Solving energy jigsaw in Nigeria’s manufacturing sector
This is not the best time for manufacturers. It is also not the worst time. But in between the best and the worst times are numerous age-old challenges that have refused to go. One of these problems is the energy challenge, which is gulping 30 to 40 percent of manufacturers’ expenditure.
Energy spend in Nigeria’s manufacturing sector has continued to rise rapidly, owing to incessant power outages experienced not just in industrial clusters but also across the country. Between the first six months (H1) of 2015 and H1 of 2017, manufacturers’ energy expenditure jumped 125 percent, from N29.34 billion to N66.03 billion.
In the whole of 2015, total energy expenditure by members of MAN was estimated at N59 billion. This figure leaped 121 percent to N129.95 billion in the whole of 2016.
While N66.99 billion was expended by manufacturers in the first half (H1) of 2016, N62.96 was spent by this group in the second half (H2).
Also, manufacturers spent N66.03 billion in H1 of 2017. The second half of 2017 is yet to be released and there are indications that the amount may be higher than that of 2016.
It must be noted that energy spend here involves manufacturers’ expenditure on alternative energy sources such as gas, diesel, inverters, and UPS, among others.
Amid this challenge, manufacturers have founded the MAN Power Development Company and have already had an agreement with a number of firms, including Tower Energy Solution & Systems Limited, and Negris Group, among others, for the supply of power to various industrial clusters. This happened because manufacturers lost hope in power distribution companies (DisCos).
However successful this measure is and can be, the fact remains that cost of providing energy by these private firms is still considered high by some manufacturers. Again, the energy provided by these private firms is still from the failing DisCos, making the situation dicey. However, as pointed out by Ibrahim Usman, chairman of MAN Power Development Company Limited, the group would seek renewable energy support in other parts of the country where there is no gas.
Nevertheless, the fact is that renewable energy is becoming a reliable alternative energy solution for manufacturers across the world.
In September 2017, a report by David Gardiner and Associates, a strategic advisor to organisations seeking a sustainable future, reviewed 160 of the largest global manufacturing firms in the United States. According to the report, entitled, ‘The Growing Demand for Renewable Energy Among Major US and Global Manufacturers’, 25 percent of manufacturers, including General Motors, Anheuser-Busch InBev, and Mars, have renewable energy targets while 83 percent have greenhouse gas reduction goals.
The report says that renewable energy, particularly wind and solar, is now among the cheapest and cleanest generation resources, stating that manufacturers are pursuing that type of energy to help reduce costs.
As reported by Alyssa Danigelis of energymanagertoday.com, of the 160 companies surveyed, 18 have 100 percent renewable energy targets.
Even though some may dismiss this as an American example, the fact remains that this is happening across the world and manufacturing concerns world over are working towards being energy efficient.
One key reason why China is competing with the rest of the world is its renewable energy potency. Apple announced late last month that three more of its suppliers— Sunwoda, Compal and Biel— in China would use 100 percent renewable energy in manufacturing its products by the end of 2018.
More than costs, many manufacturers are using renewable energy because they want to reduce CO2 emissions.
Johnson & Johnson, NIKE, Inc., Procter & Gamble, and Steelcase, among others, fall into this category. These firms have pledged to source 100 percent of their electricity from renewable energy. But the reason is not just to reduce CO2 emissions but also to cut costs.
Across the world, costs of solar and wind have continued to crash and the challenge of storage capacity is continually diminishing.
The International Energy Agency predicts that renewable energy will comprise 40 percent of global power generation by 2040.
Nigeria has an advantage over the US, China and many countries in Europe, in that it is located in the sub-Saharan Africa where sunshine and wind are not in short supply. More so, solar panels are becoming increasingly cheaper, though reduction in cost will be determined by how much number Nigerian businesses and homes can buy.
The fact remains that renewable energy is an option for Nigerian manufacturers. They can migrate little by little, like their counterpart—Lafarge Africa—which has at one point deployed biomass as source of energy.
“Renewable energy is our low-hanging fruit in Nigeria. Already, we power 45 businesses through solar energy, and many businesses are increasingly expressing interest,” Ovoke Ekrebe, co-founder of Vanpeux Global Synergy, said.
Though coal is a non-renewable energy, it is also another source that can keep manufacturers away from gas and diesel. Amid gas crisis in 2016, Aliko Dangote, president of Dangote Group and Africa’s richest man, urged large corporations and multinationals to explore the coal option, having himself been developing this energy source. Coal is affordable and easy to burn, experts say.
“Coal is cheap, and government has given a lot of incentives on coal exploration. Virtually everything is zero,” Dangote said during a presidential dialogue organised by the Lagos Chamber of Commerce and Industry (LCCI).
Hence, manufacturers must begin to look at the possibility of diversifying energy sources. This may look expensive in the short-term but cheap in the long-run, say analysts.
ODINAKA ANUDU