Nigeria’s solar hopes stall

Nigeria’s electricity sector is astonishingly small. Brazil and Pakistan, two countries with similar population sizes, generate 24 times and five times more power than Nigeria, respectively. Nigeria is aiming for 25 GW of installed power capacity by 2020, up from about 4 GW currently.

The country has also recently liberalized its electricity market (generation and transmission assets are fully privatized) and the government hopes this will gradually attract investment after decades of neglect.

Economic troubles abound

Given Nigeria’s plentiful solar resource and following the inauguration of a new president a year ago, solar PV growth expectations have gained force but remain checked by economic and financial concerns.

Since President Muhammadu Buhari came to power, oil prices have plummeted from $64 per barrel last May to just over $40 a barrel today. This is crucial because although oil accounts for only 10% of Nigeria’s GDP, it also accounts for 70% of the government’s revenues and 95% of export earnings.

Nigeria’s economy grew about 3% in 2015, almost half the rate of 2014, the stock market is down and foreign currency reserves have dwindled.

Consequently, Nigeria’s currency, the naira, is under heavy pressure. Nigeria’s president refuses to devaluate it fearing this would drive inflation. Instead, the central bank has restricted the supply of dollars and the import of a long list of goods, aiming to safeguard foreign currency reserves and trigger domestic production.

Economists disagree on what’s the best remedy for the economy. A devalued currency would make all imports become more expensive. Others stress that the restriction of imports from the state will be even more inflationary than a weaker currency, which would also improve domestic production.

The case for PV

Whatever the case, Nigeria’s solar PV sector is hurt.

Currently, there is a dire shortage of foreign currency, making it impossible for many businesses to import vital components and materials.

Nigeria’s PV market mainly comprises off-grid PV systems that provide electricity for households and small businesses.

Investors that may target large-scale PV plants worry that any investment they make now in naira will diminish later when the currency is inevitably devaluated.

Foreign investors and financing

Financing through foreign investors remains crucial. However, as highlighted in a report by McKinsey & Company on Africa’s energy, financial viability, the regulatory environment and the political will are all necessary factors for the power sector to advance.

On the regulatory side, Nigeria has liberalized the energy market and introduced new feed-in tariffs for solar PV plants. The government has also granted license exemptions for plants that generate less than 1 MW in aggregate. The dire economic crisis continues to affect the sector’s financial viability and scare off foreigner investors, however.

Commenting on Nigeria’s liberalization efforts, Professor Chidi Onyia, an advisor to Nigeria’s ministry of power, urged “fellow Nigerians to join us in this reform process by paying their electric bills.”

James Nicholas, co-founder and executive partner of U.S. company Global Business Resources (GBR), which has signed a memorandum of understanding with the Nigerian government to develop a 65 MW ground-mounted PV facility in Kano and Abuja, told pv magazine that the primary focus in the post-privatization era “is to ensure the actualization of a healthy and vibrant power sector that will ultimately deliver stable, reliable and affordable power to about 170 million citizens.”

Given Nigerians today are struggling to pay for basics like food and fuel, the reform process described by Onyia and Nicholas is in doubt.

Until Nigeria works its way out of its current economic crisis, the only foreign funds that might flow to the country’s solar sector would be via international initiatives such as Power Africa, announced three years ago by U.S. President Barack Obama, which aims to double access to power in sub-Saharan Africa.

Solar PV would go a long way in improving the quality of life for Nigerians, who are forced to queue for gasoline and endure regular electricity blackouts.