About half of Nigeria’s more than 200 million people are connected to a national Electricity grid that fails to provide sufficient daily electricity to most of those connected. Many poor, rural communities like Olodo Okin are entirely off the grid. In a country with abundant sunshine, many are looking to Solar Energy to help fill the gaps. However, getting risk-averse Investors to Finance major solar projects that would give Nigeria enough reliable energy is an uphill struggle. As a result, millions in the country find ways to live with little to no electricity. Studies have shown that Nigeria could generate much more electricity than it needs from solar energy due to its powerful sunshine.
However, 14 grid-scale solar projects in the northern and central parts of the country, which could generate 1,125 megawatts of electricity, have stalled since contracts were signed in 2016. Those trying to develop solar projects in the country blame high interest rates for borrowing, which can be as high as 15 percent, two to three times higher than in advanced economies and China, according to the International Energy Agency. This makes it more costly for solar companies to operate in Nigeria and other developing nations compared to wealthy countries. Africa has only one-fifth the solar power capacity of Germany, and just 2% of global clean energy investments go to the continent.
Economic and policy challenges affecting projects across the country.
A solar project in Nigeria receives funding at much higher interest rates compared to a similar project in Denmark, where interest rates are significantly lower, according to Najim Animashaun, director of Nova Power, one of the stalled solar projects. Despite the potential for higher power production, obtaining loans for solar projects in Nigeria is challenging and expensive. Nigeria also does not set so-called cost-reflective tariffs, meaning the price consumers pay for electricity doesn’t cover the costs to produce and distribute it. This prevents distribution companies from fully paying producers, forcing the industry to rely on government interventions to stay afloat, scaring off lenders from investing in the solar industry.
Currently, power producers say they are owed up to 3.7 trillion Naira ($2.7 billion) by the government, making it difficult to meet obligations to their lenders and contractors. One potential solution would be obtaining World Bank guarantees to put investors at ease. Also, the government is wary of signing up for anything that would force them to pay large sums even if electricity from the projects does not reach consumers due to inadequate transmission and distribution infrastructure. Without World Bank guarantees, “nobody will develop or finance a project with a government subsidy, because it can dry off,” said Edu Okeke, the managing director of Azura Power. Azura Power has a stake in the now-stalled 100 megawatt Nova solar project in Nigeria’s northern Katsina State.
Stop-gap solutions and persistent challenges.
With less than 8,000 megawatts of capacity and an average supply of less than 4,000 megawatts — less than half of what Singapore supplies to just 5.6 million people — power outages are an everyday occurrence in Nigeria. Communities like Excellent Moral School’s in Ibadan, which have no access to electricity, are often surrounded by more fortunate ones connected to the grid but experience frequent outages and have to use gasoline and diesel-run private generators. With the long-running Petroleum Subsidies now removed, many households, schools, hospitals, and businesses struggle with the cost of fuel for their backup generators. “We have stopped using a diesel generator as an alternative due to costs,” said Abdulhakeem Adedoja, head of Lorat Nursery and Primary School in Ibadan. Despite being in a grid-connected area, the school can go two weeks without power.
Small businesses like restaurants face high costs for alternative power generation, limiting their expansion. Ebunola Akinwale, owner of Nature’s Treats Café in Ibadan, spends 2.5 million Naira ($1,700) monthly to power backup generators at her four branches. “If nothing changes, I might have to close one or two branches,” she said, although she plans to switch to solar to reduce “pollution from the diesel generators.” She is negotiating with her bank for a low-cost Loan package designed for young women entrepreneurs to finance the solar transition. However, not every business and household has such access or can afford the upfront capital for a private solar system. School heads Raji and Adedoja said they find the costs prohibitive.
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But the stalled solar projects aren’t progressing because finances don’t add up. However, even for other sources of electricity generation, Nigeria struggles to attract desperately needed private financing. Power Minister Adebayo Adelabu said in May that to address the financial crisis affecting the electricity sector, prices must reflect the true costs of service because a broke “government cannot afford to pay 3 trillion Naira ($2.4 billion) in subsidy.” The government also insists that Nigerians paying fully for the electricity they consume would encourage investments in the sector.