Localizing the Clean Energy Value Chain in Nigeria
Eucharia Ileka*
Nigeria is richly blessed with an abundance of sunlight, wind and water. With the rise of renewable energy sources as the next big deal, the country has a chance to hurdle its economic development. However, stakeholders must be cautious, as without developing local manufacturing capacity for renewable energy components in Nigeria, the mistakes in the country’s oil and gas sector will again rear their ugly heads in the management of this growing energy source.
Most of Nigeria’s domestic demand for glass as a result of infrastructure development is imported. Meanwhile, local manufacturing of solar panels consumes large quantities of photovoltaic glass, which is used in solar modules that produce solar energy. There is a negligible local ecosystem for this. Moreover, Nigerian solar companies are yet to find their feet in healthy competition with their contemporaries. This is partly driven by the rapid drop in the cost of solar panels worldwide as a result of the narrowing gap between solar energy generation costs and other related costs. In countries such as the People’s Republic of China and the United Kingdom, a number of government subsidies are also granted to photovoltaic companies and organizations. i. The result is that large-scale solar plants generate an average cost of energy of around $0.068 kilowatts per hour (kWh), compared to $0.378 ten years ago and the price fell 13.10 per cent between 2018 and 2019 alone, according to figures from the International Renewable Energy Agency.
However, in Nigeria, the cost of solar installations has refused to fall because there are no large economies of scale to drive local manufacturing and push prices down. It is no longer news that Nigeria does not manufacture solar energy systems equipment and components. The country relies heavily on imports to fulfil this demand. The socio-economic implication of this is that the local economies of the countries where these solar home systems will be made reap the economic benefits by way of local job creation and contribution to infrastructural development.
IMPLICATIONS OF THE ABSENCE OF LOCAL MANUFACTURING
The Federal Government of Nigeria boasts of creating 250,000 jobs through the five million solar home systems drive. But it exports more jobs abroad than it creates locally due to the absence of local manufacturing capacity for renewable energy components. China, currently the world’s leading producer of solar PV equipment as well as the largest installation market accounted for 2.20 million jobs or more than half of global sector employment. By comparison, the United States is currently home to around 240,000 solar energy jobs, according to the 2019 jobs report published by the International Renewable Energy Association (IRENA). It is a game of numbers and volumes. Local manufacturing of these solar components and equipment is about upstream of the sector. Assembling solar components is the mid-stream and solar installation is downstream. For local manufacturing, that is, for the upstream to take off there have to be many players in the mid-stream demanding these solar components and equipment. Currently, only Auxano Solar Nigeria Limited, a solar assembly plant, is a player in Nigeria’s mid-stream and this cannot sustain.
STEPS TOWARDS THE RIGHT DIRECTION
Electrification rates can be increased by accelerating the distribution and improving the affordability of high-quality solar components for off-grid electrification. Moreso, there is an urgent need to create an incentive framework that attracts high-quality component suppliers/manufacturers for export and local production. All hands should be on deck to develop best-in-class data to identify off-grid households and their ability to pay. All these notwithstanding, it is pertinent to create an economic model for localization that can be used by the public and private sectors.
Among a plethora of activities, attention should be paid to Energy Finance. About $1.4 trillion is needed over 2020–2030 to implement Africa’s climate action commitments and Nationally Determined Contributions (NDCs). But an estimated annual financing gap of $99.9–$127.2 billion over the same period exists. And energy demand in Africa has been increasing at an annual rate of around 3%, the highest among all continents. Yet Africa’s energy mix has been relatively constant for the last 30 years (at 9% of total energy generation); and despite successful renewable energy projects, the overall scale of renewables in Africa remains very small. The developing world needs to mobilize more domestic sources of finance, while the developed world needs to commit more to finance.
Notably, Transition Politics and the debate on whether Africa should transition away from fossil fuels are still raging. Many African politicians, professionals, and ordinary citizens are still skeptical about the transition from fossil fuels. We can nonetheless agree to take advantage of increasing global funding for energy transitions and make use of natural gas as a transitional alternative. There is an urgent need to embrace proportionate responsibility on China, the EU, and the U.S. which emit over 40% of total global greenhouse gases, while all of Africa emits 7%. Prioritizing the transition to renewables and imposing higher emission reduction requirements in the EU, U.S., and China will ease the burden on those nations that still need a variety of power generation methods to increase energy access. There is a need for the utilization of the African Continental Free Trade Agreement (AfCFTA). The AfCFTA will create the world’s largest free trade zone by integrating 54 African countries with a combined population of more than 1 billion people and a GDP of more than $3.4 trillion. Africa’s commitment to lowering intra-African trade barriers can attract more private sector investment with larger, connected market opportunities.
As conversations and policies about clean energy continue to grow, it is pertinent for Africa to develop and maintain independent energy policies that both preserve the environment and support the economy. Generating our energy on the continent, and with locally-sourced materials, is a vital step towards building a robust, resilient, clean energy-driven economy. It is important for Africa to develop and maintain independent energy policies that both preserve the environment and support the economy. Making our energy here and with locally-sourced materials is a vital step towards building a robust, resilient, clean energy-driven economy.
Conclusion
As we focus on developing a green economy, increased demand for electric vehicles, critical minerals, and renewable energy systems is an opportunity for Africa to capture larger portions of supply chains in the new green economy. Nations and firms can collaborate across borders to create a pipeline of bankable power projects to attract investment. Increasing local manufacturing and production capacity for resources, materials, and value-added products vital to green technology will create jobs locally.
Eucharia Ileka* is the Head of Operations at Clean Technology Hub
