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Toward a post petroleum economy for Nigeria – Part 2

By Guardian Nigeria
03 November 2020   |   1:58 am
The 1999 Constitution of Nigeria puts electricity generation, transmission, and distribution on the concurrent list. This means that states and the Federal Government are both free to design policies to promote people’s access to electricity.

The 1999 Constitution of Nigeria puts electricity generation, transmission, and distribution on the concurrent list. This means that states and the Federal Government are both free to design policies to promote people’s access to electricity. However, so far, there are no Acts of Parliament at the state and Federal Government levels for the promotion of renewable energy use in Nigeria.

As a matter of urgency, we sound a note of warning to the Nigeria state and indeed Africa governments that the oil economy is fading away and a new energy model based on non-finite resource is gaining ascendancy. This new energy model can be driven by the youths who are resourceful and technologically inclined if given the opportunity to excel and solve the Nigeria problem of lack of electricity. Some part of the Green Bond should target the youth in rural electrification design and delivery that will create green jobs and empower the youths and thus reduce poverty.

Some indicators measuring benefits of renewable energy sector over oil and gas economy are presented below. It is focusing on Nigeria and any other countries with similar contexts in the developing countries. The non-finite and zero-emission qualities of renewable energy sources make them potentially preferable to the highly environmentally destructive and harmful oil and gas.  Analysis of the costs and benefits showed that renewable energy has lower production costs.  It is also more beneficial in terms of spatial spread or reaching remote communities with mini-grid and non-grid power systems.  This contrasts the country’s electricity system that depends on capital intensive and gigantic national grid, which till date is yet to cover the entire country.  

Although the oil and gas industry derived huge financial benefits for Nigeria it is without fair appreciation of the non-financial costs to society over the long term, which the country continues to incur in different ways. Energy, in the form of electricity, cooking gas and diesel and petrol for electric-power-generators, has remained mainly an affair for a few who can afford them.  Despite the acknowledgement of renewable energy solutions, government over-dependence on oil and gas for economic growth and development as a matter of policy continues to delay progress in the development of the country’s diverse rich renewable energy resources. 

While oil and gas production is beneficial, the social and environmental costs point to the extended impact of the industry on creeks, soil, air, and mangrove forests in the communities where oil companies conduct their businesses.[5] Yet, the massive environmental and social costs such as oil spills and gas flaring, loss of biodiversity and livelihoods are sometimes irreversible. In monetary terms, the destruction including social dislocations, disharmony and violent conflicts throughout the Niger Delta is a case in point. The hydrocarbon pollution of Ogoniland is assessed by the UNEP report to cost US$1 billion in the initial five years clean up and remediation. Hence a modest budget of US$100 billion is required for the cleanup and rehabilitation of the entire Niger Delta riddled with massive pollution.   

Nigeria was in a position of relative prosperity at independence in 1960 because of its flourishing agricultural sector producing a wide range of agricultural goods from all regions in  the country, including palm oil, cocoa, groundnuts, rubber, cotton, and later coffee. In addition to agriculture, there was Tin and Manganese mining in Jos, in the North, Coal in the East, and new inputs from oil and gas from the South. Nigeria slowly declined to near economic obscurity in the 1990s. These lost opportunities could be revamped within a clean energy democracy model that promotes access to adequate supply of electricity that is directly related to promoting small and medium scale enterprises that were previously suppressed due to rentier-state economic model driven by oil.

While oil prices are falling there is an increasing high cost of producing a barrel of oil. Thus, revenue from oil and gas is shrinking and unstable for several reasons. Globally, oil and gas production is capital intensive. The cost of producing a barrel of oil in Nigeria dropped temporarily from around $30 to $23 in 2019.  As at the time of completing this report, COVID-19 induced price per barrel at the international market stood at $20.  It means that financially speaking, only $3 is coming to the government and oil companies as profit at the time.   

However, using a pre-COVID-19 price of $50 per barrel at the international market, to calculate the cost and profit accruing to the government and oil companies, the duo gets $27 after deducting $23 as cost of production per barrel. This translates into $54million from 2million barrels of oil daily. The duo gets about $19.74 billion yearly.  The projection over the next ten years is $197billion.  Further, the cost of producing oil at $23 per barrel daily amounts to a total daily cost of $46million on a daily volume of 2 million.  This in turn amounts to $16.79 billion annually. The projection for the next ten years stands at about $167.9 billion.  These figures are not sacrosanct as they are projection based on the prevailing price.

Although revenues from renewable energy are currently behind oil and gas, its projection in the next 10 years showed that it will overtake the oil and gas sector within the next decade. The financial cost of oil and gas to investors and government, in relation to alternative energy sources, such as solar, wind, small hydro, which Nigeria has been blessed with, remains low in the short term.  Profit margins, for example at producing a barrel of oil at USD23 in Nigeria, when compared with other countries such as Saudi Arabia and Russia, make the financial cost of producing a barrel of oil more expensive.  Consumers, therefore, have borne the brunt of the cost by paying more for energy.

The oil industry created employment opportunities for about 19,820 persons in the upstream and downstream sectors.  Unfortunately, this figure represents a mere 0.03 percent of a total 70 million employed in Nigeria (NEITI 2018). Revenues from oil and gas have fallen. In contrast, the renewable energy sector is capable of providing at least 200,000 skilled and unskilled jobs in Nigeria over the next ten years.  In addition, most of these jobs, especially the skilled ones will lead to poverty reduction.  For example, the skill required for the installation and maintenance of simple solar systems for small households does not require sophisticated education. 

Therefore, many poor unemployed young people in villages who lack higher educational qualifications can easily find opportunities in the sector.  In the same vein, the cost of labour in the renewable energy sector is far cheaper in the long run when compared with that of oil and gas.

One marked difference between investments in oil and gas and the renewable energy sectors is the fact that in the case of the later, consumers are co-producers in the supply and end user chain. On the other hand, investments in oil and gas remain capital intensive, inaccessible to consumers who are mainly disconnected in the production chain. Besides, the channels of shareholding, who are even foreigners in the case of multinational oil companies, alienates the locals and make return of profits overseas less beneficial to the Nigerian economy.  

At the moment, Nigeria is missing among countries with significant investment in renewable energy technologies estimated at US214 billion with China, USA, Germany, among others leading as at 2013. (6) Although there are about ten prominent solar companies in Nigeria, they are only providing supply, installation and maintenance services.  Investment in the area of manufacturing of solar equipment or technologies is urgently required to make the transition to renewable energy achievable and with greater prospects. Hence, divestment of public finance, loans and subsidies from fossil fuels to renewables should commence without delay as a matter of national policy.
Ojo is executive director, Environmental Rights Action/Friends of the Earth Nigeria.
Globally positive changes in research and development of renewable energy technologies are helping to reduce cost to consumers and investors.  Policy makers in developing countries like Nigeria however need to understand this reality and plan over the long term to make it even easier for consumers to benefit from this trend. This is currently the case in Kenya and South Africa where renewable energy development is driven from national to the local levels.
The cost of procuring a solar panel, inverter and controller, on the average is as high between N45,000 – N725,000.  It could be far higher with type and number of batteries.  It depends on individual country which in this case, remains tricky because of the bad influence of the oil and gas source as significant investment areas for investors over the past couple of years. The present high cost of purchasing and installing, for example, solar power inverter, panels and batteries in Nigeria is a limiting factor which can be overcome with more investments in the sector and support of the government.   However, the non-financial cost of solar power included health, environmental and development effects it has over the long term for the consumer which is minimal.

Ownership and control of oil and gas is mostly centralized and tending towards monopolies with transnational corporations having the largest share of control of the sector. They are often in the form of shareholders and investors that are foreigners with capital. Capital often puts profits and dividends first before people and this explains the wanton destruction of lives and property in the way of capital by multinational companies.

In contrast, an energy democracy model is a decentralised energy system allows individuals, households, street members, communities’ energy cooperatives to have the potential to share a huge segment of the ownership and control of generation of renewable energy as well as supply in what is called Prosumers. This also allows them to share in the roles and responsibilities as well as any benefits that may accrue in the people oriented venture.

In Nigeria, only a few can afford electricity from diesel and petrol generators, which are common. The focus of the Federal Government on the continuous development of oil and gas for growth and economic development springs from the huge financial benefits this brings to the government.   This policy direction, as laudable and enviable as it is not dealing satisfactorily with the issue of energy at home. 

Nigeria’s lack of political will to make a commitment for a post petroleum economy is demonstrated by its current investment of millions of dollars exploring for oil. In particular, the Nigerian National Petroleum Corporation (NNPC) recent discovery of crude oil in the Gongola Basin in northern Nigeria might only help to continue the oil-dependence rather than leaving the oil in the soil to avoid hydrocarbon pollution and potential carbon footprints. Such money invested in the oil and gas should be divested and invested in renewable energy sector.

Hence, in spite of the acknowledgement of renewable energy solutions in Nigeria, the government’s persistent over-dependence on oil and gas for economic growth and development continues to delay progress in the development of the country’s diverse and rich renewable energy resources. The mere acknowledgement of the contribution of renewable energy to addressing existing energy deficiency in the country while continuing to promote oil and gas development cannot stir a transition to renewable energy in Nigeria.

Renewable energy sources have many undeniable benefits in meeting the energy needs of Nigeria, supporting development and helping to address the current climate crisis and ecological issues in the immediate environment. The transition faces a number of challenges, including increasing interest of the federal government in the development of oil and gas and the lack of political will.

This research recommends as follows: Diversify national energy sources to encourage state and non-state actors, including NGOs and energy cooperatives, to develop mini-grid and off-grid solar energy systems to promote greater energy access by all. Government must put an end to fossil fuel development and show commitment for renewable energy options and grow to become the renewable energy hub for (West) Africa. They must also halt investments in oil and gas sector and channel public finance, loans and subsidies from oil and gas sector and divestment of such funds to renewable energy sector. In particular, Nigeria’s Green Bond, and the Bank of Industry should support and step up investments to individuals and Community Energy Cooperatives in the renewable energy sector. The administration would do well to encourage the renewable energy sector through subsidies, grants, and tax holidays including elimination or reduction of the Value Added Tax (VAT) from the current level of 7.5% as a crucial step to encouraging the transition, and demonstrate political will and reduce corruption for renewable energy to thrive in Nigeria. Renewable energy technologies and climate change in the school curriculum to empower the youths and make them solutions to the national energy poverty must be factored in as well.  

Civil Society groups must increase advocacy and policy engagement with the government to embrace renewable energy and take action to put an end to oil and gas development.  CSOs must encourage a national renewable energy policy that recognizes state and non-state actors in a decentralised energy production system as crucial for realizing the country’s existing huge gaps in citizens’ access to electricity. They must demand federal, state and local governments’ involvement in the provision of mini-grids and off-grids solar systems and other renewable energy options and conduct practical demonstrations and cluster community energy projects in the communities to promote access to cleaner energies

Our Communities should set up Community Energy Cooperatives in communities and raise awareness raising on renewable energy options, and take advantage of the decentralised energy system production and supply by investment and control in renewable energy systems in collaboration with NGOs.

Some challenges are facing the transition to renewable energy solutions.  This is why action is needed on the part of the government, civil society and the communities to make the transition possible. For example, government intervention through subsidies, grants, and tax holidays are crucial steps to achieving the transition. Apart from dealing with the problem of political will and corruption in government establishments, Nigeria’s Bank of Industry should step up support and investments in the renewable energy sector.

The lack of a timely shift to renewable energy sources development in Nigeria means that the country is being left behind in the new global energy transition.   The country may pay a huge price of becoming a dumping ground for cleaner technologies and products.  Nigeria can quickly become the renewable energy hub of West Africa if it makes the right investment on human capital development with our youths at the driving seat of sustainable development and in the generation of green jobs that are far more rewarding with high employment absorption than oil and gas.
Ojo is executive director, Environmental Rights Action/Friends of the Earth Nigeria.


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