As Djibouti continues to expand its transport infrastructure and further positions itself as a trading centre in the Horn of Africa, the demand for a robust energy network is increasing. Djibouti has long relied on trade to supply a significant part of its energy needs due to its lack of hydrocarbons reserves. In recent years it has tapped clean hydropower from neighbouring Ethiopia via interconnected electricity infrastructure. Indeed, Ethiopian energy is used to meet more than half of Djibouti’s annual electricity demand and has contributed to the country’s sustained economic growth. However, long-term development prospects will require Djibouti to move towards energy independence by investing in domestic production.
To achieve the objectives set out in its Djibouti Vision 2035 strategy, which aims to transform the country into a middle-income economy, the government is working to transition its energy mix towards renewable energy. The authorities have announced plans to transform Djibouti into the first African country to fulfil 100% of its electricity demand from clean energy sources by the close of the plan in 2035.
Oversight
The Ministry of Energy and Natural Resources formulates policies for the sector and regulates the electricity market. The Djibouti Office for Geothermal Energy Development (Office Djiboutien de Développement de l’Energie Géothermique, ODDEG), directly overseen by the presidency, is charged with developing the country’s geothermal energy potential. ODDEG was set up in 2013 to expand and operationalise the sector. Increasing the number of generation sites is a key component of its mandate. Another critical actor in the sector is the state-owned utility Electricité de Djibouti (EDD), which handles electricity generation, transmission and distribution.
Priorities
Djibouti will require considerable investment from the private and public sectors to expand its energy infrastructure and accomplish the goals outlined in its national development framework. External factors such as instability in neighbouring Ethiopia have reinforced the case for clean, domestically generated energy to help the country reduce the share of imported hydroelectricity. Djibouti’s substantial potential for geothermal electricity generation, along with its rising capacity to produce energy from wind and solar power plants, should help the country reach its goals in coming years.
In addition to the growing need for generation capacity, the expansion of renewable energy is key for Djibouti to diversify its economy. Transport services contribute a large percentage to the economy, and establishing light manufacturing industries that use less electricity will create more employment opportunities.
Moreover, expanding renewable energy can make electricity cheaper, help to achieve greater energy security and reduce household expenses. It would also help the country to meet its commitment of reducing CO₂ emissions by around 40% by 2030. According to the African Development Bank (AfDB), 55% of Djibouti’s total greenhouse gas emissions originate in the energy sector. In comparison, the sector is responsible for 41% of emissions in South Africa, according to the World Bank. Increasing the share of domestically produced energy would go far in reducing pollution emanating from the power sector.
Rising Demand
Household electricity demand is expected to rise by roughly 10% per year, according to the Ministry of Energy and Natural Resources. Indeed, in 2021 the government estimated that the country’s daily power supply requirement was about 120 MW. This figure is projected to increase to 500 MW by 2025 and 1000 MW by 2030, underscoring the importance of efforts to bolster domestic power supply.
Russia’s invasion of Ukraine in February 2022 had a deleterious on the global energy market and Djibouti has not been immune to the impact. The sharp rise in prices of crude oil, petroleum and natural gas in the months after the start of the war have driven up Djibouti’s energy import bill. To cushion the impact of price hikes on its citizens, the government suspended the automatic adjustment of fuel prices and waived taxes and levies on refined products. According to an October 2022 report by the World Bank, these measures were projected to have driven up government spending by 3.5% of GDP in 2022.
Annual imports of hydrocarbons and related products increased from 123,696 tonnes in 2017 to 134,955 tonnes in 2021, according to Djibouti’s National Institute for Statistics. The value of these imports, including insurance and shipping costs, rose from DJF12.6bn ($71m) to DJF15.5bn ($87.3m) over the same period. The import bill is expected to rise sharply in 2022 because of high international energy prices.
As seen in other emerging markets, prices of energy resources are important determinants of economic development. Making electricity more affordable is critical for industrial development, job creation and livelihoods. In 2020 electricity costs ranged from $0.20 per KWh paid by lower-income Djiboutians to $0.50 per KWh for industrial customers. Electricity prices are higher than in Kenya and Ethiopia on average, putting the private sector at a competitive disadvantage in business operations and manufacturing. Developing renewable energy can help to build resilience to volatile prices and lower energy costs.
Power Drive
In addition to increasing domestic production, it will be important to expand Djibouti’s electricity networks to ensure that communities across the country – both rural and urban – can be connected to the grid. To that end, the authorities expect to increase electricity access to 100% of the population by 2035, up from 42% in 2021. Even so, electricity connectivity remains a challenge across the country, especially in rural areas, where less than 5% of the population has access, compared to 53% in urban areas, according to the US Agency for International Development (USAID).
Djibouti’s total installed capacity for electricity generation was 150 MW as of 2020, according to the data platform Knoema. This is mostly supplied by thermal power plants that utilise oil and diesel as fuel. The two primary plants in Djibouti City have a combined generation capacity of roughly 122 MW, with two smaller plants located in Obock and Tadjoura. Djibouti produced 654,062 MWh of electricity in 2021, according to figures from the Central Bank of Djibouti, representing a 4.3% increase relative to 2020.
Improving domestic energy production will require the government to direct private investment towards electricity generation. The government approved a law to regulate independent power producers (IPPs) in 2015, but its implementation has been slowed by complex guidelines that have hindered the timely expansion of installed capacity. Even so, there has been movement in the space. The construction of the 60-MW Ghoubet wind farm, commissioned by the government in 2019, has concluded. Additional work on the substations is in process and is slated for completion by the first quarter of 2023. The wind farm is set to be the country’s first IPP project.
Transmission Lifeline
Due to insufficient capacity for domestic production, clean energy from Ethiopia met 80% of Djibouti’s electricity needs as of 2021, according to the AfDB. The imports are moved through a 283-km, high-voltage transmission line inaugurated in 2011. The installation has given Djibouti access to Ethiopia’s clean and more affordable hydroelectric power, an important tool in helping to meet electricity demand.
Energy links between the two countries are set to be strengthened in the coming years. In July 2021 the AfDB approved an $83.6m grant to build a second electricity transmission line between Ethiopia and Djibouti, with the World Bank allocating $55m for the project. The transmission line, planned since 2018, will increase the volume of imported electricity by roughly 30%. It will bring much-needed transmission capacity, given that the first electricity connection between the two countries is reportedly nearing capacity (see analysis).
Although the second transmission line will allow Djibouti to buy more hydropower from Ethiopia, it will also increase the country’s reliance on its neighbour, at least in the short term. Ethiopia’s dry season, which runs from September to February, can sometimes lead to electricity shortages. Over the medium term, global warming and climate change are expected to make rainfall volumes less predictable, underlining the need to reduce dependence on Ethiopian hydropower.
“Djibouti receives a large proportion of its electricity from neighbouring Ethiopia in the form of hydropower, but this is not always reliable. It will be important for the country to diversify its energy sources and reduce its reliance on imported power, which the country is slowly starting to do,” Guled Ahmed, a specialist in hydropower, water resource management and highway infrastructure projects, as well as a non-resident scholar at the Middle East Institute, told OBG.
Over the medium term, this diversification is expected to include the use of different energy sources, most notably solar, wind and geothermal generation. To this end, US-based CR Energy Concepts, in collaboration with the Ministry of Energy and Natural Resources, launched a project in 2019 to produce 35 MWh of baseload electricity from urban waste.
Geothermal Generation
Exploration of Djibouti’s geothermal potential began in the 1970s, but progress in subsequent decades was slow. According to the “Geothermal Development in Eastern Africa” report published by the International Renewable Energy Agency in 2020, a lack of sufficient funds has impeded the country’s ability to carry out exploration drilling, slowing the development of projects. However, geothermal development has accelerated in recent years due to investment from various climate and development-focused investment funds.
Starting in 1975, drilling campaigns with expertise and support from experts from Japan, Kenya and Iceland, as well as international financing, have helped to run exploratory studies around promising geothermal sites, namely in Gale-Le-Koma, North Ghoubet, the Assal-Fiale Caldera, Arta and Hanlé Garabayis.
Since its establishment, ODDEG has focused on acquiring expertise and training human resources. It has also attempted to reduce drilling and exploration costs that can vary between $8m and $14m per drilling site based on changes in the prices of necessary equipment, as well as the rates charged for the services of international experts, according to international media reports from April 2021.
In March 2021 the government of Djibouti established the Red Sea Drilling Company, tasked with operating as a dedicated engineering services provider for the geothermal segment. These efforts are broadly being channelled into reducing the generation cost of geothermal from DJF50 ($0.30) per KWh as of December 2022 to as low as DJF17 ($0.10) per KWh.
International loans and grants have helped to continue exploration efforts. With multiple loans awarded to the sector between 2013 and 2020, the AfDB has awarded a combined $24.7m to develop geothermal generation around Lake Assal. The financing will also go towards the construction of a 20-MW geothermal plant. This facility has been designed to be able to raise the country’s generation capacity by as much as 50 MW, as well as reduce annual oil imports by 214,000 barrels. It will also help to lower the sector’s environ-mental impact by cutting annual greenhouse gas emissions by 274,000 tonnes.
Knowledge transfer from other countries remains essential to developing the sector, especially from Kenya, which has become one of the continent’s frontrunners in geothermal energy development. In early February 2022 ODDEG awarded a $6.5m contract to Kenya Electricity Generating Company to drill three geothermal wells in the Lake Assal area as part of efforts to diversify energy source. In 2021 ODDEG estimated that there was 500-1000 MW of geothermal generation potential in the country. There is room for further growth in the space: the authorities expect up to 400 MW of geothermal electricity capacity to be operational by 2037, according to a 2017 World Bank report.
Solar Potential
Djibouti has significant solar energy potential, with an estimated average daily global horizontal irradiance of 4.5 to 7.3 KWh per sq metre across its territory. The construction of the first large-scale solar generation project began in November 2022 in the Gran Bara Desert, which is located in the country’s southern region.
The project, which will be executed in five 50-MW phases, is expected to become a large-scale solar complex with an electricity-generation capacity of up to 300 MW upon completion. Its complete development is expected to require a budget of up to $390m, and the authorities hope to attract several energy developers to participate as IPPs.
Although the Gran Bara solar project will be connected to the national electricity grid, other solutions will meet the demand of more isolated areas of Djibouti. In 2016 the government announced it would extend the use of small-scale photovoltaic solar offgrid generation capacity to channel electricity to 25 villages across the country.
Other projects have also been announced in recent years. The UAE-based Amea Power signed an agreement with the Ministry of Energy and Natural Resources in July 2022 to build a 30-MW solar plant. The energy produced will be sold to EDD under a power purchase agreement.
Wind Generation
Djibouti is also looking to exploit the untapped potential of wind power. Studies conducted in the early 2000s revealed that several areas, specifically the Gulf of Ghoubet, Day and Gali Maaba, have adequate wind speed for electricity generation. These areas have strong wind throughout the year, with a potential of 4000 hours of annual exploitable wind generation capacity.
The construction phase of a wind farm with a targeted capacity of 60 MW and interconnection facilities, comprising a 220-MVA substation and a 5-km overhead transmission line to connect to the EDD substation, has concluded. The energisation phase is under way and is expected to be completed by the end of the first quarter of 2023. The project is being financed through a public-private partnership between the government and several investors, including the Africa Finance Corporation; FMO, the Dutch Entrepreneurial Development Bank; and Great Horn Investment Holding, wholly owned by the Djibouti Ports and Free Zones Authority.
Energy Infrastructure
In addition to the investment allocated to enhance Djibouti’s electricity production capacity, other infrastructure commissioned in recent years aims to leverage the country’s potential as a centre for energy commerce, and reduce its dependence on electricity imports.
In February 2019 Djibouti signed an agreement with Ethiopia to construct a natural gas pipeline. Spanning 767 km, the conduit will connect natural gas deposits in the Ogaden Basin in eastern Ethiopia to Damerjog port in Djibouti. The $4bn project will include the construction of the pipeline, a liquefaction plant and an export terminal at the port. The construction will be managed and financed by Poly-GCL, an energy-focused consortium that includes China Poly Group and Hong Kongbased Golden Concord, which is currently exploiting the gas concession in Ethiopia. The pipeline’s initial transport capacity will be 3m tonnes per annum, before eventually rising to 10m tonnes.
The project was expected to be operational by 2021 but conflict in Ethiopia, coupled with global macroeconomic disruptions, delayed development plans. One significant risk factor is the cost of the project, especially given Djibouti’s current public level and a gradual decline in Chinese investment abroad in recent years. However, these factors may be mitigated by the recovery in the price of natural gas in international markets after Russia’s invasion of Ukraine and many Western countries’ ongoing efforts to reorient their economies away from Russian hydrocarbons.
Despite this, similar regional energy plans have faltered in the past. A $1.6bn project to build a pipeline to transport refined energy products between Djibouti’s import facilities and Ethiopia, announced in 2015, was shelved by the Ethiopian government in late 2017. Other infrastructure projects, however, will leverage Djibouti’s geographic position and improve its energy trade balance over the medium term. The ongoing construction of the Damerjog industrial park in Arta is expected to include fuel stocking capacity and a refinery. “Building a refinery will be beneficial as it would help the country to meet domestic demand and position Djibouti as an exporter of fuel and petroleum products to nearby countries,” Ahmed told OBG.
Water Access
Since Djibouti does not have a permanent source of surface water such as rivers or freshwater lakes, water primarily comes from underground aquifers that are replenished by rainfall. However, extended drought conditions have persisted for successive years, severely impacting economic growth and livelihoods. To this end, significant infrastructure investment has been directed towards the water and sanitation segment (see analysis). One essential step was launching the country’s first desalination plant in Doraleh in March 2021. The project was financed by the EU in cooperation with the government of Djibouti. Budgeted at €78.5m, the plant had an initial capacity of 22,500 cu metres per day but this was expected to scale up to 45,000 cu metres in the near term, doubling the amount of drinking water available in the capital.
The facility, built by a consortium of France’s Groupe Eiffage and Spain’s Tedagua, is linked to a 20-MW wind farm. Upon completion, the power plant is expected to reduce the energy cost of operating the desalination plant significantly. Additional freshwater supplies will come from the 767-km water pipeline from the Ethiopian highlands under an agreement signed in February 2019. The water pipeline is expected to channel water from Hadgalla in northern Ethiopia and supply it to Ali Sabieh, Dikhil, Arta and Djibouti City. The Chinese construction giant CGCOC Group, which provided $329m in financing for the project, is managing construction and development.
Outlook
Due to geographic proximity, and Ethiopia’s significant natural resources, Djibouti is likely to continue to rely on its neighbour to develop its energy sector, meet its immediate electricity needs, and expand its regional position as an energy trading platform in the short and medium term. The authorities are looking to reduce dependence in the long run, as any instability in Ethiopia could pose significant risks to the energy sector. However, there is renewed cause for optimism following the signing of a peace agreement in late 2022 to end the civil conflict in Ethiopia.
An increase in domestic generation capacity using tested technologies such as solar and wind would help to reduce this risk relatively quickly and alleviate pressure over the medium term. At the same time, accelerating the development of geothermal generation and other renewable sources will allow Djibouti to continue attracting investment and technical know-how.
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