BUSINESS AM FIRST EDITION, FEB 2018

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26 BUSINESS A.M. FEBRUARY, MONDAY 05 - SUNDAY 11, 2018 ENERGY, POWER & RENEWABLE Opportunities seen in diversifying Nigeria’s renewable energy sources Bukola Odufade The major differences between fossil fuel and renewables as sources of energy can be found in two words: reliability and exhaustibility. Fossil fuels are controllable and readily available, but not inexhaustible. However, renewable energy, such as biomass, sun, wind and water, is somewhat unreliable because we don’t control the energy to be generated, but they are inexhaustible. Nigeria’s power generation is currently dominated by fossil fuels – petroleum products, coal and gas. According to the country’s Department for Petroleum Resources (DPR), more than 81 percent of the total energy consumed in Nigeria is produced using petroleum products and gas, while hydropower generates just 17.59 percent. The country, despite its abundant renewable energy resources, still generates less than 5,000 mega watts of electricity for its more than 180 million population. Yet, Nigeria is not totally running on unclean energy, as the country currently has four hydroelectric power plants generating power alongside fossil fuel plants. However, energy experts are of the view that in order for developing economies, like Nigeria, to meet their ever growing energy needs, they must diversify their renewable energy sources to encompass solar, water, wind, and even biomass as their developed economies counterparts have done. The advantages of utilizing the different forms of renewable energy cannot be overemphasised, especially where population growth far outstrips the country’s capacity to generate power and its industrial sector needs are rising; with the attendant consequences of environmental pollution. The most common form of renewable energy used in Nigeria is biomass, but it is used unconventionally. With about 70 percent of Nigerians living in rural areas with little or no access to conventional energy resource, biomass, which includes trees, are cut down and used as fuel wood. According to experts, this is more harmful to the environment as it causes deforestation and air pollution, which is exactly the opposite of what the promotion of renewable energy is about. It continues to be grossly underutilized, especially waste materials. Samuel Adaju, Project Manager of Bank of Industry (BOI)/ United Nations Development Project (UNDP), Access to Renewable Energy Project, said that “we have adequate biomass resources for biomass energy in Nigeria because there are waste like saw dust, wood chips, rice husk and corn stalks, which should not waste away. We can convert them into energy and at the same Solar energy: High production cost holding down progress Bukola Odufade Despite a decline in the cost of solar energy generation globally, the average Nigerian household still spends up to ₦1.7 million in 2018 for solar energy generation. With households requiring about 1-2 kilowatts to power all appliances and gadgets, and companies needing 2-10 kilowatts, the price range for various sized companies varies between ₦3.6 million to ₦7.6 million. Pacific Gas and Electric, a leading United States utility company said that a megawatt can light up 360 homes, which means a 100-MW solar plant will generate enough electricity to power 36,000 homes. Also, the usual benchmark for energy generated from 1 MW solar power plant is considered as 1.5 Million units with the 100 MW expected to generate 150 million units, although location matters in the calculation. The deregulation of the electricity sector in 2005 and the introduction of the Federal Government’s 30:30:30 electricity vision, propelled activities in the solar energy industry. However, the high cost of importation of all the components required for solar energy generation, which includes solar panels, batteries, inverters and charge con- Power availability could add 2% to Nigeria’s annual growth – FBNQuest Bukola Odufade For Nigeria to achieve a smooth industrial take off, power shortages need to be addressed as they remain a primary challenge for businesses across the country, according to analysts at FBNQuest, the merchant banking and asset management arm of FBN Holdings Plc. In their Good Morning Note Friday, the analysts contend that if ‘full power’ was attained and made routinely available to businesses and households, it could add two percentage points to annual growth. “We understand that at least 40 percent of most manufacturers’ operating costs is allocated to selfgeneration of energy. Additionally, it gulps a considerable amount from As private investors continue to lead investment in the solar industry, analysts say it begs the question what role the Nigerian government wants to play trollers, is slowing down growth in the industry. Nwosu, an expert who works with Solar Energy Nigeria. As the solar companies continue to face importation challenges and little funding, consumers are bearing the brunt of the problems. However, a major solar energy initiative led by private investment is the $150 million solar power plant to be built in Kano by Africa’s richest man, Aliko Dangote, to produce 100 megawatts or electricity. The solar power plant, when completed is expected to convert the abundant energy of the sun into quality clean electricity with no deleterious impact on the environment. Mansur Ahmed, Dangote’s group executive director said of the project: “ This project, which will, on completion, add 100MW to the state`s electricity supply, is therefore, fully in line with our group`s strong commitment to contribute to the re-invigoration of the state’s The Federal Government of Nigeria estimates national energy demand at 20,550 megawatts (MW). However, the generation capacity from the national grid is only 7,993MW household pockets. Based on our estimates,” they said. The Federal Government of Nigeria estimates national energy demand at 20,550 megawatts (MW). However, the generation capacity from the national grid is only 7,993MW. This is just as the most recent data from the federal ministry of power, works and housing, peak generation was 4,765MW on economic potential and overall national development.” It is currently the largest solar project that has been planned for execution in Nigeria and is being done in collaboration with Dangote’s strategic global partner, The Black Rhino Group. It is part of a project to be executed with the support of the Kano State government. Ahmed said the project would be completed in 2020. But in terms of execution, the largest solar project that has taken off and is ongoing in Nigeria is that being undertaken by Wärtsilä Energy Solutions, designed to develop 95 megawatts solar photovoltaic power plant in the Northeastern part of the country. This project was one of the 14 solar PV projects by IPPs (Independent Power Producers) signed in July 2016 by the Nigerian Bulk Electricity Trader (NBET). However, no new information has surfaced since the project was awarded and no time duration was given on how long it would take to be completed. Another solar initiative is the K1 Solar Project by GreenWish Partners. The company is currently developing a 50 kilowatts solar power Monday (last week) while the lowest generation on the same day was 3,653MW. “There has been growing interest around off-grid solutions. Official thinking on power now includes developing alternative energy sources. Based on data from the Rural Electrification Agency, utilisation of minigrids and solar PV systems would cost US$9.2bn/year compared with the current estimate of US$14bn/ year from self-generation via diesel generators,” they noted. They equally noted some positive developments in the sector, which include the Nigerian Energy Support Programme (a EUR25m technical assistance programme launched to promote investments in renewable energy). Through the programme, the FGN, in collaboration with the EU, will commence the construction of solar-powered mini-grids to improve electricity supply to residents of five states, namely: Ogun, Niger, Plateau, Sokoto and Cross River. Already, an 80 kilo watt peak (kWp) solar mini-grid has been completed in Sokoto State and is expected to benefit at least 4,000 residents plant in Kaduna which the company says is at advanced stage. As private investors continue to lead investment in the solar industry, analysts say it begs the question what role the Nigerian government wants to play as it continues to be passive while other nations are spending record breaking amounts on clean energy. China spent $85.6 billion on solar energy in 2017 alone and its African counterpart, Kenya lights 30 percent of its off-grid rural areas with solar power. A recently discovered cheaper alternative to the traditional silicon cells is perovskites solar cells whose progress has left many scientists optimistic about its future. Certain perovskites are very good at absorbing light, and have been shown to have a power conversion efficiency of 22.7 percent, making it the fastestadvancing solar technology to date. When commercially produced, this technology is expected to further bring down the cost of going solar. But for Nigeria, the main problem, which is the cost of importing the solar components rather than producing some or all the parts locally, remains to be addressed. within the state. “We also note that there has been some forward movement in hydro-power. The construction of the 3,050MW Mambilla hydroelectric plant is expected to kick off this year; the financing was disclosed in August 2017, with Chinese lenders committing to 85% of the total project cost. “The plant will be built by the China Civil Engineering Corporation over a five-year period. Once completed, this should result in improved productivity from SMEs.” The FGN recently issued its first sovereign green bond to raise N10.7 billion. The issue was well received by investors, with an oversubscription of N101 million. It is to be project-tied in collaboration with the federal ministry of the environment; renewable energy projects are to be included. “Given that gas pipelines and assets are susceptible to attacks, the FGN’s steps towards diversifying the country’s energy sources are laudable. We note that the FGN targets 30% of national energy to come from renewables by 2030,” they stated.
BUSINESS A.M. FEBRUARY, MONDAY 05 - SUNDAY 11, 2018 MANUFACTURING & INDUSTRY 27 Under siege! Epileptic power, poor infrastructure, high inflation, make positive PMI mere statistics With the Manufacturing Purchasing Managers’ Index at 59.3 index points in December, 2017, which indicated an expansion in the manufacturing sector for the ninth consecutive months, according to the Purchasing Managers’ Index (PMI) survey report by the statistics department of the Central Bank of Nigeria (CBN), Nigeria’s government’s assertion that business is booming seems justified. But according to manufacturers, the statistics are still what they are - statistics. They said epileptic power supply, lack of infrastructure, low purchasing power, limited access to credit facilities, insecurity and inconsistent policies will send them out of the country. AJOSE SEHINDEMI reports. Ajose Sehindemi The PMI, which is an indicator of the economic health of the manufacturing sector has shown expansion for the last nine months of the preceding year. This implied that the manufacturing sector of the country is healthy and sound, a justification that the various interventions by the government to revamp the economy are already bearing fruits. Exiting recession, fifteen out of the 16 sub-sectors of the Nigerian economy reported growth in December. They are in the following order: petroleum and coal products; textile, apparel, leather and footwear; cement; transportation equipment; paper products; and, food, beverage and tobacco products. Others are: furniture and related products; plastics and rubber products; non-metallic mineral products; printing and related support activities; appliances and components; chemical and pharmaceutical products; fabricated metal products; primary metal and electrical equipment. The index showed only the computer and electronic product sector to have contracted. With this results, industry analysts say they expect manufacturers to be smiling to the bank. The composite PMI is a weighted average of the following diffusion indices: production level, new orders, supplier deliveries, employment level and inventories. The manufacturing sector inventories index also grew for the ninth consecutive month in December 2017. At 61.1 points, the index grew at a faster rate when compared to its level in the previous month of 57.1 basis points in November, as 11 out of the 16 sub-sectors recorded growth; three remained unchanged while two sub-sectors recorded decline in raw material inventories. At 63.2 points, 59.3 in November, the production level index for the manufacturing sector grew for the tenth consecutive months in December 2017. The index indicated an increase in production in December when compared to its level in the preceding month. Eleven of the 16 manufacturing sub-sectors recorded increases in production level, three remained unchanged while the remaining two recorded declines in production level during the review month. All these growth indices, say analysts should wake up investors across the world to start heading to Nigeria to set up manufacturing plants. Unfortunately, this has not Emenalah Jacobs Njonjo happened as the reverse has been the case. Erisco Foods Limited, an indigenous tomato paste manufacturer, relocated its $150 million tomato paste processing plant to China due to foreign exchange crisis that engulfed the country mid last year. It had a production capacity of 450,000 metric tons of tomato paste annually and had 22 brands with over 2,000 workers in Nigeria. Eric Umeofia, the chief executive officer, Erisco Foods, said the company relocated to friendlier business environment after losing over N3.5 billion in Nigeria. Though the forex issue that closed down many businesses due to the inability to import raw materials caused by high exchange rate, has been solved through various policies, some tethering challenges still remain, giving concerns daily to manufacturers about their investments, with many operating on reduced capacity. Data from the Manufacturers Association of Nigeria (MAN), Frank Jacobs, MAN President said member companies spent N20.8 billion monthly on power generation to run their production processes. stated that capacity utilisation moved up from 44.3 per cent in 2016 to 55 per cent in 2017 which shows an improvement in production but with a caveat - that all the benefits could be wiped off due to power scarcity. Babatunde Fashola, Nigeria’s minister of Power,Works and Housing, in a recent interview said 7,000 megawatts was being generated from the national grid but the distribution companies (Discos) distributed only 2,981 megawatts. Frank Jacobs, MAN President said member companies spent N20.8 billion monthly on power generation to run their production processes. Jacobs said the ripple effects of the power shortages and constant outages were numerous, ranging from cut down in production, job losses to outright closure or relocation to other countries by industries. He added that companies had to bear so much losses as the outage often occurs when goods are in the middle of production. Members of MAN have resorted to generating power privately and completely cut off their operations from the national grid, Jacobs said. “Most companies, such as Coca Cola, Wempco, Nigeria Flour Mills and especially the multi-nationals self-generate their power. They don’t rely on the national grid,” he added. Coca Cola is facing the challenge brought about by low purchasing power of consumers due to dwindling income that has not been helped because inflation remains high. High inflation has also increased production costs, as consumers had less money to spend due to half payment or non-payment of salaries to workers by some state governments, explained Peter Njonjo, the president of Coca Cola’s West Africa operations said recently. Njonjo said it was a big issue for Coca-Cola, a company that has been present in Nigeria since 1951 under the management of the Nigerian Bottling Company (NBC). He said: “As disposable incomes start getting under pressure, products like ours start becoming inaccessible to most consumers.” In response to the challenges in Nigeria, Coca-Cola increased prices, introduced new product sizes and sought more inputs locally. To reduce its foreign exchange exposure, the company also plans to raise to 75 per cent the share of raw materials produced locally by 2020, from 70 per cent currently. “The only way that you can ensure that the business is sustainable is by taking prices up. Some of it we have passed to the consumers,” Njonjo stated. “It’s all about looking at how much money consumers have and how do I become relevant to the consumers,” he added. Coca-Cola Nigeria, which has 3,600 direct employees, 11 bottling plants and 30 distribution depots across the country, is not listed on the country’s stock market and Njonjo declined to share details on production capacity or earnings. Duro Kuteyi, managing director and chief executive officer of Spectra Industries Limited, told business a.m that though there was an improvement in sectors that deal with imported raw materials due to a favourable forex regime, there is no improvement for industries that source raw materials locally, citing increased harvest of agricultural produces. He said: “When there was an improvement in harvest, the harvest were all imported, soy beans, maize and yam were all imported; so those who are actually using this raw materials for production know that prices of the raw materials available skyrocketed due to the scarcity of the materials. “What it means is that what used to be about 80 thousand [naira] is already about 130,150 thousand [naira]. Definitely it does affect capacity utilization as production is affected and one cant remove money from the pocket of the consumer,” he explained. Kuteyi further told business a.m. that agriculture production is made difficult by these challenges, adding that now that the country is faced with herdsmen roaming about disturbing farmers from planting, as either the cows will destroy the agricultural produce or the farmer killed, this is preventing many farmers from going to their farms. “We need government effort in securing the farms as food scarcity, which will lead to food inflation, will be the country’s portion sooner than we imagine,” he added.
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