Today we turn our attention to Nigeria’s power sector. The cost of self-generation weighs heavily on operational costs for businesses. Industry sources suggest that businesses suffer an average monthly power outage of 239 hours (equivalent to two weeks). Therefore, self-generation and the associated cost are unavoidable, depleting profit margins of businesses. The FGN currently estimates national energy demand at c.22, 000 megawatts (MW). Meanwhile, power generation capacity from the grid stands at c.7,000MW while distribution capacity is still c.5,000MW.
- According to the Rural Electrification Agency, N5trn is expended yearly on importing, fuelling and maintaining generators by businesses across the country.
- In March, power generation suffered some setback due to gas supply shortage; gas supply declined to 17.5 million standard cubic feet (mmscf) compared with 21.5mmscf in February.
- Aside from gas shortages, the sector suffers from poor liquidity across its value chain. This is partly linked to non-reflective cost tariffs as well as commercial losses aggravated by consumers’ apathy to making payment. As at end-December 2018, DISCOs had collectively paid only 28% of their N1.08trn debt to the Nigerian Bulk Electricity Trading Plc (NBET).
Energy generation, 2018 (MW)
Sources: Federal Ministry of Power, Works and Housing; FBNQuest Capital Research
- There is growing interest around off-grid solutions. We understand that Borno State has unveiled a solar panel factory with the capacity to produce 40 Megawatts (MW) of panels annually. The goal is to achieve self-sufficient power generation over the next three years as Borno requires about 120MW to 150MW to power its industrial drive.
- A better energy mix would reduce operating costs for businesses and boost productivity. The manufacturing sector grew by 2.4% y/y in Q4 2018.