The Future’s Bright? The Outlook for Renewable Energy in Nigeria

Nigeria recently passed the Electricity Act 2023 (“the Act”), ushering in a new era as renewable energy gained recognition and prominence in the country’s legislation. This deliberate shift toward sustainable power sources has the potential to revolutionise Nigeria’s energy sector, reduce carbon emissions, and pave the way for a cleaner and more sustainable energy future.

Nigeria has produced electricity from hydropower sources for decades, yet the potential of renewables has often been overshadowed by the dependability and availability of non-renewable energy sources. While renewable energy shows a lot of promise, several challenges must be addressed in order for it to be successfully utilised – for example, intermittency, grid integration, infrastructure development, the cost of power, and financing.

To address these issues, the Act charges the Ministry of Power with the task of preparing the National Integrated Electricity Policy and Strategic Implementation Plan (“the Policy”), which will include provisions for:

When comparing the cost of establishing a new renewable energy system and that of a new conventional power plant, Lazard’s 2023 Levelized Cost of Energy report reveals that renewable energy plants are typically more cost-effective than conventional power plants. New technology has resulted in cheaper turbine blades, solar panels and other equipment, leading to lower project costs. 

About 80% of Nigeria’s energy is from generating plants fuelled by gas, which is priced in USD. The floating of the naira led to a change in the exchange rate from NGN471 for USD1 to NGN755 for USD1, which will eventually increase the cost of power.

Renewable energy sources are not subject to recurring expenditure on feedstock –meaning risks posed by foreign exchange rates, international crises or other factors that increase the cost of fossil fuel are eliminated, thereby ensuring long-term cost-effectiveness. Renewable energy projects can therefore potentially stabilise the energy market – not to mention foster economic growth and energy security – by reducing the effect of volatile fossil fuel prices on the cost of power.

A report by LUT University Finland and Energy Watch Group emphasises the importance of producing energy in decentralised systems for greater efficiency.

One of the objectives of the Act stated in Section 1(m) – and echoed both in Section 128 as an objective of the Rural Electrification Agency (the REA) and in section 143 as a purpose of the Rural Electrification Fund (the REF) – is to improve access to rural electricity by developing and promoting mini-grid and off-grid solutions for renewable power systems. The Act also stipulates that the National Electric Regulatory Commission (NERC) will:

Nigeria’s Energy Transition Plan aims to generate more renewable energy for transport, domestic and industrial use. Meanwhile, Nigeria’s Sustainable Energy for All initiative seeks to increase renewable energy to 30% of the electricity mix by 2030.

In recognition of the role subsidies play in supporting growth, the Policy is geared towards promoting waivers, subsidies and financial incentives to stimulate the development of renewable energy projects. In addition, one objective of the Power Consumer Assistance Fund established by Section 122 of the Act is to subsidise power for underprivileged consumers. Meanwhile, the REF provides capital subsidies to qualified rural electrification schemes (Section 141(5) of the Act). Nigeria can use subsidies to stimulate investment and incentivise the transition to cleaner alternatives.

Tax incentives have been used in other countries to increase renewable energy projects. One such example is Chapter 313 of the Texas Tax Code, which has prompted an increase in renewable energy projects from 35 in 2018 to 103 in 2020.

The REA’s functions include advocating and facilitating tax incentives, investment capital allowances and low-interest loans for local producers of renewable energy products. Further, the Act specifically provides for the Federal Ministry of Finance to introduce tax incentives and reliefs in order to promote and facilitate the implementation of renewable energy projects (as well as the generation and consumption of energy from renewable energy sources).

The Act establishes institutions to enhance the development of renewable energy – for example, the National Hydroelectric Power Producing Areas Development Commission (Section 82), which formulates policies and guidelines for the development of hydroelectric power-producing areas.

The REA plays a pivotal role in implementing programs for rural electrification, expansion of the grid, and the adoption of international best practices in renewable energy utilisation. The REA aims to:

By transitioning away from fossil fuels, Nigeria can significantly reduce its carbon footprint in order to meet its goal of net zero emissions by 2060 and combat climate change. Embracing renewable energy furthers Nigeria’s climate commitments under the Paris Agreement and showcases its commitment to a sustainable and greener future. From an environmental standpoint, renewable energy sources such as solar and wind offer clean and zero-carbon alternatives.

The Act paves the way for partnerships and collaborations between various stakeholders in the renewable energy sector and provides that the Policy, the Ministry of Power, the REF and state governments can promote and support PPPs. The Memorandum of Understanding between Oando Clean Energy Limited and the REA for the Solar Power Naija programme is an example of such partnership. With its vast renewable energy resources, partnerships between public and private sectors, and a commitment to technological advancements, Nigeria stands poised to lead the way in Africa's renewable energy revolution.

Nigeria's transition to renewable energy signifies a turning point in the country’s energy history. By embracing the potential of renewable sources and prioritising their integration into the national energy mix, Nigeria has embarked on a path towards reducing carbon emissions and fostering a sustainable future powered by the sun, wind and other clean sources for generations to come.