June 22, 2024
Suit 25, Mangal Plaza, Nouakchott Street, Wuse Zone 1, Abuja- Nigeria.
RENEWABLE ENERGY

Nigeria’s Power Struggles: How Renewable Energy can Light the Way Forward, By Tobi Oluwatola

On Monday, 3 June, Nigerian labour unions, protesting for higher wages and lower electricity tariffs, forced a nationwide blackout that lasted two days. While the wisdom of this tactic can be debated, it highlights the severe hardships Nigerians face due to unreliable power and a seemingly unresponsive government.

One year into President Bola Tinubu’s “Renewed Hope” administration, objective indicators (as seen in Bismark Rewane’s presentation on Channels TV) suggest the country’s situation has worsened. Government spending appears focused on self-serving pursuits, rather than initiatives that stimulate economic growth. A glaring example is the Lagos-Calabar road project. Despite public resistance and billions in private property demolition, the administration bulldozed through with awarding the N15 trillion project to a close associate of Mr Tinubu, bypassing a cost-benefit analysis and public bidding process.

The Crushing Grip of Power Outages

Frequent blackouts disrupt daily life and hinder economic development. This situation has been exacerbated by the recent government decision to raise electricity tariffs. Band A customers now face a staggering 400 per cent tariff increase, from N50/kWh to N220/kWh. Other bands saw close to a 50 per cent hike to roughly N70/kWh. While intended to improve the power sector’s financial health, these increases actually create an even greater burden on already struggling families and businesses, especially considering the unreliable power supply.

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Imagine owning a small business that loses power unexpectedly. Machines grind to a halt, customers leave, and a day’s earnings vanish. Economists use the term “value of lost load” (VoLL) to quantify the cost of these outages. For businesses, this can range from N3,000 to N15,000 per lost kilowatt-hour (kWh). A medium-sized business experiencing a single day of blackout could lose millions of naira. The impact extends beyond the business owner, and affects employees, suppliers, and the entire community.

A Ray of Hope: Solar Power

There’s a beacon of hope shining through: renewable energy, particularly solar power. However, urgent action is needed from the “Renewed Hope” administration to make it accessible to most Nigerians, many of whom are struggling to afford basic necessities.

Beyond the current challenges, a compelling case can be made for solar power. In fact, a solar system with approximately four hours of battery storage is currently the most cost-effective source of electricity. Let’s delve into the specifics with a practical example.

Case Study: Restaurant Owner in Abuja

Imagine you own a restaurant in Wuse 2, Abuja, and are subject to the new Band A rates. Your restaurant operates from 6:00 a.m. to 2:00 a.m., with peak customer traffic during lunch (12:00 p.m. to 4:00 p.m.) and dinner (6:00 p.m. to 12:00 a.m.). To maintain operations, you require five 1.5 HP AC units (approximately 45 kWh for eight hours of operation), refrigerators, lighting, and microwave ovens, resulting in a daily electricity consumption of around 100 kWh, with peak usage during the mentioned eight-hour window.

Since sunlight is unavailable between 6:00 p.m. and 12:00 a.m., your battery system needs to be robust enough to power these appliances during those hours. Lithium-ion batteries, known for their lifespan of up to 10 years, would be a suitable choice. Ideally, you would have access to grid power during these peak hours, but a backup diesel generator is a wise safety measure to ensure uninterrupted operations, especially considering the potential financial consequences of a blackout.

Let’s now compare the costs associated with two scenarios, assuming a 50 per cent grid availability. We will omit the upfront cost of a diesel generator in each scenario, as it is assumed that the restaurant keeps one for back-up in either scenario:

  • Scenario 1: Solar plus lithium ion batteries plus grid (~N27,600 daily)
  • Scenario 2: Grid plus diesel generator (~N35,000 daily)

Scenario 1: Solar Plus Lithium Ion Batteries and Grid  

Assumptions:

  • Solar Power System:
    • Capacity: 16 kWp (simulated to generate on average 70kWh daily at 4.65 kWh/kWp, out of which we use 50kWh and store 20kWh in the batteries) at ~N282k/kW (assuming 500W panels at N141,000 each).
    • Battery Storage: 20 kWh * N350k/kWh (for four hours of reliable storage).
    • Additional components: Inverters, charge controllers, battery management system (BMS) and installation cost can vary depending on quality and brand but let’s estimate at N2.5 million.
  • Grid Tariff: N220/kWh
  • Loan Interest Rate: 48 per cent (most consumer (micro) finance loans will be around 4 per cent monthly)

Cost Calculations:

  1. Solar Upfront Cost: Solar (N4.5 million) plus battery storage cost (N7 million) plus additional components (N2.5 million) = N14 million (financed by solar provider or micro-finance institution).
  2. Solar Generation: 70 kWh
  3. Grid Reliance: Daily grid consumption (assuming most grid consumption happens when the sun is down): 100kWh-70 kWh = 30kWh
  4. Daily Grid Cost: 30kWh*220/kWh = N6,600
  5. Estimated Daily Solar Loan Payment: N21,000 per day, assuming a five-year loan term with no down payment.
  6. Blended Daily Solar and Grid Cost: N 21,000 (loan) + N6,600 (grid) = N27,600

If interest rate comes down to 10 per cent due to government intervention, daily solar cost becomes N10,000 (total N16,600 blended), or you are able to get a loan at commercial bank rates of 30 per cent, N15,000 (total N21,600 blended)

 

Figure 1: 16kWp Solar Simulation on a popular restaurant on Aminu Kano in Abuja. Source: HelioScope Simulation

Scenario 2: Blended Grid and Diesel 

Diesel Costs

  • 50kWh assuming about 0.4 litres/kWh (may be significantly higher due to inefficiency of generator and theft) =  20 litres.
  • Daily Diesel Cost (during outages): 20 litres * N1200/litre = N24,000.

Grid Cost: Average Daily Cost: (50kWh * 220) = N11,000.

Blended Diesel and Grid Cost: This totals approximately N35,000 per day. 

Making Solar Power Accessible for Businesses

The previous analysis demonstrates that even with a 48 per cent interest rate, the restaurant saves N7,000 per day on electricity, a significant 20 per cent reduction in comparison to the alternative. Additionally, diesel prices are likely to fluctuate, especially if the naira continues to depreciate. In contrast, a solar system has minimal recurring costs once installed.

However, a legitimate concern is affordability. Upfront costs of N14 million and the prospect of loans without a down payment might seem daunting. While some solar companies offer financing, the interest rates, as we have seen, can be high.

Bridging the Gap: Government and Financial Sector Solutions

This is where the government and the financial sector can play a crucial role in making solar power more accessible for businesses. Here are some potential solutions:

  • Solar Loan Programmes: The government, in collaboration with the Bank of Industry or traditional banks, could establish loan programmes with significantly lower interest rates (around 10 per cent) specifically for solar installations.
  • Loan Guarantees: By providing loan guarantees, the government can mitigate the risk for lenders, encouraging them to offer solar loans at more favourable rates.
  • Tax Breaks: Businesses that invest in solar power systems could be incentivised with tax breaks to offset the upfront costs. For instance, imagine offsetting up to N10 million of your total tax liabilities (including VAT). This could be a powerful incentive.
  • Solar Asset-Backed Loans: Financial institutions could offer loans secured by the solar system itself. Since solar panels have value and generate income through electricity cost savings, this reduces the risk for lenders.
  • Net Metering: To fully meet your energy needs at all times, a solar system might require oversizing. Net metering allows you to sell excess power back to the grid for cash or grid credits, making installations even more efficient and cost-effective.

Taking Action Now

While it would have been preferable for the government to implement these policies before raising electricity tariffs, it’s never too late to act.

For those of us facing constant grid failures and unreliable Band A service, there’s a Nigerian spirit in finding private solutions to public issues. Call your local solar installer today and start saving your family or business money – the numbers speak for themselves.

Tobi Oluwatola is the CEO of TAO Energy. He writes from Abuja. He can be reached at [email protected]

 

This article was first published on PREMIUM TIMES

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