According to the International Energy Agency, over 140 million people do not have access to energy in Nigeria, about 71% of the country’s population. When we talk about energy access, we refer to people’s ability to access modern energy services, including electricity, clean cooking facilities, and modern fuels. Energy inaccessibility has significant negative impacts on health, education, and economic development.
Nigeria is the largest economy in Africa, with vast natural resources, including oil and gas, and it’s one of the largest oil producers in the world. As the country’s economy continues to grow rapidly, so does its demand for energy. The Government of Nigeria has set a goal to achieve universal energy access by 2030 and is implementing various policies and initiatives to increase access to clean and affordable energy for its citizens.
However, the energy sector faces several challenges, including insufficient power generation, inadequate infrastructure, and a high level of energy poverty. Significant effort is being made to diversify energy sources, improve the country’s energy infrastructure and address challenges by investing in renewable energy and energy-efficient sources and growing private sector investments.
Nigeria’s energy source is mainly derived from petroleum reserves, natural gas, hydroelectricity and solar. The country remains a top producer of crude oil and natural gas in Africa. Some 45% of Nigeria’s population is actively connected to the energy grid and much of that is concentrated in urban areas. Power sector reforms have identified the need for expansion to rural areas, including through decentralized renewable energy and an increase in energy efficiency, especially in rural areas.
What are the solutions to Nigeria’s energy transition?
This week in Abuja, the World Economic Forum together with the Renewable Energy & Energy Efficiency Associations (REEEA-A) conducted a Mobilizing Investment for Clean Energy Emerging Economies Initiative Deep Dive roundtable that brought together over 40 stakeholders from Nigeria’s energy and finance sectors to develop energy and power priority areas, and showcase viable solutions to address the financing challenges faced by each priority area.
The working group carried out a country context risk analysis that shows Nigeria’s biggest risks in scaling the sector is complications with currency convertibility, financing structures and the availability of technology supply and technical know-how in operating the equipment. These risks negatively affect the growth of the sector. As such, developing financial and technical assistance solutions are key to stimulating the sector’s growth.
Scaling rural electrification through distributed solar generation, mini-grids, and off-grid technology alternatives has the potential to generate $9.2 billion in annual market investments for solar mini-grids. This can also save Nigerian households and companies $4.4 billion annually. However, certain barriers persist in the broader adoption of solar generation.
— Barbara Izilein, Senior Advisor to the CEO, Rural Electrification Agency
Nigeria is the largest consumer of oil-fired backup generators in Africa, with over 80% of power generation coming from gas reserves. Natural gas thus remains the primary source of power in future short-term plans, despite the shift to other renewable sources. The recent attractiveness of natural gas lies in the low-carbon features that make it relatively “clean” and less expensive in comparison to oil and coal.
Using natural gas as a transitionary fuel with a viable pathway to greener future solutions has potential to foster some $18.3 billion in gross value added to the local economy. This potential, coupled with the global difficulties the gas sector is facing, can create exponential growth in the nation’s domestic value chain.
— Ademola Agunbanjo, Executive Vice President of Oando Clean Energy
Africa possesses substantial natural gas, hydro and solar resources, with the ability to generate significant electric power from existing plants. Despite this capacity, lack of transmission and distribution infrastructure hinders the growth of large and small-scale businesses and has created a mass of unserved households that do not have access to the national grid.
In Nigeria, the Power Sector Reform Bill enabled private organizations to participate in the electricity generation and transmission and distribution sectors. The reform bill was formed to regulate power generation, transmission, and distribution tariffs, supporting the energy access through strengthening large-scale generation capacity and transmission and distribution networks.
Moreover, Nigeria’s inflation rate increased by 16 per cent in 2022, resulting in low capital availability and restricting the access of developers to financing. The availability to finance capital costs for clean energy investments in dollars is limited and currency fluctuations pose a risk to foreign investors and project developers.
Projects that require significant upfront capital investment will benefit from a facility that provides access to local currency coupled with a facility that enables developers to obtain dollars at the naira bank rate. Such facilities will help enhance the issuance of corporate infrastructure debt instruments and act as a facilitator to attract investment potential from insurance firms, pension funds and other players that deepen Nigerian debt capital markets. This would offer greater flexibility to developers as they could finance their projects in local currency.
As Nigeria strives to transform its energy sector, the country recognizes the critical need for technical capacity building through accelerator programmes for solar entrepreneurs and developers. Many large and small-scale clean energy projects rely on foreign expertise for technical assistance and financing advice.
Current training is provided by public offices such as the Rural Electrification Agency (REA) and Renewable Energy Association of Nigeria (REAN), and technical assistance is provided by Development Finance Institutions (DFIs) and foundations intermittently. It is key to build this capacity internally and ensure the development of local know-how over the long term.