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Unleashing Nigeria’s Energy Potential?

Unleashing Nigeria's Energy Potential?

(Photo: Nigeria Electricity Hub)

After five quarters, Nigeria has edged out of a recession as GDP expanded by 0.55 percent in the second quarter, according to the National Bureau of Statistics. The growth is fragile, which the government concedes, and there are not many rosy predictions from experts and pundits of a trend line continuing upward.

The Economic Recovery and Growth Plan (ERGP), announced in April, could lend a potential conduit, though. “Nigeria will be on its way to sustainable growth in the medium-term if it successfully implements the ERGP,” said Gloria Joseph-Raji, Senior World Bank economist. Potential growth may be based on increased oil production, agriculture, infrastructure and additional foreign-currency reserves.

Nigeria, the continent’s most populous country with nearly 200 million citizens, is awash in energy riches: it is the continent’s largest oil producer churning out about 200,000 barrels of crude oil per day and has the second largest oil reserves in Africa of about 37 billion barrels, trailing Libya which tallies an estimated 48 billion barrels. The nation holds the largest gas reserves in Africa – ninth globally – with 180 trillion cubic feet (tcf) with Algeria second totaling 160 tcf. With such immense supply, and comparatively lower consumption levels, the nation is the fourth largest exporter of Liquefied Natural Gas (LNG) globally. The reserves present plenty of room for natural gas expansion, but rapid growth has been restricted by a lack of new infrastructure, violence and to viably capture flared gas.

Tapping the resources has left the nation saddled by the drop in oil prices and previously decreasing oil production, also partly due to militants in the oil rich southern Niger Delta forcing companies to scale back operations. The current price for a barrel of Brent crude oil sits around $55/barrel, less than half the price of $115/barrel in June 2014 (in the latest round of oil instability, the price bottomed in early 2016 to under $30/barrel). This is a tough burden to guard against as the oil and gas industry constitutes around 70 percent of Nigeria’s government revenue and over 90 percent of exports.

Nigeria’s economy has been diversifying, though, and the oil and gas industry’s contribution to its Gross Domestic Product (GDP), which was rebased in April, is actually the lowest in OPEC. The National Bureau of Statistics found the industry contributed about 10.45 percent to real GDP in the third quarter. Compared to Angola, Africa’s second largest oil producer, oil production and its supporting activities contribute about 45 percent of the nation’s GDP and in Saudi Arabia, the largest producer in all OPEC, 48 percent of GDP is accounted for by the industry. In 2016, Nigeria’s GDP grew to 405 billion USD, the largest in Africa, but with a GDP per capita of 2,178 USD in 2016, trailing Sudan’s 2,415 USD, according to the World Bank.

Millions of Nigerians Remain in the Dark

With such abundant natural gas, and geography to exploit solar, among other sources, electricity access has remained low, yet increasing the past years. Estimates still range from 75 million to nearly 100 million people not having access to electricity, and of that a disproportionate amount of those with access are located in urban areas. Where electricity is present, there is well accepted knowledge that poor service, losses and the widespread lack of reliability and consistent access is unacceptable. There is large scale use of diesel generators, which can have negative health and environmental effects, as well as increase the cost of business and local goods, to make up for the shortfalls. Furthermore, the International Energy Agency estimates that 115 million people rely on traditional biomass as their main sources of energy – mostly wood, charcoal and waste – to meet basic needs, such as cooking and heating.

The Federal Ministry of Power, Works and Housing publishes updated power data on its website frequently. As of September 19, the data displayed generation peaked at 4,518 megawatts (MW), generation capability was 6,989 MW, but distribution capacity was 4,600 MW leaving potential new power to be stranded, and peak demand forecast was 17,720 MW. In a speech September 21, Federal Minister of the aforementioned ministry, Babatunde Raji Fashola, stated generation peaked at 7,001MW. Regardless of the discrepancy in peak generation information, there is an immense gap from the peak supply and peak demand.

In order for future electricity to reach end-users, and reliably, vast investment is needed by generation companies (gencos) and distribution companies (discos) for new plants, transformers, repairs, improvements, expansion and protection against theft. Nigeria began to privatize its power industry in 2013 under President Goodluck Jonathan’s administration under the auspices of the Energy Sector Reform Act of 2005, and 60 percent share of the twelve discos are privatized, so it is vital to harness that source of capital. According to Mr. Fashola, government’s role, both federal and local, now is to implement the laws, voice policies and take actions that help the private sector play its part effectively.

Lack of electricity and energy overall can lead to unstable situations, often accompanied by higher unemployment in growing young populations. Situations similar to these have been cited as potential Boko Haram recruiting grounds. That in itself can be seen as a need to stimulate access, but, of course, is not an answer in its own to prevent the scourge of terrorism.

Infrastructure Insufficient but Investment and Possibilities Continue

The acting Director General of the Infrastructure Concession Regulatory Commission (ICRC), Mr. Chidi Izuwa, has pegged the total amount of funds required to provide quality infrastructure in Nigeria over the next six years at about 100 billion USD. Of that sum, 60 billion USD would be required for the oil and gas sector and about 20 billion USD to bring the power sector up to speed.

One such project to help overcome the electricity shortage and power sector funding is the huge 3,050 MW Mambilla hydropower project, including transmission, with a price tag of 5.8 billion USD. The project has been in discussion since the 1970s with various obstacles. A new attempt to resuscitate the project has come about with an agreement with a Chinese consortium, led by the Chinese Export-Import Bank, and approved by the Federal Executive Council, presided over by President Muhammadu Buhari. An anticipated completion date was announced for 2024. Based on the multiple efforts and the last attempt being cancelled in 2013, the question is will this deal for the ambitious project actually come to fruition and shovels in the ground. The project is also expected to help Nigeria meet its Paris climate agreement commitment.

In addition, further investment is evident with Shoreline, a Nigerian company, recently completing a 300 million USD agreement with a Shell subsidiary to develop gas infrastructure around Lagos. Shoreline wants to bring its natural gas to the growing business hub and residential communities.

Solar energy is in its infancy in Nigeria. There have been multiple utility scale solar projects moving beyond concept stage and signing power purchase agreement (PPAs), but none have yet to reach commercial operations. Starting in 2015, ten PPAs were signed by the government-owned Nigeria Bulk Electricity Trading (NBET). In sum of potential projects, more than 1,000 MW could be operational. There have been additional pledges by companies that could reach more than 4,000 MW. It is only a matter of time before solar does come online with the administration’s focus of solar energy and necessary financial structuring being negotiated.

Policy is Catching Up

The Nigeria Electricity Regulatory Commission (NERC) issued a feed-in tariff in 2015, making the market more attractive for investors. One of the aims was to stimulate more than 2,000 MW of renewable generation by 2020. As another part of the scheme, discos need to source at least 50 percent of their procurement from renewable energy. The remaining 50 percent needs to be sourced from the NBET – which needs improved financial capability itself to support the electricity market.

NERC has also issued mini-grid regulations this past August to allow people to provide their own power from 1 kilowatt-1 MW. Mini-grids can play an important role reaching those in rural communities without access to electricity. In addition, an important step taken by President Buhari in March was the formation of the Board and management of the Rural Electrification Agency to facilitate access and advocate for solar options. There are a multitude of multi-national organizations, such as the World Bank, that have mini-grid/off-grid programs in other nations with electricity shortages that could act as a multiplier with investment.

The Power Sector Recovery Program involves producing more power, reducing system losses, increasing financial viability, completion of transmission projects, increasing access to electricity and implementation of more meters.

Future Remains Bright with Right Commitment

Vast opportunity continues to lay ahead for Nigeria with its increasingly educated population, the largest internet penetration in Africa, a developing tech sector, financial structure and various entrepreneurial companies sprouting up. Appropriate further policy can lead the nation on a sustainable course of development and address many of the current pressing needs, despite political wrangling and disagreements. In addition to energy, important areas to keep a focus on will be agriculture, transport, infrastructure, education, transparency, stymying corruption and evolving technology. A solid grasp of these plus Nigerians ingenuity and passion will be a path to success with appropriate support from office holders.



Joe Gurowsky

Joe Gurowsky focuses on energy, environment, geopolitics, trade, international development and climate related issues. Recently, he worked in Kenya, Ethiopia and Tanzania regarding different energy related programs . Joe has also traveled to Costa Rica, Ghana, the UAE, Germany and Alberta, Canada for aspects of energy and environmental policy.