De­mand side of elec­tric­ity on the back­burner de­spite its im­por­tance

Business a.m. - - ENERGY, POWER & RENEWABLES -

DE­MAND AND SUP PLY RE­MAINS the yin yang of an in­dus­try, one can­not work with­out the other, they are op­po­site and con­trary forces but the growth and de­vel­op­ment of any in­dus­try de­pends on the level of in­ter­re­la­tion be­tween these forces and the elec­tric­ity in­dus­try is no dif­fer­ent. A lot of fo­cus has been on the gen­er­a­tion and sup­ply of elec­tric­ity but stim­u­la­tion of elec­tric­ity de­mand seems to take the back seat in all of the con­ver­sa­tions.

There has to be a bal­ance be­tween these two in­tri­cate forces, and find­ing the right bal­ance is usu­ally tricky. For elec­tric­ity, there is al­ways go­ing to be de­mand, whether it is stim­u­lated or not be­cause of the cru­cial role it plays in our ev­ery­day lives. Most times, we take ad­van­tage of hav­ing it, like switch­ing on the light bulb and ev­ery­where lights up, en­ter­ing an air con­di­tioned filled room, and you take a deep breath hav­ing been un­der the scorch­ing sun, but all these lit­tle bless­ings are pos­si­ble be­cause of elec­tric­ity and they make our day bet­ter and more bear­able.

How­ever, de­mand usu­ally drives sup­ply and in Nige­ria, elec­tric­ity de­mand is still low be­cause more than 80 mil­lion peo­ple still don’t have ac­cess to elec­tric­ity ei­ther for do­mes­tic or pro­duc­tive uses. Stim­u­la­tion of elec­tric­ity de­mand is vi- tal to the growth of the in­dus­try and the econ­omy as a whole be­cause most elec­tric­ity projects cur­rently on­go­ing in Nige­ria and other parts of Africa placed too much em­pha­sis on build­ing gen­er­a­tion ca­pac­ity with­out con­sid­er­a­tion for the end use of elec­tric­ity, Rocky Moun­tain In­sti­tute (RMI) has ob­served in a new re­port.

Most projects usu­ally as­sume that in­creas­ing elec­tric­ity gen­er­a­tion and in turn sup­ply will drive de­mand but this as­sump­tion is flawed be­cause it is the other way around, de­mand drives sup­ply, the re­port sug­gests.

“Both build­ing more sup­ply­side gen­er­a­tion ca­pac­ity and ex­tend­ing the grid to add more to­tal con­nec­tions have been the fo­cus of much de­vel­op­ment strat­egy and in­vest­ment. But this fo­cus has been dis­pro­por­tion­ate. For ex­am­ple, over­all, elec­tric­ity sup­ply is still re­ceiv­ing 50 times more fi­nanc­ing than ac­cess to pro­duc­tiv­ity en­hanc­ing equip­ment in Africa,” RMI ex­plained in its re­port.

Even the World Bank is guilty of this, it noted as in­vest­ment in in­creased elec­tric­ity sup­ply rep­re­sented al­most half of the to­tal in­vest­ment the World Bank ap­proved for en­ergy ac­cess, whereas in­vest­ment in pro­duc­tive use rep­re­sented 0.7 per­cent and no fi­nanc­ing was di­rected to­ward im­ple­ment­ing pro­duc­tive use projects.

The re­port de­scribed it as a “bridge to nowhere” be­cause elec­tri­fi­ca­tion is not an end in it­self, it is a means to an end which is the in­creased do­mes­tic and pro­duc­tive ac­tiv­i­ties in ev­ery com­mu­nity in Nige­ria es­pe­cially in the ru­ral ar­eas.

The prob­lems faced on the de­mand side by the users and con­sumers are not ad­dressed, a ma­jor one be­ing cost. And this cost runs in two ways, one is elec­tric­ity cost and the se­cond is equip­ment cost. Elec­tric­ity cost is still very high, de­spite ma­jor strides made in cut­ting the cost. For ex­am­ple, mini grid elec­tric­ity cur­rently costs up­ward of N140 to N300/kilo­watts per hour in Nige­ria. This is ex­pen­sive and most peo­ple can­not af­ford to pay for the high costs associated with en­ergy es­pe­cially for pro­duc­tive uses.

On equip­ment costs, small en­trepreneurs like farm­ers, tai­lors and car­pen­ters, are of­ten less pro­duc­tive be­cause ef­fi­cient, high­qual­ity equip­ment is of­ten more ex­pen­sive up front than less-ef­fi­cient equip­ment, and ac­cess to fi­nanc­ing in cer­tain ar­eas is still very rare and very ex­pen­sive with in­ter­est rates run­ning up to 30 per­cent.

The in­sti­tute noted that, with­out projects to pro­mote end use and in­crease pro­duc­tiv­ity us­ing elec­tric­ity, en­ergy sys­tems end up with lower ca­pac­ity uti­liza­tion. That leads to a higher cost per kWh for users, re­duc­ing de­mand fur­ther.

Also, the ef­fects of low stim­u­la­tion of elec­tric­ity de­mand on most pro­ject man­agers usu­ally leads to poor ca­pac­ity uti­liza­tion and in­abil­ity to re­cover costs, the re­port said.

It also gave suc­cess sto­ries like the United States where “a com­bi­na­tion of sup­ply ex­pan­sion paired with end-use stim­u­la­tion” was re­spon­si­ble for ru­ral elec­tri­fi­ca­tion rate reach­ing 96 per­cent in 1956 from 10 per­cent in 1930.

The re­port how­ever pro­vided rec­om­men­da­tions on over­com­ing these ob­sta­cles and one of these in­clude de­vel­op­ing fi­nanc­ing frame­works to help ad­dress cost, “pro­vid­ing pay-as you-go fi­nanc­ing was a crit­i­cal fac­tor in the wide-scale adop­tion of so­lar home sys­tems in sub-Sa­hara Africa,” RMI said.

“The use of con­ces­sional fi­nance can also help lower fi­nanc­ing costs and re­duce the to­tal cost of equip­ment.” The re­port also ad­vo­cated that elec­tric­ity costs can be re­duced by “sup­port­ing high ca­pac­ity uti­liza­tion of min­i­grids.”

Also, “ac­cess to en­ergy-ef­fi­cient and soft-start ap­pli­ances that con­sume lower lev­els of elec­tric­ity can also re­duce peak load and op­er­a­tional costs and lead to lower elec­tric­ity cost,” it added.

A lot of fo­cus has been on the gen­er­a­tion and sup­ply of elec­tric­ity but stim­u­la­tion of elec­tric­ity de­mand seems to take the back seat in all of the con­ver­sa­tions

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