As Djibouti expands its transport network and attempts to diversify its economy, a revamping of the energy sector has become a prerequisite for future growth. The country has long been dependent on energy imports to balance its insufficient domestic generation; however, it is now looking to completely transition its electricity production towards domestic renewable energy. Under the Djibouti Vision 2035 plan, which aims to transform the country into a middle-income economy, renewable energy generation is set to play a fundamental role. Geothermal, wind and solar projects are being implemented, with the goal of reaching 100% renewable energy generation by 2020.

Not only would this help diversify the economy by developing a new industry, it will also support the creation of related ones, such as domestic light manufacturing, by providing low-cost energy. In hand with the improvement of domestic energy sources, Djibouti is seeking to broaden network coverage by expanding its transmission and distribution infrastructure.

According to the World Bank’s May 2017 report on the first phase of implementation of Djibouti’s long-term development strategy, “the expansion of public sector investment in the modernising and strengthening of energy infrastructure and services is expected to be one of the key drivers for economic growth”.

RISING DEMAND: Despite its proximity to energy-rich countries, Djibouti has no oil, natural gas, hydropower or coal reserves of its own. It has long been dependent on external markets: electricity consumption remains contingent either on imports from Ethiopia or fossil fuels acquired from international markets. Over the long run, a higher degree of energy independence will be crucial to reduce the country’s exposure to global macroeconomic fluctuations.

Djibouti has a total 126 MW of installed generation capacity, although only about 45% of that is reliably available, according to figures from the US Agency for International Development from March 2018. According to the World Bank, electricity demand in Djibouti is rising at annual rates of 5% to 10%. Yet, despite increasing consumption of electricity among the population over the years, as of mid-2018 only 42% of people had full access to electricity. Improving connections to achieve 100% access is therefore one of the government’s main goals for the sector.

Domestic demand for energy is being reflected in rising imports of hydrocarbons and related products, which increased from 470,726 tonnes in 2013 to 573,160 tonnes in 2016, according to the latest figures available from the Djibouti Statistics and Demographic Studies Department (Direction des Statistiques et Etudes Démographiques, DISED). Between 2013 and 2014 the value of hydrocarbons imports increased from DJF23.1bn ($130m) to DJF25bn ($140.7m); however, the drop in international oil prices in 2014 resulted in a reduction in the cost of imports, despite the rising volumes. According to DISED, Djibouti imported DJF19.4bn ($109.1m) and DJF17.1bn ($96.2m) worth of hydrocarbons in 2015 and 2016, respectively.

Despite the temporary dip in the import bill, rising energy prices in international markets over the first half of 2018 has further underlined Djibouti’s need to reduce its dependence on imported energy sources and move away from costly thermal energy production.

GREEN SOLUTIONS: To help achieve these goals, Djibouti is looking towards renewable generation. The country’s green energy potential has been recognised by international organisations, especially for geothermal generation. According to the “Renewables Readiness Assessment” on Djibouti, published in May 2015 by the International Renewable Energy Agency (IRENA), the country “is endowed with ample energy resources, considered sufficient for the size of its population and the scale of economic activities. The country has significant geothermal energy resources for generating electricity, estimated at 300-500 MW of capacity”. It is on the development of these resources – as well as wind and solar – that the authorities plan to base the country’s future energy generation.

As its population grew to reach approximately 900,000 as of mid-2018, electricity consumption has simultaneously continued to rise. Djibouti Vision 2035 forecast electricity demand would increase from 75 MW in 2012 to 236 MW in 2020 and 340 MW by 2030, nearly three times current installed capacity. The government therefore plans to keep some of its fuel-based thermal generation capacity as a back-up as it builds up renewable generation capacity from geothermal, wind, hydro and solar sources.

To improve domestic electricity generation, the government approved a law to regulate independent power producers (IPPs) in 2015, although some aspects of the law reportedly still need clarification. “The new IPP law came into effect in 2015, but there is no additional regulation on how to sell the energy produced,” Zahra Omar Ahmed, head of information and economic studies at the Djibouti Chamber of Commerce, told OBG.

However, according to Farhan Omar Absieh, general manager at investment advisory firm United Capital Investments Group, that is expected to change over time. “There is a gradual shift towards a fully regulated sector, as transparency is a key factor in bringing about fair competition, and quality products and services,” Absieh told OBG. “This makes it easier to identify opportunities and develop sustainable offers for customers, while abiding by the rules of competition” he added.

ELECTRICITY GENERATION: The electricity, water and gas sector accounted for 5.2% of GDP in 2016, according to the latest figures available from the African Development Bank (AfDB). State-owned Electricité de Djibouti (EDD) is responsible for the generation, distribution and transmission of electricity in the country, and is overseen by the Ministry of Energy and Natural Resources. The EDD had more than 52,000 customers in 2017 and is adding around 1500 to 2000 new customers annually to the grid, according to the World Bank.

Up until the commissioning of the electricity transmission link with Ethiopia in 2012, Djibouti’s sole source of electricity came from its own thermal power plants, which are operated by the EDD, and run on fuel oil and diesel. Electricity generation is distributed from four thermal plants. The two main units are in Djibouti City, and have a combined installed capacity of approximately 122 MW, and there are two smaller plants in Tadjourah and Obock. Additionally, in Ali-Addeh and Adailouh, the Djibouti Agency for Social Development runs two solar panel systems, which operate outside the country’s main electricity grid.

The establishment of a transmission line to Ethiopia has allowed Djibouti regular access to electricity from its neighbour’s vast hydropower generation capacity. Around 65-70% of Djibouti’s electricity consumption is met through this link; however, supply is occasionally interrupted due to a lack of rain during Ethiopia’s dry season, which runs from September to February.

TRANSMISSION INVESTMENT: Djibouti’s dependence on imports from Ethiopia is supported by the linkage between the two power grids. The first transmission line, which runs 283 km, was inaugurated in 2011. Construction of the 230 kV link was funded by a $95m loan from the AfDB, allowing Djibouti to import electricity up to a capacity of 60 MW from its neighbour.

The link has provided the country a lifeline, allowing it to import cheaper electricity than what can be produced domestically and reduce its dependence on imported fossil fuels. Under the agreement between the two countries, Ethiopia sold its electricity at roughly $0.07 per KWh in 2015, a much more competitive rate than the $0.30 price tag on domestically generated power, according to IRENA. Despite the fact that more than half of its electricity is now sourced more cheaply from Ethiopia, electricity prices in Djibouti remain high. “The cost of electricity is a crucial factor that impedes further industrialisation and manufacturing in Djibouti,” Khola Mohamed Ali, who is responsible for aid and cooperation at the EU Delegation to Djibouti, told OBG.

Further integration is expected with the construction of a second transmission line, which would allow Djibouti to import electricity at a capacity of 60 MW. Intentions to construct the 293-km transmission line between Semera in the north of Ethiopia and the Djiboutian capital were announced at the beginning of 2018. The two countries were still looking to secure funds of $100m from India as of late August 2018.

ELECTRIFICATION GOALS: Beyond expanding accessing energy production, another key challenge is adequately channelling it towards consumers. Electrification rates have been a persistent problem in Djibouti, mainly because the areas with the best connection to the grid are located around the country’s main power plants, which are in Djibouti City, Obock, Tadjourah, Ali Sabieh and Dikhil. As of March 2018 access rates in urban areas were at 54%, while rural communities recorded a much lower access rate of 1%, according to the US Agency for International Development.

In conjunction with a programme designed to reduce informal housing in and around the capital, the World Bank has been working with Djiboutian authorities to improve electrification rates. Under the Power Access and Diversification Project, which was finalised in 2014, some 2828 new electricity connections were added in the slum area of Balbala. By mid-2016 another 1700 grid connections had been added. According to the World Bank, establishing connections to the electricity grid has had a positive impact on the local economy by supporting the development and diversification of small and medium-sized enterprises.

Launched in 2017, a follow-up support scheme, the Sustainable Electrification Programme (SEP), aims to link an additional 13,960 households in both the Balbala area and other parts of the country, bringing electricity to roughly 100,000 people. The first phase of the SEP will connect 9000 homes around Djibouti City, as well as roll out 790 street lights. The second phase will focus electrification efforts outside the capital and into the interior, by expanding electricity distribution infrastructure. To ensure that the authorities can proceed with the electrification process over the medium term, the SEP also includes technical assistance and capacity building to support efforts to achieve 100% electrification by 2035. The World Bank’s International Development Association is expected to provide $22.6m, a majority of the project’s financing, while the EDD has earmarked funds of $4.6m.

WATER SUPPLY & SANITATION: In addition to improving electrification rates in the country, other basic electricity and water infrastructure are being revamped. One key project is the €67.5m desalination plant currently under construction. Expected to come on-line in 2020, the new unit will double the water supply reaching Djibouti City (see analysis).

Efforts to modernise water supply and distribution networks have also helped improve sanitation. “We are constantly working on the modernisation of our water distribution and sanitation network,” Mohamed Fouad Abdo, general manager at the National Office for Water and Sanitation, told OBG. “Now 30% of used water can be treated and redistributed through the network.”

GEOTHERMAL: Given the country’s medium-term goals, much of the ongoing infrastructure investment is being steered towards renewable energy. The country’s geographic situation in the Afar Depression, where the Red Sea, the Gulf of Aden and the East African rifts intersect, has endowed it with substantial geothermal potential. This has been confirmed through exploration efforts over many decades, leading to the finding of 22 locations with high geothermal potential, including North Goubet, the Assal-Fiale Caldera and Gaggade; however, development of these areas has been gradual.

In 2013 Djibouti partnered with the World Bank to launch the Geothermal Exploration Project in the Lake Assal region, with the aim of establishing a geothermal power station with an initial production capacity of 20 MW, which will eventually be increased to 50 MW. To facilitate Djibouti’s geothermal development in the Lake Assal region, some foreign partners have provided financial assistance. In 2017 Djibouti secured a $27m financing tranche from the Kuwait Fund for Arab Economic Development to help expand its drilling activities in Gale-Le-Koma. The funds are expected to be channelled to the Djibouti Office for Geothermal Energy Development (Office Djiboutien de Dé veloppement de l’Energie Géothermique, ODDEG), and used to drill eight production boreholes and two re-injection boreholes, in addition to the power station. As of April 2018 drilling was under way, and the geothermal facility is expected to come on-line in 2021.

Kenya, which has developed geothermal energy sources of its own, also offered technical support to Djibouti’s emerging geothermal energy industry during President Ismaïl Omar Guelleh’s visit to Kenyan geothermal production sites in May 2018.

Geothermal development has been similarly underpinned by local institutional support. In 2014 the government established ODDEG, which aims to guide the country’s expansion of generation sites.

Foreign and local support will be particularly important for the segment given the high development costs associated with geothermal projects. Drilling of a geothermal source can cost between $7m and $14m, according to figures from ODDEG. However, given Djibouti’s long-term ambitions, which include the enhancement of its domestic manufacturing capacity, high investment in geothermal energy projects could be an advantageous base for future economic development. “Setting up a geothermal site and its exploitation might seem costly at first; however, over time these projects can become very profitable in comparison to the more traditional sources of electricity,” Kayad Moussa Ahmed, director-general of ODDEG, told OBG.

SOLAR: Djibouti is also planning to develop its solar capacity in an effort to diversify the country’s electricity production. In October 2015 the government signed an agreement with global solar energy developer SkyPower for the construction of a 200-MW solar generation unit, budgeted at $440m.

In early 2016 another large-scale solar project was announced, namely the €360m solar power plant on the desert area of Grand Bara. The unit is set to have a generation capacity of 300 MW, which will be divided into six, 50-MW sections. Switzerland-based firm Green Enesys agreed to lead the project, signing a supply contract with the EDD for the sale of the electricity. Construction of the plant began in early January 2018.

WIND POWER: Certain regions of the country have also shown potential to host wind farms. In 2005 an analysis by the Centre for Study and Research in Djibouti underscored the wind positive conditions of several coastal areas, such as Gulf of Goubet, near Lake Assal. It concluded that the area has 4000 hours of annual exploitable wind generation capacity.

In 2015 Chinese electrical equipment manufacturer Shanghai Electric signed an agreement with sector authorities for the construction of Djibouti’s first wind farm, which is expected to have a production capacity of 60 MW. The project will be separated into two phases, with 30 MW of capacity each. The project also includes the building of two, 230-kV transmission lines in the north of the country.

Plans for another wind generation project were announced in 2015. The EDD partnered with Qatar Electricity to build a 60-MW wind farm, with financing expected to come from the Qatar Development Fund.

OUTLOOK: The energy sector is likely to attract international investment in Djibouti over the short term, given its formidable renewable energy potential, particularly geothermal. Growth of the sector is expected to be driven by rising domestic consumption, as well as by the country’s transformation into a regional transport hub, which will require it to expand infrastructure to support the stocking and trading of products.

However, improvements in energy generation and distribution also need to be framed through the benefits they can bring to domestic businesses. High electricity costs remain one of the barriers most frequently cited by private sector operators, and one that could be addressed through more efficient generation and distribution methods. To this end, the country’s unique geothermal generation potential could play a major role over the coming decades.

Meanwhile, efforts to improve electrification across the country are likely to continue. Besides the fulfilment of long-term goals as part of the Djibouti Vision 2035 plan, electrification programmes have an immediate impact on poverty reduction due to the role they play in bolstering new businesses, and allowing lower-income populations to more easily access health and education services. Although electrification in the areas surrounding the capital has been advancing rapidly, progress has been slower in rural communities. More cost-effective and better distributed electricity could therefore do much to bridge economic disparities in Djibouti.