Renewable energy as viable solution to Nigeria’s electricity crisis

Sterling Bank Plc and Stears Data have, in a new report on Nigeria’s electricity crisis, advocated the adoption of renewable energy as a viable solution to complement domestic and commercial supply.

The report entitled, “Powering Nigeria: How solar energy can become a sustainable electricity alternative,” is divided into five parts namely: Nigeria’s electricity problem; the impact of Nigeria’s problem; the case for solar energy in Nigeria; limitations to solar adoption in Nigeria, enabling Nigeria’s energy market and conclusion.

The report showed that despite the privatisation of Nigeria’s electricity industry, the country still has one of the lowest electrification rates in the world as 43 percent of its population have no access to grid electricity, an indication “that 85 million Nigerians are not connected to – and cannot receive electricity from – the Nigerian transmission grid.”

The report in a comparative electrification rate analysis noted that Ghana has electrification rate of 84 percent, Kenya 70 percent, South Africa 85 percent, sub-Saharan Africa 47 percent, India 98 percent, Europe 100 percent, global 90 percent and Nigeria 55 percent. It noted that while Nigeria’s electrification rate is above the sub-Saharan Africa regional average of 47 percent, it lags significantly behind its peers across the continent and the global average.

According to the report, Nigeria’s grid-supplied electricity is grossly insufficient, thereby making the country to have the largest electricity access deficit in the world. Nigeria’s electricity supply value chain is broken into generation, transmission and distribution. The entire value chain used to be controlled by a state-owned facility, National Electricity Power Authority (NEPA) from 1972 to 2005, until the Power Holding Company of Nigeria (PHCN) was formed to transition to unbundling and privatising components of the power supply companies and form successor companies that will handle distinct parts of the value chain: generation, transmission and distribution with the aim of creating smaller, nimbler and more efficient corporations.

“However, unbundling NEPA into specialised, privately owned companies left the state company’s legacy of deteriorating infrastructure, energy losses, energy theft and non-cost reflective tariffs in the sector intact. And while the new structure was intended to address these problems, underlying issues have kept the sector in the same spot—or moved it backwards as some might argue,” the report said. The report concluded that “the Nigerian electricity sector is stuck in an unproductive cycle.”

According to the report, Nigeria does not generate enough to meet its energy demand. The current generation potential is around 12,522MW with average output of 4,000MW. With estimated demand between 8,000MW and 17,000MW, there is a shortfall of at least 4,000MW.

Under transmission and distribution, the report noted that, “Only a small fraction of the generated energy actually gets to the end user. Installed transmission capacity or the maximum amount of electricity that can be transmitted under ideal conditions is 8,100MW, and the peak transmission has been 5,459MW.

“Further, only a quarter (3,100 MW) of our current generating potential reaches the end user, signs of a highly inefficient value chain. On top of these inefficiencies, the transmission grid’s outdated and worn infrastructure makes it highly prone to frequent system collapses.”

The lingering electricity deficit affects the country on multiple levels: at household, business and even at macro or economy level.

At the household level, the report noted that, “Over 40 percent of Nigerian households own generators and bear the associated costs. First, the cost of purchasing generators, an estimated $500 million between 2015 and 2019, is higher than the proposed capital expenditure in Nigeria’s 2022 budget. There is also the cost of powering these generators. Sources and estimates vary widely, but the African Development Bank (AfDB) estimated that Nigerians spend $14 billion fuelling petrol or diesel powered generators.

“While PMS or petrol prices have been kept artificially low for the consumers through subsidies, variations in AGO or diesel prices can have severe impact on households and businesses as Nigerians are currently experiencing. Although the National Bureau of Statistics (NBS) diesel price watch for February 2022 shows a less than 10 percent rise in the price of the fuel from the beginning of the year, diesel is widely sold at prices 200 percent to 300 percent up from the end of last year. This has made it incredibly difficult for households or businesses to plan and manage themselves.

“While petrol prices appear more stable, prices are kept artificially low by government subsidies which are generally acknowledged to be unsustainable even in the near to medium term. These prices make the small petrol generators more attractive to households and MSMEs.

“However, perennial issues like product scarcity, makes using these generators unreliable as well as expensive. With households consuming the largest proportion of energy in Nigeria, increased spending on self-supplied energy has implications on the wider economy. Increased prices in goods and services are fuelled by relying on these expensive sources of electricity, which contributes to inflation, especially since almost 70 percent of the lifetime cost of a generator is spent fuelling it.”

From an environmental perspective, relying on generators is also a step in the wrong direction. Already, 75 percent of the power generated on the grid is generated using fossil fuels. To worsen this, the capacity of small gasoline generators owned by Nigerians is eight times larger than the grid’s peak capacity.

This makes the case for the kind of energy that Nigeria should focus on as it diversifies its energy generation mix. Renewable energy is not only better from a cost perspective for Nigerian households; it is ultimately better for Nigeria in the long run. On the positive, there is great potential for increasing the share of certain models of renewable energy. Solar power, for instance, currently supplies less than one percent of Nigeria’s electricity.

The report also noted that, the fact that other African nations with lower proportions of installed generated capacity coming from renewables, yet Nigeria still has lower electrification rates suggests that adding more sources of energy to be distributed through the grid will not suffice. This is the primary reason that off-grid renewable solutions should be explored as alternatives for even household users.

Read also: AfDB commits $164m to promote renewable energy in Nigeria, others

At the business level, Nigeria’s economy is driven by its MSMEs. They are responsible for 80 percent of employment and they contribute almost half of the country’s GDP (around 49.8 percent) annually. As the backbone of Nigeria’s economy, enabling them without hindrances is key to Nigeria’s development. Ensuring businesses have reliable and affordable access to energy can be transformative to the economy.

But businesses have little to no choice. Surveyed SMEs received between one to five hours of electricity each day. It’s no wonder that power generation was the biggest cost to businesses in Nigerian companies. An estimated 15 percent of businesses cease operations due to the pressures of keeping up with these costs.

Apart from the direct cost of self-supply, there are also indirect costs stemming from a loss of productivity. Loss of productive capacity can include the inability to complete or continue work when there is no electricity, or even when the quality and or quantity of work is diminished.

At the larger economy level, the report says Nigeria’s energy situation is extremely detrimental to its businesses and households. It is no surprise that the wider economy suffers as well. In addition to wide scale productivity losses, there are more direct impacts on the country such as attracting investments and the opportunity cost of funds spent fuel (both at an individual and at a government level).

According to the report, “The case has been made Nigeria cannot afford to generate its electricity using fossil fuel-powered generators,” contending that, “Beyond the financial implications, there are significant environmental impacts that the prevalence of generators causes.

“Their use is associated with air and noise pollution, which have significant long-term impacts causing respiratory illness, death, and hearing loss. Between 2008 and 2014, 10,000 deaths have been caused by generator fumes in Nigeria. Based on the current trajectory, greenhouse gas emissions are expected to rise from 11.9 million tons to 17.1 million by 2030 from generator usage alone, if nothing changes.”

Against this background, the report says that renewable energy sources offer a viable alternative that is better for the environment and cheaper in the long run, adding that under the Paris Agreement, the Federal Government of Nigeria set the ambitious goal to reduce greenhouse gases by 45 percent by 2030, a development which provides additional incentive to promote and invest in the spread of clean alternatives such as solar energy to help reach these goals.

“Although there are a number of renewable energy solutions available, solar energy is the most suitable off-grid solution to explore for Nigeria due to the abundance of the natural resource, the long-term relative affordability, and the modularity of solar energy solutions in providing options for all levels of consumption,” the report says.

In Nigeria, solar energy exists as an abundant natural resource because of the country’s climate which receives an abundance of more than 2,600 hours of sunshine yearly, a development which has the potential to provide between 5.5kWh and 6.7kWh per square meter on a daily basis; it has long-term affordability as the technology used to generate solar advances and the associated costs fall and solar energy thereby becomes increasingly cheaper to generate and as the prices of petroleum products rise.

Solar energy will also become more affordable relative to fossil fuel powered generators. Also, solar energy has modularity of energy solutions as it can power anything, with sufficient modules or components to scale generation, thereby making it, one of its biggest benefits.

Solar energy also powers individual solar powered appliances like lamps, fans and refrigerators, among others, which are typically appliances used in the house that have solar panels mounted on them or separately; Solar home systems (SHS) are a standalone solution that, at their most basic level, consists of Photovoltaic (PV) modules and a battery system that work together to provide energy to an entire residence or building, and not just individual appliances and there are also solar applications for MSMES, the country’s economic backbone—holds even greater potential.

According to the report, “MSMEs reported a 50 percent reduced monthly spend on lighting (from ₦9,406 to ₦4,738) as well as increased working hours and better yields when they went from having no access to grid supplied electricity to using solar energy solutions.”

Besides this, “The knock-on benefits are also well documented. Businesses enjoy increased productivity and efficiency, not hampered by rationing their electricity usage. Given that MSMEs report that electricity is their highest spend and one of the biggest threats to their businesses, providing them with reliable and affordable electricity is a key way to enable the growth of businesses in Nigeria.”

Solar solutions can deliver larger capacities and meet more complex energy needs, powering devices from 500w (including many small household appliances like laptops, small fridges and televisions) to 10kW which powers most heavy duty household items such as air conditioners. It is unlikely to be suitable for industrial or heavy commercial use.

Also, solar energy can power commercial structures and ventures, community and the entire country with heavy investment in mini-grids in the long-term. Although innovations, falling prices, and increasingly unattractive electricity alternatives have driven the adoption of solar in Nigeria, the country still has a long way to go. Per capita, solar capacity remains at 1Wp (watts peak)—the maximum power that can be generated from a solar panel. In Ghana and Kenya, per capita capacity is at 3Wp and 2Wp respectively.

Despite the emergence of many payment models, price remains the most significant inhibitor in the growth of the market, a symptom of other prevailing market issues. These problems can be examined by the costs tacked on at each point of the solar supply energy chain.

They include manufacturing and assembly of the products outside the country with the associated costs of importing them into the country under a high tariff regime, informal taxes and levies the importers have to pay to clear their goods, logistics and transportation challenges which makes distribution to rural areas difficult and expensive, thereby making the solar solutions even more expensive and unaffordable to many Nigerians in the long-run.

The report also noted that energy production is a capital-intensive venture that requires investment in equipment, manufacturing, distribution and financing depending on the business model, adding that this makes the ability to access sufficient and adequate funding a make-or-break factor for providers of solar solutions in Nigeria.

It listed some financial institutions providing funding for providers of solar solutions in the country to include the Federal Government, development financial institutions, specialised debt providers, strategic corporates, crowd-funding and commercial banks like Sterling Bank, among others.

By and large, Nigeria’s solar energy sector is promising and its future is very bright, especially as recent events have made Nigerians to see the unsustainability of relying on fossil fuel powered generators. However, there are important issues that are constraining the growth of the sector in Nigeria. These issues can contribute to making the end-solutions expensive and inaccessible to the majority of Nigerians.

There is a need for significant investment and intervention by stakeholders in a bid to take advantage of the $10 billion market opportunity that solar energy offers and the likely potential of building more resilient economy for the Nigerian state like its counterparts in other developed countries.

The needed interventions are the provision of appropriate funding for the business models and target market by financial institutions and investors, policy support by the Federal government to create the enabling environment as well as robust consumer education to encourage users to make informed decisions.