Partnerships Seek to Resolve Nigeria’s Energy Crisis

electricity-consumption

The minister of power, works and housing, Babatunde Fashola, recently announced that so far his ministry has opened talks with more than 12 solar developers and promoters whose commitments have been secured under a more competitive price regime.

Fashola said that Nigeria can be guaranteed of affordable and improved electricity supply through the deployment of solar energy.

According to him, in the last few weeks, some progress have been made in terms of signing of major solar initiatives with the support of President Muhammadu Buhari and his vice, Yemi Osinbajo, saying that “before now it was difficult and impracticable to have a solar tariff at 17 cents ($0.060) per kilowatt power (sic), but the cheering news as a result of further interactions, and innovations on the side of the developers, private sector and government, is that the new tariff of 11.75 ($0.042) cents has been reached.

“This amounts to about N23 per kilowatt (hour) ($0.081) in terms of a major need for incremental power which will be of benefit to the entire value chain.”

The minister said that a solar energy company, Pan Africa Solar, recently announced that it has signed its first power purchase agreement (PPA) with the federal government through the Nigeria Bulk Energy Trader (NBET) that will enable the firm to develop a 75 megawatts (MW) solar PV power project.

The solar project will be located in Katsina State and is estimated to cost $146 million. On completion the energy produced from the plant, projected to be commissioned in 2017, will be sold for a tariff of 11.5 cents ($0.038) per kWh, providing power to about 1.1 million Nigerians.

Pan Africa Solar’s chief executive officer, Marcus Heal, said, “We are delighted that the Federal Ministry of Power is pushing ahead with its solar energy policy. This tariff has been achieved through harnessing lower construction and lower solar panel prices and the commitments of the project’s lender.”

A Canadian private equity firm, Justin Woodward of JCM Capital, who are co-developers in the project, also commented on the development.

Woodward said, “This is the start of a solar revolution in Nigeria. Pan Africa Solar is developing a 1,000MW portfolio of solar projects in Nigeria and planning on bringing more than $1 billion of investment over the next five years.”

The sponsor group for the project includes Pan Africa Solar and JCM Capital and the African Finance Corporation. The FMO is said to be the lead arrangers of debt raised from the development finance institutions that includes DEG and Proparco. The project is also receiving support from the World Bank, Power Africa and MIGA, the company said.

The power sector before privatisation

Years after Nigeria privatised its power sector, Nigerians are yet to reap the benefits of private sector reforms. The National electricity output continues to hover below 4,000MW in a country of over 170 million people. Although investors who acquired power assets on November 1, 2013, did so with some sense of pessimism, promises of a sector devoid of government interference and a level playing ground for investors provided some comfort.

However, a myriad of challenges continued to hinder the success of the power reforms. These include inadequate gas supply, poor infrastructure and constant vandalism of power assets. Companies across sectors of the economy, particularly, manufacturing, suffer under the high cost of production and overheads with so much capital spent annually on petrol and diesel to power industries and the thousands of small businesses spread across the country. These extra costs are often passed on to consumers but, more importantly, give local producers no fighting chance to compete with the high influx of cheap goods from abroad. The manufacturing sector is often forced to compromise on the quantity and quality of products to stay afloat.

For power distribution companies and power generation companies, inadequate power supply and vandalism of power assets remain their biggest problems. The government seems helpless in tackling this issue, blaming incidents of attacks on power assets and describing them as national sabotage.The authorities, however, admit that protecting these power assets, some of which run through swampy, remote areas, is a big challenge. There have been promises of the procurement of sophisticated surveillance equipment to solve this problem, but that still remains to be seen.

In February this year, the Nigeria Energy Regulatory Commission (NERC) announced a 45 per cent increase in tariffs and ordered distribution companies to provide meters to customers. This was met with nationwide protests from electricity consumers, labour union groups and the legislature, who described the action as unjustifiable given the little improvements seen in electricity supply. The electricity regulator insisted that the new tariff regime will help boost investments in the sector and efficiency in the operations of the electricity distribution companies popularly known as DISCOs.

However, five months after the tariff increase, a Lagos Federal High Court on July 13 ordered a reversal to the old tariff regime, stating that the electricity regulator had not followed due process in making the change. Nigeria’s energy sector is still undergoing a massive transformation in recent years as the government actively privatises new generation and transmission projects. As a result, scarcity of sufficient and reliable electricity is severely constraining economic growth and development. These privatised generation companies are contractually obligated to increase generation for each plant over the next five years, achieving 6,000MW of installed capacity.

The federal government is currently implementing a three-phase liberalisation process. In the first phase, 5 generation and 10 distribution companies (linked to the country’s main power holding company, PHCN) was privatised in 2013. In addition, the Niger Delta Power Holding Company (NDPHC) is privatising 10 newly built generation plants. The government estimates that the privatised NDPHC plants will generate an additional 5,445MW. Finally, an additional 2,000MW increase will stem from investments by new independent power producers. To help achieve these ambitious goals, government is focused on sustaining a stable investment climate for private sector participation in the sector, expanding transmission and distribution networks to deliver power to customers, maintaining a creditworthy off-taker of electricity, establishing cost-reflective tariffs, and reducing inefficiency in support of affordable end-user tariffs.

As at early 2015, the Federal Government of Nigeria instructed the electricity market to operate in accordance with established contracts, including the Power Purchase Agreements (PPA) for generators and Vesting Contracts for the delivery of power to distribution companies. Each market member will pay or receive according to what they receive from or supply to the system, a critical step to building investor confidence in the sector.

The United States (US) Power Africa Support Initiative In Nigeria (Power Africa) is supporting the development of the energy sector through credit enhancement, grants, technical assistance, and investment promotion efforts. Through these measures, Power Africa is working to mobilise affordable and long term financing to support capital and operational expenditure requirements for successor generation and distribution companies to accelerate electricity market development. Furthermore, Power Africa is helping to advance major infrastructure investments, promote US technological solutions, and strengthen Nigerian national systems through targeted technical assistance of national organisations dedicated to improving electricity procurement and regulatory functions.

Lending through Power Africa is delivered across a variety of recipients, including agro-processors, healthcare facilities and households willing to retrofit facilities, and companies willing to establish and maintain plants to generate clean energy.

Late in 2014, Power Africa, in association with Guarantco, partnered with Standard Chartered Bank to make critical lending available to the privatized discos and gencos for capital expenditures to reduce energy losses and improve operational efficiencies.

The U.S. Government’s Power Africa agencies also are providing support for trade missions and engaging in outreach efforts for American companies interested in investment opportunities in Nigeria.

Since the Power Africa launch, the Initiative has provided political risk insurance for project loans and engaged in risk mitigation efforts in coordination with the FGN.

In partnership with General Electric, the U.S. African Development Foundation and others, Power Africa has awarded seven $100,000 grants to entrepreneurs for innovative, off-grid energy projects in Nigeria.

The partnership looks at bringing on board firms with demonstrable ability to aid in reaching its goals of adding 30,000 Megawatts of cleaner energy and 60 million new home and business connections by 2030.

Penultimate week, the UK International Development Minister, Nick Hurd, paid a visit to a solar venture in Chiswick, UK, to see first-hand how the energy start-up facilitates energy access in Africa.

That visit forms part of the Department for International Development’s (DFID) Energy Africa campaign, which aims to light up Africa by helping to power businesses and homes to make sure the poorest people in the world have access to reliable and affordable energy, Get West London reported.

Co-founded by three college friends, BBOXX, which is a DFID funded business, delivers clean power systems to marginalised communities in Rwanda, Uganda and Kenya.

Chief executive officer (CEO) of the solar venture, Mansoor Hamayun, said: “Over one billion people have absolutely no access to electricity.

“We at BBOXX are providing energy access through our solar home systems to over 100 households every day, and have reached over 70,000 homes so far.

Hamayun added: “There are many more families for us to bring electricity to and it is very encouraging to see DFID and Minister Hurd actively supporting the growth of energy access through their Energy Africa campaign.”

According to Hurd ventures such as this are developing much needed innovative solar energy products that is enabling some of the world’s poorest people access to clean, reliable and affordable energy.

“It is totally unacceptable that in this day and age more than 600 million people in Africa do not have access to electricity, which is why the UK’s Energy Africa initiative is encouraging a solar revolution to transform lives across the continent.

“From Rwanda to Zambia, I’ve seen the life-changing effect solar energy can have for families – saving money that can be spent on basic essentials, making women and girls safer after dark and enabling children to study after school, giving the next generation an opportunity to contribute to their country’s economic growth and success.”

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