Economic Impact of Renewable Energy in Nigeria

Eniola Amu

Eniola is a Financial Analyst at Hygge Energy. She is a Chartered Accountant, and a graduate of York University where she completed a Masters in Management. She has a passion for finding solutions to financial management issues faced by businesses. She also has extensive knowledge in the areas of strategy, consulting, data analysis and international financial reporting standards. Eniola is excited about partnering with her colleagues to drive Hygge’s innovative solution towards becoming a leading clean technology solution globally. 

 The shortage of power supply in developing countries has impeded the expansion of many sectors of their economy. In Nigeria, many households and businesses are forced to seek alternative means of generating their own independent power supply because the national grid is unable to provide enough electricity for the country. Currently, the most prominent source of electricity is through petrol or diesel generators to supplement for when there is no supply from the grid. 

Renewable energy has seen some recent growth in adoption across Nigeria given that it is not as capital intensive, it is cheaper and easier to maintain, and less noisy. Today, a 100kVA generator cost ~15 million naira, which when compared to its alternative of six 300 watts solar panels, only costs 600,000 naira. The annual cost of fuelling and maintaining the generator is 8.2 million naira while on the other hand, 22 batteries needed to store the solar power generated would cost 5,500,000 naira over its average useful life of 3 years. This is why few Nigerians and companies are running a hybrid system or even fully solar where possible.  

Today, a 100kVA generator cost ~15 million naira, which when compared to its alternative of six 300 watts solar panels, only costs 600,000 naira.

 Potential Savings with Renewable Energy over Generators (100kVA) 

In 2019, Nigeria’s GDP was $448.1 billion with a population of over 201 million people. It has one of the lowest GDP per capita in the world despite its abundance of natural resources. With a stable and affordable power supply through the use of renewable energy sources, some of the positive impact it could have on GDP is: 

Reduction in Cost of Production: Electricity remains one of the major operating costs of many businesses, especially in the manufacturing sector. Many production lines cannot afford to operate without electricity as it will affect their output and sometimes damage their equipment, so they are forced to run diesel generators for hours on end. This is not cost efficient and with renewable energy as their primary source of power or using some form of a hybrid system, these organizations can cut costs significantly without the risk of power outage. 

Increased Business Activities: With their overall cost of production reduced, existing businesses will have more capital to invest in the growth of their operations and a larger number of new businesses can emerge and operate for a long-term because they will now have better chances of survival. 

Increase in Foreign Direct Investments (FDI): Foreign investors have been discouraged from investing in Nigeria because of inadequate power supply which is essential for business operation and expansion. Access to renewable energy can help alleviate this major concern of potential investors, making Nigeria a more attractive country for their foreign investment portfolio. 

A company that utilizes the services of Hygge in combination with investment in solar energy can most likely enjoy some financial gains or use this as a form of CSR. 

Reduction in Unemployment: Investment in renewable energy will cause an increased level of business activity that will lead to the creation of jobs. Renewable energy implementation also creates opportunities that require certain skill sets that will create jobs for many unemployed Nigerians. The level of consumer spending will then rise which will impact GDP and stimulate economic growth. 

Reduction of Inflation: Nigeria’s inflation has been on an upward trajectory which is partly driven by the hike in electricity tariffs leading to cost push-inflation. With renewable energy as an alternative, the cost of production will drastically reduce and slow down the impact of inflation. 

Additional Income Source: In partnership with Hygge, households and businesses in Nigeria can generate some income by selling their excess energy to others within their community. They can do this through Hygge’s solution, called the Hygge Box which provides a platform that would manage an ecosystem where energy can by tracked and traded openly. Therefore, a company who utilize the services of Hygge in combination with investment in solar energy can possibly enjoy some financial gains or use this as a form of CSR. 

All this will increase the GDP of the country which will cause a rise in the GDP per capita. Government just needs to play the role of the regulator and implement policies that make it easy and affordable to acquire the renewable energy assets or build them domestically through public-private part