What potential does Nigeria’s PV market have?
The study shows that Nigeria currently operates only 4GW of installed capacity from fossil fuel power generation facilities and hydropower facilities. It is estimated that to fully power its 200 million people, the country needs to install about 30GW of generation capacity.
According to estimates by the International Renewable Energy Agency (IRENA), by the end of 2021, the installed capacity of photovoltaic systems connected to the grid in Nigeria will only be 33MW. While the country’s photovoltaic irradiance ranges from 1.5MWh/m² to 2.2MWh/m², why is Nigeria rich in photovoltaic power generation resources but still constrained by energy poverty? The International Renewable Energy Agency (IRENA) estimates that by 2050 , Renewable energy power generation facilities can meet 60% of Nigeria’s energy needs.
Currently, 70% of Nigeria’s electricity is provided by fossil fuel power plants, with most of the rest coming from hydroelectric facilities. Five major generating companies dominate the country, with the Nigeria Transmission Company, the sole transmission company, responsible for the development, maintenance and expansion of the country’s transmission network.
The country’s electricity distribution company has been fully privatized, and electricity produced by generators is sold to the Nigerian Bulk Electricity Trading Company (NBET), the country’s only bulk electricity trader. Distribution companies purchase electricity from generators by signing power purchase agreements (PPAs) and sell it to consumers by awarding contracts. This structure ensures that generating companies receive a guaranteed price for electricity no matter what happens. But there are some fundamental issues with this that have also impacted the adoption of photovoltaics as part of Nigeria’s energy mix.
profitability concerns
Nigeria first discussed grid-connected renewable energy generation facilities around 2005, when the country introduced the “Vision 30:30:30” initiative. The plan aims to achieve the goal of installing 32GW of power generation facilities by 2030, 9GW of which will come from renewable energy generation facilities, including 5GW of photovoltaic systems.
After more than 10 years, 14 photovoltaic independent power producers have finally signed power purchase agreements with the Nigerian Bulk Electricity Trading Company (NBET). The Nigerian government has since introduced a feed-in tariff (FIT) to make photovoltaics more attractive to investors. Interestingly, none of these initial PV projects were financed due to policy uncertainty and lack of grid infrastructure.
A key issue is that the government reversed previously established tariffs to reduce feed-in tariffs, citing falling PV module costs as a reason. Of the 14 PV IPPs in the country, only two accepted the reduction in the feed-in tariff, while the rest said the feed-in tariff was too low to accept.
The Nigerian Bulk Electricity Trading Company (NBET) also requires a partial risk guarantee, an agreement between the company as the offtaker and the financial institution. Essentially, it is a guarantee to provide more liquidity to Nigerian Bulk Electricity Trading Company (NBET) should it need cash, which the government is required to provide to financial entities. Without this guarantee, PV IPPs will not be able to achieve financial settlement. But so far the government has refrained from providing guarantees, partly because of a lack of trust in the electricity market, and some financial institutions have now withdrawn offers to provide guarantees.
Ultimately, lenders’ lack of trust in the Nigerian electricity market also stems from fundamental problems with the grid, especially in terms of reliability and flexibility. That’s why most lenders and developers need guarantees to protect their investments, and much of Nigeria’s grid infrastructure is not operating reliably.
The Nigerian government’s preferential policies for photovoltaic systems and other renewable energy sources are the basis for the success of clean energy development. One strategy that could be considered is to unbundle the takeover market by allowing companies to buy electricity directly from electricity suppliers. This largely removes the need for price regulation, enabling those who don’t mind paying a premium for stability and flexibility to do so. This in turn removes much of the complex guarantees lenders need to finance projects and improves liquidity.
In addition, upgrading grid infrastructure and increasing transmission capacity are key, so that more PV systems can be connected to the grid, thereby improving energy security. Here, too, multilateral development banks have an important role to play. Fossil fuel power plants have been successfully developed and continued to operate because of risk guarantees provided by multilateral development banks. If these can be extended to the emerging PV market in Nigeria, it will increase the development and adoption of PV systems.
Post time: Aug-18-2023
