Why Major Marketers Shun Nigeria

• FG Should Divest Share In JV To Cleaner Energy — Stakeholders
• Renewable Energy Laws Stalled In Nigeria — Olawuyi
• Tax Structure, Tariffs, Credit Critical To Investment—Expert

Nigeria is currently missing out on the $49 trillion projected renewable energy investment as International Oil Companies (IOCs) and others are shunning the country amid massive divestment into cleaner sources of energy.
Faced with a huge electricity deficit, the generated capacity that has stagnated at about 5000 megawatts and is sourced basically from gas fired plants, leaves immense opportunities for investors.
But the country has failed to attract serious investment due to prevailing challenges in the electricity sector, especially its gloomy regulatory outlook and the inability of the sector to stabilise years after privatisation.
Worried by the development, and citing the Norway example, where a $1 trillion government-owned investment fund has been set up as part of measures to redirect monies earned from oil and gas to clean energy projects, considering its multiplier implication of access to energy, especially in spurring economic development, poverty alleviation and employment opportunity, some stakeholders have asked the Federal Government to divest part of its share in oil and gas Joint Venture (JV) and push for investment in the renewable sector.
As critical as the move could be, the experts are equally worried about energy demand in the country. As such, they called for a holistic analysis of the industrial zones that would require mini grids, stressing that with minimal level of industrial hubs, the nature of renewable electricity may not encourage high level investors like the oil majors.
With continuous pressure and commitment towards climate change as well as the current outlook of oil and gas investment, most IOCs and other energy investors are already taking strategic steps away from oil and gas, preferring to be seen more as an energy company thereby divesting into sustainable energy sources.
Earlier last week, BP disclosed plan to slash oil and gas production and pour billions of dollars into clean energy after a huge second quarter loss and dividend cut.
According to the plan, BP increased by 10-time yearly low carbon investments to $5 billion by 2030 as it tries to deliver on its promise of net zero emissions by 2050.
According to International Energy Agency, $49 trillion should be invested in renewables and efficiency over the decade until 2030 as the agency predicted that renewables would provide 57 per cent of global power generation by 2030, up from 25 per cent in 2017 and an expected 30 per cent in 2020.
The current development in the oil sector, which has heightened concern on the commercial viability of numerous planned oil and gas projects, has reportedly caused an extensive asset write downs of $22 billion for Shell alone.
ExxonMobil had earlier stated it would invest up to $100 million over 10 years to research and develop advanced lower-emissions technologies with the U.S. but has doubled its commitment to cleaner energy in the face of the prevailing situation.
Norway had last year divested of 134 companies that develop oil and gas, including such companies as UK-based Tullow Oil, Premier Oil, Soco International, Ophir Energy and Nostrum Oil & Gas.
Indeed, while as much as about $26 trillion is globally being pushed into similar deal according to Climate Action 100+, significant increase in this activity has not been seen in Nigeria, where industries are folding up due to acute supply of electricity.
At a time Kenya is already generating about 70 per cent of its electricity from renewable energy, most renewable energy projects in Nigeria are still backed by donors, especially World Bank and African Development Bank.
Private capital would always go to where the risk is low or the profit corresponds to the risk, Prof. Adeola Adenikinju, an energy economist at the University of Ibadan stated, while giving reasons for major investors not showing interest in clean energy investment in Nigeria.
“If the risk level is elevated, risk averse investors will not be attracted. There is a need to have very clear laws, regulations and policies that will provide appropriate framework to attract, and incentivise private capital into the renewable energy sector,” the Professor stated.
Adenikinju insisted that the institutional framework must be very clear and not overlap, stressing that the country has enormous potential for renewable energy development but needed a legal framework to guide the development. According to him, the tax structure, tariffs, credit, and others must work together to promote the business.
Professor of Law and Deputy Vice Chancellor, Afe Babalola University, Damilola Olawuyi, sees high renewable energy potential, availability of clear policy, legal and institutional frameworks on renewable energy investments; and overall investment climate in the country in terms of security, infrastructure and fund repatriation as key determinants of the flow of private sector investment into renewable energy.
But while Nigeria has significant renewable energy resources and potential, ranging from solar to hydro and biofuels, Olawuyi insisted that the country’s lack of clear policy, legal and institutional frameworks on renewable energy investments remain a key impediment.
“As can be seen in jurisdictions such as Sweden, Finland, Denmark, the United Kingdom, and Germany, where massive renewable energy investments are ongoing, investment in RES- E must be backed with a clear and transparent legislative framework, including renewable obligations and performance standards; financial incentives to encourage private participation, especially through a feed-in tariff system, to offset the higher costs associated with renewable energy investments,” he stated.
Olawuyi noted that IOCs, renewable producers, financing bodies, and other investors would want to have a clear knowledge of power purchase processes; eligible renewable technologies; tariff system for micro-grid registration, and priority grid dispatch rules; as well as verification, validation, reporting, and monitoring requirements for micro-grids.
While some of these issues are addressed in general electricity laws in Nigeria, the professor stressed the need for more specific legislation on renewable investments due to their decentralised nature.
“Efforts to enact a clear and comprehensive renewable energy law in Nigeria have been stalled for many years. There is a strong business case to promptly revisit those efforts now, especially when you look at the significant economic, social and environmental potential of renewable investments to post COVID-19 recovery processes,” Olawuyi stated.
Urging stronger renewable energy policies and laws, convener of PowerUp Nigeria, Adetayo Adegbemle stated that while Nigeria had targeted an energy mix, which include 35 per cent from renewable energy, inconsistent policies continue to deter private sectors in the sector.
At a time when other countries are providing tax holiday and other incentives to cleaner energy, Adegbemle said Nigeria was fighting for a 5 per cent VAT and increased Import Duty imposed by the FG in 2015.
“My organisation had also pushed to see if stakeholders could get the National Assembly to sign a Renewable Energy Act for Nigeria, with clear incentives for investments. If countries like Kenya and Ghana can have RE Act, then Nigeria needs to do more in this development.
“A Renewable Energy Act will clearly spell out incentives for bringing manufacturing companies into the country, thereby creating more jobs for Nigerians,” he stated.
Associate Director, Energy, Utilities and Resources, PricewaterhouseCoopers, Habeeb Jaiyeola, sees the increasing divestment into clean energy space as an acceptance of the future of the global energy mix, which he said would gradually involve less of fossil fuel sources like crude oil and coal, and more of cleaner energy sources like bio fuels, solar, hydrogen and wind.
To him, Nigeria needs to seriously emphasise the awareness of the possibility that global crude oil demand may not return to quantities that would be healthy for oil producing countries. This is further intensified by the impact of the coronavirus on global economies and growing negative effects of climate change.
“Cleaner energy sources are more integrated plants built closer to the energy demand. Attracting private sector investment in cleaner energy has to be driven by local demand for energy, largely through growth in local industrialisation and value addition.
“Emphasis has been more on extraction and export, which has largely driven the value chain in Nigeria, resulting in reduced value addition and industrialisation and resultant low energy demand locally. Nigeria requires an urgent national strategy on industrialization and value addition to link up the mining, power, industrial and energy sectors and drive local energy demand,” Jaiyeola stated.
This development, according to him, must be supported by free demand and supply and deregulation, with more emphasis on gas wealth as this would remain in high demand and remain a significant export earner.
Jaiyeola called for divestment of some share in oil and gas Joint Venture (JV) to the renewable sector but warned that a strategic plan was needed, otherwise the energy would be stranded.
Founder/Executive Director, International Support Network for African Development (ISNAD-Africa), Adedoyin Adeleke, noted that while there were major investment gaps in the Nigerian renewable energy industry, it was crucial to acknowledge the recent growth in renewable energy investment in the country. He highlighted the efforts of development partners such as the German-EU Nigeria Energy Support Programme (NESP) being implemented by GIZ, and, the leadership of Ms. Damilola Ogunbiyi and her team at the Rural Electrification Agency that attracted World Bank’s support for renewable energy development in Nigeria.
Adeleke insisted that renewable energy investment in the country remained low relative to its potentials and the targets for renewable energy installed capacity as spelt out in the Nigerian Renewable energy and energy efficiency policy and the country’s renewable energy masterplan.
“An overarching challenge is the overall business environment. Security is a major element in the decision matrix of multinationals and Nigeria is not doing well on this and institutional bottlenecks, among other issues,” he stated.
According to him, the private sector participation in the Nigerian electricity sector is emerging and trying to get its feet especially for large scale investment, adding: “despite being implemented by an Act of Parliament, there has been calls, within the government, for the reversal of the privatisation of the electricity sector. This does not give any potential investors, especially multinationals, reasons to invest in such country and sectors.”


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