ENERGY ANALYSIS
Beyond the federal government’s expressed emotions, Nigeria’s recent approval of an entry feed-in tariff for solar power supply does not foreclose the fact that there are associated risks in the solar photovoltaics technology. Chineme Okafor however examines the country’s readiness for this technology
The Nigerian Bulk Electricity Trading Company Plc (NBET) recently approved an entry price of 11.5 cents (currently about N30) per kilowatt hour (kWh) as the entry price for 14 pioneer solar power stations to be built in the country.
The 14 solar plants will collectively generate 1,125 megawatts (MW) of electricity which will be distributed to the grid through a step down transmission network, enabling them to minimise levels of transmission losses. They will be built in 11 states mostly in the north.
In signing the Power Purchase Agreements (PPAs) with the promoters of the projects, the NBET said all of them had agreed with the entry price, that is, after they ran their numbers and found it comfortable enough to take the decision to sign the PPAs.
NBET, which is often referred to as the Bulk Trader due to its role as the government’s sole purchaser of on-grid electricity from generators to guarantee investments, disclosed that before it signed the PPAs with the investors, the entry price was negotiated down from 23 cents per kWh in 2015 to the current level which all of them accepted.
An approximately $1.75 billion is expected to be spent in construction of the plants by the investor, and the timeline for the plants to come on stream would be within 18 months from when promoters mobilise to their sites.
However, from discussions at the ceremony in Abuja, the Bulk Trader, and indeed the Minister of Power, Works and Housing, Mr. Babatunde Fashola indicated that the entry price was just the right and only incentives needed by promoters to turn their PPAs into actual power. They however did not state in clear terms that even with the structured PPAs, there are associated risks in solar power which would need systemic solutions outside of the PPAs.
In particular, the minister stated the government would never consider any form of subsidy on consumption of solar power generated from these solar farms, but would support the promoters all the way to turn in their investments. This means that the Bulk Trader which guarantees complete payments to the promoters would have be upbeat on this, notwithstanding current shortfalls in funds remittance to operators in the power sector.
While the minister’s declared the government will support the promoters in other ways but finance, he also showed its emotions and frustrations with the activities of militants in the Niger Delta who have consistently cut supply of gas to thermal plants in the south and then deny the country of electricity supplies.
He said it was an opportunity for the country to diversify its electricity mix and guarantee energy security for Nigeria, adding that it will be impossible for any group or region to hold the country to ransom by controlling any particular source of fuel for electricity.
But industry experts who privately analysed the new development to THISDAY, said that if the numbers are right, investments will come into Nigeria’s solar power sector, and not necessarily by emotions.
These experts noted that investments do not always follow emotions but numbers, adding that in view of the relative odds against solar PV technology in Nigeria, the government must do more than just signing off PPAs with the promoters.
No doubt, a well-structured PPAs could support the promoters with the availability of private capital to finance their solar projects, but it does not exclude the government from accepting that in reality, not all data points in the PPAs are created equal from a project risk perspective even when the goal of the PPAs is to establish price points, terms and conditions and bring all parties together.
As much as the PPAs are critical to mitigating project development risks in that they represent a guaranteed stream of money from the customers into the hands of the owners, and then to the investors, their applications especially in Nigeria have always not been as smooth as cast in papers. Perhaps, the contemporary experience of stakeholders in Nigeria’s power sector will better explain this, and the need for the government to embrace the risks associated with solar power.
Huge potentials in solar
Based on a recent review by global business advisor, McKinsey and Company, in less than a decade, the solar-photovoltaic (PV) sector has transformed from a cottage industry centered in Germany to an over $100billion business with global reach.
Amongst the factors contributing to the growth of PV were government subsidies; significant capacity additions from existing and new entrants; and continual innovation. These factors have pushed PV prices to dramatically fall, and global installed capacities grow in leaps.
The McKinsey review added that notwithstanding the possibilities that government subsidies on PV technology are expected to dry up, its prices slide are also propelled by increasing manufacturing capacity and underlying costs drops.
The price fall; capacity addition; and improved government policies have however motivated more players to begin to make entry into territories with rich PV density. It has also ensured that the competitive PV market which is gradually evolving in Nigeria can become a boom if its potentials and risks are placed side-by-side for efficient management.
Associated risks
As itemised by experts, stakeholders including the government must recognise there are real risks which could last the entre lifespan of the solar plants and which must be constantly addressed to secure stable power supplies from them. According to them, it is not going to be a tea party despite its potentials.
Environmentally, there are risks of environmental damage attached to solar station and which must be addressed; financial risks which include insufficient access to investment and operating capital; market risks which involve cost increases for key input factors such as labour, units and or decreases in rates of electricity generated; operational risks from unscheduled plant closure arising from lack of resources, equipment damages or component failures; and then technological risks.
There are also political and regulatory risks associated with solar power, and they may come in the form of changes in policy which may affect project’s profitability; there are equally the risks associated with sabotage, terrorism and theft. All of these risks stand to define Nigeria’s readiness for the solar-photovoltaic (PV) market.
Pressing risks
Though Fashola stated that Nigeria has taken an irreversible step forward to play well in the PV marketplace by supporting promoters with the right actions, he equally disclosed that a sustainable policy which would see renewable energy contribution to Nigeria’s energy mix scaled up to 30 per cent in 2030 has been developed, he however did not disclose at least at the ceremony how certain risks that could be outside of the promoters’ reach would be addressed by the government.
Experts in their listings, identified risks associated with grid connection are quite crucial, both in terms of continuity and convenience of energy delivery to promoters.
According to them, a reliable and proactive relationship with the country’s transmission system operator will help in great measures to reduce the level of energy losses that could be recorded on transmission from the solar farms, especially when unexpected events or emergencies occur.
With the operational reliability of the Transmission Company of Nigeria (TCN) currently in doubt, promoters and the government would have to devise a measures as well as clear contingency plans and restart procedures to minimising plant downtime.
Failures caused by either faults on the transmission line to the interconnection switchyard or major interruptions downstream in the utility area would have to be identified and communicated in manners that guarantee minimal losses to the projects.
Another crucial risk which the experts identified was proactive security to avoid damages and possibly plant downtime from theft and vandalism. They noted that a good percentage of the monetary impacts of all possible damages to the solar farms are related to vandalism and insecurity.
They also explained that a down to business stakeholder management, putting into consideration the local communities and keeping them informed on the projects and its operation at all stages would help build and sustain a positive relationship that will minimise operational losses.
