As the government of Nigeria seizes the economic downturn that has followed the global spread of the new Coronavirus, known as Covid-19, the agricultural sector is back in the light of a viable foundation for sustainable and inclusive growth for Africa’s largest economy and most populous country.
To truly reap the potential of the country, most observers agree that large farms and agro-processing must be an integral part of the government’s economic policy. Providing energy for growth is a responsibility that actors in the public and private sectors must embrace. Given the unreliable supply of electricity from the grid, independent electricity projects (IPPs) are a sustainable alternative energy source for operating agro-allied industries.
The prospect of farms gaining reliable electricity from the grid remains weak in the short term. It will require strong political will and considerable private capital to solve more problems across the power value chain. Even if the public and private sectors show such commitments, the required investment in production, transmission and distribution infrastructure can take years to make for industrial users to feel comfortable using the network as a power source.
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Energy delivery efficiently
This challenge presents an opportunity, and in a typically Nigerian way, some entrepreneurs are wary of the opportunity. Fenchurch Power, an infrastructure development company with activities all over Nigeria, is one such example. Following its successful fundraising efforts, the company aims to add 150 megawatts of IPP capacity to the country over the next 5 years to power a variety of industries, including the agricultural sector. There is a huge opportunity for supplying energy to power agro-allies and manufacturing industries in Nigeria. In order for these players to compete locally and internationally, they must not only supply the fuel for agro-allied operations, but they must also do so in the most efficient way possible.
Agriculture continues to be the mainstay of the Nigerian economy, providing the main source of livelihood for most Nigerians. With over 80 million hectares of arable land and a population of over 200 million people, the potential for business success is huge. However, the sector faces many challenges, notably an outdated land service system that limits access to land, a very low level of irrigation, limited use of research and new technologies, and the inefficient distribution and high cost of agricultural products. Other restrictions on investment growth in the sector include poor access to credit, inefficient purchasing and distribution of inputs, inadequate storage facilities and poor market access.
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As a result, according to the National Bureau of Statistics, the value of agricultural products imported into the country has steadily increased over the last 4 years to N959 billion in 2019, while exports have fallen over the same period to N269 billion. It should be noted that exports also consist almost exclusively of raw materials that deny the country the higher revenue that adds value to raw agricultural products.
As part of its program to catalyze growth in the agricultural sector, the federal government has announced plans to create Special Agro-Industrial Processing Zones (SAPZ) in collaboration with the African Development Bank. Given the infrastructure and other incentives that such zones will offer agribusinesses, they have the potential to support the growth and emergence of export-oriented agribusinesses.
Mains supply is canceled
IPPs are a logical solution to address the current challenges that prevent industrial users from introducing distribution companies as a reliable source of electricity. Several factors in the power value chain prevent distribution companies from becoming reliable suppliers to industrial users. A case can be made for the distribution companies to have power at the middle voltage end of the value chain. This helps eliminate some of the technical and commercial losses experienced and allows the discotheques to receive more power to their feed industry networks. According to a recent report on Price Waterhouse Coopers, only a fraction of the electricity produced ends up with industries. This clearly shows a significant gap that needs to be filled. There should also be more partnerships between independent power plant developers and the distribution companies. These partnerships will significantly increase both parties’ revenue profiles and reduce the size of the alternative generator market. Greater integration between gas suppliers and the power generating company is also an important dynamic that will evolve from the increased use of IPP solutions.