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By 2050, renewable energy generation can meet 60% of Nigeria's energy needs
What is the potential of Nigeria's photovoltaic market?

Research shows that the installed capacity of fossil fuel power generation facilities and hydroelectric power generation facilities currently operating in Nigeria is only 4GW. It is estimated that to fully provide electricity to its 200 million population, the country will need to install approximately 30GW of power generation facilities.

According to the International Renewable Energy Agency (IRENA), by the end of 2021, the installed capacity of Nigeria's grid connected photovoltaic systems is only 33MW. And the photovoltaic irradiance in the country ranges from 1.5MWh/m ² To 2.2MWh/m ² Why is Nigeria's abundant photovoltaic power generation resources still constrained by energy poverty? The International Renewable Energy Agency (IRENA) estimates that by 2050, renewable energy power generation facilities can meet 60% of Nigeria's energy needs.

Currently, 70% of Nigeria's electricity is provided by fossil fuel power plants, with the majority of the remaining electricity coming from hydroelectric power facilities. Five major power generation companies dominate the country, with Nigeria Transmission Company being the only transmission company responsible for the development, maintenance, and expansion of the country's transmission network.

The distribution company in the country has been completely privatized, and the electricity produced by the power generation company is sold to the Nigerian Bulk Electricity Trading Company (NBET), which is the only bulk electricity trader in the country. The distribution company purchases electricity from the power generation company by signing a Power Purchase Agreement (PPA) and sells it to users by awarding contracts. This structure ensures that power generation companies can obtain a guaranteed electricity price no matter what happens. But there are also some fundamental issues that affect the adoption of photovoltaic power generation as part of Nigeria's energy structure.

Profitability concerns

Nigeria first discussed grid connected renewable energy power generation facilities around 2005, when the country introduced the "Vision 30:30:30" initiative. The goal of this plan is to achieve the goal of installing 32GW of power generation facilities by 2030, with 9GW coming from renewable energy power generation facilities, including 5GW of photovoltaic systems.

After more than 10 years, 14 photovoltaic independent power producers finally signed power purchase agreements with Nigeria Bulk Electricity Trading Company (NBET). Subsequently, the Nigerian government introduced a feed-in tariff subsidy (FIT) to make photovoltaic power generation more attractive to investors. Interestingly, due to policy uncertainty and a lack of grid infrastructure, these initial photovoltaic projects were not funded.

A key issue is that the government of the country has changed the previously established tariffs and reduced the subsidies for grid electricity prices, citing a decrease in the cost of photovoltaic modules. Out of the 14 independent photovoltaic power producers in the country, only two companies have accepted a reduction in their feed-in tariff subsidies, while the remaining companies have stated that the feed-in tariff subsidies are too low to accept.

Nigeria Bulk Electricity Trading Company (NBET) also requires partial risk guarantee, which is an agreement reached between the company as the purchaser and financial institutions. Essentially, this is a guarantee to provide more liquidity to Nigeria's bulk electricity trading company (NBET) when it needs cash, and the government must provide this guarantee to financial entities. Without this guarantee, photovoltaic independent power producers will not be able to achieve financial settlement. But so far, the government has not provided guarantees, partly due to a lack of trust in the electricity market, and some financial institutions have now cancelled proposals to provide guarantees.

Ultimately, the lack of trust among lenders in the Nigerian electricity market also stems from fundamental issues with the power grid, especially in terms of reliability and flexibility. This is why most lenders and developers need guarantees to protect their investments, while the operation of most of Nigeria's power grid infrastructure is not reliable.

The Nigerian government's preferential policies for photovoltaic systems and other renewable energy sources are the foundation for the successful development of clean energy. One strategy that can be considered is to split the acquisition market by allowing companies to purchase electricity directly from power suppliers. This largely eliminates the necessity of price regulation, enabling those who do not mind paying a premium for stability and flexibility to do so. This in turn eliminates most of the complex guarantees required by loan institutions for project financing and improves liquidity.

In addition, upgrading the grid infrastructure and increasing transmission capacity are crucial, as more photovoltaic systems can be connected to the grid, thereby improving energy security. In this regard, multilateral development banks can also play an important role. The reason why fossil fuel power plants can be successfully developed and continue to be used is because multilateral development banks have provided risk guarantees for them. If these can be expanded to the emerging photovoltaic market in Nigeria, it will increase the development and adoption of photovoltaic systems.

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