In the arid region of Somaliland, rain-fed agriculture dominates the farming landscape, as irrigated farms make up a small fraction of cultivated land. However, mounting water scarcity, a consequence of climate change, is making rain-fed farming increasingly unfeasible. Moreover, surging energy costs have placed irrigation, typically powered by diesel-based systems, beyond the means of local farming communities. This situation puts pressure on food security and underlines the urgency for affordable, sustainable crop irrigation solutions, especially as food demand surges.
Established in 2016 in Somaliland, ClearSky Power is dedicated to addressing the escalating energy needs of the region through advanced renewable energy solutions. In February 2021, the company was selected to receive support from PREO in the form of a grant, to demonstrate the financial viability of selling solar photovoltaic drip irrigation systems to local farmers on Shariah-compliant financing terms – a previously unavailable option for renewable energy products. This approach combined productive-use technologies with tailored financing, ongoing servicing, maintenance, and support for additional value-enhancing applications. The project’s goal was to shift from expensive diesel-based power to decentralised solar energy – curbing energy costs, boosting farm productivity, and optimising water usage.
Over two years, the project has achieved significant success, prompting the company to set its sights on scaling up. ClearSky Power aims to expand its impact by deploying solar photovoltaic drip irrigation systems across an additional 20 farms.
In an exclusive interview, Frederic Caron, the Managing Director at ClearSky Power, shared insights into the project’s accomplishments and the valuable lessons learned from its execution.
Q: What were ClearSky Power’s objectives for this PREO project, and have they been realised according to the original plan?
The significance of smallholder farmers in Somaliland’s economy cannot be understated, as their ability to yield successful harvests directly impacts the region’s food security. When these farmers face production challenges, Somaliland’s population is left with no choice but to resort to costly imported produce. In an effort to bolster farming communities, ClearSky Power sought the support of the PREO programme with a multi-faceted vision:
- demonstrate the technical and financial feasibility of photovoltaic powered drip irrigation systems for Somaliland’s agricultural landscape;
- establish a financially sustainable and scalable model involving local banks directly financing farm owners to procure irrigation systems and facilitate a two-year payback period;
- construct a compelling business case supported by a comprehensive proof-of-concept to be shared with Microfinance Institutions (MFIs) and the broader spectrum of investors in clean-energy agriculture.
In practice, ClearSky Power has successfully designed and implemented photovoltaic drip irrigation systems for over 10 Somaliland farms, with projections to extend this number to 20 by the end of December 2023. Furthermore, we have initiated dialogues with MFIs and financial intermediaries to galvanise financial backing tailored to farmers’ needs. Recognising that traditional banks often regard farming as high-risk, thereby offering farmers less favourable financial terms due to a lack of familiarity with both the sector and the technology, ClearSky Power has directly extended financing to farmers with a two-year repayment timeline. The opportunity to engage directly with farmers during both the implementation and financing phases has allowed us to develop a deep understanding of the technical, financial and economic aspects of this pioneering project.
Q: Can you elaborate on the challenges encountered during the project and provide insights into your suggested strategies moving forward?
The implementation of our project encountered several challenges that prompted us to adopt creative solutions:
1. Stringent MFI terms – Securing upfront capital for investing in new technology remains an ongoing challenge for farmers. Among the farmers involved in the project, 90% opted for financing. However, despite our efforts to collaborate with local banks and enhance financial access, we found that MFIs impose strict conditions that are unfavourable to farmers. MFIs lack financial products specifically tailored for the agricultural sector, applying instead conventional financing terms. These include credit assessments based on credit history, a process that clashes with the reality of farmers relying on seasonal harvests for their livelihoods. Additionally, MFIs require collateral beyond their farmland, along with a guarantor to sign a notarized agreement in the event of payment default. These conditions have proven to be too onerous for farmers.
To move the projects forward, ClearSky Power opted to provide farmers with direct financing options, structured with monthly repayments. ClearSky Power developed its own financing terms and made them as simple as possible for farmers to understand. These involve different ways of evaluating creditworthiness, taking into account farmers’ capability and commitment to achieving a steady yield; and using the installed system equipment as collateral in case of payment default. Going forward, ClearSky Power would support the adoption of more efficient terms and procedures for equipment repossession, along with enhanced credit-worthiness checks.
2. Late loan payments – While nearly half of our clients stand as testament to the successful extension of financing, the other half struggle to adhere to timely monthly payments. It’s not uncommon for these clients to commit to payment dates. However, we often find ourselves in the position of having to chase payments or dealing with instances where payments fall short of overdue balances, and occasionally, no payment is made at all. This dynamic underscores a broader issue: despite our proactive communication through phone calls and face-to-face interactions, clients in financial constraints tend not to fulfil their commitments. This obviously has an adverse effect on ClearSky Power’s cash flow and monthly budgeting for overheads. It also taints the records of diligent farmers who have adhered to payment schedules or exceeded expectations, compromising our ability to showcase their creditworthiness to local micro-financing and lending institutions for potential project funding.
In light of this, we have formulated a 3-step action plan. First, we engage existing loan customers with outstanding balances, highlighting the impact of delayed payments, and reiterating their contractual obligations. The second step involves collaboratively setting a date for balance settlement, accompanied by clear guidelines. Finally, if balances remain unsettled beyond the agreed due date, the third step entails potential disconnection of services. While this strategy has yielded promising outcomes, including partial payments and balance clearances from some clients, a complete resolution to this issue is yet to be found. ClearSky Power also plans to strengthen its systems with remote monitoring and remote shutdown capability as a way of enforcing on-time payment.
3. Difficulty in Data Gathering – We faced some difficulty in gathering Key Performance Indicator (KPIs) data on incremental earnings. Farmers are not used to sharing their income statements and revenues and most of them are unwilling to share any data regarding revenue growth. To address this, we adopted a tailored approach, engaging farmers individually. We also conducted surveys covering farm aspects like land expansion and crop yield, enabling us to collect essential KPIs from initially reluctant farmers.
4. Marketing Challenges – Some challenges have come up during the marketing campaigns. Many Somaliland farmers are reluctant to make upfront payments when goods or equipment haven’t arrived in the country yet. They would rather personally interact with all the equipment needed for the project before they commit to anything. ClearSky Power has found a solution to this by first identifying potential customers then importing essential inventory items. Secondly, our early market research highlighted a demand for case studies that substantiate the credibility and reliability of our systems. While this initially slowed our market penetration, farmers’ concerns eased following successful initial installations and live demonstrations. ClearSky Power intends to leverage these case studies to develop a more compelling marketing campaign.
Q: What are the key achievements of the project? To what extent does solar pumping contribute to enhancing the livelihoods of Somaliland farmers and what are the essential factors for realising this potential?
1. Women entrepreneurship at the nexus of agriculture and clean energy
In Somaliland, 80% of the local crop sellers in markets are women. After farmers harvest the crops, women entrepreneurs take the lead in selling produce such as lemons and watermelons at local markets. Traditionally, farmers give their produce to women on credit to sell, and women pay back the farmers while keeping a proportion of the revenue. However, recent diesel price fluctuations have made it difficult for farmers to wait to be paid, prompting tighter payment schedules for these women entrepreneurs. Solar pumping has helped by boosting farmers’ yields and providing a steady harvest all year, ensuring a reliable food supply. Additionally, with affordable payment plans for solar pumps and reduced pumping costs, farmers have become more flexible and can afford to wait longer for collecting payments from women sellers, strengthening their position in the local food market. This combined effect of improved year-round yields through sustainable pumping solutions has fostered women’s entrepreneurship and brought about positive community impacts.
2. Enhanced agricultural yields and productivity
The PREO-funded project has revealed that solar pumps are responsible for a 40% increase in agricultural yields and heightened land productivity. Agricultural yields vary widely, depending on rainfall, insect infestations, and other natural phenomena, but solar pumping has helped to mitigate some of these challenges. The shift from diesel to solar energy has allowed farmers to pump more water throughout the day and strengthen their crop fields. In addition, the ability to operate the solar-powered pump for a prolonged period has also enabled them to expand the cultivated area, previously limited by the prohibitive cost of diesel. The farmers involved in the project now enjoy stable and improved agricultural production owing to enhanced yields from existing plots, the year-round diversification of crops, expansion of cultivated areas, and a rise in cropping cycles.
Remarkably, one of the supported farmers has doubled their farming land, while almost half of the other farmers have increased their farmland by at least a third. This expansion also applies to cash crops, as two-thirds of the farmers have integrated these crops into their farming plots. Reliable water access through solar pumping has been crucial for nurturing these extra crop types.
3. Increased revenues for farmers
The significant upfront cost of solar water pumping often led small-scale farmers to choose diesel- generators for their pay-as-you-go cost structure. However, improved financing options now enable farmers to overcome this adoption barrier. This shift has not only increased income from better agricultural production but has also resulted in savings through decreasing dependence on fuel. Even farmers with limited generator use were previously spending between $100 and $300 USD per month on fuel. Additionally, the enhanced yield and consistent harvest have created extra income sources for farmers. Most of the farmers have witnessed a 40% rise in revenue. On average, each farmer enjoys an additional monthly income of $200 USD, along with a monthly reduction of $300 USD in fuel consumption.
4. Reduction in greenhouse gas emissions
The farmers involved in the PREO-funded project have transitioned away from, or considerably minimised their reliance on diesel-operated systems for their farming operations. Initially, farmers with diesel generators were consuming around 100 to 400 litres per month, leading to emissions of about 1/3 to 1 ton of CO2 per farmer. This decreased reliance on fossil fuels in agriculture is crucial for the environment and aligns with Somaliland’s move toward cleaner energy sources.
Q: What insights can your project offer to your company, as well as others in your industry, and the broader sector?
1. Women as early adopters
The pivotal role of women as early adopters of solar-powered drip irrigation remains a cornerstone of the project success in the community. Our first pilot centred around a woman-owned farm, and it has formed the backbone of our model’s proof of concept. Women often are seen as trusted advisors in many key aspects of Somali society and those venturing into entrepreneurship are often regarded as pioneers in their respective domains. Initially, during the early stages of the PREO-funded project, we had difficulty with getting interested clients to commit. However, following the solar installation on Amina’s farm we have seen a major surge of requests with many directly expressing their desire a system “just like Amina’s”. This remarkable shift has not only positively transformed community perspectives on the solution but also ignited a surge in new installations, significantly contributing to the overall project’s success. Therefore, it is crucial for the design and implementation of solar-powered drip irrigation initiatives to recognise women as catalysts for driving agricultural and clean energy solutions.
2. Service and Maintenance and after sales-support
Another key lesson we’ve learned revolves around the importance of delivering post-sales support. Providing comprehensive after-sales support, encompassing staff training and service maintenance, is crucial for the success of projects bridging clean energy and agriculture, particularly during critical farming periods. As demonstrated by our maintenance trips, having trained on-site staff and continued service and maintenance significantly enhances system performance and reliability. This, consequently, elevates the value proposition for farmers considering solar-powered drip irrigation solutions.
3. Importance of clear and concise contracts
A significant insight gained from this project is the value of maintaining concise and straightforward contractual agreements with farmers. Given their limited familiarity with the technology and financing intricacies, farmers often struggle with, or are deterred by, lengthy contracts. Instead, they favour condensed versions that focus on essential terms. This underscores the need for brief contracts, even when detailing aspects like payment default.
4. Loan repayment schedule is farm-specific
In farming communities, harvest times vary. Some harvest crops all year, while others do so only at specific times of the year. This leads to different income patterns, with some farmers having steady income throughout the year, while others are getting money only occasionally. This impacts payment plans. Farmers with occasional income might struggle with regular payments. So, it’s important to adjust repayment schedules based on their harvest cycles. One solution is milestone payments aligned with harvest periods, instead of spreading payments equally throughout the year.
Q: Looking to the future, what are your plans for developing your project?
1. Financing Engagement
Throughout the duration of the PREO-funded project, ClearSky Power has strived to engage local lenders in facilitating financing the farmers. But, as previously mentioned, local financial institutions are often unwilling or unable to extend loans to customers lacking credit histories and guarantors, or in the absence of compelling business propositions and comprehensive proofs-of-concept that underpin farmer funding requests. The development and implementation of customer financing innovations by local lender institutions is pivotal to ClearSky Power’s mission to scale-up clean energy technologies and farmer-oriented solutions. In light of this, ClearSky Power aims to use the success of the first and second rounds of PREO-funded installations as compelling models for banks to validate more certain paths to profitability in farmer financing.
Sharing knowledge and experiences gained through the first two phases of the project with MFIs is a pathway to achieving that goal. ClearSky Power has continued throughout the project to collect and analyse financing data, findings and lessons derived from these initiatives. These assessments encompass an evaluation of farmers’ repayment capacities, the optimal scheduling for loan repayment, adaptable strategies for payment collection, payment default avoidance strategies and holistic insights into loan-related challenges to prevent them from becoming barriers to success.
Moreover, ClearSky Power intends to harness project-based concessional finance to catalyse additional investments in solar-powered drip irrigation by developing and designing farmer friendly finance loan products in collaboration with MFIs.
Meeting these goals and attracting additional solar-powered drip irrigation investments will establish the necessary foundations for a thriving clean energy and agriculture market within the country.
2. Facilitating the expansion of solar-powered drip irrigation across other regions
ClearSky Power aims to capitalise on its PREO-funded project experience and reputation to advance the synergy between clean energy and agriculture, specifically through solar-powered drip irrigation. One significant challenge we encountered is building trust within the farmer community regarding the added value of drip irrigation technology. To address this, we’ve demonstrated drip irrigation solutions on one farm and we’re currently implementing a second farm model demonstration.
We anticipate a shift in farmer behaviour, where they opt for full systems rather than standalone components like water pumping alone. This evolution will enable ClearSky Power to seamlessly integrate comprehensive solar-powered drip irrigation systems into the burgeoning market demand for solar pumping. The company’s expansion plan includes reaching 60 more customers within the next three years across three regions: Awdal, Darasalam area (Maroodi Jeex region), and Togdheer region.
Recognising the significance of reliable, clean and affordable energy in increasing agricultural productivity, ClearSky Power plans to undertake research to determine the optimal size of a generation plant that provides base load power for water pumping and additional power for additional energy services in the agricultural cycle. This includes evaluating the marginal cost of additional energy production and exploring potential surplus energy utilisation.