Fuel subsidy removal, increased electricity tariff to boost solar adoption in Nigeria

The planned end of fuel subsidies in Nigeria this coming July is likely to be the start of renewable energy adoption in Nigeria.

As you may know, the federal government of Nigeria is set to discontinue petrol subsidy payments by the end of June 2023, which will effectively bring the price of petrol to as high as N500 per litre after a long time of selling at an average of N169.

Up until last year, Nigerians paid an average of N169 per litre of petrol, thanks to the federal government price regulation. Unfortunately, fuel subsidies have put a strain on the government’s fiscal numbers in recent years, resulting in recurrent fiscal deficits and escalating debt levels.

Meanwhile, a combination of the surge in crude oil prices, less competitiveness in the oil and gas sector, decline in foreign investments, and exacerbated government spending has called for the need to review government subsidy payments, with a full petrol subsidy removal expected at the end of Q2 2023.

Nigerians to pay higher for fuel: Like a twin bomb, Nigerians will also have to deal with higher electricity costs following further reviews of the electricity tariff by power distribution companies (DsiCos).

Do note that DisCos review its tariffs twice every year in line with its multi-year tariff order model, meaning that the cost of electricity is expected to become more expensive this year.

The implication of this would be that the two major sources of electricity for homes and businesses will likely become more expensive in 2023.

Nigerians may have to pay as much as N500/litre of petrol by the second half of the year, consequently leading to higher costs, which expectedly would spread to other areas of household and business operating spending.

A surge in petrol price to N500 per litre would indicate a 196% increase compared to the initial average price of N169. This will have a ripple effect on the cost of transportation, and other household goods including food, as well as services.

Nigerians are already grappling with high inflationary numbers, exchange rate depreciation, socio-economic issues, as well as an unfavourable business environment, all of which have combined to wage war on the purchasing power of citizens while stifling the margins of businesses operating in the country.

Solar inverter, a viable option: Meanwhile, Nigerians who want to be cost-efficient with their energy expenses would look to other sources of power going forward. In an era of increased interest in renewable energies, turbines, solar, and biomass have proven to be sustainable sources of renewable energies used around the world.

However, solar energy is more popular in Nigeria due to geographical and other infrastructural constraints, limiting the use of the other forms. Hence, Nigerians are likely to transition to the use of solar inverter systems.

In an earlier report by Nairametrics, the CEO of Greenage Technologies Aaron Esumeh noted that Nigerians will turn to solar energy after the FG implement the removal of the petrol subsidy later in the year. According to him, Nigeria’s renewable energy industry will experience massive growth if the subsidy is removed.

This was the same view that was expressed by Anu Omotosho, an energy expert operating in the oil and gas sector. He stated that Nigerians are already weighing the cost implication of the looming subsidy removal and are investing heavily in inverters and solar systems.

Gains of investment in solar systems: According to Engr. Anu, investments in solar systems present long-term benefits to electricity consumers. He explained:

“Although setting up a solar system in Nigeria is capital intensive, when compared to buying fuel daily to power a generator, its long-term gains are endless.

“Here is a quick analysis, a 2.5KVA generator set now sells for an average of N240,000 compared to around N64,000 in 2019, power supply is still largely epileptic, with some areas receiving power for 4 hours a day,”

“Such a household or business, assuming would need at least 8 hours of power daily, would have to source alternative power for the remaining 4 hours. With petrol at N500 per litre, the household would spend around N3,000 daily on fuel, translating to N780,000 annually, assuming they do not use power on Saturdays and Sundays.”

Also, note that such a generator set, will require lubricant, which is already selling at an average of N2,000 per litre., this is not considering the huge noise and carbon emission that follows the sound of a working generator,”

“Although the cost of setting up an inverter system has gone up in recent times due to the depreciation of the naira and increase in demand, it is still very much cost-effective compared to using a petrol-powered generator set as a source of energy.”

In terms of the costs, Engr. Anu explained that a 200 amps battery was sold between N100k to N120k in 2019, which varies from around N200 to N250k. Also, a 1KVA inverter system that sold for an average of N65,000 in 2019 has surged to as high as N130,000, with expectations of more increases later in the year.

“As of today, setting up a 1.5KVA inverter without solar is already costing an average of N700,000, while a sustainable solar system will cost around 1m to 1.2m. The reason for the huge increase is not farfetched, cost of batteries and inverter systems have gone up, thanks to exchange rate volatility, while generally, demand has reason considerably,” he stated.

Benefits of alternative power sources: With the possibility of total deregulation in the oil and gas downstream sector and the sustained epileptic nature of power supply in the country, Nigerians must design their sources of electricity going forward.

While the cost of setting up an inverter system requires huge capital compared to the alternatives, it presents a lot of gains. Notable, major Nigerian businesses have started adopting a solar system to power their offices, designing mini-solar grids to harness solar energy and store it in batteries, leading to zero downtime during working hours.

It is also important to note that the possible increase in the demand for solar inverters later in the year, is like to drive the price upward. Recall the fundamental principle of demand and supply, where higher demand and low supply leads to higher prices and vice-versa.

Solar inverters and other forms of alternative energy sources might be worth exploring at the moment, considering that demands for the facility are still relatively moderate.