Exploring renewable energy options to Nigeria’s electricity, production crisis

Despite the necessity to reduce carbon footprint in the country and continent, for many businesses in Nigeria, the greater concern is how to generate adequate electricity to sustain business operations and remain a going concern. Considering the continent’s overall contribution to global greenhouse gas (GHG) emissions is already low at less than four per cent, deploying renewable energy is however necessitated by the need to reduce energy cost at a time diesel prices are bringing businesses to their knees.

Energy costs are a major contributor to the decades-high inflation numbers showing up, as prices for all manner of goods and services march higher. In Nigeria especially, diesel is considered an economic fuel, going by how embedded it is in transportation and power for homes and industrial firms.

With diesel rising above the N800 mark, many businesses have expressed concerns about available alternatives and the ripple effect on cost of goods and services, especially at a time inflation is spiking.

For a nation with poor electricity supply, the situation is dire not just for businesses but for many households.

Recently, Sterling Bank Plc and Stears Data, 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,” 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 an electrification rate of 84 percent, Kenya 70 percent, South Africa 85 percent, sub-Saharan Africa at 47 percent, India 98 percent, Europe at 100 percent, global at 90 percent and Nigeria at 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 causing the country to have the largest electricity access deficit in the world.

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 a 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.”

As the rising cost of diesel alongside poor electricity supply and lingering foreign exchange challenges takes a toll on the manufacturing sector, operators recently raised the alarm about the imminent collapse of the productive sector if the government does not provide any form of intervention.

The Manufacturers Association of Nigeria (MAN) in reaction to the current increase in the price of diesel recalled that over the years, the manufacturing sector has been battered by numerous familiar challenges that have plummeted the number of industries in Nigeria and converted industrial hubs in many parts of the country to warehouses of imported goods and event centres.

The manufacturers noted the exertion of untold hardship on the manufacturing sector leading to the closure of many industries, reduction in capacity utilization, further decline in GDP, large-scale unemployment across 76 sub-sectors and increase in crime rate.

The Association identified key challenges confronting the sector as a high operating cost environment occasioned largely by inadequate electricity supply and the high cost of alternative sources, excessive regulation and taxation, and inadequate supply of foreign exchange for importation of raw materials, spare parts and machinery that are locally available.

All these, they noted, have culminated into the lacklustre performance of the sector.

Commenting on the rising cost of diesel, Segun Ajayi-Kadiri, Director General of MAN, called for immediate removal of Value Added Tax (VAT) on Automotive Gas Oil, AGO, also called diesel as an instant stimulus for an immediate reduction in price and expedite action in reactivating or privatizing the petroleum products refineries in the country.

Ajayi-Kadiri, observed that the current increase in prices of crude oil and other refined petroleum products such diesel is one of such disruptions occasioned by external shocks that confirms the interwovenness of economies in the world.

No doubt, he said that the recent short supply and over 200 per cent increase in the price of AGO are part of the backlashes from the ongoing invasion of Ukraine by Russia.

This resulted in numerous economic sanctions on Russia by the US and EU, which propped up the price of crude oil to $120 per barrel (now moderated to about $100) as Russia oil export is isolated.

He said the association is greatly concerned about the implications of the over 200 per cent increase in the price of AGO on the Nigerian economy and the manufacturing sector, adding, “More worrisome is the deafening silence from the public sector as regards the plight of manufacturers.

“Four obvious questions that readily come to mind that are seriously begging for answers are, what can we do as a nation to strengthen our economic absorbers from external shocks? Should manufacturing companies that are already battered with multiple taxes, poor access to foreign exchange and now over 200% increase in price of diesel be advised to shut down operations? Should we fold our arms and allow the economy to slip into the valley of recession again? Is the nation well equipped to manage the resulting explosive inflation and unemployment rates?”

According to him, in the short term, the disruption occasioned by the invasion of Ukraine by Russia will continue to heavily ruffle the global energy space and upset the supply of petroleum products thereby causing a persistent increase in the price of refined petroleum products including AGO.

In its report, Sterling Bank made a case for the kind of energy that Nigeria should focus on as it diversifies its energy generation mix.

According to the bank, 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.

“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 the 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.

“By and large, Nigeria’s solar energy sector is promising and its future is very bright, especially as recent events have made Nigerians 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”.

The report emphasised the 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 a 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.