In line with Nigeria’s commitment to the Paris Agreement to limit temperature rise to 1.5oC by 2050, the country developed its Energy Transition Plan following deliberations at COP26 and on the premise of the Climate Change Act 2021. Launched on August 24th 2022 by then Vice President, Prof. Yemi Osinbajo, the goal of Nigeria’s Energy Transition Plan (ETP) is to achieve net-zero for the country by 2060.
The ETP focuses on transitioning five (5) key sectors are constituted ~65% of the country’s total emissions; these are oil and gas, power, transportation, cooking and industry. In order to achieve this, different pathways such as decarbonization, electrification, energy efficiency, smart-grid and infrastructure and adoption of appropriate policy and regulatory support are being explored to achieve it. A vital part of achieving is funding availability, where projections show that USD 1.9 trillion investment is needed to achieve carbon neutrality by 2060.
This entails investing the sum of USD 52.77 billion (estimated at ₦ 61.27 trillion at an exchange rate of 1 USD/₦ 1161 as at 18-04-2024) per annum between 2024 and 2060 (for 36 years) in the different pathways. This investment target is higher than Nigeria’s highest annual budget of 2024 by 55.11%, highlighting the critical role of private investment.
Interestingly, the government estimates a total annual investment of USD 27.7 billion to achieve net-zero, which unfortunately falls short by USD 25.07 billion (estimated at ₦29.12 trillion) of the USD 1.9 trillion investment target. However, it is not clearly stated if the USD 27.7 billion investment target is solely the obligation of the government to achieving net-zero by 2060, excluding private sector involvement.
Deeply rooted within the three dimensions of the energy trilemma which are energy access, energy security and sustainability, the ETP clearly highlights the importance of ensuring adequate energy access by setting the ambitious target of achieving universal energy access for all Nigerian by 2030. With six (6) years remaining till 2030, the country is still facing significant energy access issues, with the nation’s energy grid has 5 five times within the first 4 months of 2024, coupled with an increase of 230.8% in its electricity tariff. This therefore shows the possibility of not achieving this goal.
Another critical aspect of achieving the ETP is the volatility facing cost of capital in Nigeria, especially for local investors that would want to source capital locally. In Nigeria, monetary policy rate has increased from 16.50% in 2022 (when ETP was launched) till 24.75% in 2024, which significantly changes the levelized cost of electricity (LCOE) for capital intensive projects for electrification (e.g., renewables), decarbonization (hydrogen projects for industrial applications) amongst others. This is supported by a report from Wood Mackenzie where it is reported that increase of 2% in cost of capital increase LCOE by 20% for renewables.
Considering these dynamics in the pathway of achieving Nigeria’s ETP, the ambitious target of net-zero by 2060 becomes somewhat unattainable. Well, this case is not limited to Nigeria as Scotland recently announced that it can no longer achieve its energy transition plans (75% emission reduction target by 2030) based on evolving macroeconomic realities.
