Demand side of electricity on the backburner despite its importance

Demand and supply remains the yin yang of an industry, one cannot work without the other, they are opposite and contrary forces but the growth and development of any industry depends on the level of interrelation between these forces and the electricity industry is no different. A lot of focus has been on the generation and supply of electricity but stimulation of electricity demand seems to take the back seat in all of the conversations.

There has to be a balance between these two intricate forces, and finding the right balance is usually tricky. For electricity, there is always going to be demand, whether it is stimulated or not because of the crucial role it plays in our everyday lives. Most times, we take advantage of having it, like switching on the light bulb and everywhere lights up, entering an air conditioned filled room, and you take a deep breath having been under the scorching sun, but all these little blessings are possible because of electricity and they make our day better and more bearable.

However, demand usually drives supply and in Nigeria, electricity demand is still low because more than 80 million people still don’t have access to electricity either for domestic or productive uses. Stimulation of electricity demand is vital to the growth of the industry and the economy as a whole because most electricity projects currently ongoing in Nigeria and other parts of Africa placed too much emphasis on building generation capacity without consideration for the end use of electricity, Rocky Mountain Institute (RMI) has observed in a new report.

Most projects usually assume that increasing electricity generation and in turn supply will drive demand but this assumption is flawed because it is the other way around, demand drives supply, the report suggests.

“Both building more supply-side generation capacity and extending the grid to add more total connections have been the focus of much development strategy and investment. But this focus has been disproportionate. For example, overall, electricity supply is still receiving 50 times more financing than access to productivity enhancing equipment in Africa,” RMI explained in its report.

Even the World Bank is guilty of this, it noted as investment in increased electricity supply represented almost half of the total investment the World Bank approved for energy access, whereas investment in productive use represented 0.7 percent and no financing was directed toward implementing productive use projects.

The report described it as a “bridge to nowhere” because electrification is not an end in itself, it is a means to an end which is the increased domestic and productive activities in every community in Nigeria especially in the rural areas.

The problems faced on the demand side by the users and consumers are not addressed, a major one being cost. And this cost runs in two ways, one is electricity cost and the second is equipment cost. Electricity cost is still very high, despite major strides made in cutting the cost. For example, mini grid electricity currently costs upward of N140 to N300/kilowatts per hour in Nigeria. This is expensive and most people cannot afford to pay for the high costs associated with energy especially for productive uses.

On equipment costs, small entrepreneurs like farmers, tailors and carpenters, are often less productive because efficient, high-quality equipment is often more expensive up front than less-efficient equipment, and access to financing in certain areas is still very rare and very expensive with interest rates running up to 30 percent.

The institute noted that, without projects to promote end use and increase productivity using electricity, energy systems end up with lower capacity utilization. That leads to a higher cost per kWh for users, reducing demand further.

Also, the effects of low stimulation of electricity demand on most project managers usually leads to poor capacity utilization and inability to recover costs, the report said.

It also gave success stories like the United States where “a combination of supply expansion paired with end-use stimulation” was responsible for rural electrification rate reaching 96 percent in 1956 from 10 percent in 1930.

The report however provided recommendations on overcoming these obstacles and one of these include developing financing frameworks to help address cost, “providing pay-as you-go financing was a critical factor in the wide-scale adoption of solar home systems in sub-Sahara Africa,” RMI said.

“The use of concessional finance can also help lower financing costs and reduce the total cost of equipment.” The report also advocated that electricity costs can be reduced by “supporting high capacity utilization of minigrids.”

Also, “access to energy-efficient and soft-start appliances that consume lower levels of electricity can also reduce peak load and operational costs and lead to lower electricity cost,” it added.