Nigeria energy transition gets boost from AfDB $500 mn loan: experts

The African Development Bank Group (AfDB) has approved a $500 million loan to finance the first phase of Nigeria’s Economic Governance and Energy Transition Support Program (EGET-SP).

This is a new programme aimed at accelerating transformation of the country’s electricity infrastructure and improving access to cleaner sources of energy. 

According to a statement released by the bank, the loan will help close the federal budget financing gap in the 2024/25 fiscal year, specifically supporting the implementation of the country’s new Electricity Act and energy transition plan.

The Nigerian government launched the energy transition plan in August 2022 and passed a new Electricity Act in June 2023, decentralising the electricity supply industry and setting the stage for increased investments by subnational governments and the private sector. 

The energy transition plan envisions developing 250 GW of installed electricity capacity by 2050, 90% of which will be renewable. By 2030, it will provide clean cooking access to the bulk of the population using liquefied petroleum gas (LPG), biogas, biofuels like ethanol, and electric cookstoves. 

“The Economic Governance and Energy Transition Support Program will also support the implementation of these policies, helping deliver much-needed upgrades of Nigeria’s electricity infrastructure, and fast-tracking the country’s efforts to transition millions of households and businesses to cleaner and renewable sources of energy,” said the AfDB statement. 

Experts have noted that the loan will transform Nigeria’s electricity infrastructure and improve access to cleaner energy sources. They also highlighted the main barriers hindering electricity infrastructure development and Nigeria’s expansion of renewable energy.

Improving access to cleaner energy

Engr Chibueze Ekeh, CEO of CeeSolar Energy, told Gas Outlook that the loan will be vital in accelerating the transformation of Nigeria’s electricity infrastructure, especially in bringing cleaner energy solutions to underserved and unserved rural communities. He said it will enable the expansion of renewable energy projects, particularly solar energy, to areas long-neglected by traditional power infrastructure.

In addition to expanding solar energy access, he said that the loan will support Nigeria’s broader transition to cleaner energy by replacing fossil-fuelled vehicles with cars and buses that are powered by compressed natural gas (CNG).

“This shift is crucial for reducing the nation’s carbon footprint and improving air quality in our cities. Introducing CNG-powered taxis and other applications will help diversify Nigeria’s energy mix and reduce dependence on more polluting fuels.”

Chioma Inyama, a sustainability analyst, told Gas Outlook that with a thoughtful focus on upgrading infrastructure, the funds will be used to revamp existing aged electricity facilities and build new power plants across the country to serve the vast majority of the population.

She said the country has identified abundant sunlight as a major advantage in boosting the renewable energy industry to supplement existing energy sources.

“This loan will help develop a working system for the best approaches to utilise available natural resources for renewable energy; from solar to wind to hydropower, etc. A good example is the abundance of sunlight in northern Nigeria, which can lead to the development of large solar farms in the north to boost the electricity supply and advanced farming in the region.

“Through these initiatives, the loan should assist in accelerating the country’s electricity infrastructure transformation and in improving access to cleaner energy solutions.”

Access to modern energy

Inyama said the AfDB’s series of initiatives include achieving universal access to modern energy by 2030 and stimulating inclusive growth by accelerating structural reforms in the energy sector.

She noted that Nigeria’s energy transition plan is also inclined toward such goals; hence, the loan is a step in the right direction

“With focus on promoting renewable energy, the loan will assist in funding large-scale solar wind energy projects in the major regions of the country, thereby reducing total dependency on fossil fuels and reducing carbon emissions into the environment. The collective goal of achieving sustainable energy utilisation in Nigeria, Africa, and the globe becomes nearer to realisation.”

Ekeh also noted that the EGET-SP is crucial in advancing the AfDB’s vision of universal energy access across Africa by 2030. He said that by driving the transformation of Nigeria’s electricity infrastructure and supporting cleaner energy initiatives, EGET-SP aligns with AfDB’s New Deal on Energy for Africa, which seeks to provide energy access for all by 2025.

Loan impact on fossil fuel production

In the short-term, Inyama noted that these steps may reduce Nigeria’s reliance on fossil fuels by promoting investments in renewable energy and embracing cleaner energy solutions. However, she said that, considering the country’s large reserves and current dependence on fossil fuels, fossil fuel production will likely continue in the near future, albeit with an increasing focus on cleaner alternatives such as natural gas.

“In the long-term, more importance would be placed on renewable energy sources and there would be a gradual shift away from fossil fuels production. The conversation has commenced in ernest and awareness is being created for business owners, industries, factories to find ways to align their business structures in line with the energy fuel shift.”

Damilola Hamid Balogun, Chief Executive Officer of the Youth Sustainable Development Network, also agreed that the impact on gas production will likely be minimal in the short-term. He said this is because gas currently accounts for more than 60% of Nigeria’s electricity generation and remains a critical part of our energy mix.

“The target is to increase the renewable energy share to 30% by 2030, which could reduce the reliance on gas domestically. That said, gas will continue to be important, potentially more as an export commodity, especially as global demand for cleaner alternatives to coal and oil increases.”

Barriers hindering development

Balogun noted that several significant barriers must be addressed to fully develop our electricity and renewables sector. He said foremost is the infrastructure deficit, which results from outdated transmission and distribution networks. “Only about 57% of generated electricity is successfully transmitted and distributed to consumers.”

The energy transition expert noted that regulatory and policy challenges also pose hurdles. “There have been inconsistencies in policy implementation, and the lack of clear incentives has discouraged investment in renewables. This is reflected in our global ranking for ease of doing business in the energy sector, where we currently rank 131st.”

“Financial constraints are another major issue. The estimated financing gap for electricity infrastructure in Nigeria is around $20 billion annually, making it difficult to scale up projects without significant external support,” he added.

Inyama added that these key barriers to developing electricity and renewables production in Nigeria need urgent solutions. She said the major barrier has been financing, which is where the AfDB has come in to close the gap with the approved loan.

“I believe the stories are not as bad as they were about 5 years ago, the shift to getting it right is coming, though at a significantly slow pace, but it will pick up in recent times with the availability of provided financing.

“An improvement in the availability of adequate infrastructures, functional power plants, power availability, etc, will benefit all other industries, including gas distribution and utilisation as we have in other developed countries. We urge everyone involved in the financial distribution to ensure the funds get to the right business entities and accountability is monitored at all stages of development,” she concluded.