By Osayu Ogboghodo
The Journey So Far…
Undeniably, the electricity supply is dire in many parts of Nigeria. The country is currently unable to provide affordable, reliable, sustainable and modern electricity to its citizens. Over the years, there have been inadequate policies, regulations, investments, technologies and business solutions to improve Nigeria’s electricity supply to unserved and underserved areas.
About 45 percent (90 million) of Nigerians currently live in darkness, without access to electricity. For the citizens with access, the reliability of electricity supply is low as only a fraction of the installed generation capacity of 13,000 MW gets to them. This grim situation is mainly caused by unavailable transmission and distribution networks in the electricity supply industry.
Amid the coronavirus (COVID-19) pandemic, Nigeria has failed to provide reliable and adequate electricity supply to her citizens. Access to electricity for improved health services remains absent in many hospitals and health care centres across the country. Now, this issue has become pronounced given the current pandemic, and the resulting socio-economic implications.
The status quo remains; every citizen wants reliable electricity supply at all times. As such, the current situation has caused Nigerians to seek alternative solutions with a growing interest in renewable energy.
The Federal Government is also firmly committed to the integration of renewable energy through the Paris Agreement, and the Vision 30:30:30 to deliver 30GW of electricity with 30% renewable energy mix by 2030. It was recently estimated that to achieve universal access, 238 million households will need to gain electricity access in sub-Saharan Africa, Asia and island nations by 2030.
However, there are prominent factors either driving or stalling the transition to renewable energy in Nigeria. Without a proper strategy and implementation plan, the transition process could be problematic.
One Step Forward, Two Steps Back
The Federal Government’s plan to transition to renewable energy can be summarised as one step forward, and two steps back. Although initial steps were taken to improve energy access and advocate sustainable development of renewable energy, the overall progress has been stalled on numerous occasions.
In April 2015, the Federal Executive Council (FEC) approved the National Renewable Energy and Energy Efficiency Policy (NREEEP). The policy document was created to propose a framework that will drive renewable energy development, attract investments and improve energy efficiency in Nigeria.
With a unique focus on solar, hydropower, biomass and wind energy, the government estimated combined generation capacity of about 8,000 MW by 2020 and 23,000 MW by 2030[1]. The government, through the Ministries, Departments and Agencies (MDAs), was mandated to provide guarantees and financial frameworks to meet these targets and stimulate the expansion of the renewable energy market.
A Missed Opportunity for On-Grid Renewables: The Solar IPP Projects
In 2016, the Federal Ministry of Power (FMP) and Nigerian Bulk Electricity Trading (NBET) signed Power Purchase Agreements (PPAs) with 14 Independent Power Producers (IPPs) to procure, construct and generate solar power. The 14 solar power projects, worth a combined cost of US$2.5 billion, were expected to provide an added capacity of about 1,125 megawatts (MW) to the national grid.
In 2018, there was a deadlock due to extended negotiations on the Put and Call Options Agreements (PCOAs) and Partial Risk Guarantees (PRG). The World Bank was not prepared to provide PRGs and support the PCOAs at the tariffs the investors desired in their PPAs. The reason for this was that the global cost of solar power procurement had significantly declined. Also, there were disputes between the Federal Government and IPPs on the tariffs previously agreed in the PPAs.
There is a strong indication that the projects will not be able to achieve financial close without the $467 million Green Climate Fund (GCF) concessional financing[2]. As it stands, one could argue a missed opportunity for on-grid renewables.
Off-Grid Renewables: Beacon of Hope
Off-grid renewable energy is widely considered as the beacon of hope to the 90 million Nigerians without access to electricity. The off-grid renewable energy industry is growing. This growth is driven by the abundance of solar radiation, a steady decline in the cost of solar energy components, growing capabilities of project developers, and speed of deployment of solar mini-grids across the country.
As a result of this sustained growth, the installed mini-grid capacity has increased from about one megawatt in 2018 to over four megawatts in 2020[3]. Research by Nextier Power indicates that well over 6,000 customers are currently served with solar mini-grids.
Barriers Beyond the Low-Hanging Fruits
To strengthen last-mile connectivity, the transition to off-grid renewables will need to overcome barriers beyond the low-hanging fruits to reach complex markets and underprivileged populations.
The level of penetration of off-grid renewables remains low. Potential customers, especially in rural areas, are simply unaware of recent advances in technology, cost reductions, available financing solutions, cost-savings and other allied benefits that can be experienced from off-grid renewables. Poor quality services (including products and installations) have also undermined trust and reduced demand.
The situation is improved in urban areas, as there is increased awareness, affordability and acceptance. As such, there are a host of private companies offering clean and affordable solar power using stand-alone systems/pay-as-you-go (PAYG) models to facilitate the transition to renewables.
Other challenges that have stalled the transition include limited access to investment; low product quality; lack of technical skills; lack of cooperation between stakeholders; low end-user affordability, and commercial risks from default payments.
[1] The Ministry of Power: The Federal Republic of Nigeria, “National Renewable Energy and Energy Efficiency Policy (NREEEP),” 2015.
[2] https://www.greenclimate.fund/sites/default/files/document/funding-proposal-fp104-afc-nigeria.pdf
[3] By the end of 2019, Nigeria’s estimated installed mini-grid capacity was about 2.8MW, with 59 projects serving rural consumers. These were mostly residential-based mini-grids with some developed for specific productive uses. (Sources: The Renewable Energy Association of Nigeria and BloombergNEF)