It is no news that energy poverty remains a critical challenge in Nigeria. The majority of its over 200 million people still have little or no access to reliable electricity. According to the World Bank, 85 million Nigerians still have no access to grid electricity.1 For those connected to the grid, the number of hours of electricity supplied daily is inadequate for their energy needs. Nigeria is one of the most underpowered nations globally. Despite having an installed generation capacity of about 12.5GW, only 3-4 GW of this energy is actually distributed to consumers. In 2020, the energy consumed per capita in Nigeria was 184 kWh. For South Africa, the energy consumed per capita was 3,759kWh. Actual consumption is about 80% behind the expected consumption level, given the country’s current population and income levels. This illustrates the inefficiencies in the country’s electricity value chain and can be related to the broad challenges facing the Nigerian power sector. These challenges include electricity policy enforcement, regulatory uncertainty, gas supply bottlenecks, transmission system constraints, and major power sector planning shortfalls that have kept the sector from reaching its envisaged commercial viability.
What does this mean for the economy?
Energy access impacts sustainable development and, therefore, every part of the economy. Electricity is very important in the growth of a nation’s economy. Industries, small businesses, and food production (agriculture) require reliable energy for development. The agriculture sector, being the biggest contributor to the gross domestic product (GDP), has been one of the sectors impacted by the energy deficit in the country. About 40% of the food produced in Nigeria is wasted every year due to post-harvest losses. These losses partly result from poor energy systems needed for their preservation. Mechanised food production, storage, preservation, and processing require energy.
The manufacturing sector – which comprises over 12% of Nigeria’s GDP – is also affected. The lack of reliable grid electricity means that industries rely on costly backup fossil fuel generators. This raises the cost of manufacturing. In 2020, local manufacturers claimed to have spent 70 billion ($168.4 million) on self-generation. The frequent power outages and supply deficiency severely impede manufacturing capacity in the industry. It translates to losses for the industry players in terms of machine breakdowns, material loss, and even production time. A 2021 World Bank report noted that businesses in Nigeria lose $29 billion every year due to the poor power supply in the country.
With these two sectors ailing from the inadequate power supply, it is therefore not far-fetched why the current rate of unemployment in the country is at 33.3% and youth unemployment at 42.5%. Since a lack of proper electricity supply affects the manufacturing sector’s productivity; foreign direct investors would have no incentive to bring businesses and industries to Nigeria. Some of the existing ones would even leave due to the cost that using diesel-powered electricity generation brings to their businesses. Michelin and Dunlop have taken this step as some of the companies.
Improving Economic Productivity
Improving economic productivity will require the adoption of innovative solutions. This can be tackled by adopting decentralised renewable energy solutions across the country, which is currently being championed by the Rural Electrification Agency (REA) of Nigeria. One of the programs by the REA focused on aiding economic activities in the country is the “Energising Economies Initiative (EEI)” 8 that “aims to support the rapid deployment of off-grid electricity solutions to MSMEs in economic clusters (such as markets, shopping complexes and agricultural/industrial clusters), through private sector developers,” according to the Agency.
However, a critical factor in the success of this project is the purchasing power of the target consumers. The economic capacity of the sectors in need of electricity for improved economic productivity falls below the financial cost of alternative energy sources. Moreover, with a subsidy on petroleum products in the country, it becomes quite difficult for off-grid energy generation to compete against fossil fuels. However, projects are being deployed via innovative models. An example is the undergrid mini-grid in Wuse Market. The Abuja Electricity Distribution Company (AEDC) signed agreements with Wuse Market Traders Association and Green Village Electricity (GVE) to provide an interconnected mini-grid of 1 megawatt (MW) of energy to the market. The project aims at meeting the electricity ds of more than 2,000 Small and Medium-scale Enterprises (SMEs) in the market.
The adoption of clean energy can circumvent the challenges associated with the grid. This ensures a stable and reliable source of energy for economic activities. Innovative deployment models such as the undergrid mini-grids being explored by distribution companies and mini-grid developers would help increase supply stability for businesses. The government can also provide tax breaks and incentives for businesses that deploy solar systems to lower costs. Nigeria needs to grow its economy quickly, and enabling a reliable electricity supply would go a long way in achieving this.