Nigeria, experts seek low cost capital for grid-connected renewable energy investment

The Federal Government of Nigeria and the United Nations Development Programme (UNDP) are providing supports for green energy investors to access funding for renewable energy development in the country.

The Director-General/CEO of Energy Commission of Nigeria (ECN), Engr. Prof. E. J. Bala  disclosed this in an opening remark at a Two – Days Stakeholder’s Consultative Forum on Unlock Low-Cost Local Capital for Grid-Connected Renewable Energy Investment in Nigeria, and explained that the meeting was “organized to create opportunities for Stakeholders to take stock of the current reforms in the financial sectors in the country as highlighted in the report of a study conducted to provide understanding of the “Nigerian Financial Sector Reform to unlock Low-cost local capital for green investment in Nigeria”.

The programme is part of  the 2017 UNDP-GEF project on ‘De-Risking Renewable Energy Nationally Appropriate Mitigation Action (NAMA) for the Nigerian Power Sector’, aimed at assisting the Government of Nigeria to achieve transformation in its electricity mix, with a target of generating at least 20GW of the country’s electricity from solar PV by 2030.

Investment in Solar PV in Nigeria is in its budding stage, and the Federal Government has for some years been seeking to develop large-scale PV generation to boost electricity distribution to Nigerians. In pursuit of that, in July 2016, Nigeria signed a total of 14 individual Power Purchase Agreements (PPA) through the Nigerian Bulk Electricity Trading (NBET) company for a total of about 1,075 MW of generation capacity and as much as USD 1.6billion in capital investment. Large-scale renewable energy projects involve substantial amount of up-front capital to pay for components such as PV modules, inverters, tracking system, and steel, as well as concrete and electrical services.

The Director-General noted that large-scale renewable energy development is being hindered by a number of challenges which majorly includes lack of local capital or financing opportunities. The reason he said is that the “Deposit Money Banks (DMBs)’s liabilities (sources of funding), such as deposits and borrowings, are of much shorter term than what would be needed to match the needs of renewable energy project finance”. The other is that “DMBs only have limited access to foreign currency – the vast majority of their funding is NGN-denominated. Thirdly is also because it is unlikely that any DBM will yet have the internal capability to assess the credit and other risks associated with solar PV”.

He however said there is good reason to explore supporting DMBs in addressing these barriers as these institutions are the most important intermediaries in the private sector component of the Nigerian financial system hence, the Stakeholders Consultative Forum which is aimed to help technical experts to:

• Understand the true situation of the Nigerian financial system with respect to financing large-scale renewable energy projects in the country;
• Analyze the barriers to deposit money banks involvement in large-scale renewable energy (solar PV) in Nigeria.
• Brainstorm on priority areas and actions, including innovative financial instruments, where domestic and international Development Finance Institutions (DFIs) can contribute to financing renewable energy in Nigeria; and
• Discuss appropriate financial de-risking Instruments, propose and recommend means of adopting and mainstreaming the recommendations in the domestic financial systems.

In his presentation at the Forum, the CEO-Soboms Nig Ltd/So-Konsult Business & Services, Elder Boma V. Benebo, highlighted what he termed as ‘The Macro Economic Situation in Nigeria: Barriers To Availability Of Low Cost Capital For Renewable Energy Investment In Nigeria’. According to him, some of the major indicators include “Cash Reserve Ratio (CRR) debits pushing up overnight lending rates and the downward credit rating for Nigeria” which are limiting investments in the country. These indicators he said, are influenced by

• Low purchasing Power of end-users of electricity
• Frequent devaluation of the naira, preventing long term tariff determination
• Insecurity and resultant high cost of Insurance
• Inability of NBET (Bulk trader) to close out new contracts due to challenges in the power sector
• Political interference in every sphere of contract
• Poor or inadequate infrastructure leading to high cost of doing business.

Benebo however, noted that Nigeria remains a big market for investment in electricity in the world. Referencing a World Bank Report of Feb, 2021, the expert stated that “85 million Nigerians which represents 43% percent of the country’s population do not have access to grid electricity, making Nigeria the country with the largest energy access deficit in the world. The lack of reliable power is a significant constraint for citizens and businesses, resulting on annual economic losses estimated at $26.2 billion (₦10.1 trillion) which is equivalent to about 2 percent of GDP” – he said.

Nnenna.O