by Chijioke Mama, Africa Energy Analyst - Solarplaza

To unleash its full economic potential, Nigeria must accelerate access to reliable and affordable power and the surest pathway to this ambition is solar power.

In Nigeria, the case for solar power development is not only inspired by environmental concerns, rather it is hinged on strong economic considerations. Fossil-based generation has already failed the country and the grimmest hope it holds are only realizable in decades; a waiting period that will be too expensive for an exploding Nigerian population and a contracting economy.

With an estimated 60% of the population lacking access to electricity, Nigeria is still the largest economy in Africa - which is intriguing - given the proven GDP-lowering impacts of poor energy access.  While off grid and on grid solar have massive potential in Nigeria, the government’s ambition to rally about 40,000MW of power by 2020 to support industrialization, is only achievable through utility-scale solar power, most of which can be installed in 18 to 24 months. This is attainable given that the average daily solar irradiance in Nigeria is estimated at 5.535KWh/m2/day; varying between the lows of 3.5kWh/m2/day in the Southern coasts to about 7.0kwh/m2/day in the North.

The strong, compelling economic case, the huge solar resource endowment, and the now convenient regulatory horizon are combining to create massive solar power investment opportunities in Nigeria.


A new page for on-grid solar

The solar movement was slow to start in Nigeria, which is why the first set of solar Power Purchase Agreements (PPAs) was only just signed in July 2016. This involved 14 solar companies looking to deliver a combined 1200MW to the Nigerian grid in 12 to 24 months. They will jointly invest about $2.4bn into the solar sector in Nigeria within this period, helping to catalyze the much awaited solar revolution in the country.  

Prior to the 2016 recession, a 2015 McKinsey report on Nigeria projected that the economy could reach $1trn by 2030, up from the $530bn value of 2015. Analysts believe that the power crises in the country could be a major barrier in its efforts to emerge out of recession and pursue the pre-recession growth ambition of becoming a $1trn economy. On grid solar provides the fastest route to power sufficiency in Nigeria, since Nigeria’s fossil based generation framework is facing numerous challenges. Furthermore, solar power is now viewed as one of the critical elements for combating the current recession in Nigeria and so, will be needed for marching towards growth.   

The entire solar ecosystem in Nigeria is expected to explode starting from 2017. The current poor, but growth-laden structure of solar and ancillary services will offer huge investment opportunities for solar service providers – especially first movers.  This includes energy insurance companies, utility-scale Asset Management, Operation and Maintenance (O&M) firm, Engineering, Procurement and Construction (EPC) companies and large scale solar project financiers; the landscape is largely virgin and uncharted. Furthermore, at a feed-in-tariff of 11c/KWh, Nigeria will remain attractive for utility scale solar investors. The challenge for future agreements or auction rounds is that Nigeria may push for lower tariffs, given the recent PPAs in Zambia that saw tariffs as low as 6.02c/KWh. Zambia’s PPAs prove that solar could really be affordable. But efforts to lower solar tariffs in Nigeria could be counterproductive due to the existence of several infrastructural challenges especially transmission related ones.


The shape of future awards

Nigeria is well poised to become a top investment destination for on grid solar in the region. This set of PPA’s constitutes the first phase in what could transform Nigeria into an energy sufficient country. Aside from the 14 PPA’s announced in July, the total capacity of planned solar projects in Nigeria – in the short term - could be up to 2000MW. Which is still a small fraction of the country’s huge solar potential.

It’s imperative that solar will continue to receive massive interests and attention from government and investors alike. If the expectations of current solar power developers are met and the overall investment climate continues to improve, more solar deals would be expected within the next decade.
 
At the July 2016 PPA signing event in Abuja Mr. Bintube Waziri, Acting Managing Director and CEO of the Nigerian Bulk Electricity Trading Plc. (NBET - the middleman between power generation and distribution companies) said ‘gas shortages experienced by gas-fired power plants due to pipeline vandalism has made it imperative for the country to seek alternatives to gas”  


The hurdles

In spite of the opportunities, the power sector in Nigeria is not without challenges. The Nigerian Bulk Electricity Trader (NBET) that procures power from Generation companies and sells to Distribution companies is enmeshed in some fiscal crises that fundamentally question its bankability. Government claimed that NBET is strongly capitalized, but the Generation companies say they are collectively owed a sum of NGN300bn (about $100m) by NBET. In addition, the power Distribution companies that directly collect the tariffsfrom customers are in turn lost in a complexpower market that is challenged by power theft, numerous unmetered customers and dilapidated infrastructures that further deplete (through chronic outages) the revenues from metered customers

Similarly, pioneer solar developers also have to battle the severe paucity of skills required to develop, operate and maintain solar plants in Nigeria. While the solar market in countries such as Kenya now boosts of proper structures around solar capacity development and certifications, Nigeria is still battling absent skills and fragmented learning frameworks. The first draft of a standardized training scheme and certification program has just been finalized in November, 2016 by the Nigerian Energy Support Program (NESP) - a joint initiative of USAID, European Union and Germany’s GIZ.

Nevertheless, the global solar community is now keeping a close watch on Nigeria. Although the government is yet to unveil the details of future PPA awards or auctions; it is hoped that the space will become even more conducive for greater and bigger deal flows.


Interested in the Nigerian solar power market? Solarplaza is organizing The Solar Future Nigeria, a 2-day conference focusing on the opportunities and challenges in this exciting and evolving landscape, to be the key-platform for all stakeholders to connect.