The collapse of oil prices could prove to be more of a boon than a bane for Nigeria. That may not be far-fetched, given that the global price dropped below $35 per barrel range last year.
Like most oil producing nations, Nigeria has not been shielded from the impact of failing prices. The economy has been shaken by devaluation of the naira currency, low employment opportunities, job cuts, inflation, and project delays in the oil and gas sector. Despite these numerous problems, a surprising number of economists and business owners see a golden opportunity for diversifying Nigeria’s economy and reforming its public finances.
“Perhaps, more attention will be paid to agriculture, gas and solid minerals,” said Kayode Omosebi, an energy and industrial analyst with United Capital Plc., a financial and investment management company based in Lagos. Omosebi says some oil companies have started diversifying into other sectors. That in turn is increasing the pressure on the government to invest in the power sector, which remains a major barrier to economic growth.
The opportunity
Demand for electricity is forecasted to grow twice as fast as total energy consumption. To meet this demand, $37bn in production and supply infrastructure needs to be invested over the next two decades, Omosebi said.
To meet this growing demand, Beacon Power Services [BPS], an energy company based in Lagos is working with commercial and industrial companies to revamp their source of energy and make it more affordable and reliable.
Sharing some insight about the power sector from their experience working locally, Vivian Nwakah, the Vice President, Business Development of Beacon Power Services noted that Nigeria currently generates about 3,454 megawatts of electricity for less than 50 percent of its 174 million population. In comparison, South Africa, which it overtook in 2014 to become the largest economy on the Africa continent, generates about 44,175 MW of electricity and delivers power to 85 percent of its 53 million population.
Although renewable energy adoption in Nigeria is still in its nascent stage, it might become a plausible solution to Nigeria’s power challenge.
Nwakah said shortage of power in Nigeria puts commercial and industrial companies in a situation where they only receive grid electricity for two to six hours per day depending on their location. “An average commercial facility in Nigeria spend over five hundred thousand naira (about $2,513) per month on diesel fuel alone to meet its power needs and remain in business. Energy is up to 40% of operating expenses for the average Nigerian business.”
“At Beacon Power, we use a data-driven approach to reduce energy costs for commercial and industrial facilities. Everything revolves around our energy management platform. We use this to provide transparency, and guide energy efficiency projects and power generation projects such as solar,” she said.
Though renewable energy projects such as Solar power, require high capital expenses to set up, the average cost in Nigeria is around $.09-$.12 per kWh, much lower than running a diesel generator. The kWh for diesel can be anywhere from .40$/kwh-.60$/kWh when you factor in wrongly sized generators, theft, and maintenance, said Vivian Nwakah, in an email interview.
Will renewable energy be the new oil?
In September 2015, Goldman Sachs, an American investment bank, warned that oil prices could fall to $20 per barrel if supply continues to exceed demand. World Energy Outlook 2015 forecasts that oil and gas investment would fall if oil surplus persists into 2016.
In the face of volatile energy input costs and as a hedge against weak oil demand in key markets, some analysts believe that more investment in the oil sector will be channeled towards renewable energy in the near future.
“The energy industry landscape is gradually shifting energy consumption from coal, oil and natural gas towards renewable energy sources,” said Omosebi. Renewable energy investment can also earn oil and gas companies more favorable political capital among climate-conscious community members and decision makers, added the United Capital’s Energy analyst.
Not enough incentive
The different sources of renewable energy in the country include hydro-power, biomass, wind and solar. An increase in investments in the sector will increase relative to the opportunity. Low oil prices alone are not sufficient to create the pressure needed to jumpstart renewable energy initiatives, Nwakah said.
During the just concluded Conference of Parties (COP 21) to the United Nations Framework Convention on Climate Change, (UNFCCC) in Paris, world leaders renewed their commitment to reduce emission of fuel fossils. While speaking on climate change and the new opportunities in the energy sector, Nigeria’s Former Minister for Finance, Dr. Ngozi Okonjo-Iweala, also noted that the solution to Nigeria’s power problem lies in off-grid initiatives that will promote sustainable development. “We have to get the private sector, we are looking at power, look at renewable energy, we are not saying renewable should be everything because Africa should have a mix. We can still use gas to some extent, but we should increase the renewable,” she said.
During COP21, Africa leaders launched African Renewable Energy Initiative (AREI) to address some of the barriers to renewable energy projects such as the lack of project financing, low availability of capital and public-private partnerships. They also pledged to increase the continent’s renewable energy capacity to generate 300 GW by 2030.
In a recent interview with Vanguard Newspaper, Dr. Akinwunmi Adesina Nigeria’s former Minister of Agriculture and President of the African Development Bank Group commended the Nigeria government for its investment in renewable energy sector.
“Nigeria is actually leading in terms of the reform in the energy sector with the unbundling of the utilities and the privatization of both power generation, power transmission and distribution. I think Nigeria should be highly commended,” he said.
Over the past decade, Nigeria has launched several initiatives to strengthen its renewable energy sector. In August 2005, the government established a renewable energy department within Nigerian National Petroleum Corporation [NNPC], the agency through which it regulates the country’s petroleum industry. The department, Renewable Energy Division (RED), was set up to coordinate the development of the Automotive Biofuels Industry in the country. In 2013, the government privatized about 18 thermal generation and distribution power firms, which initially heightened interest in the renewable energy sector, Daily Trust, a local newspaper reports.
The Nigeria government led by President Muhammadu Buhari who also serves as Petroleum Minister has a five-year plan to build the country’s renewable energy capacity through different initiatives, including a boost in solar power generation. But mere policies and initiatives without actual adaptation and investment in the sector will not yield much.
“I believe that in order for renewable energy to gain more investment there needs to be a more concerted effort between the government, private sector, and investors,” Nwakah said, adding that renewable energy needs to be incentivized by the government through subsidies, government support and an easing of the process to approve renewable energy projects.
Is Nigeria ready for in renewable energy?
Launching various renewable energy projects without the right infrastructure is like putting a cart before a horse and expecting it to run at a speed in this race for development.
“Renewable energy is not the way for Africans at this point in time. Renewable energy means put an end to the sale of your hydrocarbon, it means Nigeria should stop exporting crude oil. Africa cannot be in a haste to adopt renewable technology,” said Ben Ayade, Cross River State Governor, in an interview with the Nation newspaper.
These projects should be carried out cautiously. The right technologies, long-term investment in the research and development and other resources needed for the sector to thrive does not exist yet. Ayade said a swift shift from oil to renewable energy would be harmful to the Nigerian economy.
Beyond the challenges
Beacon Power Services [BPS] has different strategies that could address the challenge of the high cost of capital that currently limits the purchase of renewable energy projects. One of these strategies is to get Investors to provide power-purchase agreement options for Nigerian off-takers that will enable a client to pay a monthly fee for energy.
The process will allow investors to create a special purpose vehicle through which they can invest in the assurance that the client will pay their monthly payments. Speaking on the tested-and-trusted initiatives carried out by BPS in the past, Nwakah said, “Our biggest energy management project has been working with AIICO insurance.”
AIICO is one of the leading insurance companies in Nigeria, with offices spread across the country. BPS manages their multiple facilities in Lagos by providing an upgrade of electrical infrastructure, improvement of power sources, and an upgrade to energy efficient equipment and lighting.
“We are completely revamping the entire building to be energy efficient. This client is typical of all of our clients such as Kilimanjaro Restaurant, APM Terminals, Protea Hotels, IrokoTV, and Skye Bank just to name a few,” she said.
By October this year, Nigeria will host over 4,000 renewable energy power professionals and exhibiting companies from all over the world during the Nigeria Alternative Energy Expo, which is being organized by Africa Sustainable Energy Association (AFSEA), the Ministry of Power, the Renewable Energy Programme of the Ministry of Environment, in partnership with other agencies.
The volatility of the power sector creates a great opportunity for renewable energy options to continue to prosper. Entrepreneurs and business leaders like Nwakah are driven by a vision for an improved Africa. Through the impact of their work, they hope to continue to showcase possibilities in the sector until it replaces oil as the new gold—that is if it ever will. But until then, oil will remain an important source of revenue for the Nigeria economy.
