Renewable energy deals with power generation from resources such as solar, wind, biomass, and hydropower, etc. They are considered alternatives to more common energy resources such as oil and coal.
The National Renewable Energy and Energy Efficiency Policy (NREEEP), 2015 defines renewable energy as energy obtained from energy sources whose utilisation does not result in the depletion of the earth’s resources. Renewable energy also includes energy sources and technologies that have a minimal environmental impact.
The renewable energy industry in Nigeria has experienced tremendous growth and investment is predominantly attributed to the development of technology capable of utilising these forms of energy. The transition toward renewable energy are now viewed as a support and not an end to the more traditional source of revenue (oil) in Nigeria.
In this article, we shall examine the recent developments in renewable energy in Nigeria, the regulatory framework, challenges and opportunities in the sector.
The Nigerian government’s electrical policy has shifted to a greater emphasis on renewables. There have been introduced, policy and regulatory instruments to stimulate investment in renewables. The Electric Power Sector Reform Act 2005 (EPSRA) is the foremost regulation providing the legal and regulatory framework for the sector. The EPSRA established the Nigerian Electricity Regulatory Commission (NERC) as the sector’s regulator and empowers it to issue rules, regulations, and policies.
It also establishes the Rural Electrification Agency (REA), responsible for expanding the main grid, developing isolated mini-grid systems, and promoting renewable energy power generation. The REA controls the Rural Electrification Fund (REF) and is responsible for promoting, supporting, and implementing rural electrification programs in order to provide more equitable regional access to electricity.
The Federal Executive Council (FEC) approved the National Renewable Energy and Energy Efficiency Policy (NREEEP) in 2015. The goal of the NREEEP is to remove barriers to renewable energy in terms of economic, regulatory, and institutional disadvantages, as well as creating a conducive political environment to attract investments in renewable energy and energy efficiency.
Its objective is to put renewable energy’s economic, political, and social possibilities to the attention of policymakers. It also recognises the multifaceted nature of energy by addressing issues such as renewable energy supply and utilization, pricing and financing, legislation, regulation, and standards, energy efficiency and conservation, project implementation issues, research and development, and environmental concerns, among others.
The Regulations on Feed-In-Tariff for Renewable Energy Sourced Electricity in Nigeria (REFIT) issued by NERC in 2015 provide the tariff structure for renewables. REFIT provides a special tariff framework for renewables, in the form of feed-in-tariffs fixed and approved by the NERC. The limitation with the REFIT is that it is only available for renewable energy projects with a capacity of 1 to 30 megawatts. However, off-grid (a system not connected to the utility grid and uses an additional battery system) renewable energy projects are exempt from the regulations because on such projects tariffs are created and negotiated on a bilateral basis with little regulatory involvement.
The NERC also issued the Mini-Grid Regulations in 2017, aimed at accelerating electrification in unserved areas and underserved areas. A mini-grid is a set of electricity generators and possibly energy storage systems interconnected to a distribution network that supplies electricity to a localized group of customers. They involve small-scale electricity generation which serves a limited number of consumers through a distribution grid that can operate in isolation from national electricity transmission networks.
The Mini-Grid Regulation establishes a streamlined process for establishing some types of mini-grids, in which projects are not need to be licensed but may be registered with the NERC. To provide financial relief to developers, there is also a compensation mechanism for mini-grid projects to cover the possibility of the national grid eventually extending to cover the area(s) served by the mini-grid.
While the Mini-Grid Regulations are not limited to renewable projects in theory, the current practice is for mini-grids to be created as solar-powered projects due to a variety of technical and commercial issues.
Projects in Renewable Energy
There have been several projects targeted at developing the renewable energy industry in Nigeria some of which include:
- The collaboration of the United States Agency for International Development (USAID) and Power Africa for Renewable Energy and Energy Efficiency Project (REEEP) in Nigeria which provided renewable energy to 261,938 Nigerians through 16,600 connections and reduced carbon emissions. The four-year initiative came to an end in 2018.
- The Nigerian Electrification Programme (NEP) launched in 2019 to deliver electricity using solar-powered plants. The federal government, through the Rural Electrification Agency (REA) secured funding from the African Development Bank, Africa Growing Together Fund, the World Bank and European Union to facilitate the implementation of the project. This investment aims to provide inexpensive renewable energy to at least 90 million Nigerians and business owners.
- The Solar Power Naija Project initiated by the government in 2020, with the goal of providing 5 million off-grid communities with solar-powered connections. The project is estimated to create 250,000 employment and will target 25 million homes. The project’s cost is anticipated to be approximately US$620 million and the Nigerian government commenced on this project in April, 2021 in Jigawa State.
- The Central Bank of Nigeria has also introduced a solar intervention fund that provides low-interest loans (5% interest) of up to 500 million naira to developers of renewable energy projects.
- The Nigerian Federal Ministry of Power also requested eligible bidders to tender for the development of various off-grid solar systems and other energy infrastructure projects around the country in 2020.
The recent improvements in technology could be argued to have reduced project costs and improved project feasibility. However, due to the high capital intensity of the sector, such a reduction minimal is insignificant from an investor’s perspective.
These regulations and development notwithstanding, the on-grid power (on-grid system is solar system connected to a utility company’s network) sub-sector is particularly affected by technical and collection losses, and the lack of a full cost reflective tariff creates profit concerns for investors.
Another challenge is that renewable energy projects are primarily constructed in unserved rural areas where consumers have lower incomes, resulting in electricity affordability issues.
Other challenges investors face include changes in government and uncertainties as to the future direction of government policies, the bureaucracy of government agencies, liquidity challenges in the electricity sector, foreign exchange and currency issues, vandalism of power plants, equipment and transmission lines to mention a few.
To address the possible revenue risk, investors may need to explore affordable consumer financing structures. There is also the need to boost Investor incentives as a purposeful technique to accelerate the implementation of renewable energy.
Although the current regulating framework for renewable energy is commendable, more needs to be done in terms of policy implementation and process flow among the many operators. The policy framework comprising legal, fiscal, and regulatory instruments must be aligned in order to attract domestic and international investments to grow the industry.
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Written by Osama Obasoyo
Osama Obasoyo is an Associate with Marcus-Okoko & Co., and specializes in Energy Law, International Trade, and Arbitration