In recent years, Nigeria’s energy sector has been undergoing a substantial transformation as the government actively privatizes new generation and transmission projects. Although Nigeria has a growing population of more than 183 million and a population growth rate of 2.7% per annum, it generates less than 4,000 megawatts (MW) annually. As a result, there exists a vast investment opportunity in this sector.
The Federal Government of Nigeria (FGN) is implementing a three-phase liberalization process. In the first phase, five generation and ten distribution companies (linked to the country’s main power holding company, PHCN) have been privatized since 2013. In addition, the Niger Delta Power Holding Company (NDPHC) is privatizing ten newly built generation plants. These privatized PHCN generation companies are contractually obligated to increase generation for each plant over the next five years, achieving 6,000 MW of installed capacity. The government estimates the privatized NDPHC plants will generate an additional 5,445 MW. Finally, an additional 2,000 MW increase will stem from investments by new independent power producers. To help achieve these ambitious goals, the FGN is focused on sustaining a stable investment climate for private sector participation in the industry.
Electricity consumption in Nigeria should be about 5 times what it is today; the distribution phase of the power value chain Nigeria also contains a bed of opportunities. The Federal Government has no direct equity interest in Nigeria’s distribution companies, popularly known as ‘DisCos’. There is a ready market of Nigerians that are willing to get on-grid and pay for their electricity consumption, hence opening up opportunities in this sub-sector.
Manufacturing of power sector tools and equipment also presents great investment opportunities. Most of this equipment is currently being imported, which therefore presents prospects in import substitution.
The present administration has expressed its commitment to pursuing and developing alternative sources of power, with a focus on renewable energy, such as wind, solar, biomass and tidal energy. With respect to the renewable energy market, the FGN introduced feed-in tariffs (FIT) as a tariff regulatory mechanism to accelerate investment in renewable energy sources. The FIT regime assures a steady price for electricity generated from renewables for a fixed duration, thereby safeguarding adequate returns on investment.
There is a large and ready market for on-grid power generation in Nigeria. There are also opportunities for investment in off-grid power solutions or mini-grids which typically provide smaller communities such as rural areas, industrial clusters and residential estates with electricity.
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