Analysts project 13% growth for Nigerian power sector over 5 years

BY INNOCENT OBASI 

• Thermal to dominate power generation market

Nigeria’s power sector is expected to record a compound annual growth rate (CAGR) of about 13 percent between 2022 and 2027, driven by government support for renewables-based power generation, according to analysts at Mordor Intelligence.

The market research company, in a report “Nigeria Power Market – Growth, Trends, Covid-19 Impact, and Forecast (2022-2027)”, said the Nigerian power market is largely driven by favourable government policies and a growing inclination toward privatisation of the power sector, which can draw more investment in the sector.

“However, the absence of proper infrastructure in the power sector, with a lack of skilled local labour, is expected to hinder the power market in the country,” the report said.

Assessing the impact of the COVID-19 pandemic on electricity distribution in Nigeria, the report said it was positive, citing Lagos, the country’s largest city, where it said 43 percent of total electricity demand comes from the residential sector.

“Under the lockdown scenario, there was a sharp increase in residential electricity demand by up to 49%, resulting in power distribution companies facing a shift in electricity demand and changes in energy load allocation. This factor called for more EPC or modification projects in the power infrastructure,” said the report, which has 2019-2027 as its study period with a base year of 2021.

The Nigerian power market is segmented by ‘Power Generation from Sources’ (thermal, renewable, and other power generation sources) and ‘Transmission and Distribution’ (T&D). However, the scope of the Mordor power market report covers Power Generation from Source (thermal, renewable, other power generation sources).

Among all the sources, Mordor Intelligence projected that thermal power will dominate the power generation market in the forecast period, “as more than half of the country’s total power generation is based on natural gas.

“The country has required natural resources like oil and gas reserves, which assure continuous fuel supply for the power generation sector. In the current scenario, the Nigerian government highly promotes foreign direct investments (FDI), which may create tremendous opportunities for the market. There is a great demand for electricity from many communities dwelling off-grid,” the report said.

The Nigerian government is promoting renewable energy-based power generation and, in line with that, the country’s electricity regulator (NERC) is offering various grants to local companies for setting up renewable energy generation plants, which is expected to boost the power sector, it said.

Highlighting the key market trends, the Mordor Intelligence report said thermal power is expected to not only dominate the market but also boost the power generation sector during the forecast period.

Nigeria’s thermal power generation share was 80 percent in 2021 and is expected to have a significant share during the forecast period due to Nigeria’s continuous and reliable gas supply to power the gas-fired power plants, the report explained.

“In January 2021, the federal government planned to add six coal-based power generating plants to the existing ones by 2037. It also fabricated plans to add nine gas-fired power plants, making it a total of 15 power plants, expected to be operational by 2037,” the report said.

“In February 2020, the Nigerian National Petroleum Corporation and the United States Trade and Development Agency signed a USD 1.1 million deal to construct gas-based NNPC Abuja Independent Power Project. The 1350 MW plant is expected to be constructed by the EPC companies General Electric and CMEC (China Machinery Engineering Corporation). The gas supply will be provided by the proposed pipeline, Ajaokuta-Kaduna-Kano (AKK),” it said.

The report projected that renewable-based electricity generation will become a major driver of the power sector in Nigeria in the forecast period and into the future. This is on the basis of the government’s support for renewables-based power generation and plan towards more programmes that promote cleaner power generation sources to power the urban and rural areas of the country.

Nigeria in 2006 developed the Renewable Energy Master Plan (REMP) to promote the deployment of renewable-based power generation systems in the country.

As of 2020, Nigeria’s renewable power generation capacity hovered around 2,153 MW. In the same year, the government launched the Naija Solar Power Project targeting some 5 million solar-based connections for off-grid communities. A follow-up launch of the same project took place in Jangefe Roni Local Government Area of Jigawa State in April 2021, with the government saying the projects would likely be implemented in other areas like Edo, Lagos, Adamawa, Anambra, Kebbi, and Plateau States in the first phase while the next phase would cover the entire country.

“The country aims to increase the supply of renewable electricity to meet the electricity demands of rural areas. The Renewable Energy Association of Nigeria (REAN) is encouraging investments in this sector,” the report said.

“At the end of 2020, hydropower accounted for about 12.5% of its on-grid energy in Nigeria. Following the current trend, this sector will witness huge investments, which may boost the growth of the country’s renewable power generation,” it said.

The Mordor Intelligence report said the Nigerian power market is moderately consolidated, with Afam Power PLC, Egbin Power PLC, and Toshiba Corporation among the major power-generating companies, while major transmission and distribution companies include Transmission Company of Nigeria and Abuja Electricity Distribution Company PLC.

Dwelling on some recent developments in the market, the report highlighted the USD 50 million term loan funding the Aba Gas-to-Power project received from African Import-Export Bank (Afreximbank) in November 2021.

“The Aba IPP will be Nigeria’s first integrated and independent power utility. The deal was signed with Geometric Power Aba Limited, the power station operator,” the report said.

“In June 2020, the World Bank approved USD 750 million for the Nigerian Power Sector. It was initiated as a Power Sector Recovery Operation (PSRO) loan for Nigeria, aiming to achieve financial sustainability, enhance accountability, and ensure a reliable supply of electricity to the grid by 2022,” it said.