Is there a gap in the Nigerian Energy sector? Yes, there is. Are there existing challenges to bridging this gap? Yes, there are. Has the most ambitious privatisation exercise in the energy industry solved these issues? Some would argue that it has not. Is there more that can be done? Yes, there is. So, how then should we look at the state of things in the Nigerian energy sector; insurmountable problems, or a market still full of potential in need of innovative and bolder solutions?
Let us first review some technical and some not-so-technical facts before judgements can be made.
The initial privatisation exercise in the power sector was reputed to be one of the most ambitious in the global power industry with a transaction cost of over three billion dollars ($3.0bn). The exercise was driven by the desire to improve efficiency, reliability, and sustainability across the electricity supply value chain. Despite the overall perception that the exercise was largely successful, the plain reality remains that Nigerians still experience power outages with an absence of power in some remote areas.
Statistics-wise, this situation places annual consumption of electricity per capita to an estimate of less than 150 kWh, ranking Nigeria amongst the lowest in Africa. Also, it is on record that in 2018, only about 56.5% of the total Nigerian population had access to electricity, while the national electrification rate ranged from 49-55% with the rural electrification rate being only 39%. Across the Nigerian electricity supply value chain, a majority of generated and distributed power are grid-tied dependent on primarily thermal (about 86%) and hydropower sources.
There is a growing demand for renewable energy solutions to be infused into the electricity matrix to bridge the electricity access gap. However, the current reality around these alternatives tells a different story.
Most conversations around potential alternative options focus on wind, biomass & solar energy sources. While these energy sources may pose a potential bandwidth to provide large-scale access to electricity for Nigerians, not all of them are viable for deployment just yet. For instance, wind turbine generation can only be achieved in a few locations around the country. Therefore, it is generally not a preferred source for commercial use. This is the same for biomass energy as the availability of agricultural waste to power, as a solution, is seasonal. Furthermore, the cost of gathering and transporting such waste could upscale the energy cost to unrealistic values vis-a-vis electricity tariffs. These issues currently make solar-based sources the most used alternative of all, despite storage and logistic issues.
Now let us move beyond the rhetoric around alternative sources and magic solutions and look into the area of policy and regulation. Again, several pundits argue that these factors affect real and actual investments while also holding the key that unlocks the undeniably huge potential of our energy market. The majority of players in the renewable energy space have opined that inadequate private sector participation is owed largely to issues surrounding the implementation
of existing policies and regulations. In particular, issues such as failure to implement regular tariff reviews and occasional policy overlaps have increased the perception of a volatile environment.
Speaking specifically to such issues, let us outline in detail what has been the response of the federal government and the initiatives that have been crafted to address these and other real issues;
(A) The Nigeria Electrification Project (NEP) is a $550 million (USD) project designed with support from the World Bank and the African Development Bank (AfDB). The project is aimed at accelerating electricity access in unserved and underserved communities through renewable energy projects, including solar hybrid mini-grids, stand-alone solar home systems (SHS) and captive solar hybrid power plants. With the financing from the World Bank, under the Performance-Based Grant (PBG) sub-component program, private sector developers are encouraged to develop and operate mini-grids in off-grid areas by providing a performance grant of $350/connection to developers, with a total minimum grant request of $10,000.00. Under this programme, developers are at liberty to select their off-grid sites for electrification.
The primary objective of the NEP is to ensure that approximately 2.5 million people (approximately 405,000 households), 50,000 MSMEs, 100 isolation and treatment centres, 400 primary healthcare centres, 15 universities, and 2 associated teaching hospitals will receive new or improved access to electricity services. Thus far under the NEP, over 200,000 SHS have been deployed, 6 mini-grids have been commissioned, with 15 more recently completed. Currently, there are 99 Mini-grids and 33 isolation and treatment centres in the pipeline.
(B) The Solar Power Naija (SPN) programme: In September 2020, the Central Bank of Nigeria (CBN) issued guidelines introducing the 5M Solar Connections Programme. This Programme aims to provide low-interest loans to eligible companies towards deploying 5M new connections targeting 25 million Nigerians. This initiative will also catalyse the creation of 250,000 jobs in the energy sector.
(C) The Energizing Education Programme Phase I: In response to challenges of inadequate power supply to Federal tertiary institutions, the FGN through the Federal Ministry of Power and the Rural Electrification Agency (the implementing Agency) conceptualized the Energizing Education Programme (EEP). The EEP seeks to provide a total of 37 Federal Universities and 7 University Teaching Hospitals with clean, reliable, and sustainable power supply through the construction of captive power plants and the rehabilitation of existing distribution infrastructure. In addition, the EEP will install streetlights to promote safety and security within campuses and construct renewable Workshop/ Training Centres where students will be taught renewable energy courses. Under Phase 1 of the EEP, installation for all the solar-hybrid plants has been completed, with three of the projects already handed back to the concerned beneficiaries after a one-year Operations and Maintenance (O & M). Two are currently at the O & M phase, while the other two though completed, are yet to commence O & M.
(D) The Energizing Economies Initiative: Also being implemented by the REA, aims to provide affordable, reliable, and sustainable power to strategic economic clusters
across Nigeria. For instance, one of Nigeria’s largest markets in Kano (Sabon Gari Market), is being powered by a decentralised solar solution. The ultimate goal is to replicate this model across hundreds of economic clusters across the country.
These programmes which are being implemented by the REA seek to provide grants, loans, technical assistance, and the enabling environment to encourage developers’ participation especially in the off-grid space.
It is paramount to mention, however, that the aforementioned initiatives could not have been embarked upon without an established framework of supporting laws and regulations. The Nigerian Electricity Regulatory Commission (NERC) was established in 2007 and to date, over 20 Regulations have been issued by NERC to provide a level of certainty and comfort necessary to promote private sector participation and investment into new projects to bridge the energy access gap. Examples include;
- The NERC Mini-Grid Regulation 2016 allows for cost-reflective tariff, clear definition of isolated and interconnected mini-grids, generation and distribution thresholds for permits and registration, as well as clarity concerning the relationship with the DISCOs.
- NERC Permits for Captive Power Generation Regulations (2008) allow for the generation of electricity exceeding 1MW for consumption solely by the generator and not sold to a third party without express approval by NERC.
- NERC Regulations for Independent Electricity Distribution Networks (2012) provide rules for the issuance of distribution licences to qualified operators to engage in electricity distribution independent of the distribution systems operated by the successor distribution companies.
- NERC Investment in Electricity Networks Regulation 2015 provides for the procedures for investing in electricity networks to create incentives to encourage the Transmission Company of Nigeria (TCN) and Distribution Companies to make sustainable investments in capacity expansion.
- NERC Eligible Customer Regulations 2017 aims to facilitate competition in the supply of electricity, encourage third-party access to transmission and distribution infrastructure, allow generation companies with uncontracted capacity to access unserved and underserved customers, and enhance the operational efficiency of generation companies.
Perceptions around regulatory frameworks in the Nigeria Electricity Sector: No wrong or right answers.
Where do things stand; insurmountable problems or a market still full of potential in need of innovative and bolder solutions?
Certainly, more can be done to enable ease of doing business in Nigeria and ultimately, attract private sector participation. For instance, some may request for improvement in the licensing processes, reduction in bureaucratic processes, clarity on existing policies and regulations (for example, tariff regimes) and ensuring the implementation of these regulations and policies, as being ways in which this can be achieved.
With that said, let us also look into what strategic solutions are being driven by the government to bolster the sector and attract improved private sector participation:
The FGN through the REA, in mitigating the uncertainties and bottlenecks voiced by some developers, has prioritised inter-agency stakeholder engagement and collaboration to further encourage participation and investment in the off-grid space. Also, the REA, in implementing the NEP, has taken steps to enable a seamless flow of implementation for developers. Such steps include;
- developing dedicated application portals for easy submission of applications,
- engaging desk officers dedicated to facilitating the prompt review and approvals of applications for mini-grid permits and registrations as well as Environmental Impact Assessment (EIA) approvals from NERC and the Federal Ministry of Environment (FMoE) respectively.
Through various engagements, the FMoE has provided further concessions for a more simplified EIA process for mini-grids in Nigeria. The REA also constantly engages with NEMSA to ensure that technical specifications of electrical power systems that are deployed meet the operational standards.
So with the facts laid out before us, let us come back once again to what we started with; how then should we look at the state of things in the Nigerian energy sector; insurmountable problems, or a market still full of potential in need of innovative and bolder solutions? Any objective reader must most certainly conclude that what is before us is a huge opportunity to go beyond what currently exists and reach the final destination of our desires. This destination is closer now than when we started, thanks to targeted efforts that continue to pour into the sector. The government is working and the private sector should support this.