For Nigeria to achieve a smooth industrial take-off, power shortages need to be addressed as they remain a primary challenge for businesses across the country. We understand that at least 40% of most manufacturers’ operating costs is allocated to self-generation of energy. Additionally, it gulps a considerable amount from household pockets. Based on our estimates, if “full power” was attained and made routinely available to businesses and households, it could add two percentage points to annual growth.
The FGN estimates national energy demand at 20,550 megawatts (MW). However, the generation capacity from the national grid is only 7,993MW. Based on the most recent data from the federal ministry of power, works and housing, peak generation was 4,765MW on Monday (this week). Its lowest generation on the same day was 3,653MW.
There has been growing interest around off-grid solutions. Official thinking on power now includes developing alternative energy sources. Based on data from the Rural Electrification Agency, utilisation of mini-grids and solar PV systems would cost US$9.2bn/year compared with the current estimate of US$14bn/year from self-generation via diesel generators.
Through the Nigerian Energy Support Programme (a EUR25m technical assistance programme launched to promote investments in renewable energy), the FGN, in collaboration with the EU, will commence the construction of solar-powered mini-grids to improve electricity supply to residents of five states, namely: Ogun, Niger, Plateau, Sokoto and Cross River. Already, an 80 kilo watt peak (kWp) solar mini-grid has been completed in Sokoto State and is expected to benefit at least 4,000 residents within the state.
We also note that there has been some forward movement in hydro-power. The construction of the 3,050MW Mambilla hydroelectric plant is expected to kick off this year; the financing was disclosed in August 2017, with Chinese lenders committing to 85% of the total project cost. The plant will be built by the China Civil Engineering Corporation over a five-year period. Once completed, this should result in improved productivity from SMEs.
The FGN recently issued its first sovereign green bond to raise N10.7bn. The issue was well received by investors, with an oversubscription of N101m. It is to be project-tied in collaboration with the federal ministry of the environment; renewable energy projects are to be included.
Given that gas pipelines and assets are susceptible to attacks, the FGN’s steps towards diversifying the country’s energy sources are laudable. We note that the FGN targets 30% of national energy to come from renewables by 2030.