Today, three billion people around the world have no access to clean drinking water and about 1.76 billion people live in areas already facing a high degree of water stress. This paper analyzes the cost-effectiveness of a stand alone small-scale renewable energy-powered seawater reverse osmosis (SWRO) system for developing countries. In this paper, we have introduced a new methodology; an energy optimization model which simulates hourly power production from renewable energy sources. Applying the model using the wind and solar radiation conditions for Eritrea, East Africa, we have computed hourly water production for a two-stage SWRO system with a capacity of 35 m3/day. According to our results, specific energy consumption is about 2.33 kW h/m3, which is a lower value than that achieved in most of the previous designs. The use of a booster pump, energy recovery turbine and an appropriate membrane, allows the specific energy consumption to be decreased by about 70% compared to less efficient design without these features. The energy recovery turbine results in a reduction in the water cost of about 41%. Our results show that a wind-powered system is the least cost and a PV-powered system the most expensive, with finished water costs of about 0.50 and 1.00$/m3, respectively. By international standards, for example, in China, these values are considered economically feasible. Detailed simulations of the RO system design, energy options, and power, water, and life-cycle costs are presented.