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International Energy Agency forecasts growth in renewable electricity in Nigeria

8 November 2018

The International Energy Agency (IEA) is a Paris-based organisation focusing on “the full spectrum of energy issues including oil, gas and coal supply and demand, renewable energy technologies, electricity markets, energy efficiency, access to energy, demand side management and much more”.  Its “Renewables 2018: Analysis and forecasts to 2023” report has a section on Nigeria, which is reproduced below. 

In a letter to stakeholders that accompanied the report, IEA executive director Fatih Birol thanked “the countries that gave us valuable input into the report and helped us crystallize relevant policy messages”.  This suggests that some of the forecasts in the Nigeria section may require a “health warning”, as they came from official sources and may not have been independently verified.

Renewable capacity in Nigeria is anticipated to grow almost threefold to 4.6 GW by 2023, encouraged by renewable energy targets, electrification efforts and the need for new power capacity. Hydropower accounts for 60% (1.5 GW) of the expansion, followed by PV [photovoltaic systems] (1.2 GW). However, limited access to affordable financing, the poor financial performance of local distribution companies, policy uncertainty concerning possible renegotiations of signed PPAs [Power Purchase Agreements] and weak grid infrastructure are still key obstacles.

In January 2018, Nigeria adopted the Power Sector Recovery Programme (PSRP) to attain power sector financial viability and to support the Nigerian Electricity Supply Industry (NESI) through policy actions and operational and financial interventions. PSRP is supported by the World Bank, and its implementation is expected to improve power supply reliability, strengthen the power sector’s institutional framework, encourage investor confidence and establish a contract-based electricity market. It is possible that these changes will positively impact renewable energy development, but the pace of implementation remains a forecast uncertainty.

Hydropower is expected to expand 1.5 GW as construction of several delayed projects advances, largely owing to financial backing and engineering support from Chinese companies. After decades of planning, the 3-GW Mambilla plant entered the construction phase in November 2017, and commissioning of the plant’s first stages is expected by the end of the forecast period. The Zungeru 700-MW hydropower dam also obtained financing, was 50% completed as of early 2018, to be commissioned by 2020. In addition, the Challawa (0.025 GW) and Kashimbila (0.04 GW) dams are to be commissioned within the forecast period.

Nigeria’s solar PV capacity is expected to be enlarged 1.2 GW, mostly from grid-connected utility-scale projects contracted through 14 PPAs signed in 2016 for 1.1 GW of capacity; however, none of these projects have yet reached financial closure. Overall, offtaker* risks, the recent economic recession, land acquisition challenges and grid connection delays remain barriers to financial closure for these projects. In addition, in early 2018 the government expressed interest in contract renegotiations with developers to reduce tariffs from USD 115/MWh to USD 75/MWh. Off-grid solar PV is expected to grow 50% to reach 60 MW by 2023 with the uptake of the mini-grids and SHSs [Solar Home Systems]; this growth is driven by the ambitious mini-grid targets and policies in place. In fact, the Rural Electrification Agency (REA) aims to establish 10 000 mini-grids across Nigeria by 2023. Twice a year, the REA releases financial support from the Rural Electrification Fund in the form of capital grants for mini-grids and stand-alone systems. Mini-grids smaller than 1 MW are eligible for this support; selected projects can receive the grant, at a value of up to 75% of the total project cost, while the necessary grid extension is eligible for the same level of support. In addition, SHSs can receive capital grants of up to 50% of total project costs.

*Offtaker is an agreement entered between a producer and a buyer to buy/sell a certain amount of the future production. It is generally negotiated long before the construction of a facility to guarantee a market for the facility’s future production and improve chances of getting financing for the installation concerned. From the Business Dictionary.

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