A Historical and Institutional Contextualization of Nigeria’s Off-Grid Renewable Energy Efforts

Abel B.S. Gaiya*

Developing countries today are demanding hundreds of billions of dollars in foreign aid, compensation and investments to undertake climate action and reduce their vulnerability to climate change. This situation is reminiscent of the 1960s and 1970s when newly independent African and developing countries demanded large amounts foreign aid from rich countries, culminating in the United Nations General Assembly’s 1970 recommendation that economically advanced countries progressively increase their Official Development Assistance (ODA) to developing countries to a minimum net amount of 0.7% of their Gross National Income. The assumption then was that, with governments having “political will”, all developing countries required to “modernise” were large infusions of capital.

That era ended, unfortunately, with generalised debt crises across the developing world and in Africa, as well as “aid fatigue” as aid projects appeared to be rife with corruption and “government failure”. The state-led development model involving massive expansion of state-owned enterprises in Africa, import-substitution industrialization strategies and large amounts of natural resource rents diverted into unproductive uses occurred within a backdrop of socio-political structures that were not as amenable to more productive uses of capital and aid on the continent as in places like East Asia and Brazil or even African cases like Mauritius and Botswana.

Today, the new resurgence of massive aid demands ‒ this time not for modernization but for decarbonization and to fight climate change vulnerabilities rather than poverty alone ‒ appears to be a second cycle. The energy sector, as the largest contributor to greenhouse gas emissions and a major development-driving sector, rests at the top of the global decarbonisation agenda. For Nigeria (the largest African country by population and aggregate economy), for instance, with an ambitious Energy Transition Plan launched in 2022, the Vice President of Nigeria claims that Nigeria would need to spend $410 billion above business-as-usual spending to deliver this plan by 2060, translating to about $10 billion annually. What guarantee is there that these massive infusions of capital would not end up in many moribund projects as was the experience in the 1970s?

Institutional Limitations

The institutional deficiencies which played out in the first cycle of massive aid expansion could indeed play out in the second cycle. Institutional capacities, political structures and bureaucratic quality differ so much between advanced capitalist countries and developing countries. For example, in many groups of key clean energy-based electrification efforts undertaken by Nigeria within the last decade, investigative journalism has uncovered several inefficiencies and project sub-optimality. This includes the 10 MW wind farm in Katsina State (the first wind farm in West Africa), the Durumi mini-grid in the Federal Capital Territory under the Renewable Energy (Solar) Micro Utility (REMU), the 1.3 MW Sabon Gari mini-grid in Kano State under the Energizing Economies Initiative (EEI), and the solar hybrid installations at Nnamdi Azikiwe University (4.38 MW) in Anambra State and Bayero University Kano (7.10 MW — where the solar component was found to operate less than 50% of installed capacity a year after commissioning) under the Energizing Education Programme (EEP).

These are merely a few projects which have undergone modest or in-depth independent investigation, out of the 586 federal renewable energy projects listed by the Federal Ministry of Environment and given non-insightful categorizations of “planned”, “ongoing” and “implemented”. There have also been past allegations of corruption directed at the Rural Electrification Agency (REA), which is the premier agency in Nigeria involved with “least cost” electrification mainly through off-grid and under-grid solar solutions.

Is This Time Different?

Within Nigeria, however, this is the second wave of public promotion of off-grid renewable energy projects, with the first wave from 2006 to 2013 producing poor results and largely funded by federal and state budget appropriation. This time, however, the private sector has grown tremendously; industry associations have formed (the Renewable Energy Association of Nigeria formed in 2014 and the Africa Mini-Grid Developers Association launched in Nigeria in 2018) to lobby for the sector; the sector is receiving hundreds of millions of dollars in donor financing especially from the World Bank and African Development Bank; key policies and regulations have been put in place (including the Renewable Energy Master Plan 2013, Regulations for Mini-grids 2016 and the Rural Electrification Strategy Implementation Plan 2016); and the REA, with support from the British Government through the African Clean Energy Technical Assistance Facility (ACE TAF) and the Nigerian Governors Forum (NGF), is championing a greater role for subnational governments in off-grid solar technology expansion.

Through these supports, major mini-grid players such as GVE, Nayo Tropical Technology, Powergen and Rubitec have consolidated, unlike during the 1960s and 1970s when power utilities and industries were almost entirely state-driven (and which the World Bank supported with funding for very large centralised capital projects implemented by the state) and unlike the first wave of off-grid renewable energy electrification when the mini-grid industry was weak. As a result, it appears that on the whole, despite its limitations, mini-grids tend to outperform the national grid and the REA appears to possess greater credibility than the Federal Ministry of Power going by the growth rate of installed capacity.

Indeed, one major analytical approach which better explains the variation in development performance and industry growth than static variables such as “good governance” and “corruption” predicts that the Nigerian energy industry would perform better if foreign aid is directed at a wider set of national actors rather than a central actor (such as the Federal Ministry of Power and a state-owned utility system); if it involves the use of ex post incentives (such as the Results-Based Financing used by the Nigeria Electrification Project led by the REA); if decentralised energy systems are used to electrify small and medium-sized enterprise (SME) clusters for the short-to-medium term; and if mini-grid developers could grow to a stage whereby they are able to compensate for the lack of state infrastructure in areas and provide their own public goods to immediate communities in which they operate (as productive use interventions and tripartite agreements for inter-connected mini-grids represent).

In fact, it could be that, in the long term, if mini-grid developers could achieve scale and diversification to be able to collaborate with Nigeria’s developing industrial sector to drive huge captive power plants (CPPs) which could feed into the grids, this could provide the Power Holding Company of Nigeria (PHCN) with the competition and powerful commercial interests to support major reforms of the centralised power sector to break through its low-level equilibrium.

A sense of confrontation/competition may already be gleaned from the shift from “rural” or “off-grid” electrification to “least cost” electrification; from the Africa Mini-Grid Developers Association’s 2022 report arguing that mini-grids perform better than the grid in Africa and implying that a larger portion of public investment be redirected from the grid system to the mini-grid sector; the exploration of inter-connected mini-grid projects; and a suggested amendment to the Regulations for Mini-Grids 2016 (included in a Nigerian Electricity Regulatory Commission August 2022 consultation paper) for distribution companies’ confirmation to be automatically assumed to be given to a mini-grid developer if after four weeks the disco fails to confirm that the mini-grid activities will not interfere with the expansion plans into the designated unserved area.

Challenges Remain

Major challenges remain, despite the promising picture. One major challenge is that rural populations in most need of decentralised energy solutions have the least ability to pay for electricity if mini-grids are deployed to meet their needs. The standard solution has been to pursue so-called demand stimulation interventions by promoting the productive use of energy. This largely involves supplying rural populations with productive use equipment (PUE) such as electric grain milling machines, cold storage facilities, grinders, and so on. Yet logistical problems remain in scaling PUE interventions. Indeed, it could be that the same problem of Nigerian (and African) poor capabilities in driving industrialization and green revolutions and in driving rural development through agricultural intensification is now being tackled by the mini-grid sector through a form of “decentralised rural development strategy”. This seeks to bring together mini-grid developers, PUE suppliers, and microfinance institutions, supported by the donor community.

Nonetheless, the state should ideally be more closely involved by providing the institutional coherence for the Ministry of Agriculture and Rural Development (in its agriculture, agricultural extension and rural development projects), Ministry of Industry, Trade and Investment (in its commercial and industry support programmes), Ministry of Water Resources (in its irrigation projects), Ministry of Health (in its electrification of public primary health centres), Ministry of Works and Housing (in its road projects to create market linkages between rural areas and key markets) to align with the rural electrification efforts of the REA. But it is such lack of policy coherence and inter-ministerial coordination (which contributed to the failure of the first cycle of large scale aid efforts) that contributed to the poor state of rural development which necessitated off-grid rural electrification and decentralised rural development strategies in the first place.

Moreover, is the pace of progress during this second cycle quick for advances made to be resilient to global economic shocks and disruptions to aid from the developed world (as the 1980s and 1990s were not) such as geopolitical conflicts in Europe, the slowdown of Chinese growth and globally synchronous monetary policy tightening? Could the speed and scale of progress be sufficient to not leave northern Nigeria — whose rural electrification is being threatened by dispersed incidences of insecurity — behind? These are constraints that must all be tackled if the second cycle of massive aid expansion is to have positive and lasting impacts especially on the development of countries with weak institutions, fragmented political structure and weak policy coordination.

Abel B.S. Gaiya* is a Deputy Research Manager at Clean Technology Hub.

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