Dr. Uche Isiugo, the Founder and Chief Executive Officer of InfraNergy, a US-based solar PV and energy storage developer company with operations in Africa, has explained why Nigeria’s solar energy penetration has remained relatively modest despite decreases in cost of solar, improved technology and the huge potential of solar in addressing the country’s power challenge.
Isiugo, who spoke in an exclusive interview with THE WHISTLER, held that utility electricity tariffs in the country will continue to rise until they get close to the actual cost of power being used by consumers, to the extent allowed by regulation.
According to him, discerning businesses and power consumers are now increasingly opting for solar, owing to the unreliable national grid and rising costs in the electricity value chain, driven primarily by gas and diesel prices. The average manufacturing company in Lagos, Nigeria where diesel prices are lowest, paid about ₦220 per litre for diesel in February 2021 to run their generators, but about a year later, they see that diesel now costs over ₦600 per litre. These businesses are already grappling with high production costs and low sales, so we try to help them boost profitability and remain competitive.
He said because of the “artificially low” utility tariffs being offered by electricity distribution companies in the country, Nigerians had in the past, not viewed solar energy as a cost-effective and sustainable energy source, however, utility and diesel cost increases are driving Nigerian businesses to make astute decisions in switching to lower cost solar. By 2020, the global cost of solar electricity dropped by 89% in ten years to become arguably the cheapest source of power, due mostly to huge leaps in technological advancement.
Post-COVID, economic issues and supply chain bottlenecks have contributed to higher costs across all sources of power, but solar power has emerged as a reliable and cost effective complement and alternative to the unreliable power grid and generators, even after accounting for relatively low utility tariffs, which have been supported by government subsidies in gas and power.
Subsidies tend to be a hot button issue where we have sort of a Catch-22 problem: the masses prefer to keep utility costs low, so on one hand, raising the tariffs could lead to strikes and political repercussions, but on the other hand, mounting government debt which helps finance the subsidies and keeps tariffs artificially low, is unsustainable.
According to him, this trend is hurting distribution companies as they are losing money in trying to keep electricity tariffs low.
“The tariffs paid to Nigerian electricity distribution companies are lower than the actual market rate, so they are not cost-reflective. The companies would be able to make more money and pay back their capital if they were charging tariffs that are cost-reflective. So, I think the tariffs ought to be higher and this is inevitable, due to market forces.
Isiugo said the low tariffs, among other issues, affect the electricity distribution companies’ ability to be profitable.
With improved reliability and decrease in cost of solar power over the years, Nigerian electricity distribution companies should view solar companies as potential partners to serve end-customers together. Several business models between the utilities and solar developer companies can be pursued and implemented, which would lead to improved cash flow and profitability for both the utilities and solar companies.
Isiugo added that Nigerians used to be doubtful about the sustainability of solar energy as a source of electricity supply.