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Mobilising Private Financing For Developing The Solar Energy Potential: A Review by beststoreltd: 8:37am On Jun 12, 2015 |
MOBILISING PRIVATE FINANCING FOR DEVELOPING THE SOLAR ENERGY POTENTIALS OF NORTHERN NIGERIA FOR ELECTRICITY GENERATION: A REVIEW Ado Ahmed, ATB University, Bauchi Nigeria A.Q. Ibrahim, Police Academy, Wudil, Nigeria Sama'ila Idi Ningi, ATB Univerisyt, Bauchi ABSTRACT] Nigeria is hugely endowed with a variety of economic resources capable of launching its economy on to the orbit of sustainable growth and development comparable to the standard of the industrialised nations of the world. Though an energy deficient nation, Nigeria is blessed with various energy resources ranging from fossil energy resources such as petroleum, natural gas, coal, lignite, tar sands and renewable energy resources such as hydropower, solar radiation, wind, fuel wood, animal waste and crop residue that could potentially and sufficiently support the energy quests for a fast growing 21st century economy. The paper discusses the abundant solar energy potentials of Nigeria and demonstrates how it can be used to meet the electricity generation needs of Nigeria. Central to the theme of the paper also is the discussion of the mobilization strategies for attracting private financing for the solar electricity. The paper notes current government policy on fuel mix diversification in the generation of electricity in Nigeria and the opening up of the electricity sector for private financing of electricity generation infrastructure and concluded that the abundant solar energy potential of the Northern Region can best be developed through mobilising private financing. INTRODUCTION While Nigeria has abundant renewable energy potentials, the nation (despite its energy shortage) is yet to tap its renewable energy resources to provide for its expanding electricity needs. Present energy quests in Nigeria bring a lot of harmful environmental costs. According Akintola and Alamu(2010) significant sources of energy consumption in Nigeria come from firewood and fossil fuels such as coal and oil which inevitably lead to continuing deforestation, depletion of other energy resources and the emergence of adverse environmental impacts. Therefore bringing renewable energy resources to augment energy supply from fossil fuel energy resources will enhance energy availability with minimum environmental costs (Ilenikhena and Ezemonye (2010). In view of the quantum of funds needed for investment in the renewable energy sector and budgetary constraint, governments are increasingly turning to the private sector for investment in renewable energy. Additionally the reform of the Nigerian electricity supply industry and the avowed commitment of the Federal Government of Nigeria to diversify the fuel mix of electricity generation by including the renewable resources meant that the private investment will play greater role in the utilization of the renewable energy particularly solar energy for electricity generation. The private sector stands to contribute towards the development of renewable energy resources of the country considering the increased demand for electricity supply, the widening supply deficit and the willingness of Nigerians to pay for higher electricity supply (Adenikinju, 2005) and activities of institutional investors in the Nigerian investment landscape, (with Pension Funding reaching almost 3 Trillion Naira for example), (Egwautu, 2014). This study adds on the previous studies on renewable energy utilization for electricity supply in Nigeria in many important ways. First the study like others, accepts the need for exploiting renewable energy potentials of Nigeria as a way of reducing energy poverty in the country. It also accepts the need for private sector investment as a catalyst towards enhancing the utilization of renewable energy potentials of Nigeria. The paper goes a step forward by emphasising on the centrality of the private sector in the development of solar energy potentials of Nigeria for electricity generation. The study directs its focus on the solar energy potentials of Northern Nigeria, a region that currently contributes little to the generation pool in Nigeria though the region houses the largest proportion of renewable energy potentials of the country. LITERATURE REVIEW AND THEORETICAL FRAMEWORK. Empirical Review The campaign for renewable energy resources utilization is based on three considerations which include the finite nature of fossil fuel energy resources as well as the greenhouse gases emission which many scientists believe cause global warming (Nwoke et al, 2008). It is also based on the increasing costs of providing energy especially electricity through conventional fossil fuel (Oluwole, et al 2012). Generating electricity through solar radiation has been an attractive option for many countries because the fuel is free, its use in the generation of electricity reduces operating costs and also reduces green house gas emission by displacing fossil fuel use for electricity generation (Baker, 2013). Okoro and Madueme (2004) conclude that on the whole, solar energy remains the most attractive and efficient way of electricity generation in a developing economy like Nigeria where there is alarming over dependence on fossil fuel. Solar energy can be used to generate power through solar thermal conversion and solar electric photo voltaic conversion. Investment in the low carbon sector has not been an attractive one for the private sector due to a number of challenges. Which include regulatory uncertainty, distorted price signals, lack of commercially attractive low carbon project, difficulty in assessing low carbon investment, inadequate access to finance, and insufficient risk adjusted returns (Withana, et al, 2011). The high upfront costs of renewable projects and the high interest rate (over 20%) charged in Nigeria also remain some of the significant investment deterrents in private sector investment in the renewable sector of the Nigerian economy. (Newsom, 2012). Additionally Wiser and Pickle, (1997) report that renewable projects face greater challenges accessing financing. Nigeria’s Electricity Industry Supply Industry. The Nigerian electricity supply industry has failed to meet the electricity needs of Nigerians, generating less than 4000 MW of electricity.. Figure 1 indicates the capacity utilization in the industry hovers around an average of 40 % for the most parts of the period 1970-2004 which is indicative of the crisis in the industry. Consequently majority of Nigerians lack access to electricity and those served receive very irregular service and are short of power for more than 60% of the time (World Bank, 2003; Okoro and Maueme 2004). The Solar Energy Potentials of Nigeria: Nigeria is a tropical country and lies approximately between 4o and 13o with landmass of 9.24 x 105 km2 enjoys an average daily sunshine of 6.25 hrs, ranging between about 3.5 hrs at the coastal areas and 9.0 hrs at the far northern boundary. The sun is the most readily and widely available renewable energy source that is capable of meeting the energy needs of the world without polluting the environment. It can provide more power than any fossil fuel on the planet (Rochelle, 2010). Imperatives of Solar Energy Utilization for Electricity Generation in Nigeria: The imperative for the utilization of solar radiation in electricity generation has to do with the wide availability of the resource, the need for the actualization of energy security, diversification of fuel mix, climate change mitigation and sustainable development (Chendo ,2002; ECN, 2003; ; FGN, 2010; Hope, 2013). Theoretical Framework on Private Sector Financing of Renewable Electricity: Many theories have been forwarded by scholars to rationalise the inclusion of renewable energy such as solar, wind biomass, hydro etc in the portfolio of energy resources utilized for electricity generation of a country. Some of the theoretical issues discussed in the paper include Portfolio Theory (Awerbuch and Berger, 2003), the Peak Oil Theory((Mediavilla, Miguel and Castro,2008) and the Economic Transaction Costs( Williamson, 1975, 1985; Fabrizio, 2012 ) How Private Sector Finances Renewable Electricity Project: Renewable energy projects are capital intensive and require huge quantum of funds to execute. Generally renewable energy financing takes two major forms: the on balance sheet and off balance sheet financing also referred to as project financing (DTI, 2000). Imperatives of Solar Energy Utilization for Electricity Generation in Nigeria: The imperative for the utilization of solar radiation in electricity generation has to do with the wide availability of the resource, the need for the actualization of energy security, diversification of fuel mix, climate change mitigation and sustainable development (Chendo ,2002; ECN, 2003; ; FGN, 2010; Hope, 2013). Theoretical Framework on Private Sector Financing of Renewable Electricity: Many theories have been forwarded by scholars to rationalise the inclusion of renewable energy such as solar, wind biomass, hydro etc in the portfolio of energy resources utilized for electricity generation of a country. Some of the theoretical issues discussed in the paper include Portfolio Theory (Awerbuch and Berger, 2003), the Peak Oil Theory((Mediavilla, Miguel and Castro,2008) and the Economic Transaction Costs( Williamson, 1975, 1985; Fabrizio, 2012 ) How Private Sector Finances Renewable Electricity Project: Renewable energy projects are capital intensive and require huge quantum of funds to execute. Generally renewable energy financing takes two major forms: the on balance sheet and off balance sheet financing also referred to as project financing (DTI, 2000). Strategic Options for Mobilizing Private Sector Investment in Solar Electricity Generation in Nigeria. Some of the investment incentives used to promote investment in renewable energy includes: Renewable Portfolio Standards (RPS). This mandates that electricity distributors must include a minimum of renewable electricity in the total electricity they sell to the public. Renewable Feed in Tariff. This establishes minimum prices for energy from renewable energy injected into the grid. It is also meant to give renewable energy producers long-term contracts that guarantee access to the electricity grid at a constant price. Subsidies and Investment credits. Subsidies are considered as very important incentives and are attractive to investors for their simplicity. However they must be strictly monitored against abuse and to ensure that project costs are not artificially inflated (Righter, 1996; Wiser et al., 1998; Wohlgemut, 2000) Introduction of Carbon Price. This is meant to penalize fossil fuel generators for polluting the environment (Bushnell, 2010; Drake, 2010; Aflaki and Netessine, 2011). Facilitating Access to Finance. Renewable electricity generation projects are capital intensive projects that require large upfront costs (beyond the financial capacity of the project promoters) and long construction cost. Additionally the financial community consider such projects to be highly risky and unattractive (Wiser, 1997). Renewable electricity projects therefore require preferential financial considerations in the forms of concessionary financing terms such as lower interest rates, longer repayment period etc. Structuring Power Purchase Agreement. Closely related to the above is the need for a workable power purchase agreement (PPA). The PPA contract indicates how reliable and stable the long term revenue stream of the project is. Since renewable projects are generally considered risky by financial institutions (Delphi International, 1997), PPA contract could enhance the attractiveness of such projects within the financial markets (Wohgemut, 2000). Clean Technology Fund. As part of encouraging private sector investment for renewable electricity generation especially solar and wind the Clean Technology Fund (CTF), part of the Climate Investment Fund was introduced. CONCLUSION AND RECOMMENDATIONS We wish to recommend the following as important initiatives in addition to the existing programmes that could help mobilize the private sector investment for solar electricity generation in Nigeria.Government needs to evolve a robust policy aimed at mobilizing the private sector for investment in the abundant solar energy potentials of northern Nigeria. To encourage private investment flow government needs to develop a package of incentives and guarantees to encourage private investment and provide the necessary guarantees needed to shore up the confidence of the investing community in the Nigerian electricity supply industry. The need for regulatory credibility cannot be over emphasised. There is therefore the need for the development of a robust regulatory structure that is transparent, credible and predictable. Regulatory institutions must be independent and free from political interference. Financing renewable energy is expensive requiring huge upfront cost which may not be easily met by the project promoters. Such projects are also considered risky and unattractive by the financial market. There is therefore the need for the government to sensitize the financial community about the benefits of solar electricity projects for banks to key into the financing of such projects. Project bankability is surely based on the off take arrangement and the Power Purchase Agreement. Government must effectively ensure that a credible off take arrangement is structured with the distribution companies and a favourable PPA is structured to enhance the attractiveness of investment in the abundant solar energy potentials of the country. |
Re: Mobilising Private Financing For Developing The Solar Energy Potential: A Review by LILYCHERISH(f): 9:11am On Jun 12, 2015 |
First to comment, hbd 2 me 1 Like |
Re: Mobilising Private Financing For Developing The Solar Energy Potential: A Review by beststoreltd: 12:50pm On Jun 12, 2015 |
@LILYCHERISH- 'Best Store Limited' family wishes you a happy birthday |
Re: Mobilising Private Financing For Developing The Solar Energy Potential: A Review by LILYCHERISH(f): 6:34am On Jun 13, 2015 |
beststoreltd:tnks dear |
Re: Mobilising Private Financing For Developing The Solar Energy Potential: A Review by LILYCHERISH(f): 6:36am On Jun 13, 2015 |
beststoreltd:tnks |
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