Let there be light – new hope for Nigeria’s poor

March 18, 2015

Only 48% of Nigeria’s population have access to electricity. But now a wave of new investment is arriving.

Peter Young and Frederik Veldman explain how we have helped Nigeria’s power sector increase the elPicture1ectricity supply by 150% – saving Nigerians £1.1 billion.

In Britain we’re not very happy about our electricity companies, but we can’t really comprehend a situation where there is no electricity. How could we live properly if we had to sit in the dark? How could British businesses survive if each had to buy and run its own expensive diesel generator?

Yet that is exactly the situation faced by Nigerians. Less than half of the 170m strong Nigerian population have access to electricity. Those who are connected to the electricity grid only receive power for a few hours each day and they also have to buy and run an expensive diesel generator. There is twice as much self-generation from diesel generators as there is production of grid electricity.

Most of the poor in Nigeria cannot afford to buy generators – relying instead on kerosene lamps, battery powered torches or candles. The alternative for many is to sit in the dark which amongst other things means their children are unable to do schoolwork. Moreover, the cost of kerosene lamps and candles is ten times greater than electricity. Candles provide extremely poor light and are unable to power appliances, such as fridges. A single light bulb is 100 times more powerful than a candle.

Even low income communities can afford electricity from the grid, if only they could get it. Prices for the poorest consumers have been reduced with the introduction of a lifeline tariff, giving them access to a basic amount of electricity for only 2,400 Naira (£8.00) a year. This is enough to light their homes and run a few appliances.

The benefits of getting access to the grid supply are massive, especially for the poorest. It would collectively save them a total of £4.2bn annually, and stop them being forced to buy 10bn litres of kerosene, 5.8bn candles and 1.4bn batteries. It would reduce carbon dioxide emissions annually by 28.6m tonnes, the equivalent of taking 7m mid-sized cars off the road. Households would also be able to use home appliances, like electric cookers, which would free women from hours of daily housework and act as a catalyst for more women joining the workforce.

But to expand the Nigerian power system requires massive investment – some £67bn – and the only possible source for this is the private sector. The state doesn’t have this money – particularly with current oil prices – and when it did try and inject some capital into the system, the result was failure due in the main to incompetence and corruption.

Fortunately a series of long-awaited reforms mean that a huge expansion of supply is on the way. Assisted by the UK’s Department for International Development-financed Nigeria Infrastructure Advisory Facility (Niaf), Nigeria has now transferred core assets to the private sector, increased tariffs on richer consumers and businesses to a level high enough to attract investment, introduced a functioning market for the sale of electricity and brought in a commercial framework that is incentivising investment in gas for power infrastructure.

This last point is critical. Power generation has been constrained by shortages of gas, as previously it was cheaper to flare gas than sell it to power stations. With support from Niaf, gas tariffs were increased from £1.00 to £1.70 and a transportation tariff introduced at £0.50. Gas use for power has increased considerably, with December 31, 2014 representing a new single day peak in supply. Investment in pipeline completions will bring another 400 megawatts equivalent of gas capacity on-stream by the end of March this year, enabling the electricity supply to increase by almost 10%. With commercial incentives now in place, we have continued to see a reduction in gas flaring, from 31% at the start of Niaf in 2007 to 13% today.

Additionally, under private ownership, generation companies have also boosted gas efficiency in power production by 15%, with more to come. More importantly a wave of private sector investment is on the way. The independent regulator has authorised the negotiation of private sector project applications representing 40 gigawatts of additional generation, including more than 2 gigawatts of commercial scale wind, solar and hydro for the first time. This would increase today’s total available capacity almost tenfold, providing real hope to Nigeria’s poor. For the first time they will be able to come out of the dark and into the light, their children will be able to study at night and the hugely expensive burden of paying for candles and kerosene will no longer be needed.