Why Nigeria’s 14 utility-scale solar IPPs have not progressed – Fashola

*Blames investors for making demands that eroded govt’s initial drive

The 14 utility-scale solar power projects Nigeria procured in 2016 to add to her energy mix, have not progressed fast enough because their investors had made demands the federal government considered too tough to meet, and so lost the momentum it initially pulled up for them, the minister of power, Mr. Babatunde Fashola, has disclosed.

Fashola, at a meeting to discuss the content of the government’s power sector recovery programme (PSRP) in Abuja with civil society groups, explained the government had offered investors in the solar projects some good head starts but they appeared to have pushed for more than it could afford.

He said the government through the Nigerian Bulk Electricity Trading Plc (NBET) signed off the power purchase agreements (PPAs) of the projects, indicating its commitment to them, but then could meet their demand for the Put Call Option Agreements (PCOAs) which he said were to be backed by the World Bank.

Nigeria in 2016, took a bold step to sign PPAs with the 14 solar IPPs expected to collectively generate 1,125 megawatts (MW) of clean electricity into the grid. The projects as reported were to cost the investors circa $2.5 billion, but had stalled over various concerns.

These concerns have also forced the NBET to rollover the agreements it signed with them twice since 2016, in addition to reports that two of the 14 projects have offered to cut down the tariff they initially signed from 11.5 cents to circa 7.5 cents so they could go on to achieve their financial closures.

But speaking on the circumstances that had kept the solar IPPs back from going full throttle after they signed agreements with the government, Fashola, inferred that the investors and not Nigeria were largely culpable.

“Everybody wants to sell (electricity) only to NBET because it comes with government guarantee. Now, that is how those solar projects were procured before I came. They were on the drawing board, nothing was happening until we pushed and pushed they signed power purchase agreements.

“Ideally, once you sign a power purchase agreement, your project is bankable, but there is another instrument they usually want – a Put Call Option Agreement (PCOA), it guarantees against if the project terminates or fails. And, I always ask them: are you planning for this project to fail because if we have given you the instrument that gives you the bankability, why are you spending so much time on the instrument that will help you to collect money if the project fails, are you planning for the project to fail?,” he said.

According to him: “But nevertheless, in spite of that, they now asked us to issue that document (PCOA) in dollars and that was at the time the economy was in recession, our dollar inflow was limited and I said: look, why should we issue you an instrument in a currency we don’t control, let us issue you in a currency we control, at least Nigeria has not run out of naira.

“They said, OK, what about fluctuations, and I said we will also cover it but they said they won’t accept it, and that is what caused delay until global market prices changed again.”

He also indicated the World Bank was uncomfortable with backing the PCOAs at the tariffs the investors have in their PPAs, because it felt the prices of solar power components were falling.

“They still have their PPAs, so there is nothing to fear, but there is a PRG or World Bank guarantee behind the PCOA, the World Bank is now saying, this thing is expensive, prices are crashing, and so, it is not me saying so, it is the ultimate party who would sign that is saying price is too expensive, and so it is not me, it is not our ministry and it is not our government,” he added.

Insisting the government gave its all to have the investments go on quickly, and that the investors failed to leverage the momentum it created at that time, the minister stated: “But, they had the momentum, take your 11.5 cent, take your PCOA in naira, and go and deliver your project. They didn’t seize it at the time, but more importantly, the question I have asked them is that: are these projects not easier to deliver if you scale them down, some of them are looking at 100 megawatts, 50 megawatts, when most state governments’ secretariats and water works, key drivers of public service will run on 10 megawatts.

“The equivalent of one megawatts really is about 200 households plus or minus, and every time I hear government institutions, homes, industrial clusters don’t have power, why are you not going to those people, why are you coming to us?”

“Why is it easier for the man who wants to sell generators to get a contract with the state governments and you who want to sell efficient power can’t get the contract? Something is wrong. The man who wants to sell inverter will sell his inverter and go away, but you find it difficult to sell your own. That problem is not in this ministry, it is out there in the way businesses are modelled and we need to rethink them, and that is why we have licensed mini grids, saying that if you generate one megawatts and below, you don’t need permits, just let us know when you finish. These are the facts, and I think that you should know,” Fashola, stated.

1 Comment

1 Comment

  1. Sunny Ikot

    March 31, 2018 at 9:36 am

    What if we generate and distribute Renewable energy that is off grid

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