“Electricity is a volume business, and improving energy delivery is key to reducing costs for everyone.” – Adaobi Nnorukah
In this interview with PREMIUM TIMES at the West Africa Energy Cooperation Summit in Lome, Togo, Adaobi Nnorukah, Investment Director at ARM-Harith Infrastructure Investment, discussed the critical steps needed to improve energy access, reduce tariffs, and attract private sector investments for renewable energy in West Africa. Reflecting on the challenges facing Africa’s energy market, particularly the high cost of electricity, Ms Nnorukah shared insights on the importance of securing payment guarantees and improving the efficiency of energy delivery systems.
She highlighted successful projects like Azura and Amandi, emphasising the role of secure capacity payments and commercial viability in driving investment. Ms Nnorukah also discussed the impact of inflation and economic factors on tariff structures, stressing that overcoming these barriers requires both strong regulatory frameworks and commitment from the government to improve transmission and distribution infrastructure.
EXCERPTS
PT: What are your thoughts on financing landscape for renewable energy in the region? Are there any gaps that need to be addressed?
Nnorukah: There are a lot of incentives for renewable energy projects within the region, but what we don’t see much of these days are utility-scale renewable energy projects. By utility-scale, I mean projects of 100 megawatts or more. If you look at countries like Morocco and Egypt, when they announce their renewable energy projects, you’re seeing projects of 1,000 megawatts or 500 megawatts. Here, we barely even see 100-megawatt projects. Most projects are far smaller, and this is largely due to two key factors.
First, on the commercial side of things: take Nigeria as an example. You haven’t seen any major grid-sized projects because we don’t have a reliable off taker who can pay and provide the kind of payment security that financiers need to feel confident about investing.
In some other parts of the region, there are a few projects–like the 60-megawatt solar plant built recently–but generally, the same challenges persist. If you have a national utility with a poor credit rating and an inability to offer payment guarantees, large-scale projects simply won’t get built. Instead, what you see are smaller projects, often commissioned by industrial parks or other private entities willing to pay and provide the required security. This is why, even in Nigeria, smaller-scale projects are more common–they are the ones you can structure to make bankable.
Now, could an interconnected grid help? Perhaps. A large grid might allow you to sell power to another country that can provide the payment security you need. Some countries have a solid payment history and good credit ratings, so they could be reliable offtakers.
But then there’s the technical challenge. Outside of hydro, the main issue for renewable energy is intermittency. For example, with solar, if a cloud passes by, the power generation dips. With wind, a drop in wind speed causes fluctuations. For a grid-connected system, the grid needs to react quickly to these changes, which requires backup supply to stabilise the grid when renewable sources fluctuate.
In other countries, predictive algorithms monitor weather patterns–like cloud movements–to forecast fluctuations and match supply accordingly. Alternatively, you need batteries integrated into the system.
In Nigeria, for example, one of the reasons for TCN’s reluctance to approve a number of solar projects was the concern that these projects would introduce too much fluctuation to an already unstable grid. I imagine many other countries face similar issues. To see more renewable energy projects, both the commercial and technical challenges need to be addressed.
PT: In discussions about renewable energy, there’s often an emphasis on driving private sector investment. However, the role of the government in establishing regulatory frameworks to support this sector is equally important. What are your thoughts on this balance, and what specific measures can the government take to ensure success?
Nnorukah: Nothing really prevents the private sector from participating; the challenge is largely commercial. It comes down to this: how do you recover the costs? In any business, there’s a cost of producing the power, a cost of transmitting it, and a cost of delivering it to customers.
Someone has to pay to ensure that everyone along the value chain gets what they need to continue operating. What’s often not highlighted enough is that electricity is a volume business. It’s a business with significant fixed costs, where the more energy you push through the system, the cheaper it becomes.
Let me explain. If I build a 10-megawatt gas-fired power plant, the cost of building the plant is my capital expense. I have to recover that cost, whether or not I’m producing electricity, because I’ve borrowed money to build it. That’s the capacity cost. Then there’s the energy cost, which includes buying gas and using it to produce energy. These are your variable costs, and as a power plant operator, you must recover both.
Now, imagine I’ve agreed to sell power to someone. If I sell my full 10 megawatts, my capacity cost per unit might be, say, 1 Naira, and my energy cost might be 50 Kobo. Selling at full capacity, the power would cost 1 Naira 50 Kobo per unit.
But if, for any reason, the customer can’t take the power–maybe due to transmission issues–I still need to recover my full costs. So, if the customer can only take 2 megawatts instead of 10, the cost per unit jumps to 5 Naira 50 Kobo. That’s the reality of the electricity value chain. When transmission fails, generation costs remain fixed, and prices rise.
This is why, in my view, one of the most impactful things the government can do through policy and interventions is to focus on improving energy delivery. It’s a mid-step that can lower costs for everyone. For instance, if we have 14 megawatts of installed capacity but are only delivering 4, the cost per unit is much higher. If we could deliver the full 14, the cost per unit would drop significantly, everyone would get more power, and consumers wouldn’t even mind paying a bit more. It’s a win-win.
When I think about where the government should prioritize its efforts, I gravitate toward measures that encourage better delivery. This includes ensuring a steady supply of gas, maintaining a reliable transmission network, and addressing bottlenecks in the system.
Transmission, in particular, remains under government ownership and operation. Consider what happened recently when the grid collapsed multiple times, leaving areas like Lekki without power for weeks. This highlights a critical area where government investment could yield substantial returns: strengthening transmission infrastructure to deliver more power reliably.
PT: Let’s talk about tariffs and affordability. Many ordinary people are concerned about high energy costs, while companies point to the need to recover investments. From your perspective, what needs to change for us to see lower tariffs?
Nnorukah: Tariff costs are primarily influenced by the economy. In Nigeria, what we pay for Band A power–if converted to dollars–is actually competitive compared to the region. The real issue isn’t the comparative cost; it’s the user’s ability to afford it, and that’s a separate challenge altogether.
Inflation is a major factor. With inflation at over 20 per cent, the cost of everything, including electricity, is rising. The cost of food today is nearly three times what it was last December. Even if our electricity tariffs were solely based on Naira without any dollar indexing, the cost of electricity this year, adjusted for inflation, would still be higher than it was in December. Companies face the same economic pressures as consumers–they pay salaries, maintain and replace equipment, and take loans. Even without factoring in foreign exchange, borrowing in Naira comes with interest rates around 30 per cent.
Let’s say a community wants to be connected to the grid. If I build a 30-kilometer line and buy a transformer today, I’d need to recover 30 per cent interest on the loan, the project’s original cost, and the cost of electricity purchased from generators. It all adds up, forming what we call the multi-year tariff order (MYTO). MYTO uses a building block methodology, accounting for the costs of power generation, transmission, distribution, and operations.
Affordability, however, is a different matter. Inflation affects everyone, shrinking disposable income. People prioritise food, transportation, and other essentials before electricity. So, while the rising cost of electricity isn’t driven by greed, it’s understandably painful because it competes with other basic needs.
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To see lower tariffs, addressing these systemic economic pressures is key–whether through inflation control, lower borrowing costs, or interventions to reduce operational inefficiencies in the energy value chain.
PT: You’ve stressed the importance of commercial viability and economies of scale. Can you share some case studies or examples of projects you’ve invested in? What factors contributed to their success, and how can these lessons be applied across the region?
Nnorukah: For Azura to be successful, we had to secure a take-or-pay agreement for the capacity. This meant that if the capacity wasn’t dispatched due to limitations in transmission lines or offtake, the payment for the capacity was still guaranteed. That payment security was critical to the project’s success. It ensured that the repayment of loans or investments was protected, giving confidence to private sector investors. The responsibility then falls on the buyer to fully utilize the plant and derive value from it. Although we’ve exited that transaction and are no longer equity investors, it remains a prime example of what works.
Another project we’re investing in is Amandi in Ghana, a 200-megawatt combined cycle plant. It’s one of the most efficient units in the country, with high uptime. Again, its success lies in securing payment guarantees, ensuring the plant’s maintenance and operations.
We’re also investing in mini grids, with some projects in Abuja and Niger State. These operate under a different model. Mini-grids combine generation, distribution, and supply within a community that agrees on the cost of service and pays accordingly. This makes their operations relatively straightforward.
The issue isn’t primarily regulation or legal frameworks. There are already many regulations enabling private sector participation in the electricity industry. For example, interconnected mini-grids and franchising models are being explored to finance and expand networks. However, the core principle remains the same: the cost of providing the service must be recoverable to maintain and sustain electricity production.
Read the original article on Premium Times.
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