Reinvigorating Yemen’s electricity system: Avenues for reform in the midst of war
The power generation system in Yemen is in a very poor state and urgently needs to be resuscitated. Achieving this will require switching to cheaper and renewable energy sources like solar, making key repairs to the transmission and distribution system, restoring livelihoods to off-grid communities through decentralised renewable energy systems, and making fundamental governance changes to improve the autonomy, profitability, and security of the sector.
The electricity system in Yemen is in a state of crisis. Six years of unrelenting war have destroyed or severely damaged the national grid, such that it now only serves Aden and nearby governorates that are located away from conflict-affected areas. Available generation capacity has fallen from 1.5 GW before the war, to a little over 1 GW (including purchased energy)., Ffor a population of 30 million people – that is 39W per person (by comparison, the UK with 67 million people has a capacity of 76 GW – almost 30 times as much power per person). Yemen’s power system is old, poorly maintained, and now almost entirely dependent on imported diesel and heavy fuel oil (HFO). The areas in the North and West of the country – controlled by the AnsarAllah (AA) movement (commonly referred to as the Houthis) – suffer from unreliable fuel supply due to a de facto embargo, resulting in the population increasingly resorting to small-scale solar solutions. The Internationally Recognized Government (IRG) based in Aden in the South can only afford to continue its limited generation because of the fuel grant it receives from the Saudi Arabia government.
Transforming Yemen’s electricity system
In a situation of such fragility and volatility, traditional approaches to for improving the electricity sector often do not work. The government has very few resources to invest; and foreign investors are reluctant to engage due to the ongoing conflict. How, then, is it possible to restore the electricity system? This was the question addressed in a major study by the International Growth Centre for the Executive Bureau for Acceleration of Aid Absorption and Support for Policy Reforms (chaired by the Prime Minister of Yemen Maeen Abdulmalik Saeed). After gathering the latest data and an extensive set of interviews with key players in the sector, the study proposed a set of potential reforms which are feasible in Yemen’s present context and would make a significant difference to the lives of Yemenis. Four key transformations were proposed:
- Switching to solar energy
Yemen’s electricity is heavily dependent on imported diesel and HFO. This is an enormous drain on the budget – yet these fuels are the most expensive (and most polluting) way to generate electricity. Yemen urgently needs to switch to cheaper fuels. The obvious solution is gas; Yemen has gas reserves and its largest power plant is a gas-fired facility in Marib. Marib, however, is currently the centre of the fighting between AA and the IRG. The transmission line from Marib to the capital, Sana’a, has been heavily damaged by the war; and the gas export pipeline from Marib to the southern coast arrives at Belhaf, more than 400 km away from where the power is most needed in Aden. Buying Liquified Natural Gas (LNG) from the world market would be possible, but the recent surge in world prices does not make it an economically sensible option.
There is, however, another fuel source in Yemen that is virtually unused at scale – the sun. Yemen has superb solar irradiation (it also has a great wind resource at the Bab-al-Mandeb strait leading into the Red Sea). While millions of Yemenis rely on small-scale solar systems, relatively little progress has been made on utility-scale solar that could enable the country to exploit a source of energy with zero fuel cost. However, achieving this will require a mechanism for guaranteeing payment for the electricity that solar parks would produce, otherwise developers will not be willing to make the necessary investments.
2. Rehabilitating existing power plants and network
The electricity sector in the IRG controlled areas has been relying on purchasing expensive electricity from private providers, based on short-term contracts, and is also focused on completing and commissioning the new gas-fired power plant in Aden (264MW), which is currently running partially on crude oil due to lack of gas. However, there are many other opportunities to boost Yemen’s generation capacity. For example, the lack of maintenance and repair of generation facilities around the country means that there are numerous facilities where relatively small injections of funding could stimulate significant improvements in capacity. The government needs to prioritise based on the biggest ‘bang for the buck’, including not only additional capacity generated, but also the potential to boost the local economy from such investments. The same is true of the transmission and distribution system, where the replacement of small, old and worn lines could enable far greater distribution of electricity at relatively modest cost. Such efforts are not as visible and impressive as new power stations, but they are no less important.
3. Supporting livelihoods
International experience suggests that, in conflict situations, the most important priority should be the restoration of livelihoods. It is not just the conflict, but also the economic crisis that causes so much misery for Yemenis. The war has devastated livelihoods: three-quarters of the population live in poverty; unemployment has soared. Access to electricity is key to almost all livelihoods. But the bulk of the population live in rural areas and do not have access to the public grid. International organisations have helped to provide solar energy solutions for health clinics, schools and water facilities, and have encouraged the development of a market for distributed renewable electricity. However, the need is huge. The government needs to work with international and local partners to meet the energy needs of all Yemeni citizens, both on- and off-grid areas, and devote resources accordingly.
4. Improving governance
All of the above transformations rely on fundamental reforms to the governance of the sector. Three changes are needed: autonomy, profitability, and security. Currently, Yemen’s state-owned Public Electricity Corporation (PEC), legally, holds the monopoly on supply, but has heavily constrained capacity and resources. Individual governorates throughout the country are keen to experiment with new ways of working. The government needs to allow greater autonomy for local PEC branches – or, more radically still, award private concessions to particular areas with the authority to invest in new generation, rehabilitate distribution, and improve bill collection.
Neither PEC, nor concessions, can operate effectively without rapid improvement in profitability. This will require tariff reform. Given the political sensitivity of raising tariffs, this may be best achieved by enabling ‘reform at the margin’-- that is, enabling customers who are willing to pay a commercial tariff to obtain significantly improved supply, while continuing to supply the bulk of the population at a (gradually reducing) subsidised rate. All of the above reforms require investment. Yet, few investors are willing to enter such a volatile context without security. The government should work with international partners to provide partial risk guarantees and escrow account mechanisms to ensure that investors know that they will get paid.
Yemen’s plight is grim. The four recommendations above, however, could transform the access of ordinary Yemenis to electricity, helping to restore the economy and support essential services. With bold leadership, dramatic progress can be made in getting power to the people of Yemen.
Editor’s note: This article is a part of our Escaping the fragility trap series and discusses findings and learnings from an IGC report on Improving electricity services in Yemen.