The International Finance Corporation’s Country Manager for Nigeria, Eme Essien Lore spoke to Ejiofor Alike on the potential of the solar power market and the efforts by IFC and United Kingdom’s Department of International Development to deploy off-grid and embedded solar systems for commercial and industrial sectors of Nigeria. Excerpts:
Given the fact that Nigeria is blessed with other sources of energy such as coal, hydro and gas, why are you focusing only on solar power?
We do believe that Nigeria is to focus on diversifying her energy mix. So, it is not just solar. Obviously, you rightly pointed out that Nigeria is abundantly blessed with a number of different resources – gas being actually the most abundant. We are not just focusing on gas and solar; we are looking at other opportunities as well. The key issue is really to focus efforts. I think for too long, we have focused just on gas. As you have seen now, the strategy has not worked. For now, we think there is need to diversify our perspective. So, solar is one of opportunity. We are looking at biomass as well; we are also looking at hydro. We are now looking at coal. It is an opportunity that the country may decide to pursue coal-generated project but as an institution because of the issues associated with coal, coal is not an area where we are focused but certainly hydro, solar, biomass and gas – we think they are all viable areas we are looking at. The reason why we are giving a lot of attention to solar right now in this way is that it really does require bringing a number of stakeholders together. There are number of various institutions in solar sector. So, it is really important to get a number of actors together in a room to have the conversation. We don’t have to do that with biomass, for example. We are working with a company right now to experiment on biomass -looking at alternative projects in biomass. In hydro, there are a few projects we are looking at. But solar does require bringing stakeholders together because we are talking about off-grid; because we are talking about embedded solutions, because experience I think has dampened the appetite for solar. It is important to have this type of forum so that people can discuss real issues and figure how we get past those areas.
What specific power projects do you have in mind?
There are couple of very-too-large and hydro projects in Nigeria that were commissioned many years ago that are operating at significant discount to their real capacity. So, these are projects – with some additional investments that actually should be contributing much more to the grid. So, these are brownfield assets that are already in existence today and really just need additional turbines for them to be fully operational. So, we are actually looking at a couple of those projects. We think they have so many tremendous opportunities to actually in a relatively short period. It takes sometime but not as long as gas power project.
Many investors had experimented on solar power in Nigeria in the past and failed. Given that a couple of similar solar projects did not work, what makes you think that this your initiative will work?
I think there are a couple of things that are different today. First, the imperative for the country to diversify her energy mix is now in the centre. I think in the past, we have been able to rely on one fuel source of energy.
So, we don’t have that luxury today. So, now, we are almost forced into a situation where we absolutely have to look for alternative energy sources. That is one thing. We are almost at the edge of a cliff and we must do something about it. That is one. Two, we have seen evolution of thinking within the government in terms of decisions. In the past, the government was not talking about solar. Now, they are talking about solar all the time. It is an important objective of this current government. That is an important change. It allows us as development institutions to do a better job of rallying around those efforts. So, solar has become part of the agenda in the way they wasn’t in the past. We also need to recognise that we had experience in Nigeria that not being successful for a number of technical reasons – I don’t even know the reasons but projects that have taken off that have not been successful. So, there is a perception that solar applications are not applicable – don’t work in Nigeria. So, people will be reluctant to actually pursue solar applications. Now, we have to work against that and say, okay, the reason why it did not work in the past was because they did not invest in the right environment. Whatever the reason were, we have to make sure that we change those perception. So, this is not the first time but hopefully, this is the beginning of a long conversation. We don’t expect this to be easy but we have to be clear about that, recognising that we are in a challenging world- because of awareness building; because of the issue in the supply chain but we do think that this is an important moment. And also keep that the solar space is the one that evolves very quickly. We have seen the cost of solar system come down dramatically globally and Nigeria should take advantage of that. We can actually have solar systems manufactured here. It is possible. We were not talking about that five-10 years ago but it is possible to actually have this conversation today. So, the world has changed and I think this is an opportunity for us to engage again.
One of your strategies is to collaborate with financial institutions to provide financial support to solar power investors. How much do you plan to inject into this solar power initiative?
This initiative started with systematic steps. We really want to know why this has worked; why this has not worked; what is the right business model in Nigeria. We don’t just want to adapt someone else’s models. We want to figure out what is going to work in Nigeria. So, that is the first thing. Where are we today? That is responding to that question. After that, when we coming as institution to really provide financial solutions. What we have seen in other markets is that we need to have incentives for financial institutions to provide a better structured for procurement of solar They have to come from the banking sector but they need to have incentives; they need to understand innovations that are happening in other markets. That is where we can come in. In terms of the envelope- the envelope is going to be whatever is really needed but it is going to be very important that we work with financial institutions and provide the solutions that the Nigerian consumers; Nigerian SMEs need in order to procure systems for their households and for their businesses.
One of the challenges of solar power is high cost. Recently NERC licensed 14 solar investors and the entry point is 11.5 cents per kilowatt hour. So, do you guarantee that investors will easily recoup their high cost of investment?
You are actually right. The major issue with solar is the upfront cost and it is probably one of the biggest challenge for solar in a country like Nigeria. Yes, there are about 14 licensed companies that have just been approved by NERC. This is going to be on-grid project. So, what we are talking today is off-grid, embedded solutions. Those are on-grid projects. We think that at 11.5 cents, most of the projects are viable. You should know that when many new projects started, there are engagements with NERC and relevant stakeholders. The projects were on much higher tariff. The tariff has come down overtime. For number of strategic reasons and for the fact that the government has also recognised that the solar space is evolving very quickly and they want key developments to be much more independent. IFC support basically a competitive procurement process. When you have organised process; when you have a competitive process; when there is transparency – when all these factors are in place, you have the potential to drive the cost down overtime.