In 2023, Nigerians spent a staggering ₦16.5 trillion on diesel, petrol, and generators for personal electricity generation, vastly overshadowing the ₦1 trillion revenue generated by the formal power sector. This revelation was made by Adebayo Adelabu, Nigeria’s Minister of Power, at the ongoing 2024 Nigeria Oil and Gas conference.
Adelabu highlighted the significant disparity between the expenditure on inefficient personal power solutions and the earnings of the national grid. He pointed out that the enormous spending on self-generation is a clear indicator of the inefficiencies and challenges faced by the formal power sector.
“If you know how much our people spend buying diesel, petrol, generators, and servicing them in a year; the last study we had in 2023, a total of ₦16.5 trillion was spent on this in self-generation. Even a number of the industries are off the grid. They now have their captive power between their environments with gas-powered generators,” Adelabu stated.
He further explained that spending in the sector, including those off the grid, is close to ₦20 trillion. In contrast, the formal power sector, comprising generation companies, transmission companies, and distribution companies, only earned ₦1 trillion in 2023. This vast difference underscores the inefficiency of the current power generation system and the heavy reliance on personal power solutions.
Adelabu stressed the economic advantages of connecting to the national grid, emphasizing that grid-supplied electricity is significantly cheaper than generator-powered alternatives. He provided a comparative analysis of the costs associated with different power sources:
– Band A customers, who enjoy uninterrupted power supply from the grid, pay ₦206 per kilowatt-hour (kWh).
– Companies using gas for captive power generation pay approximately ₦290/kWh.
– Those using petrol generators incur about ₦450/kWh.
– Diesel-powered generator users face costs upward of ₦900/kWh.
“It is still the cheapest, most efficient, and least costly for our productive activities,” Adelabu noted, underscoring the financial burden of relying on personal generators.
The minister also addressed the critical role of natural gas in Nigeria’s power sector. Currently, gas supplies about 60% of the nation’s domestic energy needs and is pivotal for achieving the country’s ambitious energy targets. The government’s energy plan aims for 30 gigawatts (GW) of power generation by 2030, with 70% of this coming from gas and 30% from renewable sources.
Adelabu appealed to investors at the conference, encouraging them to consider the untapped potential of Nigeria’s gas sector, particularly its abundant non-associated gas reserves. He highlighted recent government measures aimed at making the power sector more attractive to investors, including implementing cost-reflective tariffs and addressing legacy debts.
The minister expressed confidence in the government’s commitment to creating a viable and attractive power sector for investment. These efforts are seen as essential for reducing the country’s dependence on expensive and inefficient personal power generation solutions.
The Nigerian power sector has long faced significant challenges, including insufficient generation capacity, unreliable supply, and financial instability. The heavy reliance on personal generators is a
symptom of these systemic issues. With many industries and households unable to depend on the national grid, the demand for personal power solutions has surged, leading to massive expenditures on diesel, petrol, and generators.
The financial implications of personal power generation are substantial. The ₦16.5 trillion spent in 2023 on diesel, petrol, and generators represents a significant economic burden on businesses and households. This expenditure diverts funds that could be invested in other productive areas of the economy. Additionally, the high cost of operating generators increases the overall cost of doing business, affecting competitiveness and profitability.
To address these challenges, the Nigerian government has implemented several initiatives aimed at improving the power sector. One key measure is the introduction of cost-reflective tariffs, which ensure that electricity prices more accurately reflect the cost of production and distribution. This move is intended to make the power sector financially sustainable and attractive to investors.
The government has also been working on resolving legacy debts within the power sector. These debts have historically hampered the financial viability of generation, transmission, and distribution companies, deterring investment and growth. By addressing these debts, the government aims to create a more stable and attractive environment for private sector participation.
Natural gas plays a crucial role in Nigeria’s energy strategy. With vast reserves, gas is seen as a key driver for achieving the country’s power generation targets. The government’s plan to generate 30 GW of power by 2030 relies heavily on gas, which is expected to account for 70% of the total generation capacity. This reliance on gas is due to its abundance, cost-effectiveness, and relatively lower environmental impact compared to other fossil fuels.
In addition to natural gas, the Nigerian government is also focusing on integrating renewable energy sources into the power mix. The aim is for renewables to contribute 30% of the total generation capacity by 2030. This includes investments in solar, wind, and hydroelectric power projects. By diversifying the energy mix, the government hopes to enhance energy security, reduce greenhouse gas emissions, and create a more resilient power sector.
The ongoing reforms in Nigeria’s power sector present significant opportunities for investors. The government’s commitment to creating a conducive investment environment, coupled with the country’s substantial energy needs, makes Nigeria an attractive destination for energy investments. Investors are particularly encouraged to explore opportunities in the gas sector, where there is significant potential for growth and development.