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Nigeria is Africa’s most populous country and the continent’s biggest economy by GDP. However, Nigeria has one of the lowest electrification rates among the largest African economies – see Table 1.

Table 1. Africa Top Ten Largest Economies Electrification Rates
Top Ten Economies By GDP Proportion of Population With Access to Electricity, 2019 (%)
Nigeria 61.6
Egypt 99.7
South Africa 94.3
Algeria 99.1
Morocco 99.9
Kenya 84.5
Ethiopia 46.7
Ghana 85.0
Tanzania 39.5
Angola 42.5
Sub-Saharan Africa 47.9
Sources: Statista, IEA

Nigeria’s low electrification rate is partly due to low electricity access in rural areas, where around half of Nigerans live.  As part of efforts to boost off-grid electricity access across the country, the government in 2016 unveiled a roadmap for the adoption and deployment of renewable energy, namely the National Renewable Energy Action Plan (NREAP).

According to the NREAP, Nigeria aims to obtain 16 percent of its electricity from renewable sources by 2030, compared to only 0.8% in 2012. Given Nigeria’s enormous solar energy potential, the NREAP has set a solar PV installed generation capacity target of 3,500 MW by 2025 and 5,000 MW by 2030. This translates to a solar contribution of 6 percent of the electricity generation mix by 2030.

However, according to the International Renewable Energy Agency (IRENA), Nigeria had only 28 MW of PV generation capacity installed by the end of 2019 (IRENA, 2020). Therefore, Nigeria’s solar power generation targets are highly ambitious. This article examines how Nigeria plans to intensify the development of solar power in the quest to provide more Nigerians access to electricity. Essentially, the article discusses policies and incentives Nigeria plans to use to both encourage local consumption of solar energy and attract private sector investment into solar power generation.

 

UNBUNDLING THE POWER SECTOR: STRUCTURE AND REGULATION

The Federal Ministry of Power (FMP) sets policy for the entire energy sector. Before 2005, the National Electric Power Authority (NEPA) Act of 1998 and the Electricity Electricity Act of 1990 guided power supply in Nigeria. 

The government-owned NEPA was responsible for all aspects of power supply. In 2005, the Electric Power Sector Reform Act (EPSRA) overhauled the power sector. The EPSRA 2005 is now the regulatory act for the power sector.

The key objectives of the EPSRA were the following:

  • Repeal the NEPA Act and the Electricity Act
  • Unbundle NEPA
  • Create the Power Holding Company of Nigeria (PHCN) to replace NEPA and hold unbundled NEPA assets until they were privatized
  • Establish the Nigerian Electricity Regulatory commission (NERC)
  • Establish the Rural Electrification Agency (REA)
  • Establish and regulate a Feed-in Tariffs (FiT) scheme for grid-connected renewable energy supply

NERC is now the sole regulator of the entire power sector, including the renewable energy industry.  Meanwhile, the REA is mandated to supply affordable electricity to rural areas.

 

UNBUNDLING PHCN

The EPSRA set the legal foundation for the privatization of the Power Holding Company of Nigeria (PHCN). In 2013, eight years after the enactment of the EPSRA, the government unbundled PHCN into six generation companies (GenCos), 18 distribution companies (DisCos), and one transmission company, which is the Transmission Company of Nigeria (TCN). TCN remained government owned while GenCos and DisCos were sold or concessioned to private investors.

 

ELECTRICITY GENERATION MIX

According to the Ministry of Power, Nigeria has 13,000 MW of installed grid power generation capacity.  About 85 percent of this installed generation capacity comes from natural gas fired plants while the remainder comes from hydroelectric plants. However, less than half of this installed capacity typically reaches consumers. This is due to various problems, such as fluctuating natural gas supplies, grid limitations – especially at the DisCos level, and transmission and distribution (T&D) technical losses. 

Currently, Nigeria generates very little grid connected solar power. There’s only one operational grid connected solar plant in the country: the 1.2 MW Lower Usman Dam water treatment PV plant in Abuja. Although Nigeria seems keen on solar power, utility scale solar power generation is currently unattractive to the federal government primarily because of excess generation capacity from thermal plants.

 

RENEWABLE ENERGY MIX

Nigeria’s hydroelectric resources are the most developed of all the country’s RE resources. Before Nigeria discovered crude oil and natural gas plants became prominent, small-scale (1 MW – 30 MW) and mini-scale (0.1 MW – 1 MW) hydroelectric plants were the sole sources of grid electricity. 

Now, however, many of these plants are longer functional, and only one medium-scale (30 MW – 100 MW) hydro plant exists: the recently commissioned Dadin-Kowa Hydroelectric plant (40 MW). Conversely, Nigeria has three large-scale (over 100 MW) hydroelectric power plants, which are all under 30-year operation and maintenance (O&M) concessions to private investors: Kainji (760MW), Jebba (570MW) and Shiroro (600MW).

After hydro, solar is the RE resource exploited on any meaningful scale in Nigeria. Most solar PV generation plants are off-grid, independent power producer (IPP) plants serving commercial and industrial (C&I) customers.

 

SOLAR INVESTMENT OPPORTUNITIES

Nigeria has persistent problems with power evacuation via the national grid. Therefore, in terms of solar investment potential, the three most promising areas for private investment are probably the following:

  • Off-grid solutions for C&I customers
  • Off-grid/mini-grid solutions for rural households
  • Stand alone solar-plus-storage home systems for residential customers, especially urban households.

 

INCENTIVES FOR SOLAR POWER DEVELOPMENT 

In order to attract more private sector investment into solar power development, the government offers a variety of incentives at the renewable energy industry level and also specifically for solar investments.

 

RENEWABLE ENERGY INDUSTRY FISCAL INCENTIVES

These incentives apply to investments in all renewable resources, namely hydro, wind, solar, and biomass. 

Pioneer Status Tax Holiday

The Pioneer Status Incentive was established by the Industrial Development (Income Tax Relief) Act of 1971. Pioneer status is granted to companies operating in designated pioneer industries and/or producing pioneer products.

Manufacturers of solar equipment and gadgets qualify for this incentive. Pioneer status entitles a company to corporate income tax holiday for up to three years in the first instance, renewable for an additional period of two years. Pioneer companies may also be exempted from withholding taxes on dividend payments to shareholders.

 

VAT Exemption

The Finance Act of 2019 grants investors and households exemptions from the payment of VAT on the purchase of renewable energy or energy efficiency equipment.

 

GRID POWER INCENTIVES

The key incentive for renewable energy fed into the national grid is the Feed-in-Tariffs (FiT) policy. In February 2016, Nigerian Electricity Regulatory Commission (NERC) introduced a FiT regulation for renewable energy supply of capacities from 1 MW to 30 MW. For solar PV, the eligible capacity range was 1 MW to 5 MW.

FiT tariffs are guaranteed prices that an offtaker pays an IPP over the term of the Power Purchase Agreement (PPA) for the renewable power the IPP produces. NERC set baseline (2016) FiT tariffs at USD177 per MWh for solar power, USD125.47 per MWh for wind power, USD154.71 per MWh for biomass, and USD154.72 per MWh for small hydro (NERC, 2015). NERC was to make incremental increases in these tariffs in line with inflation and other adjustments every year.

The FiT regulation also required electricity distribution companies (DisCos) to source 50 percent of their electricity from renewable sources. Notwithstanding the FiT regulation, given Nigeria’s problem of unused thermal grid power generation capacity, it’s difficult to see how attractive investing in renewable energy grid power will be to private investors.

 

OFF-GRID/MINI-GRID POWER INCENTIVES

Since around half of Nigerians live in rural areas, Nigeria cannot achieve its national electrification goals unless more rural households get access to electricity. The government’s primary vehicle and incentive scheme for expanding electricity access to more rural and underserved areas is the USD350 million Nigeria Electrification Project (NEP).

The NEP aims to electrify 1 million households and 250,000 small businesses using off-grid solar power. The Rural Electrification Agency (REA) oversees the NEP – with financial support from the World Bank and the African Development Bank (AfDB).

The REA estimates the market opportunity to supply off-grid and mini-grid solar power (including solar home systems) to underserved areas in Nigeria at USD10 billion per annum.

The NEP has the following four components:

  • By 2023, the construction of 1,000 solar mini-grids to serve 300,000 rural households and 30,000 rural small businesses not connected to the national grid at USD150 million
  • The provision of stand alone solar home systems (SHS) to 1.5 million households and small businesses in unserved and underserved parts of the country at USD75 million, and
  • The supply of more reliable electricity to selected Federal government-owned universities and teaching hospitals across the country at USD105 million
  • Technical assistance from the World Bank to the REA at USD20 million.

 

Incentives for Mini-Grid Construction

The two incentives for solar mini-grid (less than 1 MW capacity) developers are power generation subsidies and performance based grants. The government will provide subsidies for successful tenders to build, own, and operate solar hybrid mini grids in rural communities. These incentives have encouraged private investors to key into the NEP.

 

Incentives for Solar Home Systems (SHS) Providers

Under this component, the REA will provide grants to both established SHS providers and start-ups to install SHS in targeted households and businesses. The recently launched Solar Power Naija scheme is another NEP program primarily for provision of SHS.

According to the REA, the objectives of the scheme are as follows:

  • Expand electricity access to 25 million individuals through the provision of 5 million SHS – assuming five people per household
  • Increase local content in the off-grid solar value chain and facilitate the growth of the local manufacturing industry
  • Incentivize the creation of 250,000 new jobs in the energy sector.

Under the Solar Power Naija scheme, pre-qualified companies will receive low-interest loans to finance the installations of SHS and the construction of mini-grids. The investors will repay the loans, which are facilitated by the Central Bank of Nigeria, from income from customers on a Pay-As-You-Go model over a three-year period.

 

REFERENCES

IEA (2020), SDG7: Data and Projections, IEA, Paris https://www.iea.org/reports/sdg7-data-and-projections 

IRENA (2020), Renewable Energy Statistics 2020. The International Renewable Energy Agency, Abu Dhabi. 

Nigerian Electricity Regulatory Commission (NERC), Regulations on Feed-In-Tariff for Renewable Energy Sourced Electricity In Nigeria, 2015.