Naira-dollar mismatch, lack of data hampering off-grid energy investments in Nigeria – WACEE

Panelists at the ongoing West African Clean Energy & Environment (WACEE) Trade Fair & Conference 2022 have identified a lack of data and currency mismatch as the main reasons investors are reluctant to invest in Nigeria’s off-grid power sector.

The panelists disclosed this on day two of the WACEE conference in Lagos while addressing the issue of sustainable financing gaps in Nigeria’s off-grid sector.

Among the panelists were Eme Kponu, the Energy Market Advisor for the United States Agency for International Development (USAID), Daniel Adedokun, Head of Geocycle at Lafarge Africa Plc, and Victoria Uwadoka the Head of Corporate Communications at Nestle Nigeria.

In her remarks, Eme Kponu explained that the problem of limited historical data for off-grid solutions is a major discouragement for investors. 

She also raised the issue of currency mismatch, which happens when investors are required to invest in foreign currency (mostly USD) and can only expect profits in local currency (Naira). According to her, this practice is neither attractive nor sustainable to potential investors. 

Due to these issues, it becomes difficult for investors to put their money into the sector.

She, however, maintained that solutions could be found in partnerships between the public and private sector players who will set up result-based financing tools, which helps to assure investors of recouping their investments in off-grid solutions.

On his part, Daniel Adedokun told attendees at the conference that it is important to not only invest but also look at how to impact the value chain. He said:

“At Lafarge, we are transforming waste into energy for operations to cut greenhouse gas emissions in production. As a nation, the infrastructure to support massive waste-to-energy conversion is not available, and it is slowing down investments in that area. As of 2005, the cement industry’s capacity was at 3 to 4 million tons. However, today, the cement industry’s capacity in Nigeria is over 50 million, making the industry a power guzzler. We need to move the industry from natural gas consumption for power to waste; however, due to a lack of infrastructure, we do not see an opportunity to invest.

“While the cement industry is ready to invest, the support to get the supply chain for the system to move, is not working, so we are investing gradually on our own but there is a limit to that. We need private-public partnerships to access funds as there is already an off-taker in the cement industry, which is ready to make use of the energy from waste, as opposed to natural gas which is currently not enough to power existing plants in the country.”

According to him, the decarbonization of the cement industry in Nigeria cannot happen without the active participation of the public and private sectors.

Financing opportunities for off-grid solar

Meanwhile, Eme Kponu gave further insight into the financing opportunities for Nigeria’s off-grid solar sector. According to her;

• Off-grid sector financing is long-term and investors need to understand the space. This is why some investors, like commercial banks, find it difficult to invest in the space because they lack the information they need to understand it.
• She said it’s important to have concessionary financing which can be found in private-public partnerships. This happens when multilateral work with the government and provides them with result-based grants that can reduce the risk and costs of such investments.
• She also noted that innovative financing models should be created for financiers, such that when they invest they can get back their monies through a collateralized approach. As she pointed out, “we have the revenue pledge system which allows them to immediately access their cash flows for projects that have been deployed.”
• She also stated that for financing to be sustainable in the off-grid space, there is a need to ensure that the end user is capable of paying for the service(s) being deployed.
• Also, for investments in the off-grid space to be viable, there is a need to ensure that there is an aggregation of projects at a time. If the projects are too few, the cost rises and investors may not be interested.

Practical recommendations for better private-public sector partnerships

Victoria Uwadoka gave some recommendations on how to build and sustain stronger private-public partnerships in Nigeria’s off-grid power sector. According to her;

• The government and the private sector need to work around pushing for the same objectives on what is good for the environment and sustainability
• For the private sector to keep investing, there needs to be some form of incentive like tax credits to give the private sector the liquidity they need to keep investing in the off-grid power sector.
• There needs to be constant education of all stakeholders around the value chain – those who provide and consume the input.
• Closing value chains is also important and will drive investors to the sector, for instance, the waste-to-energy value chain is currently broken because we are not yet active and a lot of waste is still not being converted. When this happens, the numbers will add up and investors can recoup their investments.

Financing opportunities in the cement industry

Daniel Adedokun spoke about energy needs from the Lafarge Africa perspective;

• There are opportunities in converting waste to energy, especially in the cement industry. The cement industry is highly energy intensive.
• Considering an investment in developing infrastructure for waste-to-energy for the cement industry in Nigeria, makes business sense because it is a venture that will pay for itself. Cement companies need the energy and investors will always make their money back.
• If the waste management sector alone provides energy needs for the cement industry in Nigeria, about N80 to N90 billion per annum will come from the cement companies to keep the business going.
• Investors and waste management companies will be tackling waste and providing energy at the same time.
• There is also a need for capacity development for public sector regulators, for instance, waste should not just be deposited in landfills, we can tackle waste by ensuring it is converted into something valuable.

What you should know

WACEE is the leading West African exhibition and conference in the clean energy, water, and circular economy sectors.

• WACEE was organized by the delegation of German Industry and Commerce in Nigeria (AHK Nigeria).
• As of October 20, Nairametrics reported that the exchange rate between the naira and the US dollar at the black market gained 0.13% to trade at N742/$1, from N743/$1 recorded in the previous trading session