Dr. Uche Isiugo, the Chief Executive Officer of InfraNergy, a US-based solar PV and energy storage developer, has explained why Nigeria’s solar energy penetration has remained comparatively low despite its huge potential of addressing the country’s power challenge.
Isiugo, who spoke in an exclusive interview with THE WHISTLER, held that electricity tariffs in the country are very low and do not reflect the actual cost of power being used by consumers.
He said because of the “artificially low” tariffs being offered by electricity distribution companies in the country, Nigerians do not see solar energy as a cost-effective and sustainable energy source.
When potential solar energy customers compare the tariffs with the cost of solar equipment and installation, the disparity discourages them, said Isiugo.
According to him, this trend is hurting distribution companies as they are losing money in trying to keep electricity tariffs low.
“The tariffs that we pay our electricity distribution companies are lower than the actual market rate, so they are not cost-reflective. The companies would be able to make more money and pay back their capital if they were charging tariffs that are cost-reflective. So, I think the tariffs need to be higher.
“Think of it like this, you buy a car and you have a monthly payment plan of $300 but you’re sending $50 per month, the car dealership is not going to make money. That’s what is going on in Nigeria, the tariffs are artificially low. If you benchmark our tariffs compared to other countries, you’d see that our tariffs are much lower
“Because the tariffs are artificially low, solar isn’t as competitive as it could be now, but it would be even more competitive in terms of pricing if the utilities and tariffs are where they should be,” he said.
Isiugo said the low tariffs affect the distribution companies’ ability to make money, albeit the low prices can also be attributed to inconsistent electricity supply in Nigeria.
“We could partially attribute the low tariffs to the fact that we consume less energy than similar-sized countries and even sized per-capita economies. A lot of that is because distribution companies aren’t even distributing enough energy, so if you don’t have light for 12hrs your tariffs can’t be high. Automatically, the distribution companies can’t even make a lot of money because they aren’t supplying a lot of energy in the first place. So, it’s a mix of supply and price,” he explained.
Isiugo added that Nigerians are doubtful about the sustainability of solar energy as a source of electricity supply.
“I think people are dubious of solar being a resilient energy source and we have to disabuse their minds of that because people who use solar and love it, really love it,” he said.
He explained that this could be because when people first started opting to use solar energy, they were defrauded by suppliers who sold them cheap products at high prices. The products would end up malfunctioning after a few years and the customers would be disappointed.
“So, the issue is, most people who buy solar, as at some years ago, they bought cheap materials and that was likely because the installer wanted to meet a high-profit margin, so they sold them the cheapest goods in the market and charged them at a price where they could make a profit.
“Because of that, a lot of these systems would stop working in a couple of years and I’ve heard a few horror stories. But I think now, we’re at a certain phase where people who are buying solar are getting the good products and they are seeing that it actually works,” he said.
He further stated that the biggest competitor to solar energy at the moment are generators, especially diesel generators.
“I think the biggest competitor for solar is diesel, generators in general, and we’re moving to a sort of tipping point where in the long run, diesel prices are going to go up significantly.
“Looking at the oil and gas industry, the oil reserves are not increasing also, it costs more money to drill oil and these oil and gas companies don’t have as much access to capital as they once did so cost of capital will go up.
“So, we will not only have higher cost, we’ll also have lower reserves which means lower supply. That, in theory, means it would make refined products go up in price, over a long 10 to 20 years.
“With those market forces occurring without solar being in the equation, it adds more competitiveness for solar and people would then flock to the solar space to get solar solutions,” he said.
Meanwhile, according to a 2019 World Bank report, only about 43% of Africa’s population has access to electricity despite a growing population that is projected to double to nearly 2.4 billion by 2050.