switchgear
• Meters and metering services
• Solar lanterns, solar home systems and larger off-grid systems – for sale,
lease and energy as a service
• Solar streetlights
• Wind resource measurement surveys and equipment
• High efficiency productive use equipment including air conditioners,
building and fresh produce chillers, water purifiers, machine tools, and
food preparation equipment
• Engineering consultancy
Key Market Trends
and Opportunities
With an estimated US$1.6 billion in ‘Diaspora investments in Somalia
remittances sent back annually by has been on the rise since 2012,
Diaspora Investors Somali emigrants living in North initially targeting trade & SMEs.
America and Europe, part of this Lately, the Somali diaspora
comes in the form of investments. community is investing n the
The Somali diaspora have seen the energy sector, more so in the
potential in the energy sector and renewable energy and making
have started successful projects in good progress and impact .’
the country.
Jawaahir Daahir BME, Chair of Global Somali
Diaspora

Source: UN Development Programme for Somalia

 BECO, Somalia’s largest electricity supplier, has been
Investment Success Stories producing 10.5 megawatts (MW) since March 2020 . using
solar panels bought from Germany and Britain.
Electricity Service Providers (ESP)
The firm also transmits and distributes power to Kismayu,
Barawe, Marka, Balad, Jowhar, Afgooye, Elasha and
Mogadishu, and the additional solar power in its mix has
already reduced electricity costs to US$0.36 per kilowatt
hour from US$0.49 per kilowatt hour in Mogadishu.

The panels of the new plant now supply power for 6 hours a
day, with generators providing electricity for the rest of the
time.

“We are pleased to be the first company to install solar

energy and supply cheaper electricity in Somalia.”
BECO Somalia

Source and photo credit: BECO Somalia

Investment Success SolarGen Technologies has sold over 100 solar-powered water irrigation
pumps to Somalian farmers and is now installing two solar microgrids in
Stories communities north of Mogadishu.
The first microgrid, is a 35 kilowatt-peak (kWp) system for 200 households in
Microgrids and small Warsheikh, a coastal town. The project will produce power for about 37
energy equipment cents/kWh for lower consumption and 40 cents/kWh , less than half of what
manufacturers people are currently paying for diesel power. SolarGen will build the microgrid
and operate it for two years, before transferring operations and ownership to
a community-owned utility.

Power OffGrid, is selling biomass cookstoves, using food and animal waste as
fuel, and small solar systems.

“It’s a promising market.”

Guled Ahmed, CEO, Power OffGrid

Source: Sustainable Energy for All

Government Provision and
Support
Energy is considered a top priority for Somalia’s modernization
and poverty reduction, by accessing modern energy carriers. FGS
is undertaking energy market regulatory reforms to:
• Improve efficiency of generation and supply systems
• Improve reliability of supply and bring down energy prices
• Increase the energy supply from both renewable and fossil
fuel sources, and as result increase access to energy from
15% to 45% of the population by 2024; or 6% growth in
access per year
The Government of Somalia has prioritized the development of
an energy policy, strategy, and regulatory framework as well as
in the recently cabinet endorsed National Investment Strategy
(NIPS) to facilitate more private sector investment in alternative
renewable energy.
It is also exploring the possibility for technically viable cross-
border energy trade with neighboring countries.

Source: MoPIED Power Master Plan, 2018. World Bank Group, PRC. Roadmap for Energy
and ICT Sectors, 2020
 Feasibility and analytical studies
Government
To attract investment, MoEWR is conducting feasibility and analytical
Provision and studies. It is also preparing an indicative least cost geospatial electrification
Support plan to achieve universal access and preparing electricity sub-transmission
and distribution integrated development least cost investment plans.
The outcome of these studies will provide an indicative investment
requirement for both on-grid and off-grid access delivery modalities. The
studies will be ready first quarter of 2021.
Sound legal reforms in the sector
The Electricity Act (2019) in the energy sector, the Investment Law (2015)
and the Company Law (2019) are among the legal reforms recently reported
by the private sector to have brought about improvements in the business
environment:
• Reduction in the cost (78%) and time (66%) required to complete
administrative procedures
• Created new investment opportunities (64%)
• More stability for companies (50%)
Government The Ministry of Energy and Water Resources
(MoEWR), was established in 2014 to regulate
SOMINVEST: Under FIL, Somalia
Investment Promotion Office
Provision and the sector.
(SOMINVEST) at MOPIED provides
Support The Somali Electricity Act has recently been
developed - with the support of the World Bank
priority to inward foreign investments
and provides direct assistance and
Group - to conform with international best information to foreign investors and
practice. The private sector is awaiting further
promotes, among others, specific
stakeholder consultations post the Covid-19
opportunities for energy projects. It
crisis.
also offers favorable incentives, such as
tax advantages and guarantees against
The Ministry of Planning, Investment and
expropriations and investor after-care
Economic Development (MOPIED): the
Ministry coordinaste of the whole government support.
agencies and provide advice to the government Its mandate has been solidified with
on medium and long-term strategies for socio-
World Bank Group support. The
economic development and sustainable
economic growth. The Ministry is also MoEWR provides valuable assistance
responsible for analyzing and monitoring during the establishment of these
development directions on macro-economic investment projects and their
and sector strategic plans as well as broad implementation.
socio-economic development issues.
Government Provision and Support
Investment Climate Reforms

Enactment of Companies Law Foreign Investment Law Reform Pipeline

• Enhanced legal protections

A landmark achievement for Foreign investment in Somalia is through the Investor and
Somalia’s business registration governed by the 2015 Foreign Investment Protect Act being
reform agenda. Investment Act (FIL) which defines developed - 2021
the institutional framework for
Last year, supported by IFC, investment registration, approval, • Strengthening investor support
Somalia transitioned the regime facilitation, and promotion. through transformation of
from simply undertaking annual SOMINVEST to an independent
In June 2020, the Office of the agency - 2021/2
business licensing to a one time Prime Minister of Somalia (OPM)
and unified business registration issued an executive decree • Streamlining business
for any of the country's member clarifying the provisions of registration further to
states, which are aligned with the FIL, policy and promotion operationalization of an
international good practice. mandates, and roles for ministries Electronic business registry -
2021

Source: FGS
 Government Provision and
Support
SOMINVEST improved capacity

• Investment projects profiling

• Investor targeting and follow up on leads
• Improved coordination with key stakeholders (internal &
external)
• Foreseen legal instruments, policies and decisions
• Capacity building (business plan analysis, project
profiling, monitoring & evaluation, investment
marketing)
• Investor support and facilitation
• Advocacy for an improved foreign investment climate
• Re-brand Somalia positively abroad and at home

Photo: SOMINVEST
Donor Engagement Currently, the Government of Somalia has
active engagements with several
USAID currently supports the Somali government
and private sector to increase the availability of
quality energy and to reduce tariffs by providing
international donors for the development
technical assistance to develop the electricity
of the energy sector. supply industry. Efforts include:
The World Bank Group completed a power • Providing institutional capacity building for
master plan study in August 2018, which Somali public energy agencies;
details a 20-year least cost plan, gap analysis
• Providing technical assistance to private
of regulations, laws, standards, and the sector companies to improve the capacity
institutional and human resource and efficiency of operations;
development needs required to develop the
• Improving collaboration between private
sector.
sector entities throughout Somalia, including
USAID and other development partners will the country’s energy association, in order to
coordinate their efforts towards supporting increase technical capacity within the energy
sector;
the implementation of the plan.
• Undertaking targeted energy
Somalia's National Energy Policy and demand/generation studies; and
Electrical Energy Act have been prepared
with the support of USAID, the UK’s • For targeted industries, such as fisheries and
dairy, improving access to renewable energy
Department for International
solutions.
Development, and the European Union.
Donor Engagement Institutional capacity building for public
energy agencies and associations
USAID Power Africa Interventions
Technical assistance to improve
efficiency and operations of private
sector energy companies

Technical assistance to improve access

to alternative energy solutions for
targeted industries

Demand/generation studies

Source: USAID Power Africa Initiative

Investment Momentum A recent World Bank Group foreign investor survey
Investment Climate highlighted that the majority (56%) of the private sector
indicated that it was less difficult to invest in Somalia
with the current legal framework for investment.

Investor confidence has improved from 2016, when the

majority (84%) of investors rated the environment to be
‘poor’, to 2020, when they rated the environment to be
average (50%) or good (50%).

Nearly 70% of foreign investors surveyed indicated that

the ease of doing business is a critical factor for their
decision to invest in Somalia, and 66% have seen a
general improvement in the investment climate since
then.

Over 60% of investors have seen a general improvement

in all the main factors for their investment decision.

Source: Roadmap to private sector investment in energy and ICT sectors, PRC
Consulting, 2020
Ministry of Energy and Water Ministry of Planning, Investment
Resources and Economic Development

Department of Energy Somalia Investment Promotion

Office (SOMINVEST)
Address: Hussein Elabe Fahie Building
Address: GPO Building, Corso Somalia Afgoi Road, KM5
Bondhere Mogadishu Telephone: +252 619 111 530
Telephone: +252 615515269 Email: [email protected]
Email: [email protected] Website: www.sominvest.gov.so
[email protected] Mogadishu, Somalia
Website: https://moewr.gov.so/
Mogadishu, Somalia