Stable Electricity Still a Decade Away for Nigeria

Stable Electricity Still a Decade Away for Nigeria

By: Toyin Dawodu, MBA, Capital Energy Resources. Toyin@capvestgroup.com

If you are eagerly anticipating the arrival of stable electricity in Nigeria, “Goodluck.” A consistent source of electricity for Nigeria as a whole is not expected to arrive any time soon. The same goes for businesses, manufacturers and banks, which are known to spend as much as 30-40% of their revenue on diesel. The latest study may prove that stable electricity is still years away.

In a recent television interview on Sahara TV, Nigerian Minister of Power, Prof. Bart Nnaji said, "Nigeria currently generates 4,500 megawatts of power, and it will take 3-4 years to achieve the 20,000 - 30,000 megawatts of power that Nigeria needs.”  For Prof. Nnaji, it took his private company, Geometric, four years to build 283 megawatts of power for its Aba plant and Aba is yet waiting to generate electricity. Given the typical timeline for power projects in Nigeria, it is likely that it will be another 5 to 10 years before the Nigerian government is able to implement a plan that will provide residents with some semblance of consistent electrical power.

Dr. Sam Amadi, Chairman of Nigeria’s Electricity Regulatory Commission (NERC) warns that “Nigeria loses 40-50% of the power it generates during transmission and if Nigeria were to generate an extra 1,000 megawatts today, it has no way of transmitting the extra megawatts because the current transmission lines are not adequate.”

The Power Minister's projection of achieving stable electricity in the next 3 to 4 years may be overly optimistic considering there is still the need for new or updated transmission lines according to Dr. Amadi. If it takes five or ten years to stabilize electricity, Nigerian businesses have to rely on expensive imported diesel generators to power their lives and businesses. 

The Finance and Coordinating Minister for the economy, Dr. Ngozi Okonjo-Iweala submits that Nigeria’s power is heavily subsidized and investors want tariffs to match the cost of producing power. The resources required for the construction of a power plant that produces 100MW or more are simply not available at the present time.  Efforts on centralized power have only given Nigeria 3000-4,500 megawatts in the last three decades.

Currently, the antiquated practice of building large centralized plants designed to transmit power have been in existence since the sixties. Today, distributive generation - generating power when and where it is needed and in smaller units – offers a better solution.

Another factor that affects immediate use of large power plants in Nigeria is the lack of sufficient gas pipeline infrastructure to transport the natural gas needed to power these huge plants. As well, building large captive plants may not present an easy solution. According to Nick Rouse of Frontier Market Funding Managers, even when it comes to large captive customers, it is difficult to secure a gas supply that would be within close proximity to the commercial entity to be served. Then there is the challenge of coordinating a group of creditworthy industrial clients who are willing to sign up for long-term power purchase agreements. “Particularly in relation to the latter,” says Rouse, “there is a real chicken and egg situation. Commercial entities will not engage with someone who is not credible and to be credible you need to have a proven model.”

Most investors that are planning to enter the Nigerian market are accustomed to funding huge projects where systems are already in place providing a more concrete guarantee that the investment will offer a return. In Nigeria, however, no one has been able to offer a solution to the issues of creditworthiness and profitability.  This includes the World Bank and other multilateral institutions. Investors remain unwilling to invest in Nigeria as long the government insists on setting tariffs that are below the cost of generation.  

Given Nigeria’s history of underperformance and corruption, and its current lack of systems, the country would benefit from creating an environment that is more conducive to the implementation of distributive generation.  Smart companies are embracing technologies that deliver power efficiently and at fifty to sixty percent less than the cost of imported diesel. Rather than rely on diesel generators, Nigerians can generate electricity at a cheaper rate on smaller micro turbines that run on clean-burning LPG that is produced in abundance locally.

 
Nigeria spends 15% of its annual budget on importing diesel and Nigerians own some 60 million generators that are fueled every single day using the wrong fuel, a fuel that indirectly exports jobs and subsidizes other countries. Distributive generation can save the country billions of Naira in wasted foreign exchange, diversify and grow the economy, and create millions of jobs. The solution is to embrace technology and utilize locally-produced fuel that is mobile and cheaper.

Toyin Dawodu, MBA, is the CEO of Capital Energy Resources currently testing alternative and clean energy generation in Nigeria. Toyin@capvestgroup.com