Opportunities and Challenges in Navigating Nigeria’s Energy Transition

May 14, 2024

Nigeria, the most populous and largest economy in Africa, faces a dual challenge of meeting its growing energy demand and reducing its greenhouse gas emissions. During the COP26 Leader’s Summit in 2021, then President Muhammadu Buhari stated that Nigeria was  committed to achieving net-zero emissions by 2060, while also providing universal access to electricity and clean cooking by 2030. To achieve these ambitious goals, Nigeria needs to undergo a rapid and comprehensive energy transition that will transform its energy landscape and unlock its renewable energy potential.

The Current State of Nigeria’s Energy Sector

Nigeria’s energy sector is characterized by a high dependence on fossil fuels, especially oil and gas, which account for over 80% of the country’s primary energy supply. The power sector, which is dominated by gas-fired generation, suffers from chronic underinvestment, inefficiency, and instability, resulting in frequent blackouts and low electrification rates. According to the World Bank, only about 55% of the population has access to grid electricity, and the per capita electricity consumption is one of the lowest in the world. Moreover, at least 60% of the population relies on traditional biomass, such as firewood and charcoal, for cooking, which causes indoor air pollution and health problems.

The reliance on fossil fuels also exposes Nigeria to the volatility of global oil prices and the risks of stranded assets in the face of declining global demand for oil. Nigeria is one of the largest oil producers in Africa and the world, with proven reserves of up to 37 billion barrels. However, the oil sector, which contributed 5.34% of the country’s GDP in Q2 2023, and an expected 41.98% of government revenue in 2024, is facing increasing pressure from the global energy transition and the Paris Agreement, which aims to limit the rise in global temperatures to well below 2°C. According to the International Energy Agency (IEA), the global oil demand could peak by 2030 and remain slightly stable until 2050 after which oil producing countries can expect significant decline. This implies that Nigeria’s boom of oil revenues and exports could be past its glory days within the next three decades, unless the country diversifies its economy and invests in low-carbon alternatives.

The Opportunities for Nigeria’s Energy Transition

Despite the challenges, Nigeria has a unique opportunity to leverage its abundant renewable energy resources and human capital to drive a sustainable and inclusive energy transition. According to the IEA, Nigeria has the potential to generate up to 427 GW of renewable electricity from solar, wind, hydro, and biomass sources by 2040, which is more than 10 times the current installed capacity. Renewable energy can provide reliable, affordable, and clean power to millions of Nigerians who currently lack access to electricity or depend on expensive and polluting diesel generators. Renewable energy can also create new jobs, stimulate economic growth, and reduce greenhouse gas emissions.

Nigeria has already taken some steps to promote renewable energy development, such as setting a target of 30% renewable energy share by 2030, establishing a Rural Electrification Agency to implement off-grid solutions, and launching several initiatives and policies to attract private sector investment and innovation. However, more efforts are needed to overcome the barriers and challenges that hinder the scaling up of renewable energy in Nigeria.

The Challenges for Nigeria’s Energy Transition

Some of the key challenges that Nigeria faces in its energy transition include:

Lack of adequate financing and incentives: Renewable energy projects in Nigeria often face difficulties in accessing affordable and long-term financing, due to the high perceived risks, low creditworthiness, and limited availability of local currency loans. Moreover, the existing subsidies and tariffs for fossil fuels and electricity create distortions and disincentives for renewable energy deployment. According to the International Institute for Sustainable Development (IISD), Nigeria spent $3.94 billion on fossil fuel subsidies in 2018, which is equivalent to a considerable chunk of that year’s federal budget. The government has recently removed these subsidies and introduced carbon pricing and other incentives, which could free up fiscal space and create a level playing field for renewable energy. However, the impact of these measures on the economy and the society is yet to be seen, and some experts have warned of the risk of social uprising and inflation.

Lack of adequate infrastructure and integration: Nigeria’s power grid is outdated, congested, and fragile, with frequent system collapses and losses. The grid is also unable to accommodate the variable and distributed nature of renewable energy, which requires adequate transmission and distribution infrastructure, smart metering, and grid management systems. Moreover, the lack of coordination and integration between the grid and the off-grid sectors, which operate under different regulatory and institutional frameworks, limits the potential synergies and complementarities between them. Developing and upgrading the power infrastructure and enhancing the grid and off-grid integration are essential for ensuring the reliability and efficiency of renewable energy supply.

Lack of adequate skills and capacity: Nigeria’s renewable energy sector suffers from a shortage of skilled and qualified workers, technicians, engineers, and entrepreneurs, who can design, install, operate, and maintain renewable energy systems. The lack of adequate training, education, and certification programs, as well as the low awareness and acceptance of renewable energy among the public and policymakers, also hamper the development of the sector. Building and strengthening the human and institutional capacity and raising awareness and advocacy for renewable energy are crucial for fostering a conducive and supportive environment for the energy transition.

At SAO Energy, we are committed to supporting Nigeria’s energy transition by providing innovative and reliable energy solutions to our clients across sub-Saharan Africa. We have an energy mix asset that includes solar, hydro, gas, and biomass energy sources, which can meet a diverse range of power needs, from residential to industrial and utility-scale. Our vision is to end the energy poverty in Africa for the 633 million people without access to electricity, one community at a time. Even with our efforts, Nigeria’s energy transition is a complex and challenging process that requires a holistic and integrated approach, involving multiple stakeholders and sectors. However, it is also a unique and promising opportunity for Nigeria to achieve its development and climate goals, while also becoming a leader and an example for Africa and the world. SAO Energy, as a pioneer and a partner in Nigeria’s renewable energy sector, is proud to contribute to this noble and vital endeavor, by providing sustainable, reliable, and clean power to all.