The energy situation in Nigeria is critical and a key constraint for economic development. About 55% of the population has no access to electricity and out of the total energy consumption, traditional biomass (firewood and charcoal) accounts for 86%. Population growth and economic development contribute to an increased need for electricity. The gap between production capacity and demand in combination with poorly maintained generation installations and a poor national and regional electricity grid, results in unstable and unreliable electricity supply for both households and companies.

As a consequence, many companies and households rely on diesel generators for their electricity supply. Of the total energy consumed by Nigerian industries only 4% is from grid-connected electricity. 96% is self-produced, using either natural gas, oil products (usually diesel) or biomass and waste (usually wood products and agri-waste). 

Privatisation of the energy landscape 

In recent years, the energy landscape in Nigeria has undergone drastic changes due to the ongoing privatisation of the sector. In 2013 the government privatised the electricity sector with the aim to improve the reliability of electricity supply. However, the restructuring of the sector has not yet led to the anticipated improvements. In recent decades the electricity market has changed from a verticallyintegrated organisation under the state-owned National Electric Power Authority (NEPA), to a multistakeholder privatised market.

Within the Nigerian electrical power landscape, four basic power generation options are to be differentiated. These are:

I. Grid-connected: a power plant where the electricity generated is evacuated on the national grid.

II. Embedded: electricity that is directly connected to and evacuated through a distribution system which is connected to a transmission network operated by a System Operations Licensee.

III. Captive: the generation of off-grid electricity that is entirely consumed by the generating entity itself and has an installed capacity exceeding 1 MW, with no upper limit.

IV. Off-grid (including mini-grids): small scale (0–1 MW) electricity generation to a single or limited number of customers.

Use of generators in the manufacturing industry 

Nigeria’s manufacturing sector is one of the major driving forces behind the country’s economic growth. The manufacturing sector accounted for 9% of GDP (€ 40 billion) in 2013. Growth in the sector has been rapid at a pace of almost 18% per annum in the period 2011–2013, although it is hampered by supply bottlenecks, including disruptions in electricity supply. Due to irregular power supply and the need for manufacturing industries to sustain production, Nigerian manufacturers have resorted to the use of diesel and gas for their energy needs. Estimates suggest that between 8 and 14 GW of decentralised diesel generator capacity is currently installed in the country. About 86% of the companies in Nigeria own or share a generator and about 48% of their

total electricity demand is covered by these private generators. With several millions of privately installed diesel generators, Nigeria leads Africa as a generator importer and is one of the highest importers worldwide.

For manufacturing companies, access to, reliability of and cost of energy are both important. The inadequate supply of grid-connected electricity is the main reason for industry to generate power themselves. The price (Total Cost of Ownership) of electricity from renewable technologies is comparable and often even below the price of diesel generated electricity.

Renewable energy potential

Nigeria’s abundant renewable energy resources are largely untapped. Nigeria’s estimated installed renewable capacity is currently only 1.979 MW. Of this installed capacity, 1.900 MW is from three large hydropower plants, and 64,2 MW derives from small hydropower plants. Finally, it is estimated that about 15 MW of dispersed solar PV installations are installed.

Nigeria’s bio-energy is high due to the availability of agricultural, forestry and food waste residues. Research suggests a total technical potential of 2.300 PJ annually. With 1.700 PJ from energy crops and 600 PJ from agricultural crop residues. 

Captive energy potential in the agri-food sector 

For the substitution of diesel and gas generators, especially the primary and secondary processing steps in the agri-food sector have a relatively high potential for the use of renewable energy, especially bioenergy. This is because in primary and secondary processing large amounts of energy are used and feedstock and agricultural residues are often available at the processing location. Especially in the processing of rice, cassava, and palm oil there seems to be a good potential of substituting diesel and gas generators with renewable captive bioenergy technologies.

Developing captive power projects in Nigeria

Doing business in Nigeria is far from easy, and for a project developer working in the rapidly changing energy sector it can be even more challenging. The experienced industry stakeholders that have been interviewed for this report suggested the following strategies to overcome these challenges:

1 Be flexible and willing to adjust

A developer needs to be flexible and be willing to adjust with time. Essentially, investors need to understand that the rules and road map are not very clear, and should be able to accommodate for that.

2 Work with a local partner

In nearly every sector in Nigeria, market entry and development is greatly facilitated when working with a local partner.

3 Secure financial viability of your project

Establish power projects where you can directly sell to clients who you can negotiate a proper price with. This is often not possible in practice due to regulatory constraints. For non-captive projects it would only be possible in an embedded structure, with a financially strong and committed DisCo. 

4 Be as self-reliant as possible

The developer’s independence should stretch to ensuring control over the entire value chain, starting with owning the land on which you base the power plant as well as having ownership and maintenance of power lines under own control. The thought is by ‘controlling’ or having a stake in the entire value chain you can avoid challenges that might otherwise arise.

Publication date
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Cross-sectoral enabler
Capacity building and training
Economics and financial decision-making
CTCN Keyword Matches
Small-scale Combined Heat and Power
Manufacturing industry
Renewable energy resource mapping
Renewable energy