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Energy Market Reform: A Solution to Unstable Power Supply

Despite being home to the second-largest population, Africa’s primary energy consumption per capita is low compared to the global average. The energy consumption rate for sub-Saharan Africa is even worse; Brazil’s per capita electricity consumption is higher than the consumption rate of the entire sub-Saharan region. The electricity gap within the region in terms of low installed capacity, access, and total consumption continues to hamper Africa’s economic growth and development, particularly in Nigeria.

The Nigerian energy sector, after several decades, remains plagued with chronic power issues, which considerably hinder the country’s progress towards sustainable development. Till date, over 75 million Nigerians lack access to reliable electricity. And the nation currently experiences a power collapse and national darkness as the national power grid has collapsed twice in the past week.

In the absence of stable electricity, Nigerians pursue alternative power supply to make up for their energy needs. Individual sourcing of alternate electricity supply mostly translates to the continuous procurement of environmentally unfriendly diesel or gasoline-powered generators. Yet, the impact of this energy substitute is adverse — contributing to noise and air pollution. Also, greenhouse gas emissions from these generators lead to global warming and unfavorable climate changes.

Where do we go from here?

Nigeria’s energy market reform is of utmost importance. Previous attempts at reforming the energy sector have not yielded the best results. Since enacting the Electric Power Sector Reform Act in 2005, the Nigerian government has increased private participation in the sector. While its interest is fully divested in GenCos and 60% of its shares in DisCos have been sold to private operators, the transmission company remains under the government’s control.

The truth is that a successful Energy Market Reform (EMR) would boost service quality, amplify sector efficiency and investments, and reduce the price-cost gap via cost-reflective pricing. A standard EMR should encompass private sector participation, independent regulator establishment, unbundling of power utilities, and competition in power generation. Chile’s electricity reform is an example of a successful model. Chile increased power supply to rural communities and reduced electricity prices by 30% via privatization and effective competition.

Why Reform The Energy Market?

Here are two major reasons a reform of the energy market is necessary for Nigeria and other countries experiencing energy issues.

Adverse Environmental Effects

Due to erratic power supply, over 70% of Nigerians in the rural settlement use fuelwood (up to 50 million tonnes annually) as an alternative energy source because it is affordable and easily accessible. The utilization of fuelwood for domestic and commercial purpose contribute significantly to high carbon dioxide emission in addition to desertification and erosion in northern and southern Nigeria respectively.

With the high deforestation rate (350,000 ha/year) and incommensurate reforestation efforts, the environmental outlook is in jeopardy. However, to break this cycle, Nigeria needs to increase energy efficiency and invest in other energy sources like grid electricity and off-grid energy sources.

Unfavorable Business Environment

Business owners need a regular power supply to run their activities. The current energy situation, which is a deficiency in power supply, has thus led them to find alternative energy sources to meet their energy demands — translating to a higher cost of operations for small, middle, and large-scale businesses.

Also, Nigeria is losing foreign investments to neighboring countries like Ghana with more stable power. Such limitation of business operations stunts the country’s Gross Domestic Product (GDP) and economic growth. Annually, Nigeria loses up to $29 billion in revenue.

Energy Market Will Give Us A Better Environment

Despite the current unmet energy needs, power demand in Nigeria is predicted to increase by 11% annually. In anticipation of future needs, Nigeria, therefore, needs a wholistic market reform that can secure access to a reliable supply of power for all citizens for domestic and productive uses.

Though the journey to energy market reforms may not be smooth, the government of Nigeria and other African countries need to be relentless in their efforts to improve private sector participation, improve regulation, and restructure power utilities for quality and efficient services.

We need energy sector reform for a better, healthier, and more sustainable environment for people and businesses to thrive. And such alternatives like renewable energy, which is the efficient utilization of energy resources like solar and wind will provide power generation, economic development, and a sustainable environment.

Author: Christiana Jolaoso




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