Renewable Energy in Nigeria, features & options (Pt 2)
In the last edition, I, together with my friends, Chike Mogo and Okpanachi Adaji (both of Lubari Power), began looking at Nigeria’s renewable energy options, features, challenges and opportunities as the federal government of Nigeria seeks to have a more robust energy mix.
is our view that in spite of Nigeria’s substantial renewable energy resources (solar and wind power potential in particular), efforts to disseminate renewable energy technologies (RETs) are yet to gain sufficient traction. We also believe that, RETs, if properly harnessed, could meet a sizeable portion of energy demand from the agricultural, industrial, transport and commercial sub-sectors of the Nigerian economy.
As things stand, almost the entirety of Nigeria’s current 4,500 MW generation capacity is skewed to hydro or thermal (particularly methane) feedstock. RETs, however, continue to gain greater utilization in manufacturing and the global energy mix. Insufficient policy support and uncertain policy environments affect the investment prospects in the Nigerian power market. Where the enabling environment is created through bespoke, yet robust policies, RETs have the potential of providing profitable, environmentally sound technology options for Nigeria’s electricity industry.
In addition, renewables can be modularized (can be expanded incrementally) and are well suited for meeting decentralized rural energy demand. Most renewable energy technologies are labor-intensive: utilize locally available resources and expertise, and would, therefore, provide employment opportunities for the locals.
It appears that there is no template
or industry Power Purchase Agreement (PPA) for renewable power.
Disablers to the successful implementation of RETs
Nigeria’s renewable energy resource potential has not been fully exploited, mainly due to the limited policy interest/commitment and low investment levels. The success of RETs in the country has been limited by a collage of factors which include: poor institutional framework and infrastructure; inadequate RET planning policies; pricing distortions which have placed renewable energy at a disadvantage; high start-up capital costs; weak dissemination strategies; lack of skilled manpower; poor baseline data; and, weak maintenance service and infrastructure etc.
The following policy alternatives could significantly contribute to wide-scale development and deployment of RETs in the country.
Some Serious Concerns Developers’ Concerns
It appears that there is no template or industry Power Purchase Agreement (PPA) for renewable power. In fact, would-be developers claim that they have not seen a renewables PPA since the draft electric power sector template PPA was first issued in the year 2009. Therefore, many would-be investors do not have any vision on the PPA workings or how the Multi Year Tariff Order (“MYTO”) will be reflected in the PPA, apart from knowing what the MYTO energy tariff is.
New Directions that need to be Re-thought
There are several new regulations, procedures etc. in the power sector by the regulators and some other bodies that are, indeed, very good ideas, but just can’t work at the moment and may discourage serious investors looking to immediately invest in Nigeria’s power sector- particularly, renewable energy. Some of these include the procurement guidelines which now require almost everyone looking to get a licence to first go through a bid process. Now, in practice, anyone looking to obtain a generation licence from NERC (particularly where it is grid licence) is required to obtain a PPA Letter of Intent (“LOI”) from the Bulk Trader (or a distribution company), prior to being licensed. The Bulk Trader, on the other hand, wants to see funding commitments prior to the LOI. Investors, nonetheless, will not want to make any real commitments until they have a license and PPA LOI in place.
Therefore, although the foregoing policy is generally a good policy where we are near sufficiency of electric power supply in Nigeria; however, for now, it appears like a policy borrowed from the West or South Africa but which Nigeria is not quite ripe for.
Really, if that is to be adopted at all, there should be some flexibility in the space, so that a lot of good renewable projects do not die at the office of the Bulk Trader and NERC.
Another challenge, in my view, is the push by the regulators, for extreme local content regulations when we are not yet even starters, as far as the power sector is concerned. There is really little or no capacity in Nigeria, to deal with several of the electric power sector issues such that it becomes laughable where we begin to try to implement stringent local content policies. I believe the right thing to do is first develop competency and capability before speaking to local content issues or rules. Otherwise, it would amount to putting the cart before the horse.
Policy Barriers
creation of an enabling environment- through clear and workable official government policy commitments- is an important factor in encouraging private sector investments for the development and deployment of RETs.
In the absence of clear guidelines, RETs projects will share no linkage to the national energy plan, offering lesser opportunities for synergy. These projects will be relegated outside of government structure and fiscal support from policy-makers (e.g. low budgetary allocations). As a result, private sector solely assumes the development costs of these RETs projects.
RETs projects are unlikely to record tangible developments without supportive clear and long-term government policies with clear political and governmental support and not mere lip service.
Financial Barriers
Absence of low-cost, long term financing has proven to be a major obstacle to the implementation of renewable energy projects in Nigeria. RETs have high cost electrical components which render the technology unaffordable to most Nigerian households.
Government and private sector must therefore, jointly develop creative financing mechanisms/models (such as government incentives to industry players and financing institutions, including short term subsidies), to provide these technologies at affordable rates without adversely affecting project economics/feasibility. Examples of such could include fossil fuel tax (carbon tax) to credit renewable energy schemes such as was recommended at the World Summit on Sustainable Development as far back as the year 2002. For more information on the power sector, read the text, the “Nigerian Electric Power Sector: Policy. Law. Negotiation Strategy. Business by Ayodele Oni”.
Ayodele Oni
Ayodele Oni (ayodeleoni@outlook.com), a solicitor specializes in international energy (oil, gas & power) investment law and has a mini MBA in power & electricity. You can follow me on twitter @ayodelegoni.