Table 1: Applications for solar in Nigeria

Source: Nigeria: Country Report for Regional Policy Based On "Increasing Access to Energy Services for Populations in Rural and sub-Urban Areas in Order to Achieve “The Millennium Development Goals" Prepared by Kite, for UNDP-REPP & Ecowas, October, 2005.

Of the 316 installations, there was at least one out of the 37 states and the Lagos (23.6%), Yobe (16.3%), Kano (8/6%) and Akwa-Ibom (8.6%) States had the highest number of installations. Financing of the installation came principally from the Federal Governments, State and Local Governments, European Union and Mobil. Some installations especially in the Lagos area were funded by private persons.

Commercial Activities in Renewable Energy

As at 2005, significant commercial activities in renewable energy technology were limited to solar photo Voltaic (Solar PV) development and usage. A national survey by the Energy Commission of Nigeria (ECN) reveals a total of 33 companies that were active in Solar PV by 1999 activities. Most of them were established within the last ten years. All of them were vendors or contractors for the supply and/or installation of solar-PV equipment and systems, with some of them representing foreign manufacturers. There was, and still is, no local manufacture of the major solar-PV system components including modules controllers, inverters and solar batteries. The only key system components that are locally produced are such Standard electrical components as cables, switchgear, overload protectors and consumers units.

Nevertheless, the nation’s renewable energy research and development centres of the ECN hosted at some selected Nigerian Universities; including the Usmanu Danfodiyo University Sokoto (UDUS) and the University of Nigeria, Nsukka, developed several prototypes of renewable solar energy products and devices which include solar cookers, solar dryers, solar water heaters and solar stills. Others are solar PV applications, biogas digesters and stoves as well as wind electricity converters most of which are ready for mass production and commercialisation. In addition, in November 2005, the ECN concluded the development of the national renewable energy master plan.[2]

Regulatory and Institutional Framework

The primary governmental agency for the development and promotion of Renewable energy technologies in the country is the Energy Commission of Nigeria (ECN) [http://www.energy.gov.ng]. Its mandate includes strategic energy planning; policy co-ordination and performance monitoring for the entire energy sector, laying down guidelines on the utilization of energy types for specific purposes; developing recommendations on the exploitation of new sources of energy. Renewable Energy is therefore a component of its mandate (Iloeje, 2002).

Furthermore, the ECN is responsible for the entire nation’s energy research and development centre located in some selected Nigerian Universities. President Obasanjo created three new additional needless energy research centres on hydropower, petroleum studies as well as on energy efficiency and conservation approved by government but are yet to take off. In addition to these energy research and development centres, there are also: the Petroleum Technology Institute (PTI) located at Effurum in Delta State, a College of Petroleum Studies (CPS) located in Kaduna and a full-fledged University of Petroleum, while the Petroleum Technology Development Fund (PTDF) [http://www.ptdf.gov.ng and http://www.ptdf.com] is responsible for funding of human resources and institutional capacities building for the Nigerian oil and gas sectors.

Curiously enough, the Nigerian National Petroleum Corporation (NNPC) [http://www.nnpc.ng] has created a Renewable Energy Division (RED) within its operations and management structure, with a Group General Manager as its head. This is an indication that the corporation is proactive in positioning itself to participate in the race for renewable energy development and energy sources diversification strategy. How this vital Division is going to be accommodated in the current drive to unbundled the NNPC is not yet clear.

Needless to say, what happened to the power sector reform process and the results obtained between 1999 and 2007 is now history. For example, between 1999 and 2007, the previous administration of former president Obasanjo sunk about $6.3bn trying to find solutions to the lingering national power shortages but all in vain. Paradoxically however, the conditions of electricity supplies in Nigeria by May 29 2007 were worst than they were on May 29 1999. Therefore, the mismanagement of the funds for public power sector infrastructures by public officials and their private sector collaborators is having a knock-on effect on the national economy; the failure to address Nigeria’s infrastructures constraints are jeopardising economic progress and prospects and thus affecting the wellbeing of Nigerians. Probably that is why President Yar Adua is planning to declare a national emergency in the energy and power sectors respectively.

Policy Challenges and Questions

Therefore, the current focus by President Yar Adua’s government on the power sector and electricity industry need not be chaotic as it’s seems to be. It is quite simple: transparent and accountable governance and management of the sector. Therefore, the Power Sector Reform Committee faces a number of challenges and needs to answer the following questions in addition to what it has been mandated to do under its terms of reference. The basic challenges and questions are:[3]

a)      How do we meet growing national demand of electricity supply?

b)      What new kinds of power sources are available for development within our national boundary?

c)      How do we provide higher-quality, cost-competitive and sustainable light powered by both renewable energy or mechanical sources and fossil-fuel based sources?

d)      What are the required legislative and regulatory frameworks that will ensure successful reform and planned restructuring programme of the sector?

e)      What are the necessary new bodies, institutions, organisations and agencies that will constitute the new institutional framework for the restructuring, governance and management of the power sector?

f)        How do we harmonise the roles of the various existing ministries, departments, agencies/parastatals and institutions involved directly and or indirectly, in policymaking process and or policy, programmes and projects implementation in the sector in order to avoid duplication of efforts, conflicts and working at cross-purposes?

g)       Last but by no means the least, how do we safeguard supply security, affordability and the environment all at the same time?

These are very difficult questions to answer by the Committee and therefore need national debate and consensus to find acceptable answers. Therefore, to help encourage greater understanding and discussions toward solutions, the Committee needs to establish broad national interactive discussions and industry-specific stakeholders’ consultative forums respectively. This will make the citizens and the corporate stakeholders (consumers and investors respectively), to be part of the processes of finding solutions to meeting the power demands of individual homes, offices and industries etc. Only then can we understand the problems of our national power needs and the solutions to them. General public and industry level interactive discussions and dialogues should develop portfolios of power sources that can be tapped to provide electricity power to homes, offices and industry today, through 2020 and beyond. This dynamic, holistic and systematic approach is the most preferred one leading to the solutions to be proffered.[4]

However, putting the above questions in perspective, the most pernicious problems hunting deregulation and liberalisation of the Nigerian modern economy and markets – namely utter inadequacy of modern regulatory structures to cope with the shape of 21^st century economic transformations taking place under the strong influence of globalisation processes. For instance, the Nigerian regulatory agencies and personnel are generally ill-equipped and lack human resources capacity and competence to understand how energy and electricity markets work; being new to regulatory regimes. Therefore, the attentions of the Power Sector Reform Committee and the higher authorities at the National Energy Council (NEC) respectively, need to be drawn to this very important concern.

A Review of the existing Institutional Framework

The existing institutional framework for the sector’s decision-making processes, governance and management needs to be re-engineered and harmonise in order to establish a systematic, seamless and holistic approach to issues and problems of the sector. For example, we now have a situation where the following major ministries, departments, agencies and institutions all have one thing or another with policy and decision-making processes, projects and programmes design, supervision, monitoring and evaluation in the power sector as the case may be:

1. Ministry of Energy and Power – the main mother Ministry;

2. Ministry of Science and Technology; responsible for Research and Development (R&D) in the energy and power sectors respectively;[5]

3. Ministry of Agriculture and Water Resources: deals with large dam reservoirs for hydropower generation;

4. Ministry of Mines and Steel Development; responsible for coal mining policy, operations and regulations;

5. Ministry of Environment, Housing and Urban Development; responsible for regulations relating to hazardous waste and gaseous emissions from power generation activities etc;

6. The National Assembly; responsible for legislation, budgetary approvals and general oversight of the activities in the sector.

The sector is also heavily influenced by decisions of bilateral and multilateral organisations, agencies and governments. For example, over the years, the World Bank and the International Monetary Fund (IMF) have been playing active roles in influencing public policies in the sector. These myriad stakeholders in the power sector need proper coordination in order to have a well organised, focused and seamless flow of policies, programmes and projects for sustainable development of Nigeria’s energy and power sectors respectively.

The Learning Curve: Lessons from other countries

Over the years, especially starting from the early 1990s, a set of institutional reforms – including unbundling, privatisation of ownership, and the introduction of competition into the power generation sector – began to be promoted particularly by the World Bank and the International Monetary Fund (IMF) among other neo-liberal schools of thought, as a global solution to the problems of the energy and electricity industries. This rethinking of development policies that emerged from the neo-liberals schools of thought and generally referred to as the “Washington Consensus” paved the way for the concurrent movements of unbundling, private ownership and competition (or at least de-monopolisation) of the energy and electricity or power sectors. In the power sector, the aim is to rationalise the sector’s development by treating electricity as a commodity in need of optimal resource allocation.

Therefore, energy and power liberalisation advocates maintain that governing the electricity industry according to market dynamics, rather than socio-political and other considerations, promises to result in the sector’s more efficient operation and dynamism. Furthermore, energy and power liberalisation advocates also argue that there are additional important social and environmental benefits if the sectors are liberalised. However, according to studies of the experiences with power liberalisation around the world, reports indicate frequent price hikes, unreliable service, employment loss, and reduced access, particularly for the poor as the norm.

Therefore, the other question is: Are there lessons to be learned from other countries? Of course yes, there are many but care must be taken in choosing which experience to adopt and or replicate. Moreover, in order to avoid knee-jerk reactions to the problems of Nigeria’s power sector, the new power sector reform initiative of President Yar Adua need to learn quickly but diligently from the mistakes of the immediate past in the sector and from the successes recorded in power sector reforms efforts of some other countries, taking into considerations Nigeria’s own peculiarities.

The Power Sector Reform Committee can draw inspiration for example,  from many countries of the organisation for economic cooperation and development (OECD) – the world’s leading industrially most advanced nations, have carried out major reforms of their power sectors in the last 30 or so decades. Also, some mid-level emerging industrialising countries outside the OECD have similarly carried out some power sector restructuring in the last decade or so. Therefore, there are ample international opportunities from which Nigeria can learn from their respective experiences. For example, there are a number of successful power sector regulatory regimes and institutional frameworks for governance and management of the sector to adopt and or replicate with some modifications to suite Nigeria’s socio-economic and geopolitical peculiarities. There are both European and non-European models to select from; ranging from models with governmental strong involvement in the sector (e.g., the French model) to models with very minimal governmental involvement in the sector (e.g., USA).

France is both a member of the OECD and the Group of Seven (G7) – the seven most industrially developed countries of the world but with the government playing a dominate role in its energy and power sectors respectively. For instance, the French government owns all its nuclear power plants under the state-owned Areva group. France obtains 80 per cent of its electricity generation capacity from its nuclear power plants (I am not advocating for nuclear option for Nigeria at present). Recently, France’s President Nicolas Sarkozy is looking at creating a clear world leader in nuclear power through restructuring of the state-owned nuclear group, Areva (Financial Times (FT) of London, Wednesday 12 September 2007, page 6).

Innovative Investment Framework

Nevertheless, the Committee on power sector reform need to recognise that the nature of electricity power from both conventional and non-conventional sources and technologies is that power generation, transmission and distribution projects have high fixed costs whether done by the government or privately financed. Therefore, the Committee need to fashion out comprehensive and integrated power development investment framework that brings the governments, the public and private investors together under mutually beneficial arrangements in the power sector. This will require addressing a major flaw in the public policy making process facing the country in general and the energy and power sectors specifically. For example, private investors in the power sector have been effectively crowded out by public investment and public policy inhibitions.

Here again, the Committee can look at what some countries are doing in order to solve similar situation facing their countries. Russia for example, is said to be “prepared to allow foreign companies to control up to a quarter of its electricity generation industry, according to Anatoly Chubais, chief executive officer of state-owned electricity monopoly United Energy Systems (UES).”[6] Coincidently, just as the Nigerian government officials claim that it has been estimated that Nigeria requires an annual infrastructure investment ranging between $6 and $9 billion US dollars every year, Mr Chubais claims that Russia’s power industry needs $120 billion dollars to finance its investment plan. More than $15 billion dollars of the estimated $120bn will be utilised to build new power stations and upgrade Russia’s aging electricity networks. The amount is to be raised from international investors; already about $8bn had been secured, he said, through listings of some of the electricity companies and sale of stakes to strategic investors, including foreign energy companies such as Fortum of Finland and Enel of Italy” according to the Financial Times of London (Wednesday 12 September 2007, page 31).

Again, France provides us another example of a western European government that is partnering with the private energy and power companies to boost the status of its national power industry. For instance, France has recently acquired shares from a private energy and environmental group, Suez. For instance, Suez was literally forced by President Sarkozy to jettison its environmental portfolio in order to jointly create a $97bn power group with the French government owned Gaz de France (GDF).[7] Therefore, GDF-Suez, formed with the assistance of Mr. Nicolas Sarkozy, the French President, is thus, the new “French led energy champion” of Europe (see Financial Times (FT) of London, Wednesday 12 September 2007, page 6). Thus, opening up the power industry to local and foreign investors alike, allows for inflow of both the desired money and modern technology into the sector.

Mainstreaming of Renewable Sources of Energy and Power

In addition, the problem of Nigeria’s public policy impotence in the energy and power sectors has been exacerbated by the fact that over the years for example, coal, solar and wind power have not been accorded their rightful roles in the energy and power mix of the country. Even though, behind the scenes, there are many policy analysts who clearly recognise the issue of mainstreaming of these alternative sources of energy and power – and accept the need for public policy makers to incorporate them in the nation’s energy and power mix, such moves usually receives cold shoulders and undoubtedly provoke plenty of resistance from entrenched special interests and rent-seekers who are benefiting from the existing flat-footed arrangements or status quo. One wonders if gas is the only ingredent for electricity generation; coal is plentiful in Nigeria, why not use more of it? For example, in 2000, the United States derive 40 per cent of its power supply from coal i.e. 260,990MW of power!

Furthermore, Germany is now reckoned as the global leader in terms of mainstreaming of the renewables through its very successful Feed-in-Tariffs (FIT) mechanism or system. Through the FIT mechanism, Germany has 200 times in solar power capacity and 10 times the wind energy capacity of Britain, in spite of the British having more wind than the Germans (The Guardian Newspaper of London, Monday, September 3 2007, page 30). Germany already generates 13 per cent of its electricity from renewables sources.[8] Also, wind power is the fast growing renewable energy source in the UK (Scotland and Wales in particular) largely as a result of generous government incentives under its Renewables Obligation (RO) that stipulates that, by 2010, 10.4 per cent of total sales of electricity must be from renewable sources, rising to 15.4 per cent by 2015.[9] Therefore, in line with this policy requirement, the UK government therefore tweaked its £500m ($1billion) annual subsidy for renewable energy.

In addition, in the UK, at the national level however, government is encouraging energy companies to use a wide range of technologies for new power generation, including renewables such as wind and biomass, “clean coal” stations, which capture and their carbon dioxide emissions, and nuclear power.[10] Furthermore, at the local authority level in the UK, one of the few genuine drivers of renewable energy technologies is the local authority policy that is called “Merton rule,” which is named after the London borough that established it in 2003. Basically what the “Merton rule” requires is that, any new building must reduce its carbon emission by 10 per cent through the use of renewables. On the Continental level, member states of the European Union (EU) are required to generate one-fifth of their power from renewables by 2020.[11] Again, the United State’s  House of Representatives approved a new legislation (Renewable Energy Standard – RES) which require all publicly traded utility power companies to generate 15 per cent of their power from clean sources, such as wind-mills and solar panels, by 2020.

It is pertinent therefore, that national policy makers (particularly the National Energy Council) recognise this very important emerging policy development and take a cue from other nations and start to do something about it; learning from global experiences. Interestingly, the Nigerian National Petroleum Corporation (NNPC) has created a Renewable Energy Division (RED) within its operations and management structure, with a Group General Manager as its head. However, another very important emerging public policy issue in the energy and power sectors that deserves the attention of the National Energy Council is subsidy switching from non-renewables to renewables. For example, according to a think tank, the New Economics Foundation (NEF), cutting subsidies for fossil fuel projects and switching the funding to renewable energy could lift millions out of poverty as well as help alleviate global warming. Moreover, the NEF concludes that “the combination of climate change and oil scarcity means that without a major shift to renewables, targets to reduce poverty will not be met.”[12]

Furthermore, the NEF report says that “renewable energy could more than meet growing global energy demands and has the potential to increase its share of global energy by around 120 times.” However, it says that this can only be achieved by removing the massive subsidies that fossil fuels currently receive. The Report quotes figures suggesting that fossil fuel energy received US$73 billion per year in advanced OECD nations between 1995 and 1998, with a further US$162 billion of subsidies to fossil fuels in non-OECD nations. This makes a total of US$235 billion every year during this period. Therefore, there is the need for the Federal Executive Council (FEC) to enhance the economic policy making apparatuses of the nation to be holistic and forward looking in its approach to energy and power subsidies agenda setting. The issue of subsidy is examined next.

Cost Implications of Security of Supply of Electricity and Mainstreaming Renewables

It is very important for the National Council on Energy to pay serious attention to the fact that achieving energy and power supply self-sufficiency in Nigeria does not come about cheaply; it involved huge financial outlays in terms of capital investments and monetary and non-monetary incentives packages. In particular, mainstreaming renewable sources of energy and electricity entails huge public financial support at the beginning. For example, the UK government subsidises renewable energy to the tune of £500m ($1billion) annually. Similarly, in Germany, the government subsidies for renewable energy are in the region of US$5.5 billion a year.[13] Also, recently the United States House of Representatives passed a Renewable Energy Standard (RES) bill that comes with an approved $16 billion tax plan that shifts the government’s focus away from oil and gas to alternative energy such as wind, solar and biomass production at the expense of traditional sources.[14]

Globally, subsidies for oil, coal gas and nuclear power have totalled in the tens of billions of dollars annually. Subsidies take a variety of forms, including direct support to consumers, direct payments to investors in large and capital intensive projects, tax exemptions, price caps or ceilings and more subtle and indirect forms such as transmission grid support etc. Tables 2 and 3 below, show respectively, the types and annual monetary cost of energy subsidies applied by various governments to renewable and non-renewable energy sources the world over. Table 3, for example, shows that it is mainly in the OECD countries that renewable energy receives subsidies while the non-OECD countries show no subsidies for renewable and end-use. However, this result points to the fact that basically, renewables are not significant in the energy policies of the non-OECD nations.

Also, Table 3 shows that global energy subsidies provided for oil, gas, coal and nuclear power total in the tens of billions of dollars compared to renewable energy sources. This situation is reckoned to help drive the unsustainable fuel mix we see in today’s energy markets.

Table 2: Types of Energy Subsidies

Source: UNEP/IEA, 2002

Table 3: The cost of annual energy subsidies (1995-98, $US billion)

Notes: a) Subsidies for electricity in OECD countries have been attributed to fossil fuels according the shares.

b) Subsidies from non-payments and bail out operations have not been attributed to energy sources.

Source: de Moor, 2001, and WRI, CAIT (for GDP numbers)

Table 4 Support policies for renewable technologies in the EU 15

X: Mechanism currently present

H: Historical policy, now changed

Source: Adapted from European Environment Agency (EEA) Technical report 1/2004: “Energy subsidies in the European Union: A brief overview,” page 15.

Furthermore, a European Environment Agency (EEA) Technical report shows that “support for renewable energy is now well established across the EU 15. Every Member State provides a combination of price support through feed-in tariffs, obligations or competitive tender, together with a range of capital subsidies and fiscal mechanisms (Table 4 above). In 2001, total levels of support were greatest in Germany and Italy, where over EUR 1 billion was provided, mainly in the form of feed-in tariffs.” Also, the same report shows that “Preferential treatment under the regulatory energy tax for medium and large users of electricity provided a subsidy in excess of EUR 1.5 billion in the Netherlands. Elsewhere, reduced VAT on electricity in the UK (circa EUR 1.5bn) and reduced tax rates in Germany for industry and agriculture (circa EUR 1.8bn) contributed to over EUR 6 billion of subsidies to electricity consumption across the EU 15.”[15] Some of these support policies must have changed or modified by now. 

Economically speaking, a subsidy regime either way, is not the best policy instrument, it is actually, the second-best policy choice. The first-best policy for the development of renewable energy in particular, energy in general, is to place a higher tax on non-renewable energy without any subsidy for renewables. This is a shift from the supply-side policy to the demand-side policy. With an energy tax which reflects mainly the intergenerational externality, those renewables with higher energy efficiency will enter the market naturally without any subsidy. In addition to energy diversification, total energy demand will be kept from rapid growth. In this case, there will be no waste of energy, time and money. However, the reality as the above tables 2-4 show, there is a place for subsidies in the scheme of ushering a desired course of action based principally on socio-economic and political expediencies. Therefore, renewable energy subsidies, which meet public goods goals for accessibility, affordability, environment and security, should be adopted.

The import of highlighting the above policies on renewables and electricity in some EU countries and USA is to underscore the importance of government support for renewable energy development and consumption in those countries and to draw the attention of the National Energy Council to these types of government support packages to the sector. These governmental support instruments are applied in order to alleviate market failures and thus, ensure access and affordability of electricity to wider segments of the society both in developed and developing countries alike. Moreover, the issue of government subsidies becomes very crucial and at the same time very controversial in face of the World Bank and IMF’s strong opposition to their application in Nigeria and other developing countries. It is also worthy of note and to take cognizance of France, a very strong and influential member of the OECD and Group of 7 nations respectively, and the country that has been providing the leadership of the IMF for decades, but its government to date, owns, manages and subsidises utility companies in its energy and power sectors respectively, and has not been asked by either the World Bank, the IMF and or by Brussels to privatise them.

Conclusion

In conclusion, the government needs to aim at total overhaul rather than tinkering with existing situations in the energy and power sectors respectively and the overall national socio-economic and political order. For example, of recent, more facts are gradually emerging that show these two vital sectors as the worst mismanaged sectors of the national economy. For instance, apart from spending over $6.3bn from 1999 to 2007 in the power sector without tangible results, the sector is still indebted to over N30bn to contractors in outstanding arrears to both local and foreign contractors handling its rural electrification projects across the country according to the Minister of State for Energy (Power) Mrs. Fatima Balaraba Ibrahim.[16] Furthermore, Nigeria’s quests for achieving the respective United Nations Millennium Development Goals and belonging to the 20 most developed nations of the world by 2020 under its “Nigeria 202020” strategies are threatened by the crises in the energy and power sector respectively. This fear of failure to achieve these goals is already being entertained by President Yar Adua’s administration as captured in some of the President’s public speeches recently, particularly at the recently concluded 13^th Annual Conference of the Nigerian Economic Summit Group (NESG). The Minister of State for Energy, (Power) Mrs. Fatima Balaraba Ibrahim, has also identified power supply as a major threat to Nigeria's vision of becoming one of the world's 20 biggest economies by 2020.[17]

Also, Professor Paul Collier of Oxford University’s Economics Department succinctly puts it at a recent lecture in Nigeria that “what you have had to put up with in the electricity sector is not acceptable at all. It is really bad. Over the years, politicians had protected your power managers in ‘political nonsense.”[18] He also identified transport and electricity as ‘killers’ of Nigeria’s quest to grow industrially, and stressed that what the people of Nigeria had had to contend with over the years was in no way acceptable, adding that “Government has a choice: either you buy a bullet for the managers of your power sector or you sacrifice millions of Nigerians on the alter of political interest.” The time to heed to this advice and warning is now; as the National Energy Council and its various sub-Committees have been inaugurated by President Yar Adua.

Transparency of a process improves the final product, and creates political buy-in. Thus public and private stakeholders should be involved and a broad consensus on energy and power sectors reform sought. Therefore, the Federal, States and Local Governments coordinated action can facilitate the reform process. Last but not the least, while there is generally broad agreement on the urgent need for reforms, the basic reform principles have been the borne of contention consistently for decades; this is yet to be resolved by the stakeholders to date. The National Energy Council, working with the National Assembly and the Nigerian public need to address this fundamental issue.