Transition to Low-Carbon Economy in Nigeria: Development of Renewable Energy

INTRODUCTION

Nigeria is the largest oil producer in Africa for the year 2022, with a production estimate of about 139 million barrels per day (bpd). According to members of the Organization of Petroleum Exporting Countries (OPEC), production levels are expected to peak in 2023, with 65% of oil production sourced from offshore projects. [1]

Following increasing production costs and the instability in Nigeria’s energy sector, oil production is projected to decline by 35% over 10 years, as investments in oil production countries decline. In April 2022, Nigeria’s crude oil production fell to an average of 1.219 million barrels per day (bpd).[2]

It can be expected that production will decline on a steady basis from late 2023 onward, until deep-water developments such as the Bongo Field – expected to attract $10 billion in new investment, and add 150,000 barrels of oil per day to domestic output – are live.[3]

As revenues decrease due to decreasing production output and a decrease in global consumption of crude oil, Nigeria has acknowledged that it needs to be competitive to boost its margins. In 2019, the operating cost for exploration and production companies was estimated at $48. This was slightly higher than that of comparable African countries, such as Angola and Uganda, at $45 and $44, respectively. According to the Minister of State for Petroleum Resources, the current average cost of production per barrel is between $20 and $30 depending on the terrain. However, the cost per barrel in Saudi Arabia is $7.[4]

GAS PRODUCTION IN NIGERIA

Following the decline in oil production, there has been a shift to natural gas production. Nigeria had around 5.5 trillion cubic meters of gas reserves as of 2020, which is one of the largest reserves in the African region.

Besides exporting to regional nations, Nigeria also plans to export to Asian nations, like India and China. During the next decade, demand for gas is expected to increase.

A significant amount of gas is also used in the country’s power sector. Gas-fired power plants in the country are consistently underutilized due to a lack of uninterrupted gas supply. Additionally, the commercial, residential, and industrial sectors are expected to generate potential domestic demand. To tap into this potential, the Nigerian government is building a national gas distribution network.

In addition, it has invested heavily in LNG plants, gas processing plants, and gas pipeline projects.

From the above, the country’s oil and gas market is expected to be driven by increased investment in natural gas infrastructure.[5]

Despite the challenges in relation to the production of oil and gas in Nigeria and the economy at large, there is every reason to be optimistic believe that Nigeria’s transition to a low-carbon economy and renewable energy sources. Following this, a positive effect would be felt in businesses as well as possibly a boost to the energy sector, which remains vital for the sustainability of the country’s economy.

THE STRUCTURE OF THE NIGERIAN ENERGY SECTOR

Since the 1970s, the reliance on biofuels and waste has risen in absolute terms, while that of oil and natural gas has remained fairly constant, despite the increase in the extractive industries. Most likely, this is due to the high cost of oil and natural gas to consumers as well as the absence of local refining, as well as a weak domestic gas infrastructure.[6]

Around 85% of Nigeria’s energy consumption, 99.3 million tonnes of oil per year, comes from biofuels and waste. Most of that energy is used for residential purposes. Thus, a majority of residential energy demands are met by biomass and waste. In fact, a bulk of that is probably used for cooking purposes, since only then can we explain the predominance of biofuels and waste.[7]

The main cause of the country’s changing vegetation and the acceleration of desertification is the usage of biofuels. Furthermore, as the rural population grows in many regions of Nigeria, the issue will only get worse.

THE RENEWABLE ENERGY PROJECTS IN NIGERIA

The Renewable Energy Master Plan (REMP) is a policy of the Nigerian government which came into being in 2005. It was set up by the Nigerian government in order to increase the share of renewable electricity in Nigeria, from 13% of electricity generation -mainly met by large hydro- in 2015, to 23% in 2025 and 36% by 2030.[8]

According to the plan, targets for the Renewable Energy Contribution to Electricity Generation (MW) in Nigeria, should incrementally increase in the short, medium and long term. Among other things, the plan aims to increase the percentage of renewable contributions to electricity generation to 36% in the long term.

Also included in the REMP are installed capacity targets for a number of renewable energy technologies, including Small-hydro: 600 MW in 2015 and 2, 000 MW by 2025; Solar PV: 500 MW by 2025; Biomass-based power plants: 50 MW in 2015 and 400 MW by 2025; Wind: 40 MW for wind energy by 2025.[9]

In partnership with Power Africa, USAID launched the Renewable Energy and Energy Efficiency Project (REEEP) in Nigeria in 2018. As a result of interconnecting 16,600 solar installations, about 261,938 Nigerians will have access to renewable energy, which will, in turn, reduce their carbon footprint. [10]

In 2020, The Federal Government of Nigeria, in using the instrumentality of the Central Bank of Nigeria, with the aim of providing affordable electricity to rural dwellers, implemented a solar intervention fund that will give obligors access to credit facilities up to a maximum of N500m.[11]

CHALLENGES OF RENEWABLE ENERGY PROJECTS IN NIGERIA

Despite the best efforts of government and non-government actors in speeding up the transition from non-renewable energy sources to renewable energy sources, there have been a number of challenges slowing down this transition. It is important to note that some of the challenges discussed are not peculiar to just Nigeria.

Among the biggest obstacles are high financing costs, lack of incentives, insufficient access to long-term finance and capital, grid connectivity issues and lack of grid capacity, instability of the local currency (currency fluctuations), and lack of the technical know-how to operate and maintain renewable energy technologies.

Particularly for developing countries, costs and a lack of sound policies are the greatest obstacles. Start-up expenses, a lack of approaches to balance price disparities between renewables and fossil fuels, and overall structural obstacles, such as the centralised nature of the energy industry, impede the development of novel initiatives, deter investments in renewables, and frustrate more localised approaches to energy access. Introducing renewable energy poses a problem of inequality. The issue is that technology dissemination, financial accessibility, and policy execution are uneven inside and beyond national borders.[12]

Even within national borders, access to the promises and outcomes of a transition to a low-carbon economy using renewable energy resources still differ based on socio-economic status.

CONCLUSION

Although the development of renewable energy faces serious structural and attitudinal issues, it remains a more sustainable and long-term investment in the provision of energy.

The switch to an energy infrastructure based on renewable technology will have very favourable economic effects on both development and the world economy. The International Renewable Energy Agency (IRENA) estimates that to satisfy the goals outlined in the Paris Agreement, a global share of renewable energy in electricity generation of 57 per cent must be achieved by 2030.

To achieve this, yearly investments in renewable energy must increase from the current level of USD 330 billion to USD 750 billion. This will spur the green economy’s growth and employment creation.

  1. Anon. OPEC President Calls for Increased Investment in Oil and Gas. [online] Energy Capital & Power. Available at: <https://energycapitalpower.com/opec-president-calls-for-increased-investment-in-oil-and-gas/> 2022 [Accessed June 20222].
  2. Oyekanmi, S. Nigeria’s oil production falls to 1.2mbpd in April 2022. [online] Nairametrics. Available at: <https://nairametrics.com/2022/05/17/nigerias-oil-production-falls-to-1-2mbpd-in-april-2022/> 2022 [Accessed June 2022].
  3. Anon. Oil Producer: Top 10 African Countries in 2022. [online] Energy Capital & Power. Available at: <https://energycapitalpower.com/biggest-oil-producer-in-africa-in-2022/> 2022 [Accessed June 2022].
  4. KPMG. Nigerian Oil and Gas Industry Update, Issue No.2021/02. [online] Available at: <https://assets.kpmg/content/dam/kpmg/ng/pdf/tax/nigerian-oil-and-gas-update-quarterly-newsletter-edition-q2-2021.pdf> 2021 [Accessed June 2022].
  5. Mordor Intelligence. NIGERIA OIL AND GAS MARKET – GROWTH, TRENDS, COVID-19 IMPACT, AND FORECASTS (2022 – 2027). [online] Available at: <https://www.mordorintelligence.com/industry-reports/nigeria-oil-and-gas-market> 2021 [Accessed June 2022].
  6. EU/GIZ, The Nigerian Energy Sector An Overview with a Special Emphasis on Renewable Energy, Energy Efficiency and Rural Electrification. [online] Available at: <https://www.giz.de/en/downloads/giz2015-en-nigerian-energy-sector.pdf> 2015 [Accessed June 2022].
  7. Supra
  8. Anon. Renewable Energy Master Plan – Policies. [online] IEA. n.d. Available at: <https://www.iea.org/policies/4967-renewable-energy-master-plan> 2022[Accessed June 2022].
  9. Supra
  10. USAID. RENEWABLE ENERGY AND ENERGY EFFICIENCY PROJECT IN NIGERIA: FINAL PERFORMANCE EVALUATION. Available at: https://pdf.usaid.gov/pdf_docs/PA00TDS5.pdf n.d.[Accessed June 2022]
  11. C.B.N. Framework for the implementation of solar connection facility. Available at: <https://www.cbn.gov.ng/out/2020/dfd/solar%20connections%20facility%20guidelines%201.0.pdf> 2015 [Accessed June 2022]
  12. Kochtcheeva, L.V., Renewable Energy: Global Challenges. [online] E-International Relations. Available at: <https://www.e-ir.info/2016/05/27/renewable-energy-global-challenges/> 2013 [Accessed June 2022].

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