Clean energy in the policy mix

Today we turn our attention to Nigeria’s energy sector. Power shortages continue to stifle growth and are regarded as the primary drawback for operations across all company sizes. The cost of self-generation of energy is often cited as a heavy strain on the cost of doing business. Additionally, it gulps a considerable amount from household pockets. Nigeria depends heavily on gas for its energy requirements. Given the frequent gas shortages, power supply across the country is usually epileptic.

Based on the most recent data from the federal ministry of power, works and housing, peak generation was 4,283MW on Monday (last week). Its lowest generation on the same day was 2,833MW.

The FGN estimates national energy demand at 17,720MW. However, generation capacity from the national grid is only 7,518MW. In an attempt to improve this capacity, we understand that the Transmission Company of Nigeria (TCN) has secured US$1.5bn from donor agencies to finance power transmission projects across the country.

Official thinking on power is tilting towards developing alternative sources. The FGN has produced a national renewable energy action plan. It targets an energy contribution from renewables to total energy generated at 16% by 2030; with hydropower accounting for 7.1% and solar energy 5.9%.

The FGN’s proposed green bond worth N50bn should also be a positive for the renewable energy industry. It is to be project tied in collaboration with the federal ministry of the environment; renewable energy projects are to be included.

There has been some traction in ramping up solar energy across the country as a few partnerships have sprung up. One such is the Abiba 50MW solar project in Kaduna State. Access Quaint (an asset development & consultancy firm) has secured a US$1.25m convertible loan agreement for this project. This proposed plant is expected to generate electricity for about 600,000 households annually.

Furthermore, Total Nigeria recently signed a Solar Home Solution distribution agreement with Blackbit Limited. This partnership is expected to result in increased distribution of solar inverter kits in Lagos and Abuja. We assume that the solar panels within this kit will be imported rather than manufactured domestically.

There is also some forward movement in hydro-power. We understand that construction of the 3,050MW Mambilla hydroelectric plant kicked off last month. Once completed, this should result in improved productivity from SMEs.

Based on our estimates, if “full power” is attained and made routinely available to businesses and households, it could add two percentage points to annual GDP growth.

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