Nigeria Solar and Renewable Energy Policy Overview (Updated)

Nigeria stands as one of the largest nations in West Africa, with a population of approximately 213 million. Its GDP of roughly $477 billion ranks it first in Africa and 31st globally.

Besides improving the existing infrastructure, boosting solar and renewable energy development has become a vital strategy to drive its continuous economic growth, realize SDG7 targets and improve Nigerians' living standards.

This article will analyze Nigeria's solar and renewable energy policy over recent years and present some insights into the energy sector.

Background of Nigeria's renewable energy development

Although Nigeria's electricity generation can be traced back to 1896, severe challenges still exist in the country's electricity system. The grid supply is marked by continuous fluctuations, frequent outages and system instability.

In terms of generation, the dominant conventional fossil-fuelled sources suffer impacts by a combination of economic factors like devaluation, inflation and changes in exchange rates, operational challenges within the electricity sector such as inadequate generation capacity to meet the country's demand, as well as the need to recover costs associated.

When it comes to the transmission and distribution (T&D) sub-sectors, outdated and inferior infrastructure has induced big power losses, which in turn, further intensifies the challenges and restrains public and private sectors' passion for investment in new capacity.

Ranked the 25th biggest emitter of greenhouse gases, both domestic and foreign pressure calling for reductions in carbon emissions has also posed urgency for the government to find new and green channels to conduct structural development and transform its energy supply.

It is inspired that renewable energy technologies, characterized by their falling costs, easy deployment and expanding capabilities for improved resilience, have experienced around double-digit growth in Nigeria over recent years, where there are abundant natural resources. These energy sources not only add new power capacity but also generate some positive outcomes for the country's climate actions.

In essence, these results are inseparable from a series of renewable energy policies and incentives launched by the government.

Major Nigerian solar and renewable energy policies

Since the millennium, Nigeria has enacted many policies and incentive programs to build a foundation to fuel solar and renewable energy development. Some of the major include:

Renewable Energy Master Plan (REMP)

Since its implementation in 2011, the Nigeria Renewable Energy Master Plan (REMP) aims to enhance electricity supply, grid reliability and security. It targets a significant increase in renewable energy generation, aiming for 23% by 2025 and 36% by 2030, alongside electrification rate growth. As for solar, the REMP sets a goal of reaching 500 MW of capacity by 2025. 

A series of short-term and long-term measures is incorporated into the plan. Notably, in the short term, the plan includes import duty moratoriums on renewable energy technologies. In the long term, potential tax credits and preferential loan opportunities are being developed and rolled out.

National Renewable Energy and Energy Efficiency Policy (NREEEP)

Enacted in 2015, Nigeira's National Renewable Energy and Energy Efficiency Policy (NREEEP) is seen as a "game-changer" for the adoption and deployment of renewables in Nigeria, serving as a blueprint for the country's sustainable development.

NREEEP concentrates on the utilization of multiple renewable energy sources beyond solar. It also underscores the urgency of improving energy efficiency to ramp up energy capacity, increase electrification rate and support economic growth.

The policy sets up objectives to ensure a minimum solar electricity contribution of 3% by 2020 and 6% by 2030. It specifies the use of solar home systems to boost electrification in rural and remote/off-grid areas. One of the most forward-looking strategies is that it requests the implementation of a web-based solar prospecting tool to unlock the solar potential in Nigeria.

NERC Mini-Grid Regulation 2016

In 2016, the Nigerian Electricity Regulatory Commission (NERC) approved the Mini-Grid Regulation. The regulation defines the capacity range of mini-grids as per the circumstances in the country. It specifies that standalone mini-grids up to 100 kW are not obligated to obtain a permit for operation, while projects with a 100 kW - 1 MW capacity or connected to the grid must apply and obtain the permit.

When national grid access is available to the areas where the mini-grids are located, owners can either connect their systems to the grid or transfer all the assets to the national grid operator in return for reasonable financial compensation.

This regulation was designed to ease the administrative burden on mini-grid developers and to protect investors from the depreciation of their assets in case of the grid's arrival.

Off-Grid Electrification Strategy

The Off-grid Electrification Strategy was created in 2017 by the Nigerian Rural Electrification Agency (REA), the implementing agency of the Nigerian government, to facilitate electrification of rural and unserved communities.

As part of this strategy, ambitious objectives are set to maximize the use of diverse decentralized energy solutions to broaden energy access for households, communities and businesses. Some of the objectives include:

• Develop 10,000 mini-grids by 2023 to power 14% of the population
• Deploy 5 million standalone solar systems for residential and SMEs by 2023

Solar Hybrid Mini Grid Fund

The Solar Hybrid Mini Grids is a component of the government's Nigeria Electrification Project (NEP), which is run by the Nigerian Rural Electrification Agency (REA) and supported by the African Development Bank.

With a total of $150 million available, the fund is delivered through two unique funding windows: minimum subsidy tenders and performance-based grants. It aims to electrify 300,000 households and 30,000 local enterprises through mini-grids.

In addition to the provision of clean, safe and affordable electricity to communities in unserved areas, the fund also intends to increase business productivity by replacing fossil-fueled generators and lighting sources with reliable green electricity as well as improve community security through solar street lighting.

Multi-Year Tariff Orders (MYTOs)

By the Multi-Year Tariff Orders, the Nigerian Electricity Regulatory Commission (NERC) established the regulated prices of diverse energy sources, including solar, to be paid to licensed electricity generation companies in providing electricity to distribution and retailing companies for particular periods. 

By doing so, NERC aims to ensure cost recovery and financial viability for regulated entities, maintain pricing framework stability to encourage efficient investment, offer incentives for performance improvement, promote healthy risk allocation, as well as maintain simplicity and cost-effectiveness for the energy sector.

MYTO 1 regulated prices for the period 2008-2013, while MYTO 2 for 2012-2017. Both were authorized under the Electric Power Sector Reform Act 2005.

Feed-in Tariff for Renewable Electricity

Nigeria's feed-in tariff regulation was approved in 2015 to substitute the MYTO 2 introduced above.

The regulation is regarded as a catalyst to foster competition and stimulate renewable energy investment in the country. As per the clauses, electricity procured from small plants (1 MW - 30 MW) will automatically be integrated as renewable energy, while a competitive bid process will be initiated for larger renewable energy projects (> 30 MW).

It also specifies that 1,000 MW of renewable energy capacity should be generated and connected to the power grid by 2018 and 2,000 MW by 2020. The power distribution companies are required to source at least 50% of their supply from renewable sources.

Nigerian Economic Sustainability Plan (NESP)

The Nigerian Economic Sustainability Plan was approved by the government in July 2020 as part of the government's COVID-19 recovery strategy. 

Among the 10 key projects outlined in the plan, two are directly related to the energy sector. The most noteworthy project is a $619 million commitment to the Solar Homes Systems Project, which will help install solar home systems for over 5 million households, serving about 25 million individual Nigerians who do not have access to grid electricity.

Moreover, the plan provides monetary incentives for private solar installers and aims to create more than 250,000 new jobs in the energy sector.

It is considered one of the largest renewable energy stimulus initiatives worldwide from a middle- to low-income country in response to COVID-19.

Challenges & opportunities for Nigeria's solar and renewables development

Nigeria is blessed with abundant renewable energy resources. In comparison to many other developing economies in the world, the country has more comprehensive and concrete energy policies, with renewables-related policies beginning introduction as early as nearly 20 years ago. Despite the progress toward electrification and decarbonization, many challenges remain.

Challenges

Like the cases of other developing countries, economic development is the foremost focus for the Nigerian government. On the whole, many measures within Nigeria's energy policies somewhat indicate that the government strives to balance between spurring electrification to propel economic growth and boosting decarbonization.

Early policies seem to suggest that the government was testing multiple renewable energy sources, including hydro, biomass-based, wind and solar power, to recognize what combinations and which source better fit the country's energy and socio-economic landscape. In contrast, newer policies formulate more measures and initiatives surrounding solar technology, largely attributed to its proven ability to break the constraint of the unstable and costly transmission and distribution infrastructure and fulfill 'last mile' delivery of clean, more reliable and affordable energy.

However, Nigeria's solar and renewable energy progress still faces significant pressure due to the lack of robust financing support, an underdeveloped domestic supply chain, insufficient skilled labor, and the fluctuating global political and economic climate.

Opportunities

Among all the challenges, financing apparently comes first in this middle- to low-income country without a full domestic supply chain, especially considering the existence of a global recession risk. Even so, increasing investment in infrastructure and renewable energy (both domestic and foreign) holds a notable position in many governments' national strategies. International financing institutions and renewables initiatives like the World Bank, African Development Bank (AfDB), European Investment Bank (EIB), Africa Renewable Energy Initiative (AREI) and Power Africa are injecting considerable funds and support into Nigeria's energy sector.

Technically, the deployment of solar home systems (aka residential solar power systems) has been validated as an effective tool in Nigeria to elevate electrification in unserved areas with low population densities. Recent national policies, including Nigeria's National Renewable Energy and Energy Efficiency Policy (NREEP) and the Nigerian Economic Sustainability Plan (NESP), have clearly pointed out the role of these systems in realizing the electrification and decarbonization objectives.

In the meanwhile, solar mini-grids and larger-scale solar power plants are key to provide clean and cheaper electricity in communities with denser population in a cost-effective manner. When paired with energy storage, these systems provide reliable, clean electricity to back commercial activities, increasing productivity for local economies.

Solar technology can also electrify other public sectors using clean energy with ease. Globally, the transport sector is a major source of carbon emissions in the atmosphere. In Nigeria, the sector emitted 55.9 million tonnes of CO₂ in 2019. The installation of solar street lights will help cut down part of the emissions for the sector while providing more reliable lighting to extend commercial hours in support of business activities.

Find Words

We're thrilled to see there are a series of ever-improving solar and renewable energy policies in Nigeria. However, the need for matching financing initiatives seems to be more critical, though the two complement each other.

We should admit that both policies and investment are ultimately driven by economic returns. The input in energy efficiency improvement and tailor-made solar technologies for different social strata have become hugely important for the sake of more approachable and sustainable applications.