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Need for Nigeria to domesticate renewables value chain

Nigeria has an abundance of sunlight, wind, water, and with the rise of renewable energy sources as the next big deal, the country has a chance to leapfrog its economic development but there is a caveat.

Without developing local manufacturing capacity for renewable energy components in Nigeria, the mistakes in the country’s oil and gas sector will again rear up their ugly heads in the management of this growing energy source.

For decades, Africa’s biggest oil producer has extracted and exported crude oil without local value addition.

Consequently, it imports refined petroleum products to meet domestic demand because there is no local capacity to refine them. Nigeria imports practically all the technology and equipment required for the exploration and production of oil.

Even though the Nigerian Content Development and Monitoring Board (NCDMB) has committed to changing this narrative in the oil and gas sector, it is important to realise that if Nigeria does not develop the capacity to make components and equipment required for renewable energy, it will be exporting jobs to countries that have built the capacity.

The main purpose of the local content act of 2010 was to increase Nigerian participation in the oil and gas industry by prescribing minimum thresholds for the use of local services and materials for the promotion of technology and skill to Nigerian labour in the oil and gas industry.

Nevertheless, Nigeria has an abundance of sun, water, and wind but to harvest these energy resources, the country imports literally all the components and equipment required. Without local manufacturing of solar panels, photovoltaic (PV) batteries, and other essentials, the country will be exporting jobs to China where these renewable energy components and equipment are made. This repeats the story in the oil and gas sector where the country has for decades failed to make locally, the essential pieces of equipment required and to build an ecosystem that ensures technology is transferred.

Without value addition through local application of the technology and manufacturing of the equipment vital for building a sustainable renewable market, Nigeria will simply be exporting jobs to China and other parts of the world.

Government has to get serious with de-risking the sector if they want to avoid the mistakes that were made in the oil and gas sector.

A thriving local manufacturing industry for renewable energy components and equipment will be dependent on ancillary industries such as glass making, an aluminium-manufacturing base, and access to rare earth elements or minerals.

At the moment, most of Nigeria’s domestic demand for glass as a result of infrastructure development is imported. Meanwhile, local manufacturing of solar panels consumes large quantities of photovoltaic glass, which is used in solar modules that produce solar energy. There is a negligible local ecosystem for this.

The cost of solar power panels is dropping at a staggering rate worldwide, as a result of the narrowing gap between solar energy generation costs and other related costs, coupled with a number of government subsidies granted to photovoltaic companies and organisations in countries such as the People’s Republic of China and the United Kingdom.

The average cost of energy generated by large-scale solar plants is around $0.068 kilowatts per hour (kWh), compared to $0.378 ten years ago and the price fell 13.10 percent between 2018 and 2019 alone, according to figures by the International Renewable Energy Agency.

However, in Nigeria, the cost of solar installations has refused to fall because there are no large economies of scale to drive local manufacturing and push prices down.

To fix Nigeria’s energy supply challenge the Federal Government under the Economic Sustainability Plan (ESP) intends to install solar home systems in five million homes coordinated by the Rural Electrification Agency in partnership with private companies. This relies on low-cost, single-digit interest loan facilities from the Central Bank of Nigeria.

Since Nigeria does not manufacture solar energy systems equipment and components it will rely on imports to fulfil this demand. The local economies of the countries where these solar home systems will be made reap the economic benefits by way of local job creations and contribution to infrastructural developments.

The Federal Government of Nigeria boasts of creating 250,000 jobs through the five million solar home systems drive. But it exports more jobs abroad than it creates locally due to the absence of local manufacturing capacity for renewable energy components.

China, currently the world’s leading producer of solar PV equipment as well as the largest installation market accounted for 2.20 million jobs or more than half of global sector employment. By comparison, the United States is currently home to around 240,000 solar energy jobs, according to 2019 jobs report by the International Renewable Energy Association (IRENA).

It is a game of numbers and volumes. Local manufacturing of these solar components and equipment is about upstream of the sector. Assembling solar components is the mid-stream and solar installation is downstream.

For local manufacturing, that is, the upstream to take off there have to be many players in the mid-stream demanding for these solar components and equipment. Currently, only Auxano Solar Nigeria Limited, a solar assembly plant, plays in Nigeria’s mid-stream and this cannot sustain upstream businesses.

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