Cutting manufacturing costs with renewable energy solutions

With the impact of energy costs on the productive sector becoming unbearable, exploring clean, sustainable alternative energy source has become attractive to operators in the value-chain industry, especially if they hope to remain competitive in the global market.

Indeed, estimates from the Manufacturers Association of Nigeria (MAN) showed that operators spent about N63 billion on providing alternative power to their production plants in the first half of 2016, with collated data for the second half showing a triple-fold rise in the figure due to higher energy costs within the period.

According to operators, such huge costs are not sustainable for businesses considering the operating environment where locally produced goods have to compete with imported and smuggled products.

Making a case for renewable energy in industrialisation plan, former Director General, United Nations Industrial Development Organisation (UNIDO), and former United Nations Under-Secretary General and the Special Representative of the Secretary General on Sustainable Energy for All, Dr Kandeh Yumkella, stated that Nigeria had in time past missed several revolutions that could enhance economic prosperity.

According to him, having missed the industrial, agric and information Technology revolution, Nigeria cannot afford to miss the green energy revolution considering the gaps unmet in terms of energy demand.

He explained that many countries are already developing products and machinery that can work efficiently using direct current (DC) unlike the alternate current (AC) devices presently depending on the national grid or other alternative sources like gas and fossil energy.

While the cost of energy for manufacturers had risen from N25 billion in 2014 to N58.82 billion in 2015 and further in 2016, operators explained that power takes up between 30 and 40 per cent of total expenditure, especially now that there are other challenges like the foreign exchange.

The MAN report showed that manufacturers are now resorting to the use of energy purifiers and boosters such as UPS and Inverters to boost the poor quality of electricity supply by the electricity distribution companies.

Similarly, power outages on daily average of electricity supply from DISCOs remained stagnant at six times per day across MAN industrial zones just as was recorded in 2016.

Manufacturers use mostly gas and Low-Pour Fuel Oil (LPFO) to power their operations, but gas is cheaper, though its supply has been irregular.

Also, the operators spend $8 each per square metre of gas, which is now expensive on the back of dollar scarcity, while small and medium manufacturers use diesel and fuel to power their generators.

To address these challenges and further increase access to clean, cheap and reliable electricity to customers on and off the national grid, the Bank of Industry (BoI) has unveiled its N1 billion Solar Energy Fund for Micro Small and Medium Enterprises in the country.

The Acting Managing Director/ Chief Executive Officer, BoI, Waheed Olagunju, who made the announcement in Lagos, said it was important to support the provision of sustainable and reliable energy for the MSMEs.

Indeed, the bank had in 2015, commenced with the provision of long-term financing for the installation of off-grid solar home systems in six communities in a pilot phase, as part of its Renewable Energy Partnership with the United Nations Development Programme.

This, he explained, was why the BoI decided to provide the Solar Energy Fund to the MSMEs.According to him, the BoI is already playing an active role in lighting up and powering Nigeria through the provision of solar energy solutions for rural communities, having successfully deployed solar solutions worth N240 million in six off-grid communities in Niger, Osun, Gombe, Anambra, Edo and Kaduna states, under its pilot scheme.

He said: “These communities with an average of 200 homes each previously had no access to electricity, but since the provision of clean, reliable and sustainable solar electricity, the lives of the indigenes of these communities have changed significantly.”

Olagunju explained that the provision of solar electricity in the communities had reduced energy costs, created more micro businesses, improved healthcare and quality of education, and generally provided a new lease of life for indigenes of the otherwise unserved communities.

He said: “This initiative is being replicated in other rural communities in collaboration with our development partners, United Nations Development Programme and relevant state governments, and it is now being scaled up to provide energy for the MSMEs across the country, commencing with the N1 billion Solar Energy Fund.”

He said the BoI, being a Development Finance Institution, was able to come up with highly concessional funding solutions with interest rate as low as seven per cent and equally flexible terms and conditions.

“This also explains why the BoI is able to partner with the UNDP under which we are able to access increased level of financial support that peaked at $1.2 million last year. Blending the grant with the BoI’s debt financing enables us to charge low interest rate,” Olagunju added.

He explained that the projects would be implemented in collaboration with eight solar energy project developers, who had been carefully selected through a competitive and transparent process.

“They will be responsible for implementing the solar projects by providing the MSMEs with solar solutions using appropriate business models,” he added.

Across the globe, manufacturers are increasingly developing new ways of using renewable energy to strengthen clean energy competitiveness in various industries.

Stakeholders believe the manufacturing industry must increase its energy efficiency and reduce the energy utilization of its processes in order to be competitive, while reducing fossil fuel use and greenhouse gas emissions.