By our staff reporter
Djibouti inaugurates its first ever green energy, maiden wind farm of the 60 MW Red Sea Power (RSP) that is expected to boost the country’s free trade zone development.
The project near Lake Goubet is linked to boost the overall capacity by 50 percent while averting 252,500 tonnes of CO2 emissions annually.
As revealed, the first significant international investment in the energy sector in Djibouti, the USD122 million project, which was inaugurated by President Ismaïl Omar Guelleh will create the country’s first Independent Power Producer (IPP) further setting a template for further private investment.
The investors responsible for the said project are now mulling an additional capacity of 45 MW of renewable energy.
For this complex project, the consortium of investors behind RSP include; Africa Finance Corporation (AFC), the Dutch entrepreneurial development bank FMO, blended finance fund manager Climate Fund Managers (CFM) and Great Horn Investment Holding (GHIH), an investment firm owned by a unit of the Djibouti Ports and Free Zones Authority.
Until now, Djibouti has been entirely reliant on power generated from fossil fuels, as well as hydro generated power imported from neighbouring Ethiopia. Critically for the East African nation, the new clean energy will spur industrialization, job creation and economic stability as Djibouti seeks to take advantage of its strategic location as a global transshipment hub.
With its extensive coastline and dedicated port facilities positioned strategically along the Red Sea and the Gulf of Aden, Djibouti has a central role to play in the global energy market.
The country has enough wind, solar and geothermal resources to triple existing capacity to at least 300MW. Leveraging its seaports to diversify the economy, Djibouti set out to build an industrial zone in 2017, sparking preliminary discussions on boosting energy capacity. The consortium for the wind farm was formed in 2018 and subsequently provided all-equity construction bridge financing via AFC, FMO, CFM’s Climate Investor One fund, and GHIH, which propelled the project to achieve financial close in a record 22 months. Construction kicked off in January 2020 and continued at pace despite the global supply challenges caused by Covid-era lockdowns.
The site’s 17 Siemens turbines each produce 3.4 MW, served by a robust 220 megavolt amperes (MVA) substation and connected by a 5km overhead transmission line to the local grid operator.
The electricity generated is to be sold under a long-term power purchase agreement to Electricité de Djibouti (EDD), the national state-owned utility. Using the project as a template for future IPPs, the Government of Djibouti is already working on several other plants for additional geothermal and solar capacity.
The project stands out as a demonstration of the use of innovative equity financing to accelerate development impact through de-risking, while showcasing the commercial viability of transformative projects in Africa, thereby crowding-in diverse capital sources, and enabling replication of similar projects at reduced financing costs.
EDD’s payment obligations under the power purchase agreement (PPA) were backed by a government guarantee, and in turn the government’s obligations were also backed by political risk cover provided by the World Bank’s Multilateral Investment Guarantee Agency (MIGA).
“Djibouti has abundant renewable resources for sustainable and clean energy production,” said Aboubaker Omar Hadi, Chairman of GHIH, adding, “Our aim is to be the first country in Africa to be 100 percent reliant on green energy by 2035. Investment in renewable energy infrastructure is the key to enabling our ambitions, and the inauguration of the groundbreaking Red Sea Power wind farm today is a major milestone. A reliable and cost-effective energy solution is vital to drive Djibouti’s infrastructure growth. With the development of Industrial Free Zones projects, we estimate that the country faces a projected demand of 3700 MW in the next decade. Tapping into renewable resources like solar, geothermal, wind and tidal is crucial to bridge this gap.”
Francois Maze, CEO of Red Sea Power, in accordance said, “Access to electricity is vital for business growth, job creation, education, healthcare, social services, and infrastructure. In a country currently served entirely by fossil fuels and electricity imports, large-scale renewable energy solutions are urgently needed to mitigate and increase resilience to climate change. Today’s inauguration is an important milestone in Djibouti’s aim to be entirely served by renewable energy sources by 2035.”
In addition to the new wind farm, the Red Sea Power partners have built a solar-powered desalination plant that was also inaugurated today. The plant will provide drinking water to villages near the farm. Some parts of Djibouti are currently experiencing a major national water crisis, with 20 percent of rural areas lacking access to clean water. Many households have insufficient water to meet basic needs, particularly during the dry season, resulting in widespread loss of livelihoods and income.
AFC holds a 51 percent majority stake in RSP; FMO and CIO of Climate Fund Managers hold 19.5 percent each while GIHH holds 10 percent.