Nigerian state to build 300 MW of solar

From the newsletter

Adamawa State, Nigeria's 18th largest economy, plans to build a 300 MW solar power project in partnership with Liberal Energy of Australia. The state is also planning to improve its power distribution network, reduce energy deficits, and provide sustainable electricity access for households, businesses, and industries.

• The Nigerian electricity market experiences one of the worst blackout rates in Africa. According to the National Bureau of Statistics, Nigerian households experience an average of 6.7 electricity blackouts weekly, with each outage lasting 12 hours.

• States, businesses, and individuals are adopting solar energy. Adamawa State joins others, like Lagos and Niger, that plan to install solar plants.

More details

• The governor of Adamawa State met with the Yola Electricity Distribution Company (YEDC), the DISCO in charge of distributing electricity in the state, and Liberal Energy to strategise on how the new solar plant will be connected to the main grid. This initiative is crucial in addressing Nigeria's ongoing electricity challenges.

• About 60% of Nigerians have access to electricity, but consistent power supply remains a significant issue. The majority rely on generators as backup, especially industries with high energy consumption needs. Roughly 96% of industrial customers depend on backup generators. These challenges have had a severe impact on businesses, with about 767 manufacturers forced out of the market, according to the Manufacturers Association of Nigeria. Many more are facing financial distress due to the high cost of operation, including high energy costs.

• Despite having an installed generation capacity of 13,000 MW, Nigeria's all-time highest generation achieved is only 5,800 MW, falling drastically short of the forecasted daily peak demand of 20,000 MW. This substantial gap between generation capacity and demand results in frequent power outages and the need for load shedding, where power is intentionally cut off in certain areas to prevent grid collapse. The economic losses due to electricity shortages are estimated to be as high as $26 billion annually.

• Tariff structures also present a challenge. The government heavily subsidises low-tier consumers, placing a significant burden on its finances. To address this, subsidies are being phased out to ensure customers pay cost-reflective tariffs to enable the Electricity Distribution Companies (DISCOs) to make profits.

• In 2005, the Electric Power Sector Reform (EPSR) Act was enacted, unbundling the national power company and paving the way for privatisation. This reform aimed to improve efficiency and attract private investment in generation, transmission, and distribution. Following this reform, the Federal Government owns 100% of the transmission company, while its hold on the generating companies is 20%, with 80% of equity sold to private investors. In the case of the distribution companies, the government sold 60% and retained 40% ownership.

• While some progress has been made in increasing generation capacity, the sector still faces many challenges. The need for further investment in generation, transmission, and distribution infrastructure remains critical to ensure a reliable and affordable electricity supply for businesses and households across Nigeria.

• States are partnering with the private sector to generate electricity. For example, the Jigawa State government partnered with a private company to develop a 12 MW hybrid solar power plant to provide electricity to rural communities and government institutions. Lagos State, Nigeria's richest and most populous state, plans to attract more private-sector investments in renewable energy to fill the gap of about 9,000 MW demand. It is developing the Lagos State Industrial Policy (2025-2030) in readiness for this. More states are expected to follow the blueprint to be set by Lagos State.

Our take

• The move by states to partner with Independent Power Producers (IPPs) is likely to accelerate the development of new energy generation plants. Renewables, in particular, are becoming increasingly attractive to IPPs due to the declining cost of technology and the potential for revenue generation. This trend is likely to attract further investment in the sector, as investors seek profitable opportunities in the growing renewable energy market.

• However, addressing energy generation is only one part of the challenge. Efficient transmission and distribution are equally crucial. Nigeria currently loses about 40% of generated electricity due to system losses and illegal connections. While efforts to reduce these losses through metering and other measures are essential, significant improvements in the transmission infrastructure are also needed.

• Currently, the transmission sector remains under government control, limiting private-sector participation. Opening up this sector to Independent Power Transmission (IPT) investors, similar to the model used for generation, could attract investment and accelerate the modernisation of the grid. Policymakers need to act swiftly to address this gap and create a more enabling environment for private sector involvement in transmission infrastructure development.