Leveraging efficient power supply to unlock economic potential

A report by the World Bank, said businesses in Nigeria suffer a yearly loss of $29 billion as a result of unreliable power supply – a development that continues to cripple both private and public investments in the country.

The Manufacturers Association of Nigeria (MAN), also in a report, noted that over 300 manufacturing firms have shut down operations, while others have left the country because of the wobbling electricity sector. Most of the businesses that have remained in operation struggle due to the high cost of diesel and premium motor spirit (PMS).

The MAN said the country’s shortage of electricity supply has been identified as a hindrance to the profitability of manufacturers with a yearly economic loss of about N10.1 trillion, translating to a two per cent share of the country’s Gross Domestic Product (GDP), which positioned the country among the worst countries to do business with a ranking of 171 out of 190.

Equally, a survey by MAN suggested that, on average, manufacturers spent at least N144.5 billion sourcing alternative energy in 2022, from N77.22 billion in 2021, which translates to about 87 per cent increase in the cost of access to alternative energy sources by manufacturers within a year. According to the manufacturing body, the further rise in electricity tariff will directly increase the cost of production for manufacturers, with 186 per cent increase in electricity tariff in the last eight years.

“Already, we have energy constituting 28 per cent to 40 per cent in the cost structure of manufacturing industries. We can imagine the impact on energy-intensive manufacturing industries, such as; metal processing, heavy machinery, and chemical manufacturing,” MAN stated.

The MAN’s disclosures came, even as the Renewable Energy Association of Nigeria (REAN), said businesses spend over $14 billion yearly on private fossil fuel generators.

REAN stated that despite Nigeria’s large oil, gas, hydro and solar resources and its potential to generate 12,522 megawatts (MW) of electricity from existing plants, it has an unmet energy demand of over 20,000 megawatts.

But data from MAN disclosed that diesel and petrol-powered generators account for about 25,000MW, while the national grid provides just about 4,000MW, which is far less than what is needed for economic growth and development.

Manufacturers expect that the Federal Government and the Nigerian Electricity Regulatory Commission (NERC) will ensure improvement in electricity generation, transmission and distribution that will lead to adequate and reliable electricity supply in the country, rather than increasing the tariff on 4000MW to meet all revenue needs of stakeholders in the electricity supply industry.

MAN is optimistic that if well implemented, the Electricity Act 2023 would be a major game changer for the manufacturing sector, as the current power supply is inadequate to satisfy the energy requirements of the sector and the entire population.

Nigeria’s economy is expected to experience strong growth in the next decade. However, in the absence of efficient electricity, this growth may be limited. Nigeria has abundant resources for renewable energy, including hydro, wind, and solar power. Proper investment in the infrastructure needed to leverage these resources could contribute significantly to economic growth and job creation.

Checks have shown that with reliable and affordable electricity, small businesses can expand and generate new opportunities for employment leading to long-term success objectives and reducing overall unemployment rates that disparage the economy in Nigeria.

Stakeholders have lamented that the manufacturing, agricultural and service sectors are worst hit by the unreliable electricity supply with huge economic loss.

According to them, the manufacturing sector, which contributes significantly to the economy, has been hit badly by the electricity crisis, leading to a decline in production capacity, high production costs and an increase in the cost of finished goods.

They said this has led to loss of competitiveness, reduced exports and increased imports that negatively affect the balance of payment and foreign reserves.

Also, grid reliability is a major concern for industries in the face of frequency deviations from nominal values.

Many industrial machines are frequency sensitive and there are concerns about the destructive impact of frequency deviations on machines and production, which may lead to huge losses.

The service sector, which includes banking, telecommunications, and other service providers, has also been negatively affected, as the cost of generating power independently has increased the cost of doing business and made it difficult to offer affordable services to consumers.

The Minister of Agriculture and Rural Development, Dr. Mohammad Abubakar, stated that the agricultural sector, which accounted for 23.78 per cent of Nigeria’s GDP, has been hit by the electricity crisis.

According to him, the lack of electricity has made it difficult for farmers to irrigate their farms, process their products, and transport the goods to the market.

He said this has led to a decline in food production, higher prices and increased food insecurity.

Stakeholders, however, stated that the electricity crisis in the country needs urgent attention.

They emphasised the need for the government to accelerate the implementation of favorable policies and regulations that promote sustainable energy practices.

They also called on the government to provide the necessary infrastructure and incentives to attract private investment into the sector.

Accordingly, they noted that adequate electricity can thus preserve agricultural products from excessive waste, which could help minimise producers’ losses from product spoiling and encourage entrepreneurs in agric businesses.

Recall that the electricity bill was recently signed into an act to improve the country’s power sector, which includes increased private sector involvement through investments.

The President of MAN, Francis Meshioye, asked the government for a reduction in electricity tariff and suggested a subsidy of up to 15 – 20 per cent as the association currently spends up to 30 per cent on energy.

He called on the government to look for ways of providing special electricity tariffs to mitigate overburdened expenses of expenditure of the manufacturing industry.

According to him, government should ensure at least, 90 per cent of electricity consumers are metered for consumption reflective electricity bill payment, to formulate electricity policies that will aid investment in the energy industry to increase generation capacities ushering in large-scale production of electricity and ensure effective implementation of the recent Electricity Act (2023) aimed at increasing electricity supply in the country.

The Principal Action Coordinator of the Joint Action Platform for Electricity Consumers Rights, Ayodele Olawoye, said the state incentive from the independent electricity market is numerous, if experts are engaged and not politicised.

“In a nutshell, what will happen is the withdrawal of government subsidy on the electricity supply as done on petroleum, but the government should not use that to withdraw the regulatory power from NERC,” he said.

An electricity analyst, Lanre Elatuyi, said electricity has a positive impact on economic growth as businesses can operate more efficiently, leading to increased investment, job creation, and economic input.

“The path to having accessible power is by ensuring there is resource and infrastructure adequacy, such as transmission and distribution networks that are resilient enough to connect all consumers irrespective of their location or economic status,” he said.

Elatuyi called for a revisit of the eligible customers’ policy that allows industries that consume up to two megawatts to buy electricity directly from the Gencos

“Grid operators must ensure system balance with adequate provision for ancillary services and efficient balancing mechanisms. Also, adequate provision must be made for reactive power compensation,” Elatuyi said.

He also said adequate metering of business premises is also needed to ensure business owners are not being overbilled or underbilled.

According to him, by addressing the electricity crisis, Nigeria can unlock its economic potential and drive sustainable economic growth and development.

Largely, efficient electricity is essential to unlocking Nigeria’s economic potential by providing reliable and stable power to increase productivity and stimulate economic growth, reduce operating costs and improve quality of life.

Investing in efficient electricity generation offers an opportunity for Nigeria to become globally competitive in renewable energy and achieve long-term economic success. Therefore, the Nigerian government and private sector should enable investments, legislation and initiatives such as subsidies and tax incentives that promote efficient electricity sources across the country