Leveraging investment in renewable energy to scale up power generation
Nigeria, Africa’s second biggest oil producer, continues to experience challenges within the power sector despite the huge outlay of funds and unprecedented reforms in the power sector.
As in most sectors of the economy, electric power sector in Nigeria continues to grapple with several challenges, from poor infrastructure, poor maintenance, unavailability of gas, poor grid and near impossibility of evacuation of power from certain points of the grid and liquidity problems in the electric power sector.
While the power sector reform is anchored on the use of gas as fuel for most of the power plants, in order to meet the needs of the country. Industry watchers are of the view that Nigeria may never achieve a sustainable power supply until it diversify her energy sources and reduce the over reliance on gas.
They insist that Nigeria need to be able to leverage on investment in huge alternative energy sources like solar, wind and coal which are in abundance in several regions of the country, stressing that by so doing, the country can create opportunities that will in turn reduce cost and improve power generation.
Report indicates that currently Nigeria depends on estimated 1.1 trillion standard cubic feet of gas per day from Escravos Lagos Pipeline System which serve as a back bone of power supply.
“Nigeria needs to look at harnessing other sources of power; we need to diversify our energy base because 70 percent concentration of gas as a major energy base is too much as it renders us vulnerable whenever there is an attack on gas trunklines said Dolapo Oni Head, Energy Research, Ecobank Development Company (EDC) Nigeria Limited.
Most countries around the world do not allow a particular source of energy to control more than 50 percent of their power output Oni observed stressing that Nigeria needs to consider the option of actually burning light crude oil in place of gas as obtainable in neighbouring Ghana.
Nigeria, with population of over 180 million people is playing catch up with $1.75 billion investment on solar energy compared to Morocco’s $9 billion investment as Morocco makes progress with $9bn solar energy investment.
While Nigeria targets 30 percent of its energy requirement from solar power by 2030 with 1,125 megawatts, Morocco is targeting 2,000 megawatts and 52 percent of its energy from solar power.
Prospect of renewable energy in Africa
Rolake Akinkugbe, Head, Energy and Natural Resources, FBNQuest in a recent article stated that the scope and availability of renewable energy resources in Africa is significant and can be deployed across grid-based, mini-grid and off-grid structures.
The total hydropower capacity in Africa is estimated at 26 GW. Small hydro accounts for around 10 percent of Africa’s total hydropower potential, and there is an estimated 4.7GW of small-hydro potential in 13 West African countries.
The continent’s total potential could be 1,750 GW. Total installed wind capacity in Africa is about 2GW, with the largest installed capacity in West Africa in Cape Verde. Egypt, Morocco and Tunisia account for 98 percent of Africa’s total installed capacity while almost 90 percent of high quality wind resources are located in the eastern, northern and southern coastal zones of Africa.
According to her, “The solar story is where Africa’s clean energy Nirvana truly lies. Solar Photovoltaic (PV) and Concentrated Solar Power (CSP) are different technologies, but Solar PV accounts for more than 95 percent of solar generation in Africa, and CSP accounts for less than 5 percent. Total installed capacity in Africa is approximately 200MW. The growth potential for both technologies is huge and public policy support for PV in Africa is emerging, even as private sector investors are increasingly taking note.
Biogas is the most important source of bio-energy in Africa, currently accounting for 94 percent of the 860MW of installed Bioenergy capacity (2012). Up to 60 percent of Africa’s potential is located in Central Africa. Biogases potential will largely hinge on trends in the sugar cane industry, though the use of alternative agricultural waste can also be attractive for biogas production.
One advantage for Africa is that is enjoys lower bio-energy feedstock costs in comparison to other world regions. Large-scale power generation from biogas only makes economic sense on large farms or in community-wide systems.
Investment option for renewable energy
The issue of funding and raising financing for renewable energy projects in the opinion of Rolake Akinkugbe is particularly challenging despite the economic dividends to be enjoyed.
She observed that while there is growing acknowledgement of the falling costs of renewable energy technologies, the upfront capital investment required to develop such projects is significant. She reveals that in Nigeria, the Nigeria Electricity Regulation Commission (NERC) in 2015 approved new feed-in-tariffs (FITs) for renewable energy in a bid to ensure a better-balanced energy mix. Under the new regime, distribution companies (DISCOs) will be required to source at least 50 percent of their total supplies from renewable energy.
Funding renewable energy technologies is also driven by a range of commercial and structural dynamics in energy markets broadly. Critical considerations are FITs which go a long way in providing investment security, as they guarantee payments to project developers for the electricity they produce.
She further opines that given the level of innovation now trailing renewable energy projects globally, it has become pertinent to develop creative funding structures too. The best models adapted today are focused on building scale around projects both in terms of the funding structures and in terms of the target assets.
Despite the evolving regulatory climate for renewable energy, many local banks may not be willing to take on risk, given capital constraints, and may require high interests, high level returns with short tenors.
“Lease-to-own and pay-as-you-go financing programs are emerging and are among the most innovative solutions to tackling costs associated with renewable energy uptake, helping to provide a usual form of ‘off-taker financing’ she said.
Wale Shonibare, managing director, Investment Banking, United Capital said that a step into achieving this aspiration should start with the introduction of the domestic gas obligation which imposes an obligation on the oil companies to assign certain percentage of the gas being produced for domestic uses.
Shonibare sees a significant opportunity for the country to use her gas domestically for power purposes. “Looking at what is going on in the industry, the future is selling our gas domestically because the international prices are in decline”, he said.
Meanwhile analysts in the energy sector are optimistic that Nigeria electricity generation output will receive a 15,000 megawatt increase once the federal government provides an enabling business environment for renewable energy take off.
KELECHI EWUZIE