Report on Factors Influencing Renewable Energy Investment in Somalia

Abstract

This report details an investigation into the factors influencing investment intentions in Somalia’s renewable energy sector, a critical area for achieving national development and the Sustainable Development Goals (SDGs). The current energy landscape, dominated by small, diesel-powered private enterprises, presents significant barriers to economic growth and environmental sustainability. A quantitative study was conducted, surveying 220 potential investors. Data analysis using SmartPLS revealed that investment intention is directly and significantly determined by four key factors: attitude towards renewable energy, subjective norms, perceived behavioural control, and risk aversion. These findings are crucial for developing targeted strategies to attract investment, thereby advancing SDG 7 (Affordable and Clean Energy), SDG 8 (Decent Work and Economic Growth), and SDG 13 (Climate Action) in a fragile state context.

Introduction and Alignment with Sustainable Development Goals

The Energy Crisis and its Impact on SDGs

Somalia faces a severe energy deficit that impedes progress towards multiple Sustainable Development Goals. The nation’s heavy reliance on inefficient, expensive, and polluting energy sources like diesel, charcoal, and firewood undermines several key objectives:

• SDG 7 (Affordable and Clean Energy): With approximately 9 million out of 15 million people lacking access to electricity, Somalia has one of the lowest electrification rates globally. The current system fails to provide reliable or affordable energy.
• SDG 13 (Climate Action): The widespread use of diesel generators and the burning of charcoal for fuel contribute significantly to greenhouse gas emissions and environmental degradation, directly opposing climate action targets.
• SDG 8 (Decent Work and Economic Growth): The lack of a stable and affordable energy supply is a primary constraint on industrial development, job creation, and overall economic growth.

This energy insecurity creates a strategic opportunity for investment in renewable sources to drive sustainable development.

Renewable Energy Potential and Research Objectives

Despite its challenges, Somalia possesses immense, underutilized potential for renewable energy, particularly solar and wind power. Harnessing these resources is essential for transitioning to a low-carbon economy and achieving the SDGs. This study aims to address the critical gap in understanding investor behaviour in fragile states by identifying the primary factors that influence the intention to invest in Somalia’s renewable energy sector. The research extends the Theory of Planned Behaviour (TPB) to provide a nuanced analysis of these drivers.

Research Methodology

Study Design and Data Collection

A quantitative, descriptive research design was employed. Primary data was collected through a structured questionnaire administered to 220 potential investors in Mogadishu between December 2023 and March 2024. The survey instrument was developed based on the TPB framework and previous studies. Data was subsequently analyzed using Partial Least Squares Structural Equation Modelling (PLS-SEM) with SmartPLS software.

Theoretical Framework

The study is grounded in the Theory of Planned Behaviour (TPB), which posits that behavioural intention is influenced by three core constructs. An additional factor was included to reflect the specific context:

1. Attitude: An individual’s favourable or unfavourable assessment of investing in renewable energy.
2. Subjective Norms: The perceived social pressure from influential groups (family, community) to invest.
3. Perceived Behavioural Control (PBC): An individual’s assessment of their ability and the ease or difficulty of making the investment.
4. Risk Aversion: An investor’s tendency to avoid risk, which was hypothesized to influence investment decisions.

Key Findings and Analysis

Determinants of Investment Intention

The analysis confirmed that all four proposed factors have a statistically significant and positive impact on the intention to invest in renewable energy in Somalia. The model explained 57.3% of the variance in investment intention, indicating strong explanatory power.

• Attitude: A positive attitude towards the benefits of renewable energy significantly increases the likelihood of investment.
• Perceived Behavioural Control (PBC): Investors’ confidence in their knowledge, financial capacity, and ability to navigate the investment process is a crucial driver.
• Subjective Norms: Social influence from peers, family, and community leaders plays a powerful role in shaping investment intentions, particularly in Somalia’s collectivist culture.
• Risk Aversion: Contrary to studies in stable economies, risk aversion was found to positively influence investment intentions. In Somalia’s fragile context, renewable energy projects, especially solar, are perceived as a safer and more stable alternative to other volatile investment options.

Implications for Achieving Sustainable Development Goals

Policy Recommendations for SDG Advancement

The findings offer practical guidance for policymakers and organizations aiming to stimulate renewable energy investment and accelerate progress on the SDGs.

1. Enhance Positive Attitudes through Awareness (SDG 7 & 13): Launch targeted educational campaigns to highlight the economic and environmental advantages of renewable energy, including energy independence, long-term cost savings, and contributions to climate action. This will foster a more favourable investment climate.
2. Strengthen Perceived Behavioural Control (SDG 8 & 9): Empower potential investors by improving access to finance, simplifying investment mechanisms, and providing technical training. The establishment of microfinancing programs and community-based projects can build investor confidence and support the development of resilient infrastructure (SDG 9) and economic growth (SDG 8).
3. Leverage Social Influence for Community Buy-in (SDG 11 & 17): Engage community and religious leaders to champion renewable energy. Promoting successful projects as community exemplars can harness the power of subjective norms to drive widespread adoption, contributing to sustainable communities (SDG 11) through effective partnerships (SDG 17).
4. Develop De-risking Mechanisms (SDG 7): Acknowledge that renewables are seen as a safe haven and further strengthen this perception by creating clear regulatory frameworks, offering government guarantees, and developing insurance products. This will make the sector even more attractive to risk-averse investors and unlock capital for achieving universal energy access.

Conclusion

This report concludes that attitude, subjective norms, perceived behavioural control, and risk aversion are the definitive drivers of renewable energy investment intentions in Somalia. Understanding these behavioural and contextual factors is essential for designing effective policies that can unlock the nation’s vast renewable potential. By addressing these determinants, Somalia can attract the necessary private investment to build a sustainable energy sector, providing a foundational pillar for achieving SDG 7 (Affordable and Clean Energy) and catalysing broader progress across the 2030 Agenda for Sustainable Development.

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article on renewable energy investment in Somalia addresses several interconnected Sustainable Development Goals (SDGs). The analysis of the text reveals connections to the following goals:

• SDG 7: Affordable and Clean Energy

  This is the most central SDG in the article. The text focuses on Somalia’s energy sector, highlighting the severe energy insecurity, the lack of electricity access for a majority of the population, and the heavy reliance on polluting fuels like charcoal and firewood. The core of the study is to understand the factors influencing investment in renewable energy sources like solar and wind, which directly aligns with ensuring access to affordable, reliable, sustainable, and modern energy.

• SDG 8: Decent Work and Economic Growth

  The article explicitly links energy sector development to broader economic progress. It states that “financing this sector is crucial for development and economic growth.” By promoting investment in renewable energy, the article implies the creation of a new economic sector that can foster growth and potentially create jobs, contributing to sustainable economic development.

• SDG 9: Industry, Innovation and Infrastructure

  The article points out that Somalia’s progress in renewable energy is hampered by “limited infrastructure.” It mentions challenges related to the “lack of infrastructure” and the need for investment in “generation, transmission, and distribution.” This directly relates to the goal of building resilient infrastructure to support economic development and innovation.

• SDG 13: Climate Action

  The article addresses climate action by advocating for a shift away from fossil fuels. It notes that “many nations, including Somalia, are over-reliant on fossil fuels” and that “burning fossil fuels releases large amounts of carbon dioxide.” By promoting investment in renewable energy, the study supports the transition to a low-carbon economy, which is a key strategy for combating climate change and its impacts.

• SDG 17: Partnerships for the Goals

  The article underscores the critical role of finance and investment, which are key components of global partnerships for sustainable development. It highlights that the growth of the renewable energy sector “cannot rely solely on government funding” and that “alternative funding sources, such as private investments from individual investors, should be explored.” The discussion on attracting investors and the role of international organizations and NGOs also points to the importance of multi-stakeholder partnerships to achieve the goals.

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the issues discussed in the article, several specific SDG targets can be identified:

1. Under SDG 7 (Affordable and Clean Energy):

   • Target 7.1: By 2030, ensure universal access to affordable, reliable and modern energy services.
     
     Explanation: The article directly addresses this target by stating that “approximately 9 million out of its 15 million people lack access to electricity, making Somalia one of the least electrified in the world.” The entire study is motivated by the need to close this energy access gap.
   • Target 7.2: By 2030, increase substantially the share of renewable energy in the global energy mix.
     
     Explanation: The article’s focus is on promoting investment in Somalia’s “abundant solar, wind, and biomass resources.” It discusses the country’s high potential for solar and wind power and the need to move away from diesel-powered systems, charcoal, and firewood, thereby increasing the share of renewables.
   • Target 7.a: By 2030, enhance international cooperation to facilitate access to clean energy research and technology… and promote investment in energy infrastructure and clean energy technology.
     
     Explanation: The article highlights that “financing renewable energy projects remains a key obstacle” and discusses the need to attract private investors and the role of “international organizations and NGOs” in launching renewable energy projects. This points to the need for enhanced cooperation and investment.

2. Under SDG 8 (Decent Work and Economic Growth):

   • Target 8.1: Sustain per capita economic growth in accordance with national circumstances.
     
     Explanation: The article posits that investment in the energy sector is “crucial for development and economic growth.” A stable and affordable energy supply is a fundamental enabler of economic activity, and developing the renewable energy sector is presented as a pathway to support this growth.

3. Under SDG 9 (Industry, Innovation and Infrastructure):

   • Target 9.1: Develop quality, reliable, sustainable and resilient infrastructure… to support economic development.
     
     Explanation: The article identifies “limited infrastructure” and “lack of infrastructure” as major barriers to renewable energy adoption. It specifically mentions challenges in “generation, transmission, and distribution,” which are core components of the infrastructure needed for a functioning energy system.

4. Under SDG 13 (Climate Action):

   • Target 13.2: Integrate climate change measures into national policies, strategies and planning.
     
     Explanation: The article’s practical implications section recommends that “the government of Somalia should implement more suitable policies related to renewable energy sources” and establish “regulations and tax credits favourable to such investments.” This is a direct call for integrating climate-friendly energy policies into national planning.

5. Under SDG 17 (Partnerships for the Goals):

   • Target 17.3: Mobilize additional financial resources for developing countries from multiple sources.
     
     Explanation: The article emphasizes that government funding is insufficient and that “alternative funding sources, such as private investments from individual investors, should be explored.” It directly addresses the challenge of mobilizing capital for renewable energy projects in a fragile state like Somalia.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

The article mentions or implies several indicators that can be used to measure progress towards the identified SDG targets:

1. For Target 7.1 (Universal access to energy):

   • Indicator 7.1.1: Proportion of population with access to electricity.
     
     Explanation: The article provides a direct baseline for this indicator by stating that “approximately 9 million out of its 15 million people lack access to electricity.” This means only 40% of the population has access, and progress can be measured by tracking the increase in this percentage.
   • Indicator 7.1.2: Proportion of population with primary reliance on clean fuels and technology.
     
     Explanation: The article implies a low value for this indicator by detailing the high reliance on polluting fuels: “Charcoal (47.9 per cent) and firewood (41.3 per cent) are the two most often utilized energy sources.” Progress would be measured by a decrease in these percentages and a corresponding increase in the use of electricity and modern energy sources.

2. For Target 7.2 (Increase share of renewable energy):

   • Indicator 7.2.1: Renewable energy share in the total final energy consumption.
     
     Explanation: While not providing a specific percentage, the article implies this share is currently very low due to the dominance of “diesel-powered systems,” charcoal, and firewood. The study’s focus on “investment intentions” in solar, wind, and biomass serves as a leading indicator for future growth in this share. The mention of a “10 MW solar farm” provides a concrete example of renewable energy generation capacity that contributes to this indicator.

3. For Target 17.3 (Mobilize financial resources):

   • Indicator: Level of private investment in renewable energy.
     
     Explanation: The article does not provide a specific value for this, but its entire research is designed to understand and promote it. The study’s primary focus on “factors influencing investment intentions in renewable energy” implies that tracking the actual flow of private capital into Somalia’s renewable energy sector is a key measure of success. The survey of 220 potential investors is an attempt to gauge the potential for this financial mobilization.

4. Create a table with three columns titled ‘SDGs, Targets and Indicators” to present the findings from analyzing the article.

Source: nature.com