Clearing Obstacles Impeding Development Of Renewable Energy Sector

UNDP Lagos
A cross-section of participants at the stakeholder’s consultative forum on unlocking low-cost capital for grid-connected renewable energy investment in Nigeria held in Lagos.

The world is gradually looking away from the conventional means of power generation which is generally said to be unsustainable with many more countries embracing renewable energy.

Following the global trend, Nigeria has increased efforts to capture most of the people not accommodated on the national grid in mini-grids by exploring the renewable energy sector. Seeking ways to develop large-scale solar PV generation, the Federal Government, in July 2016, signed a total of 14 individual power purchase agreements for the generation of over 1,075megawatts (MW) requiring as much as $1.6 billion in capital investment through the Nigerian Bulk Electricity Trading (NBET).

Five years down the line not one out of the 14 companies which entered agreement with the government has been able to reach financial closure. Experts in the renewable energy sector blamed what they said are a lot of risks and policies of government as responsible for the inability of the nation’s nascent sector to attract investment thereby stalling development of the nation’s energy sector.

Speaking exclusively to Science Nigeria, the president of Renewable Energy Association of Nigeria (REAN), Dr. Segun Adaju, pointed to lack of local capital or financing opportunities as the key challenge facing large-scale renewable energy development in the country.

“I see the major challenge as access to finance, although there are so many other challenges that also tilt into finance. So, there are other challenges that make access to finance more difficult but if we are able to crack the code of access to finance, we would have solved more than 50 per cent challenge that we have in the country in developing the sector. So, finance for project development, equipment importation, up to developing the project, up to end-user finance is a major problem,” he said.

In a bid to address the challenges in the sector as well as look at the current reforms in the financial sector, the United Nations Development Programme Global Environment Facility (UNDP-GEF), De-risking Renewable Energy Nationally Appropriate Mitigation Action (NAMA) conducted a study to investigate the possibility of unlocking low-cost local capital for green investment in Nigeria.

At a two-day stakeholders’ forum organized by the Energy Commission of Nigeria (ECN) and the UNDP-GEF in collaboration with relevant ministries, departments and agencies (MDAs), mini-grid developers, discos and development partners/donors in Lagos, the ECN director-general, Prof. Eli Bala, highlighted some of the challenges unraveled in the study as lack of finance for large-scale renewable energy development in the country, saying the DMBs’ liabilities (sources of funding) such as deposits and borrowings are much shorter term than what would be needed to match the needs of renewable energy project finance.

“Secondly, DMBs only have limited access to foreign currency – the vast majority of their funding is NGN-denominated. Thirdly, it is unlikely that any will yet have the internal capability to assess the credit and other risks associated with solar PV. Notwithstanding, there is good reason to further explore supporting DMBs in addressing these barriers as these institutions are the most important intermediaries in the private sector component of the Nigerian financial system.

“It is therefore commendable that the UNDP-GEF project made this attempt to assess the potential for domestic financial sector reform in Nigeria to unlock low-cost capital for green investment. This includes consideration of financial de-risking instruments for large-scale, grid-connected PV electricity generation,” he said.

Represented by the national project director of the UNDP-GEF, De-risking Renewable Energy, NAMA, Engr. Okon Ekpeyong, the ECN boss said the forum was an opportunity for the experts to have a closer look into the issues raised in the report, adding they (experts) were carefully selected to discuss the findings of the study, ask questions and make contributions.  

According to him, the meeting organized for technical experts aims to understand the true situation of the Nigerian financial system with respect to financing large-scale renewable energy projects in the country and analyze the barriers to deposit money banks involvement in large-scale renewable energy (solar PV) in Nigeria.

Other objectives, he said, included to brainstorm on priority areas and actions, including innovative financial instruments, where domestic and international development finance institutions (DFIs) can contribute to financing renewable energy in Nigeria; and discuss appropriate financial de-risking instruments, propose and recommend means of adopting and mainstreaming the recommendations in the domestic financial systems.

In his remarks, the national project manager, UNDP-GEF, De-risking Renewable Energy, NAMA, Engr. Isaac Ierve, posited that despite the inability of the 14 licensed companies to reach financial conclusion, the project had made an impact exposing barriers that prevented them from getting financial conclusion, adding if the study carried out and recommendations made were mainstreamed into government policy and acted upon by the government, the nation was on its way to solving the problem.

Noting that power is one of the main problems of the country, Mariam Lawal of the Ministry of Finance, said it brought about the relocation of many businesses out of the country and had been discouraging potential investors from coming to the country despite our alluring population size.

The present administration, according to her, is keen on ensuring that the power sector takes a different dimension from the way it has been in the past and has been putting a lot of focus in laying down good and permanent structures in the power sector that will make it easier for subsequent administrations to continue from. She urged participants, especially those in the private sector to key into what government was doing.

The outcome of the meeting was such that Segun Jones of the Federal Competition and Consumer Protection Commission (FCCPC) expressed hope that the deliberations would help both government and stakeholders give the nation new direction in the power sector.

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