Powering Nigeria: Past, present, prospects (2)

This panel comprised Kenny Anuwe, MD/CEO, FGN Power Company-Presidential Power Initiative (PPI); Abi Odeinde, partner, Olaniwun Ajayi, LP; Peter Ikenga, MD/CEO Transcorp Power Limited and Transcorp Energy Limited; Edu Okeke, MD, AzuraPower West Africa Limited; Dayo Orolu, regional sales director, Grid Technologies, West and Central Africa and Banjo Abimbola, partner PwC.

Key reforms supporting the modernisation of Nigeria’s Electricity Supply Industry have included the 2013 privatisation, which made generation fully private, retained transmission under government control, and split distribution 60 per cent private and 40 per cent government-owned. Recent legislative changes, including the Electricity Act 2023 and constitutional amendments, empower states to manage their power sectors independently, promoting federalism in the sector.

The introduction of a cost-reflective tariff system categorises customers into bands (A to E) based on service level and infrastructure. This system ensures consumers pay according to the actual cost of service delivery.

The second panel, “Accelerating Financial Investment across the Value Chain and in Renewable Energy Projects: Opportunities and Challenges,” focused on the significant funding challenges facing Nigeria’s power sector. With recent takeovers of four Distribution Companies (DISCOs) by their lenders highlighting financial strains, the discussion addressed the need for innovative financing solutions, particularly for renewable energy projects.

The panel, composed of experts, aimed to generate insights and ideas to address these funding challenges. Panellists included Biodun Ogunleye, Commissioner for Energy and Mineral Resources, Lagos; Abba Aliyu, MD, Rural Electrification Agency; Daniel Mueller, chief operating officer, InfraCredit; Fola Fagbule, deputy director and head, Financial Advisory Services, Africa Finance Corporation; Toyin Abegunde, regional sales director Southern and Eastern Africa, GE Vernova and Oghale-Evi Onwusah, Ag. financial controller, Tetracore Energy Group.

Ogunleye, started by addressing a question about Lagos State’s strategy to attract capital following the de-federalisation of regulatory powers in the power sector. He acknowledged that several attempts have been made to draw capital into the sector, with mixed opinions on the effectiveness of de-federalisation.

Key Initiatives in Lagos State

Market De-Risking: Lagos State has focused on de-risking the market to attract investment. This includes revising policies, market designs, and laws to ensure they support a low-cost, sustainable market.

Low-Cost Renewables: Aiming for 25 per cent of the power grid to be supplied by low-cost renewables is a deliberate strategy to lower delivery costs and ensure reliability.

Metering and Market Stability: Emphasising the importance of metering for revenue recovery and market stability. The strategy includes regular market clearing and strong regulation to prevent manipulation.

Distributed Generation: Encouraging the development of generation assets close to new Transmission Company of Nigeria (TCN) infrastructures to improve efficiency and reduce costs.

Plug-and-Play Solutions: Providing spaces for easy integration of generation assets into the grid, driven by need and market alignment rather than strict licensing.

Government Interventions: Initial interventions by the Lagos State Government to support market participants and ensure no financial losses during the market’s transition phase.

Regulatory Framework: Implementing a regulatory framework that holds operators accountable, ensures performance guarantees, and facilitates swift conflict resolution without lengthy court procedures.

Market Scalability: Designing a market structure that minimises the impact of operator failures on consumers, thus maintaining stability and investor confidence.

Challenges in Rural Electrification

Aliyu addressed the challenges of funding rural electrification projects. He highlighted a real scenario from Nasarawantotu, where an interconnected mini-grid was implemented, transforming the community by providing reliable power and stimulating economic activity. However, the increased demand quickly outstripped supply, illustrating the need for continuous investment and capacity building.

Key Points on Rural Electrification Funding

Reliability and Demand: Reliable electricity boosts confidence and economic activity, creating further demand. This cycle necessitates ongoing investment to meet increasing needs.

Community Impact: The example of Nasarawantotu shows that providing reliable electricity can lead to significant economic benefits and improved quality of life, underscoring the importance of investing in rural electrification.

He further emphasised the complexity of working with communities that have historically relied on generators. The inability to evaluate power volume in such contexts necessitates collaboration with the Rural Electrification Agency (REA) and international Development Finance Institutions (DFIs) to support projects through the initial phases until demand is established.

GE Vernova’s Role in Making Equipment Affordable

Abegunde discussed the company’s strategies for making power equipment affordable and accessible. He emphasised that despite global supply chain challenges, GE Vernova has built resilience into its system, ensuring equipment availability at competitive prices. The key points include:

Future Trends and Innovations

Lagos State’s Vision for the Electricity Market
Ogunleye outlined a vision of an electricity market that ensures universal access, financial sustainability, and minimal government intervention, focusing on systemic improvements from street-level infrastructure to market revenues.

InfraCredit’s Role in Credit Guarantees
Mueller discussed the evolution of credit guarantees, highlighting the importance of risk-sharing and collaboration with commercial banks and international guarantors. He anticipates an increase in risk-taking by pension funds, which will drive more sophisticated financing structures for infrastructure projects.

Trends in On-Grid and Off-Grid Power
Onwusah discussed the increasing role of renewable energy due to favourable financing and the potential for public-private partnerships in the power sector. He also called for policy improvements, such as effective value-added tax (VAT) exemptions on solar panels and import duty waivers for renewable equipment.

Renewable Energy Service Companies (RESCOs)
The future envisaged by RESCOs involves developers managing utility-scale portfolios of renewable capacity. This includes efforts to increase the mini-grid regulation cap from 1 MW to 5 MW to incentivise further investment. The goal is to integrate renewable energy seamlessly with the existing grid, promoting sustainability and reliability.

Innovative Technologies
Abegunde highlighted the importance of hybrid systems combining gas and renewable energy to ensure reliability. He discussed future technologies like carbon capture, utilisation and sequestration (CCUS), and the transition to hydrogen, which will play crucial roles in Nigeria’s energy landscape.

The panel session underscored the critical need for innovative financing solutions to address the funding challenges in Nigeria’s power sector. By focusing on market de-risking, low-cost renewables, robust regulation, and strategic government interventions, Lagos State aims to create a more attractive environment for investors. Additionally, the transformative potential of rural electrification highlights the importance of sustained investment to drive economic growth and improve living standards.

The insights from Ogunleye, Aliyu, Abegunde and other panellists emphasised the necessity of a strategic approach to market design, regulatory frameworks, and infrastructure development to ensure a stable and attractive investment climate. The goal is to foster a sustainable, reliable, and inclusive power sector that can support Nigeria’s economic development and improve the quality of life for its citizens.

Summary and Next Steps

The conference “Powering Nigeria’s Energy Future: Addressing Infrastructural Challenges for Sustainable Energy Development” emphasised new policies, legal reforms, and innovative strategies to modernise Nigeria’s electricity supply industry. The Electricity Act of 2023 stands out, decentralising the power sector to empower state and private sector involvement in power generation, transmission, and distribution.

This legislative change is aimed at reducing dependency on the national grid and encouraging local solutions. Additionally, the National Integrated Electricity Policy and Implementation Plan (NIEPIP) mandates the creation of an Integrated Resource Plan (IRP) by all states, focusing on sustainable electricity development tailored to specific needs.

Legal reforms highlighted during the conference include the amendment of the Electricity Act of 2023, enabling states to regulate their power sectors and fostering a more decentralised and efficient system. This legislative shift supports the creation of a stable and attractive environment for investment, crucial for infrastructure upgrades and expansion. The introduction of a cost-reflective tariff system further aims to align costs with service quality, ensuring financial sustainability while addressing consumer affordability.

The conference placed a strong emphasis on renewable energy as a cornerstone for Nigeria’s sustainable energy future. The government’s goal to achieve 30 per cent renewable energy by 2030 underscores a commitment to diversifying the energy mix and reducing dependency on fossil fuels.

Key initiatives include the Distributed Assets Programme, which leverages a $750 million facility from the World Bank to expand access to electricity through solar home systems and mini-grids. Projects like the Zungeru Hydroelectric Power Plant and various off-grid solutions for educational and healthcare facilities highlight ongoing efforts to integrate renewable sources into the national grid.

The promotion of hybrid systems, combining gas and renewable energy, and future technologies like carbon capture, utilisation, and sequestration (CCUS) and hydrogen transition, were also discussed as crucial innovations for ensuring energy reliability and sustainability.

Rural electrification was another critical focus, recognising its potential to drive economic growth and improve the quality of life in underserved areas. The challenges of funding and implementing rural electrification projects were highlighted, with successful examples like the interconnected mini-grid in Nasarawantotu demonstrating significant economic and social benefits.

Ensuring continuous investment to meet growing demand and collaborating with international Development Finance Institutions (DFIs) are essential strategies for sustaining rural electrification efforts.

The Rural Electrification Agency (REA) plays a vital role in these initiatives, working to overcome historical reliance on generators and integrating more reliable power sources. By addressing these challenges, Nigeria aims to stimulate economic activity, enhance community development, and achieve broader access to electricity across rural regions.