Energy Transition

Here’s how Nigeria is tackling the barriers to its green energy transition

Nigeria's energy transition is fraught with many challenges.

Nigeria's energy transition is fraught with many challenges. Image: Unsplash.

Abir Ibrahim
Community Lead, Regional Agenda, Africa, World Economic Forum
Olivia Zeydler
Lead, Strategic Integration, C4IR Energy and Materials, World Economic Forum
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Energy Transition

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  • Approximately 71% of Nigeria's population does not have access to energy.
  • The Nigerian government plans to achieve universal energy access by 2030.
  • The energy sector faces major financial and technical challenges.

According to the International Energy Agency, over 140 million people do not have access to energy in Nigeria, about 71% of the country's population. When we talk about energy access, we refer to people's ability to access modern energy services, including electricity, clean cooking facilities, and modern fuels. Energy inaccessibility has significant negative impacts on health, education, and economic development.

Nigeria is the largest economy in Africa, with vast natural resources, including oil and gas, and it’s one of the largest oil producers in the world. As the country’s economy continues to grow rapidly, so does its demand for energy. The Government of Nigeria has set a goal to achieve universal energy access by 2030 and is implementing various policies and initiatives to increase access to clean and affordable energy for its citizens.

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However, the energy sector faces several challenges, including insufficient power generation, inadequate infrastructure, and a high level of energy poverty. Significant effort is being made to diversify energy sources, improve the country’s energy infrastructure and address challenges by investing in renewable energy and energy-efficient sources and growing private sector investments.

Despite an overall increase in global investment in technologies related to the energy transition, Sub-Saharan Africa received less than 1.5% between 2000 and 2020. Unlocking the necessary capital will require intensive collaboration between government and the private sector, greatly increasing the likelihood of Nigeria achieving a just transition.

Lande Abudu, Component Lead, Standalone Solar Home Systems (SHS) Nigeria Electrification Project.

Nigeria’s energy source is mainly derived from petroleum reserves, natural gas, hydroelectricity and solar. The country remains a top producer of crude oil and natural gas in Africa. Some 45% of Nigeria’s population is actively connected to the energy grid and much of that is concentrated in urban areas. Power sector reforms have identified the need for expansion to rural areas, including through decentralized renewable energy and an increase in energy efficiency, especially in rural areas.

What are the solutions to Nigeria's energy transition?

This week in Abuja, the World Economic Forum together with the Renewable Energy & Energy Efficiency Associations (REEEA-A) conducted a Mobilizing Investment for Clean Energy Emerging Economies Initiative Deep Dive roundtable, which brought over 70 stakeholders from the public and private sectors together to discuss the strategic role that renewable energy is playing promoting energy security and just energy transitions in Nigeria, and underscore the need to accelerate investments into this sector.

Four concrete solutions that are catalytic in accelerating financing into Nigeria’s priority clean energy sectors were highlighted in the launch of the paper Mobilizing Investment for Clean Energy Community.

In developing this report, the working group carried out a country context risk analysis that shows Nigeria’s biggest risks in scaling the sector are complications with currency convertibility, financing structures, the availability and affordability of technology supply and technical know-how in the renewable energy sectors. These risks negatively affect the growth of the sector. As such, developing financial and technical assistance solutions are key to stimulating the sector’s growth.

According to the Rural Electrification Agency, scaling rural electrification through distributed solar generation, mini-grids, and off-grid technology alternatives has the potential to generate $9.2 billion in annual market investments for solar mini-grids. This can also save Nigerian households and companies $4.4 billion annually. However, certain barriers persist in the broader adoption of solar generation.

We cannot tell people to adopt renewable energy without educating on the social, economic, and environmental benefits. Africa needs a mind shift and this cannot happen without multistakeholder collaboration. There are major opportunities in green energy, but government must derisk these opportunities to attract investments.

Barbara Izilein, Senior Advisor, MD/CEO, Rural Electrification and Head, Solar Power Naija Programme, Rural Electrification Agency.

Nigeria is the largest consumer of oil-fired backup generators in Africa, with over 80% of power generation coming from gas reserves. Natural gas thus remains the primary source of power in future short-term plans, despite the shift to other renewable sources. The recent attractiveness of natural gas lies in the low-carbon features that make it relatively “clean” and less expensive in comparison to oil and coal.

Using natural gas as a transitionary fuel with a viable pathway to greener future solutions has potential to foster some $18.3 billion in gross value added to the local economy. This potential, coupled with the global difficulties the gas sector is facing, can create exponential growth in the nation’s domestic value chain. In addition to exporting natural gas to the global market, supporting domestic markets through investments in gas production and local distribution infrastructure is critical to achieving Nigeria’s energy transition goals.

The global renewable energy sector is massive and growing at a fast pace. Africa must do what it takes to leverage these opportunities and close the energy gap to avoid falling into deeper poverty.

Ademola Agunbanjo, Executive Vice President of Oando Clean Energy

Africa possesses substantial natural gas, hydro and solar resources, with the ability to generate significant electric power from existing plants. Despite this capacity, lack of transmission and distribution infrastructure hinders the growth of large and small-scale businesses and has created a mass of unserved households that do not have access to the national grid.

With the Nigerian government implementing several energy policies and programmes over the last decade, the next couple of decades present a unique opportunity for foreign capital providers to enter a market that is abundant in energy resources, has a capable workforce, and which according to the 2022 Nigeria Energy Transition Plan, is enabled by government to foster $1.9 trillion in energy investments by 2060. This acceleration requires in-depth policy coordination and harmonization to streamline existing and new government-related energy transition legislation.

While Nigeria recently launched the Energy Transition Plan that supports achieving universal access to energy by 2030 and a carbon-neutral energy system by 2060, there is a need for an action plan that states targets and timeline. This will enable the plan to be properly monitored and its goals achieved.

Dr. Talba Imamuddeen, Chairman, Renewable Energy and Energy Efficiency Associations Alliance.

In Nigeria, the Power Sector Reform Bill instated in 2022 enables states, private organizations and individuals to participate in the electricity generation and transmission and distribution sectors. The reform bill was formed to regulate power generation, transmission, and distribution tariffs, supporting the energy access through strengthening large-scale generation capacity and transmission and distribution networks.

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How is the World Economic Forum facilitating the transition to clean energy?

Moreover, Nigeria’s inflation rate increased by 16 per cent in 2022, resulting in low capital availability and restricting the access of developers to financing. The availability to finance capital costs for clean energy investments in dollars is limited and currency fluctuations pose a risk to foreign investors and project developers.

Projects that require significant upfront capital investment will benefit from a facility that provides access to local currency coupled with a facility that enables developers to obtain dollars at the naira bank rate. Such facilities will help enhance the issuance of corporate infrastructure debt instruments and act as a facilitator to attract investment potential from insurance firms, pension funds and other players that deepen Nigerian debt capital markets by reducing overall credit risk and lowering capital costs for the developer, and protecting conservative capital from potential losses. This would offer greater flexibility to developers as they could finance their projects in local currency.

As Nigeria strives to transform its energy sector, the country recognizes the critical need for technical capacity building through accelerator programmes for solar entrepreneurs and developers. Many large and small-scale clean energy projects rely on foreign expertise for technical assistance and financing advice.

Current training is provided by public offices such as the Rural Electrification Agency (REA) and Renewable Energy Association of Nigeria (REAN), and technical assistance is provided by Development Finance Institutions (DFIs) and foundations intermittently. It is key to build this capacity internally and ensure the development of local know-how over the long term.

The solutions highlighted as a result of the Deep Dive address the financing barriers in Nigeria’s clean energy priority areas, and help accelerate the investments needed to support Nigeria’s energy goals.

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Energy TransitionGeographies in DepthNature and Biodiversity
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