BONN, Germany – Throughout two weeks of negotiations here at the annual United Nations climate summit, the second to be held since 195 countries came together and vowed to curb climate change, the feeling of elation – Yes, we have a deal – has given way to more grounded strategizing: How do we achieve these goals? How do we pay for them?
For poor countries like Somalia, which signed onto the 2015 historic Paris climate accord following decades of conflict and war, the strategizing involves a delicate balance: how to shift toward renewable energy, in keeping with its Paris commitments, while providing reliable power to its citizens at prices they can afford.
“Most of the developing countries face three challenges,” said Keiko Honda, head of the Multilateral Investment Guarantee Agency, an arm of the World Bank Group. “First is to meet their [Paris] targets. That’s not easy. But a second is to fulfill the gap in infrastructure, including energy. A third is to do both in the most financially efficient way.”
Somalia has some of the most dire energy needs in the world: Just 16 percent of the population has electricity. It also has among the highest energy costs. Powering a 50-watt light bulb for a month costs about $10. That’s more than six times as much as it costs to operate in neighboring Kenya, according to statistics compiled by the African Development Bank. Nearly all the country’s electricity – for the relatively few who have it – comes from diesel generators.
Somalia’s natural abundance of wind and sun make it an attractive prospect for renewable energy investment. But the country’s still-active conflict raises significant obstacles.
As the Bonn talks got underway, the Somali government also convened a gathering focused on green energy—this one in a hangar at the international airport in Somalia’s capital, Mogadishu.
The first-ever renewable energy forum was held in the airport for security reasons. (Participants who wished to leave the airport needed written permission and an armed escort.) Just last month, a truck bomb exploded in the city center, igniting a fuel tanker parked nearby. It was the deadliest terrorist attack in recent history. More than 300 people died and hundreds more were injured.
But in the wake of the attack, turnout for the renewable energy forum dipped only slightly. A handful of renewable energy projects are being built or are newly up and running, with money raised by Somali businesspeople in and outside the country. The government, with backing from the U.N., had invited businesspeople and potential foreign donors and investors to see how to jumpstart projects in a country where there are obvious possibilities for growth, but also major hurdles.
“There are complications that are possibly unique to Somalia, being a conflict setting and a dangerous place,” said David Mozersky, co-founder of Energy Peace Partners, who traveled to Mogadishu from California. Somali companies “spend tens- or hundreds of millions of dollars on projects, and they can’t get warranties, can’t get trainers to come” and teach the technology, Mozersky said. In a report last year, the International Labour Organization pinpointed a basic national need: certified electricians.
The Somali government is increasingly recognizing that the natural environment is also a factor in the fighting. For 25 years, drought and war have reinforced each other in a deadly cycle in Somalia. Environmental changes spark violence, and conflict leads to further environmental destruction. For example, about 90 percent of Somalis cook with firewood or charcoal, dwindling natural resources and prized commodities that, in the case of charcoal, help prop up extremist group Al-Shabab. With climate change, the underlying causes of Somalia’s long-running civil war are only getting worse. The embattled federal government is eager to convince its citizens to side with them by showing it can provide services that Somalis have for years gone without or gotten by fending for themselves. Helping deliver basic utilities is one way to make the case.
Beyond security issues lie unanswered questions for prospective investors.
“For investing in energy, risks are still very high,” said Abdul Qadir Rafiq, an energy and environment project manager at the U.N. Development Programme, after attending the Mogadishu meeting. He said that without an agency regulating the industry or a clear policy from the government, investors don’t know where they stand. That uncertainty can be a major deterrent. Will there be preferential treatment for local investors? Newly imposed tariffs? Whether this regulatory infrastructure can be built might make the difference in whether these businesses take off.
Keiko Honda’s agency provides insurance to both investors and lenders to cut down on the risk of doing business in emerging markets—risks like currency fluctuations, breaches of contracts, and even war and terrorism.
In Bonn, she spoke alongside other executives – including a Bank of America managing director and the head of Spanish energy giant Iberdrola – at an event focused on how to connect countries with investors willing to pay for ambitious and sometimes risky projects.
The onus, it seems, is on both sides. Honda called for a push for private investment but said that to do so, “Governments need to understand the investors’ need for clear and consistent policies.”
She said that public funds, “a scarce resource,” should be used for “de-risking” investment. Public funding should be paired with investor money and used as a buffer so that the private investment doesn’t take a hit if the project loses money, or used to bundle projects so that the risk is spread out.
“From our perspective, it’s disappointing not to have seen more detailed financing plans, even from developed countries,” said Maurice Tulloch, CEO of insurance company Aviva, speaking on the Bonn panel. “You know what? If countries can’t work out how to attract investment and finance the transition [to renewables], then let’s be honest. They won’t meet the [Paris] targets. I think it’s as simple as that.”
Whether the push toward green energy is framed as a push to meet Paris targets or not, the shift toward renewables is driven by the “business case,” said Jahan Chowdhury on the sidelines of the Bonn talks. He works with the NDC Partnership to strategize with countries on how to meet their Paris goals. “If we can stop brown energy from filling a country’s energy needs, all the better. We don’t want them to end up having stranded assets in 10 years time, like if they invest in coal now.”
In the case of Somalia, where a culture of entrepreneurialism has long flourished, projects are moving forward even without the infrastructure in place. “They’re being paid for up front, in cash, rather than financed,” said David Mozersky, whose nonprofit, which sees renewable energy as a building block for peace and development in post-conflict areas, is considering working in Somalia. Somali companies are raising funds from their traditional financing structures, he said, typically through their clan.
“There are some issues around how that jives with the international financing system,” Mozersky said. He said even the Somali government points out that it’s problematic to not be able to trace this funding through standard banks and institutions, “to know if it’s clean or if it’s dirty.”
But seeing the momentum in Somalia was encouraging. “There’s stuff happening, and it’s happening irrespective of the international community,” Mozersky said. “They’re building projects in real-time.”