-Funmi Ogbue
There are so many issues to explore within this topic but before I dive into the intricacies of climate financing, it’s important to emphasize that Energy Transition is an urgent global need and a priority for Nigeria. The issue of Climate Justice is a growing concern because as we all know; Africa contributes less than 4% to the world’s greenhouse gas emissions. However, it is disproportionately affected by the adverse consequences of climate change. As a global community, we are witnessing firsthand the devastating effects of these extreme weather conditions, from flooding in West Africa to drought and famine in East Africa and Wildfires in North Africa. Without a doubt, it is crystal clear and imperative that we must change the way we produce and consume energy to reduce the harmful effects on our environment and to ensure sustainability. However, what is equally important is that countries and regions that are major contributors of these emissions commit and assist in the funding of climate mitigation and adaptation programs in developing and vulnerable countries that are least responsible for these emissions but worst hit by the effects. We also need to recognize that for an energy transition plan to be just and equitable, it has to be country or region specific, taking into consideration the developmental needs of that country/region and its current energy landscape.
Now with the drive for energy transition comes the issue of addressing the Global Energy Trilemma. This essentially means balancing the challenge of energy security, environmental sustainability, and energy access or what you would term “social equity” in the journey to net zero. This is particularly important because Africa, and Nigeria in particular, has a huge energy deficit and an energy poverty problem. According to a World bank Report, approximately 43% of Nigerians do not have access to energy and this accounts for both on-grid and off-grid electricity. In 2019, International Energy Agency (IEA) estimated that about 172 million people in Nigeria did not have access to clean cooking solutions, which represents a majority of the population. For a hydrocarbon-rich nation like Nigeria that is heavily dependent on its oil and gas sector for exports, foreign revenue, and job creation, how do we ensure that these resources are responsibly utilized to support our development requirements? As we strive towards the global objective of net zero emissions and environmental sustainability, it is crucial to strike a harmonious balance between the other pillars of energy security and energy access. This entails facilitating a just and equitable transition arrangement that considers the unique circumstance of each country or region, while also recognizing that the approach must be tailored to its specific needs and context.
According to Nigeria’s Energy Transition Plan which was released in 2021 by President Muhammed Buhari after the COP26 meeting held in Glasgow; it would cost about $1.9 Trillion Dollars to achieve net zero emissions by 2060 which is $410 Billion Dollars above Business -as -usual spending. This translates to approximately $10 Billion Dollars additional spending per annum. This is obviously a challenge as it represents a significant scaling of the current energy and climate investment in Nigeria or Africa for that matter. To put this in context, Nigeria’s 2022 Budget was approximately $40 Billion Dollars, this means the budget for climate action alone represents a quarter of the Country’s entire budget. So, it is evident that we must resort to innovative solutions to finance our energy transition.
Firstly, we need to recognize the role of natural gas as a critical factor and a bridge fuel in our transition plan. Presently Nigeria is estimated to have proven gas reserves of 208.62 trillion cubic feet and unproven reserves of 600 trillion cubic feet. Hinging on gas a bridge fuel offers us a transitional solution from our present energy landscape to our desired destination of net zero emissions as it provides an opportunity for us to reduce our carbon print, diversify our energy mix and drive economic growth. It is a cleaner fossil fuel when compared to oil or coal. Moreso gas will be critical to the deployment of cleaner energy to the Power and cooking sectors, which are 2 of the 5 sectors highlighted by the Energy Transition Plan, representing 49% of total in-country emissions. We must also leverage technological advancements in this space for responsible resource extraction, most notable of them is the Carbon Capture Utilization and Storage (CCUS) which would help reduce carbon emissions into the environment.
Nigeria’s energy demand is growing daily as a result of an increase in population, urbanization and economic development. To meet this growing demand and to effectively tackle the problem of energy poverty in Nigeria, we must begin to look at alternative and cleaner sources of energy beyond just gas, specifically the renewable energy space. Nigeria is blessed with abundant natural resources and possesses immense potential when it comes to solar and renewable energy sources. It’s important that we diversify our energy mix and harness these resources to solve our developmental needs and create a sustainable energy future.
The development of the solar and renewable energy sector in Nigeria presents significant economic opportunities. It can attract investments, stimulate job creation, foster local manufacturing of solar component and develop a skilled workforce for the renewable energy industry. To position ourselves for a sustainable energy future, we need to start building human capacity and knowledge in this space especially because it has been predicted that renewable energy will be the driver of jobs and economic growth in the future.
However, financing of these projects is one big barrier to entry as these projects are typically capital intensive. Fortunately, quite a few funding interventions exist within the national and international space with a few projects/initiatives successfully implemented. A notable initiative in this regard is the Nigerian Electrification Project (NEP) by the Rural Electrification Agency (REA). This is a World Bank funded initiative that focuses on increasing access to electricity in rural and underserved areas of Nigeria through off-grid renewable energy solutions. Through this programme, they provide financial support, technical assistance and capacity building to private sector entities, developers and entrepreneurs involved in renewable energy projects.
The Nigerian Renewable Energy and Energy Efficiency Project (REEEP) also supported by the World Bank is another project that focuses on developing mini grids, expanding access to clean energy and improving energy efficiency in public institutions.
Another notable one is The Solar Power Naija Initiative also by the Rural Electrification Agency but funded by the Federal Government. This initiative aims to deploy solar mini grids across rural communities in Nigeria, focusing on healthcare centers, schools, and other critical facilities.
Apart from the World Bank, The Bank of Industry, within the national space also provides a range of financing options at favorable interest rates, extended loan tenors and additional support such as guarantees and equity participation to facilitate the development of renewable energy projects across Nigeria.
Still on the issue of financing, it is essential to acknowledge that substantial financial resources from the international community will be required, whether it be by investment, financial aid or grants. As a nation we need to collaborate with multilateral development banks, particularly those within our region to critically look at ways and explore avenues to access the various international financial mechanisms. One of such mechanism is the Green Climate Fund that was launched about 13 years ago. To date, the fund has committed about 11 Billion dollars and is at its replenishment stage in a bid to secure more funding. The Africa Finance Corporation, (AFC) is one of the financial institutions that has been accredited by the fund, further strengthening our access to these resources.
We can also borrow a leaf from South Africa’s successful partnership with the West, notably Britain, France, Germany, the United States and The European Union, on securing a $8.5 Billion Dollars investment for a five-year period for its energy transition from Coal. It’s important to note that while the energy landscape in South Africa, as the 15th largest emitter in the world, is notably different from Nigeria; the partnership serves as a valuable model that we can adapt to our specific needs in order to access financing for our own energy transition plan.
There’s also been a lot of talk surrounding green bonds, which are essentially debt instruments that are specifically designed to raise capital for climate action and environmentally friendly projects. This is another way that the government can encourage investors and unlock local currency financing. Nigeria became the first African nation to issue a sovereign green bond and the fourth nation in the world to do so in December 2017 when the government issued N10.69 billion sovereign green bond. Another good example of this can be cited in Ivory Coast. In 2022, it issued a 2Biliion Euros bond for climate adaptation and resilience projects.
Another funding initiative that was introduced at the Conference of Parties (COP27) was the establishment of the “Loss and Damage Fund”. A financial mechanism established to address and provide support for the impacts and costs associated with climate change related losses and damages. Although the fund has been agreed to in principle, details regarding its structure, form and eligibility criteria for accessing the fund are still pending. However, one thing is paramount, we need to scale up our knowledge, skills and competence in these areas to be able to access and take advantage of all these existing financial mechanisms.
As much as we expect a lot of foreign capital, we cannot downplay the role of local private sector capital in driving the energy transition. The government needs to encourage public-private partnerships and investment into the 5 sectors highlighted in the transition plan by providing an enabling regulatory framework that makes it an attractive landscape for investors. One significant concern currently being expressed by investors is the volatility of the FX rate. To encourage greater investor participation in these sectors, the government needs to find a creative and definite solution to the issues surrounding the FX instability. In addition, effective project mapping and thorough project preparation in any of the 5 verticals will help facilitate access to these funds. The government has already made some great strides in this regard with the recent relaunch of the Gas Flare Commercialization Program by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the Clean Cooking Expansion Project and the Solar Power Naija Project by the Rural Electrification Agency (REA) as earlier mentioned.
Another solution we can deploy as a country is by taking advantage of the carbon credit market. The carbon market is a system that aims to reduce greenhouse gas emissions by allocating carbon budgets or “limits” to each organization. Therefore, organizations are allowed to trade emission allowances and are encouraged to reduce their CO2 emissions or invest in cleaner technology or practices. Although, the carbon market is not fully developed in Africa due to the fact that we do not have a strong compliance framework. It is something that can be looked at futuristically as one of the ways to achieve carbon neutrality and fund climate change projects.
We also need to explore debt infrastructure funds that are typically long-term funds available in-country. Most notable of them is the Nigeria Debt Infrastructure Fund (NDIF) established in 2017 by Chapel Hill Denham to provide long term financing for infrastructure projects with a special focus on the power and transportation sector.
In conclusion, embracing innovative solutions and exploring creative financing mechanisms particularly in the renewable energy space can transform Nigeria’s energy sector ensuring a just, sustainable and inclusive energy future. We need to start building human capacity, expertise and knowledge to tap into the existing financial mechanisms. These financing mechanisms, when effectively utilized, can unlock investment opportunities, accelerate the energy transition, and ensure climate justice by addressing the financial challenges and promoting equitable access to clean energy solutions. We need active collaborations between the public and private sector for a seamless integration of capital and ease of project delivery.
This paper was delivered at the 16th Annual International Conference of the Nigerian Association for Energy Economics, on the topic: Innovative solutions to the Global Energy Trilemma and the Financing of Energy Transition for Climate Justice in one the panel sessions.
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