Reducing the energy poverty gap, Nigeria embarks on ambitious plan to increase power generationApr 1, 2015
The Government of Nigeria has set an ambitious target to increase installed electricity generation capacity to 40,000 MW in the medium to long term, with renewable energy such as solar photovoltaic (PV) potentially making up a large share. Current electricity capacity is around 6,000 MW, although actual available is about 4,000 MW.
Inadequate and unreliable power supply continues to negatively affect economic growth, of Africa’s biggest economy, with almost all businesses running diesel generators, which have high operating costs. To achieve the electricity generation target outlined in the draft national energy master plan, significant private sector investment will be required. However, in order to catalyze the much-needed investment in the power sector, barriers and their associated investment risks first need to be lowered.
UNDP is therefore supporting the government to develop a large-scale, on-grid renewable energy project with funding from the Global Environment Facility (GEF). The project will include a GEF grant of $4.4 million, with co-financing amounting to $150 million, mostly from the private sector. The project follows UNDP’s innovative Derisking Renewable Energy Investment (DREI) approach which identifies the key risk categories in the renewable energy sector before assisting policymakers to determine the most cost effective set of public instruments that can target those risks. A similar analysis carried out in Tunisia demonstrated that investing upfront in derisking measures is far more cost effective than paying a tariff-based price premium to compensate for risks, and can bring about significant improvements in affordability for solar PV.
Preliminary findings for the Nigeria renewable energy project, based on initial consultations with domestic and international investors, have identified “power market risk”, “grid/transmission risk”, “counterparty risk” and “currency risk” as major risk categories for solar PV investment. The result is that investors require a higher return to compensate for these risks, increasing the financing costs for solar PV in Nigeria.
Ultimately, the objective of the GEF project is to lower the financing costs by supporting the government to put in place policy and financial derisking instruments and by strengthening the capacity of key stakeholders across the value chain. It is expected that the project will provide specialized training to independent power producers, university engineering students and government entities on renewable energy. By helping to create a favorable environment for private investment in renewable energy, it is hoped that the initiative will facilitate the approval and commissioning of the first 100 MW grid-connected solar PV power plant in the country.
For more information on UNDP’s work on derisking renewable energy investment (DREI), please see: www.undp.org/DREI