Abdirahman A
As someone who not only works in the energy sector but has also studied and consulted with businesses on how to build and develop viable ventures, I believe the Berbera Electricity Expansion and Modernization Project could be the right step to addressing Somaliland’s energy crisis and long-standing energy insecurity.
Recently, the Somaliland government launched a $20 million World Bank-funded project to expand and modernize Berbera’s electricity. This initiative will provide affordable, reliable, and sustainable power to the city by installing a 12MW solar plant and a 36MW energy storage system, supporting Berbera’s role as a vital economic hub.
I write this after a lively, lengthy, yet mostly frivolous debate with a friend yesterday. My friend, along with many others, maintains that the high cost of electricity in Somaliland stems from monopolies, often suggesting that increasing competition or creating publicly owned utilities would solve the problem.
While monopoly control and weak regulation are valid concerns, I believe the deeper issue lies in structural inefficiencies: the high cost of fuel, poor generator performance, a lack of economies of scale, and outdated infrastructure.
If someone wants to prove that monopoly and consolidation among electricity providers in Somaliland are the main drivers of high costs, then rather than relying on broad economic theories or public sentiment, they should present actual evidence, such as financial statements from the companies or a simple design experiment.
For example, compare the market price of diesel as a commodity to the actual cost per unit of electricity. Then examine the timeline of utility consolidations to see how electricity prices changed before and after, while also factoring in diesel price fluctuations.
In reality, most electricity in Somaliland is generated using diesel. While one liter of diesel contains about 10.6 kWh of theoretical energy, generators operate at roughly 35 percent efficiency. This means only 3.5 kWh of usable electricity is produced per liter. If diesel costs $0.75 per liter, the fuel cost alone comes to approximately $0.21 per kWh. This does not account for maintenance, depreciation, equipment, labor, or taxes.
This situation is further worsened by high transmission and distribution losses, which in Somaliland range from 25 to 35 percent. In contrast, developed countries typically maintain losses between 5 and 15 percent. This means that to deliver just 1 kWh to a customer, a utility may need to generate 1.3 kWh or more. The cost of maintaining and operating the transmission and distribution network, commonly referred to as TDSP, adds further financial strain. Globally, this adds about $0.12 per kWh. In Somaliland, the figure may be even higher due to fragmented systems and outdated infrastructure.
When you combine the cost of inefficient generation with high transmission losses, the base cost of electricity already exceeds $0.33 per kWh. After factoring in taxes, salaries, operations, and overhead, the final price can easily reach $0.60 to $0.65 per kWh, which matches what many consumers are currently paying.
Meanwhile, the city’s main utility provider recently announced plans to reduce electricity prices to $0.20 per kilowatt-hour. This price cut is made possible by a $20 million World Bank grant aimed at upgrading and expanding Berbera’s energy generation, transmission, and distribution systems. These improvements are expected to address inefficiencies across the energy value chain and significantly bring down the cost of electricity.
That said, I still remain skeptical about how long this new rate can be sustained. Even with efficiency gains, $0.20 per kWh appears to be lower than the actual cost of producing electricity using diesel generators, without even factoring in transmission, operations, and other expenses. Unless further subsidies, favorable fuel contracts, or major renewable energy projects come online, maintaining such a low rate over time may prove challenging.
It’s also worth noting that in the United States, deregulation of the electricity market was implemented not only to open up competition in wholesale electricity but also to reduce direct government control and phase out most publicly owned utility companies. Despite deregulation, prices still vary widely across states depending on infrastructure, fuel mix, and demand, further showing that market structure alone does not determine pricing.
Developed countries benefit from cheaper energy sources such as natural gas, hydropower, and renewables. They also have access to more efficient technologies and larger, integrated markets that help lower the cost per unit of electricity. Somaliland currently does not have those advantages, but it can move in that direction.
Berbera’s project demonstrates that strategic investment, not just market competition, is what brings prices down. To achieve affordable electricity across Somaliland, we must:
- Consolidate fragmented utilities and operations
- Invest in renewable energy and modern grid infrastructure
- Upgrade transmission and distribution networks to reduce losses
- Negotiate better energy and fuel contracts as a unified sector
- Develop robust policies to regulate electricity prices based on real-time energy prices