At year-end 2016, Nigeria had installed electricity capacity of 12.8GW, of which 15.42% was large hydro, 0.5% small hydro and 84.1% fossil fuels. Only 7.5GW of the installed capacity is actually available; and from that base, around 4GW are technically available on average throughout the year. The government is currently trying to create an enabling environment which will lead to an increase of grid capacity.
With 1.4GW of utility-scale solar PPAs signed and targets for 8.1GW of small-scale solar, Nigeria is not lacking in solar ambition. Our discussions with a diverse range of start-ups and established players as part of the country’s first conference dedicated solely to solar energy indicate that the ambition will not translate into facts unless default risks and currency convertibility are overcome.
Nigeria intends to have a generating capacity of 30GW of power by 2030, of which 30% is expected to come from Renewable Energy. This is the new official energy target for Nigeria, as specified in their new Nigeria Vision 30-30-30 energy target policy. Additionally, by 2030, Nigeria plans to have 5.3GW of mini-grids and 2.8GW of solar home systems, up from 1MW and 30MW in 2015, respectively. Self-generation, usually in the form of diesel, currently meets 77% of the nation’s demand. The government wants to reduce this from 13.8GW to 5GW between 2015 and 2030.
In 2016, 14 solar utility projects totaling 1.4GW signed PPAs, but the Nigerian Bulk Electricity Trader (NBET), is still waiting for the put call option agreement (PCOAs) to be signed. This agreement serves as a guarantee for the debt component in the case of default of either the IPP or NBET. Given these are international loans, lenders want to be paid in U.S. dollars and not Nigerian naira. The dispute continues. The tariff will remain at 11.5 cent/kW according to NBET. As of April 2017 only two developers have signed the PCOA and are therefore likely to reach financial close fairly soon.
Due to the restrictions on foreign currency by the Central Bank of Nigeria (CBN), international developers/lenders are worried about investing their money in the Nigerian power sector. Whether denominated in USD or not, energy tariffs in Nigeria are paid in Nigerian naira, so if lenders want to convert large amounts of naira into U.S. dollars for example, they may have to wait. During that time the naira can weaken, eating into or even destroying any profits. As a result, the market is dominated mostly by local players who are more comfortable with owning naira.
Stakeholders in the sector in Nigeria welcome the new regulation for a market that holds tremendous potential due to the poor grid quality, but is relatively new in Nigeria. Nigeria aims to generate 180MW of power from mini-grids by 2020 and 5.3GW by 2030. The hope is that the regulation approved earlier this year will enable investors to enter the market. The rules apply to all mini-grids between 100kW and 1MW, with smaller assets remaining unregulated. Any mini-grid in this range will have to obtain a permit if the distribution companies decide to electrify the community hosting the particular asset, the developers will be paid off for their ‘depreciated’ assets plus the last 12 months of operating revenue. Stakeholders are excited that the policy has been developed, but irritated that the buy-out value in case of grid extension does not reflect the net present value of future cash flows. Many players are already thinking of alternative business models such that even if the grid extension happens, it will be unreliable, meaning their mini-grids might still provide consumer value.
In 2015 it was estimated that Nigeria was emitting 2 tons of CO2e per capita per year, which the government expects to rise to 3.4 tons of CO2e per capita by 2030 under its business as usual (BAU) scenario. The unconditional BAU target is to reduce emissions by 20% by 2030 and the conditional target is to reduce emissions by 45%. Nigeria’s BAU target covers all six key mitigation measures of the greenhouse gases covered by the Kyoto protocol. The focus of emission reduction activities is put on energy efficiency, ending flaring in fossil fuel extraction activities, agriculture, transport and the deployment of renewable energy.