Renewable energy options for embedded generation

Nigeria has a lot of opportunities for growth in renewable energy. With a population of at least 170 million and installed grid electricity capacity of less than 4,000MW, most Nigerians have no access to electricity and those that do, have no access to stable, high quality electricity. That greatly impedes manufacturing, amongst other problems, and consequently, growth in GDP. It also implies that many Nigerians have a lower quality of living.

Nigeria currently requires 100,000MW of electricity to become an industrialized nation according to energy analysts. Fixing the current gas shortages in the system would raise electricity supply by only 2,000MW from about 4,000MW to 6,000MW alone.

Moreover, only 40 percent of the population is connected to the grid; 85 percent of urban areas are connected and approximately 30 percent of rural areas are connected.That leaves greater scope for innovative opportunities to fill in the gap. All these “problems” imply that the entire power landscape is Greenfield and presents opportunities for growth, especially in a more innovative and forward-thinking manner.

Presently, Nigeria has the installed capacity to generate 2100MW from hydro, which is the only renewable source Nigeria has installed to supply the commercial grid. Hydropower represents 20.9 percent, as at January 2011, of Nigeria’s generation according to data from Trading Economics.

However, as the former Minister of Power and the CEOs of Discos have pointed out, these facilities are obsolete and reliable. Many of the equipments at the Kainji, Shiroro and Jebba hydro facilities are outdated.

In Nigeria, the generating source was first coal, then hydro and now gas. Gas has been touted as the cheapest option and easiest given Nigeria’s abundant oil and gas assets. However, the Nigerian government has established price controls to keep a cap on gas prices, making gas prices artificially low, creating the market imperfection and negative externalities.

Furthermore, in light of pipeline vandalism and significant cost implications, there are benefits to making the switch to renewable, especially in embedded generation.

The Levelized Cost of Energy (LCOE) is the price (per kWh) for generated electricity that makes the net present value of the installation zero. It is a measure of the cost of ownership of the plant that takes into account the capital costs, operating costs, cost of capital, capacity factor, generated electricity as well as the timing of all flows.

Looking at the 2012 LCOE issued by the International Renewable Energy Agency (IRENA) based on actual renewable energy projects and assuming a uniform cost of capital at 10%, many renewable energy options are proving to be competitive due to improving technology and lower cost of parts. For on-shore wind power, the cost of electricity ranges from $0.08 kWh to $0.12 kWh depending on location. Offshore is a bit more expensive ranging from $0.15-$0.23 Kwh.

Research by Olayinka Ohunakin et al published in the International Journal of Energy and Environmental Engineering showed that the cost of electricity production per kilowatt hour in Kano is estimated as US$0.0238/kWh and US $0.0182/kWh with Vestas V80-2 MW model at 67-m hub heights respectively. This represents an extremely low cost of producing electricity.

Geothermal power has one of the lowest cost of electricity among renewables, with an LCOE range from $0.09kWh to $0.14kWh. Biomass is the lowest according to IRENA, depending on the system designed, with LCOE ranging from $0.05Kwh to $0.29Kwh.

With solar power, energy analysts have said in the past that if Nigeria devotes 1 percent of its land for solar PV modules, an estimated 1850 x103 GWh of solar electricity would be generated per year, which is more than 100 times the current grid electricity consumption level in Nigeria. IRENA estimates Concentrating Solar Power (CSR) in areas with excellent solar resources to cost $0.14kWh-$0.18kWh. Solar Photovoltaics have LCOE ranges between $0.15-$0.31 kWh depending on the region.

According to the Nigerian Electricity Regulatory Commission (NERC), the average cost of delivering one unit (kilowatt-hour or kWh) of electric energy to each customer is =N=22. That is $0.14 kWh at the exchange rate of N155.73 for $1. That places many renewable energy options competitively with local gas generation, even with the artificially low cost of gas given the government’s cap on gas prices.

Renewables are gaining traction globally. Within the next three years, renewable power could surpass natural gas as the second most prevalent source of electricity generation globally, behind only coal, according to a new forecast by the International Energy Agency.

While development of new renewable energy technologies continues to be driven by Organisation for Economic Co-operation and Development (OECD) countries, demand is accelerating fastest in emerging markets. On its own, China is expected to account for nearly 40 percent of all expected global growth in renewables, followed by Brazil, India and South Africa. Nigeria can easily join this map, given its abundant resources and favourable policies.

Apart from the lower costs highlighted above, there are qualitative benefits of switching to renewable. The first is the relatively readily-available technical and financial backing from credible partners.

Recently, the Head of Energy and Environment Desk of the Delegation of German Industry and Commerce in Nigeria, Baerbel Freyer, stated that the German government would be willing to transfer technical know-how to key players in the Nigerian power, as they are eager to collaborate with Nigeria on the various alternative sources of power generation. She further pointed out that “in the long run, this power shortage can only be overcome with using renewable energies”.

Financially, several agencies have pledged support to developing renewables in the Nigerian power mix.The European Union (EU) and its ally, German Agency for International Co-operation (GIZ) pledged a N3.4bn donation to the Nigerian Energy Support Programme (NESP), which is aimed at improving energy access, with focus on the renewable energy option.

The World Bank also approved a Country Partnership Strategy (CPS) for Nigeria which would increase its development assistance to Nigeria for job creation, social service delivery and governance to about $2 billion per year through the International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD) financing window.

World Bank task team leader for the CPS Indira Konjhodzic said: “The bulk of the financing programme will focus on increasing installed power generation and transmission capacity and improving the efficiency and governance of electricity delivery.” There is also the political will from the government. Nigeria’s Vice President, Arc Namadi Sambo has said that Nigeria will fully utilise its abundant renewable energy resources to enhance electricity supply across the country. The Vice President noted that the global trend in power generation is an efficient utilisation of renewable energy, particularly solar, which Nigeria had in abundance.

Additionally, the Chairman of NERC, Dr. Sam Amadi, explained that the commission has proposed incentives such as a guaranteed market for renewable energy supplies, simplified licensing process, access to land and most importantly a robust feed-in- tariff that is enough to allow for operators to recover costs over a period of time.

“In order to promote investment in the area of renewable energy, NERC had the feed-in-tariff which is designed to enable producers of renewable energy sell their power to the grid at considerably higher prices than those of conventional means such as gas, hydro or coal powered plants,” Amadi said.

In conclusion, as Nigeria tries to catch up to meet current electricity demand and lays plans for future demand, renewables offer pollution-free, diversified supply. As the data from IRENA show, the markets themselves have rendered renewables cost-competitive.