SPECIAL REPORT: Cost of Off-Grid Power Generation in Nigeria


By Jude Igwemezie, PhD, P.Eng

WED, AUGUST 30 2017-theG&BJournal- Nigeria is the ultimate consumer society with very little production, repair and maintenance capacity. This is due to the fact that it does not have enough generated electricity power from the national grid to drive its industrialization. With 180 million inhabitants, it needs about50,000-mW of distributable electric power to meet her power requirements. Currently it has somewhere between 3,000 to 3,500-mW of epileptic power generated and rationed amongst its people. As a result, Nigerians depend on diesel- and petrol-driven electricity generators with the attendant risks of fire, death by inhalation of poisonous emissions and overall production of greenhouse pollutants. The supply of the generator feedstock (fuel)is cornered by different powerful interest groups who in some cases have interest in sabotaging any moves to provide reasonably priced and centrally generated power to the populace. These groups also manipulate the supply and price of diesel as well as control the supply of generators with very short lifespans and designed-in obsolescence. As a result, it is common to see multiple generators in any compound with only one being marginally functional at best.

Most maintenance personnel are ill equipped to properly diagnose problems with a faulty generator. Trial and error maintenance is what packed up prior units in the first place which translate to added cost to the consumer. With the lack of electricity power and the resultant underdevelopment, Nigeria has no chance of catching up with the rest of the developed world unless something drastic happens.  Sadly enough, the people currently at the top who are celebrating supply of equipment for 240-mW of additional power seem to be totally disconnected from the actual power needs of the country.  There is at least 46,5000-mW shortfall in case someone is reading this document.

In July 2017, following the lead of TESLA and, other hybrid and electric car manufacturers, Volvo  – a Sweden based car manufacturing company – announced that starting from 2019, it shall make and supply only electric vehicles. Several other car manufacturers; BMW, Volkswagen etcetera have followed suit. Within a week, western countries started announcing dates when they will ban importation, processing and use of fossil fuel motor vehicles in their jurisdictions. The dates start from 2020 in Austria, Norway – 2025, Netherlands, Belgium and Germany – 2030,and 2040 for France and the UK. It is certain that more will follow in short order. These developments spell financial stress-to-come for Nigeria with 70% or thereabouts of it fiscal revenue being derived from oil exports. The looming disaster will of course be exacerbated by the political lies and conspiracies used over the past half century to conceal actual population and population distribution to skew the oil revenue sharing and will end up accelerating the unravelling of the country. Unfortunately, Nigeria missed her opportunity to power up its cities some 2 – 3 decades ago. The big question is: What has been the annual cost of the monumental failure to power the Nigeria that has been visited on its people by her past leadership?

The Tables and Charts presented herein tell a very expensive story. Table 1and Figure 1 show the standard Fuel Burn (gas consumption ) of different Diesel Generator sets. As can be seen from the chart in Figure 1, the relationship between power output and fuel burn is essentially linear. The assumptions used in subsequent analyses are shown in Table 2.  Variation of the initial cost of generators of different power ratings with the operating costs at “1/2Load”; including maintenance costs and the Net Present Value (NPV) of costs over 10 years at a discount rate of 20% were computed and provided in Table 3in both United States dollars (US$)and Naira denominations.Column-2 in Table 3 is the number of hours that the generator is used to provide electricity.  For the remaining time in any 24-hr period, it is assumed the power is provided by the local electricity distribution company (EDC)or there is no electricity power supply at all.  The opportunity cost of the lack of power is not included in the analysis. The NPV is the total amount of money one has to set aside today to have electricity power over 10 years for each number of hours (Column-2) they plan to run their generator when there is no power supply from their local utilities company. The Diesel Generator Rate/kW-hr in the right column of Table 3 includes the amortized capital cost.

Table 1: Fuel Burn of Diesel Generators

Figure 1: Relationship between Fuel Burn (Consumption) and Power Rating of Diesel Generators up to 1000kW at ¼, ½, ¾, and Full Power.

Table 2: Assumptions used in the Computations

In Table 3, a higher per kW-hr rate is computed for the 20-40 kW units showing that these smaller units are actually costlier to own and operate. Of course, at zero running of the generator, it is assumed that the generator was purchased and used as standby power, hence the cost figure in each of these rows. In Column-9 of Table3, it is shown that the rate cost is between N29/kW-hr if the generator is purchased for standby purposes to N75/kW-hr if its run 24 hrs./day. These cost figures are much higher when compared to EDC rate of around N26/kW-hr. Hence running the generators increases the cost of doing business in Nigeria and discourages investment in industries because local products cannot compete with overseas products made at lower power cost.

Table 3: Cost of Owning and Operating Diesel Generators at Full Load over 10 years

The data presented in Table 3 are real, staggering and shocking, and explain why a country like Nigeria cannot develop and overcome mediocrity.  Figures 2&3 chart the annual cost and Net Present Value (NPV) costs in Table 3 for electricity power generators up to 500-kW(625-kVA). For example, a 20-kW generator run for 6-hrs/day will cost N6.95 million/year and a 100-kW unit operated 6-hrs/day will cost approximately 5 times that or N33.33 million/year. This is the range of generators that most families and businesses in Nigeria purchase and use.

Figure 2: Annual Operating Cost of Diesel Generators (20 – 500 kW)

Figure 3:NPV of Owning and Operating Diesel Generators (20 – 500 kW) over 10 Years

According to Bella Naija : “Some interesting statistics on the usage of power generating sets in Nigeria have been revealed by the Director-General of Centre for Management Development, DrKabirUsman.

According to him, about 60 million Nigerians spend N1.6 trillion on generators annually.

He also said that Nigeria had the highest number of standby generators, which had become permanent, making the Power Holding Company of Nigeria (PHCN) the standby electricity supply facility.

“Currently, there are about 60 million generators in Nigeria at the ratio of one per household of 2.5 people with an annual spending of N1.6 trillion,” Tribune quoted him as saying at the launch of the National Power Training Institute of Nigeria (NAPTIN) graduate skills development programme  in Abuja, on Monday.

Mr. Usman further noted that the presence of too many generators has also been the cause of many deaths in the nation as a result of carbon monoxide emission.”

What is not clear in the above reference is whether the N1.6 trillion is the cost of purchasing the generators or of fuelling them or the combination thereof. Another Source, states that MTN, a major telecom company in Nigeria spends N8b annually fuelling generators at their relay stations which run 17-20-hrs daily. These telecom generators are predominantly in the 20 – 50 kW range. A further source  claims: that over 9 million generators are in use in Nigeria. The National Bureau of Statistics website stated in their “Petroleum Products Consumption Statistics Q1-Q3, 2016” that between January and September of 2016, daily consumption of diesel in Nigeria averaged 3.1 million L/day.This includes the diesel fuel used by trucks which is not the subject of this submission. This means that Nigerians burnt about 1.13 billion liters (or N186.45 billion) of generator fuel in 2016.  In contrast, Canadian railways alone consumes 2 billion liters of diesel fuel annually. If fuel burn is a measure of economic activity, Nigeria has not even sighted the arena of economic play.

If 30 percent of the power generator fuel consumed in Nigeria is assigned to power generators, this amounts to 340 million liters consumed by generators annually. It is also known that generators with power less than 20-kW use petrol instead of diesel.  The cost of petrol is N145/L while diesel is 165/L.  As a result, all generators with power output less than 20 kW were treated as petrol-powered generators and the cost evaluated using N145/L.

Based on the above sources, an educated estimate of generator distribution by size is developed and presented in Figure 4 and Table 4.  It should be noted that the assumed distribution of generators by output correctly predicted the amount of diesel consumed annually (340 million liters) based on 30% of the diesel fuel being directed to electricity power production. What is mind-blowing in Table 4 is the total amount of N1.5 trillion (bottom of Column-3) that Nigerians have spent in buying the generator sets. Also astounding is the additional total annual amount of N1.2 trillion annually spent on powering the country outside the grid as shown in column-8 of Table 4. This is a shade lower than the figure (N1.6 trillion) previously quoted by “bellanaija.com” in 2012 and translates to N3.262 billion spent daily for an average of 6 hrs/day by those who can afford generators..Either way you cut it, these figures are staggering.

Table 4: Nigeria Country-wide estimated percent distribution of Generator sizes and Cost of Running the Generators by Mode

Even if the assumed distribution of generator sets in Table 4 is off by 50%, the total capital investment by Nigerian citizens in buying generators is still mind boggling. If the associated annual smoking habit is levied as taxes in a properly functional society, it could fund power stations that would produce somewhere of the order of 2,200 mega-Watt(mW) of electricity annually at N540 million/mW. This means that Nigeria would have become energy sufficient in 20 years. Therefore, the earlier assertion that Nigeria lost its opportunity to become power sufficient 2 – 3 decades ago is valid.

This actual cash spent on off-grid electricity power supply does not factor in the opportunity cost of absence of power for 18 hours daily in terms of lost output, lost employment generation opportunities, lost investments and the cumulative anti-social consequences in spiralling crimes such as kidnapping for ransom, violent robberies and blossoming culture of dishonesty and corruption.

The usage costs in Table 4 were based on operating each generator type for 6-hrs per day.  Heavy industries use about 650 generators or 0.007% of the total number of generators but incur 2.7% of the total diesel cost while emitting2.7% of the greenhouse gases. Due to initial purchase costs, the smaller petrol consuming units with less than 10 kW output dominate the landscape.  These smaller units constitute97% of the total number of units, spend 81% of the diesel cost and produce comparative amounts of carbon emissions.

The low pricing of centrally generated grid electricity in comparison with rates in developed countries explains why there is low investment in grid electricity in Nigeria. There is no profit in investing in either power generation or distribution in Nigeria when there are so many economic agents feeding off the status quo including vendors of generators and their feedstock and the labour movement.  As a result, we have little industrial base for our population size and will continue to depend on imported goods produced in countries where the capital cost of setting up to manufacture the goods have been largely recouped several times in decades’ past. Since it is clear that we cannot as a nation, have the financial muscle to build enough central generating stations and associated transmission and distribution infrastructure to make grid power supply viable, we have to think of other ways to power the country.  Otherwise, Nigeria will never be able to make it to the starting line of industrialization let alone joining and dreaming of someday running in the global trade race.

Any country that does not engage in research and development (R&D) is doomed to be a country of consumers enslaved to the whims and caprices of the countries from which they import consumer products. Sadly enough, Nigeria has not invested nor developed a power R&D base to drive it into the future. Her purchasing power from oil revenues requiring zero R&D on her part did not create the necessity for establishment of a R&D base in any sector. Now that oil for power is in its last days, Nigeria is faced with a looming financial crisis. She now “must”, and I repeat “must” urgently begin to address the R&D shortfall and establish credible R&D in the power sector to support her transition from an oil-based economy to an industrial one; failing which she will remain perpetually in the dark.

No one can envy the Minister of Power at this point because the magnitude of the problem calls for a more holistic search for a viable solution outside of the usual annual budget and spend approach. At any rate, the nation lacks the financial capacity to raise the level of required investment to power itself. There is a clear case for private sector investment given the yawning gap between demand and supply of electricity and, significant efforts must be made to provide the right environment for the investments. The right environment includes, seeking out alternative means of power, cost reflective tariffs for electricity, reining in of the excesses of the labour movement, providing macroeconomic stability and political stability in the face of rising wave of centrifugal forces. The need for a state of emergency call in this sector has assumed the fierce urgency of now. Is anyone listening?

See attached charts


Jude Igwemezie, PhD, P.Eng., Chairman, Globim Corporation, Canada|With contributions from Clement Ofuani, FCA, Director General, Delta State Capital Territory Development Agency, Nigeria.


DCSL 90X780