Power policy

Nigeria has a handful of clean energy policies, including an ambitious target to achieve 30 gigawatts (GW) of power generation by 2030, of which 30% is expected to come from renewables.

The country’s failure to provide a stable national electricity grid has created a fertile environment for the decentralized off-grid PV sector to develop. Nigeria introduced supportive mini-grid regulation in 2017, making it easier for developers to build projects of 100 kilowatts to 1 megawatt (MW) in size. BloombergNEF estimates that there were 422MW of distributed-PV (meaning residential and commercial) installed in the country at the end of 2021. Projects with capacity more than 1MW often require time-consuming approvals, such as a generator license from the regulator, the Nigerian Electricity Regulatory Commission (NERC).

In the on-grid space, the 14 solar developers that signed utility-scale power purchase agreements (PPAs) in 2016 have stalled, due to discrepancies in guarantees or risk measures that the government needs to make, with no certainty as to when or if these will actually be built.

Power prices and costs

The federal Nigeria Electrification Project (NEP) aims to provide electricity to households as well as micro, small and medium enterprises in off-grid communities using renewable power sources. It is being implemented in collaboration with partners including the World Bank and African Development Bank, which together have provided $550 million in funding. By the end of June 2022, the project had achieved 11,200 new connections (4MW) in solar hybrid mini-grids and 565,000 new standalone solar home systems totaling 15.9MW.

Separately, the Solar Power Naija (SPN) program for mini-grids, solar home systems and PV manufacturing, introduced in December 2020 as part of a Covid-19 economic recovery plan, aims to achieve five million new off-grid PV connections by the end of 2023 and has a fund size of $350 million. Only companies registered under NEP are eligible to participate in the SPN scheme. Both the NEP and SPN are implemented by Nigeria’s Rural Electrification Agency.

With the two programs, Nigeria is aiming to fix development problems created by a lack of access to electricity, as well as the pollution from fuel-powered generators, one of the most popular power sources.

BNEF estimates Nigeria received $427 million of new investment in renewable energy in 2021, up from a combined $312 million in the previous two years.

Power market

Electricity prices set by regulator NERC under its multi-year tariff-order model had been criticized by distribution companies as not cost-reflective, leading to investment stagnating. Tariffs had not had a major update since 2015 and so did not incorporate the significant drop in the price of solar that has occurred worldwide, for example.

In a minor review in 2020, NERC finally approved new Extraordinary Tariff Review applications, Performance Improvement Plan (PIP) and Capital Expenditure (Capex) for electricity distribution companies, effective from July 1, 2021 and running until June 30, 2026. It also reviewed the national grid tariff again in November 2020, increasing it to 62 Nigeria naira per kilowatt-hour ($0.2/kWh) from 30 naira/kWh ($0.1/kWh). But this tariff hike was delayed due to the Covid pandemic and was not in place as of the end of 2021. The average urban and rural household in Nigeria spent as much as $0.23/kWh on petrol generators in 2021.

No wholesale power market exists yet in Nigeria, with state-owned Nigerian Bulk Electricity Trading (NBET) instead brokering transactions between generators and distributors. The “Eligible Customer” regulation allows bulk buyers to buy directly from a generator at a negotiated PPA rate. BNEF carried out a detailed study about on-site solar in Nigeria in 2018 and found that solar on commercial and industrial premises can cost between $0.1-0.2/kWh. PV alone is already cheaper than grid electricity tariffs or electricity from a diesel generator, which typically costs $0.28-0.32/kWh. Though for isolated residential-based solar hybrid mini-grids, BNEF’s State of Global State Minigrids 2020 report found the levelized cost of electricity for mini-grids in Nigeria to have a huge range, reaching $0.5-1.46/kWh.

Doing business and barriers

Nigeria has a very strong solar resource (with an average PV capacity factor above 20%), followed by a potential of up to 3.5GW in small hydro. There is little wind potential. Nigerians spent an estimated $20 billion to power privately-owned diesel or gasoline generators in 2021 alone. More than 60% of companies in Nigeria have access to, or rely heavily on, diesel generators, compared to less than 20% in South Africa. The potential for mini-grids in Nigeria is therefore substantial.

The on-grid peak demand reported by the government was 29GW in 2021, but actual demand, accounting for off-grid consumption, is likely to be well over 50GW.

Nigeria announced the Power Sector Recovery Program (PSRP) in 2016, a series of policy actions, operational, governance and financial interventions to be implemented by the Federal Government of Nigeria between 2017 and 2022, in order to reset the Nigerian Electricity Supply Industry (NESI) for future growth. The World Bank Group expressed its willingness to assist the PSRP with a $750 million loan commitment, of which $287 million has been disbursed as of March 2022.

Most major barriers to solar in Nigeria are financial, from debt availability to credit risk and foreign exchange hedges. Many developers in Nigeria want import tariffs to be reduced, and priority for clean energy products at ports.

Currency-conversion risks are also substantial. Revenue for most solar projects is in Nigerian naira, which international developers need to convert to foreign currency. The Central Bank of Nigeria allocates US dollars to local banks but applies restrictions on converting naira. This poses a huge risk, particularly if a company holds US dollar-denominated debt. As a result, the market is dominated mostly by local players that are more comfortable with owning or earning naira.

Currently, PV modules must pay a 5% import duty plus 7.5% value-added tax (VAT). Batteries are taxed a total of 27.5%, made up of 20% import duty and 7.5% VAT.

EV market

Nigeria does not yet have an electric vehicle policy and the market remains at an early stage.

EV policy

The government has yet to implement any substantive policy support in this sector.

Buildings market

The climate of Nigeria means the focus is on cooling rather than heating buildings. Since 2017, Nigeria has set minimum standards for energy-efficient buildings. The objective is to reduce energy costs and wastage, and conserve available energy for utilization in homes, companies and public buildings. However, the government has yet to implement any substantive policy support.

Buildings policy

There are no specific laws.