At the end of March, Wolf-Dietrich Fugger, EWIA's Director West Africa, travelled to Nigeria with our Nigeria-experienced business partner Uwe Hassenkamp on an eight-day trip with stops in Lagos and Abuja. In his travel report, he provides his personal impressions of the situation in the country and a business update on EWIA's activities in the West African powerhouse:
Nigeria's new President Bola Ahmed Tinubu surprised the population with some unpopular reforms in the middle of last year. Economically, they were long overdue. For example, diesel subsidies were withdrawn in mid-2023, which led to a drastic increase in the price of petrol (+50% year-on-year) and social tensions. Electricity prices rose by around 300% in 2024. At the same time, a reduction in electricity price subsidies is being discussed, which will further drive up the price of grid electricity (... if it is available at all...).
And when we arrived in Lagos on Sunday evening, the first thing we realised was that the government's measures against the black market, which were passed last year, were taking effect and meant that we were able to get a better exchange rate in Naira (exchange rate: 1 EUR = 1,700 Neira) at the official exchange offices at the airport than at the countless money changers trying to do business in the airport pick-up area.
Nigerians have so far been able to rely on power cuts
The country suffers extremely from regular and unpredictable power cuts, even though it has plenty of resources! In some cases, the power in major cities is switched off for 10 hours or more every day. Last year, the power grid in Nigeria collapsed eight times in major parts! And once there was even a blackout that affected the whole nation: 220 million people were left in the dark.
According to the latest report by the International Energy Agency, Nigeria is the country with the most power outages in the world. This is mainly due to the limited grid infrastructure and insufficient investment, which hinder economic development.
Nigeria suffers greatly from this inadequate power supply. The average daily production of 4,100 megawatts is far below the daily demand of 30,000 megawatts. The oil-rich country in West Africa - the continent's largest economy - is therefore unable to meet its own electricity needs.
Massive impact on the local economy
Those companies that can still afford it at a diesel price of USD 0.90 or higher are using diesel generators to produce electricity. For companies that can afford to install PV systems, the main motivation is not to achieve a specific climate target or reduce their environmental footprint. These considerations are secondary to the cost-benefit ratio that solar systems must have compared to the customer's existing energy sources (i.e. usually grid electricity and/or diesel generators). A potential developer must convince the end user of the competitiveness of electricity costs before a system can be installed.
For entrepreneurs in Nigeria - as everywhere in Africa - PV systems are rationalisation investments for the purpose of improving or modernising their own energy supply. The primary aim is to achieve a predictable and more efficient power supply and thus reduce costs. They must be financed with own funds and reduce costs. Only if the investment pays for itself quickly will companies consider it.
Another reason for the introduction of PV systems is the rising cost of self-generation and grid electricity as the government slowly reduces expensive energy subsidies for petrol and electricity. The cost of diesel is not subsidised by the government. Local prices for the commodity are rising because the devaluation of the local currency, the naira, is increasing the cost of fuel. However, these rising costs are also improving the economic efficiency of PV systems, and it can be assumed that this will continue to increase in the foreseeable future.
In order to overcome the challenges on the electricity market, the government has launched several initiatives that are in line with the goals of the national energy agenda and that prioritise access to safe, reliable and affordable energy for the Nigerian population. Politicians and the industry in particular are therefore increasingly focusing on decentralised, affordable and clean solar energy. Another factor that favours the introduction of PV systems throughout the country: Nigeria has plenty of sunshine, with an average of around 3,000 hours of sunshine per year.
New electricity law opens up opportunities
On 9 June 2023, the Nigerian government passed an Electricity Act that has set a number of important milestones. These include the liberalisation of Nigerian electricity generation, transmission and distribution at national level, whereby states, companies and individuals are authorised to generate, transmit and distribute electricity.
Under the Act, states can grant licences to private investors to operate mini-grids and power plants in their territories. However, the Act excludes inter-state and cross-border distribution of electricity. The Act also allows private investors to obtain (i) generation licences, (ii) transmission licences, (iii) grid operation licences, (iv) trading licences and (v) distribution and supply licences.
Priority is given to the development and utilisation of renewable energies. The Act promotes the integration of renewable energy technologies into the existing grid system.
The law also introduces mechanisms to incentivise investment in renewable energy projects, such as feed-in tariffs, which guarantee a fixed price for electricity from renewable energy fed into the grid, as well as tax incentives.
Against this backdrop, we have held many discussions with companies from various sectors, but also with high-ranking government representatives (including the Minister of Aviation) and authorities, including the Federal Housing Authority in Abuja. Solar energy is now to be massively promoted and expanded throughout the country, e.g. each of Nigeria's 36 federal states is to have a solar park of between 20 and 50 MW.
The most important programme for the expansion of rural decentralised energy supply is the large-scale Nigeria Electrification Project. The programme, which is worth over half a billion US dollars, is largely financed by the World Bank and the African Development Bank. It focuses on PV-powered microgrids (mini-grids). By August 2023, 103 such mini-grids with a total capacity of 5.6 megawatts had already been installed. On the Nigerian side, the state-run Rural Electrification Agency (REA) is responsible for this and other electrification programmes.
The government is also currently having 37,000 houses built for low-income earners and people in need, which are to be equipped with solar panels.
As a result, the days in Nigeria were fully booked with appointments with potential customers and cooperation partners. Among others, we spoke with solar companies, real estate project developers, quarry operators, mobile phone infrastructure operators, certified auto test centres, manufacturing companies and consulting firms. Conclusion: Many interesting projects on the table, the first of which are being prepared for implementation. A successful trip that we would like to follow up on in May 2024 with the planned establishment of a local company in Nigeria and the launch of the first projects.